Discontinued Operations

3 Months Ended

Sep. 26, 2021

Discontinued Operations and Disposal Groups [Abstract]

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 and the Earnout Note will accrue interest at a rate of three-month LIBOR plus 3.0% with interest paid every three months and one bullet payment of principal and all accrued and unpaid interest will be payable on the maturity date of the Purchase Price Note and Earnout Note. The Purchase Price Note will mature on August 15, 2023, and the Earnout Note will mature on March 27, 2025. 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.

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 ended
(in millions of U.S. Dollars)		September 27, 2020
Revenue, net		$101.1
Cost of revenue, net		82.6
Gross profit		18.5
Operating expenses:
Research and development		8.4
Sales, general and administrative		7.9
Goodwill impairment		105.7

Gain on disposal or impairment of long-lived assets		(0.5)
Other operating expense		4.8
Operating loss		(107.8)
Non-operating expense, net		0.1


Loss before income taxes		(107.9)
Income tax expense		0.9
Net loss		(108.8)
Net income attributable to noncontrolling interest		0.3
Net loss attributable to controlling interest		($109.1)

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.

For the three months ended September 26, 2021, the Company recognized $0.9 million and $2.9 million in administrative fees related to the LED RELA and the LED TSA, respectively, of which $0.3 million and $0.9 million are included in accounts receivable, net in the consolidated balance sheets as of September 26, 2021. Fees related to the LED RELA were recorded as lease income, see Note 4, "Leases." 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 $17.5 million was outstanding as of September 26, 2021. The Wafer Supply Agreement liability is recognized in other current liabilities and other long-term liabilities on the consolidated balance sheets.

The Company recognized a net loss of $0.8 million in non-operating expense, net for the three months ended September 26, 2021 related to the Wafer Supply Agreement. A receivable of $3.1 million was included in other assets in the consolidated balance sheets as of September 26, 2021.