Item 8. , Item 15(a)(1) and (2), (b) and (c)

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INDEX TO FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

EXHIBITS

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YEAR ENDED MARCH 31, 2020

MICROCHIP TECHNOLOGY INCORPORATED

AND SUBSIDIARIES

CHANDLER, ARIZONA

Table of Contents

MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

Index to Consolidated Financial Statements

	Page Number
Report of Independent Registered Public Accounting Firm	F-1
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting	F-5
Consolidated Balance Sheets as of March 31, 2020 and 2019	F-6
Consolidated Statements of Income for each of the three years in the period ended March 31, 2020	F-7
Consolidated Statements of Comprehensive Income for each of the three years in the period ended March 31, 2020	F-8
Consolidated Statements of Cash Flows for each of the three years in the period ended March 31, 2020	F-9
Consolidated Statements of Changes in Equity for each of the three years in the period ended March 31, 2020	F-11
Notes to Consolidated Financial Statements	F-13

i

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Microchip Technology Incorporated

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Microchip Technology Incorporated (the Company) as of March 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended March 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of March 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated May 21, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

F-1

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Inventory Valuation

Description of the Matter		The Company's inventories totaled $685.7 million as of March 31, 2020. As explained in Note 1 to the consolidated financial statements, the Company assesses the valuation of inventory each reporting period based on the lower of cost or net realizable value. The Company primarily reserves for obsolete and unmarketable inventory based on inventory on hand in excess of 12-month forecast demand. Estimated 12-month forecast demand is generally determined based on annualized sales using the prior three-month period. The Company uses the most recently developed sales forecast to refine the estimated demand to adjust for circumstances in which historical sales are not expected to be representative of future demand including new products with little or no historical demand, products being replaced or discontinued for which demand is expected to decrease, or other customer specific or economic factors. Auditing management's estimates for obsolete or unmarketable inventory involved subjective auditor judgment because the assumptions used to make the estimate require judgments about future market and economic conditions outside the Company's control. In particular, the adjustments to the obsolete or unmarketable inventory estimates are sensitive to significant assumptions impacting forecast demand, including changes in economic and market conditions such as the impacts of COVID-19.
How We Addressed the Matter in Our Audit		We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company's obsolete or unmarketable inventory estimation process, including management's assessment of the assumptions and data underlying the obsolete or unmarketable inventory reserves. Our substantive audit procedures included, among others, evaluating the significant assumptions stated above and the accuracy and completeness of the underlying data used in management's obsolete or unmarketable inventory assessment. We compared on-hand inventories to demand forecasts, assessed the reasonableness of management’s demand forecasts through testing historical sales quantities, and evaluated adjustments to demand forecasts for specific product considerations, such as specific customer demand. We also assessed the historical accuracy of management's estimates and the related assumptions by performing a retrospective review on the accuracy of prior period demand forecast estimates.

F-2

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Estimating Variable Consideration for Distributor Sales

Description of the Matter		The Company's sales arrangements provide certain distributors with price concessions and product return rights, which results in variable consideration. During the year ended March 31, 2020, approximately $2,626.9 million of the Company's total $5,274.2 million in net sales represents sales to distributors, which has been adjusted for estimates of the price concessions and product return rights that are expected to be claimed. As explained in Note 1 to the consolidated financial statements, the Company estimates the amount of consideration to which it will be entitled using recent historical data and applying the expected value method. The Company records a reduction of the original sale amount for the estimated variable consideration resulting from price concessions and product returns. At March 31, 2020, such reserves totaled $353.0 million. Auditing management's estimates of variable consideration resulting from price concessions and product returns under the distributor contracts involved subjective auditor judgment because the estimates rely on a number of factors that are forward-looking and could be affected by future economic and market conditions including the impacts of COVID-19. The estimated concession and return rates are generally made using recent, observable experience from the prior quarter. The recent experience is evaluated to determine whether adjustments to the concession rates are needed for changing market or economic conditions. For example, estimated variable consideration resulting from price concessions and product returns included in the transaction price reflects management's evaluation of contractual terms, historical experience and assumptions about future economic conditions. Changes in those assumptions can have a material effect on the amount of variable consideration recognized.
How We Addressed the Matter in Our Audit		We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company's process to calculate the variable consideration resulting from price concessions and product returns, including management's assessment of the price concession and return rate assumptions and data underlying the estimate. Our substantive audit procedures included, among others, evaluating the significant assumptions and the accuracy and completeness of the underlying data used in management's estimate. This included comparing management’s accrual for future price concessions at a disaggregated level to historical results and testing value of the inventory held by distributors at the end of the period through a combination of inspection of source documentation for transactions executed during the period and confirmations with the distributors. We confirmed contractual terms and conditions directly with a selection of distributor customers. We evaluated whether recent return and concession experience from the prior quarter is a reasonable approximation for expected future concessions in consideration of the current market conditions. In addition, we assessed the historical accuracy of management's estimates for variable consideration resulting from price concessions and product returns and the related assumptions by performing a retrospective review on the accuracy of prior period estimates.

F-3

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Unrecognized Tax Benefits

Description of the Matter		As more fully described in Note 13 to the consolidated financial statements, the Company operates in a number of tax jurisdictions and its income tax returns are subject to examination by tax authorities in those jurisdictions that may challenge any tax position on these returns. Because the matters challenged by authorities are typically complex and subject to interpretation, their ultimate outcome is uncertain. The Company uses significant judgment in (1) determining whether a tax position’s technical merits are more-likely-then-not to be sustained, and (2) measuring the amount of tax benefit that qualifies for recognition. As of March 31, 2020, the Company recognized accrued liabilities for unrecognized tax benefits associated with various tax positions totaling $757.3 million. Auditing the recognition and measurement of the Company's tax transactions (in particular, intra-group intellectual property right transfers) and positions was challenging because the conclusions regarding the recognition and measurement of the tax positions is complex and highly subjective judgments are made by management to evaluate the technical merits of each position, which are based on interpretations of complex tax laws as well as administrative and legal rulings. In certain cases, the Company’s conclusions involved valuation methodologies and subjective assumptions such as revenue growth rates, measures of profitability, terminal rates, and discount rates.
How We Addressed the Matter in Our Audit		We evaluated the design and tested the operating effectiveness of internal controls over the Company’s process to assess the technical merits and measurement of unrecognized tax benefits. For example, we tested management’s review of the inputs into intellectual property valuations and management’s assessment of other third-party information used in the evaluation of the completeness and measurement of unrecognized tax benefits. Our audit procedures included, among others, evaluating the assumptions the Company used to develop its tax positions and related unrecognized income tax benefit amounts by jurisdiction and testing the completeness and accuracy of the underlying data used by the Company to calculate its uncertain tax positions. We involved our tax professionals to assist us with obtaining an understanding of the Company’s tax structure, assessing the Company’s compliance with tax laws, related developments in administrative rulings and court cases, identifying tax law changes in jurisdictions that may impact the Company’s unrecognized tax benefits and assessing the technical merits of the Company’s tax positions. This included assessing the Company’s correspondence with the relevant tax authorities and evaluating income tax opinions or other third-party advice obtained by the Company. We also used our knowledge of, and experience with, the application of international and local income tax laws to evaluate the Company’s accounting for its tax positions. For certain material tax positions related to intra-group transactions, we assessed the assumptions and pricing methods used in setting arm’s length prices and the documentation to support the pricing, and used our tax and valuation professionals to assist in testing certain significant assumptions and pricing methods. We have also evaluated the Company’s income tax disclosures included in Note 13 in relation to these matters.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2001.

Phoenix, Arizona

May 21, 2020

F-4

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Microchip Technology Incorporated

Opinion on Internal Control Over Financial Reporting

We have audited Microchip Technology Incorporated’s internal control over financial reporting as of March 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Microchip Technology Incorporated (the Company) maintained, in all material respects, effective internal control over financial reporting as of March 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of March 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended March 31, 2020, and the related notes and our report dated May 21, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Phoenix, Arizona

May 21, 2020

F-5

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