Item 1. . Financial Statements

114K characters. Original on sec.gov · Markdown

Item 1. . Financial Statements

MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share amounts; unaudited)


ASSETS
	June 30,		March 31,
	2024		2024
Cash and cash equivalents	$	315.1	$	319.7

Accounts receivable, net	1,095.8		1,143.7
Inventories	1,308.0		1,316.0
Other current assets	229.4		233.6
Total current assets	2,948.3		3,013.0
Property, plant and equipment, net	1,196.2		1,194.6

Goodwill	6,681.9		6,675.4
Intangible assets, net	2,775.5		2,781.8
Long-term deferred tax assets	1,600.5		1,596.5
Other assets	637.3		611.9
Total assets	$	15,839.7	$	15,873.2
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	196.4	$	213.0
Accrued liabilities	1,323.9		1,307.0
Current portion of long-term debt	—		999.4
Total current liabilities	1,520.3		2,519.4
Long-term debt	6,167.9		5,000.4
Long-term income tax payable	655.6		649.2
Long-term deferred tax liability	32.2		28.8
Other long-term liabilities	1,057.7		1,017.6
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; 577,806,728 shares issued and 536,505,077 shares outstanding at June 30, 2024; 577,806,659 shares issued and 536,663,691 shares outstanding at March 31, 2024	0.5		0.5
Additional paid-in capital	2,404.3		2,482.9
Common stock held in treasury: 41,301,651 shares at June 30, 2024; 41,142,968 shares at March 31, 2024	(2,641.3)		(2,581.6)
Accumulated other comprehensive loss	(3.7)		(3.5)
Retained earnings	6,646.2		6,759.5
Total stockholders' equity	6,406.0		6,657.8
Total liabilities and stockholders' equity	$	15,839.7	$	15,873.2

See accompanying notes to condensed consolidated financial statements

Table of Contents

MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share amounts; unaudited)


	Three Months Ended June 30,
		2024		2023
Net sales		$	1,241.3	$	2,288.6
Cost of sales		504.4		730.2
Gross profit		736.9		1,558.4

Research and development		241.7		298.5
Selling, general and administrative		150.5		203.6
Amortization of acquired intangible assets		123.0		151.5
Special charges and other, net		2.6		1.7
Operating expenses		517.8		655.3

Operating income		219.1		903.1


Interest income		2.8		1.5
Interest expense		(61.8)		(47.2)
Loss on settlement of debt		—		(9.1)
Other income, net		1.7		—
Income before income taxes		161.8		848.3
Income tax provision		32.5		181.9








Net income		$	129.3	$	666.4




Basic net income per common share		$	0.24	$	1.22



Diluted net income per common share		$	0.24	$	1.21
Dividends declared per common share		$	0.452	$	0.383
Basic common shares outstanding		536.7		545.1
Diluted common shares outstanding		542.8		551.4

See accompanying notes to condensed consolidated financial statements

Table of Contents

MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions; unaudited)


	Three Months Ended June 30,
	2024		2023
Net income	$	129.3	$	666.4



Components of other comprehensive loss:

Actuarial losses related to defined benefit pension plans, net of tax effect	(0.2)		(0.3)


Other comprehensive loss, net of tax effect	(0.2)		(0.3)





Comprehensive income	$	129.1	$	666.1

See accompanying notes to condensed consolidated financial statements

Table of Contents

MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions; unaudited)


	Three Months Ended June 30,
	2024		2023
Cash flows from operating activities:
Net income	$	129.3	$	666.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	188.7		222.9
Deferred income taxes	(8.1)		23.9
Share-based compensation expense related to equity incentive plans	44.0		44.5
Loss on settlement of debt	—		9.1
Amortization of debt discount	16.6		1.7
Amortization of debt issuance costs	2.0		2.2


Impairment of intangible assets	—		0.5


Other	(18.4)		(0.1)
Changes in operating assets and liabilities, excluding impact of acquisitions:
Decrease (increase) in accounts receivable	47.9		(159.7)
Decrease (increase) in inventories	9.2		(10.6)
(Decrease) increase in accounts payable and accrued liabilities	(41.2)		34.9
Change in other assets and liabilities	(20.7)		50.5
Change in income tax payable	27.8		107.0

Net cash provided by operating activities	377.1		993.2
Cash flows from investing activities:





Proceeds from sales of assets	—		0.3
Proceeds from capital-related government incentives	0.1		—
Investments in other assets	(52.7)		(30.1)
Capital expenditures	(72.9)		(111.1)
Net cash used in investing activities	(125.5)		(140.9)
Cash flows from financing activities:
Proceeds from borrowings on Revolving Credit Facility	—		2,585.0
Repayments of Revolving Credit Facility	—		(1,960.0)

Proceeds from issuance of Commercial Paper	3,573.4		—
Repayments of Commercial Paper	(4,637.5)		—

Repayment of senior notes	—		(1,000.0)




Proceeds from issuance of convertible debt	1,250.0		—
Payments on settlement of convertible debt	—		(90.1)
Deferred financing costs	(15.6)		—
Purchase of capped call options	(105.0)		—
Proceeds from sale of common stock	13.1		15.3
Tax payments related to shares withheld for vested RSUs	(18.9)		(15.7)
Repurchase of common stock	(72.7)		(140.3)
Payment of cash dividends	(242.6)		(208.9)
Capital lease payments	(0.4)		(0.4)
Net cash used in financing activities	(256.2)		(815.1)

Net (decrease) increase in cash and cash equivalents	(4.6)		37.2
Cash and cash equivalents, and restricted cash at beginning of period	319.7		234.0
Cash and cash equivalents, and restricted cash at end of period	$	315.1	$	271.2

See accompanying notes to condensed consolidated financial statements

Table of Contents

MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(in millions; unaudited)


	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, 2023	577.8	$	2,413.8	32.3	$	(1,660.2)	$	(4.1)	$	5,764.1	$	6,513.6

Net income	—	—		—	—		—		666.4		666.4
Other comprehensive loss	—	—		—	—		(0.3)		—		(0.3)
Proceeds from sales of common stock through employee equity incentive plans	0.9	15.3		—	—		—		—		15.3
RSU withholdings	(0.3)	(15.7)		—	—		—		—		(15.7)
Treasury stock used for new issuances	(0.6)	(14.7)		(0.6)	14.7		—		—		—

Repurchase of common stock	—	—		1.8	(141.2)		—		—		(141.2)
Settlement of convertible debt	—	(43.3)		—	—		—		—		(43.3)
Share-based compensation	—	45.4		—	—		—		—		45.4
Cash dividend	—	—		—	—		—		(208.9)		(208.9)
Balance at June 30, 2023	577.8	$	2,400.8	33.5	$	(1,786.7)	$	(4.4)	$	6,221.6	$	6,831.3







































Balance at March 31, 2024	577.8	$	2,483.4	41.1	$	(2,581.6)	$	(3.5)	$	6,759.5	$	6,657.8

Net income	—	—		—	—		—		129.3		129.3
Other comprehensive loss	—	—		—	—		(0.2)		—		(0.2)
Proceeds from sales of common stock through employee equity incentive plans	0.8	13.1		—	—		—		—		13.1
RSU withholdings	(0.2)	(18.9)		—	—		—		—		(18.9)
Treasury stock used for new issuances	(0.6)	(13.0)		(0.6)	13.0		—		—		—
Repurchase of common stock	—	—		0.8	(72.7)		—		—		(72.7)
Purchase of capped call options	—	(105.0)		—	—		—		—		(105.0)

Share-based compensation	—	45.2		—	—		—		—		45.2
Cash dividend	—	—		—	—		—		(242.6)		(242.6)
Balance at June 30, 2024	577.8	$	2,404.8	41.3	$	(2,641.3)	$	(3.7)	$	6,646.2	$	6,406.0

See accompanying notes to condensed consolidated financial statements

Table of Contents

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, 2024. The results of operations for the three months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2025 or for any other period.

Note 2. Recently Issued Accounting Pronouncements and Other Developments

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07-Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, and an amount and description of the composition of other segment items to reconcile to segment profit or loss. The amendments in this update also expand the interim segment disclosure requirements. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted with retrospective application required for all prior periods presented in the financial statements. The Company is currently evaluating the applicable disclosures.

In December 2023, the FASB issued ASU 2023-09-Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which modifies the rules on income tax disclosures to enhance the transparency and decision-usefulness of income tax disclosures, particularly in the rate reconciliation table and disclosures about income taxes paid. The amendments are intended to address investors’ requests for income tax disclosures that provide more information to help them better understand an entity’s exposure to potential changes in tax laws and the ensuing risks and opportunities and to assess income tax information that affects cash flow forecasts and capital allocation decisions. The guidance also eliminates certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024 with early adoption permitted. All entities should apply the guidance prospectively but have the option to apply it retrospectively. The Company is continuing to assess the timing of adoption and the potential impacts of ASU 2023-09.

SEC Climate Disclosures

In March 2024, the SEC issued final rules requiring registrants to include comprehensive climate-related disclosures in annual reports and registration statements. As adopted, the final rules require large accelerated filers to make their first climate-related disclosures for fiscal years beginning in 2025. However, in April 2024, the SEC issued an order voluntarily staying the effectiveness of the new rules pending the completion of judicial review of certain legal challenges to their validity. The Company is currently evaluating these rules as adopted as well as monitoring the status of the related litigation and the SEC’s stay.

Table of Contents

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 June 30, 2024
		Net Sales		Gross Profit
Semiconductor products		$	1,219.1	$	714.7
Technology licensing		22.2		22.2
Total		$	1,241.3	$	736.9



	Three Months Ended June 30, 2023
	Net Sales		Gross Profit
Semiconductor products	$	2,254.8	$	1,524.6
Technology licensing	33.8		33.8
Total	$	2,288.6	$	1,558.4

Note 4. Net Sales

The following table represents the Company's net sales by product line (in millions):



	Three Months Ended June 30,
		2024		2023
Mixed-signal Microcontrollers		$	644.7	$	1,301.7
Analog		330.6		633.6

Other		266.0		353.3
Total net sales		$	1,241.3	$	2,288.6

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 customer type (in millions):



	Three Months Ended June 30,
		2024		2023
Distributors		$	584.4	$	1,107.9
Direct customers		634.7		1,146.9
Licensees		22.2		33.8
Total net sales		$	1,241.3	$	2,288.6

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 technology. All of the customer types listed in the table above are included in the Company's semiconductor product segment with the exception of licensees, which is included in the technology licensing segment. All of the Company's net sales are recognized from contracts with customers.

The consideration received from customers is fixed, with the exception of consideration from certain distributors and customers under LTSAs. Certain of the Company's distributors are granted price concessions and return rights, which result in

Table of Contents

variable consideration. The amount of revenue recognized for sales to these certain distributors is adjusted for estimates of the price concessions and return rights that are expected to be claimed. These estimates are based on the recent history of price concessions and stock rotations, which are recorded as refund liabilities within accrued liabilities on the Company's condensed consolidated balance sheets.

The Company collects amounts in advance for certain of its contracts with customers. These amounts are deferred until control of the product or service is transferred to the customer at which time it is recognized as revenue. As of June 30, 2024, the Company had approximately $914.5 million of deferred revenue, of which $262.6 million is included within accrued liabilities and the remaining $651.9 million is included within other long-term liabilities on the Company's condensed consolidated balance sheet. As of March 31, 2024, the Company had approximately $933.0 million of deferred revenue, of which $261.8 million is included within accrued liabilities and the remaining $671.2 million is included within other long-term liabilities on the Company's condensed consolidated balance sheets. Deferred revenue represents amounts that have been invoiced in advance which are expected to be recognized as revenue in future periods. Approximately $73.8 million of deferred revenue recorded on the Company's consolidated balance sheets as of March 31, 2024, was recognized as revenue during the three months ended June 30, 2024. Approximately $52.6 million of deferred revenue recorded on the Company's consolidated balance sheets as of March 31, 2023, was recognized as revenue during the three months ended June 30, 2023.

Of the $914.5 million of deferred revenue as of June 30, 2024, $822.4 million is cash collected from customers under LTSAs, of which $179.8 million is included within accrued liabilities and $642.6 million is included within other long-term liabilities. Under these LTSAs, the Company receives an upfront deposit from the customer in exchange for assured supply over the contract period, which typically ranges from three to five years. If the customer does not meet the minimum purchase commitments defined in the contract, the Company may retain all, or portions of, the deposit as revenue. If the Company fails to assure supply as defined in the contract, the deposit, or portions of it, will be returned to the customer. The transaction price for the remaining performance obligations for the LTSAs were approximately $3.30 billion as of June 30, 2024, of which approximately 25% is expected to be recognized as net sales during the next 12 months. The amount and timing of such net sales is uncertain because it depends on the satisfaction of commitments made in the LTSAs, which may be affected by the timing and amount of orders placed by customers, contract modifications, variable consideration, sales channels, and manufacturing and supply chain conditions. Accordingly, the amount may not be indicative of net sales in future periods. The remaining $92.1 million of deferred revenue as of June 30, 2024 is related to other cash payments received from customers in advance of the Company’s performance obligations being satisfied. Most of the $92.1 million will be recognized as net sales within the next 12 months. The amount of other firmly committed orders with performance obligations in excess of 12 months at the time of order is immaterial.

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 June 30,
		2024		2023
Net income		$	129.3	$	666.4
Basic weighted average common shares outstanding		536.7		545.1
Dilutive effect of RSUs		5.2		5.1

Dilutive effect of 2015 Senior Convertible Debt		0.2		0.3
Dilutive effect of 2017 Senior Convertible Debt		0.7		0.9


Diluted weighted average common shares outstanding		542.8		551.4
Basic net income per common share		$	0.24	$	1.22
Diluted net income per common share		$	0.24	$	1.21

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 vesting of outstanding RSUs. Prior to conversion of its Convertible Debt, 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 if-converted method. 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

Table of Contents

exceeds the conversion price because the Company is required to settle the principal amount of the Convertible Debt in cash upon conversion.

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 June 30,
		2024		2023

2015 Senior Convertible Debt		$	28.66	$	29.25
2017 Senior Convertible Debt		$	44.69	$	45.61
2020 Senior Convertible Debt		$	91.23	$	92.32
2024 Senior Convertible Debt		$	121.84	$	—
2017 Junior Convertible Debt(1)		$	—	$	44.81

(1) The weighted average conversion price per share for the 2017 Junior Convertible Debt was prior to the settlement of the outstanding principal amount in May 2023.

Note 6**.** Debt

Debt obligations included in the condensed consolidated balance sheets consisted of the following (in millions)(1):


	Coupon Interest Rate	Effective Interest Rate
		June 30,	March 31,
		2024	2024

2025 Term Loan Facility				$	750.0	$	750.0
Commercial Paper				288.0		1,359.0






0.983% 2024 Notes	0.983%	1.1%		1,000.0		1,000.0
4.250% 2025 Notes	4.250%	4.6%		1,200.0		1,200.0
5.050% 2029 Notes	5.050%	5.2%		1,000.0		1,000.0
Total Senior Indebtedness				4,238.0		5,309.0
Senior Subordinated Convertible Debt - Principal Outstanding
2015 Senior Convertible Debt	1.625%	1.8%		6.7		6.7
2017 Senior Convertible Debt	1.625%	1.8%		38.0		38.0
2020 Senior Convertible Debt	0.125%	0.5%		665.5		665.5



2024 Senior Convertible Debt	0.750%	1.2%		1,250.0		—
Total Convertible Debt				1,960.2		710.2

Gross long-term debt including current maturities				6,198.2		6,019.2
Less: Debt discount(2)				(9.9)		(13.9)
Less: Debt issuance costs(3)				(20.4)		(5.5)
Net long-term debt including current maturities				6,167.9		5,999.8
Less: Current maturities(4)				—		(999.4)
Net long-term debt				$	6,167.9	$	5,000.4

(1) The Company had no outstanding borrowings under the Revolving Credit Facility at June 30, 2024 and at March 31, 2024.

(2) The unamortized discount consists of the following (in millions):


	June 30,		March 31,
	2024		2024


Commercial Paper	$	(1.1)	$	(3.9)



0.983% 2024 Notes	(0.2)		(0.4)
4.250% 2025 Notes	(3.6)		(4.4)




5.050% 2029 Notes	(5.0)		(5.2)
Total unamortized discount	$	(9.9)	$	(13.9)

Table of Contents

(3) Debt issuance costs consist of the following (in millions):


	June 30,		March 31,
	2024		2024




2025 Term Loan Facility	$	(0.5)	$	(0.7)



0.983% 2024 Notes	(0.1)		(0.2)
4.250% 2025 Notes	(0.5)		(0.6)

5.050% 2029 Notes	(2.1)		(2.2)
2017 Senior Convertible Debt	(0.1)		(0.1)
2020 Senior Convertible Debt	(1.0)		(1.7)

2024 Senior Convertible Debt	(16.1)		—
Total debt issuance costs	$	(20.4)	$	(5.5)

(4) As of June 30, 2024, the 0.983% 2024 Notes which mature on September 1, 2024, the outstanding Commercial Paper which matures within the three months ending September 30, 2024, and the 2020 Senior Convertible Debt which matures on November 15, 2024, and will be convertible on August 15, 2024, were excluded from current maturities as the Company has the intent and ability to utilize proceeds from its Revolving Credit Facility to refinance such notes on a long-term basis. As of June 30, 2024, the 2015 Senior Convertible Debt which matures on February 15, 2025, and the 2017 Senior Convertible Debt which matures on February 15, 2027, were convertible and are excluded from current maturities as the Company has the intent and ability to utilize proceeds from its Revolving Credit Facility to settle the principal portion of its Convertible Debt upon conversion. As of March 31, 2024, current maturities consisted of the 0.983% 2024 Notes. As of March 31, 2024, the outstanding Commercial Paper which matured within the three months ended June 30, 2024 and the 2020 Senior Convertible Debt were excluded from current maturities as the Company had the intent and ability to utilize proceeds from its Revolving Credit Facility to refinance such notes on a long-term basis. As of March 31, 2024, the 2015 Senior Convertible Debt and the 2017 Senior Convertible Debt were convertible and were excluded from current maturities as the Company had the intent and ability to utilize proceeds from its Revolving Credit Facility to settle the principal portion of its Convertible Debt upon conversion.

Expected maturities relating to the Company’s debt obligations based on the contractual maturity dates as of June 30, 2024, are as follows (in millions):


Fiscal year ending March 31,	Amount
2025	$	1,960.2
2026	1,950.0
2027	38.0
2028	—
2029	1,000.0
Thereafter	1,250.0
Total	$	6,198.2

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 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; 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 - On April 1, 2022, the Company irrevocably elected cash settlement for the principal amount of its Convertible Debt. 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 trading 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, (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

Table of Contents

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 and the 2024 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 June 30, 2024
	Conversion Rate	Approximate Conversion Price		Incremental Share Factor	Maximum Conversion Rate
2015 Senior Convertible Debt(1)	34.8964	$	28.66	17.4500	48.8541
2017 Senior Convertible Debt(1)	22.3771	$	44.69	11.1894	31.8874
2020 Senior Convertible Debt(1)	10.9615	$	91.23	—	15.3461
2024 Senior Convertible Debt(1)	8.2076	$	121.84	—	10.4646

(1) As of June 30, 2024, the 2020 Senior Convertible Debt and the 2024 Senior Convertible Debt were not convertible. As of June 30, 2024, the holders of each of the 2015 Senior Convertible Debt and 2017 Senior Convertible Debt have the right to convert their notes between July 1, 2024 and September 30, 2024 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 June 30, 2024.

With the exception of the 2020 Senior Convertible Debt, which became redeemable by the Company after November 20, 2022, and the 2024 Senior Convertible Debt, which may be redeemed by the Company on or after June 5, 2027, 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 or 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 June 30,
		2024		2023
Debt issuance cost amortization		$	0.9	$	1.5
Debt discount amortization		16.6		1.7
Interest expense		41.3		41.5
Total interest expense on Senior Indebtedness		58.8		44.7
Debt issuance cost amortization		1.1		0.7

Coupon interest expense		1.1		0.5
Total interest expense on Convertible Debt		2.2		1.2
Other interest expense		0.8		1.3
Total interest expense		$	61.8	$	47.2

Convertible Debt

In May 2024, the Company issued $1.25 billion aggregate principal amount of 2024 Senior Convertible Debt and incurred issuance costs of $16.5 million. Interest on the 2024 Senior Convertible Debt is payable semi-annually in arrears on June 1 and December 1. The 2024 Senior Convertible Debt will mature on June 1, 2030 unless redeemed, repurchased or converted.

Table of Contents

In connection with the issuance of the 2024 Senior Convertible Debt, the Company entered into capped call option transactions with several financial institutions at a cost of $105.0 million. The capped call options cover, subject to anti-dilution adjustments, the number of shares of the Company's common stock initially underlying the 2024 Senior Convertible Debt. Upon conversion of the 2024 Senior Convertible Debt, the Company may exercise the capped call options subject to a cap price of $167.23 per share, subject to certain adjustments under the terms of the capped call options, which are generally expected to reduce the potential dilution to the Company's common stock upon conversion of the 2024 Senior Convertible Debt and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2024 Senior Convertible Debt. Upon conversion of the 2024 Senior Convertible Debt, there will be no economic dilution from the 2024 Senior Convertible Debt until the average market price of the Company's common stock exceeds the cap price of $167.23 per share as the exercise of the capped call options will offset any dilution from the 2024 Senior Convertible Debt from the conversion price up to the cap price. As these transactions meet certain accounting criteria, the capped call options are recorded as a reduction of stockholders' equity and are not accounted for as derivatives.

Commercial Paper

In September 2023, the Company established a Commercial Paper program under which the Company may issue short-term unsecured promissory notes up to a maximum principal amount outstanding at any time of $2.75 billion with a maturity of up to 397 days from the date of issue. The Company's obligations with respect to the payment of the Commercial Paper are guaranteed by certain of its subsidiaries. The Commercial Paper will be sold at a discount from par or alternatively, will be sold at par and bear interest rates that will vary based on market conditions and the time of issuance. The Company's intention is to reduce the amounts that would otherwise be available to borrow under the Company's Revolving Credit Facility by the outstanding amount of Commercial Paper. As of June 30, 2024, the Company had $288.0 million of principal amount of Commercial Paper outstanding. The weighted-average interest rate of the Company's outstanding Commercial Paper was 5.55% as of June 30, 2024.

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. 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 2025 Term Loan Facility, and the Commercial Paper, 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 2025 Term Loan Facility, and the Commercial Paper at June 30, 2024 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.

Table of Contents

The following table shows the carrying amounts and fair values of the Company's debt obligations (in millions):



	June 30, 2024				March 31, 2024
	Carrying Amount(1)		Fair Value		Carrying Amount(1)		Fair Value




2025 Term Loan Facility	$	749.5	$	750.0	$	749.3	$	750.0
Commercial Paper	286.9		288.0		1,355.1		1,359.0



0.983% 2024 Notes	999.7		991.5		999.4		979.6
4.250% 2025 Notes	1,195.9		1,181.9		1,195.0		1,181.8
5.050% 2029 Notes	992.9		993.1		992.6		1,000.6
2015 Senior Convertible Debt	6.7		25.6		6.7		25.6
2017 Senior Convertible Debt	37.9		102.4		37.9		101.3
2020 Senior Convertible Debt	664.5		700.7		663.8		708.8
2024 Senior Convertible Debt	1,233.9		1,265.3		—		—

Total	$	6,167.9	$	6,298.5	$	5,999.8	$	6,106.7

(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

Net amounts excluding fully amortized intangible assets, consist of the following (in millions):


	June 30, 2024
	Gross Amount		Accumulated Amortization		Net Amount
Core and developed technology	$	7,210.6	$	(4,698.1)	$	2,512.5
Customer-related	199.5		(143.9)		55.6


In-process research and development	54.0		—		54.0
Software licenses	239.5		(86.1)		153.4

Total	$	7,703.6	$	(4,928.1)	$	2,775.5


	March 31, 2024
	Gross Amount		Accumulated Amortization		Net Amount
Core and developed technology	$	7,221.3	$	(4,590.9)	$	2,630.4
Customer-related	196.7		(140.8)		55.9



Software licenses	230.7		(135.2)		95.5

Total	$	7,648.7	$	(4,866.9)	$	2,781.8

During the three months ended June 30, 2024, due to acquisitions, the Company acquired $54.0 million of in-process research and development, $2.8 million of customer-related intangible assets, and $1.1 million of software licenses intangible assets. The amounts are considered immaterial for disclosure purposes. The following is an expected amortization schedule for the intangible assets for the remainder of fiscal 2025 through fiscal 2029, absent any future acquisitions or impairment charges (in millions):


Fiscal Year Ending March 31,	Amortization Expense
2025	$	433.6
2026	$	514.2
2027	$	418.1
2028	$	310.6
2029	$	236.4

Table of Contents

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 June 30,
		2024		2023
Amortization expense charged to cost of sales		$	3.7	$	3.0
Amortization expense charged to operating expense		142.0		169.4
Total amortization expense		$	145.7	$	172.4

Goodwill activity by segment was as follows (in millions):


	Semiconductor Products Reporting Unit		Technology Licensing Reporting Unit


Balance at March 31, 2024	$	6,656.2	$	19.2
Immaterial additions due to acquisitions	6.5		—
Balance at June 30, 2024	$	6,662.7	$	19.2

At March 31, 2024, the Company applied a qualitative goodwill impairment test to its two reporting units, and concluded that goodwill was not impaired. Through June 30, 2024, the Company has never recorded a goodwill impairment charge.

Note 9**.** Other Financial Statement Details

Accounts Receivable

Accounts receivable consists of the following (in millions):


	June 30,		March 31,
	2024		2024
Trade accounts receivable	$	1,086.4	$	1,141.7
Other	16.8		10.1
Total accounts receivable, gross	1,103.2		1,151.8
Less: allowance for expected credit losses	7.4		8.1
Total accounts receivable, net	$	1,095.8	$	1,143.7

The Company sells certain of its trade accounts receivable on a non-recourse basis to a third-party financial institution pursuant to a factoring arrangement. The Company accounts for these transactions as sales of receivables and presents cash proceeds as cash provided by operating activities in the consolidated statements of cash flows. Total trade accounts receivable sold under the factoring arrangement were $64.9 million in the three months ended June 30, 2023. The Company paused this program in the second quarter of fiscal 2024.

Inventories

The components of inventories consist of the following (in millions):


	June 30,		March 31,
	2024		2024
Raw materials	$	186.3	$	184.0
Work in process	843.9		797.5
Finished goods	277.8		334.5
Total inventories	$	1,308.0	$	1,316.0

Table of Contents

Property, Plant and Equipment

Property, plant and equipment consists of the following (in millions):


	June 30,		March 31,
	2024		2024
Land	$	89.3	$	89.3
Building and building improvements	802.2		796.3
Machinery and equipment	2,778.8		2,778.1
Projects in process	382.3		349.6
Total property, plant and equipment, gross	4,052.6		4,013.3
Less: accumulated depreciation and amortization	2,856.4		2,818.7
Total property, plant and equipment, net	$	1,196.2	$	1,194.6

Depreciation expense attributed to property, plant and equipment was $43.0 million for the three months ended June 30, 2024 compared to $50.5 million for the three months ended June 30, 2023.

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 months ended June 30, 2024 and June 30, 2023, 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):


	June 30,		March 31,
	2024		2024
Accrued compensation and benefits	$	132.1	$	117.8
Income taxes payable	110.7		90.8
Deferred revenue	262.6		261.8
Sales related reserves	516.6		580.6
Current portion of lease liabilities	35.0		32.6
Accrued expenses and other liabilities	266.9		223.4
Total accrued liabilities	$	1,323.9	$	1,307.0

Note 10**.** Commitments and Contingencies

Purchase Commitments

The Company's purchase commitments primarily consist of agreements for the purchase of property, plant and equipment and other goods and services including wafer purchase obligations with the Company's wafer foundries, and manufacturing supply capacity reservation commitments.

Total purchase commitments as of June 30, 2024, are as follows (in millions):


Fiscal Year Ending March 31,	Purchase Commitments
2025	$	376.4
2026	221.1
2027	245.5
2028	203.0
2029	90.2
Thereafter	85.8
Total	$	1,222.0

Table of Contents

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 $189.0 million. There are some licensing agreements in place that do not specify indemnification limits. As of June 30, 2024, 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 legal actions as a result of contracts, product liability, customer claims, pricing or royalty disputes with customers and licensees, governmental investigations and other matters. The Company is involved in a limited number of these legal actions, both as plaintiff and defendant, with respect to the foregoing types of matters. Consequently, the Company could incur uninsured liability in any of these legal 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 (other than certain tax matters in the U.S. and Malaysia as

described in Note 11 below) 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.

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 June 30, 2024, the Company's estimate of the aggregate potential liability for legal matters that is possible but not probable is approximately $125.0 million in excess of amounts accrued.

Note 11. Income Taxes

The Company accounts for income taxes in accordance with ASC 740. The provision for income taxes is attributable to U.S. federal, state, and foreign income taxes. The Company’s effective tax rate for the interim period ended June 30, 2024 is 20.12% and 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 three months ended June 30, 2024 and June 30, 2023 is not meaningful due to the amount of pre-tax income, and income tax expense 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 Tax Income (GILTI) in the U.S. 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

Table of Contents

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, Malta, 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.

In September 2021, the Company received a Statutory Notice of Deficiency (2007 to 2012 Notice) from the United States Internal Revenue Service (IRS) for fiscal 2007 through fiscal 2012. The disputed amounts largely relate to transfer pricing matters. In December 2021, the Company filed a petition in the U.S. Tax Court challenging the 2007 to 2012 Notice.

In September 2023, the Company received a Revenue Agent Report (RAR) from the IRS for fiscal 2013 and fiscal 2016. In October 2023, the Company received a Statutory Notice of Deficiency (2014 to 2015 Notice) from the IRS for fiscal 2014 and fiscal 2015. The disputed amounts for fiscal 2013 to fiscal 2016 largely relate to transfer pricing matters. In December 2023, the Company filed a petition in the U.S. Tax Court challenging the 2014 to 2015 Notice.

In May 2023, the Company received a proposed income adjustment from the Malaysian Inland Revenue Board (IRB) for fiscal 2020. In December 2023, the Company received a Notice of Assessment from the IRB asserting the same proposed income adjustment. If the adjustment is upheld by the highest court that has jurisdiction over this matter in Malaysia, it could result in income taxes and penalties up to $410.0 million. The disputed amounts largely relate to the characterization of certain assets. Depending on the outcome of the IRB audit, the Company may need to adjudicate this matter in Malaysia, and if the Company does, the Company may be required to pay the assessment and then, upon a series of favorable court rulings, request a refund of the amount. The timing of adjudicating this matter is uncertain but could commence in the next 12 months.

The Company firmly believes that the assessments described above are without merit and plans to pursue all available administrative and judicial remedies necessary to resolve these matters. The Company intends to vigorously defend the positions and the Company is confident in its ability to prevail on the merits. The Company regularly assesses the likelihood of adverse outcomes resulting from examinations such as these to determine the adequacy of the Company's tax reserves. The ultimate outcome of disputes of this nature is uncertain, and if the IRS and IRB were to prevail on their assertions, the assessed tax, penalties, and deficiency interest could have a material adverse impact on the Company's financial position, results of operations or cash flows.

Note 12. Share-Based Compensation

The following table presents the details of the Company's share-based compensation expense (in millions):


	Three Months Ended June 30,
		2024		2023
Cost of sales(1)		$	6.6	$	6.8
Research and development		23.3		22.9
Selling, general and administrative		14.1		14.8

Pre-tax effect of share-based compensation		44.0		44.5
Income tax benefit		9.2		9.4
Net income effect of share-based compensation		$	34.8	$	35.1

(1) During the three months ended June 30, 2024, $5.0 million of share-based compensation expense was capitalized to inventory and $6.6 million of previously capitalized share-based compensation expense in inventory was sold. During the three months ended June 30, 2023, $5.2 million of share-based compensation expense was capitalized to inventory and $6.8 million of previously capitalized share-based compensation expense in inventory was sold.

Table of Contents

Note 13**.** Stock Repurchase Activity

In November 2021, the Company's Board of Directors approved a 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 months ended June 30, 2024, the Company purchased approximately 0.8 million shares of its common stock for a total cost of $72.7 million, including the 1% excise tax on stock repurchases enacted by the Inflation Reduction Act of 2022 (Inflation Reduction Act). As of June 30, 2024, approximately $1.57 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 June 30, 2024, the Company had approximately 41.3 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 (in millions):


	Minimum Pension Liability		Foreign Currency		Total
Balance at March 31, 2024	$	11.6	$	(15.1)	$	(3.5)




Net other comprehensive loss	(0.2)		—		(0.2)

Balance at June 30, 2024	$	11.4	$	(15.1)	$	(3.7)

Note 15. Dividends

A quarterly cash dividend of $0.452 per share was paid on June 5, 2024 in the aggregate amount of $242.6 million. A quarterly cash dividend of $0.454 per share was declared on August 1, 2024 and will be paid on September 5, 2024 to stockholders of record as of August 22, 2024. The Company expects the September 2024 payment of its quarterly cash dividend to be approximately $243.8 million.

Table of Contents

Previous: Cover and table of contents · Next: Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations