filings.toolsItem 1. . Financial Statements
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Item 1. . Financial Statements
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share amounts)
| ASSETS | |||||||||||
| December 31, | March 31, | ||||||||||
| 2021 | 2021 | ||||||||||
| Cash and cash equivalents | $ | 313.5 | $ | 280.0 | |||||||
| Short-term investments | 2.0 | 2.0 | |||||||||
| Accounts receivable, net | 930.1 | 997.7 | |||||||||
| Inventories | 768.2 | 665.0 | |||||||||
| Other current assets | 186.7 | 200.5 | |||||||||
| Total current assets | 2,200.5 | 2,145.2 | |||||||||
| Property, plant and equipment, net | 929.9 | 854.7 | |||||||||
| Goodwill | 6,673.6 | 6,670.6 | |||||||||
| Intangible assets, net | 4,256.3 | 4,794.8 | |||||||||
| Long-term deferred tax assets | 1,721.5 | 1,749.2 | |||||||||
| Other assets | 265.4 | 264.3 | |||||||||
| Total assets | $ | 16,047.2 | $ | 16,478.8 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Accounts payable | $ | 301.3 | $ | 292.4 | |||||||
| Accrued liabilities | 917.4 | 794.3 | |||||||||
| Current portion of long-term debt | — | 1,322.9 | |||||||||
| Total current liabilities | 1,218.7 | 2,409.6 | |||||||||
| Long-term debt | 7,868.5 | 7,581.2 | |||||||||
| Long-term income tax payable | 673.5 | 689.9 | |||||||||
| Long-term deferred tax liability | 41.4 | 43.9 | |||||||||
| Other long-term liabilities | 441.8 | 417.1 | |||||||||
| Stockholders' equity: | |||||||||||
| Preferred stock, $0.001 par value; authorized 5,000,000 shares; no shares issued or outstanding | — | — | |||||||||
| Common stock, $0.001 par value; authorized 900,000,000 shares; 576,756,917 shares issued and 555,988,669 shares outstanding at December 31, 2021; 568,958,158 shares issued and 547,057,188 shares outstanding at March 31, 2021 | 0.6 | 0.5 | |||||||||
| Additional paid-in capital | 2,500.6 | 2,403.1 | |||||||||
| Common stock held in treasury: 20,768,248 shares at December 31, 2021; 21,900,970 shares at March 31, 2021 | (552.7) | (433.8) | |||||||||
| Accumulated other comprehensive loss | (23.3) | (26.2) | |||||||||
| Retained earnings | 3,878.1 | 3,393.5 | |||||||||
| Total stockholders' equity | 5,803.3 | 5,337.1 | |||||||||
| Total liabilities and stockholders' equity | $ | 16,047.2 | $ | 16,478.8 |
See accompanying notes to condensed consolidated financial statements
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
| Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 1,757.5 | $ | 1,352.1 | $ | 4,976.7 | $ | 3,971.3 | ||||||||||||||||||||||||||||||
| Cost of sales | 604.2 | 506.3 | 1,747.5 | 1,519.3 | ||||||||||||||||||||||||||||||||||
| Gross profit | 1,153.3 | 845.8 | 3,229.2 | 2,452.0 | ||||||||||||||||||||||||||||||||||
| Research and development | 245.4 | 210.1 | 730.0 | 607.9 | ||||||||||||||||||||||||||||||||||
| Selling, general and administrative | 177.5 | 154.2 | 531.7 | 445.2 | ||||||||||||||||||||||||||||||||||
| Amortization of acquired intangible assets | 215.7 | 231.6 | 647.0 | 699.9 | ||||||||||||||||||||||||||||||||||
| Special (income) charges and other, net | (0.3) | 4.3 | 20.4 | 8.9 | ||||||||||||||||||||||||||||||||||
| Operating expenses | 638.3 | 600.2 | 1,929.1 | 1,761.9 | ||||||||||||||||||||||||||||||||||
| Operating income | 515.0 | 245.6 | 1,300.1 | 690.1 | ||||||||||||||||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||||||||||||||
| Interest income | 0.1 | 0.2 | 0.5 | 0.8 | ||||||||||||||||||||||||||||||||||
| Interest expense | (62.1) | (86.5) | (199.2) | (278.9) | ||||||||||||||||||||||||||||||||||
| Loss on settlement of debt | (16.1) | (142.1) | (101.6) | (214.0) | ||||||||||||||||||||||||||||||||||
| Other income (loss), net | 4.6 | (0.4) | 3.5 | (2.9) | ||||||||||||||||||||||||||||||||||
| Income before income taxes | 441.5 | 16.8 | 1,003.3 | 195.1 | ||||||||||||||||||||||||||||||||||
| Income tax provision (benefit) | 88.7 | (19.4) | 155.7 | (38.3) | ||||||||||||||||||||||||||||||||||
| Net income | $ | 352.8 | $ | 36.2 | $ | 847.6 | $ | 233.4 | ||||||||||||||||||||||||||||||
| Basic net income per common share | $ | 0.64 | $ | 0.07 | $ | 1.54 | $ | 0.46 | ||||||||||||||||||||||||||||||
| Diluted net income per common share | $ | 0.62 | $ | 0.07 | $ | 1.50 | $ | 0.44 | ||||||||||||||||||||||||||||||
| Dividends declared per common share | $ | 0.2320 | $ | 0.1843 | $ | 0.6570 | $ | 0.5521 | ||||||||||||||||||||||||||||||
| Basic common shares outstanding | 554.9 | 526.8 | 551.2 | 511.4 | ||||||||||||||||||||||||||||||||||
| Diluted common shares outstanding | 567.3 | 550.8 | 566.1 | 533.9 | ||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
| Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||
| Net income | $ | 352.8 | $ | 36.2 | $ | 847.6 | $ | 233.4 | |||||||||||||||||||||
| Components of other comprehensive income (loss): | |||||||||||||||||||||||||||||
| Defined benefit plans: | |||||||||||||||||||||||||||||
| Actuarial gains (losses) related to defined benefit pension plans, net of tax effect | 2.1 | (3.5) | 2.8 | (6.9) | |||||||||||||||||||||||||
| Reclassification of realized transactions, net of tax effect | 0.6 | 0.3 | 1.8 | 0.9 | |||||||||||||||||||||||||
| Change in net foreign currency translation adjustment | (1.6) | 1.8 | (1.7) | 5.3 | |||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax effect | 1.1 | (1.4) | 2.9 | (0.7) | |||||||||||||||||||||||||
| Comprehensive income | $ | 353.9 | $ | 34.8 | $ | 850.5 | $ | 232.7 |
See accompanying notes to condensed consolidated financial statements
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| Nine Months Ended December 31, | |||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income | $ | 847.6 | $ | 233.4 | |||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | 850.3 | 865.5 | |||||||||||||||
| Deferred income taxes | 6.1 | (82.9) | |||||||||||||||
| Share-based compensation expense related to equity incentive plans | 163.2 | 143.3 | |||||||||||||||
| Loss on settlement of debt | 101.6 | 214.0 | |||||||||||||||
| Amortization of debt discount | 34.9 | 57.5 | |||||||||||||||
| Amortization of debt issuance costs | 9.2 | 13.2 | |||||||||||||||
| Other non-cash adjustment | (9.5) | (0.2) | |||||||||||||||
| Changes in operating assets and liabilities, excluding impact of acquisitions: | |||||||||||||||||
| Decrease in accounts receivable | 67.6 | 40.2 | |||||||||||||||
| (Increase) decrease in inventories | (105.0) | 17.5 | |||||||||||||||
| Increase in accounts payable and accrued liabilities | 73.8 | 6.6 | |||||||||||||||
| Change in other assets and liabilities | 30.3 | (23.3) | |||||||||||||||
| Change in income tax payable | 24.9 | (17.5) | |||||||||||||||
| Net cash provided by operating activities | 2,095.0 | 1,467.3 | |||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Proceeds from sales of assets | 12.2 | 0.2 | |||||||||||||||
| Investments in other assets | (91.7) | (73.1) | |||||||||||||||
| Capital expenditures | (255.5) | (37.2) | |||||||||||||||
| Net cash used in investing activities | (335.0) | (110.1) | |||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Proceeds from borrowings on Revolving Credit Facility | 2,947.0 | 3,073.0 | |||||||||||||||
| Repayments of Revolving Credit Facility | (3,753.5) | (3,104.9) | |||||||||||||||
| Proceeds from issuance of senior notes | 997.0 | 3,577.8 | |||||||||||||||
| Repayment of senior notes | (1,000.0) | — | |||||||||||||||
| Repayment of Bridge Loan Facility | — | (615.0) | |||||||||||||||
| Repayments of Term Loan Facility | — | (1,723.5) | |||||||||||||||
| Payments on settlement of convertible debt | (359.8) | (2,252.2) | |||||||||||||||
| Deferred financing costs | (7.8) | (18.3) | |||||||||||||||
| Purchase of capped call options | — | (35.8) | |||||||||||||||
| Proceeds from sale of common stock | 47.1 | 40.2 | |||||||||||||||
| Tax payments related to shares withheld for vested RSUs | (66.9) | (46.5) | |||||||||||||||
| Repurchase of common stock | (166.0) | — | |||||||||||||||
| Payment of cash dividends | (363.0) | (281.7) | |||||||||||||||
| Capital lease payments | (0.6) | (0.6) | |||||||||||||||
| Net cash used in financing activities | (1,726.5) | (1,387.5) | |||||||||||||||
| Net increase (decrease) in cash and cash equivalents | 33.5 | (30.3) | |||||||||||||||
| Cash and cash equivalents, and restricted cash at beginning of period | 280.0 | 401.0 | |||||||||||||||
| Cash and cash equivalents, and restricted cash at end of period | $ | 313.5 | $ | 370.7 | |||||||||||||
See accompanying notes to condensed consolidated financial statements
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions)
| Common Stock and Additional Paid-in-Capital | Common Stock Held in Treasury | Accumulated Other Comprehensive Loss | Retained Earnings | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | 516.8 | $ | 2,675.3 | 26.1 | $ | (500.6) | $ | (21.6) | $ | 3,432.4 | $ | 5,585.5 | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 123.6 | 123.6 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 0.5 | — | 0.5 | ||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sales of common stock through employee equity incentive plans | 1.2 | 11.0 | — | — | — | — | 11.0 | ||||||||||||||||||||||||||||||||||||||||||||||
| RSU and SAR withholdings | (0.3) | (11.0) | — | — | — | — | (11.0) | ||||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock used for new issuances | (0.9) | (14.8) | (0.9) | 14.8 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to settle convertible debt | 13.3 | 651.5 | — | — | — | — | 651.5 | ||||||||||||||||||||||||||||||||||||||||||||||
| Settlement of convertible debt | — | (810.7) | — | — | — | — | (810.7) | ||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | 41.3 | — | — | — | — | 41.3 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividend | — | — | — | — | — | (90.4) | (90.4) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | 530.1 | 2,542.6 | 25.2 | (485.8) | (21.1) | 3,465.6 | 5,501.3 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | 73.6 | 73.6 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 0.2 | — | 0.2 | ||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sales of common stock through employee equity incentive plans | 1.5 | 18.6 | — | — | — | — | 18.6 | ||||||||||||||||||||||||||||||||||||||||||||||
| RSU and SAR withholdings | (0.3) | (14.4) | — | — | — | — | (14.4) | ||||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock used for new issuances | (1.2) | (18.8) | (1.2) | 18.8 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to settle convertible debt | 14.4 | 768.7 | — | — | — | — | 768.7 | ||||||||||||||||||||||||||||||||||||||||||||||
| Settlement of convertible debt | — | (859.4) | — | — | — | — | (859.4) | ||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | 50.4 | — | — | — | — | 50.4 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividend | — | — | — | — | — | (95.3) | (95.3) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | 544.5 | 2,487.7 | 24.0 | (467.0) | (20.9) | 3,443.9 | 5,443.7 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 36.2 | 36.2 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (1.4) | — | (1.4) | ||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sales of common stock through employee equity incentive plans | 1.4 | 10.6 | — | — | — | — | 10.6 | ||||||||||||||||||||||||||||||||||||||||||||||
| RSU and SAR withholdings | (0.3) | (21.1) | — | — | — | — | (21.1) | ||||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock used for new issuances | (1.1) | (16.8) | (1.1) | 16.8 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to settle convertible debt | 16.9 | 1,160.1 | — | — | — | — | 1,160.1 | ||||||||||||||||||||||||||||||||||||||||||||||
| Settlement of convertible debt | — | (1,339.0) | — | — | — | — | (1,339.0) | ||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of capped call options | — | (35.8) | — | — | — | — | (35.8) | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of 2020 Senior Convertible Debt | — | 87.7 | — | — | — | — | 87.7 | ||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | 52.0 | — | — | — | — | 52.0 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividend | — | — | — | — | — | (96.0) | (96.0) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 561.4 | $ | 2,385.4 | 22.9 | $ | (450.2) | $ | (22.3) | $ | 3,384.1 | $ | 5,297.0 | |||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | 569.0 | $ | 2,403.6 | 21.9 | $ | (433.8) | $ | (26.2) | $ | 3,393.5 | $ | 5,337.1 | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 252.8 | 252.8 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — |
| Common Stock and Additional Paid-in-Capital | Common Stock Held in Treasury | Accumulated Other Comprehensive Loss | Retained Earnings | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sales of common stock through employee equity incentive plans | 1.4 | 12.2 | — | — | — | — | 12.2 | ||||||||||||||||||||||||||||||||||||||||||||||
| RSU and SAR withholdings | (0.4) | (25.3) | — | — | — | — | (25.3) | ||||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock used for new issuances | (1.0) | (16.3) | (1.0) | 16.3 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | 56.2 | — | — | — | — | 56.2 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividend | — | — | — | — | — | (113.1) | (113.1) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | 569.0 | 2,430.4 | 20.9 | (417.5) | (26.2) | 3,533.2 | 5,519.9 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | 242.0 | 242.0 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 1.8 | — | 1.8 | ||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sales of common stock through employee equity incentive plans | 1.6 | 21.2 | — | — | — | — | 21.2 | ||||||||||||||||||||||||||||||||||||||||||||||
| RSU and SAR withholdings | (0.3) | (23.8) | — | — | — | — | (23.8) | ||||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock used for new issuances | (1.3) | (19.6) | (1.3) | 19.6 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to settle convertible debt | 5.4 | 399.2 | — | — | — | — | 399.2 | ||||||||||||||||||||||||||||||||||||||||||||||
| Settlement of convertible debt | — | (391.1) | — | — | — | — | (391.1) | ||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | 54.9 | — | — | — | — | 54.9 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividend | — | — | — | — | — | (121.2) | (121.2) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | 574.4 | 2,471.2 | 19.6 | (397.9) | (24.4) | 3,654.0 | 5,702.9 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 352.8 | 352.8 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 1.1 | — | 1.1 | ||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sales of common stock through employee equity incentive plans | 1.0 | 13.7 | — | — | — | — | 13.7 | ||||||||||||||||||||||||||||||||||||||||||||||
| RSU and SAR withholdings | (0.2) | (17.8) | — | — | — | — | (17.8) | ||||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock used for new issuances | (0.8) | (11.2) | (0.8) | 11.2 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | 2.0 | (166.0) | — | — | (166.0) | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to settle convertible debt | 2.4 | 196.9 | — | — | — | — | 196.9 | ||||||||||||||||||||||||||||||||||||||||||||||
| Settlement of convertible debt | — | (201.9) | — | — | — | — | (201.9) | ||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | 50.3 | — | — | — | — | 50.3 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividend | — | — | — | — | — | (128.7) | (128.7) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 576.8 | $ | 2,501.2 | 20.8 | $ | (552.7) | $ | (23.3) | $ | 3,878.1 | $ | 5,803.3 | |||||||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Microchip Technology Incorporated and its majority-owned and controlled subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated in consolidation. All dollar amounts in the financial statements and tables in these notes, except per share amounts, are stated in millions of U.S. dollars unless otherwise noted.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, pursuant to the rules and regulations of the SEC. The information furnished herein reflects all adjustments which are, in the opinion of management, of a normal recurring nature and necessary for a fair statement of the results for the interim periods reported. Certain information and footnote disclosures normally included in audited consolidated financial statements have been condensed or omitted pursuant to such SEC rules and regulations. It is suggested that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2021. The results of operations for the three and nine months ended December 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2022 or for any other period.
On August 24, 2021, at our Annual Meeting of Stockholders, our stockholders approved a two-for-one forward stock split and the amendment and restatement of the Company's Certificate of Incorporation to increase the number of authorized shares of common stock from 450.0 million shares to 900.0 million shares. As a result, each stockholder of record at the close of market on October 4, 2021 received one additional share of common stock for every share held. Such shares were distributed after the close of trading on October 12, 2021. All share, equity award, and per share amounts and related shareholders' equity balances presented herein have been adjusted to reflect the stock split.
Note 2. Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
On April 1, 2021, the Company adopted ASU 2019-12-Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance enhances and simplifies various aspects of income tax accounting, including requirements related to hybrid tax regimes, the tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of entities not subject to tax, the intraperiod tax allocation exception to the incremental approach, ownership changes in investments, interim-period accounting for enacted changes in tax law, and the year-to-date loss limitation in interim-period tax accounting. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2020, the FASB issued ASU 2020-06-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity, which simplifies the guidance for certain convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company expects the primary impacts of this new standard will be to increase the carrying value of its Convertible Debt and reduce its reported interest expense. In addition, the Company will be required to use the if-converted method for calculating diluted earnings per share. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements.
Note 3. Segment Information
The Company's reportable segments are semiconductor products and technology licensing. The Company does not allocate operating expenses, interest income, interest expense, other income or expense, or provision for or benefit from income taxes to these segments for internal reporting purposes, as the Company does not believe that allocating these expenses is beneficial in evaluating segment performance. Additionally, the Company does not allocate assets to segments for internal reporting purposes as it does not manage its segments by such metrics.
The following tables represent net sales and gross profit for each segment for the periods presented (in millions):
| Three Months Ended December 31, 2021 | Nine Months Ended December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Sales | Gross Profit | Net Sales | Gross Profit | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Semiconductor products | $ | 1,725.5 | $ | 1,121.3 | $ | 4,884.5 | $ | 3,137.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Technology licensing | 32.0 | 32.0 | 92.2 | 92.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,757.5 | $ | 1,153.3 | $ | 4,976.7 | $ | 3,229.2 |
| Three Months Ended December 31, 2020 | Nine Months Ended December 31, 2020 | ||||||||||||||||||||||
| Net Sales | Gross Profit | Net Sales | Gross Profit | ||||||||||||||||||||
| Semiconductor products | $ | 1,319.9 | $ | 813.6 | $ | 3,893.9 | $ | 2,374.6 | |||||||||||||||
| Technology licensing | 32.2 | 32.2 | 77.4 | 77.4 | |||||||||||||||||||
| Total | $ | 1,352.1 | $ | 845.8 | $ | 3,971.3 | $ | 2,452.0 |
Note 4. Net Sales
The following table represents the Company's net sales by product line (in millions):
| Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||
| Microcontrollers | $ | 972.2 | $ | 726.3 | $ | 2,768.7 | $ | 2,145.8 | |||||||||||||||||||||||||||||||||
| Analog | 500.5 | 372.8 | 1,423.5 | 1,104.7 | |||||||||||||||||||||||||||||||||||||
| Other | 284.8 | 253.0 | 784.5 | 720.8 | |||||||||||||||||||||||||||||||||||||
| Total net sales | $ | 1,757.5 | $ | 1,352.1 | $ | 4,976.7 | $ | 3,971.3 |
The product lines listed above are included entirely in the Company's semiconductor product segment with the exception of the other product line, which includes products from both the semiconductor product and technology licensing segments.
The following table represents the Company's net sales by contract type (in millions):
| Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||
| Distributors | $ | 787.1 | $ | 681.6 | $ | 2,387.2 | $ | 2,003.7 | |||||||||||||||||||||||||||||||||
| Direct customers | 938.4 | 638.3 | 2,497.3 | 1,890.2 | |||||||||||||||||||||||||||||||||||||
| Licensees | 32.0 | 32.2 | 92.2 | 77.4 | |||||||||||||||||||||||||||||||||||||
| Total net sales | $ | 1,757.5 | $ | 1,352.1 | $ | 4,976.7 | $ | 3,971.3 |
Distributors are customers that buy products with the intention of reselling them. Distributors generally have a distributor agreement with the Company to govern the terms of the relationship. Direct customers are non-distributor customers, which generally do not have a master sales agreement with the Company. The Company's direct customers primarily consist of OEMs and, to a lesser extent, contract manufacturers. Licensees are customers of the Company's technology licensing segment, which include purchasers of intellectual property and customers that have licensing agreements to use the Company's SuperFlash® embedded flash and Smartbits® one time programmable NVM technologies. All of the contract types listed in the table above are included in the Company's semiconductor product segment with the exception of licenses, which is included in the technology licensing segment.
Note 5. Net Income Per Common Share
The following table sets forth the computation of basic and diluted net income per common share (in millions, except per share amounts):
| Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||
| Net income | $ | 352.8 | $ | 36.2 | $ | 847.6 | $ | 233.4 | |||||||||||||||||||||||||||||||||
| Basic weighted average common shares outstanding | 554.9 | 526.8 | 551.2 | 511.4 | |||||||||||||||||||||||||||||||||||||
| Dilutive effect of stock options and RSUs | 7.0 | 7.3 | 7.4 | 6.6 | |||||||||||||||||||||||||||||||||||||
| Dilutive effect of 2015 Senior Convertible Debt | 2.0 | 7.0 | 3.1 | 10.8 | |||||||||||||||||||||||||||||||||||||
| Dilutive effect of 2017 Senior Convertible Debt | 3.0 | 5.7 | 3.4 | 3.0 | |||||||||||||||||||||||||||||||||||||
| Dilutive effect of 2017 Junior Convertible Debt | 0.4 | 4.0 | 1.0 | 2.1 | |||||||||||||||||||||||||||||||||||||
| Diluted weighted average common shares outstanding | 567.3 | 550.8 | 566.1 | 533.9 | |||||||||||||||||||||||||||||||||||||
| Basic net income per common share | $ | 0.64 | $ | 0.07 | $ | 1.54 | $ | 0.46 | |||||||||||||||||||||||||||||||||
| Diluted net income per common share | $ | 0.62 | $ | 0.07 | $ | 1.50 | $ | 0.44 |
The Company computed basic net income per common share based on the weighted average number of common shares outstanding during the period. The Company computed diluted net income per common share based on the weighted average number of common shares outstanding plus potentially dilutive common shares outstanding during the period.
Potentially dilutive common shares from employee equity incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options and the assumed vesting of outstanding RSUs. Weighted average common shares exclude the effect of option shares which are not dilutive. There were no anti-dilutive option shares for each of the three and nine months ended December 31, 2021 and 2020.
The Company's Convertible Debt has no impact on diluted net income per common share unless the average price of the Company's common stock exceeds the conversion price because the Company intends to settle the principal amount of the Convertible Debt in cash upon conversion. Prior to conversion, the Company will include, in the diluted net income per common share calculation, the effect of the additional shares that may be issued when the Company's common stock price exceeds the conversion price using the treasury stock method. The following is the weighted average conversion price per share used in calculating the dilutive effect (see Note 6 for details on the Convertible Debt):
| Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||
| 2015 Senior Convertible Debt | $ | 30.05 | $ | 30.39 | $ | 30.14 | $ | 30.49 | |||||||||||||||||||||||||||||||||
| 2017 Senior Convertible Debt | $ | 46.86 | $ | 47.39 | $ | 47.00 | $ | 47.55 | |||||||||||||||||||||||||||||||||
| 2020 Senior Convertible Debt | $ | 93.32 | $ | 93.44 | $ | 93.37 | $ | 93.44 | |||||||||||||||||||||||||||||||||
| 2017 Junior Convertible Debt | $ | 46.04 | $ | 46.56 | $ | 46.17 | $ | 46.72 |
Note 6. Debt
Debt obligations included in the condensed consolidated balance sheets consisted of the following (in millions):
| Coupon Interest Rate | Effective Interest Rate | Fair Value of Liability Component at Issuance(1) | |||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Revolving Credit Facility | $ | 1,540.1 | $ | 2,346.6 | |||||||||||||||||||||||||||||||||||||
| 3.922% 2021 Notes | 3.922% | 4.5% | — | 1,000.0 | |||||||||||||||||||||||||||||||||||||
| 4.333% 2023 Notes | 4.333% | 4.7% | 1,000.0 | 1,000.0 | |||||||||||||||||||||||||||||||||||||
| 2.670% 2023 Notes | 2.670% | 2.8% | 1,000.0 | 1,000.0 | |||||||||||||||||||||||||||||||||||||
| 0.972% 2024 Notes | 0.972% | 1.1% | 1,400.0 | 1,400.0 | |||||||||||||||||||||||||||||||||||||
| 0.983% 2024 Notes(2) | 0.983% | 1.1% | 1,000.0 | — | |||||||||||||||||||||||||||||||||||||
| 4.250% 2025 Notes | 4.250% | 4.6% | 1,200.0 | 1,200.0 | |||||||||||||||||||||||||||||||||||||
| Total Senior Indebtedness(3) | 7,140.1 | 7,946.6 | |||||||||||||||||||||||||||||||||||||||
| Senior Subordinated Convertible Debt - Principal Outstanding | |||||||||||||||||||||||||||||||||||||||||
| 2015 Senior Convertible Debt | 1.625% | 5.9% | $ | 30.4 | 34.4 | 141.4 | |||||||||||||||||||||||||||||||||||
| 2017 Senior Convertible Debt | 1.625% | 6.0% | $ | 155.9 | 193.0 | 333.3 | |||||||||||||||||||||||||||||||||||
| 2020 Senior Convertible Debt | 0.125% | 5.1% | $ | 555.5 | 665.5 | 665.5 | |||||||||||||||||||||||||||||||||||
| Junior Subordinated Convertible Debt - Principal Outstanding | |||||||||||||||||||||||||||||||||||||||||
| 2017 Junior Convertible Debt | 2.250% | 7.4% | $ | 5.4 | 10.1 | 122.6 | |||||||||||||||||||||||||||||||||||
| Total Convertible Debt | 903.0 | 1,262.8 | |||||||||||||||||||||||||||||||||||||||
| Gross long-term debt including current maturities | 8,043.1 | 9,209.4 | |||||||||||||||||||||||||||||||||||||||
| Less: Debt discount(4) | (146.9) | (273.0) | |||||||||||||||||||||||||||||||||||||||
| Less: Debt issuance costs(5) | (27.7) | (32.3) | |||||||||||||||||||||||||||||||||||||||
| Net long-term debt including current maturities | 7,868.5 | 8,904.1 | |||||||||||||||||||||||||||||||||||||||
| Less: Current maturities(6) | — | (1,322.9) | |||||||||||||||||||||||||||||||||||||||
| Net long-term debt | $ | 7,868.5 | $ | 7,581.2 |
(1) As each of the convertible debt instruments may be settled in cash upon conversion, for accounting purposes, they were bifurcated into a liability component and an equity component. The amount allocated to the equity component is the difference between the principal value of the instrument and the fair value of the liability component at issuance. The resulting debt discount is being amortized to interest expense at the respective effective interest rate over the contractual term of the debt.
(2) The 0.983% 2024 Notes mature on September 1, 2024, and interest is payable semi-annually in arrears on March 1 and September 1 of each year.
(3) The 4.333% 2023 Notes, the 2.670% 2023 Notes, the 0.972% 2024 Notes, the 0.983% 2024 Notes, the 4.250% 2025 Notes, and the Revolving Credit Facility are senior unsecured debt. Prior to the December 16, 2021 amendment, the 4.333% 2023 Notes, the 2.670% 2023 Notes, the 0.972% 2024 Notes, the 0.983% 2024 Notes, and the Revolving Credit Facility were senior secured debt.
(4) The unamortized discount consists of the following (in millions):
| December 31, | March 31, | ||||||||||||||||||||||
| 2021 | 2021 | ||||||||||||||||||||||
| 3.922% 2021 Notes | $ | — | $ | (0.3) | |||||||||||||||||||
| 4.333% 2023 Notes | (1.6) | (2.4) | |||||||||||||||||||||
| 2.670% 2023 Notes | (1.6) | (2.3) | |||||||||||||||||||||
| 0.972% 2024 Notes | (2.8) | (3.8) | |||||||||||||||||||||
| 0.983% 2024 Notes | (2.5) | — | |||||||||||||||||||||
| 4.250% 2025 Notes | (10.8) | (12.8) | |||||||||||||||||||||
| 2015 Senior Convertible Debt | (4.0) | (20.1) | |||||||||||||||||||||
| 2017 Senior Convertible Debt | (36.9) | (71.3) | |||||||||||||||||||||
| 2020 Senior Convertible Debt | (82.0) | (101.6) | |||||||||||||||||||||
| 2017 Junior Convertible Debt | (4.7) | (58.4) | |||||||||||||||||||||
| Total unamortized discount | $ | (146.9) | $ | (273.0) |
(5) Debt issuance costs consist of the following (in millions):
| December 31, | March 31, | ||||||||||||||||||||||
| 2021 | 2021 | ||||||||||||||||||||||
| Revolving Credit Facility | $ | (11.2) | $ | (10.0) | |||||||||||||||||||
| 3.922% 2021 Notes | — | (0.7) | |||||||||||||||||||||
| 4.333% 2023 Notes | (3.5) | (5.3) | |||||||||||||||||||||
| 2.670% 2023 Notes | (0.9) | (1.3) | |||||||||||||||||||||
| 0.972% 2024 Notes | (1.5) | (2.0) | |||||||||||||||||||||
| 0.983% 2024 Notes | (1.5) | — | |||||||||||||||||||||
| 4.250% 2025 Notes | (1.4) | (1.7) | |||||||||||||||||||||
| 2015 Senior Convertible Debt | (0.1) | (0.7) | |||||||||||||||||||||
| 2017 Senior Convertible Debt | (0.9) | (1.8) | |||||||||||||||||||||
| 2020 Senior Convertible Debt | (6.7) | (8.3) | |||||||||||||||||||||
| 2017 Junior Convertible Debt | — | (0.5) | |||||||||||||||||||||
| Total debt issuance costs | $ | (27.7) | $ | (32.3) |
(6) As of March 31, 2021, current maturities consisted of the liability component of the 2017 Senior Convertible Debt and the 2017 Junior Convertible Debt, and the 3.922% 2021 Notes which were due June 1, 2021.
Expected maturities relating to the Company’s debt obligations as of December 31, 2021 are as follows (in millions):
| Fiscal year ending March 31, | Expected Maturities | |||||||
| 2022 | $ | — | ||||||
| 2023 | — | |||||||
| 2024 | 3,400.0 | |||||||
| 2025 | 1,700.0 | |||||||
| 2026 | 1,200.0 | |||||||
| Thereafter | 1,743.1 | |||||||
| Total | $ | 8,043.1 |
Ranking of Convertible Debt - Each series of Convertible Debt is an unsecured obligation which is subordinated in right of payment to the amounts outstanding under the Company's Senior Indebtedness. The 2017 Junior Convertible Debt is expressly subordinated in right of payment to any existing and future senior debt of the Company (including the Senior Indebtedness and the Senior Subordinated Convertible Debt) and is structurally subordinated in right of payment to the liabilities of the Company's subsidiaries. The Senior Subordinated Convertible Debt is subordinated to the Senior Indebtedness; ranks senior to the Company's indebtedness that is expressly subordinated in right of payment to it, including the 2017 Junior Convertible Debt; ranks equal in right of payment to any of the Company's unsubordinated indebtedness that does not provide that it is senior to the Senior Subordinated Convertible Debt; ranks junior in right of payment to any of the Company's secured and
unsecured unsubordinated indebtedness to the extent of the value of the assets securing such indebtedness; and is structurally subordinated to all indebtedness and other liabilities of the Company's subsidiaries.
Summary of Conversion Features - Each series of Convertible Debt is convertible, subject to certain conditions, into cash, shares of the Company's common stock or a combination thereof, at the Company's election, at specified conversion rates (see table below), adjusted for certain events including the declaration of cash dividends. Except during the three-month period immediately preceding the maturity date of the applicable series of Convertible Debt, each series of Convertible Debt is convertible only upon the occurrence of (i) such time as the closing price of the Company's common stock exceeds the applicable conversion price (see table below) by 130% for 20 days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter or (ii) during the 5 business day period after any 10 consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of notes of a given series for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the applicable conversion rate on each such trading day or (iii) upon the occurrence of certain corporate events specified in the indenture of such series of Convertible Debt. In addition, for each series, with the exception of the 2020 Senior Convertible Debt, if at the time of conversion the applicable price of the Company's common stock exceeds the applicable conversion price at such time, the applicable conversion rate will be increased by up to an additional maximum incremental shares rate, as determined pursuant to a formula specified in the indenture for the applicable series of Convertible Debt, and as adjusted for cash dividends paid since the issuance of such series of Convertible Debt. However, in no event will the applicable conversion rate exceed the applicable maximum conversion rate specified in the indenture for the applicable series of Convertible Debt (see table below).
The following table sets forth the applicable conversion rates adjusted for dividends declared since issuance of such series of Convertible Debt and the applicable incremental share factors and maximum conversion rates as adjusted for dividends paid since the applicable issuance date:
| Dividend adjusted rates as of December 31, 2021 | |||||||||||||||||||||||
| Conversion Rate | Approximate Conversion Price | Incremental Share Factor | Maximum Conversion Rate | ||||||||||||||||||||
| 2015 Senior Convertible Debt(1) | 33.3270 | $ | 30.01 | 16.6635 | 46.6576 | ||||||||||||||||||
| 2017 Senior Convertible Debt(1) | 21.3712 | $ | 46.79 | 10.6856 | 30.4540 | ||||||||||||||||||
| 2020 Senior Convertible Debt(1) | 10.7188 | $ | 93.29 | — | 15.0062 | ||||||||||||||||||
| 2017 Junior Convertible Debt(1) | 21.7529 | $ | 45.97 | 10.8766 | 30.4540 | ||||||||||||||||||
(1) As of December 31, 2021, the 2020 Senior Convertible Debt was not convertible. As of December 31, 2021, the holders of each of the 2015 Senior Convertible Debt, 2017 Senior Convertible Debt, and 2017 Junior Convertible Debt have the right to convert their notes between January 1, 2022 and March 31, 2022 because the Company's common stock price has exceeded the applicable conversion price for such series by 130% for the specified period of time during the quarter ended December 31, 2021. As of December 31, 2021, the adjusted conversion rate for the 2015 Senior Convertible Debt, 2017 Senior Convertible Debt, and 2017 Junior Convertible Debt would be increased to 44.2473 shares of common stock, 26.3137 shares of common stock, and 26.8863 shares of common stock, respectively, per $1,000 principal amount of notes based on the closing price of $87.06 per share of common stock to include an additional maximum incremental share rate per the terms of the applicable indenture. As of December 31, 2021, each of the 2015 Senior Convertible Debt, 2017 Senior Convertible Debt, and 2017 Junior Convertible Debt had a conversion value in excess of par of $98.2 million, $249.2 million, and $13.6 million, respectively.
With the exception of the 2020 Senior Convertible Debt, which may be redeemed by the Company on or after November 20, 2022, the Company may not redeem any series of Convertible Debt prior to the relevant maturity date and no sinking fund is provided for any series of Convertible Debt. Under the terms of the applicable indenture, the Company may repurchase any series of Convertible Debt in the open market through privately negotiated exchange offers. Upon the occurrence of a fundamental change, as defined in the applicable indenture of such series of Convertible Debt, holders of such series may require the Company to purchase all or a portion of their Convertible Debt for cash at a price equal to 100% of the principal amount plus any accrued and unpaid interest.
Interest expense consists of the following (in millions):
| Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||
| Debt issuance cost amortization | $ | 2.2 | $ | 3.7 | $ | 7.4 | $ | 11.5 | |||||||||||||||||||||||||||||||||
| Debt discount amortization | 1.7 | 1.6 | 5.3 | 4.7 | |||||||||||||||||||||||||||||||||||||
| Interest expense | 45.3 | 59.2 | 144.9 | 171.3 | |||||||||||||||||||||||||||||||||||||
| Total interest expense on Senior Indebtedness | 49.2 | 64.5 | 157.6 | 187.5 | |||||||||||||||||||||||||||||||||||||
| Debt issuance cost amortization | 0.6 | 0.5 | 1.8 | 1.7 | |||||||||||||||||||||||||||||||||||||
| Debt discount amortization | 9.0 | 12.8 | 29.6 | 52.8 | |||||||||||||||||||||||||||||||||||||
| Coupon interest expense | 1.5 | 7.8 | 6.5 | 33.9 | |||||||||||||||||||||||||||||||||||||
| Total interest expense on Convertible Debt | 11.1 | 21.1 | 37.9 | 88.4 | |||||||||||||||||||||||||||||||||||||
| Other interest expense | 1.8 | 0.9 | 3.7 | 3.0 | |||||||||||||||||||||||||||||||||||||
| Total interest expense | $ | 62.1 | $ | 86.5 | $ | 199.2 | $ | 278.9 |
The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is 3.1 years, 5.1 years, 2.9 years, and 15.1 years for the 2015 Senior Convertible Debt, 2017 Senior Convertible Debt, 2020 Senior Convertible Debt, and 2017 Junior Convertible Debt, respectively.
The Company's settlement transactions in the nine months ended December 31, 2021 consist of the following (in millions)(1):
| Principal Amount Settled | Consideration | Fair Value Settled(2) | Equity Component(2) | Net Loss on Inducements and Settlements | |||||||||||||||||||||||||||||||||||||||||||||||||
| Cash Paid | Value of Shares Issued | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| December 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2015 Senior Convertible Debt(3) | $ | 36.6 | $ | 36.6 | $ | 103.9 | $ | 140.5 | $ | 36.2 | $ | 104.2 | $ | 4.1 | |||||||||||||||||||||||||||||||||||||||
| 2017 Senior Convertible Debt(3) | $ | 39.7 | $ | 39.7 | $ | 61.4 | $ | 101.1 | $ | 37.4 | $ | 63.0 | $ | 6.3 | |||||||||||||||||||||||||||||||||||||||
| 2017 Junior Convertible Debt(3) | $ | 19.9 | $ | 19.9 | $ | 31.6 | $ | 51.5 | $ | 15.7 | $ | 35.9 | $ | 5.1 | |||||||||||||||||||||||||||||||||||||||
| Revolving Credit Facility(4) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 0.6 | |||||||||||||||||||||||||||||||||||||||
| August 2021*(5)* | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2015 Senior Convertible Debt | $ | 70.4 | $ | 70.4 | $ | 159.9 | $ | 230.3 | $ | 71.0 | $ | 158.9 | $ | 10.6 | |||||||||||||||||||||||||||||||||||||||
| 2017 Senior Convertible Debt | $ | 100.7 | $ | 100.7 | $ | 123.5 | $ | 224.2 | $ | 100.0 | $ | 113.0 | $ | 31.5 | |||||||||||||||||||||||||||||||||||||||
| 2017 Junior Convertible Debt | $ | 92.5 | $ | 92.5 | $ | 115.8 | $ | 208.3 | $ | 87.7 | $ | 116.6 | $ | 43.1 | |||||||||||||||||||||||||||||||||||||||
| June 2021*(6)* | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3.922% 2021 Notes | $ | 1,000.0 | $ | 1,000.0 | $ | — | $ | 1,000.0 | $ | — | $ | — | $ | 0.3 | |||||||||||||||||||||||||||||||||||||||
(1) The Company settled portions of its convertible debt in privately negotiated transactions that are accounted for as induced conversions.
(2) The total consideration for the convertible debt settlements was allocated to the liability and equity components using the equivalent rate that reflected the borrowing rate for a similar non-convertible debt instrument prior to the settlement.
(3) The Company used cash generated from operations to finance a portion of such settlement.
(4) In connection with the amendment and restatement of its Credit Agreement, the Company recognized a loss on settlement of debt of $0.6 million.
(5) The Company used borrowings under its Revolving Credit Facility to finance a portion of such settlement.
(6) The Company used proceeds from the issuance of the 0.983% 2024 Notes to finance a portion of such settlement.
0.983% 2024 Notes
The Company may, at its option, redeem some or all of the 0.983% 2024 Notes in the manner set forth in the 0.983% 2024 Notes indenture. If the Company experiences a specified change of control triggering event set forth in the 0.983% 2024 Notes indenture the Company must offer to repurchase the 0.983% 2024 Notes at a price equal to 101% of the principal amount of the note repurchased, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
The 0.983% 2024 Notes indenture contains certain customary affirmative and negative covenants, including covenants that limit or restrict the Company and its subsidiaries' ability to, among other things, create or incur certain liens, and enter into sale and leaseback transactions, sell or otherwise dispose of any assets constituting collateral securing the 0.983% 2024 Notes, and consolidate with or merge with or into, or convey, transfer or lease all or substantially all of its assets, to another person. These covenants are subject to a number of limitations and exceptions set forth in the 0.983% 2024 Notes indenture.
The 0.983% 2024 Notes are guaranteed by certain of the Company's subsidiaries that have also guaranteed the obligations under the Credit Agreement and under the Company’s existing Senior Indebtedness. In the future, certain subsidiaries of the Company that are guarantors or other obligors of the Credit Agreement are required to guarantee the 0.983% 2024 Notes.
Senior Credit Facilities
In December 2021, the Company amended and restated the Company's Credit Agreement in its entirety. In connection therewith, the collateral securing the Credit Agreement prior to such amendment and restatement was released. The amended and restated Credit Agreement provides for an unsecured revolving loan facility up to $2.75 billion that terminates on December 16, 2026. The Credit Agreement also permits the Company, subject to certain conditions, to add one or more incremental term loan facilities or increase the revolving loan commitments up to $750.0 million.
The revolving loans bear interest, at the Company’s option, at the base rate plus a spread of 0.125% to 0.50%, an adjusted daily simple SOFR rate (or SONIA rate in the case of loans denominated in pounds sterling) plus a spread of 1.125% to 1.50%, or an adjusted term SOFR or adjusted EURIBOR rate (based on one, three or six-month interest periods) plus a spread of 1.125% to 1.50%, in each case, with such spread being determined based on the credit ratings for certain of the Company’s senior, unsecured debt. The base rate means the highest of the prime rate, the federal funds rate plus a margin equal to 0.50% and the adjusted term SOFR rate for a 1-month interest period plus a margin equal to 1.00%. Interest is due and payable in arrears quarterly for loans bearing interest at the base rate and at the end of an interest period (or at each three-month interval in the case of loans with interest periods greater than three months) in the case of loans bearing interest at the adjusted term SOFR or adjusted EURIBOR rates.
The Company's obligations under the Credit Agreement are guaranteed by certain of its subsidiaries meeting materiality thresholds. The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Company and its subsidiaries' ability to, among other things, incur subsidiary indebtedness, grant liens, merge or consolidate, dispose of substantially all assets, make investments, make acquisitions, enter into certain transactions with affiliates, pay dividends or make distributions, repurchase stock, enter into restrictive agreements, in each case subject to customary exceptions for a credit facility of this size and type. The Company is also required to maintain compliance with a total leverage ratio and an interest coverage ratio, all measured quarterly and calculated on a consolidated basis. As of December 31, 2021, the Company was in compliance with these financial covenants.
Note 7. Fair Value of Financial Instruments
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the Company utilizes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1-Observable inputs such as quoted prices in active markets;
Level 2-Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3-Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The carrying amount of cash equivalents approximates fair value because their maturity is less than three months. Management believes the carrying amount of the equity and cost-method investments materially approximated fair value at December 31, 2021 based upon unobservable inputs. The fair values of these investments have been determined as Level 3 fair value measurements. The carrying amount of accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short-term maturity of the amounts and are considered Level 2 in the fair value hierarchy.
The fair value of the Company's Revolving Credit Facility is estimated using discounted cash flow analysis, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of the Company's
Revolving Credit Facility at December 31, 2021 approximated the carrying value excluding debt discounts and debt issuance costs and are considered Level 2 in the fair value hierarchy. The Company measures the fair value of its Convertible Debt and Senior Notes for disclosure purposes. These fair values are based on observable market prices for this debt, which is traded in less active markets and are therefore classified as a Level 2 fair value measurement.
The following table shows the carrying amounts and fair values of the Company's debt obligations (in millions):
| December 31, 2021 | March 31, 2021 | ||||||||||||||||||||||
| Carrying Amount(1) | Fair Value | Carrying Amount(1) | Fair Value | ||||||||||||||||||||
| Revolving Credit Facility | $ | 1,528.9 | $ | 1,540.1 | $ | 2,336.6 | $ | 2,346.6 | |||||||||||||||
| 3.922% 2021 Notes | — | — | 999.0 | 1,004.3 | |||||||||||||||||||
| 4.333% 2023 Notes | 994.9 | 1,041.8 | 992.3 | 1,022.4 | |||||||||||||||||||
| 2.670% 2023 Notes | 997.5 | 1,022.5 | 996.4 | 1,040.8 | |||||||||||||||||||
| 0.972% 2024 Notes | 1,395.7 | 1,389.5 | 1,394.2 | 1,394.0 | |||||||||||||||||||
| 0.983% 2024 Notes | 996.0 | 985.1 | — | — | |||||||||||||||||||
| 4.250% 2025 Notes | 1,187.8 | 1,245.0 | 1,185.5 | 1,252.6 | |||||||||||||||||||
| 2015 Senior Convertible Debt | 30.3 | 132.7 | 120.6 | 485.4 | |||||||||||||||||||
| 2017 Senior Convertible Debt | 155.2 | 495.7 | 260.2 | 731.4 | |||||||||||||||||||
| 2020 Senior Convertible Debt | 576.8 | 841.9 | 555.6 | 778.3 | |||||||||||||||||||
| 2017 Junior Convertible Debt | 5.4 | 24.9 | 63.7 | 272.9 | |||||||||||||||||||
| Total | $ | 7,868.5 | $ | 8,719.2 | $ | 8,904.1 | $ | 10,328.7 | |||||||||||||||
(1) The carrying amounts presented are net of debt discounts and debt issuance costs (see Note 6 for further information).
Note 8. Intangible Assets and Goodwill
Intangible assets consist of the following (in millions):
| December 31, 2021 | ||||||||||||||||||||
| Gross Amount | Accumulated Amortization | Net Amount | ||||||||||||||||||
| Core and developed technology | $ | 7,387.6 | $ | (3,374.4) | $ | 4,013.2 | ||||||||||||||
| Customer-related | 835.2 | (736.2) | 99.0 | |||||||||||||||||
| In-process research and development | 6.4 | — | 6.4 | |||||||||||||||||
| Distribution rights and other | 193.6 | (55.9) | 137.7 | |||||||||||||||||
| Total | $ | 8,422.8 | $ | (4,166.5) | $ | 4,256.3 |
| March 31, 2021 | ||||||||||||||||||||
| Gross Amount | Accumulated Amortization | Net Amount | ||||||||||||||||||
| Core and developed technology | $ | 7,371.3 | $ | (2,771.0) | $ | 4,600.3 | ||||||||||||||
| Customer-related | 835.2 | (702.6) | 132.6 | |||||||||||||||||
| In-process research and development | 7.7 | — | 7.7 | |||||||||||||||||
| Distribution rights and other | 130.2 | (76.0) | 54.2 | |||||||||||||||||
| Total | $ | 8,344.4 | $ | (3,549.6) | $ | 4,794.8 |
The following is an expected amortization schedule for the intangible assets for the remainder of fiscal 2022 through fiscal 2026, absent any future acquisitions or impairment charges (in millions):
| Fiscal Year Ending March 31, | Projected Amortization Expense | |||||||
| 2022 | $ | 233.1 | ||||||
| 2023 | $ | 743.2 | ||||||
| 2024 | $ | 666.0 | ||||||
| 2025 | $ | 531.0 | ||||||
| 2026 | $ | 459.8 |
The Company amortizes intangible assets over their expected useful lives, which range between 1 and 15 years. Amortization expense attributed to intangible assets are assigned to cost of sales and operating expenses as follows (in millions):
| Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||
| Amortization expense charged to cost of sales | $ | 3.2 | $ | 2.4 | $ | 9.1 | $ | 6.9 | |||||||||||||||||||||||||||||||||
| Amortization expense charged to operating expense | 232.5 | 244.2 | 691.4 | 738.2 | |||||||||||||||||||||||||||||||||||||
| Total amortization expense | $ | 235.7 | $ | 246.6 | $ | 700.5 | $ | 745.1 |
There were no impairment charges in the three and nine months ended December 31, 2021 and December 31, 2020.
Goodwill activity for the nine months ended December 31, 2021 by segment was as follows (in millions):
| Semiconductor Products Reporting Unit | Technology Licensing Reporting Unit | ||||||||||
| Balance at March 31, 2021 | $ | 6,651.4 | $ | 19.2 | |||||||
| Additions | 3.0 | — | |||||||||
| Balance at December 31, 2021 | $ | 6,654.4 | $ | 19.2 |
At March 31, 2021, the Company applied a qualitative goodwill impairment test to its two reporting units, concluding it was not more likely than not that goodwill was impaired. Through December 31, 2021, the Company has never recorded an impairment charge.
Note 9. Other Financial Statement Details
Accounts Receivable
Accounts receivable consists of the following (in millions):
| December 31, | March 31, | ||||||||||
| 2021 | 2021 | ||||||||||
| Trade accounts receivable | $ | 922.3 | $ | 991.6 | |||||||
| Other | 13.8 | 11.3 | |||||||||
| Total accounts receivable, gross | 936.1 | 1,002.9 | |||||||||
| Less: allowance for expected credit losses | 6.0 | 5.2 | |||||||||
| Total accounts receivable, net | $ | 930.1 | $ | 997.7 |
Inventories
The components of inventories consist of the following (in millions):
| December 31, | March 31, | ||||||||||
| 2021 | 2021 | ||||||||||
| Raw materials | $ | 150.5 | $ | 115.7 | |||||||
| Work in process | 429.9 | 412.8 | |||||||||
| Finished goods | 187.8 | 136.5 | |||||||||
| Total inventories | $ | 768.2 | $ | 665.0 |
Property, Plant and Equipment
Property, plant and equipment consists of the following (in millions):
| December 31, | March 31, | ||||||||||
| 2021 | 2021 | ||||||||||
| Land | $ | 82.5 | $ | 83.2 | |||||||
| Building and building improvements | 666.7 | 659.7 | |||||||||
| Machinery and equipment | 2,442.8 | 2,251.1 | |||||||||
| Projects in process | 117.4 | 102.7 | |||||||||
| Total property, plant and equipment, gross | 3,309.4 | 3,096.7 | |||||||||
| Less: accumulated depreciation and amortization | 2,379.5 | 2,242.0 | |||||||||
| Total property, plant and equipment, net | $ | 929.9 | $ | 854.7 |
Depreciation expense attributed to property, plant and equipment was $64.9 million and $149.8 million for the three and nine months ended December 31, 2021, respectively, compared to $40.3 million and $120.4 million for the three and nine months ended December 31, 2020, respectively. The increase in depreciation expense during the three months ended December 31, 2021 includes the impact of current production levels, manufacturing expansion activities and moving and repurposing floor space and equipment.
The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amount of such assets may not be recoverable. For each of the three and nine months ended December 31, 2021 and 2020, the Company’s evaluation of its property, plant and equipment did not result in any material impairments.
Accrued Liabilities
Accrued liabilities consists of the following (in millions):
| December 31, | March 31, | ||||||||||
| 2021 | 2021 | ||||||||||
| Accrued compensation and benefits | $ | 203.7 | $ | 166.7 | |||||||
| Income taxes payable | 80.1 | 43.4 | |||||||||
| Sales related reserves | 339.1 | 350.7 | |||||||||
| Current portion of lease liabilities | 35.0 | 39.8 | |||||||||
| Accrued expenses and other liabilities | 259.5 | 193.7 | |||||||||
| Total accrued liabilities | $ | 917.4 | $ | 794.3 |
Note 10. Commitments and Contingencies
Indemnification Contingencies
The Company's technology license agreements generally include an indemnification clause that indemnifies the licensee against liability and damages (including legal defense costs) arising from any claims of patent, copyright, trademark or trade secret infringement by the Company's proprietary technology. The terms of these indemnification provisions approximate the terms of the outgoing technology license agreements, which are typically perpetual unless terminated by either party for breach. The possible amount of future payments the Company could be required to make based on agreements that specify indemnification limits, if such indemnifications were required on all of these agreements, is approximately $178.4 million. There are some licensing agreements in place that do not specify indemnification limits. As of December 31, 2021, the Company had not recorded any liabilities related to these indemnification obligations and the Company believes that any amounts that it may be required to pay under these agreements in the future will not have a material adverse effect on its financial position, cash flows or results of operations.
Warranty Costs and Product Liabilities
The Company accrues for known product-related claims if a loss is probable and can be reasonably estimated. During the periods presented, there have been no material accruals or payments regarding product warranty or product liability. Historically, the Company has experienced a low rate of payments on product claims. Although the Company cannot predict the likelihood or amount of any future claims, the Company does not believe these claims will have a material adverse effect on its financial condition, results of operations or liquidity.
Legal Matters
In the ordinary course of the Company's business, it is exposed to various liabilities as a result of contracts, product liability, customer claims, governmental investigations and other matters. Additionally, the Company is involved in a limited number of legal actions, both as plaintiff and defendant. Consequently, the Company could incur uninsured liability in any of those actions. The Company also periodically receives notifications from various third parties alleging infringement of patents or other intellectual property rights, or from customers requesting reimbursement for various costs. With respect to pending legal actions to which the Company is a party and other claims, although the outcomes are generally not determinable, the Company believes that the ultimate resolution of these matters will not have a material adverse effect on its financial position, cash flows or results of operations. Litigation, governmental investigations and disputes relating to the semiconductor industry are not uncommon, and the Company is, from time to time, subject to such litigation, governmental investigations and disputes. As a result, no assurances can be given with respect to the extent or outcome of any such litigation, governmental investigations or disputes in the future.
In connection with its acquisition of Microsemi, which closed on May 29, 2018, the Company became involved with the following legal matters:
Federal Shareholder Class Action Litigation. Beginning on September 14, 2018, the Company and certain of its officers were named in two putative shareholder class action lawsuits filed in the United States District Court for the District of Arizona, captioned Jackson v. Microchip Technology Inc., et al., Case No. 2:18-cv-02914-ROS and Maknissian v. Microchip Technology Inc., et al., Case No. 2:18-cv-02924-JJT. On November 13, 2018, the Maknissian complaint was voluntarily dismissed. On December 11, 2018, the Court issued an order appointing the lead plaintiff in the Jackson matter. An amended complaint was filed on February 22, 2019. The complaint is allegedly brought on behalf of a putative class of purchasers of Microchip common stock between March 2, 2018 and August 9, 2018. The complaint asserts claims for alleged violations of the federal securities laws and alleges that the defendants issued materially false and misleading statements and failed to disclose material adverse facts about the Company’s business, operations, and prospects during the putative class period. The complaint seeks, among other things, compensatory damages and attorneys’ fees and costs on behalf of the putative class. Defendants filed a motion to dismiss the amended complaint on April 1, 2019, which motion was granted in part and denied in part on March 11, 2020. Plaintiff filed a motion for class certification, which was granted by the Court. Discovery is ongoing. The Company and its officers have reached an agreement in principle to settle this litigation and are working on documenting that agreement for submission to the Court for its consideration.
Derivative Litigation. On January 22, 2019, a shareholder derivative lawsuit was filed against certain of the Company’s officers and directors in the Superior Court of Arizona for Maricopa County, captioned Reid v. Sanghi, et al., Case No. CV2019-002389. The Company is named as a nominal defendant. The complaint generally alleges that defendants breached their fiduciary duties by, among other things, purportedly failing to conduct adequate due diligence regarding Microsemi prior to its acquisition, misrepresenting the Company’s business prospects and health, and engaging in improper practices, and further alleges that certain defendants engaged in insider trading. The complaint asserts causes of action for breach of fiduciary duty, waste, and unjust enrichment and seeks unspecified monetary damages, corporate governance reforms, equitable and/or injunctive relief, restitution, and attorneys’ fees and costs. An amended complaint was filed on February 28, 2020, and a second amended complaint was filed on July 27, 2020. The Company’s Audit Committee has filed a motion to dismiss. On August 5, 2021, a second shareholder derivative lawsuit was filed against certain of the Company’s officers and directors in the Superior Court of Arizona for Maricopa County, captioned Dutrisac v. Sanghi, et al., Case No. CV2021-012459. The Company is named as a nominal defendant. The complaint asserts substantially the same allegations as those in the Reid case. The complaint asserts causes of action for breaches of fiduciary duty, insider selling, unjust enrichment, waste of corporate assets, indemnification, and contribution and seeks unspecified monetary damages, equitable and/or injunctive relief, disgorgement, corporate governance reforms, and attorneys’ fees and costs. The Company's Audit Committee has filed a motion to dismiss.
Governmental Investigations. The SEC informed the Company in October 2018 that it was investigating matters relating to the Company's acquisition of Microsemi. The Company believes that the investigation relates to distribution channel issues and business practices at Microsemi and the allegations made by the plaintiffs in the Peterson v. Sanghi lawsuit which was described in the Company’s prior filings on Form 10-Q and Form 10-K and which lawsuit has been settled and dismissed. The Department of Justice, which was also investigating those matters, informed the Company in February 2021 that its investigation is closed and that no further action will be taken.
As a result of its acquisition of Atmel, which closed April 4, 2016, the Company became involved with the following legal matters:
Continental Claim ICC Arbitration. On December 29, 2016, Continental Automotive GmbH ("Continental") filed a Request for Arbitration with the ICC, naming as respondents the Company's subsidiaries Atmel Corporation, Atmel SARL, Atmel Global Sales Ltd., and Atmel Automotive GmbH (collectively, "Atmel"). The Request alleges that a quality issue affecting Continental airbag control units in certain recalled vehicles stems from allegedly defective Atmel application specific integrated circuits ("ASICs"). Continental seeks to recover from Atmel all current and future costs and damages incurred as a result of the vehicle manufacturers’ airbag control unit-related recalls, with current costs and damages alleged to be about $89 million to date. The Company's Atmel subsidiaries intend to defend this action vigorously.
Southern District of New York Action by LFoundry Rousset ("LFR") and LFR Employees. On March 4, 2014, LFR and Jean-Yves Guerrini, individually and on behalf of a putative class of LFR employees, filed an action in the United States District Court for the Southern District of New York (the "District Court") against the Company's Atmel subsidiary, French subsidiary, Atmel Rousset S.A.S. ("Atmel Rousset"), and LFoundry GmbH ("LF"), LFR's German parent. The case purports to relate to Atmel Rousset's June 2010 sale of its wafer manufacturing facility in Rousset, France to LF, and LFR's subsequent insolvency, and later liquidation, more than three years later. The District Court dismissed the case on August 21, 2015, and the United States Court of Appeals for the Second Circuit affirmed the dismissal on June 27, 2016. On July 25, 2016, the plaintiffs filed a notice of appeal from the District Court's June 27, 2016 denial of their motion for relief from the dismissal judgment. On May 19, 2017, the United States Court of Appeals for the Second Circuit affirmed the June 27, 2016 order dismissing the case.
Individual Labor Actions by former LFR Employees. In June 2010, Atmel Rousset sold its wafer manufacturing business in Rousset, France to LFoundry GmbH ("LF"), the German parent of LFoundry Rousset ("LFR"). LFR then leased the Atmel Rousset facility to conduct the manufacture of wafers. More than three years later, LFR became insolvent and later liquidated. In the wake of LFR's insolvency and liquidation, over 500 former employees of LFR filed individual labor actions against Atmel Rousset in a French labor court, and in 2019 a French labor court dismissed all of the employees’ claims against Atmel Rousset. Plaintiffs have filed appeals requesting reconsideration of the earlier dismissals. Furthermore, these same claims have been filed by this same group of employees in a regional court in France against Microchip Technology Incorporated and Atmel Corporation. The Company, and the other defendant entities, believe that each of these actions is entirely devoid of merit, and, further, that any assertion by any of the Claimants of a co-employment relationship with any of these entities is based substantially on the same specious arguments that the Paris Commercial Court summarily rejected in 2014 in related proceedings. The defendant entities therefore intend to defend vigorously against each of these claims. Additionally, complaints have been filed in a regional court in France on behalf of the same group of employees against Microchip
Technology Rousset, Atmel Switzerland Sarl, Atmel Corporation and Microchip Technology Incorporated alleging that the sale of the Atmel Rousset production unit to LF was fraudulent and should be voided. These claims are specious and the defendant entities therefore intend to defend vigorously against these claims.
The Company accrues for claims and contingencies when losses become probable and reasonably estimable. As of the end of each applicable reporting period, the Company reviews each of its matters and, where it is probable that a liability has been or will be incurred, the Company accrues for all probable and reasonably estimable losses. Where the Company can reasonably estimate a range of losses it may incur regarding such a matter, the Company records an accrual for the amount within the range that constitutes its best estimate. If the Company can reasonably estimate a range but no amount within the range appears to be a better estimate than any other, the Company uses the amount that is the low end of such range. As of December 31, 2021, the Company's estimate of the aggregate potential liability that is possible but not probable is approximately $100 million in excess of amounts accrued.
Note 11. Income Taxes
The Company accounts for income taxes in accordance with ASC 740. The provision or benefit for income taxes is attributable to U.S. federal, state, and foreign income taxes. The Company’s effective tax rate used for interim periods is based on an estimated annual effective tax rate including the tax effect of items required to be recorded discretely in the interim periods in which those items occur. A comparison of the Company’s effective tax rates for the nine months ended December 31, 2021 and December 31, 2020 is not meaningful due to the amount of pre-tax income, and income tax benefits recorded during the prior period.
The Company's effective tax rate is different than the statutory rates in the U.S. due to foreign income taxed at different rates than the U.S., changes in uncertain tax benefit positions, changes to valuation allowances, generation of tax credits, and the impact of Global Intangible Low-Taxed Income (GILTI) in the United States. In addition, the Company has numerous tax holidays it receives related to its Thailand manufacturing operations based on its investment in property, plant and equipment in Thailand. The Company's tax holiday periods in Thailand expire at various times in the future, however, the Company actively seeks to obtain new tax holidays. The material components of foreign income taxed at a rate lower than the U.S. are earnings accrued in Thailand and Ireland.
The Company files U.S. federal, U.S. state, and foreign income tax returns. For U.S. federal, and in general for U.S. state tax returns, the fiscal 2007 and later tax years remain open for examination by tax authorities. For foreign tax returns, the Company is generally no longer subject to income tax examinations for years prior to fiscal 2007. The Company estimates that it is reasonably possible unrecognized tax benefits as of December 31, 2021 could decrease by approximately $10.0 million to $60.0 million in the next 12 months. Positions that may be resolved include various U.S. and non-U.S. matters.
Note 12. Share-Based Compensation
The following table presents the details of the Company's share-based compensation expense (in millions):
| Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||
| Cost of sales(1) | $ | 8.4 | $ | 6.4 | $ | 26.3 | $ | 18.8 | |||||||||||||||||||||||||||||||||
| Research and development | 23.4 | 25.0 | 76.1 | 70.0 | |||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | 19.1 | 19.8 | 60.8 | 54.5 | |||||||||||||||||||||||||||||||||||||
| Pre-tax effect of share-based compensation | 50.9 | 51.2 | 163.2 | 143.3 | |||||||||||||||||||||||||||||||||||||
| Income tax benefit | 10.8 | 10.7 | 34.6 | 30.5 | |||||||||||||||||||||||||||||||||||||
| Net income effect of share-based compensation | $ | 40.1 | $ | 40.5 | $ | 128.6 | $ | 112.8 |
(1) During the three and nine months ended December 31, 2021, $5.3 million and $16.4 million, respectively, of share-based compensation expense was capitalized to inventory and $8.4 million and $26.3 million, respectively, of previously capitalized share-based compensation expense in inventory was sold. During the three and nine months ended December 31, 2020, $4.5 million and $11.9 million, respectively, of share-based compensation expense was capitalized to inventory and $6.4 million and $18.8 million, respectively, of previously capitalized share-based compensation expense in inventory was sold.
Note 13. Stock Repurchase Activity
In November 2021, the Company's Board of Directors approved a new stock repurchase program to repurchase up to $4.00 billion of the Company's common stock in the open market or in privately negotiated transactions. There is no expiration date associated with the repurchase program. During the three and nine months ended December 31, 2021, the Company purchased approximately 2.0 million shares of its common stock for a total of $166.0 million under the new authorization. As of December 31, 2021, approximately $3.83 billion remained available for repurchases under the program. Shares repurchased are recorded as treasury shares and are used to fund share issuance requirements under the Company's equity incentive plans. As of December 31, 2021, the Company had approximately 20.8 million treasury shares.
Note 14. Accumulated Other Comprehensive Loss
The following table presents the changes in the components of accumulated other comprehensive loss, net of tax, (AOCI) (in millions):
| Minimum Pension Liability | Foreign Currency | Total | |||||||||||||||||||||
| Balance at March 31, 2021 | $ | (13.4) | $ | (12.8) | $ | (26.2) | |||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 2.8 | (1.7) | 1.1 | ||||||||||||||||||||
| Reclassification of realized transactions | 1.8 | — | 1.8 | ||||||||||||||||||||
| Net other comprehensive income (loss) | 4.6 | (1.7) | 2.9 | ||||||||||||||||||||
| Balance at December 31, 2021 | $ | (8.8) | $ | (14.5) | $ | (23.3) | |||||||||||||||||
The table below details where reclassifications of realized transactions out of accumulated other comprehensive loss are recorded on the consolidated statements of income (in millions):
| Three Months Ended December 31, | Nine Months Ended December 31, | Related Statement of Income Line | |||||||||||||||||||||||||||||||||||||||||||||
| Description of AOCI Component | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||
| Amortization of actuarial loss | $ | (0.6) | $ | (0.3) | $ | (1.8) | $ | (0.9) | Other income (loss), net | ||||||||||||||||||||||||||||||||||||||
Note 15. Dividends
A quarterly cash dividend of $0.232 per share was paid on December 3, 2021 in the aggregate amount of $128.7 million. A quarterly cash dividend of $0.253 per share was declared on February 3, 2022 and will be paid on March 8, 2022 to stockholders of record as of February 22, 2022. The Company expects the March 2022 payment of its quarterly cash dividend to be approximately $141.0 million.
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