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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 001-40863
__________________________________________ 
WOLFSPEED, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1572719
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
4600 Silicon Drive 
DurhamNorth Carolina27703
(Address of principal executive offices) (Zip Code)
(919) 407-5300
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.00125 par valueWOLFNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
The number of shares outstanding of the registrant’s common stock, par value $0.00125 per share, as of April 29, 2022, was 123,634,720.


WOLFSPEED, INC.
FORM 10-Q
For the Quarterly Period Ended March 27, 2022

2

PART I - FINANCIAL INFORMATION

3

WOLFSPEED, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
in millions of U.S. Dollars, except share data in thousandsMarch 27, 2022June 27, 2021
Assets
Current assets:
Cash and cash equivalents$485.9 $379.0 
Short-term investments800.2 775.6 
Total cash, cash equivalents and short-term investments1,286.1 1,154.6 
Accounts receivable, net122.4 95.9 
Inventories219.4 166.6 
Income taxes receivable6.9 6.4 
Prepaid expenses32.3 25.7 
Other current assets169.3 27.9 
Current assets held for sale1.6 1.6 
Total current assets1,838.0 1,478.7 
Property and equipment, net1,390.0 1,292.3 
Goodwill359.2 359.2 
Intangible assets, net128.3 140.5 
Long-term receivables2.5 138.4 
Deferred tax assets0.9 1.0 
Other assets33.8 35.5 
Long-term assets of discontinued operations 1.2 
Total assets$3,752.7 $3,446.8 
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses$248.3 $381.1 
Accrued contract liabilities31.4 22.9 
Income taxes payable8.3 0.4 
Finance lease liabilities0.5 5.2 
Other current liabilities34.1 38.6 
Current liabilities of discontinued operations 0.6 
Total current liabilities322.6 448.8 
Long-term liabilities:
Convertible notes, net1,008.4 823.9 
Deferred tax liabilities3.1 2.5 
Finance lease liabilities - long-term9.7 10.0 
Other long-term liabilities18.5 44.5 
Long-term liabilities of discontinued operations 0.6 
Total long-term liabilities1,039.7 881.5 
Commitments and contingencies
Shareholders’ equity:
Preferred stock, par value $0.01; 3,000 shares authorized at March 27, 2022 and June 27, 2021; none issued and outstanding
  
Common stock, par value $0.00125; 200,000 shares authorized at March 27, 2022 and June 27, 2021; 123,599 and 115,691 shares issued and outstanding at March 27, 2022 and June 27, 2021, respectively
0.2 0.1 
Additional paid-in-capital4,204.6 3,676.8 
Accumulated other comprehensive (loss) income(18.0)2.7 
Accumulated deficit(1,796.4)(1,563.1)
Total shareholders’ equity2,390.4 2,116.5 
Total liabilities and shareholders’ equity$3,752.7 $3,446.8 
The accompanying notes are an integral part of the consolidated financial statements
4

WOLFSPEED, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 Three months endedNine months ended
 March 27, 2022March 28, 2021March 27, 2022March 28, 2021
in millions of U.S. Dollars, except share data
Revenue, net$188.0 $137.3 $517.7 $379.8 
Cost of revenue, net124.0 93.3 347.3 259.0 
Gross profit64.0 44.0 170.4 120.8 
Operating expenses:
Research and development48.1 46.0 148.2 132.7 
Sales, general and administrative51.5 44.2 148.5 135.0 
Amortization or impairment of acquisition-related intangibles3.4 3.7 10.6 10.9 
(Gain) loss on disposal or impairment of other assets(0.6)0.1 (0.3)0.8 
Other operating expense23.9 11.4 52.3 22.6 
Operating loss(62.3)(61.4)(188.9)(181.2)
Non-operating expense, net3.8 8.1 35.7 18.9 
Loss before income taxes(66.1)(69.5)(224.6)(200.1)
Income tax expense (benefit)0.4 (3.0)8.7 (4.0)
Net loss from continuing operations(66.5)(66.5)(233.3)(196.1)
Net loss from discontinued operations (41.6) (178.8)
Net loss(66.5)(108.1)(233.3)(374.9)
Net income from discontinued operations attributable to noncontrolling interest 0.8  1.4 
Net loss attributable to controlling interest($66.5)($108.9)($233.3)($376.3)
Basic and diluted loss per share
Continuing operations($0.54)($0.59)($1.96)($1.75)
Net loss attributable to controlling interest($0.54)($0.96)($1.96)($3.35)
Weighted average shares - basic and diluted (in thousands)123,597 112,891 118,917 112,330 
The accompanying notes are an integral part of the consolidated financial statements
5

WOLFSPEED, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 Three months endedNine months ended
(in millions of U.S. Dollars)March 27, 2022March 28, 2021March 27, 2022March 28, 2021
Net loss($66.5)($108.1)($233.3)($374.9)
Other comprehensive loss:
Reclassification of currency translation gain to loss on sale of discontinued operations (9.5) (9.5)
Net unrealized loss on available-for-sale securities(16.3)(2.5)(20.7)(3.0)
Comprehensive loss (82.8)(120.1)(254.0)(387.4)
Net income from discontinued operations attributable to noncontrolling interest 0.8  1.4 
Comprehensive loss attributable to controlling interest($82.8)($120.9)($254.0)($388.8)
The accompanying notes are an integral part of the consolidated financial statements
6

WOLFSPEED, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive IncomeTotal Shareholders' Equity
(in millions of U.S Dollars, except share data in thousands)Number of SharesPar Value
Balance at June 27, 2021115,691 $0.1 $3,676.8 ($1,563.1)$2.7 $2,116.5 
Net loss— — — (70.1)— (70.1)
Unrealized loss on available-for-sale securities— — — — (0.8)(0.8)
Comprehensive loss(70.9)
Tax withholding on vested equity awards— — (22.5)— — (22.5)
Stock-based compensation— — 15.6 — — 15.6 
Exercise of stock options and issuance of shares495 — 0.7 — — 0.7 
Balance at September 26, 2021116,186 $0.1 $3,670.6 ($1,633.2)$1.9 $2,039.4 
Net loss— — — (96.7)— (96.7)
Unrealized loss on available-for-sale securities— — — — (3.6)(3.6)
Comprehensive loss(100.3)
Tax withholding on vested equity awards— — (2.8)— — (2.8)
Stock-based compensation— — 15.7 — — 15.7 
Exercise of stock options and issuance of shares258 — 10.7 — — 10.7 
Issuance of shares related to the extinguishment of convertible notes due September 1, 20237,126 0.1 416.1 —  416.2 
Balance at December 26, 2021123,570 $0.2 $4,110.3 ($1,729.9)($1.7)$2,378.9 
Net loss— — — (66.5)— (66.5)
Unrealized loss on available-for-sale securities— — — — (16.3)(16.3)
Comprehensive loss(82.8)
Tax withholding on vested equity awards— — (0.8)— — (0.8)
Stock-based compensation— — 15.4 — — 15.4 
Exercise of stock options and issuance of shares29 — 0.3 — — 0.3 
Issuance of convertible notes due February 15, 2028— — 187.6 — — 187.6 
Capped call transactions related to the issuance of convertible notes due February 15, 2028 — (108.2)— — (108.2)
Balance at March 27, 2022123,599 $0.2 $4,204.6 ($1,796.4)($18.0)$2,390.4 
The accompanying notes are an integral part of the consolidated financial statements
7

WOLFSPEED, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive IncomeTotal Equity - Controlled InterestNon-controlling Interest from Discontinued OperationsTotal Shareholders' Equity
(in millions of U.S. Dollars, except share data)Number of SharesPar Value
Balance at June 28, 2020109,230 $0.1 $3,106.2 ($1,039.2)$16.0 $2,083.1 $6.1 $2,089.2 
Net (loss) income— — — (184.4)— (184.4)0.3 (184.1)
Unrealized gain on available-for-sale securities— — — —   —  
Comprehensive (loss) income(184.4)0.3 (184.1)
Tax withholding on vested equity awards— — (22.7)— — (22.7)— (22.7)
Stock-based compensation— — 16.2 — — 16.2 — 16.2 
Exercise of stock options and issuance of shares1,066 — 16.5 — — 16.5 — 16.5 
Balance at September 27, 2020110,296 $0.1 $3,116.2 ($1,223.6)$16.0 $1,908.7 $6.4 $1,915.1 
Net (loss) income— — — (83.0)— (83.0)0.3 (82.7)
Unrealized loss on available-for-sale securities— — — — (0.5)(0.5)— (0.5)
Comprehensive (loss) income(83.5)0.3 (83.2)
Tax withholding on vested equity awards— — (1.6)— — (1.6)— (1.6)
Stock-based compensation— — 18.6 — — 18.6 — 18.6 
Exercise of stock options and issuance of shares681 — 22.7 — — 22.7 — 22.7 
Balance at December 27, 2020110,977 $0.1 $3,155.9 ($1,306.6)$15.5 $1,864.9 $6.7 $1,871.6 
Net (loss) income— — — (108.9)— (108.9)0.8 (108.1)
Reclassification of currency translation gain to loss on sale of discontinued operations— — — — (9.5)(9.5)— (9.5)
Unrealized loss on available-for-sale securities— — — — (2.5)(2.5)— (2.5)
Comprehensive (loss) income(120.9)0.8 (120.1)
Tax withholding on vested equity awards— — (7.4)— — (7.4)— (7.4)
Stock-based compensation— — 19.5 — — 19.5 — 19.5 
Exercise of stock options and issuance of shares225 — 1.8 — — 1.8 — 1.8 
Issuance of shares under the at-the-market offering program, net of issuance costs4,223 — 489.1 — — 489.1 — 489.1 
Reclassification of noncontrolling interest to loss on sale of discontinued operations— — — — — — (7.5)(7.5)
Balance at March 28, 2021115,425 $0.1 $3,658.9 ($1,415.5)$3.5 $2,247.0 $ $2,247.0 
The accompanying notes are an integral part of the consolidated financial statements
8

WOLFSPEED, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine months ended
(in millions of U.S. Dollars)March 27, 2022March 28, 2021
Operating activities:
Net loss($233.3)($374.9)
Net loss from discontinued operations (178.8)
Net loss from continuing operations(233.3)(196.1)
Adjustments to reconcile net loss from continuing operations to cash used in operating activities:
Depreciation and amortization97.9 88.6 
Amortization of debt issuance costs and discount, net of non-cash capitalized interest12.9 26.1 
Stock-based compensation45.2 40.3 
Loss on extinguishment of debt24.8  
Loss on disposal or impairment of long-lived assets1.0 3.7 
Amortization of premium/discount on investments4.5 4.9 
Realized gain on sale of investments(0.3)(0.3)
Gain on equity investment (7.9)
Foreign exchange gain on equity investment (3.4)
Deferred income taxes0.7 0.5 
Changes in operating assets and liabilities:
Accounts receivable, net(26.5)(11.7)
Inventories(61.6)(25.4)
Prepaid expenses and other assets(3.3)(28.2)
Accounts payable, trade11.3 27.2 
Accrued salaries and wages and other liabilities6.5 12.5 
Accrued contract liabilities(3.2)10.3 
Net cash used in operating activities of continuing operations(123.4)(58.9)
Net cash used in operating activities of discontinued operations (16.6)
Cash used in operating activities(123.4)(75.5)
Investing activities:
Purchases of property and equipment(535.5)(394.0)
Purchases of patent and licensing rights(4.2)(3.6)
Proceeds from sale of property and equipment, including insurance proceeds2.7 0.2 
Purchases of short-term investments(408.2)(342.1)
Proceeds from maturities of short-term investments135.5 335.6 
Proceeds from sale of short-term investments223.2 28.1 
Reimbursement of property and equipment purchases from long-term incentive agreement83.5  
Proceeds from sale of business, net, including receipt of note receivable125.0 36.6 
Net cash used in investing activities of continuing operations(378.0)(339.2)
Net cash used in investing activities of discontinued operations (0.3)
Cash used in investing activities(378.0)(339.5)
Financing activities:
Proceeds from long-term debt borrowings20.0 30.0 
Payments on long-term debt borrowings, including finance lease obligations(20.4)(30.3)
Proceeds from issuance of common stock11.7 530.1 
Tax withholding on vested equity awards(26.1)(31.7)
Proceeds from convertible notes750.0  
Payments of debt issuance costs(17.7) 
Cash paid for capped call transactions(108.2) 
Commitment fee on long-term incentive agreement(1.0)(0.5)
Cash provided by financing activities608.3 497.6 
Effects of foreign exchange changes on cash and cash equivalents 0.2 
Net change in cash and cash equivalents106.9 82.8 
Cash and cash equivalents, beginning of period379.0 448.8 
Cash and cash equivalents, end of period$485.9 $531.6 
The accompanying notes are an integral part of the consolidated financial statements
9

WOLFSPEED, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


10

Note 1 – Basis of Presentation and New Accounting Standards
Overview
Wolfspeed, Inc. (the Company), formerly known as Cree, Inc., is an innovator of wide bandgap semiconductors, focused on Silicon Carbide and gallium nitride (GaN) materials and devices for power and radio-frequency (RF) applications. The Company’s product families include Silicon Carbide and GaN materials, power-switching devices and RF devices targeted for various applications such as electric vehicles, fast charging, 5G, renewable energy and storage, and aerospace and defense.
Previously, the Company designed, manufactured and sold specialty lighting-class light emitting diode (LED) products targeted for use in indoor and outdoor lighting, electronic signs and signals and video displays. As discussed more fully below in Note 2, “Discontinued Operations,” on March 1, 2021, the Company completed the sale of certain assets and subsidiaries comprising its former LED Products segment (the LED Business Divestiture) to SMART Global Holdings, Inc. (SGH) and its wholly owned newly-created acquisition subsidiary CreeLED, Inc. (CreeLED and collectively with SGH, SMART).
Unless otherwise noted, discussion within these notes to the consolidated financial statements relates to the Company's continuing operations.
The Company’s materials products and power devices are used in electric vehicles, motor drives, power supplies, solar and transportation applications. The Company’s materials products and RF devices are used in military communications, radar, satellite and telecommunication applications.
On October 4, 2021, the Company changed its corporate name from Cree, Inc. to Wolfspeed, Inc. In addition, the Company transferred the listing of its common stock to the New York Stock Exchange (NYSE) from The Nasdaq Global Select Market (Nasdaq). The Company ceased trading as a Nasdaq-listed company at the end of the day on October 1, 2021 and commenced trading as a NYSE-listed company at market open on October 4, 2021 under the new ticker symbol ‘WOLF’.
The majority of the Company's products are manufactured at its production facilities located in North Carolina, California and Arkansas. The Company also uses contract manufacturers for certain products and aspects of product fabrication, assembly and packaging. Additionally, the Company recently opened its Silicon Carbide device fabrication facility in New York. The Company operates research and development facilities in North Carolina, California, Arkansas, Arizona and New York.
Wolfspeed, Inc. is a North Carolina corporation established in 1987, and its headquarters are in Durham, North Carolina.
Basis of Presentation
The consolidated financial statements presented herein have been prepared by the Company and have not been audited. In the opinion of management, all normal and recurring adjustments necessary to fairly state the consolidated financial position, results of operations, comprehensive loss, shareholders' equity and cash flows at March 27, 2022, and for all periods presented, have been made. All material intercompany accounts and transactions have been eliminated. The consolidated balance sheet at June 27, 2021 has been derived from the audited financial statements as of that date.
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2021 (fiscal 2021) (the 2021 Form 10-K). The results of operations for the three and nine months ended March 27, 2022 are not necessarily indicative of the operating results that may be attained for the entire fiscal year ending June 26, 2022 (fiscal 2022). Additionally, the impact of the COVID-19 pandemic to the results of operations remains uncertain.
Certain accounting matters that generally require consideration of forecasted financial information were assessed regarding impacts from the COVID-19 pandemic as of March 27, 2022 and through the date of this Quarterly Report using reasonably available information as of those dates. The accounting matters assessed included, but were not limited to, allowance for doubtful accounts, the carrying value of goodwill and other long-lived tangible and intangible assets, the potential impact to earnings of unrealized losses on investments, valuation allowances for tax assets and the ability to estimate an annual effective tax rate. While the assessments resulted in no material impacts to the consolidated financial statements as of and for the quarter ended March 27, 2022, the Company believes the full impact of the COVID-19 pandemic remains uncertain and will continue to assess if ongoing developments related to the COVID-19 pandemic may cause future material impacts to its consolidated financial statements.
11

Change in Estimate
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Actual amounts could differ materially from those estimates.
As a result of the LED Business Divestiture and the Company's continued investment in 200mm technology, the Company evaluated the useful lives applied to certain machinery and equipment assets by considering industry standards and reviewing the assets' historical and estimated future use. In the first quarter of fiscal 2022, the Company increased the expected useful lives of these assets by two to five years to more closely reflect the estimated economic lives of those assets. This change in estimate was applied prospectively effective for the first quarter of fiscal 2022 and resulted in a decrease in depreciation expense of $8.3 million and $25.2 million for the three and nine months ended March 27, 2022, respectively. Approximately $10.4 million of the decrease in depreciation expense for the nine months ended March 27, 2022 resulted in a net reduction of inventory as of March 27, 2022 and will impact cost of revenue, net in future periods as the inventory is relieved. The remaining $14.8 million of the decrease in depreciation expense resulted in the following for the three and nine months ended March 27, 2022: (1) an improvement in gross profit of $7.3 million and $12.2 million, respectively; (2) an improvement in both loss before income taxes and net loss of $8.2 million and $14.8 million, respectively; and (3) an improvement in basic and diluted loss per share of $0.07 and $0.12 per share, respectively.
Recently Adopted Accounting Pronouncements
None.
Accounting Pronouncements Pending Adoption
Convertible Debt Instruments
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40); Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This standard simplifies the accounting for convertible instruments by eliminating the cash conversion and the beneficial conversion accounting models. Upon adoption of this standard, convertible debt, unless issued with a substantial premium or an embedded conversion feature that is not clearly and closely related to the host contract, will no longer be allocated between debt and equity components. This modification will reduce the issue discount and result in less non-cash interest expense in financial statements. This update also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity. The update requires an entity to use the if-converted method for all convertible instruments in the diluted earnings per share calculation. An entity may use either a modified or full retrospective approach for adoption. The Company will adopt this standard on June 27, 2022, as required, and is currently evaluating the impact on its consolidated financial statements.
Government Assistance
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) - Disclosures by Business Entities about Government Assistance. This standard will require entities to provide annual disclosures regarding government assistance. More specifically, the amendments in the standard improve financial reporting by requiring disclosures that increase the transparency of transactions with a government accounted for by applying a grant or contribution accounting model by analogy, including (1) the types of transactions; (2) the accounting for those transactions; and (3) the effect of those transactions on an entity's financial statements. An entity can apply the amendments prospectively or retrospectively. The Company will adopt this standard on June 27, 2022, as required.

12

Note 2 – Discontinued Operations
On March 1, 2021, the Company completed the LED Business Divestiture pursuant to the terms of the Asset Purchase Agreement (the LED Purchase Agreement), dated October 18, 2020, as amended. Pursuant to the LED Purchase Agreement, (i) the Company completed the sale to SMART of (a) certain equipment, inventory, intellectual property rights, contracts, and real estate comprising the Company’s former LED Products segment, (b) all of the issued and outstanding equity interests of Cree Huizhou Solid State Lighting Company Limited (Cree Huizhou), a limited liability company organized under the laws of the People’s Republic of China and an indirect wholly owned subsidiary of the Company, and (c) the Company’s ownership interest in Cree Venture LED Company Limited., the Company’s joint venture with San’an Optoelectronics Co., Ltd. (collectively, the LED Business); and (ii) SMART assumed certain liabilities related to the LED Business. The Company retained certain assets used in and pre-closing liabilities associated with the former LED Products segment.
The purchase price for the LED Business consisted of (i) a payment of $50 million in cash, subject to customary adjustments, (ii) an unsecured promissory note issued to the Company by SGH in the amount of $125 million (the Purchase Price Note), (iii) the potential to receive an earn-out payment between $2.5 million and $125 million based on the revenue and gross profit performance of the LED Business in the first four full fiscal quarters following the closing (the Earnout Period), also payable in the form of a unsecured promissory note of SGH (the Earnout Note), and (iv) the assumption of certain liabilities. The Purchase Price Note had a maturity date of August 15, 2023, and as explained further below, was prepaid by SGH in full pursuant to its terms, along with outstanding accrued and unpaid interest as of the payment date, in the third quarter of fiscal 2022. The Earnout Note will mature on March 27, 2025 and will accrue interest at a rate of three-month LIBOR plus 3.0% with interest paid every three months. One bullet payment of principal and all accrued and unpaid interest will be payable on the maturity date of the Earnout Note. In fiscal 2021, the Company recognized a loss on sale of the LED Business of $29.1 million. The cost of selling the LED Business was $27.4 million, which was recognized throughout fiscal 2020 and 2021.
In connection with the closing of the LED Business Divestiture, the Company and CreeLED also entered into certain ancillary and related agreements, including (i) an Intellectual Property Assignment and License Agreement, which assigned to CreeLED certain intellectual property owned by the Company and its affiliates and licensed to CreeLED certain additional intellectual property owned by the Company, (ii) a Transition Services Agreement (LED TSA), (iii) a Wafer Supply and Fabrication Services Agreement (the Wafer Supply Agreement), pursuant to which the Company will supply CreeLED with certain Silicon Carbide materials and fabrication services for up to four years, and (iv) a Real Estate License Agreement (LED RELA), which will allow CreeLED to use certain premises owned by the Company to conduct the LED Business for a period of up to 24 months after closing.
In the third quarter of fiscal 2022, the Company received an early payment for the Purchase Price Note. The principal amount of $125.0 million was paid in full, along with outstanding accrued interest as of the payment date (the Early Payment). In conjunction with the Early Payment, the Company transferred naming rights and trademarks related to Cree, Inc. and the CREE brand to SMART (the Trademark Transfer), resulting in a write-off of trademarks of $1.1 million and recorded within (gain) loss on disposal or impairment of other assets in the consolidated statements of operations.
Because the Early Payment did not include additional consideration in exchange for the Trademark Transfer, the Company allocated consideration from the principal amount to the value of the trademarks transferred to SMART. The Company allocated $1.8 million of the Early Payment to the value of trademarks transferred to SMART, resulting in a gain recorded in (gain) loss on disposal or impairment of other assets in the consolidated statements of operations. The remaining unallocated portion of the Early Payment of $123.2 million was then applied to the note receivable balance of $124.4 million at the time of payment, resulting in a loss of $1.2 million recorded in non-operating expense, net on the consolidated statements of operations. The net impact to the consolidated statements of operations from the early payment for the Purchase Price Note was a loss of $0.5 million.
13

The following table presents the financial results of the LED Business as loss from discontinued operations, net of income taxes in the Company's consolidated statements of operations:
Three months endedNine months ended
(in millions of U.S. Dollars)March 28, 2021March 28, 2021
Revenue, net$66.5 $272.8 
Cost of revenue, net50.3 213.3 
Gross profit16.2 59.5 
Operating expenses:
Research and development5.9 22.3 
Sales, general and administrative12.5 29.4 
Goodwill impairment 112.6 
Impairment on assets held for sale 19.5 
Gain on disposal or impairment of long-lived assets(0.6)(1.6)
Other operating expense6.2 18.7 
Operating loss(7.8)(141.4)
Non-operating income(0.3)(0.3)
Loss before income taxes and loss on sale(7.5)(141.1)
Loss on sale26.3 26.3 
Loss before income taxes(33.8)(167.4)
Income tax expense7.8 11.4 
Net loss(41.6)(178.8)
Net income attributable to noncontrolling interest0.8 1.4 
Net loss attributable to controlling interest($42.4)($180.2)
As of September 27, 2020, the Company determined it would more likely than not sell all or a portion of the assets comprising its former LED Products segment below carrying value. As a result, the Company recorded an impairment to goodwill of $105.7 million.
As of December 27, 2020, the Company recorded an additional impairment to goodwill of $6.9 million and an impairment to assets held for sale associated with the LED Business Divestiture of $19.5 million.
For the three and nine months ended March 27, 2022, the Company recognized $0.9 million and $2.7 million in administrative fees related to the LED RELA, respectively, of which $0.3 million is included in accounts receivable, net in the consolidated balance sheets as of March 27, 2022. Fees related to the LED RELA were recorded as lease income, see Note 4, "Leases."
For the three and nine months ended March 27, 2022, the Company recognized $2.1 million and $7.4 million in administrative fees related to the LED TSA, respectively, of which $0.6 million is included in accounts receivable, net in the consolidated balance sheets as of March 27, 2022. Fees related to the LED TSA were recorded as a reduction in expense within the line item in the consolidated statements of operations in which costs were incurred.
At the inception of the Wafer Supply Agreement, the Company recorded a supply agreement liability of $31.0 million, of which $10.2 million was outstanding as of March 27, 2022. The Wafer Supply Agreement liability is recognized in other current liabilities on the consolidated balance sheets.
For the three and nine months ended March 27, 2022, the Company recognized a net loss of $0.5 million and $1.4 million, respectively, in non-operating expense, net related to the Wafer Supply Agreement. A receivable of $2.4 million was included in other assets in the consolidated balance sheets as of March 27, 2022.

14

Note 3 – Revenue Recognition
The Company follows a five-step approach for recognizing revenue, consisting of the following: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation.
Contract liabilities primarily include various rights of return and customer deposits, as well as a reserve on the Company's "ship and debit" program. Contract liabilities were $41.9 million as of March 27, 2022 and $45.2 million as of June 27, 2021. The decrease was primarily due to decreased customer deposits offset by increased reserves on the Company's "ship and debit" program. Contract liabilities are recorded within accrued contract liabilities and other long-term liabilities on the consolidated balance sheets.
For the three and nine months ended March 27, 2022, the Company recognized an immaterial amount of deferred revenue that was included in contract liabilities as of June 27, 2021.
The Company conducts business in several geographic areas. Revenue is attributed to a particular geographic region based on the shipping address for the products. Disaggregated revenue from external customers by geographic area is as follows:
 Three months endedNine months ended
 March 27, 2022March 28, 2021March 27, 2022March 28, 2021
(in millions of U.S. Dollars)Revenue% of RevenueRevenue% of RevenueRevenue% of RevenueRevenue% of Revenue
Europe$63.2 33.6 %$49.9 36.3 %$183.0 35.3 %$139.0 36.6 %
United States42.4