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What changed in WOLFSPEED, INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of WOLFSPEED, INC.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+295 added−310 removedSource: 10-K (2024-08-22) vs 10-K (2023-08-23)

Top changes in WOLFSPEED, INC.'s 2024 10-K

295 paragraphs added · 310 removed · 246 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeResearch and Development We invest significant resources in research and development. Our research and development activity includes efforts to: • develop silicon carbide materials and fabrication technology for a 200mm platform; • develop higher performance power and RF devices; • increase the quality, performance and diameter of our substrate and epitaxial materials; and • continually improve our manufacturing processes.
Biggest changeOur research and development activities include efforts to: • develop silicon carbide materials and fabrication technology for a 200mm platform; • develop higher performance power devices; • increase the quality, performance and diameter of our substrate and epitaxial materials; and • continually improve our manufacturing processes. 4 Table of Contents When our customers participate in funding our research and development programs, we recognize the amount funded as a reduction of research and development expenses to the extent that our customers’ funding does not exceed our respective research and development costs.
We believe that the strength of our portfolio of patent rights is important in helping us resolve or avoid such disputes with other companies in our industry. 7 Table of Contents Governmental Regulation We are subject to a variety of federal, state, local and foreign provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment.
We believe that the strength of our portfolio of patent rights is important in helping us resolve or avoid such disputes with other companies in our industry. Governmental Regulation We are subject to a variety of federal, state, local and foreign provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment.
The contents of our website, including our investor relations website, is not incorporated by reference into this filing or any other report we file with or furnish to the SEC.
The contents of our website, including our investor relations website, are not incorporated by reference into this filing or any other report we file with or furnish to the SEC.
Our EHS management systems in our manufacturing facilities in Durham and Research Triangle Park, North Carolina and Morgan Hill, California are certified to ISO 14001:2015 for environmental management.
Our EHS management systems in our manufacturing facilities in Durham and Research Triangle Park, North Carolina are certified to ISO 14001:2015 for environmental management.
Our products compete in the RF semiconductor market on the basis of reliability, performance, design predictability and overall system price. Patents and Other Intellectual Property Rights We believe it is important to protect our investment in technology by obtaining and enforcing intellectual property rights, including rights under patent, trademark, trade secret and copyright laws.
Our power products compete in the power semiconductor market on the basis of performance, reliability and overall system price. 6 Table of Contents Patents and Other Intellectual Property Rights We believe it is important to protect our investment in technology by obtaining and enforcing intellectual property rights, including rights under patent, trademark, trade secret and copyright laws.
The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. 9 Table of Contents
The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
These customers, in the aggregate, accounted for 35%, 38%, and 41% of our total consolidated revenue in fiscal 2023, 2022 and 2021, respectively. For further discussion regarding customer concentration, please see Note 16, “Concentrations of Risk,” in our consolidated financial statements included in Item 8 of this Annual Report.
These customers, in the aggregate, accounted for 37%, 36% and 48% of our total consolidated revenue in fiscal 2024, 2023 and 2022, respectively. For further discussion regarding customer concentration, please see Note 16, “Concentrations of Risk,” in our consolidated financial statements included in Item 8 of this Annual Report.
These processes involve several hundred manufacturing steps required for imprinting silicon carbide wafers with the precise circuitry required for semiconductor devices to function. Back-end processes include the assembly, test and packaging of semiconductors to make them suitable for use and sale.
Our front-end processes occur in manufacturing facilities called "wafer fabs". These processes involve several hundred manufacturing steps required for imprinting silicon carbide wafers with the precise circuitry required for semiconductor devices to function. Back-end processes include the assembly, test and packaging of semiconductors to make them suitable for use and sale.
Manufacturing assets are managed together through one centralized organization to ensure we leverage scale in asset utilization, purchasing volumes, and overhead costs across the business. Silicon carbide substrate manufacturing occurs in our highly complex materials factory and involves production of a bare wafer substrate with or without epitaxy. Our front-end processes occur in manufacturing facilities called "wafer fabs".
Manufacturing assets are managed together through one centralized organization to ensure we leverage scale in asset utilization, purchasing volumes, and overhead costs across the business. 5 Table of Contents Silicon carbide substrate manufacturing occurs in our highly complex materials facility and involves production of a bare wafer substrate with or without epitaxy.
Yields in our manufacturing process can vary and are dependent upon multiple factors including product complexity and performance requirements as well as the maturity of the process. In order to maximize both yield and quality, we maintain in-line process monitoring and testing.
Yields in our manufacturing process can vary and are dependent upon multiple factors including product complexity and performance requirements as well as the maturity of the process. In order to maximize both yield and quality, we maintain in-line process monitoring and testing. Our substrate and wafer fab manufacturing facilities are certified to ISO 9001, IATF 16949, and ISO 14001.
We believe our leading technology and leveraged production scale position us to reliably supply production volumes to the device manufacturers in the market. Power Devices Our silicon carbide power devices compete with silicon carbide power semiconductor solutions offered by Infineon Technologies AG, ON Semiconductor Corporation, Rohm Co. Ltd., and ST Microelectronics, as well as an increasing number of smaller competitors.
We believe our leading technology and leveraged production scale position us to reliably supply production volumes to the device manufacturers in the market. Power Devices Our silicon carbide power devices compete with silicon carbide power semiconductor solutions offered by Infineon Technologies AG, ON Semiconductor Corporation, Rohm Co.
Sales and Marketing We have continued to make investments to expand our sales, marketing and technical applications support, as well as distribution capabilities to further enable new and existing customers to design and implement our silicon carbide and GaN materials, power, and RF technology into their products.
Sales and Marketing We have continued to make investments to expand our sales, marketing and technical applications support, as well as distribution capabilities to further enable new and existing customers to design and implement our silicon carbide and power technology into their products. We have continued to make investments to promote and build market awareness of our Wolfspeed brand.
Our substrate and wafer fab manufacturing facilities are certified to ISO 9001, IATF 16949 (automotive), and ISO 14001 (environmental). Our silicon carbide device fabrication facility in Marcy, New York is certified to ISO 9001 and is in the process of being certified for IATF 16949 and ISO 140001.
Our silicon carbide device fabrication facility in Marcy, New York (the Mohawk Valley Fab) is certified to ISO 9001 and IATF 16949 and is in the process of being certified for ISO 14001.
We also have continued to make investments to promote and build market awareness of our Wolfspeed brand. Our sales, marketing and technical applications teams include personnel throughout North America, Asia and Europe. Customers In fiscal 2023, 2022 and 2021, we had two, two, and three customers that represented more than 10% of our consolidated revenue, respectively.
Our sales, marketing and technical applications teams include personnel throughout North America, Asia and Europe. Customers In fiscal 2024, 2023 and 2022, we had two, two and three customers, respectively, that each represented more than 10% of our consolidated revenue.
As of June 25, 2023, we owned or were the exclusive licensee of 703 issued U.S. patents and approximately 1,282 foreign patents with various expiration dates extending up to 2048, with certain patents expiring in the near term.
As of June 30, 2024, we owned or were the exclusive licensee of 552 issued United States patents and approximately 1,048 foreign patents with various expiration dates extending up to 2049, with certain patents expiring in the near term.
As market adoption of the technology grows with rapidly expanding power and RF device designs, we have experienced increased competition from companies such as Coherent, Inc., SiCrystal GmbH, IQE plc and Showa Denko K.K (now Resonac Holdings Corporation).
As market adoption of the technology grows with rapidly expanding power device designs, we have experienced increased competition from companies such as Coherent, Inc., SiCrystal GmbH, IQE plc and Resonac Holdings Corporation in the United States, Europe and Japan. In China, we have observed increased competition from companies such as SICC Co., Ltd. and EpiWorld International Co., Ltd.
Our efforts to foster a diverse and inclusive workplace include Employee Resources Groups, a Diversity, Equity and Inclusion leadership team that partners with our Human Resources department and various scholarship programs in our surrounding communities. We believe these initiatives help contribute to the development of future leaders, increased employee engagement and expanded market reach.
Our efforts to foster a diverse and inclusive workplace include Employee Resources Groups, a Diversity, Equity and Inclusion leadership team that partners with our Human Resources department and various scholarship programs in our surrounding communities.
Item 1. Business Overview Wolfspeed, Inc. (Wolfspeed, we, our, or us) is an innovator of wide bandgap semiconductors, focused on silicon carbide and gallium nitride (GaN) materials and devices for power and radio-frequency (RF) applications.
Item 1. Business Overview Wolfspeed, Inc. (Wolfspeed, we, our, or us) is an innovator of wide bandgap semiconductors, focused on silicon carbide materials and devices for power applications. Our product families include power devices and silicon carbide and gallium nitride (GaN) materials. Our products are targeted for various applications such as electric vehicles, fast charging and renewable energy and storage.
Power products are sold to customers and distributors for use in applications such as electric vehicles, including charging infrastructure, server power supplies, solar inverters, uninterruptible power supplies, industrial power supplies and other applications.
Our silicon carbide power products provide increased efficiency and faster switching speeds and as a result, reduced system size and weight over comparable silicon power devices. Power products are sold to customers and distributors for use in applications such as electric vehicles, including charging infrastructure, server power supplies, solar inverters, uninterruptible power supplies, industrial power supplies and other applications.
We believe our operations are currently not materially impacted by our ability to source raw materials, components and equipment used in manufacturing our products. Competition Silicon Carbide and GaN Materials We have continued to maintain a well-established leadership position in the sale of silicon carbide wafer and silicon carbide and GaN epitaxy products.
Competition Silicon Carbide and GaN Materials We have continued to maintain a well-established leadership position in the sale of silicon carbide wafer and silicon carbide and GaN epitaxy products.
The benefits of implementing environmental and safety management systems include improved risk management, cost savings, meeting external stakeholder expectations, ensuring compliance with environmental and occupational safety laws, and decreasing our environmental footprint through discovering new possibilities for energy, water and waste usage reductions.
The benefits of implementing environmental and safety management systems include improved risk management, cost savings, meeting external stakeholder expectations, ensuring compliance with environmental and occupational safety laws, and decreasing our environmental footprint through discovering new possibilities for energy, water and waste usage reductions. 7 Table of Contents We are also subject to import-export controls, tariffs and other trade-related regulations and restrictions in countries in which we have operations or otherwise do business.
We are committed to offering an environment in which employees are ensured equal job opportunities and have a chance for advancement. We also have initiatives in place to reduce our global employee turnover rates, which are monitored and reviewed quarterly. Our goal is to ensure employees can find development and career growth without having to leave Wolfspeed.
We endeavor to utilize recruiting practices that yield qualified and dedicated employees who are driven to achieve our vision. We are committed to offering an environment in which employees are ensured equal job opportunities and have a chance for advancement. We also have initiatives in place to reduce our global employee turnover rates, which are monitored and reviewed quarterly.
Our silicon carbide materials are targeted for customers who use them to manufacture products for RF, power and other applications. Corporate, government and university customers also buy silicon carbide and GaN materials for research and development directed at RF and power devices.
Products Silicon Carbide and GaN Materials Our silicon carbide materials products consist of silicon carbide bare wafers, epitaxial wafers, and GaN epitaxial layers on silicon carbide wafers. Our silicon carbide materials are targeted for customers who use them to manufacture products for RF, power and other applications.
We also employ individuals on a temporary full-time basis and use the services of contractors as necessary. Certain employees in various countries outside of the United States are subject to laws providing representation rights. Employee Retention and Development We believe that our future success largely depends upon our continued ability to identify, attract, motivate and retain qualified personnel.
Human Capital Employees As of June 30, 2024, we employed 5,013 regular full and part-time employees. We also employ individuals on a temporary full-time basis and use the services of contractors as necessary. Certain employees in various countries outside of the United States are subject to laws providing representation rights.
Core to our ability to attract and retain talent is our high-performance culture, which is based on our three central values of (1) safety, integrity and respect, (2) ownership and accountability, and (3) ingenuity and passion. We are committed to creating and sustaining a culture where all employees are engaged and can contribute to their full potential.
Employee Retention and Development We believe that our future success largely depends upon our continued ability to identify, attract, motivate and retain qualified personnel. Core to our ability to attract and retain talent is our high-performance culture, which is based on our three central values of (1) safety, integrity and respect, (2) ownership and accountability, and (3) ingenuity and passion.
Our materials products and RF devices are used in military communications, radar, satellite and telecommunication applications. The majority of our products are manufactured at our production facilities located in North Carolina, California and Arkansas. We also use contract manufacturers for certain products and aspects of product fabrication, assembly and packaging. We maintain captive lines at some of our contract manufacturers.
We also use contract manufacturers for certain products and aspects of product fabrication, assembly and packaging. We maintain captive lines at some of our contract manufacturers. We are constructing a new materials manufacturing facility in North Carolina and renovating an epitaxy facility in Texas. We operate research and development facilities in North Carolina, Arkansas and New York.
Manufacturing We manufacture silicon carbide substrates, silicon carbide MOSFETs, Schottky diodes and power modules as well as GaN on silicon carbide RF devices and LDMOS power transistors. We utilize manufacturing facilities located in the United States in combination with assembly and test subcontractors throughout Asia.
We utilize manufacturing facilities located in the United States in combination with assembly and test subcontractors throughout Asia.
These controls, tariffs, regulations, and restrictions (including those related to, or affected by, United States-China relations, as discussed below in Item 1A, "Risk Factors," of this Annual Report) may have a material impact on our business, including our ability to sell products and to manufacture or source components.
These controls, tariffs, regulations, and restrictions may have a material impact on our business, including our ability to sell products and to manufacture or source components. Working Capital For a discussion of our working capital practices, see “Liquidity and Capital Resources” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations," of this Annual Report.
We continue to maintain certain safety protocols and procedures put in place in response to the COVID-19 pandemic, including an extensively used 'work where it works' arrangement that allows employees who are able to perform their job duties from an off-campus location to continue to have the flexibility of working remotely full-time or part-time.
We offer a 'work where it works' arrangement that allows employees who are able to perform their job duties from an off-campus location to have the flexibility of working remotely full-time or part-time. Additionally, we sponsor a 401(k) employee benefit plan for our United States based employees and we match a defined percentage of employee contributions.
For further information about our consolidated revenue and earnings, please see our consolidated financial statements included in Item 8 of this Annual Report. Products Silicon Carbide and GaN Materials Our silicon carbide materials products consist of silicon carbide bare wafers, epitaxial wafers, and GaN epitaxial layers on silicon carbide wafers.
Wolfspeed, Inc. is a North Carolina corporation established in 1987, and our headquarters are in Durham, North Carolina. For further information about our consolidated revenue and earnings, please see our consolidated financial statements included in Item 8 of this Annual Report.
Compensation and Benefits We are focused on offering competitive compensation and comprehensive benefit packages designed to promote the physical and emotional well-being and financial health of our employees. In addition to base pay, our total compensation package includes items such as bonuses, stock-based compensation, employee stock purchase plans and employee referral bonuses.
Our goal is to ensure employees can find development and career growth without having to leave Wolfspeed. Compensation and Benefits We are focused on offering competitive compensation and comprehensive benefit packages designed to promote the physical and emotional well-being and financial health of our employees.
We aim to provide 8 Table of Contents our employees with competitive compensation, as well as opportunities for equity ownership and developmental programs that enable continued learning and growth. We endeavor to utilize recruiting practices that yield qualified and dedicated employees who are driven to achieve our vision.
We are committed to creating and sustaining a culture where all employees are engaged and can contribute to their full potential. We aim to provide our employees with competitive compensation, as well as opportunities for equity ownership and developmental programs that enable continued learning and growth.
Our benefits package includes employee learnings, health and welfare, tuition reimbursement, student loan repayment, several wellness and emotional support options, adoption assistance and a family care program. Additionally, we sponsor a 401(k) employee benefit plan for our U.S. based employees and we match a defined percentage of employee contributions.
In addition to base pay, our total compensation package includes items such as bonuses, stock-based compensation, employee stock purchase plans and employee referral bonuses. Our benefits package includes employee learnings, health and welfare, tuition reimbursement, student loan repayment, several wellness and emotional support options, adoption assistance and a family care program.
Available Information Our website address is www.wolfspeed.com and our investor relations website is located at https://investor.wolfspeed.com.
We believe these initiatives help contribute to the development of future leaders, increased employee engagement and expanded market reach. 8 Table of Contents Available Information Our website address is www.wolfspeed.com and our investor relations website is located at https://investor.wolfspeed.com.
Our silicon carbide products also compete with silicon semiconductor devices offered by a variety of manufacturers. Our power products compete in the power semiconductor market on the basis of performance, reliability and overall system price.
Ltd., and ST Microelectronics N.V., as well as an increasing number of smaller competitors. Our silicon carbide products also compete with silicon semiconductor devices offered by a variety of manufacturers.
Power Devices Our power device products consist of silicon carbide Schottky diodes, metal oxide semiconductor field effect transistors (MOSFETs) and power modules. Our silicon carbide power products provide increased efficiency and faster switching speeds and as a result, reduced system size and weight over comparable silicon power devices.
Corporate, government and university customers also buy silicon carbide and GaN materials for research and development directed at RF and power devices. Power Devices Our power device products consist of silicon carbide Schottky diodes, metal oxide semiconductor field effect transistors (MOSFETs) and power modules.
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Our product families include silicon carbide and GaN materials, power devices and RF devices, and our products are targeted for various applications such as electric vehicles, fast charging, 5G, renewable energy and storage, and aerospace and defense. Our materials products and power devices are used in electric vehicles, motor drives, power supplies, solar and transportation applications.
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Our materials products and power devices are used in electric vehicles, motor drives, power supplies, solar and transportation applications. Our materials products are also used in military communications, radar, satellite and telecommunication applications. During and prior to fiscal 2024, we designed, manufactured and sold radio-frequency (RF) devices.
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Additionally, we recently opened a silicon carbide device fabrication facility in New York and started construction on a new materials manufacturing facility in North Carolina. We operate research and development facilities in North Carolina, California, Arkansas, Arizona and New York. Wolfspeed, Inc. is a North Carolina corporation established in 1987, and our headquarters are in Durham, North Carolina.
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We completed the sale of certain assets comprising our former RF product line (the RF Business Divestiture) in the second quarter of fiscal 2024. The RF Business Divestiture represented a strategic shift that had a major effect on our operations and financial results.
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RF Devices Our RF devices consist of GaN-based die, high-electron mobility transistors (HEMTs), monolithic microwave integrated circuits (MMICs), and laterally diffused MOSFET (LDMOS) power transistors that are optimized for next generation telecommunications infrastructure, military and other commercial applications.
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As a result, we have classified the results and cash flows of the RF product line as discontinued operations in our consolidated statements of operations and consolidated statements of cash flows for all periods presented.
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Our RF devices are made from silicon, silicon carbide and GaN and can provide improved efficiency, bandwidths and frequency of operation as compared to silicon or gallium arsenide (GaAs).
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Additionally, the related assets and liabilities associated with the transaction are classified as held for sale in the consolidated balance sheet as of June 25, 2023. Unless otherwise noted, discussion within this Annual Report relates to our continuing operations. The majority of our products are manufactured at our production facilities located in North Carolina, New York and Arkansas.
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We also provide custom die manufacturing for GaN HEMTs and MMICs that allow a customer to design its own custom RF circuits to be fabricated by us, or have us design and fabricate products that meet their specific requirements. 4 Table of Contents As discussed more fully in Note 17, “Subsequent Events,” in our consolidated financial statements included in Item 8 of this Annual Report, on August 22, 2023, we entered into a definitive agreement (the RF Purchase Agreement) to sell certain assets comprising our RF products line (the RF Business) to MACOM Technology Solutions Holdings, Inc.
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Research and Development We invest significant resources in research and development.
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(MACOM) for approximately $75 million in cash, subject to a customary purchase price adjustment, and 711,528 shares of MACOM common stock (the Shares), valued at $50 million based on the trailing average closing price for MACOM’s common stock for the 30 trading days ending on August 21, 2023 (the RF Business Divestiture).
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Design-ins Design-ins are customer commitments to purchase our products and are one of the factors we use to forecast long-term demand and future revenue.
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We will retain certain pre-closing liabilities associated with the RF Business. In connection with the RF Business Divestiture, MACOM will assume control of the Company’s 100mm gallium nitride wafer fabrication facility in Research Triangle Park, North Carolina (the RTP Fab) approximately two years following the closing of the transaction (the RTP Fab Transfer).
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To meet the qualification of a design-in, the customer provides us with documentation (e.g., a letter of intent, statement of work or developmental contract) that can include details such as the expected delivery timeline, estimated price, necessary capacity and required support.
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The Company will continue to operate the RTP Fab and supply MACOM with Epi-wafers and fabrication services pursuant to a Master Supply Agreement (the RF MSA) between the date of the Closing and the date on which the RTP Fab Transfer is complete (RTP Fab Transfer Date).
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A design-in, even with a formal commitment, does not always convert to future revenue (a "design-win") for a variety of reasons, including, but not limited to, the customer delaying or abandoning the project, capacity constraints, timeline challenges, and/or technology changes.
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Prior to the RTP Fab Transfer Date, the Shares will be subject to restrictions on transfer and we will forfeit one-quarter of the Shares if the RTP Fab Transfer has not occurred by the fourth anniversary of the closing. The Company expects to close the transaction by the end of calendar 2023.
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Therefore, management uses the design-in amount as a guide to forecast future demand but it should not be taken as an absolute indicator of future revenue. Design-ins for the fiscal year ended June 30, 2024 were $9.1 billion, compared with design-ins of approximately $7.9 billion for the fiscal year ended June 25, 2023.
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When our customers participate in funding our research and development programs, we recognize the amount funded as a reduction of research and development expenses to the extent that our customers’ funding does not exceed our respective research and development costs.
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Design-wins Design-ins are considered design-wins when a customer issues a purchase order for at least 20% of the expected first year revenue. Design-wins reflect each project's entire commitment at the time this criterion is satisfied and should not be taken as an absolute indicator of future revenue.
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Backlog Our backlog at June 25, 2023 was approximately $2.9 billion, compared with a backlog of approximately $2.2 billion at June 26, 2022.
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Depending on timing, certain projects may be reflected within a single period's design-in and design-win figures. Design-wins for the fiscal year ended June 30, 2024 were $5.8 billion, compared with design-wins of $1.8 billion for the fiscal year ended June 25, 2023. Manufacturing We manufacture silicon carbide substrates, silicon carbide MOSFETs and Schottky diodes and power modules.
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Because of changes in a number of factors, including manufacturing lead times and customer order patterns, we do not believe that our backlog, as of any particular date, is necessarily indicative of actual revenue for any future period.
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We have continued to be successful in managing through these current issues and demonstrated the ability to navigate through significant supply challenges. We believe our operations are currently not materially impacted by our ability to source raw materials, components and equipment used in manufacturing our products.
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Significant amounts of our backlog relate to agreements that extend past one year. 5 Table of Contents Our June 25, 2023 backlog contained $18.4 million of research contracts signed with the U.S. Government, all of which were appropriated as of the last day of fiscal 2023.
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Our June 26, 2022 backlog contained $20.0 million of research contracts signed with the U.S. Government, all of which were appropriated as of the last day of fiscal 2022. Our backlog could be adversely affected if the U.S. Government exercises its rights to terminate our government contracts.
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Design-ins Design-ins for the fiscal year ended June 25, 2023 were $8.3 billion, compared with design-ins of approximately $6.4 billion for the fiscal year ended June 26, 2022. For further information about our design-ins, see “Research and Development” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Annual Report.
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China recently announced an export restriction of gallium and germanium, two metals mined from the earth and used in the manufacturing of semiconductors and electronics. We do not purchase these metals directly. While we do purchase two products containing gallium, these products are not within the current export restrictions.
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We will continue to monitor our exposure but at this time we do not expect to be materially affected by China's current export restriction. 6 Table of Contents We have continued to be successful in managing through these current issues and have shown the ability to navigate through significant supply challenges, including multiple COVID-19 pandemic supply chain constraints and natural gas supply limitations forced upon some of our European suppliers.
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RF Devices Our RF devices compete with Ampleon Netherlands B.V., MACOM Technology Solutions Inc., BOWEI Integrated Circuits Co., Ltd., Mitsubishi Electric Corporation, NXP Semiconductor N.V., RFHIC, Qorvo, Inc. and Sumitomo Corporation, which all offer competing RF products and solutions. Our products also compete with a variety of companies offering silicon and GaAs-based products.
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We are also subject to import-export controls, tariffs and other trade-related regulations and restrictions in countries in which we have operations or otherwise do business.
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Working Capital For a discussion of our working capital practices, see “Liquidity and Capital Resources” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations," of this Annual Report. Human Capital Employees As of June 25, 2023, we employed 4,802 regular full and part-time employees.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

88 edited+17 added−13 removed124 unchanged
Biggest changeWe 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 RF Purchase Agreement, including the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and other customary closing conditions; • the separation of the RF Business, and related information technology, from the businesses we are retaining and the operation of our retained business without the RF Business; • issues, delays or complications in completing required transition activities to allow the RF Business to operate under MACOM 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 business we are retaining; • the need to incur 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 RF Purchase Agreement and, following closing, the RF MSA and the transition services agreement, in each case between us and MACOM; • the need to provide transition services in connection with the transaction, which may result in the diversion of resources and focus; and • our failure to realize the full purchase price anticipated under the RF Purchase Agreement, including due to fluctuations in the market price of MACOM’s common stock before we are able to sell the Shares following the RTP Fab Transfer and the forfeiture of one-quarter of the Shares in the event that the RTP Fab Transfer is not completed within four years following the closing of the transaction.
Biggest changeWe are subject to a number of risks associated with this transaction, including risks associated with: • issues, delays or complications in completing required transition activities to allow the RF Business to operate under MACOM, including incurring unanticipated costs to complete such activities; • the diversion of our management's attention away from the operation of the business we retained; • the restrictions on and obligations with respect to our business set forth in the RF master supply agreement and the transition services agreement, in each case between us and MACOM; • the need to provide transition services in connection with the transaction; • any required payments of indemnification obligations under the RF Purchase Agreement for retained liabilities and breaches of representations, warranties or covenants; and • our failure to realize the full purchase price anticipated under the RF Purchase Agreement, including due to fluctuations in the market price of MACOM’s common stock before we are able to sell the shares received as partial consideration for the RF Business (the MACOM Shares) following MACOM's assumption of control of the Company's 100mm GaN wafer fabrication facility in Research Triangle Park, North Carolina, approximately two years following the closing of the transaction (the RTP Fab Transfer) and/or the forfeiture of one-quarter of the MACOM Shares in the event that the RTP Fab Transfer is not completed within four years following the closing of the transaction.
The successful development, introduction and acceptance of new products depend on a number of factors, including the following: • 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; • our ability to effectively transfer increasingly complex products and technology from development to manufacturing, including the transition to 200mm substrates; • our ability to introduce new products in a timely and cost-effective manner; • achievement of technology breakthroughs required to make commercially viable products; • our ability to convert customer design-ins to sales of significant volume, and, if customer design-in activity does result in such sales, when such sales will ultimately occur and what the amount of such sales will be; • the accuracy of our predictions for market requirements; • our ability to predict, influence and/or react to evolving standards; • acceptance of new technology in certain markets; • 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 secure volume purchase orders related to new products; • our customers’ ability to develop competitive products incorporating our products; and • market acceptance of our products and our customers’ products.
The successful development, introduction and acceptance of new products depend on a number of factors, including the following: • 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; • our customers’ ability to develop competitive products incorporating our products; • market acceptance of our products and our customers’ products; • our ability to effectively transfer increasingly complex products and technology from development to manufacturing, including the transition to 200mm substrates; • our ability to introduce new products in a timely and cost-effective manner; • achievement of technology breakthroughs required to make commercially viable products; • our ability to convert customer design-ins to sales of significant volume, and, if customer design-in activity does result in such sales, when such sales will ultimately occur and what the amount of such sales will be; • the accuracy of our predictions for market requirements; • our ability to predict, influence and/or react to evolving standards; • acceptance of new technology in certain markets; • 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; and • our ability to secure volume purchase orders related to new products.
The CRD Agreement contains certain restrictions on our ability to incur debt and liens, consummate non-arm’s-length transactions with affiliates, mergers and consolidations whereby obligations under the CRD Agreement are not assumed, and change the nature of our business.
The CRD Agreement contains certain restrictions on our ability to incur debt and liens, consummate non-arm’s-length transactions with affiliates, consummate mergers and consolidations whereby obligations under the CRD Agreement are not assumed, and change the nature of our business.
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 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 fluctuations and inherent interest rate risk related to our investment portfolio.
If, however, the market price per share of our common stock, as measured under the terms of the capped call transactions, exceeds the cap price of the capped call transactions (currently $212.04 for the 2028 Notes and $202.538 for the 2029 Notes), there would nevertheless be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that such market price exceeds the cap price of the capped call transactions.
If, however, the market price per share of our common stock, as measured under the terms of the capped call transactions, exceeds the cap price of the capped call transactions ($212.04 for the 2028 Notes and $202.538 for the 2029 Notes), there would nevertheless be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that such market price exceeds the cap price of the capped call transactions.
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 adjustment rights for which we make estimates.
Similarly, we have the ability to add, consolidate, or remove distributors. We typically recognize revenue on products sold to distributors when an 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 adjustment rights for which we make estimates.
Any of these incentives could be reduced or eliminated by governmental authorities at any time or as a result of our inability to 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.
Any of these incentives could be reduced or eliminated by governmental authorities at any time or as a result of our inability to maintain minimum operations necessary to earn the incentives. Any reduction or elimination of incentives provided for our operations could adversely affect our business and results of operations.
Additionally, increased inflation around the world, including in the United States, applies pressure to our costs. Continued economic slowdowns or recessions and inflationary pressures could have a negative impact on our business, including decreased demand, increased costs, and other challenges.
Additionally, increased inflation around the world, including in the United States, applies pressure to our costs. Economic slowdowns or recessions and inflationary pressures could have a negative impact on our business, including decreased demand, increased costs, and other challenges.
Although we believe we have adequate liquidity and capital resources to fund our operations for at least the next 12 months, we expect to need additional funding to fully complete all of our intended expansion initiatives, which we may seek to obtain through, among other avenues, government funding in both the United States or Europe, public or private equity offerings, and debt financings (which may involve retiring some of our existing debt).
Although we believe we have adequate liquidity and capital resources to fund our operations for at least the next 12 months, we expect to need additional funding to fully complete all of our intended expansion initiatives, which we may seek to obtain through, among other avenues, government funding in both the United States and Europe, public or private equity offerings, and debt financings (which may involve retiring, refinancing, or modifying some of our existing debt).
Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for all litigation relating to our internal affairs, including without limitation (i) any derivative action or 25 Table of Contents proceeding brought on behalf of Wolfspeed, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of Wolfspeed to Wolfspeed or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the North Carolina Business Corporation Act (the NCBCA), our restated articles of incorporation, as amended, or our amended and restated bylaws, (iv) any action to interpret, apply, enforce, or determine the validity of our restated articles of incorporation, as amended, or our amended and restated bylaws, or (v) any action asserting a claim governed by the internal affairs doctrine, shall be the state courts of North Carolina, or if such courts lack jurisdiction, a federal court located within the State of North Carolina, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants.
Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for all litigation relating to our internal affairs, including without limitation (i) any derivative action or proceeding brought on behalf of Wolfspeed, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of Wolfspeed to Wolfspeed or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the North Carolina Business Corporation Act (the NCBCA), and our amended and restated articles of incorporation or our amended and restated bylaws, (iv) any action to interpret, apply, enforce, or determine the validity of our amended and restated articles of incorporation or our amended and restated bylaws, or (v) any action asserting a claim governed by the internal affairs doctrine, shall be the state courts of North Carolina, or if such courts lack jurisdiction, a federal court located within the State of North Carolina, in all cases subject to the courts having personal jurisdiction over the indispensable parties named as defendants.
Allocation and effective management of the resources necessary to successfully implement, integrate, train personnel and sustain our information technology platforms will remain critical to ensure that we are not subject to transaction errors, processing inefficiencies, loss of customers or suppliers, business disruptions or loss of or damage to intellectual property through a security breach in the near term.
Allocation and effective management of the resources necessary to successfully implement, integrate, train personnel and sustain our information technology platforms will remain critical to ensuring that we are not subject to transaction errors, processing inefficiencies, loss of customers or suppliers, business disruptions or loss of or damage to intellectual property through a security breach in the near term.
If we choose to enter into such strategic transactions, we face certain risks including: • the inability to realize the expected benefits, both from a timing and amount perspective, from our ongoing and planned capacity expansions, including the construction of a new materials manufacturing facility in Siler City, North Carolina and the planned construction of a new 200mm capable silicon carbide device fabrication facility in Saarland, Germany; • 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 customers due to perceived conflicts or competition with such customers or due to regulatory actions taken by governmental agencies; • that we are not able to enter into acceptable contractual arrangements in connection with the transaction; • 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 if 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 the transaction and expend substantial resources without achieving the desired benefit; • the inability to obtain required regulatory agency approvals; • reliance on a transaction counterparty for transition services for an extended period of time, which may result in additional expenses and delay the 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.
If we choose to enter into such strategic transactions, we face certain risks including: • the inability to realize the expected benefits, both from a timing and amount perspective, from our ongoing and planned capacity expansions, including the construction of a new materials manufacturing facility in Siler City, North Carolina, the planned construction of a new 200mm capable silicon carbide device fabrication facility in Saarland, Germany and the renovation of an epitaxy facility in Farmers Branch, Texas; • 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 customers due to perceived conflicts or competition with such customers or due to regulatory actions taken by governmental agencies; • that we are not able to enter into acceptable contractual arrangements in connection with the transaction; • 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 if we experience wide fluctuations in supply and demand; • diversion of management's 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 the transaction and expend substantial resources without achieving the desired benefit; • the inability to obtain required regulatory agency approvals; • reliance on a transaction counterparty for transition services for an extended period of time, which may result in additional expenses and delay the 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.
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 to prepare for production using 200mm substrates and if we are unable to make this transition in a timely or cost-effective manner, our results could be negatively impacted.
In addition, our ability to convert volume manufacturing to larger diameter substrates is an important factor in providing a more cost-effective manufacturing process. We continue to prepare for production using 200mm substrates and if we are unable to make this transition in a timely or cost-effective manner, our results could be negatively impacted.
Our failure to realize the anticipated benefits of the transaction would adversely impact our financial condition and could limit our ability to pursue additional strategic transactions. Risks associated with cybersecurity, intellectual property and litigation We may be subject to confidential information theft or misuse, which could harm our business and results of operations.
Our failure to realize the anticipated benefits of these transactions would adversely impact our financial condition and could limit our ability to pursue additional strategic transactions. Risks associated with cybersecurity, intellectual property and litigation We may be subject to confidential information theft or misuse, which could harm our business and results of operations.
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, result in a loss of confidence in the adequacy of our threat mitigation and detection processes and procedures, cause us to incur significant costs to remedy the damage caused by the incident, divert management's attention and other resources, and reduce the value of our investment in research and development.
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, result in a loss of confidence in the adequacy of our threat mitigation and detection processes and 18 Table of Contents procedures, cause us to incur significant costs to remedy the damage caused by the incident, divert management's attention and other resources, and reduce the value of our investment in research and development.
If we are unable to effectively develop, manage and expand our sales channels for our products, our operating results may suffer. We sell a portion of our products to distributors, including a distributor that represented more than 10% of our revenue in fiscal 2023.
If we are unable to effectively develop, manage and expand our sales channels for our products, our operating results may suffer. We sell a portion of our products to distributors, including a distributor that represented more than 10% of our revenue in fiscal 2024.
Therefore, our ability to continually produce more efficient and lower cost power and RF 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.
Therefore, our ability to continually produce more efficient and lower cost power and materials 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.
We are subject to risks associated with the sale of our former Lighting Products business unit, and these risks could adversely impact our financial condition. On May 13, 2019, we closed the sale of our former Lighting Products business unit to IDEAL Industries, Inc. (IDEAL).
We are subject to risks associated with the sale of our former Lighting Products and LED Products business units, and these risks could adversely impact our financial condition. On May 13, 2019, we closed the sale of our former Lighting Products business unit to IDEAL Industries, Inc.
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.
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 19 Table of Contents 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.
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.
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, higher interest rates 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.
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. 11 Table of Contents 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 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. 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.
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 17 Table of Contents within their product portfolio based on a number of factors, including new product availability and performance.
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.
Various jurisdictions in which we do business have implemented, 22 Table of Contents or in the future could implement or amend, restrictions on emissions of carbon dioxide or other greenhouse gases, limitations or restrictions on water use, regulations on energy management and waste management, and other climate change-based rules and regulations, which may increase our expenses and adversely affect our operating results.
Various jurisdictions in which we do business have implemented, or in the future could implement or amend, restrictions on emissions of carbon dioxide or other greenhouse gases, limitations or restrictions on water use, regulations on energy management and waste management, and other climate change-based rules and regulations, which may increase our expenses and adversely affect our operating results.
Our international sales and purchases are subject to numerous United States 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.
Our international sales and purchases are subject to numerous United States 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 United States Export Administration Act.
We generally purchase these sole or limited source items with purchase orders, and we have limited guaranteed supply arrangements with such suppliers, including take-or-pay arrangements and capacity reserve deposit agreements. 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 generally purchase these sole or limited source items with purchase orders, and we have limited guaranteed supply arrangements with such suppliers, including take-or-pay arrangements and capacity reserve deposit agreements. Some of our 14 Table of Contents sources can have variations in attributes and availability which can affect our ability to produce products in sufficient volume or quality.
Restrictions on 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 in connection with the COVID-19 pandemic or future outbreaks of infectious diseases or similar public health events could limit our ability to meet customer demand, lead to increased costs and have a material adverse effect on our financial condition and results of operations.
Restrictions on 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 in connection with future outbreaks of infectious diseases or similar public health events could limit our ability to meet customer demand, lead to increased costs and have a material adverse effect on our financial condition and results of operations.
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. 18 Table of Contents We are subject to a number of risks associated with the sale of the RF Business, and these risks could adversely impact our operations, financial condition and business.
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. 17 Table of Contents We are subject to a number of risks associated with the sale of our former RF Business, and these risks could adversely impact our operations, financial condition and business.
Currently, we are focusing on increasing production capacity. If we are not able to increase our production capacity at our targeted rate, if there are unforeseen costs associated with increasing our capacity levels, or if we are unable to obtain advanced semiconductor manufacturing equipment in a timely manner, we may not be able to achieve our financial targets.
If we are not able to increase our production capacity at our targeted rate, if there are unforeseen costs associated with increasing our capacity levels, or if we are unable to obtain advanced semiconductor manufacturing equipment in a timely manner, we may not be able to achieve our financial targets.
The Indenture governing the 2030 Senior Notes (the 2030 Senior Notes Indenture) includes a liquidity maintenance financial covenant requiring us to have an aggregate amount of unrestricted cash and cash equivalents maintained in accounts over which the trustee and collateral agent for the 2030 Senior Notes has been granted a perfected first lien security interest of at least 23 Table of Contents $500,000,000 as of the last day of any calendar month, which amount will be reduced over time upon the fulfillment of certain conditions.
The Indenture governing the 2030 Senior Notes (the 2030 Senior Notes Indenture) includes a liquidity maintenance financial covenant requiring us to have an aggregate amount of unrestricted cash and cash equivalents maintained in accounts over which the trustee and collateral agent for the 2030 Senior Notes has been granted a perfected first lien security interest of at least $500 million as of the last day of any calendar month, which amount will be reduced over time upon the fulfillment of certain conditions.
For example, the 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.
For example, the TCJA included a one-time tax on deemed repatriated earnings of non-United States 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.
In fiscal 2023, 80% of our revenue was from outside the United States and 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.
In fiscal 2024, 86% of our revenue was from outside the United States and 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.
Risk categories and certain principal risks under each category (each described more fully below): – Risks related to our global operations, including global macroeconomic and market risks • Our business may be adversely affected by the state of the global economy, uncertainties in global financial markets, our ability, or our customers' or vendors' ability, to access funding, and possible trade tariffs and trade restrictions. • We are subject to risks related to international sales and purchases. – Risks related to sales, product development and manufacturing • We face significant challenges managing our growth strategy. • Variations in our production could impact our ability to reduce costs and could cause our margins to decline and our operating results to suffer. • Our results of operations, financial condition and business could be harmed if we are unable to balance customer demand and capacity. – Risks associated with our strategic transactions • If we fail to evaluate and execute strategic opportunities successfully, our business may suffer. • We are subject to a number of risks associated with the sale of the RF Business, and these risks could adversely impact our operations, financial condition and business. – Risks associated with cybersecurity, intellectual property and litigation • We may be subject to confidential information theft or misuse, which could harm our business and results of operations. • There are limitations on our ability to protect our intellectual property. – Risks related to legal, regulatory, accounting, tax and compliance matters • We may be required to recognize a significant charge to earnings if our goodwill or other assets become impaired. • The adoption of or changes in government and/or industry policies, standards or regulations relating to the efficiency, performance, vehicle range or other aspects of our products and the products in which they are utilized could impact the demand for our products. – General risk factors – We may be required to recognize a significant charge to earnings if our goodwill or other assets become impaired.
Risk categories and certain principal risks under each category (each described more fully below): – Risks related to our global operations, including global macroeconomic and market risks • Our business may be adversely affected by the state of the global economy, uncertainties in global financial markets, our ability, or our customers' or suppliers' ability, to access funding, and possible trade tariffs and trade restrictions. • We are subject to risks related to international sales and purchases. – Risks related to sales, product development and manufacturing • We face significant challenges managing our growth strategy. • Variations in our production could impact our ability to reduce costs and could cause our margins to decline and our operating results to suffer. • Our results of operations, financial condition and business could be harmed if we are unable to balance customer demand and capacity. – Risks associated with our strategic transactions • If we fail to evaluate and execute strategic opportunities successfully, our business may suffer. • We are subject to a number of risks associated with the sale of our former RF product line (the RF Business), and these risks could adversely impact our operations, financial condition and business. – Risks associated with cybersecurity, intellectual property and litigation • We may be subject to confidential information theft or misuse, which could harm our business and results of operations. • There are limitations on our ability to protect our intellectual property. – Risks related to legal, regulatory, accounting, tax and compliance matters • We may be required to recognize a significant charge to earnings if our goodwill or other assets become impaired. • The adoption of or changes in government and/or industry policies, standards or regulations relating to the efficiency, performance, vehicle range or other aspects of our products and the products in which they are utilized could impact the demand for our products. – General risk factors • We have outstanding debt which could materially restrict our business and adversely affect our financial condition, liquidity and results of operations. 9 Table of Contents Risks related to our global operations, including global macroeconomic and market risks Our business may be adversely affected by the state of the global economy, uncertainties in global financial markets, our ability, or our customers' or suppliers' ability, to access funding, and possible trade tariffs and trade restrictions.
In the past, we have experienced decreases in our production yields when 15 Table of Contents 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.
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 did 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.
Additionally, Russia’s invasion of Ukraine in early 2022 triggered significant sanctions from the U.S. and European countries. Resulting changes in U.S. trade policy could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a potential trade war.
Additionally, Russia’s invasion of Ukraine in early 2022 triggered significant sanctions from the United States and European countries. Resulting changes in United States trade policy could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a potential trade war.
Our ability to pay interest and repay the principal for any outstanding indebtedness under the Outstanding Convertible Notes, the 2030 Senior Notes and the CRD Agreement (if applicable) is dependent upon our ability to manage our business operations and generate sufficient cash flows to service such debt.
(Renesas America). Our ability to pay interest and repay the principal for any outstanding indebtedness under the Outstanding Convertible Notes, the 2030 Senior Notes and the CRD Agreement is dependent upon our ability to manage our business operations and generate sufficient cash flows to service such debt.
We are also subject to other types of risks of doing business internationally, 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 United States 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.
We are also subject to other types of risks of doing business internationally, 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, such as the additional customs duties incurred related to our former Lighting Products business unit; • the burden of complying with and changes in United States 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; • difficulties in collecting accounts receivable; • difficulties in staffing and managing international operations; and • the burden of complying with foreign and international laws and treaties.
Our future effective tax rates and our ability to obtain future tax credits may affect our results and financial condition due to a number of factors, including: • the jurisdiction in which profits are determined to be earned and taxed; • potential changes in tax laws or alterations in the 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 Cuts and Jobs Act of 2017 (the TCJA), the Coronavirus Aid, Relief and Economic Security Act of 2020 and the Inflation Reduction Act (the IRA); • changes in available tax credits, including the eligibility for or the receipt of the expected benefits from refundable investment tax credits obtained through the CHIPS Act; • the implementation of international tax and profit shifting rules in countries in which we operate, as recommended by the Organization for Economic Co-operation and Development’s Base Erosion, including the establishment of a minimum tax of 15% on global income; • the resolution of issues arising from tax audits with various authorities; • changes in the valuation of our deferred tax assets and liabilities; • the ongoing restructuring of our existing legal entities, including the restructuring of our Luxembourg holding company; • 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; • 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.
Our future effective tax rates and our ability to obtain future tax credits may affect our results and financial condition due to a number of factors, including: • the jurisdiction in which profits are determined to be earned and taxed; • potential changes in tax laws or alterations in the interpretation of such tax laws and changes in generally accepted accounting principles, for example interpretations and United States regulations issued as a result of the significant changes to the United States tax law included within the Tax Cuts and Jobs Act of 2017 (the TCJA), the Coronavirus Aid, Relief and Economic Security Act of 2020 and the IRA; • changes in available tax credits, including the eligibility for or the receipt of the expected benefits from refundable investment tax credits obtained through the CHIPS Act; • the implementation of international tax and profit shifting rules in countries in which we operate, as recommended by the Organization for Economic Co-operation and Development’s Base Erosion, including the establishment of a minimum tax of 15% on global income; • 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; 20 Table of Contents • increases in expenses not deductible for tax purposes, including impairment of goodwill in connection with acquisitions; • the recognition and measurement of uncertain tax positions; • variations in realized tax deductions for certain stock-based compensation awards (such as restricted stock) from those originally anticipated; and • the repatriation of non-United States 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.
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 13 Table of Contents 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.
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, such as the equipment incident we experienced in our Durham fab in late fiscal 2024; • 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; 13 Table of Contents • 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.
Our intellectual property position is based in part on patents owned by us and patents licensed to us. We 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 intellectual property position is based in part on patents owned by us and patents licensed to us. We intend to continue to file patent applications in the future, where appropriate, and to pursue such applications with United States and certain foreign patent authorities.
Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management and other employees. Item 1B. Unresolved Staff Comments Not applicable. 26 Table of Contents
Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management and other employees. Item 1B. Unresolved Staff Comments Not applicable.
We may be subject to volatility and uncertainty in customer demand, supply chains, worldwide economies and financial markets resulting from the COVID-19 pandemic or other outbreak of infectious disease or similar public health threat.
We may be subject to volatility and uncertainty in customer demand, supply chains, worldwide economies and financial markets resulting from the outbreak of infectious disease or similar public health threat.
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. 10 Table of Contents Recent global economic slowdowns could continue and potentially result in certain economies dipping into economic recessions, including in the United States.
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. Various global economic slowdowns could occur and potentially result in certain economies dipping into economic recessions, including in the United States.
The adoption of or changes in government and/or industry policies, standards or regulations relating to the efficiency, performance, vehicle range or other aspects of our products and the products in which they are utilized could impact the demand for our products. 21 Table of Contents The adoption of or changes in government and/or industry policies, standards or regulations relating to the efficiency, performance, vehicle range or other aspects of our products and the products in which they are utilized or integrated may 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, vehicle range or other aspects of our products and the products in which they are utilized could impact the demand for our products.
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.
Hiring and retaining qualified 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.
We continue to expand into new markets and new market segments. Many of our existing customers who purchase our silicon carbide substrate materials develop and manufacture devices, die and components using those wafers that are offered in the same power and RF markets. As a result, some of our current customers perceive us as a competitor in these market segments.
Many of our existing customers who purchase our silicon carbide substrate materials develop and manufacture devices, die and components using those wafers that are offered in the same power market. As a result, some of our current customers perceive us as a competitor in these market segments.
We are subject to risks associated with this transaction, including risks associated with any required payments of indemnification obligations under the Purchase Agreement with IDEAL for retained liabilities and breaches of representations, warranties or covenants. 19 Table of Contents As a result, we may be unable to realize the anticipated benefits of the transaction.
We are subject to risks associated with these transactions, including risks associated with any required payments of indemnification obligations under the Purchase Agreement with IDEAL and the Asset Purchase Agreement with SGH for retained liabilities and breaches of representations, warranties or covenants. As a result, we may be unable to realize the anticipated benefits of these transactions.
For example, efforts to change, eliminate or reduce industry or regulatory standards could negatively impact our business. 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 evolving government and/or industry requirements could impact competitive dynamics in the market.
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 evolving government and/or industry requirements could impact competitive dynamics in the market.
We cannot be sure that these efforts will be successful 20 Table of Contents or that the confidentiality agreements will not be breached.
We cannot be sure that these efforts will be successful or that the confidentiality agreements will not be breached.
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.
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. Our business could be negatively impacted by shareholder activism.
For example, the closing price per share of our common stock on the New York Stock Exchange ranged from a low of $39.48 to a high of $122.07 during the twelve months ended June 25, 2023. If our future operating results or margins are below the expectations of stock market analysts or our investors, our stock price will likely decline.
For example, the closing price per share of our common stock on the New York Stock Exchange ranged from a low of $22.08 to a high of $67.94 during the twelve months ended June 30, 2024. If our future operating results or margins are below the expectations of stock market analysts or our investors, our stock price will likely decline.
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 revenue and operating results. Our operating results are substantially dependent on the acceptance of new products.
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 revenue and operating results.
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. The markets in which we operate are highly competitive and have evolving technical requirements.
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.
Export Administration Act. The U.S. Government has imposed, and in the future may impose, restrictions on shipments to some of our current customers. Government restrictions on sales to certain foreign customers will reduce company revenue and profit related to those customers in the short term and could have a potential long-term impact.
The United 10 Table of Contents States Government has imposed, and in the future may impose, restrictions on shipments to some of our current customers. Government restrictions on sales to certain foreign customers will reduce our revenue and profit related to those customers in the short term and could have a potential long-term impact.
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, including specifically the expansion of our silicon carbide capacity with the opening and ramping of a state-of-the-art, automated 200mm capable silicon carbide device fabrication facility in New York, an expansion of our materials factory in Durham, North Carolina, the construction of a new materials manufacturing facility in Siler City, North Carolina, and the planned construction of a new 200mm capable silicon carbide device fabrication facility in Saarland, Germany; • meet our production capacity and delivery commitments to our customers, including those customers who provide us with capacity reservation deposits or similar payments; • manage an increasingly complex supply chain (including managing the impacts of ongoing supply constraints in the semiconductor industry and meeting purchase commitments under take-or-pay arrangements with certain suppliers) 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, our logistics operations, or our customers; • expand the skills and capabilities of our current management team; • add experienced senior level managers and executives; 12 Table of Contents • attract and retain qualified employees; • expand the capability of our information systems to support a more complex business, such as our current implementation of a new company-wide enterprise resource planning (ERP) system; • be successful in securing design-ins across our end markets, including automotive applications; • realize our expected local, state and federal government incentives, including capital investment reimbursements, property tax reimbursements and sales tax exemptions from state, county and local governments; • confirm our eligibility for and receive the expected benefits from refundable income tax credits and capital grants through the U.S.
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, including specifically the expansion of our 11 Table of Contents silicon carbide capacity with ramping of our state-of-the-art, automated 200mm capable silicon carbide device fabrication facility in New York, an expansion of our materials factory in Durham, North Carolina, the construction of a new materials manufacturing facility in Siler City, North Carolina, the renovation of an epitaxy facility in Farmers Branch, Texas, and the planned construction of a new 200mm capable silicon carbide device fabrication facility in Saarland, Germany; • meet our production capacity and delivery commitments to our customers, including those customers who provide us with capacity reservation deposits or similar payments; • manage an increasingly complex supply chain (including managing the impacts of ongoing supply constraints in the semiconductor industry and meeting purchase commitments under take-or-pay arrangements with certain suppliers) 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, our logistics operations, or our customers; • expand the skills and capabilities of our current management team; • add experienced senior level managers and executives; • attract and retain qualified employees; • expand the capability of our information systems to support a more complex business, such as our ongoing implementation of a new company-wide enterprise resource planning (ERP) system; • be successful in securing design-ins across our end markets, including automotive applications; • realize our expected local, state and federal government incentives, including capital investment reimbursements, property tax reimbursements and sales tax exemptions from state, county and local governments; • finalize negotiations on a Preliminary Memorandum of Terms and, if an agreement can be reached, complete comprehensive due diligence, finalize award documentation, and fulfill all conditions and milestones for and receive the expected benefits from capital grants through the United States CHIPS and Science Act of 2022 (the CHIPS Act); • confirm our eligibility for and receive the expected benefits from refundable income tax credits through the CHIPS Act, and receive and potentially sell any tax credits for which we may apply under the Inflation Reduction Act; • access capital markets to fund our growth initiatives, including our ongoing and planned capacity expansions; • safeguard confidential information and protect our intellectual property; • manage organizational complexity and communication; and • execute, maintain and adjust the operational and financial controls that support our business.
The establishment and operation of a new manufacturing facility or expansion of an existing facility involves significant risks and challenges, some of which we have experienced and may experience in the future, including, but not limited to, the following: • design and construction delays and cost overruns; • issues in installing and qualifying new equipment and ramping production; • poor production process yields and reduced quality control; and • insufficient personnel with requisite expertise and experience to operate an automated silicon carbide device fabrication facility and a materials manufacturing facility.
The establishment and operation of a new manufacturing facility or expansion of an existing facility involves significant risks and challenges, some of which we have experienced and may experience in the future, including, but not limited to, the following: • design and construction delays and cost overruns; • issues in installing and qualifying new equipment and ramping production; • poor production process yields and reduced quality control; and • insufficient personnel with requisite expertise and experience to operate an automated silicon carbide device fabrication facility and a materials manufacturing facility. 12 Table of Contents 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.
Furthermore, if the conflict between Russia and Ukraine continues for a prolonged period of time, or if other countries, including the U.S., become involved in the conflict, we could face significant adverse effects to our business and financial condition.
Furthermore, if the conflicts between Russia and Ukraine and in the Middle East continue for a prolonged period of time, or if other countries, including the United States, become involved in these conflicts, we could face significant adverse effects to our business and financial condition.
For example, the United States has imposed significant tariffs on Chinese-made goods, which the Biden administration has largely left in place. The 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.
The 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.
Our amended and restated bylaws also provide that, notwithstanding the foregoing, (x) the provisions described above will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction, and (y) unless we consent in writing to the selection of an alternative forum, the federal district courts shall, to the fullest extent permitted by law, be the exclusive forum for the resolution of any complaint asserting a cause of action against Wolfspeed or any director, officer, employee, or agent of Wolfspeed and arising under the Securities Act.
Our amended and restated bylaws also provide that, notwithstanding the foregoing, (x) the provisions described above will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction, and (y) unless we consent in writing to the selection of an alternative forum, the federal district courts shall, to the fullest extent permitted by law, be the exclusive forum for the resolution of any complaint asserting a cause of action against Wolfspeed or any director, officer, employee, or agent of Wolfspeed and arising under the Securities Act. 24 Table of Contents If a court were to find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition.
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.
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.
Changes in regulatory, geopolitical, social, economic, or monetary policies and other factors 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.
Changes in regulatory, geopolitical, social, economic, or monetary policies and other factors, including those which may result from the outcome of the 2024 United States Presidential election, 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.
Significant or prolonged shortages or delivery delays of our products to our customers could delay their manufacturing and negatively impact our relationships with these customers.
Significant or prolonged shortages or delivery delays of our products to our customers could delay their manufacturing and negatively impact our relationships with these customers, including triggering the potential payment of penalties on certain agreements.
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. 16 Table of Contents We receive a significant amount of our revenue from a limited number of customers and distributors, two of which individually represented more than 10% of our consolidated revenue in fiscal 2023.
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 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. A significant product recall could also result in adverse publicity, damage to our reputation and a loss of customer confidence in our products.
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.
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. As a result of our continued expansion into new markets, we may compete with existing customers who may reduce their orders.
As inventory levels and 15 Table of Contents 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.
As of June 25, 2023, our indebtedness consisted of $575.0 million aggregate principal amount of our 1.75% convertible senior notes due May 1, 2026 (the 2026 Notes), $750.0 million aggregate principal amount of our 0.25% convertible senior notes due February 15, 2028 (the 2028 Notes), $1,750.0 million aggregate principal amount of our 1.875% convertible senior notes due December 1, 2029 (the 2029 Notes) (collectively, the Outstanding Convertible Notes) and $1,250.0 million aggregate principal amount of senior secured notes due 2030 (the 2030 Senior Notes).
As of June 30, 2024, our indebtedness consisted of $575.0 million aggregate principal amount of our 1.75% convertible senior notes due May 1, 2026 (the 2026 Notes), $750.0 million aggregate principal amount of our 0.25% convertible senior notes due February 15, 2028 (the 2028 Notes), $1,750.0 million aggregate principal amount of our 1.875% convertible senior notes due December 1, 2029 (the 2029 Notes, and together with the 2026 Notes and the 2028 Notes collectively, the Outstanding Convertible Notes), $1,250.0 million aggregate principal amount of senior secured notes due 2030 (the 2030 Senior Notes) and an aggregate principal amount of $2,000.0 million of deposits under the Unsecured Customer Refundable Deposit Agreement (the CRD Agreement) with Renesas Electronics America Inc.
We may face challenges with government regulators, our customers and our suppliers if we are unable to sufficiently verify that the metals used in our products are conflict free. Our most recent disclosure regarding our due diligence was filed on May 31, 2023 for calendar year 2022.
We may face challenges with government regulators, our customers and our suppliers if we are unable to sufficiently verify that the metals used in our products are conflict free.
Additionally, actions taken by the option counterparties in the capped call transactions entered into in connection with the 2028 Notes and the 2029 Notes may affect our stock price, including the potential modifications of their hedge positions by entering into or unwinding various derivatives with respect to our common stock.
In addition, competition in some of the markets we address such as electric vehicles or the industrial and energy markets, the ramp up of our business, and the effect of tariffs on our business, may have a dramatic effect on our stock price. 23 Table of Contents Additionally, actions taken by the option counterparties in the capped call transactions entered into in connection with the 2028 Notes and the 2029 Notes may affect our stock price, including the potential modifications of their hedge positions by entering into or unwinding various derivatives with respect to our common stock.
If our customers alter their purchasing behavior, if our customers’ purchasing behavior does not match our expectations or if we encounter any problems collecting amounts due from them, our financial condition and results of operations could be negatively impacted. Our revenue is highly dependent on our customers’ ability to produce, market and sell more integrated products.
If our customers alter their purchasing behavior, if our customers’ purchasing behavior does not match our expectations or if we encounter any problems collecting amounts due from them, our financial condition and results of operations could be negatively impacted. The markets in which we operate are highly competitive and have evolving technical requirements.
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.
Additionally, if product demand decreases or if we fail to forecast demand decreases or changes accurately, we may experience a mismatch between current product demand and manufactured product mix, adversely impacting our results, including due to higher costs resulting from lower factory utilization, causing higher fixed costs per unit produced.
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.
We provide standard warranty periods of 90 days on our products, with longer periods under a limited number of customer contracts. 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.
The recognition of a significant charge to earnings in our consolidated financial statements resulting from any impairment of our goodwill or other assets could adversely impact our results of operations.
For example, in the first quarter of fiscal 2024, we recorded an impairment to assets held for sale associated with the then pending RF Business Divestiture of $144.6 million. The recognition of a significant charge to earnings in our consolidated financial statements resulting from any impairment of our goodwill or other assets could adversely impact our results of operations.
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. Variations in our production could impact our ability to reduce costs and could cause our margins to decline and our operating results to suffer.
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. Our results of operations, financial condition and business could be harmed if we are unable to balance customer demand and capacity.
Our revenue depends on getting our products designed into a 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 that create, or plan to create, power and RF products or systems using our substrates, die, components or modules.
For example, we have current and prospective customers that create, or plan to create, power products or systems using our substrates, die, components or modules.
General risk factors We have outstanding debt which could materially restrict our business and adversely affect our financial condition, liquidity and results of operations.
Our most recent disclosure regarding our due diligence was filed on May 31, 2024 for calendar year 2023. 21 Table of Contents General risk factors We have outstanding debt which could materially restrict our business and adversely affect our financial condition, liquidity and results of operations.
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.
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. Currently, we are focusing on increasing production capacity that utilizes 200mm substrates.
If economic conditions deteriorate unexpectedly, our business and results of operations could be materially and adversely affected.
Given these uncertainties, there could be further disruptions to 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.
We are subject to a number of risks associated with the sale of our former LED Products segment, and these risks could adversely impact our operations, financial condition and business. On March 1, 2021, we completed the sale of our former LED Products segment to SMART Global Holdings, Inc.
(IDEAL) and on March 1, 2021, we completed the sale of our former LED Products business unit (the LED Business) to SMART Global Holdings, Inc. (SGH).
However, these investments are generally not Federal Deposit Insurance Corporation insured and may lose value and/or become illiquid regardless of their credit rating. From time to time, we have also made investments in public and private companies that engage in complementary businesses.
However, these investments are generally not Federal Deposit Insurance Corporation insured and may lose value and/or become illiquid regardless of their credit rating. In addition, we currently hold the MACOM Shares that we acquired in connection with the RF Business Divestiture.
We also may be the target of product liability lawsuits against us if the use of our products at issue is determined to have caused injury or contained a substantial product hazard. We provide standard warranty periods of 90 days on our products, with longer periods under a limited number of customer contracts.
A significant product recall 16 Table of Contents could also result in adverse publicity, damage to our reputation and a loss of customer confidence in our products. We also may be the target of product liability lawsuits against us if the use of our products at issue is determined to have caused injury or contained a substantial product hazard.
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.
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 revenue or increased manufacturing costs, which would adversely affect our results of operations.

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Item 2. Properties

Properties — owned and leased real estate

4 edited+0 added−0 removed1 unchanged
Biggest changeIn addition, we recently purchased an existing facility in Farmers Branch, Texas, which will be used for materials production, and are in the process of constructing two new materials manufacturing facilities in North Carolina, including our materials manufacturing facility in Siler City, North Carolina which sits on 446 acres of owned land.
Biggest changeIn fiscal 2023, we purchased an existing facility in Farmers Branch, Texas, which will be used for epitaxy production. We are in the process of constructing our materials manufacturing facility in Siler City, North Carolina, which sits on 446 acres of owned land. Some of our products are also produced at contract manufacturing facilities throughout Asia.
Our products are also produced at owned manufacturing facilities located in Research Triangle Park (RTP), North Carolina and Marcy, New York and at leased facilities in Morgan Hill, California and Fayetteville, Arkansas. Our RTP facility sits on 55 acres of owned land and our Marcy, New York facility sits on 55 acres of leased land.
Our products are also produced at owned manufacturing facilities located in Research Triangle Park (RTP), North Carolina and Marcy, New York and at leased facilities in Fayetteville, Arkansas, and Durham, North Carolina. Our RTP facility sits on 55 acres of owned land and our Marcy, New York facility sits on 55 acres of leased land.
Some of our products are also produced at contract manufacturing facilities throughout Asia. We maintain captive lines at some of our contract manufacturers. We also maintain sales and support offices in leased office premises in North America, Asia, and Europe.
We maintain captive lines at some of our contract manufacturers. We also maintain sales and support offices in leased office premises in North America, Asia, and Europe.
Details on our significant owned and leased facilities as of June 25, 2023 are as follows: Location Principal Use Approximate square footage Owned Facilities Durham, North Carolina - Silicon Drive Site Administrative, Production and R&D 1,054,000 Marcy, New York Production 560,000 Research Triangle Park, North Carolina Production 189,000 Leased Facilities Morgan Hill, California Production 84,000 Fayetteville, Arkansas R&D/Production 40,000
Details on our owned and leased facilities with significant operating activities as of June 30, 2024 are as follows: Location Principal Use Approximate square footage Owned Facilities Durham, North Carolina - Silicon Drive Site Administrative, Production and R&D 1,004,000 Marcy, New York Production 633,000 Research Triangle Park, North Carolina Production 179,000 Leased Facilities Durham, North Carolina - Moore Drive Production 162,000 Fayetteville, Arkansas R&D/Production 42,000

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

2 edited+0 added−0 removed4 unchanged
Biggest changeThe following graph and related table compare the cumulative total return on our common stock with the cumulative total returns of the Nasdaq Composite Index and the Philadelphia Semiconductor Index, assuming an investment of $100.00 on June 24, 2018 and the reinvestment of dividends. 6/24/2018 6/30/2019 6/28/2020 6/27/2021 6/26/2022 6/25/2023 Wolfspeed, Inc. $100.00 $117.88 $121.15 $206.86 $149.81 $103.74 Nasdaq Composite Index 100.00 105.24 129.57 192.09 156.35 183.37 Philadelphia Semiconductor Index 100.00 108.74 145.86 249.32 211.77 277.14 Sale of Unregistered Securities Other than as previously reported in our Current Reports on Form 8-K, there were no unregistered securities sold during fiscal 2023. 28 Table of Contents Dividends In the past, we have not declared or paid cash dividends on our common stock.
Biggest changeThe following graph and related table compare the cumulative total return on our common stock with the cumulative total returns of the Nasdaq Composite Index and the Philadelphia Semiconductor Index, assuming an investment of $100.00 on June 28, 2019 and the reinvestment of dividends. 6/28/2019 6/28/2020 6/27/2021 6/26/2022 6/25/2023 6/30/2024 Wolfspeed, Inc. $100.00 $102.78 $175.49 $127.09 $88.01 $40.50 Nasdaq Composite Index 100.00 123.12 182.53 148.57 174.25 230.80 Philadelphia Semiconductor Index 100.00 134.13 229.27 194.74 254.85 402.02 Sale of Unregistered Securities There were no unregistered securities sold during fiscal 2024. 28 Table of Contents Dividends In the past, we have not declared or paid cash dividends on our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Market Information Our common stock is traded on the New York Stock Exchange under the trading symbol WOLF. There were 231 holders of record of our common stock as of August 17, 2023.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Market Information Our common stock is traded on the New York Stock Exchange under the trading symbol WOLF. There were 226 holders of record of our common stock as of August 16, 2024.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

115 edited+20 added−31 removed52 unchanged
Biggest changeDollars, except share data) Amount % of Revenue Amount % of Revenue Amount % of Revenue Revenue, net $921.9 100.0 % $746.2 100.0 % $525.6 100.0 % Cost of revenue, net 642.4 69.7 % 496.9 66.6 % 361.0 68.7 % Gross profit 279.5 30.3 % 249.3 33.4 % 164.6 31.3 % Research and development 225.4 24.4 % 196.4 26.3 % 177.8 33.8 % Sales, general and administrative 235.3 25.5 % 203.5 27.3 % 181.6 34.6 % Factory start-up costs 160.2 17.4 % 70.0 9.4 % 8.0 1.5 % Amortization or impairment of acquisition-related intangibles 10.9 1.2 % 13.6 1.8 % 14.5 2.8 % Abandonment of long-lived assets — — % — — % 73.9 14.1 % Loss (gain) on disposal or impairment of other assets 2.0 0.2 % (0.3) — % 1.6 0.3 % Other operating expense 26.3 2.9 % 13.9 1.9 % 21.1 4.0 % Operating loss (380.6) (41.3) % (247.8) (33.2) % (313.9) (59.7) % Non-operating (income) expense, net (52.1) (5.7) % 38.3 5.1 % 26.3 5.0 % Loss before income taxes (328.5) (35.6) % (286.1) (38.3) % (340.2) (64.7) % Income tax expense 1.4 0.2 % 9.0 1.2 % 1.1 0.2 % Net loss from continuing operations (329.9) (35.8) % (295.1) (39.5) % (341.3) (64.9) % Net income (loss) from discontinued operations — — % 94.2 12.6 % (181.2) (34.5) % Net loss (329.9) (35.8) % (200.9) (26.9) % (522.5) (99.4) % Net income attributable to noncontrolling interest — — % — — % 1.4 0.3 % Net loss attributable to controlling interest ($329.9) (35.8) % ($200.9) (26.9) % ($523.9) (99.7) % Basic and diluted loss per share Continuing operations ($2.65) ($2.46) ($3.04) Net loss attributable to controlling interest ($2.65) ($1.67) ($4.66) 32 Table of Contents Revenue Revenue was comprised of the following: Fiscal Years Ended Year-Over-Year Change (in millions of U.S.
Biggest changeDollars, except share data) Amount % of Revenue Amount % of Revenue Amount % of Revenue Revenue, net $807.2 100.0 % $758.5 100.0 % $572.1 100.0 % Cost of revenue, net 729.8 90.4 % 515.6 68.0 % 364.0 63.6 % Gross profit 77.4 9.6 % 242.9 32.0 % 208.1 36.4 % Research and development 201.9 25.0 % 165.7 21.8 % 142.6 24.9 % Sales, general and administrative 246.4 30.5 % 214.3 28.3 % 183.0 32.0 % Factory start-up costs 53.8 6.7 % 160.2 21.1 % 70.0 12.2 % Amortization of acquisition-related intangibles 1.1 0.1 % 1.7 0.2 % 2.2 0.4 % Loss (gain) on disposal or impairment of other assets 1.2 0.1 % 2.0 0.3 % (0.3) (0.1) % Other operating expense 18.3 2.3 % 10.8 1.4 % 13.7 2.4 % Operating loss (445.3) (55.2) % (311.8) (41.1) % (203.1) (35.5) % Non-operating expense (income), net 127.2 15.8 % (52.0) (6.9) % 38.8 6.8 % Loss before income taxes (572.5) (70.9) % (259.8) (34.3) % (241.9) (42.3) % Income tax expense 1.1 0.1 % 0.7 0.1 % 8.2 1.4 % Net loss from continuing operations (573.6) (71.1) % (260.5) (34.3) % (250.1) (43.7) % Net (loss) income from discontinued operations (290.6) (36.0) % (69.4) (9.1) % 49.2 8.6 % Net loss ($864.2) (107.1) % ($329.9) (43.5) % ($200.9) (35.1) % Basic and diluted loss per share Continuing operations ($4.56) ($2.09) ($2.08) Net loss ($6.88) ($2.65) ($1.67) 32 Table of Contents Revenue Revenue was comprised of the following: Fiscal Years Ended Year-Over-Year Change (in millions of U.S.
Such factors may include the following, among others: a significant decline in the reporting unit’s expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate, unanticipated competition; and slower growth rates; as well as changes in management, key personnel, strategy, and customers.
Such factors may include the following, among others: a significant decline in the reporting unit’s expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate, such as, unanticipated competition or slower growth rates; as well as changes in management, key personnel, strategy, and customers.
Sales, General and Administrative Sales, general and administrative (SG&A) expenses are comprised primarily of costs associated with our sales and marketing personnel and our executive and administrative personnel (for example, finance, human resources, information technology and legal) and consist of salaries and related compensation costs; consulting and other professional services (such as litigation and other outside legal counsel fees, audit and other compliance costs); marketing and advertising expenses; facilities and insurance costs; and travel and other costs.
Sales, General and Administrative Sales, general and administrative (SG&A) expenses are comprised of costs primarily associated with our sales and marketing personnel and our executive and administrative personnel (for example, finance, human resources, information technology and legal) and substantially consist of salaries and related compensation costs; consulting and other professional services (such as litigation and other outside legal counsel fees, audit and other compliance costs); marketing and advertising expenses; facilities and insurance costs; and travel costs.
Due to the risk of technological obsolescence or changes in our production process, we regularly review our long-lived assets and capitalized patent costs for possible impairment. 35 Loss (gain) on disposal or impairment of other assets were as follows: Fiscal Years Ended Year-Over-Year Change (in millions of U.S.
Due to the risk of technological obsolescence or changes in our production process, we regularly review our long-lived assets and capitalized patent costs for possible impairment. Loss (gain) on disposal or impairment of other assets were as follows: Fiscal Years Ended Year-Over-Year Change (in millions of U.S.
Demand also fluctuates based on various domestic and global economic and market cycles, continuously evolving industry supply chains, trade and tariff terms, and inflationary impacts, as well as evolving competitive dynamics in each of the respective markets. These uncertainties make demand difficult to forecast for us and our customers.
Demand also fluctuates based on various domestic and global economic and market cycles, continuously evolving industry supply chains, trade and tariff terms, and inflationary impacts, as well as evolving competitive dynamics in each of our respective markets. These uncertainties make demand difficult to forecast for us and our customers.
Cash Flows from Financing Activities Net cash provided by financing activities in fiscal 2023 primarily consisted of $2.9 billion in net proceeds from issuing the 2029 Notes and the 2030 Senior Notes, partially offset by $273.9 million in cash paid for the capped call transactions in connection with issuing the 2029 Notes.
Net cash provided by financing activities in fiscal 2023 primarily consisted of $2.9 billion in net proceeds from issuing the 2029 Notes and the 2030 Senior Notes, partially offset by $273.9 million in cash paid for the capped call transactions in connection with issuing the 2029 Notes.
An unfavorable tax settlement might require use of our cash, existing deferred tax assets, and/or result in an increase in our effective tax rate in the year of resolution. A favorable tax settlement would be recognized as a reduction in our effective tax rate in the year of resolution.
An unfavorable tax settlement might require use of our cash, existing deferred tax assets, and/or result in an increase in our effective tax rate in the year of resolution, whereas, a favorable tax settlement would be recognized as a reduction in our effective tax rate in the year of resolution.
The increase in interest expense in fiscal 2023 compared to fiscal 2022 was primarily due to interest from our 2029 Notes and 2030 Senior Notes, which were not outstanding as of June 26, 2022.
The increase in fiscal 2023 as compared to fiscal 2022 was primarily due to interest from our 2029 Notes and 2030 Senior Notes, which were not outstanding as of June 26, 2022.
We now expect to invest approximately $2.0 billion in construction, equipment and other related costs for the new facility, of which approximately $500 million is expected to be reimbursed over time by the State of New York Urban Development Corporation (doing business as Empire State Development) under a Grant Disbursement Agreement (the GDA).
We expect to invest approximately $2.0 billion in total construction, equipment and other related costs for the new facility, of which approximately $500 million is expected to be reimbursed over time by the State of New York Urban Development Corporation (doing business as Empire State Development) under a Grant Disbursement Agreement (the GDA).
The decrease in gross margin for fiscal 2023 compared to fiscal 2022 was primarily due to increased production costs and unfavorable product mix.
The decrease in gross margin for fiscal 2023 as compared to fiscal 2022 was primarily due to increased production costs and unfavorable product mix.
However, even with our strong working capital position, we expect to need additional funding to fully complete all of our intended capacity expansions. 38 Table of Contents Sources of Liquidity The following table sets forth our cash, cash equivalents and short-term investments: (in millions of U.S.
However, even with our strong working capital position, we expect to need additional funding to fully complete all of our intended capacity expansions. 37 Table of Contents Sources of Liquidity The following table sets forth our cash, cash equivalents and short-term investments: (in millions of U.S.
During the period when production begins, but before the facility is at its expected utilization level, we expect some of the costs to operate the facility will not be absorbed into the cost of inventory. We expect that these costs will be substantial as we ramp up the facility to the expected or normal utilization level.
During the period when revenue production begins, but before the facility is at its expected utilization level, we expect some of the costs to operate the facility will not be absorbed into the cost of inventory. We expect that these costs will continue to be substantial as we ramp up the facility to the expected or normal utilization level.
In addition, an increase in interest expense from our 1.75% convertible senior notes due May 1, 2026 (the 2026 Notes), the interest of which was fully capitalized in fiscal 2022 but was almost fully expensed in fiscal 2023, was offset by a decrease in interest expense from our 0.875% convertible senior notes due September 1, 2023 (the 2023 Notes), which were extinguished in the second quarter of fiscal 2022.
In addition, an increase in interest expense from the 2026 Notes, the interest of which was fully capitalized in fiscal 2022 but was almost fully expensed in fiscal 2023, was offset by a decrease in interest expense from our 0.875% convertible senior notes due September 1, 2023 (the 2023 Notes), which were extinguished in the second quarter of fiscal 2022.
Innovations and advancements in materials, power, and RF technologies continue to expand the potential commercial application for our products. However, new technologies or standards could emerge or improvements could be made in existing technologies that could reduce or limit the demand for our products in certain markets. 30 • Intellectual Property Issues.
Innovations and advancements in materials and power technologies continue to expand the potential commercial application for our products. However, new technologies or standards could emerge or improvements could be made in existing technologies that could reduce or limit the demand for our products in certain markets. • Intellectual Property Issues.
Financial and Market Risks We are exposed to financial and market risks, including changes in interest rates, currency exchange rates and commodities risk. We have entered, and may in the future enter, into foreign currency derivative financial instruments in an effort to manage or hedge some of our foreign exchange rate risk.
Financial and Market Risks We are exposed to financial and market risks, including changes in interest rates, equity prices, currency exchange rates and commodities risk. We have entered, and may in the future enter, into foreign currency derivative financial instruments in an effort to manage or hedge some of our foreign exchange rate risk.
We adjust these unrecognized tax benefits, including any impact on the related interest and penalties, in light of changing facts and circumstances, such as the progress of a tax audit. 43 Table of Contents A number of years may elapse before a particular matter for which we have established an unrecognized tax benefit is audited and fully resolved.
We adjust these unrecognized tax benefits, including any impact on related interest and penalties, in light of changing facts and circumstances, such as the progress of a tax audit. A number of years may elapse before a particular matter for which we have established an unrecognized tax benefit is audited and fully resolved.
Accordingly, our liquidity and capital resources are not subject to off-balance sheet risks from unconsolidated entities. As of June 25, 2023, we did not have any off-balance sheet arrangements, as defined in Item 303(b) of SEC Regulation S-K. Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with U.S. GAAP. In the application of U.S.
Accordingly, our liquidity and capital resources are not subject to off-balance sheet risks from unconsolidated entities. As of June 30, 2024, we did not have any off-balance sheet arrangements, as defined in Item 303(b) of SEC Regulation S-K. Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with U.S. GAAP. In the application of U.S.
The total net proceeds of the 2028 Notes was $732.3 million, of which we used $108.2 million to fund the cost of entering into capped call transactions.
The total net proceeds of the 2028 Notes were $732.3 million, of which we used $108.2 million to fund the cost of entering into capped call transactions.
Interest Rate Risk We maintain an investment portfolio principally composed of money market funds, municipal bonds, corporate bonds, U.S. agency securities, U.S. treasury securities, commercial paper, certificates of deposit, and variable rate demand notes. In order to minimize risk, our cash management policy permits us to acquire investments rated “A” grade or better.
Interest Rate Risk We maintain an investment portfolio principally composed of money market funds, municipal bonds, corporate bonds, United States agency securities, United States treasury securities, commercial paper, certificates of deposit, and variable rate demand notes. In order to minimize risk, our cash management policy permits us to acquire investments rated “A” grade or better.
To address these competitive pressures, we have invested in new production facilities, as well as research and development activities to support new product development, lower product costs and deliver higher levels of performance to differentiate our products in the market.
To address these competitive pressures, we have invested in new production facilities, as well as research and development activities to support new product development, lower product costs and increase levels of product performance to differentiate our products in the market.
Market participants rely on patented and non-patented proprietary information relating to product development, manufacturing capabilities and other core competencies of their business. Protection of intellectual property is critical. Therefore, steps such as additional patent applications, confidentiality and non-disclosure agreements, as well as other security measures are generally taken.
Market participants rely on patented and non-patented proprietary information associated with product development, manufacturing capabilities and other core competencies of their business. Protection of intellectual property is critical. Therefore, steps such as additional patent applications, confidentiality and non-disclosure agreements, as well as other security measures are generally taken.
In connection with the completed sale of our former LED Products business unit to SGH and its wholly owned subsidiary CreeLED, Inc.
In connection with the completed sale of our former LED Business to SGH and its wholly owned subsidiary CreeLED, Inc.
In general, the variation between our effective income tax rate and the current U.S. statutory rate of 21.0% is primarily due to: (i) changes in our valuation allowances against deferred tax assets, (ii) income derived from international locations with differing tax rates than the U.S., and (iii) tax credits generated.
In general, the variation between our effective income tax rate and the current United States statutory rate of 21.0% is primarily due to: (i) changes in our valuation allowances against deferred tax assets, (ii) income derived from international locations with differing tax rates than the United States, and (iii) tax credits generated.
Liquidity and Capital Resources Overview We require cash to fund our operating expenses and working capital requirements, including the purchase of goods and services in the ordinary course of business such as raw materials, supplies and capital equipment, as well as outlays for research and development, strategic acquisitions and investments.
Liquidity and Capital Resources Overview We require cash to fund our operating expenses, debt service costs, working capital requirements and capital expenditures, including the purchase of goods and services in the ordinary course of business such as raw materials, supplies and capital equipment, as well as outlays for research and development, strategic acquisitions and investments.
In the second quarter of fiscal 2022, all outstanding 2023 Notes were surrendered for conversion following our issuance on December 8, 2021 of a notice to holders of the 2023 Notes calling for the redemption of all outstanding 2023 Notes, resulting in the settlement of the previously outstanding $424.8 million aggregate principal amount of 2023 Notes in approximately 7.1 million shares of our common stock.
In fiscal 2022, all outstanding 2023 Notes were surrendered for conversion following our issuance on December 8, 2021 of a notice to holders of the 2023 Notes calling for the redemption of the remaining outstanding 2023 Notes, resulting in the settlement of the outstanding $424.8 million aggregate principal amount of 2023 Notes in approximately 7.1 million shares of our common stock.
All of our short-term investments had investment grade ratings, and any such investments that were in an unrealized loss position at June 25, 2023 were in such position due to interest rate changes, sector credit rating changes or company-specific rating changes. We evaluate our short-term investments for expected credit losses.
All of our short-term investments had investment grade ratings, and any such investments that were in an unrealized loss position at June 30, 2024 were in such position due to interest rate changes, sector credit rating changes or company-specific rating changes. We evaluate our short-term investments for expected credit losses.
The market and income approaches require significant judgment, including estimation of future revenues, gross margins, and operating expenses, which are dependent on internal forecasts, current and anticipated economic conditions and trends, selection of market multiples through assessment of the reporting unit’s performance relative to peer competitors, the estimation of the long-term revenue growth rate and discount rate from the capital asset pricing model and the determination of our weighted average cost of capital.
The market and income approaches require significant judgment, including (i) the estimation of future revenues, gross margins, and operating expenses, all of which are dependent on internal forecasts, current and anticipated economic conditions and trends, (ii) the selection of market multiples through an assessment of the reporting unit’s performance relative to peer competitors, (iii) the estimation of the long-term revenue growth rate and discount rate from the capital asset pricing model and (iv) the determination of our weighted average cost of capital.
We recognized a supply agreement liability in connection with this agreement, which reached full amortization in the second quarter of fiscal 2023. We expect losses from this agreement to continue through December 2025. Income Tax Expense Income tax expense and our effective tax rate was as follows: Fiscal Years Ended Year-Over-Year Change (in millions of U.S.
We recognized a supply agreement liability in connection with this agreement, which reached full amortization in the second quarter of fiscal 2023. We expect losses from this agreement to continue through September 2024. 36 . Income Tax Expense Income tax expense and our effective tax rate was as follows: Fiscal Years Ended Year-Over-Year Change (in millions of U.S.
In the third quarter of fiscal 2022, we issued and sold a total of $750.0 million aggregate principal amount of 2028 Notes, as discussed in Note 10, "Long-term Debt," to our consolidated financial statements in Item 8 of this Annual Report.
Also in fiscal 2022, we issued and sold a total of $750.0 million aggregate principal amount of 2028 Notes, as discussed in Note 10, "Long-term Debt," to our consolidated financial statements in Item 8 of this Annual Report.
Actual results may vary and could have a significant impact on our operating results. 42 Table of Contents Under the ship and debit program, products are sold to distributors at negotiated prices and the distributors are required to pay for the products purchased within our standard commercial terms.
Actual results may vary and could have a significant impact on our operating results. Under the ship and debit program, products are sold to distributors at negotiated prices and the distributors are required to pay for the products purchased within our standard commercial terms.
We believe we are able to and we intend to hold each of the investments held with an unrealized loss as of June 25, 2023 until the investments fully recover in market value. No allowance for credit losses was recorded as of June 25, 2023.
We believe we are able to and we intend to hold each of the investments held with an unrealized loss as of June 30, 2024 until the investments fully recover in market value. No allowance for credit losses was recorded as of June 30, 2024.
We believe we have the ability to navigate the current environment while maintaining our capital expenditure plans to support future growth to meet long-term demand, which demand in the short-term and mid-term appears to be ahead of the industry's supply capabilities.
We believe we have the ability to navigate the current environment while maintaining our capital expenditure plans to support future growth to meet long-term demand, although demand in the mid-term appears to be ahead of the industry's supply capabilities.
The increase in interest income in fiscal 2022 compared to fiscal 2021 was primarily due to interest income received on our previously held note receivable from SGH in connection with the LED Business Divestiture, partially offset by decreased investment returns from our short-term investment securities. Interest expense, net of capitalized interest.
The increase in interest income in fiscal 2022 was primarily due to interest income received on our previously held note receivable from SGH in connection with the LED Business Divestiture (as defined below), partially offset by decreased investment returns from our short-term investment securities. Interest expense, net of capitalized interest.
We have determined that we have one reporting unit. We may initiate goodwill impairment testing by considering qualitative factors to determine whether it is more likely than not that a reporting unit’s carrying value is greater than its fair value.
We may initiate goodwill impairment testing by considering qualitative factors to determine whether it is more likely than not that a reporting unit’s carrying value is greater than its fair value.
Revenue Recognition For the year ended June 25, 2023, approximately a third of our revenue was from sales to distributors. Distributors stock inventory and sell our products to their own customer base, which may include: value added resellers; manufacturers who incorporate our products into their own manufactured goods; or ultimate end users of our products.
Revenue Recognition For the year ended June 30, 2024, approximately a quarter of our revenue was from sales to distributors. Distributors stock inventory and sell our products to their own customer base, which may include value added resellers, manufacturers who incorporate our products into their own manufactured goods, or ultimate end users of our products.
All of the potential changes noted below are based on sensitivity analysis performed on our financial positions at June 25, 2023 and June 26, 2022. Actual results may differ materially.
All of the potential changes noted below are based on sensitivity analysis performed on our financial positions at June 30, 2024 and June 25, 2023. Actual results may differ materially.
In the second quarter of fiscal 2023, we issued and sold a total of $1,750.0 million aggregate principal amount of 2029 Notes, as discussed in Note 10, "Long-term Debt," to our consolidated financial statements in Item 8 of this Annual Report.
In fiscal 2023, we issued and sold a total of $1,750.0 million aggregate principal amount of 2029 Notes and $1,250.0 million aggregate principal amount of 2030 Senior Notes, as discussed in Note 10, "Long-term Debt," to our consolidated financial statements in Item 8 of this Annual Report.
In the first quarter of fiscal 2023, we received an early payment in the amount of $101.8 million in connection with the unsecured promissory note issued in the fourth quarter of fiscal 2022 as an earn-out payment. As of June 25, 2023, we had unrealized losses on our short-term investments of $22.7 million.
In the first quarter of fiscal 2023, we received an early payment in the amount of $101.8 million in connection with the unsecured promissory note issued in the fourth quarter of fiscal 2022 as an earn-out payment. As of June 30, 2024, we had unrealized losses on our short-term investments of $9.3 million.
These assessments reflect our assumptions, which, we believe, are consistent with the assumptions hypothetical marketplace participants use. Factors that we must estimate when performing recoverability and impairment tests include, among others, the economic life of the asset, sales volumes, prices, cost of capital, tax rates, and capital spending. These factors are often interdependent and therefore do not change in isolation.
These assessments reflect our assumptions, which we believe are consistent with the assumptions hypothetical marketplace participants use. Factors that we must estimate when performing recoverability and impairment tests include, among others, the economic life of the asset, sales volumes, prices, the cost of capital, tax rates, and capital spending.
Competition in the industries we serve is intense. Many companies have made significant investments in product development, production equipment and production facilities. To remain competitive, market participants must continuously increase product performance, reduce costs and develop improved ways to serve their customers.
Many companies have made significant investments in product development, production equipment and production facilities. To remain competitive, market participants must continuously increase product performance, reduce costs and develop improved ways to serve their customers.
Our potential for growth depends significantly on the continued adoption of silicon carbide and GaN materials and device products in the power and RF markets, the continued use of silicon devices in the RF telecommunications market and our ability to win new designs for these applications.
Our potential for growth depends significantly on the continued adoption of silicon carbide materials and device products in the power market, and our ability to win new designs for these applications.
Market participants often undertake pricing strategies to gain or protect market share, increase the utilization of their production capacity and open new applications in the power and RF markets we serve. • Governmental Trade and Regulatory Conditions .
In addition, market participants often undertake pricing strategies to gain or protect market share, increase the utilization of their production capacity and open new applications in the power markets we serve.
As of June 25, 2023, we have $119.1 million of unrecognized compensation cost related to nonvested awards, which is expected to be recognized over a weighted average period of 2.19 years. We estimate expected forfeitures at the time of grant and revise this estimate, if necessary, in subsequent periods if actual forfeitures differ from initial estimates.
As of June 30, 2024, we have $136.7 million of unrecognized compensation cost related to nonvested awards, which is expected to be recognized over a weighted average period of 2.42 years. We estimate expected forfeitures at the time of grant and revise this estimate, if necessary, in subsequent periods if actual forfeitures differ from initial estimates.
Subsequent changes in facts and circumstances do not result in the reversal of a previously recognized impairment loss. 44 Table of Contents Goodwill We test goodwill for impairment at least annually as of the first day of the fiscal fourth quarter, or when indications of potential impairment exist.
Subsequent changes in facts and circumstances do not result in the reversal of a previously recognized impairment loss. Goodwill We test goodwill for impairment at least annually as of the first day of the fiscal fourth quarter, or when indications of potential impairment exist. We monitor for the existence of potential impairment indicators throughout the fiscal year.
Dollars) June 25, 2023 June 26, 2022 June 27, 2021 2022 to 2023 2021 to 2022 Loss (gain) on disposal or impairment of other assets $2.0 ($0.3) $1.6 $2.3 (767) % ($1.9) (119) % Loss (gain) on disposal or impairment of other assets primarily relate to proceeds from asset sales offset by write-offs of fixed asset projects, as well as the write-offs of impaired or abandoned patents.
Dollars) June 30, 2024 June 25, 2023 June 26, 2022 2023 to 2024 2022 to 2023 Loss (gain) on disposal or impairment of other assets $1.2 $2.0 ($0.3) ($0.8) (40) % $2.3 (767) % Loss (gain) on disposal or impairment of other assets primarily relate to proceeds from asset sales offset by write-offs of fixed asset projects, as well as the write-offs of impaired or abandoned patents.
Factory start-up costs relate to facilities that have not yet started revenue generating production. When a new facility begins revenue generating production, the operating costs of that facility previously expensed as start-up costs will instead be primarily expensed as part of the cost of the production within the cost of revenue, net line item in our statement of operations.
When a new facility begins revenue generating production, the operating costs of that facility previously expensed as start-up costs will instead be primarily expensed as part of the cost of the production within the cost of revenue, net line item in our statement of operations.
In the third quarter of fiscal 2022, we received an early payment in the amount of $125.0 million, along with outstanding accrued and unpaid interest as of the payment date, relating to the unsecured promissory note issued with the completion of the transaction.
In the third quarter of fiscal 2022, we received an early payment in the amount of $125.0 million, along with outstanding accrued and unpaid interest as of the payment date, relating to the Purchase Price Note.
The increase in net cash used in investing activities in fiscal 2023 compared to fiscal 2022 was primarily due to an increase in net purchases of short-term investments of $436.2 million and an increase in net property and equipment purchases of $294.4 million.
The increase in net cash used in investing activities in fiscal 2023 as compared to fiscal 2022 was primarily due to a $296.3 million increase in net property and equipment, and a $436.2 million increase in net purchases of short-term investments.
Dollars) June 25, 2023 June 26, 2022 June 27, 2021 2022 to 2023 2021 to 2022 Project, transformation and transaction costs 22.9 6.6 7.3 16.3 247 % (0.7) (10) % Factory optimization restructuring costs — 6.1 7.6 (6.1) (100) % (1.5) (20) % Severance costs 3.4 1.2 6.2 2.2 183 % (5.0) (81) % Other operating expense $26.3 $13.9 $21.1 $12.4 89 % ($7.2) (34) % Project, transformation and transaction costs primarily relate to professional services fees associated with completed and potential acquisitions and divestitures, as well as internal transformation programs focused on optimizing our administrative processes.
Dollars) June 30, 2024 June 25, 2023 June 26, 2022 2023 to 2024 2022 to 2023 Project, transformation and transaction costs $18.3 $7.4 $6.4 $10.9 147 % $1.0 16 % Factory optimization restructuring costs — — 6.1 — — % (6.1) (100) % Severance costs — 3.4 1.2 (3.4) (100) % 2.2 183 % Other operating expense $18.3 $10.8 $13.7 $7.5 69 % ($2.9) (21) % Project, transformation and transaction costs primarily relate to professional services fees associated with completed and potential acquisitions and divestitures, as well as internal transformation programs focused on optimizing our administrative processes.
Given our current cash position, we believe we will be able to fund daily operations for at least the next 12 months but we expect to need additional funding to fully complete all of our previously announced planned expansion initiatives described above.
Given our current cash and investments position, we believe we will be able to fund daily operating expenses, debt service, working capital and capital requirements for at least the next 12 months but we expect to need additional funding to fully complete all of our previously announced planned expansion initiatives described above.
We monitor for the existence of potential impairment indicators throughout the fiscal year. We conduct impairment testing for goodwill at the reporting unit level. Reporting units, as defined by FASB ASC 350, “Intangibles - Goodwill and Other,” may be operating segments as a whole or an operation one level below an operating segment, referred to as a component.
We conduct impairment testing for goodwill at the reporting unit level. Reporting units, as defined by FASB ASC 350, “Intangibles - Goodwill and Other,” may be operating segments as a whole or an operation one level below an operating segment, referred to as a component. We have determined that we have one reporting unit.
In the first quarter of fiscal 2023, we received an arbitration award in relation to a former customer failing to fulfill contractual obligations to purchase a certain amount of product over a period of time. In the second quarter of fiscal 2023, a final payment was received. The gain recognized is net of legal fees incurred.
In fiscal 2023, we received an arbitration award in relation to a former customer failing to fulfill contractual obligations to purchase a certain amount of product over a period of time. The gain recognized is net of legal fees incurred. Loss on debt extinguishment .
If impairment is indicated, we first determine if the total estimated future cash flows on an undiscounted basis are less than the carrying amounts of the asset or assets. If so, an impairment loss is measured and recognized.
These factors are often interdependent and therefore do not change in isolation. If an impairment is indicated, we first determine if the total estimated future cash flows on an undiscounted basis are less than the carrying amounts of the asset or assets; if so, an impairment loss is measured and recognized.
As of June 25, 2023 and June 26, 2022, our cash equivalents and short-term investments had a fair value of $1,456.0 million and $993.6 million, respectively.
As of June 30, 2024 and June 25, 2023, our cash equivalents and short-term investments had a fair value of $1,226.0 million and $1,456.0 million, respectively.
In addition, an expansion of our materials factory at our U.S. campus headquarters in Durham, North Carolina, the construction of a new materials manufacturing facility in Siler City, North Carolina, and the recently announced plan to construct a new silicon carbide device fabrication facility in Saarland, Germany are all expected to increase our production capacity.
In addition, an expansion of our materials factory in Durham, North Carolina, the construction of a new materials manufacturing facility in Siler City, North Carolina, the renovation of an epitaxy facility in Farmers Branch, Texas, and our plan to construct a new silicon carbide device fabrication facility in Saarland, Germany are all expected to increase our production capacity.
To enforce or protect intellectual property rights, litigation or threatened litigation is common. Fiscal 2023 Overview The following is a summary of our financial results for the year ended June 25, 2023: • Our year-over-year revenue increased by $175.7 million to $921.9 million. • Gross margin decreased to 30.3% from 33.4%.
To enforce or protect intellectual property rights, litigation or threatened litigation is common. 30 Fiscal 2024 Overview The following is a summary of our financial results for the year ended June 30, 2024: • Our year-over-year revenue increased by $48.7 million to $807.2 million. • Gross margin decreased to 9.6% in fiscal 2024 from 32.0% in fiscal 2023.
In accordance with the provisions of ASC 740, we establish unrecognized tax benefits (as a reduction to the deferred tax asset or as an increase to other liabilities) to reduce some or all of the tax benefit of any of our tax positions at such time that we determine the position has become uncertain based upon one of the following: the tax position is not “more likely than not” to be sustained; the tax position is “more likely than not” to be sustained, but for a lesser amount; or the tax position is “more likely than not” to be sustained, but not in the financial period in which the tax position was originally taken.
ASC 740 states that a tax benefit should not be recognized for financial statement purposes for an uncertain tax filing position where it is not more likely than not (likelihood of greater than 50%) of being sustained by the taxing authorities based on the technical merits of the position. 42 Table of Contents In accordance with the provisions of ASC 740, we establish unrecognized tax benefits (as a reduction to the deferred tax asset or as an increase to other liabilities) to reduce some or all of the tax benefit of any of our tax positions at such time that we determine the position has become uncertain based upon one of the following conditions: the tax position is not “more likely than not” to be sustained; the tax position is “more likely than not” to be sustained, but for a lesser amount; or the tax position is “more likely than not” to be sustained, but not in the financial period in which the tax position was originally taken.
The total net proceeds of the 2029 Notes was $1,718.6 million, of which we used $273.9 million to fund the cost of entering into capped call transactions.
The total net proceeds from the sale of the 2029 Notes were $1,718.6 million, of which we used $273.9 million to fund the cost of entering into capped call transactions. The total net proceeds from the sale of the 2030 Senior Notes were approximately $1,149.3 million.
Dollars) June 25, 2023 June 26, 2022 June 27, 2021 2022 to 2023 2021 to 2022 Income tax expense $1.4 $9.0 $1.1 (7.6) (84) % 7.9 718 % Effective tax rate — % (3) % — % The change in the effective tax rate from (3)% in fiscal 2022 as compared to 0% in fiscal 2023 and fiscal 2021 was primarily due to $7.3 million of income tax expense recognized in the second quarter of fiscal 2022 related to the restructuring of our Luxembourg holding company.
Dollars) June 30, 2024 June 25, 2023 June 26, 2022 2023 to 2024 2022 to 2023 Income tax expense $1.1 $0.7 $8.2 0.4 57 % (7.5) (91) % Effective tax rate — % — % (3) % The change in the effective tax rate from (3)% in fiscal 2022 to 0% in fiscal 2023 and fiscal 2024 was primarily due to $7.3 million of income tax expense recognized in the second quarter of fiscal 2022 related to the restructuring of our Luxembourg holding company.
Changes in trade policy, such as the imposition or extension of tariffs or export bans to specific customers or countries, including China's recently announced export restriction of gallium and germanium, two metals used in the manufacturing of semiconductors and electronics, could reduce or limit demand, or increase the cost of production, of our products in certain markets. • Technological Innovation and Advancement.
Changes in trade policy, such as the imposition or extension of tariffs or export bans to specific customers or countries could reduce or limit demand for, or increase the cost of production of, our products in certain markets. • Technological Innovation and Advancement.
We may also access capital markets through the issuance of debt or equity, which we may use in connection with the acquisition of complementary businesses or other significant assets or for other strategic opportunities or general corporate purposes. 39 Table of Contents Expected Uses of Liquidity We recently opened our new silicon carbide device fabrication facility in Marcy, New York, to expand capacity for production of our silicon carbide devices.
We may also access capital markets through the issuance of debt or equity, which we may use in connection with the acquisition of complementary businesses or other significant assets or for other strategic opportunities or general corporate purposes. 38 Table of Contents Expected Uses of Liquidity We opened the Mohawk Valley Fab in the fourth quarter of fiscal 2022 to expand capacity for production of our silicon carbide devices and started revenue generating production at the facility in the fourth quarter of fiscal 2023.
We may seek to obtain funding through, among other avenues, government funding in both the United States or Europe, public or private equity offerings and debt financings (which may involve retiring some of our existing debt). In addition to ordinary operating expenses, our estimated future obligations consist of leases, debt, and interest on long-term debt.
We may seek to obtain funding through, among other avenues, government funding in both the United States and Europe, public or private equity offerings and debt financings (which may involve refinancing, modifying or retiring some of our existing debt).
Our research and development expenses vary significantly from year to year based on a number of factors, including the timing of new product introductions and the number and nature of our ongoing research and development activities.
Our research and development expenses vary significantly from year to year based on a number of factors, including the timing of new product introductions and the number and nature of our ongoing research and development activities. Research and development expenses were as follows: Fiscal Years Ended Year-Over-Year Change (in millions of U.S.
Dollars) June 25, 2023 June 26, 2022 Change Cash and cash equivalents $1,757.0 $449.5 $1,307.5 Short-term investments 1,197.9 749.3 448.6 Total cash, cash equivalents and short-term investments $2,954.9 $1,198.8 $1,756.1 The significant components of our working capital are liquid assets such as cash and cash equivalents, short-term investments, accounts receivable and inventories reduced by accounts payable and accrued expenses.
Dollars) June 30, 2024 June 25, 2023 Change Cash and cash equivalents $1,045.9 $1,757.0 ($711.1) Short-term investments 1,128.7 1,197.9 (69.2) Total cash, cash equivalents and short-term investments $2,174.6 $2,954.9 ($780.3) The significant components of our working capital are liquid assets such as cash and cash equivalents, short-term investments, accounts receivable and inventories, partially reduced by accounts payable and accrued expenses.
While we have successfully managed through challenges relating to obtaining certain necessary raw materials and production and processing equipment thus far, and have continued to see supply availabilities and lead times stabilize across many direct materials, we expect the supply situation for certain items to remain tight for at least the next few quarters.
We have successfully managed through challenges relating to obtaining certain necessary production and processing equipment thus far, and we have continued to see supply availabilities and lead times stabilize across many direct materials.
These costs consisted primarily of employee salaries and related compensation costs, occupancy costs, consulting costs and the cost of development equipment and supplies. Research and development costs also include developing supporting technologies for expansion of our new silicon carbide device fabrication facility in Marcy, New York.
These costs consisted primarily of employee salaries and related compensation costs, occupancy costs, consulting costs and the cost of development equipment and supplies. Research and development costs also include developing supporting technologies for the expansion of the Mohawk Valley Fab.
Net Loss from Discontinued Operations We have classified the results of our former LED Products segment (the LED Business) as discontinued operations in our consolidated statements of operations for all periods presented. We ceased recording depreciation and amortization of long-lived assets of the LED Business upon classification as discontinued operations in October 2020.
Net Loss from Discontinued Operations We have classified the results of our former RF Business as discontinued operations in our consolidated statements of operations for all periods presented. We ceased recording depreciation and amortization of long-lived assets of the RF Business upon classification as discontinued operations in August 2023. Fiscal Years Ended Year-Over-Year Change (in millions of U.S.
Based on past performance and current expectations, we believe our current working capital 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.
Our principal sources of liquidity are cash on hand and marketable securities. Based on past performance and current expectations, we believe our current working capital will be adequate to meet our cash needs for at least the next 12 months.
We expect gross profit and gross margin to be significantly impacted in future periods from these underutilization costs in connection with our new facility construction and expansion projects, the costs of which to date have solely been expensed as factory start-up costs. 33 Research and Development Research and development expenses include costs associated with the development of new products, enhancements of existing products and general technology research.
We expect gross profit and gross margin to be significantly impacted in future periods from these underutilization costs in connection with our new facility construction and expansion projects, the costs of which were expensed as factory start-up costs prior to fiscal 2024.
Dollars) June 25, 2023 June 26, 2022 June 27, 2021 2022 to 2023 2021 to 2022 Customer relationships $6.1 $6.1 $6.1 $— — % $— — % Developed technology 4.8 5.4 5.4 (0.6) (11) % — — % Non-compete agreements — 2.1 3.0 (2.1) (100) % (0.9) (30) % Total $10.9 $13.6 $14.5 ($2.7) (20) % ($0.9) (6) % Amortization of acquisition-related intangible assets decreased in all periods presented due to certain intangible assets reaching the end of their useful lives.
Dollars) June 30, 2024 June 25, 2023 June 26, 2022 2023 to 2024 2022 to 2023 Developed technology $ 1.1 $ 1.7 $ 2.2 $ (0.6) (35) % $ (0.5) (23) % Amortization of acquisition-related intangible assets decreased in all periods presented due to certain intangible assets reaching the end of their useful lives.
In addition, we are focused on improving the number of usable items in a production cycle (yield) as our manufacturing technologies become more complex.
We believe these efforts will support our goals of delivering higher revenue and shareholder returns over time. In addition, we are focused on improving the number of usable items in a production cycle (yield) as our manufacturing technologies become more complex.
Dollars) June 25, 2023 June 26, 2022 June 27, 2021 2022 to 2023 2021 to 2022 Interest income ($58.2) ($11.8) ($10.1) ($46.4) 393 % ($1.7) (17) % Interest expense, net of capitalized interest 42.6 25.1 45.4 17.5 70 % (20.3) (45) % Gain on arbitration proceedings (50.3) — — (50.3) (100) % — — % Loss on debt extinguishment — 24.8 — (24.8) (100) % 24.8 100 % Gain on equity investment — — (8.3) — — % 8.3 100 % Loss on Wafer Supply Agreement 13.6 0.8 0.8 12.8 1,600 % — — % Gain on sale of investments, net — (0.3) (0.4) 0.3 100 % 0.1 25 % Other, net 0.2 (0.3) (1.1) 0.5 167 % 0.8 73 % Non-operating (income) expense, net ($52.1) $38.3 $26.3 ($90.4) (236) % $12.0 46 % Interest income.
Dollars) June 30, 2024 June 25, 2023 June 26, 2022 2023 to 2024 2022 to 2023 Interest income ($135.0) ($58.2) ($11.3) ($76.8) (132) % ($46.9) (415) % Interest expense, net of capitalized interest 246.3 42.6 25.1 203.7 478 % 17.5 70 % Loss (gain) on legal proceedings 7.7 (50.3) — 58.0 115 % (50.3) (100) % Loss on debt extinguishment — — 24.8 — — % (24.8) (100) % Gain on equity investment (18.5) — — (18.5) (100) % — — % Loss on Wafer Supply Agreement 25.3 13.6 0.8 11.7 86 % 12.8 1,600 % Other expense, net 1.4 0.3 (0.6) 1.1 367 % 0.9 150 % Non-operating expense (income), net $127.2 ($52.0) $38.8 $179.2 345 % ($90.8) (234) % Interest income.
We have a take-or-pay supplier agreement that requires a minimum of $200 million of purchases over the next five years, as outlined further in Note 15, "Commitments and Contingencies," to our consolidated financial statements in Item 8 of this Annual Report.
We have take-or-pay supplier agreements that require a minimum of $235.2 million of purchases over the next four years and a commitment to provide quarterly capacity reservation deposits with a remaining total of $21.6 million over the next 18 months, as outlined further in Note 15, "Commitments and Contingencies," to our consolidated financial statements in Item 8 of this Annual Report.
Our potential for growth, as with most multi-national companies, depends on a balanced and stable trade, political, geopolitical, economic and regulatory environment among the countries where we do business.
In addition, we invest in systems, people and new processes to improve our ability to deliver a better overall experience for our customers. • Governmental Trade and Regulatory Conditions . Our potential for growth, as with most multi-national companies, depends on a balanced and stable trade, political, geopolitical, economic and regulatory environment in the countries where we do business.
Our distributors may be provided limited rights that allow them to return or scrap a portion of inventory (product exchange rights or stock rotation rights) and receive credits for changes in selling prices (price protection rights) or customer pricing arrangements under our “ship and debit” program or other targeted sales incentives.
This arrangement is often referred to as a “sell-in” or “point-of-purchase” model as opposed to a “sell-through” or “point-of-sale” model, where revenue is deferred and not recognized until the distributor sells the product through to their customer. 41 Table of Contents Our distributors may be provided limited rights that allow them to return or scrap a portion of inventory (product exchange rights or stock rotation rights) and receive credits for changes in selling prices (price protection rights) or customer pricing arrangements under our “ship and debit” program or other targeted sales incentives.
Long-Lived Assets We evaluate long-lived assets such as property, equipment and finite-lived intangible assets, such as patents, for impairment whenever events or circumstances indicate that the carrying value of the assets recognized in our financial statements may not be recoverable.
The assessment of an estimated forfeiture rate will not alter the total compensation expense to be recognized, only the timing of this recognition as compensation expense is adjusted to reflect instruments that vest. 43 Table of Contents Long-Lived Assets We evaluate long-lived assets such as property, equipment and finite-lived intangible assets, such as patents, for impairment whenever events or circumstances indicate that the carrying value of the assets recognized in our financial statements may not be recoverable.
We expect to use the net proceeds for general corporate purposes. In connection with the sale of our 2030 Senior Notes, we terminated the $125.0 million secured revolving line of credit under which we were able to borrow, repay and reborrow loans from time to time prior to its scheduled maturity date of January 9, 2026.
In connection with the sale of our 2030 Senior Notes, we terminated the $125.0 million secured revolving line of credit prior to its scheduled maturity date of January 9, 2026.
Dollars) June 25, 2023 June 26, 2022 June 27, 2021 2022 to 2023 2021 to 2022 Sales, general and administrative $235.3 $203.5 $181.6 $31.8 16 % $21.9 12 % Percent of revenue 26 % 27 % 35 % The increase in SG&A expenses in fiscal 2023 compared to fiscal 2022 was primarily due to increased salaries and benefits from increased headcount, including incentive based stock-based compensation, as well as increases in professional services, sponsorship, and travel costs.
Dollars) June 30, 2024 June 25, 2023 June 26, 2022 2023 to 2024 2022 to 2023 Sales, general and administrative $246.4 $214.3 $183.0 $32.1 15 % $31.3 17 % Percent of revenue 31 % 28 % 32 % The increase in SG&A expenses in all periods was primarily due to increased salaries and benefits from increased headcount, including incentive based stock-based compensation, as well as increases in professional services and sponsorship costs.
As such, we dispose of a certain level of our equipment in the normal course of business as our production processes change due to production improvement initiatives or product mix changes.
No other significant acquisition-related intangible activity or impairments occurred between the periods. Loss (gain) on Disposal or Impairment of Other Assets We dispose of a certain level of our equipment in the normal course of business as our production processes change due to production improvement initiatives or product mix changes.
We are primarily focused on investing in our business to expand the scale, further develop the technologies, and accelerate the growth opportunities of silicon carbide materials, silicon carbide power devices and modules. We believe these efforts will support our goals of delivering higher revenue and shareholder returns over time.
We are primarily focused on investing in our business to expand the scale of production, further develop the technologies, and accelerate the growth opportunities of silicon carbide materials, silicon carbide power devices and modules. We are prioritizing the identification of opportunities to reduce operating costs and to optimize our capital structure in support of these investments in our business.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk See the section entitled “Financial and Market Risks” included in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report. 45 Table of Contents
Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk See the section entitled “Financial and Market Risks” included in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report. 44 Table of Contents

Other WOLF 10-K year-over-year comparisons