COHR 10-K & 10-Q changes, risk factors and insider trading

To meet our strategic objectives, we must develop, manufacture, and market new products and continue to update our existing products and processes to keep pace with sudden increases and decreases in market demand and other market developments and to address increasingly sophisticated customer requirements in rapidly evolving technologies. Our success in developing and selling new and enhanced products and processes depends upon a variety of factors, including strategic product selection, efficient completion of product design and development, timely implementation of manufacturing and assembly processes, effective sales and marketing, and high-quality and successful product performance in the market. The introduction by our competitors of products or processes using new developments that are better or lower cost than ours could render our products or processes obsolete or unmarketable.

The introduction by our competitors of products or processes using new developments that are better or lower cost than ours could render our products or processes obsolete or unmarketable. We intend to continue to make significant investments in research, development, and engineering to achieve our goals. There can be no assurance that we will be able to develop and introduce new products or enhancements to our existing products and processes in a manner which satisfies customer needs or achieves market acceptance. The failure to do so could have a material adverse effect on our ability to grow our business and maintain our competitive position and on our results of operations and/or financial condition.

Our markets are characterized by extensive research and development, rapid technological change, frequent new product introductions, changes in customer requirements and evolving industry standards. The nature of these markets requirerequires significant research and development expenses to participate, with substantial resources invested in advance of material sales of our products to our customers. To compete effectively, we must continually address the challenges of dynamic and accelerating market trends and competitive developments. Otherwise, our product offerings may become less competitive given the frequent introduction of alternative or more cost-effective technologies. Because this industry is subject to rapid change, it is difficult to predict its potential size or future growth rate. We cannot ensure that our expenditures for research and development will result in the launch of new products or, if such products are introduced, that those products will achieve sufficient market acceptance

in the launch of new products or, if such products are introduced, that those products will achieve sufficient market acceptance or generate sales to offset the costs of development. Our failure to address rapid technological changes in our markets, or the failure of either our customers’ or our products to gain market acceptance, or the failure of the markets in which we participate to grow could adversely affect our business and results of operations.

Alternatively, downturnsShifts in themarket industries in which we compete, or changes in technology, may cause our customers to significantly and abruptly reduce their demand, or even cancel orders. For example, the artificial intelligence industry is rapidly evolving, with continuous improvements in algorithms, software efficiencies and hardware capabilities. Emerging AI technologies, such as those demonstrated by DeepSeek, may allow for complex AI operations to be executed with significantly less computing power than is currently required. This reduction in computational intensitydemand could decrease the demand for services provided by AI datacenters that are our customers. Shifts like these couldalso have an adverse effect on our business, results of operations and financial condition, as we base many of our operating decisions including, but not limited to, those regarding manufacturing capacity and staffing, and enter into purchase commitments, on the basis of anticipated revenue trends. With respect to orders we initiate with our suppliers to address anticipated demand from our customers, certain suppliers may have required noncancellable purchase commitments or advance payments from us, and those obligations and commitments could reduce our ability to adjust our inventory or expense levels to reflect declining market demands. Should revenues in future periods fall substantially below our expectations, or should we fail to accurately forecast changes in demand mix, we could be required to record substantial charges for obsolete or excess inventories or noncancellable purchase commitments. Because certain of our sales, research and development, and internal manufacturing overhead expenses are relatively fixed, a reduction in customer demand likely would decrease our gross margins and operating income.

Our dependence on large orders from a relatively small number of large customers makes our relationship with each large customer critically important to our business. We cannot ensure that we will be able to retain our large customers, attract additional large customers, or that our large customers will be successful in selling their products that incorporate our products. In addition, governmental trade action or economic sanctions may limit or preclude our ability to do business with certain large customers. We have in the past experienced delays and reductions in orders from some of our large customers. In addition, ourOur large customers have in the past sought price concessions from us, and we expect that they will continue to do so in the future. CostBecause and expense reduction measures that we have implemented over the past several years, and additional action we are taking to reduce costs, may adversely affect our ability to introduce new and improved products, which may, in turn, adversely affect our relationships with some of our large customers. Further, some of our largemany customers may inalter thepurchasing futurebehavior shiftwith theirlittle or no notice, including by delaying, reducing, or cancelling purchase orders, seeking price concessions, changing product specifications, reducing expansion plans, or shifting purchases ofto productscompetitors, fromit may be difficult for us to ourforecast competitorsrevenue, ordetermine toappropriate jointinventory ventureslevels, betweenplan these customersstaffing and our competitors, or may in certain circumstances produce competitive products themselves. The loss of one or more of our large customers, any reduction or delay in sales to these customers, our inability to successfully develop relationships with additional customers, or future price concessions that we may make could significantly harm our business.

Large end-user service providers and product companies comprise a significant portion of our customer base. These large customers generally have greater purchasing power than smaller customers and, accordingly, often negotiate more favorable terms from suppliers, including us. As we seek to expand our sales to existing and new large customers, we may be required to agree to terms and conditions that are more favorable to these customers and that may affect the timing of our ability to recognize revenue, increase our costs, and have an adverse effect on our business, results of operations and financial condition. Furthermore, large customers have increased buying power and ability to negotiate onerous terms into our contracts with them, including pricing, warranties, indemnification and production capability terms. If we are unable to satisfy the terms of these contracts, it could result in liabilities of a material nature, including litigation, damages, additional costs, loss of market share, and loss of reputation. Additionally, the terms these large customers require, such as most-favored customer or exclusivity provisions, may impact our ability to do business with other customers and generate revenues from such customers.

Although we maintain insurance and self-insured retentions for reasonably estimable liabilities, such insurance coverage may not continue to be available on acceptable terms, if at all, and our reserves may be inadequate to cover such claims. Any of the foregoing items could have a material adverse effect on our business, results of operations, or financial condition.

Downturns in regional or worldwide economies, due to inflation, geopolitics, major central bank policy actions including interest rate increases, public health crises, or other factors, have harmed our business in the past and current and future downturns could also adversely affect our business. Adverse economic conditions affect demand for our products and devices that incorporate our products, Reduced demand for these or other products could result in significant decreases in our product sales. In addition, toTo the extent our customers have elevated inventory levels or are impacted by deterioration in credit markets, we may experience a decrease in short-term and/or long-term demand resulting in industry oversupply and declines in pricing for our products.

A deterioration of conditions in regional or worldwide credit markets could limit our ability to obtain external financing to fund our operations and capital expenditures. Difficult economic conditions may also result in a higher rate of losses on our accounts receivable due to credit defaults. Additionally, our current or future customers may experience cash flow problems and as a result may modify, delay, or cancel plans to purchase our products. Any inability of our current or future customers to pay us for our productsproducts, mayincluding adversely affect our earnings and cash flow. Asas a result,result downturnsof inadverse regionaleconomic or worldwide economiesconditions, could have a material adverse effect on our business,earnings, cash flow, results of operations, orand financial condition.

Some of our products require designs and specifications that are at the cutting-edge of available technologies and change frequently to meet rapidly evolving market demands. By their very nature, the types of components used in such products can be difficult and unpredictable to manufacture and may only be available from a single supplier, which increases the risk that we may not obtain such components in a timely manner. Identifying alternative sources of supply for certain components could be difficult and costly, result in management distraction in assisting our current and future suppliers to meet our and our customers’ technical requirements, and cause delays in shipments of our products while we identify, evaluate and test the products of alternative suppliers. Any such delay in shipment would result in a delay or cancellation of our ability to convert such orders into revenues. Furthermore, financial or other difficulties faced by these suppliers or significant changes in demand for these components or materials could limit their availability. We continue to consolidate our supply base and move supplier locations. When we transition locations, we may increase our inventory of such products as a “safety stock” during the transition, which may cause the amount of inventory reflected on our balance sheet to increase. Additionally, many of our customers rely on sole source suppliers. In the event of a disruption of our customers’ supply chain, orders from our customers could decrease or be delayed.

In addition, weWe use rare earth minerals and produce and use high-purity and relatively uncommon materials and compounds to manufacture our products, including, but not limited to, ZnS, GaAs, yttrium aluminum garnet, yttrium lithium fluoride, calcium fluoride, germanium, selenium, telluride, Bi2Te3, and SiC. A significant failure of our internal production processes or our suppliers to deliver sufficient quantities of these necessary materials (including, in the case of rare earth minerals, as a consequence of their limited diminished availability or as a result of export controls on such materials) on a timely basis could have a material adverse effect on our business, results of operations, or financial condition.

We manufacture some of the components that we incorporate into our subsystem products; in other cases, we provide components to contract manufacturers to produce finished or intermediary goods. For some of the components and finished or intermediary goods, we are the sole qualified manufacturer. Our manufacturing processes are highly complex, and quality issues are often difficult to forecast, detect, and correct. From time to time we have experienced problems achieving acceptable yields in our manufacturing facilities, resulting in delays in the availability of our products. In addition, if we experience problems with our manufacturing facilities, it would be costly and require a long period of time to move the manufacture of these components and finished good products to a different facility or contract manufacturer, which could result in interruptions in supply and would likely materially impact our results of operations and financial condition. In addition, for a variety of reasons, including changes in circumstances at our contract manufacturers or our own business strategies, we may voluntarily, or be required to, transfer the manufacturing of certain products to other manufacturing sites.

Changes in manufacturing processes are often required due to changes in product specifications, yield improvements, changing customer needs, and the introduction of new products. These changes may reduce manufacturing yields at our contract manufacturers and at our own manufacturing facilities, resulting in reduced margins on and/or reduced availability of those products. Also, our ability to control the quality of products produced by contract manufacturers may be limited and quality issues may not be resolved in a timely manner, which could adversely impact our financial condition or results of operations. In addition, many of our products are sourced from suppliers based outside of the United States, primarily in Asia. Uncertainty with respect to tax and trade policies, tariffs, and government regulations affecting trade between the United States and other countries has recently increased. Major developments in tax policy or trade relations, such as the imposition of tariffs on imported products, could increase our product and product-related costs or require us to seek alternative suppliers, either of which could result in decreased sales or increased product and product-related costs.

Our information technology and cybersecurity program also incorporate and rely on technology, products and services that are provided by service providers and other third parties (“third parties”), which means that the Company is susceptible to certain vulnerabilities, outages and other incidents impacting these third parties and the technology, products and services they provide (“third party technology”). Further, our customers, vendors and other service providers also rely on third-party technology, which means that we may also be impacted by incidents affecting the third-party technology that our customers, vendors and service providers use and rely on. In some cases, our customers, vendors and other service providers may rely on the same third-party technology as we do, which means that outages, errors and other incidents impacting third parties and third party technology can impact both us, as well as our customers, vendors and service providers, which can have a compounding effect.

We may be adversely impacted by any of the multiple uncertainties and outcomes associated with the use and evolution of Artificial Intelligence (“AI”).AI.

We have completed acquisitions and divestitures in the past, including most recently the acquisition of Coherent, Inc. in July 2022. Weand expect to expand and diversify our operations with additional acquisitions, but we may be unable to identify or complete prospective acquisitions for many reasons, including increasing competition from other potential acquirers, the effects of consolidation in our industries, and potentially high valuations of acquisition candidates. In addition, applicable competition laws and other regulations may limit our ability to acquire targets, integrate businesses, or force us to divest an acquired business line. If we are unable to identify suitable targets or complete acquisitions, our growth prospects may suffer, and we may not be able to realize sufficient scale and technological advantages to compete effectively in all markets.

To the extent that we complete acquisitions, the success of our acquisitions will depend in large part on our success in integrating the acquired operations, strategies, technologies, and personnel. We may be unsuccessful in integrating acquired companies or product lines with existing operations, or may fail to realize some or all of the anticipated benefits of an acquisition if the integration process is more difficult or more costly than anticipated. If we fail to meet the challenges involved in successfully integrating any acquired operations or to otherwise realize any of the anticipated benefits of an acquisition, including any expected cost savings and synergies, our operations could be impaired. In addition, the overall integration of an

in successfully integrating any acquired operations or to otherwise realize any of the anticipated benefits of an acquisition, including any expected cost savings and synergies, our operations could be impaired. In addition, the overall integration of an acquired business can be a time-consuming and expensive process that, without proper planning and effective and timely implementation, could significantly disrupt our business.

As a result of the 2023Restructuring Plan,Plans, we have incurred approximately $200$370 million of pre-tax charges in fiscal years 2023 to 20252026 primarily as a result of the reduction in force and facility consolidations related to the closure and relocation of sites. We also have incurred, and may continue to incur, additional costs in the near term, including cash payments related to severance, employee benefits and employee transition costs, as well as non-cash charges for share-based compensation expense.

The Restructuring Plans may result in other unintended consequences, including higher than anticipated costs in implementing planned workforce reductions, particularly in highly regulated locations outside the United States; higher than anticipated lease termination and facility closure costs; employee attrition beyond our intended reduction in force; and decreased employee morale among our remaining employees; diversion of management attention; adverse effects to our reputation as an employer which could make it more difficult for us to hire new employees in the future; loss of the institutional knowledge and expertise of departing employees; failure to maintain adequate controls and procedures while executing, and subsequent to completing, the Restructuring Plans; and potential failure or delays to meet operational and growth targets due to the loss of qualified employees.

Legal, regulatoryregulatory, and administrative investigations, inquiries, proceedings, and claims could have a material adverse effect on our business, results of operations, or financial condition.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of Coherent’s financial statements with a narrative from the perspective of management. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes included under Item 8 of this annual report. Coherent’s MD&A is presented in the following sections:

Forward-looking statements in Item 7 may involve risks and uncertainties that could cause results to differ materially from those projected (refer to Item 1A for discussion of these risks and uncertaintiesuncertainties, which are incorporated herein by reference).

For an overview of our business, see Part I - Item 1. Business - General Description of Business of this Annual Report on Form 10-K for further information.information

On May 23, 2023, the Board of Directors approved the 2023 Plan which includes site consolidations, facilities moves and closures, as well as the relocation and requalification of certain manufacturing facilities. These restructuring actions were intended to realign our cost structure as part of a transformation to a simpler, more streamlined, resilient and sustainable business model.

In fiscal 2026, these activities resulted in net charges of $1 million, primarily for site move costs partially offset by adjustments to employee termination costs. In fiscal 2025, these activities resulted in charges of $53 million, primarily for impairment losses associated with the sale of our Newton Aycliffe business, impairment of right-of-use (“ROU”) assets, employee termination costs, site move costs and accelerated depreciation. In fiscal 2024, these activities resulted in charges$27 million of $27 million,charges primarily for acceleratedacceleration of depreciation, the write-off of property and equipment, and site move costs. In fiscal 2023, these activities resulted in $119 million of charges primarily for employee termination costs, and the write-off of property and equipment, net of $65 million from reimbursement arrangements. See Note 20.12. Restructuring Plans to the Company’s Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further information.

Commencing in the quarter ended March 31, 2025, and as part of the ongoing strategic review of the Company’s business, the Company’s management approved the 2025 Plan to take a number of restructuring actions, including site consolidations, facilities moves and closures, workforce reductions, contract terminations, and certain other associated cost reductions. The 2023 Plan and the 2025 Plan are collectively referred to as the “Restructuring Plans.”

In fiscal 2026, these activities resulted in $62 million of net charges primarily related to write-off of property and equipment, employee termination and site closure costs. In fiscal 2025, these activities resulted in $107 million of net charges primarily for the write-off of property and equipment and ROU assets, employee and contract termination costs. WeSee expectNote the12. restructuringRestructuring actionsPlans tofor befurther substantially completed by theinformation.

On May 20, 2023, the Company announced that it had accelerated some of the actions planned as part of its multi-year synergy and site consolidation efforts following the acquisition of Coherent, Inc., including site consolidations and relocations to lower cost sites. These relocations and other actions resulted in the Company achieving its previously announced $250 million synergy plan, which included savings from supply chain management, internal supply of enabling materials and components, operational efficiencies in all functions due to scale, global functional model efficiencies and consolidation of corporate costs. In fiscal 2025, the acceleration of these activities resulted in $17 million of charges primarily for overlapping labor related to transition of manufacturing operations to other sites, shut down costs and employee termination costs. In fiscal 2024, the acceleration of these activities resulted in $40 million of charges primarily for overlapping labor related to transition of manufacturing operations to other sites, shut down costs for sites being exited, accelerated depreciation and employee termination costs. In fiscal 2023, the acceleration of these activities resulted in $20 million in charges primarily for employee termination costs, the write-off of inventory for products that have been exited and shut down costs.

Impairment of Assets Held-for-Sale and Sale of Business

In the fourth quarter of fiscal 2025, management entered into non-binding agreements to sell several entities. As a result of classifying these entities as held-for-sale, we recorded non-cash impairment charges of $85 million towithin the Industrial segment. These charges were recognized in Impairment of assets held-for-sale in our Consolidated Statements of Earnings (Loss) infor the fourth quarter of fiscal 2025 to reduce ourthe carrying valuevalues inof the entities to their estimated fair value. In the year ended June 30, 2026, we recorded additional non-cash impairment charges of $64 million, within the Industrial segment, related to these entities as well as an additional business that was classified as held-for-sale in the fourth quarter of fiscal 2026. The charges were recorded in Impairment of assets held-for-sale in the Consolidated Statements of Earnings (Loss) to reduce the carrying values of the entities that continue to meet the held-for-sale criteria to their estimated fair value. See Note 21. Assets Held-for-Sale to the Company’s Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further information.

Macroeconomic Conditions - Tariffs and Export Controls

As a global company with a substantial and diversified manufacturing footprintfootprint, ourwe diverse manufacturing footprint provides us withhave some insulationability againstto thesemitigate the effects of tariffs, trade sanctions, and other geopolitical challenges. Our geographically diverseglobal supply chain combined with theand internal production ofcapabilities for many of our most critical technology in-feedscomponents provides adaptabilityflexibility in sourcing and optionalitymanufacturing, thatwhich benefitshelps oursupport customers.costumer As the tariff, trade sanctions,demand and exportbusiness restrictions become more clear, we expect these attributes will enable us to find opportunities to moderate their impact.continuity. However, we are in a dynamic geopolitical environment, and we are not immune to any sustained disruption in global trade conditions which may create future headwinds for the Company and could resultincrease incosts, revenuedisrupt reduction,operations, costreduce increases on material used in our productsdemand or significantdelay production delays, which couldproduction, adversely affectaffecting our business, financial condition, operationalresults resultsof operations and cash flows.

The OECD, a global policy forum, introduced a framework to implement a global minimum tax of 15% which would applyapplicable to multinational corporations,corporations referred toknown as Pillar Two. Nearly all OECD member jurisdictions have agreed in principle to adopt these provisions and numerous jurisdictions have enacted legislation, including jurisdictions where the Company operates,operates. withOn January 5, 2026, the OECD released a subsetpackage of thesafe rulesharbours becomingincluding effectivea for“side-by-side” ouragreement fiscalintended yearto beginningexempt onU.S.-parented Julymultinational 1,entities 2024,from andcertain theprovisions remainingof rulesPillar becoming effective for our fiscal year beginning on July 1, 2025, or in later periods.Two. The Company is continuingcontinues to analyze the Pillar Two rules as countries implement additional legislation. Implementationimpact of the OECD“side-by-side” proposalagreement mayas well as its implementation globally. Pillar Two did not have a material impact on the Company'sCompany’s Consolidated Financial Statements in fiscal years 2026, 2025 or 2024, but further changes in implementation may have a material impact in the future.

Coherent is a global leader in photonic technology, which is foundational to the performance and scalability of AI datacenters and critical to many important industrial applications. We are at the center of a significant expansion in optical networking infrastructure, driven by the rapid growth of AI and the increasing need for bandwidth and energy efficiency. We continue to experience strong demand in our Datacenter and Communications markets. The increasing investments by hyperscale and other cloud providers in AI datacenter infrastructures have significantly boosted demand for our datacenter transceivers. Elevated demand for our new ZR/ZR+ transceivers and sustained growth in traditional telecom transport products drove higher shipment volumes for our telecom and other communications solutions. We are investing in manufacturing capacity for the Datacenter and Communications markets, including expanding our indium phosphide capacity in Sherman, Texas, to address our increased customer demand and industry-wide shortage. In our Industrial markets, we are experiencing strong demand in semiconductor capital equipment.

In the three and sixnine months ended DecemberMarch 31, 2025,2026, these activities resulted in recoveriesnet charges of $12$4 million and $5net recoveries of $2 million, respectively. The current quarter recoveriescharges are primarily for adjustmentssite toclosure and move costs and employee termination costs and the current year-to-date recoveries are primarily for adjustments to employee termination costs partially offset by site move costs. In fiscal 2025, these activities resulted in charges of $53 million, primarily for impairment losses associated with the sale of our Newton Aycliffe business, impairment of right-of-use (“ROU”) assets, employee termination costs, site move costs and accelerated depreciation. In fiscal 2024, these activities resulted in $119 million of charges primarily for employee termination costs, and the write-off of property and equipment, net of $65 million from reimbursement arrangements. See Note 17. Restructuring Plans for further information.

In the three and sixnine months ended DecemberMarch 31, 2025,2026, these activities resulted in $15$31 million and $28$59 million, respectively, of charges primarily related to write-off of property and equipment, employee termination and site closure costs. In fiscal 2025, these activities resulted in $107 million of charges primarily for the write-off of property and equipment and ROU assets, employee and contract termination costs. We expect the restructuring actions to be substantially completed by the end of fiscal 2026. However, the actual timing and costs associated with these restructuring actions may differ from our current expectations and estimates and such differences may be material. See Note 17.10. Restructuring Plans for further information.

In the fourth quarter of fiscal 2025, management entered into non-binding agreements to sell several entities. As a result of classifying these entities as held-for-sale, we recorded non-cash impairment charges of $85 million within the Industrial segment. These charges were recognized in Impairment of assets held-for-sale in our Consolidated Statements of Earnings (Loss) for the fourth quarter of fiscal 2025 to reduce the carrying values of the entities to their estimated fair value. In the three and sixnine months ended DecemberMarch 31, 2025,2026, we recorded additional non-cash impairment charges of $11 million and $20 million, respectively, within the Industrial segment. The charges were recorded in Impairment of assets held-for-sale in the Condensed Consolidated Statements of Earnings (Loss) to reduce the carrying values of the entities that continue to meet the held-for-sale criteria during these periods to their estimated fair value.

On September 2, 2025, we completed the sale of our aerospace and defense business, which is part of our Industrial segment, for approximately $400 million and recorded a gain of $115 million to Gain on sale of business in our Condensed Consolidated Statements of Earnings (Loss) for the first quarter of fiscal 2026.

These tariffs, trade sanctions,tariffs and/or restrictions on the export of certain rare earth minerals used in our productsrestrictions did not have a material impact on our business, financial condition, operational results and/or cash flows in the secondthird quarter of fiscal 2026.

As a global company with a substantial and diversified manufacturing footprintfootprint, our diverse manufacturingthis footprint provides us with some insulation against these tariffs, trade sanctions, and other geopolitical challenges. Our geographically diverse supply chain combined with the internal production of many of our most critical technologytechnological in-feeds provides adaptability and optionality that benefits our customers. As the tariff, trade sanctions, and export restrictions become clearer, we expect to identify opportunities to mitigate their impact. However, we operate in a dynamic geopolitical environment, and we are not immune to any sustained disruption in global trade conditions. Such disruptions could create future headwinds for the Company and may result in revenue reduction, cost increases on material used in our products or significant production delays, which could adversely affect our business, financial condition, results of operations and cash flows.

Note 1 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K datedfor Augustthe 15,fiscal year ended June 30, 2025 describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements.

The following tables set forth select items from our Condensed Consolidated Statements of Earnings (Loss) for the three and sixnine months ended DecemberMarch 31, 20252026 and 20242025 ($ in millions, except per share data) (1):

Revenues. Revenues for the sixthree months ended DecemberMarch 31, 20252026 increased 17%21% to $3,267$1,806 million, compared to $2,783$1,498 million for the same period last fiscal year. Revenues increased $530$393 millionmillion, (30%)or 41%, in the Datacenter & Communications segment. Revenue growth in our Datacenter business was fueled by continued strong AI datacenter demand, while our Communications business benefited from increased demand in both data center interconnectinterconnect, scale across and traditional telecom applications. In the Industrial segment, revenue decreased $46$85 millionmillion, (4%)or 16%, primarily due to the divestituredivestitures of our aerospace and defense business on September 2, 2025 partially offset by increased volumes inand our semiconductorMunich, capitalGermany equipmentbusiness market.on January 30, 2026.

Gross margin. Gross margin for the three months ended DecemberMarch 31, 20252026 was $623$680 million, or 37%38% of revenues, compared to $509$528 million, or 36%35% of revenues, for the same period lastin the prior fiscal year, representing an increase of 140243 basis points. The increaseimprovement asin agross percentmargin of revenue for the three months ended December 31, 2025percentage was primarily duedriven toby higher revenue volume, cost reductions in product input costs and efficiency gains from improved cycle times in the manufacturing process as well asand yield improvements inwithin the Datacenter & Communications segment. In addition, grossGross margin wasalso favorablybenefited impacted byfrom pricing optimization in the Datacenter & Communications businessessegment, andas well as the divestituredivestitures of our aerospace and defense business on September 2, 2025.2025 and our Munich, Germany business on January 30, 2026. Gross margin for the sixnine months ended DecemberMarch 31, 20252026 was $1,202$1,882 million, or 37% of revenues, compared to $970$1,497 million, or 35% of revenues, for the same period lastin fiscalthe prior year, representing an increase of 200213 basis points. The increase as a percent of revenue for the six months ended December 31, 2025 was primarily duedriven toby cost reductions in product input costs, efficiency gains from improved cycle times in the manufacturing process as well asand yield improvements in the Datacenter & Communications segment. In addition, gross margin wasbenefited favorably impacted byfrom pricing optimization in both the Datacenter & Communications and Industrial segments and the divestituredivestitures of our aerospace and defense business on September 2, 2025.2025 and our Munich, Germany business on January 30, 2026.

Research and development. Research and development (“R&D”) expenses for the three months ended DecemberMarch 31, 20252026 were $166$186 million, or 10% of revenues, compared to $144$151 million, or 10% of revenues, for the same period last fiscal year. R&D expenses for the sixnine months ended DecemberMarch 31, 20252026 were $321$507 million, or 10% of revenues, compared to $275$426 million, or 10% of revenues, for the same period last fiscal year. The increases in R&D expenses were primarily related to continued investment in our product portfolios, particularly in our Datacenter & Communications segment. We continue to prioritize R&D investments in projects with the highest expected return-on-investment, supporting our long-term growth strategy.

Selling, general and administrative. Selling, general and administrative (“SG&A”) expenses for the three months ended DecemberMarch 31, 20252026 were $258$268 million, or 15% of revenues, compared to $221$231 million, or 15% of revenues, for the same period last fiscal year. SG&A expenses for the sixnine months ended DecemberMarch 31, 20252026 were $511$778 million, or 16%15% of revenues, compared to $450$681 million, or 16% of revenues, for the same period last fiscal year. Although flat for the three months ended March 31, 2026 and slightly decreased for the nine months ended March 31, 2026 as a percentage of revenue for both the three and six months ended December 31, 2025,revenue, the increases in SG&A expenses in both periods were primarily thedriven result ofby higher legal, integration and divestiture-related consulting costs, higher facility exit costs and higher share-based compensation expense, partially offset by efficiencies achieved from cost reduction initiatives.

Restructuring charges. Restructuring charges for the three and sixnine months ended DecemberMarch 31, 20252026 were $4$34 million and $23$57 million, respectively, and consisted primarily of employee termination costscosts, asset write-offs and move and other costs due to the consolidation and closure of certain manufacturing sites. Restructuring charges for the three and sixnine months ended DecemberMarch 31, 20242025 were $8$74 million and $32$106 million, respectively, and consisted of asset write-offs, employee termination costs, move costs and accelerated depreciation due to the consolidation of certain manufacturing sites as well as impairment losses associated with the sale of our Newton Aycliffe business as well as move costs, accelerated depreciation, and employee termination costs due to the consolidation of certain manufacturing sites.business. See Note 17.10. Restructuring Plans for further information.

Impairment of assets held-for-sale. Impairment of assets held-for-sale for the three and sixnine months ended DecemberMarch 31, 20252026 was $11 million and $20 million, respectively, and represented non-cash impairment charges to reduce our carrying value in entities that continue to meet the held-for-sale criteria at December 31, 2025 to their estimated fair value. See Note 18.7. Assets Held-for-Sale and Sale of Business for further information.

Gain on sale of business. Gain on sale of business for the sixthree and nine months ended DecemberMarch 31, 20252026 was $115$9 million and represented$124 million, respectively, and relates to the gain on the salesales of our aerospace and defense business.and our Munich, Germany businesses. See Note 18.7. Assets Held-for-Sale and Sale of Business for further information.

Interest and other, net. Interest and other, net expense for the three months ended DecemberMarch 31, 20252026 was $16 million, compared to $8$62 million for the same period in the prior fiscal year, anrepresenting increasea decrease of $8$45 million. Included in Interest and other, net, were interest expense on borrowings, foreign currency gains and losses, amortization of debt issuance costs, equity gains and losses from unconsolidated investments, and interest and dividend income on cash balances. For the three months ended DecemberMarch 31, 2025,2026, the increasedecrease of $8$45 million in comparison to the same period last fiscal year was driven by $33$16 million lower foreign exchange net gainslosses, and $4 million lower interest income partially offset by $18 million lower interest expense and $15$14 million gains on sales from an equity investment.investment and $13 million lower interest expense. The $33$16 million lower foreign exchange net gainslosses were primarily due to lower volatility of exchange rates during the three months ended DecemberMarch 31, 2025.2026. The $18$13 million lower interest expense was primarily due to lower interest expense on our Term Loans resulting from lower balances and lower interest rates, partially offset by lower interest expense benefit from our interest rate cap and swap. The $4 million lower interest and dividend income was primarily due to decreases in interest rates earned on investments as well as the decrease in average cash and restricted cash balances.cap. Interest and other, net expense for the sixnine months ended DecemberMarch 31, 20252026 was $58$75 million, compared to $64$126 million for the same period in the prior fiscal year, a decrease of $6$52 million. Included in Interest and other, net, were interest expense on borrowings, foreign currency gains and losses, amortization of debt issuance costs, losses on debt extinguishment, equity gains and losses from unconsolidated investments, and interest and dividend income on cash balances. For the sixnine months ended DecemberMarch 31, 2025,2026, the decrease of $6$52 million in comparison to the same period last fiscal year was driven by $26$39 million lower interest expense and $22$36 million gains on sale from an equity investment, partially offset by $22$10 million lower interest income, $6 million lower foreign exchange net gains, $9 million lower interest incomegains and $5 million higher debt extinguishment and debt transaction fees. The $26$39 million lower interest expense was primarily due to lower interest expense on our Term Loans resulting from lower balances and lower interest rates partially offset by lower interest expense benefit from our interest rate cap and swap. The $22 million lower foreign exchange net gains were primarily due to lower volatility of exchange rates during the six months ended December 31, 2025. The $9$10 million lower interest and dividend income was primarily due to decreases in interest rates earned on investments as well as the decrease in average cash and restricted cash balances. The $6 million lower foreign exchange net gains were primarily due to lower volatility of exchange rates during the nine months ended March 31, 2026.

Income taxes. The Company’s year-to-date effective income tax rate at DecemberMarch 31, 20252026 was 4%3% compared to 14%19% for the same period in the prior fiscal year. The variance from the U.S. statutory federal income tax rate of 21% was primarily driven by differences between U.S. and foreign tax ratesrates, andas well as discrete tax benefits related to changes in German tax law changes,law, releases of uncertain tax positions, and excess tax benefits associated with stock-based compensation windfalls.compensation.

Net loss attributable to noncontrolling interests. Net loss attributable to noncontrolling interests for the three and sixnine months ended DecemberMarch 31, 20252026 was $3$10 million and $4$14 million, respectively, compared to $2$14 million and $3$17 million, respectively, in the same periods in the prior fiscal year. This amount represents the noncontrolling interest holders’ shares of losses of Silicon Carbide LLC. See Note 11.13. Noncontrolling Interests for further information.

Revenues for the three months ended DecemberMarch 31, 20252026 increased 34%41% to $1,208$1,362 million, compared to $905$969 million for the same period in the prior fiscal year. Revenues for the sixnine months ended DecemberMarch 31, 20252026 increased 30%34% to $2,298$3,660 million, compared to $1,768$2,737 million for the same period in the prior fiscal year. The increases in revenue of $303$393 million and $530$923 million during the three and sixnine months ended DecemberMarch 31, 2025,2026, respectively, were primarily driven by growth in our Datacenter business reflecting continued strong AI datacenter demand as well as higher Communications business revenue due to increased demand for data center interconnectinterconnect, scale across and traditional telecom applications.

Segment profit for the three months ended DecemberMarch 31, 20252026 increased 44%49% to $306$348 million, compared to segment profit of $212$233 million for the same period last fiscal year. Segment profit for the sixnine months ended DecemberMarch 31, 20252026 increased 33%39% to $576$923 million, compared to segment profit of $432$665 million for the same period last fiscal year. The increases in segment profit for the three and sixnine months ended DecemberMarch 31, 20252026 were primarily driven by higher revenues, partially offset by increased R&D investments into support expansion of our product portfolio.

Revenues for the three months ended DecemberMarch 31, 20252026 decreased 10%16% to $478$444 million, compared to revenues of $530$529 million for the same period in the prior fiscal year. Revenues for the sixnine months ended DecemberMarch 31, 20252026 decreased 4%8% to $969$1,413 million, compared to revenues of $1,015$1,544 million for the same period in the prior fiscal year. ComparedThe decreases in revenue of $85 million and $131 million during the three and nine months ended March 31, 2026, respectively, were primarily attributable to the three months ended December 31, 2024, Industrial revenues decreased $52 million year-over-year, primarily due to the divestituredivestitures of our aerospace and defense business on September 2, 2025.2025 Compared to the six months ended December 31, 2024, Industrial revenues decreased $46 million year-over-year, primarily due to the divestiture ofand our aerospaceMunich, and defenseGermany business on SeptemberJanuary 2,30, 2025. The revenue decrease was partially offset by increased volumes in our semiconductor capital equipment market.2026.

Segment profit for the three months ended DecemberMarch 31, 20252026 decreased 4%12% to $112$101 million, compared to segment profit of $116$115 million for the same period last fiscal year, primarily driven by the divestiture of our aerospace and defense business on September 2, 2025 and our Munich, Germany business on January 30, 2026 as well as increased R&D investments into support our product portfolio. These impacts wereportfolio, partially offset by lower manufacturing and SG&A costs. Segment profit for the sixnine months ended DecemberMarch 31, 20252026 increased 23%10% to $228$329 million, compared to segment profit of $185$300 million for the same period last fiscal year,year. The increase was primarily driven by lower manufacturing costs as well ascosts, favorable product mix and improvements in pricing optimization.optimization as well as lower SG&A costs partially offset by increased R&D investments.

Net cash provided by operating activities was $104$10 million for the sixnine months ended DecemberMarch 31, 20252026 compared to $340$503 million for the same period in the prior fiscal year. The decrease in cash flows provided by operating activities during the sixnine months ended DecemberMarch 31, 20252026 compared to the same period in the prior fiscal year was primarily duedriven toby increasesa significant increase in inventories andto accounts receivable as a result ofsupport higher revenuesrevenue levels, which resulted in increased working capital usage. This impact was partially offset by higher accounts payable and higher net earnings.

Net cash providedused byin investing activities was $158$891 million for the sixnine months ended DecemberMarch 31, 2025,2026, compared to net cash used of $172$284 million for the same period in the prior fiscal year. The increase was primarily due to $386$825 million purchases of short-term investments and higher cash used to fund capital expenditures partially offset by $437 million cash received from the sale of a business,businesses, net of fees, and cash received from the sale of an equity investment, partially offset by higher cash used to fund capital expenditures.investment.

Net cash usedprovided inby financing activities was $378$1,476 million for the sixnine months ended DecemberMarch 31, 2025,2026, compared to $266net cash used of $386 million for the same period in the prior fiscal year. NetThe cashincrease outflows for both periods werewas primarily attributabledue to paymentsthe $2 billion in proceeds from the issuance of Common Stock to NVIDIA, net of fees, partially offset by higher payments, net of borrowings, on existing debt obligations.

On September 26, 2025, the Company entered into Amendment No. 4 and Amendment No. 5 to the Credit Agreement. Under Amendment No. 4, (i) the existing revolving credit commitments were refinanced and replaced with the 2025 Revolving Loans, including the 2025 Incremental Term A Loans, the proceeds of which were used, in part, to repay all outstanding principal, interest and fees of the Existing Term A Loans. As amended, the 2025 Revolving Loans and the 2025 Incremental Term A Loans each bear interest at an adjusted SOFR rate subject to a 0.00% floor plus a range of 1.25% to 2.25% based on the Company’s total net leverage ratio. The interest rate applicable to the 2025 Revolving Loans and the 2025 Incremental Term A Loans is initially a SOFR-based rate plus 1.50% as of DecemberMarch 31, 2025.2026. The 2025 Revolving Loans and the 2025 Incremental Term A Loans mature on the earlier of September 26, 2030 or a “Springing Maturity Date,” which is a date that is 91 days prior to the stated maturity of either (i) the Company’s unsecured senior notes or (ii) the term B loans then outstanding if, on such 91st day, the applicable senior notes or term B loans remain outstanding and liquidity is less than (x) $250 million plus (y) the aggregate outstanding principal amount of such notes or term B loans, as applicable. Under Amendment No. 5, the outstanding New Term B-2 Loans were replaced with the New Term B-3 Loans having substantially similar terms as the New Term B-2 Loans, except with respect to the interest rate applicable to the New Term B-3 Loans and certain other provisions. As further amended, the New Term B-3 Loans bear interest at a SOFR-based rate (subject to a 0.50% floor) plus 1.75% as of DecemberMarch 31, 2025.2026. The New Term B-3 Loans will mature on July 1, 2029.

In relation to the Term Facilities, the Company incurred expense of $33$32 million and $79$111 million, respectively, for the three and sixnine months ended DecemberMarch 31, 2025,2026, which is included in Interest expense in the Condensed Consolidated Statements of Earnings (Loss). On July 1, 2023, our interest rate cap became effective, which reduced interest expense by $5$3 million and $11$14 million, respectively, during the three and sixnine months ended DecemberMarch 31, 2025.2026.

During the sixnine months ended DecemberMarch 31, 2025,2026, the Company made payments of $408$509 million for the Term Facilities, $400$502 million of which were voluntary payments.

As of DecemberMarch 31, 2025,2026, the Company had $60 million inno borrowings outstanding under the Revolving Credit Facility.

On December 4, 2023, the Company completed two investment agreements under which Silicon Carbide LLC, a Company subsidiary, received $1.0 billion cash in exchange for 25% of the equity of that entity. Such funds have and will continue to be used primarily to fund future capital expansion in our silicon carbide business and will enable us to increase our available free cash flow to provide greater financial and operational flexibility to execute our capital allocation priorities. See Note 11.13. Noncontrolling Interests included in Item 1 of this Quarterly Report on Form 10-Q for further information.

Our cash and cash equivalent balances are generated and held in numerous locations throughout the world, including amounts held outside the United States. As of DecemberMarch 31, 2025,2026, the Company held approximately $770$808 million of cash, cash equivalents and restricted cash outside of the United States. Generally, cash balances held outside the United States could be repatriated to the United States.

At DecemberMarch 31, 2025,2026, we had $665$633 million of restricted cash, which includes $661$630 million at Silicon Carbide LLC that is restricted for use by only that subsidiary.