Discontinued Operations

3 Months Ended

Sep. 24, 2023

Discontinued Operations and Disposal Groups [Abstract]

RF Business Divestiture

On August 22, 2023, the Company entered into a definitive agreement (the RF Purchase Agreement) to sell its RF product line (the RF Business) to MACOM Technology Solutions Holdings, Inc. (MACOM) for approximately $75 million in cash, subject to a customary purchase price adjustment, and 711,528 shares of MACOM common stock (the MACOM Shares), valued at $50 million based on the 30 trading day trailing average closing price for MACOM’s common stock through August 21, 2023 (the RF Business Divestiture). The Company expects to close the transaction by the end of calendar 2023.

In connection with the RF Business Divestiture, MACOM will assume control of Wolfspeed’s 100mm gallium nitride wafer fabrication facility in Research Triangle Park, North Carolina (the RTP Fab) approximately two years following the closing of the transaction (the Closing) (the RTP Fab Transfer). The RTP Fab Transfer will occur after the Closing to accommodate the Company’s relocation of certain production equipment currently located in the RTP Fab to its fabrication facility in Durham, North Carolina. Prior to the RTP Fab Transfer, the MACOM Shares will be subject to restrictions on transfer. The Company will forfeit one-quarter of the MACOM Shares if the RTP Fab Transfer has not occurred by the fourth anniversary of the Closing.

The Company and MACOM will also enter into certain ancillary and related agreements, including (i) an Intellectual Property Assignment and License Agreement, which will assign to MACOM certain intellectual property owned by the Company and its affiliates and license to MACOM certain additional intellectual property owned by the Company, (ii) a Transition Services Agreement, pursuant to which the Company will provide MACOM certain limited transition services following the Closing, (iii) a Master Supply Agreement, pursuant to which Wolfspeed will continue to operate the RTP Fab and supply MACOM with Epi-wafers and fabrication services between the date of the Closing and the date on which the RTP Fab Transfer is complete (the RTP Fab Transfer Date), (iv) a Long-Term Epi Supply Agreement (the LTA), pursuant to which MACOM will purchase from the Company Epi-wafers from the RTP Fab Transfer Date until the fifth anniversary of the RTP Fab Transfer Date, (v) an Epi Research and Development Agreement, pursuant to which the Company will provide MACOM certain research and development activities and other technical manufacturing support services related to the RF Business during the period between the Closing and expiration of the LTA, (vi) a Real Estate License Agreement, which will allow MACOM to use certain portions of the RTP Fab to conduct the RF Business between the Closing and the RTP Fab Transfer Date, and (vii) a Lease Agreement, which will allow MACOM to lease the premises of the RTP Fab for a period of 15 years after the RTP Fab Transfer Date.

The completion of the RF Business Divestiture is subject to the satisfaction or waiver of a number of conditions set forth in the RF Purchase Agreement.

Because the RF Business Divestiture represents a strategic shift that will have a major effect on the Company’s operations and financial results, the Company has classified the results of the RF Business as discontinued operations in the Company’s consolidated statements of operations for all periods presented. The Company ceased recording depreciation and amortization of long-lived assets conveying in the RF Purchase Agreement upon classification as discontinued operations in August 2023. Additionally, the related assets and liabilities associated with the RF Business Divestiture, with the exception of current and long-term assets associated with the RTP Fab, are classified as held for sale in the consolidated balance sheets. The assets and liabilities held for sale as of September 24, 2023 are classified as current in the consolidated balance sheet as the Company expects the transaction to close within one year.

The RTP Fab is not considered within the RF Business Divestiture disposal group and the current and long-term assets associated with the RTP Fab are not classified as held for sale in the consolidated balance sheets.

The following table presents the financial results of the RF Business as loss from discontinued operations, net of income taxes in the Company's consolidated statements of operations:


	Three months ended
(in millions of U.S. Dollars)		September 24, 2023	September 25, 2022
Revenue, net		$32.8	$51.9
Cost of revenue, net		37.9	39.7
Gross (loss) profit		(5.1)	12.2
Operating expenses:
Research and development		20.3	14.9
Sales, general and administrative		7.7	5.0
Amortization of intangibles		1.5	2.4
Impairment on assets held for sale		144.6	—
Excess loss liability on assets held for sale		75.4	—
Other operating expense		17.1	2.1
Operating loss		(271.7)	(12.2)
Non-operating income		—	(0.2)


Loss before income taxes		(271.7)	(12.0)
Income tax expense		0.4	0.1
Net loss		($272.1)	($12.1)

As of September 24, 2023, the Company recorded an impairment to assets held for sale associated with the pending RF Business Divestiture of $144.6 million and an excess loss liability on assets held for sale of $75.4 million.

The following table presents the assets and liabilities of the RF Business classified as discontinued operations:


(in millions of U.S. Dollars)	September 24, 2023	June 25, 2023
Assets (current and long-term)


Inventories	35.5	38.7


Other current assets	0.1	0.2


Property and equipment, net	26.5	27.1

Intangible assets, net	89.9	91.2

Other assets	6.3	6.7
Valuation allowance on held for sale assets	(144.6)	—
Assets held for sale from discontinued operations (1)	13.7	163.9

Liabilities (current and long-term)
Accounts payable and accrued expenses	1.9	2.4
Accrued contract liabilities	4.5	4.0
Finance lease liabilities	0.1	0.1
Other current liabilities	2.3	2.1


Other long-term liabilities	4.9	5.3
Excess loss liability on held for sale assets	75.4	—
Liabilities held for sale of discontinued operations (1)	89.1	13.9

(1) Assets and liabilities of discontinued operations as of September 24, 2023 are classified as current on the consolidated balance sheet as the Company expects the transaction to close within twelve months of the balance sheet date.

LED Business Divestiture

On March 1, 2021, the Company completed the sale of certain assets and subsidiaries comprising its former LED Products segment (the LED Business) to SMART Global Holdings, Inc. (SGH) and its wholly owned subsidiary CreeLED, Inc. (CreeLED and collectively with SGH, SMART) (the LED Business Divestiture) pursuant to the terms of the Asset Purchase Agreement (the LED Purchase Agreement), dated October 18, 2020, as amended.

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

For the three months ended September 25, 2022, the Company recognized $0.9 million in administrative fees related to the LED RELA. Fees related to the LED RELA were recorded as lease income, see Note 4, "Leases." The LED RELA concluded in the third quarter of fiscal 2023.

For the three months ended September 25, 2022, the Company recognized $1.9 million in administrative fees related to the LED TSA. Fees related to the LED TSA were recorded as a reduction in expense within the line item in the consolidated statements of operations in which costs were incurred. The LED TSA concluded in the fourth quarter of fiscal 2023.

At the inception of the Wafer Supply Agreement, the Company recorded a supply agreement liability of $31.0 million, none of which was outstanding as of September 24, 2023.

For the three months ended September 24, 2023 and September 25, 2022, the Company recognized a net loss of $6.9 million and a net gain of $0.1 million, respectively, in non-operating expense (income), net related to the Wafer Supply Agreement, of which a receivable of $0.9 million is included in other assets in the consolidated balance sheet as of September 24, 2023.