Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549


FORM 10-Q


(Mark One)
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended December 31, 2017.June 30, 2023

OR
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from __________ to __________


Commission File Number:  0-21184


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MICROCHIP TECHNOLOGY INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)


Delaware86-0629024
(State or Other Jurisdiction of Incorporation or Organization)(IRS Employer Identification No.)


2355 W. Chandler Blvd., Chandler, AZ  85224-6199
(480) 792-7200
(Address Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's
Principal Executive Offices)


(480) 792-7200
(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, $0.001 par valueMCHPNASDAQ Stock Market LLC
(Nasdaq Global Select Market)

Indicate by checkmarkcheck mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
Yes x☒ No o☐


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x☒Noo☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Large accelerated filerxAccelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo☐
(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  (Check One)
Yes o ☐Nox☒


Shares OutstandingThe number of Registrant'sshares outstanding of the registrant's Common Stock, $0.001 par value, as of July 26, 2023 was 544,334,286.




MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

INDEX

ClassOutstanding at January 31, 2018
Common Stock, $0.001 par value234,343,061 shares


MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

INDEX

Page
PART I.  FINANCIAL INFORMATION
Item 1.
Condensed Consolidated Balance Sheets – December 31, 2017June 30, 2023 and March 31, 20172023
34
Condensed Consolidated Statements of OperationsIncome – Three Months Ended June 30, 2023 and Nine Months Ended December 31, 2017 and 20162022
45
Condensed Consolidated Statements of Comprehensive (Loss) Income – Three Months Ended June 30, 2023 and Nine Months Ended December 31, 2017 and 20162022
56
Condensed Consolidated Statements of Cash Flows – NineThree Months Ended December 31, 2017June 30, 2023 and 20162022
67
Condensed Consolidated Statements of Changes in Equity - Three Months Ended June 30, 2023 and 2022
8
Notes to Condensed Consolidated Financial Statements
79
Item 2.
3222
Item 3.
4933
Item 4.
5033
PART II.  OTHER INFORMATION
Item 1.
Legal Proceedings
5134
Item 1A.
34
Item 1A.2.
51
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
6556
Item 3.
56
Item 4.
56
Item 5.
56
Item 6.
6657
SIGNATURES
CERTIFICATIONS
EXHIBITS



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MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETSDefined Terms(1)
(
TermDefinition
4.333% 2023 Notes2023 Senior Unsecured Notes, matured on June 1, 2023
2.670% 2023 Notes2023 Senior Unsecured Notes, maturing on September 1, 2023
0.972% 2024 Notes2024 Senior Unsecured Notes, maturing on February 15, 2024
0.983% 2024 Notes2024 Senior Unsecured Notes, maturing on September 1, 2024
4.250% 2025 Notes2025 Senior Unsecured Notes, maturing on September 1, 2025
2015 Senior Convertible Debt2015 Senior Convertible Debt, maturing on February 15, 2025
2017 Senior Convertible Debt2017 Senior Convertible Debt, maturing on February 15, 2027
2020 Senior Convertible Debt2020 Senior Convertible Debt, maturing on November 15, 2024
2017 Junior Convertible Debt2017 Junior Convertible Debt which was fully settled in May 2023
ASUAccounting Standards Update
ASU 2020-06ASU 2020-06 - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity
CEMsClient engagement managers
CHIPS ActCHIPS and Science Act of 2022
Convertible Debt2015 Senior Convertible Debt, 2017 Senior Convertible Debt, 2020 Senior Convertible Debt, and 2017 Junior Convertible Debt prior to the May 2023 settlement
Credit AgreementAmended and Restated Credit Agreement, dated as of December 16, 2021, among the Company, as borrower, the lenders from time to time party thereto, and J.P. Morgan Chase Bank, N.A., as administrative agent
EARExport Administration Regulation
ESEsEmbedded solutions engineers
ESGEnvironmental, social and governance
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
FPGAField-programmable gate array
LTSAsLong-term supply agreements
OEMsOriginal equipment manufacturers
R&DResearch and development
Revolving Credit Facility$2.75 billion revolving credit facility created pursuant to the Credit Agreement
RSUsRestricted stock units
SECU.S. Securities and Exchange Commission
Senior IndebtednessRevolving Credit Facility, 4.333% 2023 Notes, 2.670% 2023 Notes, 0.972% 2024 Notes, 0.983% 2024 Notes, and 4.250% 2025 Notes
Senior Notes4.333% 2023 Notes, 2.670% 2023 Notes, 0.972% 2024 Notes, 0.983% 2024 Notes, and 4.250% 2025 Notes
TCJATax Cuts and Jobs Act of 2017
U.S. GAAPU.S. Generally Accepted Accounting Principles

(1) Certain terms used within this Form 10-Q are defined in thousands, except share and per share amounts)the above table.
(unaudited)


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PART I.  FINANCIAL INFORMATION


Item1.Financial Statements

Item 1. Financial Statements

ASSETSDecember 31,
2017		 March 31,
2017
Cash and cash equivalents$672,079
 $908,684
Short-term investments427,514
 394,088
Accounts receivable, net553,135
 478,373
Inventories487,065
 417,202
Prepaid expenses60,117
 41,354
Assets held for sale—
 6,459
Other current assets53,531
 58,880
Total current assets2,253,441
 2,305,040
Property, plant and equipment, net754,780
 683,338
Long-term investments885,392
 107,457
Goodwill2,299,009
 2,299,009
Intangible assets, net1,784,568
 2,148,092
Long-term deferred tax assets70,793
 68,870
Other assets75,810
 75,075
Total assets$8,123,793
 $7,686,881
LIABILITIES AND STOCKHOLDERS' EQUITY   
Accounts payable$162,718
 $149,233
Accrued liabilities258,409
 212,450
Deferred income on shipments to distributors335,705
 292,815
Current portion of long-term debt—
 49,952
Total current liabilities756,832
 704,450
Long-term debt3,039,623
 2,900,524
Long-term income tax payable694,777
 184,945
Long-term deferred tax liability208,823
 409,045
Other long-term liabilities238,663
 217,206
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 450,000,000 shares; 253,232,881 shares issued and 234,340,716 shares outstanding at December 31, 2017; 249,463,733 shares issued and 229,093,658 shares outstanding at March 31, 2017234
 229
Additional paid-in capital2,556,274
 2,537,344
Common stock held in treasury: 18,892,165 shares at December 31, 2017; 20,370,075 shares at March 31, 2017(684,937) (731,884)
Accumulated other comprehensive loss(22,193) (14,378)
Retained earnings1,335,697
 1,479,400
Total stockholders' equity3,185,075
 3,270,711
Total liabilities and stockholders' equity$8,123,793
 $7,686,881
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share amounts; unaudited)

ASSETS
June 30,March 31,
 20232023
Cash and cash equivalents$271.2 $234.0 
Accounts receivable, net1,465.0 1,305.3 
Inventories1,336.4 1,324.9 
Other current assets197.0 205.1 
Total current assets3,269.6 3,069.3 
Property, plant and equipment, net1,185.7 1,177.9 
Goodwill6,675.4 6,673.6 
Intangible assets, net3,252.8 3,369.0 
Long-term deferred tax assets1,603.7 1,623.3 
Other assets507.4 457.2 
Total assets$16,494.6 $16,370.3 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable$281.3 $396.9 
Accrued liabilities1,539.6 1,323.5 
Current portion of long-term debt1,398.7 1,398.2 
Total current liabilities3,219.6 3,118.6 
Long-term debt4,632.2 5,041.7 
Long-term income tax payable718.9 705.7 
Long-term deferred tax liability42.3 42.7 
Other long-term liabilities1,050.3 948.0 
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; 577,805,756 shares issued and 544,333,965 shares outstanding at June 30, 2023; 577,805,623 shares issued and 545,459,814 shares outstanding at March 31, 20230.5 0.5 
Additional paid-in capital2,400.3 2,413.3 
Common stock held in treasury: 33,471,791 shares at June 30, 2023; 32,345,809 shares at March 31, 2023(1,786.7)(1,660.2)
Accumulated other comprehensive loss(4.4)(4.1)
Retained earnings6,221.6 5,764.1 
Total stockholders' equity6,831.3 6,513.6 
Total liabilities and stockholders' equity$16,494.6 $16,370.3 

See accompanying notes to condensed consolidated financial statements

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MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME
(in thousands,millions, except per share amounts)amounts; unaudited)
(unaudited)
Three Months Ended June 30,
 20232022
Net sales$2,288.6 $1,963.6 
Cost of sales730.2 653.7 
Gross profit1,558.4 1,309.9 
Research and development298.5 269.0 
Selling, general and administrative203.6 188.9 
Amortization of acquired intangible assets151.5 167.6 
Special charges (income) and other, net1.7 (16.9)
Operating expenses655.3 608.6 
Operating income903.1 701.3 
Interest income1.5 0.1 
Interest expense(47.2)(50.3)
Loss on settlement of debt(9.1)(6.2)
Other income, net— 1.7 
Income before income taxes848.3 646.6 
Income tax provision181.9 139.4 
Net income$666.4 $507.2 
Basic net income per common share$1.22 $0.92 
Diluted net income per common share$1.21 $0.90 
Dividends declared per common share$0.3830 $0.2760 
Basic common shares outstanding545.1 553.8 
Diluted common shares outstanding551.4 561.5 
 Three Months Ended Nine Months Ended
 December 31, December 31,
 2017 2016 2017 2016
Net sales$994,205
 $834,366
 $2,978,485
 $2,505,141
Cost of sales (1)387,146
 369,107
 1,172,893
 1,280,771
Gross profit607,059
 465,259
 1,805,592
 1,224,370
  
  
  
  
Research and development  (1)131,555
 132,433
 395,656
 418,111
Selling, general and administrative  (1)109,059
 111,017
 337,620
 388,651
Amortization of acquired intangible assets121,003
 82,791
 362,761
 243,356
Special charges and other, net196
 20,944
 17,312
 52,522
 Operating expenses361,813
 347,185
 1,113,349
 1,102,640
        
Operating income245,246
 118,074
 692,243
 121,730
Losses on equity method investment(56) (55) (167) (167)
Other income (expense):       
Interest income6,306
 501
 14,441
 1,765
Interest expense(49,744) (35,143) (148,693) (104,685)
Loss on settlement of convertible debt(2,140) —
 (15,966) —
Other (loss) income, net(2,962) 121
 7,233
 (658)
Income before income taxes196,650
 83,498
 549,091
 17,985
Income tax provision (benefit)447,736
 (23,837) 440,434
 (15,699)
Net (loss) income from continuing operations(251,086) 107,335
 108,657
 33,684
Discontinued operations:       
Loss from discontinued operations—
 (191) —
 (7,514)
Income tax benefit—
 (31) —
 (1,561)
Net loss from discontinued operations—
 (160) —
 (5,953)
        
Net (loss) income$(251,086) $107,175
 $108,657
 $27,731
        
Basic net (loss) income per common share       
Net (loss) income from continuing operations$(1.07) $0.50
 $0.47
 $0.16
Net loss from discontinued operations—
 —
 —
 (0.03)
Net (loss) income$(1.07) $0.50
 $0.47
 $0.13
Diluted net (loss) income per common share       
Net (loss) income from continuing operations$(1.07) $0.46
 $0.44
 $0.14
Net loss from discontinued operations—
 —
 —
 (0.02)
Net (loss) income$(1.07) $0.46
 $0.44
 $0.12
Dividends declared per common share$0.3625
 $0.3605
 $1.0860
 $1.0800
Basic common shares outstanding234,106
 216,210
 232,278
 215,360
Diluted common shares outstanding234,106
 235,424
 248,024
 233,351
(1) Includes share-based compensation expense as follows:       
Cost of sales$3,494
 $3,468
 $10,587
 $15,465
Research and development10,921
 9,881
 31,797
 37,569
Selling, general and administrative9,588
 8,771
 27,637
 53,055

See accompanying notes to condensed consolidated financial statements

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MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)millions; unaudited)
(unaudited)

Three Months Ended June 30,
20232022
Net income$666.4 $507.2 
Components of other comprehensive (loss) income:
Actuarial (losses) gains related to defined benefit pension plans, net of tax effect(0.3)4.0 
Other comprehensive (loss) income, net of tax effect(0.3)4.0 
Comprehensive income$666.1 $511.2 

 Three Months Ended Nine Months Ended
 December 31, December 31,
 2017 2016 2017 2016
Net (loss) income$(251,086) $107,175
 $108,657
 $27,731
Components of other comprehensive (loss) income:       
Available-for-sale securities:       
Unrealized holding losses, net of tax effect(5,807) (254) (6,161) (1,983)
Reclassification of realized transactions, net of tax effect—
 1,433
 —
 1,522
Defined benefit plans:       
Actuarial gains (losses) related to defined benefit pension plans, net of tax benefit (provision) of $2,017, ($2,539), $3,402 and $1,206, respectively1,212
 6,998
 (2,284) (1,332)
Reclassification of realized transactions, net of tax effect214
 —
 630
 —
Change in net foreign currency translation adjustment—
 (3,109) —
 (5,678)
Other comprehensive (loss) income, net of tax effect(4,381) 5,068
 (7,815) (7,471)
Comprehensive (loss) income$(255,467) $112,243
 $100,842
 $20,260

See accompanying notes to condensed consolidated financial statements



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MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)millions; unaudited)
(unaudited)


 Three Months Ended June 30,
 20232022
Cash flows from operating activities:  
Net income$666.4 $507.2 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization222.9 259.4 
Deferred income taxes23.9 74.7 
Share-based compensation expense related to equity incentive plans44.5 41.2 
Loss on settlement of debt9.1 6.2 
Amortization of debt discount1.7 1.8 
Amortization of debt issuance costs2.2 2.3 
Impairment of intangible assets0.5 — 
Other non-cash adjustment(0.1)(0.2)
Changes in operating assets and liabilities, excluding impact of acquisitions:
Increase in accounts receivable(159.7)(72.4)
Increase in inventories(10.6)(65.0)
Increase in accounts payable and accrued liabilities34.9 152.4 
Change in other assets and liabilities50.5 (42.8)
Change in income tax payable107.0 (24.4)
Net cash provided by operating activities993.2 840.4 
Cash flows from investing activities:  
Proceeds from sales of assets0.3 0.4 
Investments in other assets(30.1)(32.3)
Capital expenditures(111.1)(121.9)
Net cash used in investing activities(140.9)(153.8)
Cash flows from financing activities:  
Proceeds from borrowings on Revolving Credit Facility2,585.0 1,306.0 
Repayments of Revolving Credit Facility(1,960.0)(1,505.0)
Repayment of senior notes(1,000.0)— 
Payments on settlement of convertible debt(90.1)(73.5)
Proceeds from sale of common stock15.3 13.4 
Tax payments related to shares withheld for vested RSUs(15.7)(19.4)
Repurchase of common stock(140.3)(195.2)
Payment of cash dividends(208.9)(153.0)
Capital lease payments(0.4)(0.2)
Net cash used in financing activities(815.1)(626.9)
Net increase in cash and cash equivalents37.2 59.7 
Cash and cash equivalents, and restricted cash at beginning of period234.0 317.4 
Cash and cash equivalents, and restricted cash at end of period$271.2 $377.1 
 Nine Months Ended
 December 31,
 2017 2016
Cash flows from operating activities:   
Net income$108,657
 $27,731
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization459,032
 340,925
Deferred income taxes67,555
 (52,215)
Share-based compensation expense related to equity incentive plans70,021
 106,089
Loss on settlement of convertible debt15,966
 —
Amortization of debt discount on convertible debt79,017
 36,907
Amortization of debt issuance costs4,952
 3,182
Losses on equity method investments167
 167
Gains on sale of assets(5,421) (78)
Losses on write-down of fixed assets60
 1,278
Impairment of intangible assets252
 10,226
Realized losses on available-for-sale investment—
 89
Realized gains on equity method investment—
 (468)
Impairment of available-for-sale investment—
 1,433
Amortization of premium on available-for-sale investments531
 5
Changes in operating assets and liabilities, excluding impact of acquisitions:   
Increase in accounts receivable(74,762) (43,551)
(Increase) decrease in inventories(70,183) 220,674
Increase in deferred income on shipments to distributors42,890
 110,827
Increase (decrease) in accounts payable and accrued liabilities41,782
 (22,261)
Change in other assets and liabilities15,663
 (18,780)
Change in income tax payable303,903
 5,364
Operating cash flows related to discontinued operations—
 9,348
Net cash provided by operating activities1,060,082
 736,892
Cash flows from investing activities: 
  
Purchases of available-for-sale investments(1,338,140) (35,147)
Maturities of available-for-sale investments520,086
 350
Sales of available-for-sale investments—
 470,215
Sale of equity method investment—
 468
Acquisition of Atmel, net of cash acquired—
 (2,747,516)
Investments in other assets(5,384) (9,597)
Proceeds from sale of assets10,289
 23,069
Capital expenditures(148,412) (52,338)
Net cash used in investing activities(961,561) (2,350,496)
Cash flows from financing activities: (1)
 
  
Payments on settlement of convertible debt(73,421) —
Repayments of revolving loan under credit facility(187,000) (1,078,500)
Proceeds from borrowings on revolving loan under credit facility187,000
 1,517,000
Deferred financing costs(1,208) —
Payment of cash dividends(252,360) (232,847)
Proceeds from sale of common stock26,576
 28,893
Tax payments related to shares withheld for vested restricted stock units(34,126) (48,161)
Capital lease payments(587) (587)
Net cash (used in) provided by financing activities(335,126) 185,798
Effect of foreign exchange rate changes on cash and cash equivalents—
 (1,007)
Net decrease in cash and cash equivalents(236,605) (1,428,813)
Cash and cash equivalents at beginning of period908,684
 2,092,751
Cash and cash equivalents at end of period$672,079
 $663,938
Schedule of significant non-cash financing activity:
(1) During the nine months ended December 31, 2017, the Company issued $111.3 million principal amount of 2017 Junior Notes and 3.2 million shares of common stock in exchange for $111.3 million principal amount of 2007 Junior Notes. Refer to Note 13 Debt and Credit Facility for further discussion.


See accompanying notes to condensed consolidated financial statements

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MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions; unaudited)
Common Stock and Additional Paid-in-CapitalCommon Stock Held in TreasuryAccumulated Other Comprehensive LossRetained EarningsTotal Equity
SharesAmountSharesAmount
Balance at March 31, 2022577.8 $2,536.5 23.3 $(796.3)$(20.6)$4,175.2 $5,894.8 
Adoption of ASU 2020-06, cumulative adjustment— (128.3)— — — 46.5 (81.8)
Net income— — — — — 507.2 507.2 
Other comprehensive income— — — — 4.0 — 4.0 
Proceeds from sales of common stock through employee equity incentive plans1.2 13.4 — — — — 13.4 
RSU withholdings(0.3)(19.4)— — — — (19.4)
Treasury stock used for new issuances(0.9)(16.5)(0.9)16.5 — — — 
Repurchase of common stock— — 2.9 (195.2)— — (195.2)
Settlement of convertible debt— (32.9)— — — — (32.9)
Share-based compensation— 40.8 — — — — 40.8 
Cash dividend— — — — — (153.0)(153.0)
Balance at June 30, 2022577.8 $2,393.6 25.3 $(975.0)$(16.6)$4,575.9 $5,977.9 
Balance at March 31, 2023577.8 $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 plans0.9 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, 2023577.8 $2,400.8 33.5 $(1,786.7)$(4.4)$6,221.6 $6,831.3 

See accompanying notes to condensed consolidated financial statements
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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 balancesaccounts 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 generally accepted accounting principles in the United States of America (US GAAP),U.S. GAAP, pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC).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, 2017.2023.  The results of operations for the ninethree months ended December 31, 2017June 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 20182024 or for any other period.


Note 2. Recently Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

During the three months ended June 30, 2017, the Company adopted ASU 2015-11-Simplifying the Measurement of Inventory. This standard requires that entities measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016 and is applied prospectively. The adoption of this standard did not have a material impact on the Company's financial statements.

In March 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-07-Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.  This standard improves the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendment will require the employer to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost will be presented separately in the income statement from the service cost component outside of income from operations. The amendment is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted at the beginning of an annual period (in the first interim period) for which financial statements have not yet been issued. During the three months ended June 30, 2017, the Company elected to early adopt ASU 2017-07 and the adoption of this standard did not have a material impact on its financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2017, the FASB issued ASU 2017-12-Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The update expands an entity's ability to apply hedge accounting for nonfinancial and financial risk components and allows for a simplified approach for fair value hedging of interest rate risk. The update eliminates the need to separately measure and report hedge ineffectiveness and generally requires the entire change in fair value of a hedging instrument to be presented in the same income statement line as the hedged item. Additionally, the update simplifies the hedge documentation and effectiveness assessment requirements under the previous guidance. The effective date of this standard is for fiscal years beginning after December 15, 2018 and early adoption is permitted. Adoption will be applied through a cumulative-effect adjustment for cash flow and net investment hedges existing at the date of adoption and prospectively for presentation and disclosure. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

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In January 2017, the FASB issued ASU 2017-04-Intangibles - Goodwill and Other(Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The amendment is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2019, and early adoption is permitted. The Company does not expect this standard to have an impact on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18-Statement of Cash Flows: Restricted Cash. This standard requires that the statement of cash flows explain the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The standard is to be applied using a retrospective transition method to each period presented. The Company does not expect this standard to have a material impact on its consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16-Intra-Entity Transfers of Assets Other Than Inventory. This standard addresses the recognition of current and deferred income taxes resulting from an intra-entity transfer of any asset other than inventory.  Prior to the adoption of ASU 2016-16, a company will defer for financial reporting purposes the income tax expense resulting from an intra-entity asset transfer, including the taxes currently payable or paid. Upon adoption of ASU 2016-16, a company will recognize current and deferred income taxes that result from such transfers in the period in which they occur. ASU 2016-16 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 and is applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements but expects to recognize its previously deferred tax related to intra-entity transfers upon adoption of ASU 2016-16 as of April 1, 2018 with a cumulative-effect reduction to retained earnings.

In June 2016, the FASB issued ASU 2016-13-Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments.This standard requires entities to use a current lifetime expected credit loss methodology to measure impairments of certain financial assets. Using this methodology will result in earlier recognition of losses than under the current incurred loss approach, which requires waiting to recognize a loss until it is probable of having been incurred. The amendments in ASU 2016-13 broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually and can include forecasted information.There are other provisions within the standard affecting how impairments of other financial assets may be recorded and presented, as well as expanded disclosures. ASU 2016-13 is effective for interim and annual periods beginning after December 15, 2019, and permits early adoption, but not before December 15, 2018. The standard is to be applied using a modified retrospective approach. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02-Leases. This standard requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet and aligns many of the underlying principles of the new lessor model with those in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. ASU 2016-02 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. The standard is to be applied using the modified retrospective approach to all periods presented. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01-Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is not permitted. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09-Revenue from Contracts with Customers (Topic 606), which will supersede nearly all existing revenue recognition guidance under US GAAP.  In July 2015, the FASB issued ASU 2015-14-Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of the new standard by one year to December 15, 2017, for annual and interim reporting periods beginning after that date. In accordance with the delay, the new standard will be effective for the Company beginning no later than April 1, 2018.  The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in

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an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard allows for the amendment to be applied either retrospectively to each prior reporting period presented or retrospectively as a cumulative-effect adjustment as of the date of adoption. In March 2016, the FASB issued ASU 2016-08 - Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10 - Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies the implementation guidance on identifying performance obligations. In May 2016, the FASB issued ASU 2016-12 - Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which addresses implementation issues that were raised by stakeholders and discussed by the Revenue Recognition Transition Resource Group. As described in the Company's significant accounting policies, the Company currently defers the revenue and cost of sales on shipments to distributors until the distributor sells the product to their end customer. Upon adoption of ASU 2014-09, ASU 2015-14, ASU 2016-08, ASU 2016-10 and ASU 2016-12, the Company will no longer defer revenue until sale by the distributor to the end customer, but rather, will be required to estimate the effects of returns and allowances provided to distributors and record revenue at the time of sale to the distributor.  After adoption, the effect of the new standard on the Company's future consolidated financial statements will depend on the relative percentage of sales through distributors; the level of and changes in the amount of inventory held by distributors; the individual products and product types held in inventory by distributors; and the Company's ability to accurately estimate pricing variability at the time of sale to the distributor.  The Company will adopt the standard under the modified retrospective method.

Note 3. Business Acquisitions
Acquisition of Atmel
On April 4, 2016, the Company acquired Atmel, a publicly traded company based in San Jose, California. The Company paid an aggregate of approximately $2.98 billion in cash and issued an aggregate of 10.1 million shares of its common stock to Atmel stockholders valued at $486.1 million based on the closing price of the Company's common stock on April 4, 2016 and incurred transaction and other fees of approximately $14.9 million. The total consideration transferred in the acquisition, including approximately $7.5 million of non-cash consideration for the exchange of certain share-based payment awards of Atmel for stock awards of the Company, was approximately $3.47 billion. In addition to the consideration transferred, the Company recognized in its consolidated financial statements $653.1 million in liabilities of Atmel consisting of debt, taxes payable and deferred, pension obligations, restructuring, and contingent and other liabilities. The Company financed the cash portion of the purchase price using approximately $2.04 billion of cash held by certain of its foreign subsidiaries and approximately $0.94 billion from additional borrowings under its existing credit agreement. As a result of the acquisition, Atmel became a wholly owned subsidiary of the Company. Atmel is a worldwide leader in the design and manufacture of microcontrollers, capacitive touch solutions, advanced logic, mixed-signal, nonvolatile memory and radio frequency components. The Company's primary reason for this acquisition was to expand the Company's range of solutions, products and capabilities by extending its served available market.
The acquisition was accounted for under the acquisition method of accounting, with the Company identified as the acquirer, and the operating results of Atmel have been included in the Company's consolidated financial statements as of the closing date of the acquisition. Under the acquisition method of accounting, the aggregate amount of consideration paid by the Company was allocated to Atmel's net tangible assets and intangible assets based on their estimated fair values as of April 4, 2016.  The excess of the purchase price over the value of the net tangible assets and intangible assets was recorded to goodwill. The factors contributing to the recognition of goodwill were based upon the Company's conclusion that there are strategic and synergistic benefits that are expected to be realized from the acquisition. The goodwill has been allocated to the Company's semiconductor products reporting segment.  None of the goodwill related to the Atmel acquisition is deductible for tax purposes.  The Company retained independent third-party appraisers to assist management in its valuation.


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The table below represents the allocation of the final purchase price to the net assets acquired based on their estimated fair values, as well as the associated estimated useful lives of the acquired intangible assets (amounts in thousands).

Assets acquired  
Cash and cash equivalents $230,266
Accounts receivable 141,359
Inventories 335,163
Prepaid expenses and other current assets 28,360
Assets held for sale 32,006
Property, plant and equipment 129,884
Goodwill 1,286,371
Purchased intangible assets 1,888,392
Long-term deferred tax assets 46,700
Other assets 7,535
Total assets acquired 4,126,036
   
Liabilities assumed  
Accounts payable (55,686)
Other current liabilities (120,955)
Long-term line of credit (192,000)
Deferred tax liabilities (27,552)
Long-term income tax payable (115,177)
Other long-term liabilities (141,688)
Total liabilities assumed (653,058)
Purchase price allocated $3,472,978

Purchased Intangible AssetsWeighted Average  
 Useful Life  
 (in years) (in thousands)
Core and developed technology11 $1,074,987
In-process research and development— 140,700
Customer-related6 630,600
Backlog1 40,300
Other5 1,805
Total purchased intangible assets  $1,888,392
Purchased intangible assets include core and developed technology, in-process research and development, customer-related intangibles, acquisition-date backlog and other intangible assets. The estimated fair values of the core and developed technology and in-process research and development were determined based on the present value of the expected cash flows to be generated by the respective existing technology or future technology. The core and developed technology intangible assets are being amortized in a manner based on the expected cash flows used in the initial determination of fair value. In-process research and development is capitalized until such time as the related projects are completed or abandoned at which time the capitalized amounts will begin to be amortized or written off. Customer-related intangible assets consist of Atmel's contractual relationships and customer loyalty related to its distributor and end-customer relationships, and the fair values of the customer-related intangibles were determined based on Atmel's projected revenues. An analysis of expected attrition and revenue growth for existing customers was prepared from Atmel's historical customer information.  Customer relationships are being amortized in a manner based on the estimated cash flows associated with the existing customers and anticipated retention rates. Backlog relates to the value of orders not yet shipped by Atmel at the acquisition date, and the fair values were based on the estimated


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profit associated with those orders. Backlog related assets had a one year useful life and were being amortized on a straight-line basis over that period. The total weighted average amortization period of intangible assets acquired as a result of the Atmel transaction is 9 years. Amortization expense associated with acquired intangible assets is not deductible for tax purposes.  Thus, approximately $178.1 million was established as a net deferred tax liability for the future amortization of the intangible assets.

Note 4. Discontinued Operations

Discontinued operations include the mobile touch operations that the Company acquired as part of its acquisition of Atmel. The mobile touch assets had been marketed for sale since the Company's acquisition of Atmel on April 4, 2016 based on management's decision that it was not a strategic fit for the Company's product portfolio. On November 10, 2016, the Company completed the sale of the mobile touch assets to Solomon Systech (Limited) International, a Hong Kong based semiconductor company. The transaction included the sale of certain semiconductor products, equipment, customer list, backlog, patents, and a license to certain other intellectual property and patents related to the Company's mobile touch product line. The Company also agreed to provide certain transition services to Solomon Systech, which were substantially complete as of March 31, 2017. For financial statement purposes, the results of operations for this discontinued business have been segregated from those of the continuing operations and are presented in the Company's condensed consolidated financial statements as discontinued operations.

As the Company completed the sale of the mobile touch assets on November 10, 2016, there are no discontinued operations for the three and nine months ended December 31, 2017. The results of discontinued operations for the three and nine months ended December 31, 2016 are as follows (amounts in thousands):

 December 31, 2016
 Three Months Ended Nine Months Ended
Net sales$923
 $18,334
Cost of sales478
 15,841
Operating expenses1,279
 10,650
Gain on Sale643
 643
Income tax benefit(31) (1,561)
Net loss from discontinued operations$(160) $(5,953)

Note 5. Special Charges and Other, Net

The following table summarizes activity included in the "special charges and other, net" caption on the Company's condensed consolidated statements of operations (amounts in thousands):

 Three Months Ended Nine Months Ended
 December 31, December 31,
 2017 2016 2017 2016
Restructuring       
Employee separation costs$90
 $6,525
 $1,477
 $35,346
Gain on sale of assets—
 —
 (4,447) —
Impairment charges99
 8,084
 199
 10,045
Contract exit costs(97) 4,954
 20,057
 5,294
Other104
 1,381
 26
 1,837
Total$196
 $20,944
 $17,312
 $52,522

The Company continuously evaluates its existing operations in an attempt to identify and realize cost savings opportunities and operational efficiencies. This same approach is applied to businesses that are acquired by the Company and often the operating models of acquired companies are not as efficient as the Company's operating model which enables the Company to realize significant savings and efficiencies. As a result, following an acquisition, the Company will from time to

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time incur restructuring expenses; however, the Company is often not able to estimate the timing or amount of such costs in advance of the period in which they occur. The primary reason for this is that the Company regularly reviews and evaluates each position, contract and expense against the Company's strategic objectives, long-term operating targets and other operational priorities. Decisions related to restructuring activities are made on a "rolling basis" during the course of the integration of an acquisition whereby department managers, executives and other leaders work together to evaluate each of these expenses and make recommendations. As a result of this approach, at the time of an acquisition, the Company is not able to estimate the total amount of expected employee separation or exit costs that it will incur in connection with its restructuring activities.

The Company's restructuring expenses during fiscal 2017 were related to the Company's recent business combinations, including the acquisitions of Atmel and Micrel, and resulted from workforce, property and other operating expense rationalizations as well as combining product roadmaps and manufacturing operations. These expenses were for employee separation costs, contract exit costs, other operating expenses and intangible asset impairment losses. At March 31, 2017, these activities were substantially complete; however, the Company may continue to incur additional costs in the future as additional synergies or operational efficiencies are identified. The Company is not able to estimate the amount of such future expenses, if any, at this time.

All of the Company's restructuring activities occurred in its semiconductor products segment. The Company incurred $52.6 million in costs since the start of fiscal 2015 in connection with employee separation activities, of which $0.1 million and $1.5 million was incurred during the three and nine months ended December 31, 2017, respectively, and $6.5 million and $35.3 million was incurred during the during the three and nine months ended December 31, 2016, respectively. These employee separation activities are now substantially complete and any future amounts are not expected to be material. The Company has incurred $64.8 million in costs in connection with contract exit activities since the start of fiscal 2015 which includes income of $0.1 million and costs of $20.1 million for the three and nine months ended December 31, 2017, respectively, and $5.0 million and $5.3 million was incurred for the three and nine months ended December 31, 2016, respectively. These acquisition-related contract exit activities are now substantially complete and any future amounts are not expected to be material.

In the three months ended September 30, 2017, the Company recognized a $19.5 million charge for fees associated with transitioning from the public utility provider in Oregon to a lower cost direct access provider. The fee will be paid monthly starting in calendar year 2018 and will depend on the amount of actual energy consumed by the Company's wafer fabrication facility in Oregon over the next five years. In connection with the transition to a direct access provider, the Company signed a ten-year supply agreement to purchase monthly amounts of energy that are less than the current average usage and priced on a per mega watt hour published index rate in effect at those future dates.

In the three months ended June 30, 2017, the Company completed the sale of an asset it acquired as part of its acquisition of Micrel for proceeds of $10.0 million and the gain of $4.4 million is included in the gain on sale of assets in the above table. As of March 31, 2017, these assets consisting of property, plant and equipment were presented as held for sale in the Company's condensed consolidated financial statements.

The impairment losses in the nine months ended December 31, 2016 were recognized as a result of changes in the combined product roadmaps after the acquisition of Atmel that affected the use and life of these assets.

The following is a roll forward of accrued restructuring charges from April 1, 2017 to December 31, 2017 (amounts in thousands):
 Employee Separation Costs Exit Costs Total
Balance at April 1, 2017 - Restructuring Accrual$5,474
 $34,751
 $40,225
Charges1,477
 20,057
 21,534
Payments(4,755) (7,090) (11,845)
Non-cash - Other(287) 869
 582
Foreign exchange gains272
 —
 272
Balance at December 31, 2017 - Restructuring Accrual$2,181
 $48,587
 $50,768
Current    $14,042
Non-current    36,726
Total    $50,768

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The restructuring liability of $50.8 million is included in accrued liabilities and other long-term liabilities on the Company's condensed consolidated balance sheet as of December 31, 2017.

Note 6.2. 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 table representstables represent net sales and gross profit for each segment for the three and nine months ended December 31, 2017 (amounts in thousands)periods presented (in millions):
Three Months Ended June 30, 2023
Net SalesGross Profit
Semiconductor products$2,254.8 $1,524.6 
Technology licensing33.8 33.8 
Total$2,288.6 $1,558.4 

Three Months Ended June 30, 2022
Net SalesGross Profit
Semiconductor products$1,925.7 $1,272.0 
Technology licensing37.9 37.9 
Total$1,963.6 $1,309.9 

Note 3. Net Sales
 Three Months Ended Nine Months Ended
 December 31, 2017 December 31, 2017
 Net Sales Gross Profit Net Sales Gross Profit
Semiconductor products$966,678
 $579,532
 $2,900,145
 $1,727,252
Technology licensing27,527
 27,527
 78,340
 78,340
Total$994,205
 $607,059
 $2,978,485
 $1,805,592


The following table represents the Company's net sales by product line (in millions):
Three Months Ended June 30,
20232022
Mixed-signal Microcontrollers$1,301.7 $1,063.0 
Analog633.6 580.0 
Other353.3 320.6 
Total net sales$2,288.6 $1,963.6 

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 gross profittechnology licensing segments.

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The following table represents the Company's net sales by customer type (in millions):
Three Months Ended June 30,
20232022
Distributors$1,107.9 $913.1 
Direct customers1,146.9 1,012.6 
Licensees33.8 37.9 
Total net sales$2,288.6 $1,963.6 

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.

The Company collects amounts in advance for eachcertain 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, 2023, the Company had approximately $863.1 million of deferred revenue, of which $151.9 million is included within accrued liabilities and the remaining $711.2 million is included within other long-term liabilities on the Company's condensed consolidated balance sheet. As of March 31, 2023, the Company had approximately $757.7 million of deferred revenue in the semiconductor product segment, of which $121.4 million is included within accrued liabilities and the remaining $636.3 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 $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. This amount was immaterial for the three and nine months ended December 31, 2016 (amountsJune 30, 2022.

Of the $863.1 million of deferred revenue as of June 30, 2023, $778.3 million is cash collected from customers under LTSAs, of which $97.4 million is included within accrued liabilities and $680.9 million is included within other long-term liabilities. Under these LTSAs, the Company receives an upfront deposit from the customer in thousands):
 Three Months Ended Nine Months Ended
 December 31, 2016 December 31, 2016
 Net Sales Gross Profit Net Sales Gross Profit
Semiconductor products$810,532
 $441,425
 $2,437,049
 $1,156,278
Technology licensing23,834
 23,834
 68,092
 68,092
Total$834,366
 $465,259
 $2,505,141
 $1,224,370

Note 7. Investments
The Company's investments are intendedexchange for assured supply over the contract period, which typically ranges from three to establish a high-quality portfolio that preserves principal, meets liquidity needs, avoids inappropriate concentrations, and delivers an appropriate yieldfive years. If the customer does not meet the minimum purchase commitments defined in relationshipthe 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 remaining performance obligations for the LTSAs were approximately $4.20 billion as of June 30, 2023, of which approximately 18% 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 $84.8 million of deferred revenue as of June 30, 2023 is related to other cash payments received from customers in advance of the Company’s performance obligations being satisfied. Most of the $84.8 million will be recognized as net sales within the next 12 months.

In addition to LTSAs, a portion of the Company's investment guidelinesnon-LTSA customer contracts contain firmly committed orders beyond 12 months at the time of order. The transaction price for these orders with remaining performance obligations as of June 30, 2023 for orders with initial durations in excess of 12 months approximates 40% of fiscal 2023 net sales, of which approximately 85% is expected to be recognized over the next 12 months. The amount and timing of such net sales is inherently uncertain because the ultimate transaction prices will be affected by variable consideration which is subject to change based upon market conditions at the time of the sale, contract modifications, and manufacturing and supply chain conditions. The following is a summaryAccordingly, the amount may not be indicative of available-for-sale securities at December 31, 2017 (amountsnet sales in thousands):future periods.

10
 Available-for-sale Securities
 
Adjusted
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Government agency bonds$815,940
 $—
 $(5,809) $810,131
Municipal bonds - taxable10,000
 —
 (57) 9,943
Corporate bonds and debt491,851
 —
 (1,484) 490,367
Marketable equity securities707
 1,758
 —
 2,465
Total$1,318,498
 $1,758
 $(7,350) $1,312,906


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Note 4. 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,
20232022
Net income$666.4 $507.2 
Basic weighted average common shares outstanding545.1 553.8 
Dilutive effect of stock options and RSUs5.1 5.5 
Dilutive effect of 2015 Senior Convertible Debt0.3 1.0 
Dilutive effect of 2017 Senior Convertible Debt0.9 1.1 
Dilutive effect of 2017 Junior Convertible Debt— 0.1 
Diluted weighted average common shares outstanding551.4 561.5 
Basic net income per common share$1.22 $0.92 
Diluted net income per common share$1.21 $0.90 

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. 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 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 a summarythe weighted average conversion price per share used in calculating the dilutive effect (see Note 5 for details on the Convertible Debt):
Three Months Ended June 30,
20232022
2015 Senior Convertible Debt$29.25 $29.77 
2017 Senior Convertible Debt$45.61 $46.43 
2020 Senior Convertible Debt$92.32 $93.07 
2017 Junior Convertible Debt(1)
$44.81 $45.62 
(1) The weighted average conversion price per share for the 2017 Junior Convertible Debt was prior to the settlement of available-for-sale securities at March 31, 2017 (amountsthe outstanding principal amount in thousands):May 2023.
11
 Available-for-sale Securities
 
Adjusted
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Government agency bonds$227,089
 $3
 $(227) $226,865
Municipal bonds - tax-exempt55,289
 —
 (10) 55,279
Municipal bonds - taxable10,000
 43
 —
 10,043
Corporate bonds and debt207,888
 53
 (169) 207,772
Marketable equity securities707
 879
 —
 1,586
Total$500,973
 $978
 $(406) $501,545
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Note 5. Debt


At December 31, 2017, the Company's available-for-sale securities are presented onDebt obligations included in the condensed consolidated balance sheets consisted of the following (in millions):
Coupon Interest RateEffective Interest Rate
June 30,March 31,
20232023
Revolving Credit Facility$725.0 $100.0 
4.333% 2023 Notes4.333%4.7%— 1,000.0 
2.670% 2023 Notes2.670%2.8%1,000.0 1,000.0 
0.972% 2024 Notes0.972%1.1%1,400.0 1,400.0 
0.983% 2024 Notes0.983%1.1%1,000.0 1,000.0 
4.250% 2025 Notes4.250%4.6%1,200.0 1,200.0 
Total Senior Indebtedness5,325.0 5,700.0 
Senior Subordinated Convertible Debt - Principal Outstanding
2015 Senior Convertible Debt1.625%1.8%6.8 12.4 
2017 Senior Convertible Debt1.625%1.8%56.3 82.2 
2020 Senior Convertible Debt0.125%0.5%665.5 665.5 
Junior Subordinated Convertible Debt - Principal Outstanding
2017 Junior Convertible Debt2.250%2.3%— 6.5 
Total Convertible Debt728.6 766.6 
Gross long-term debt including current maturities6,053.6 6,466.6 
Less: Debt discount(1)
(8.7)(10.4)
Less: Debt issuance costs(2)
(14.0)(16.3)
Net long-term debt including current maturities6,030.9 6,439.9 
Less: Current maturities(3)
(1,398.7)(1,398.2)
Net long-term debt$4,632.2 $5,041.7 

(1) The unamortized discount consists of the following (in millions):
June 30,March 31,
20232023
4.333% 2023 Notes$— $(0.2)
2.670% 2023 Notes(0.2)(0.4)
0.972% 2024 Notes(0.8)(1.2)
0.983% 2024 Notes(1.1)(1.3)
4.250% 2025 Notes(6.6)(7.3)
Total unamortized discount$(8.7)$(10.4)

(2)Debt issuance costs consist of the following (in millions):
June 30,March 31,
20232023
Revolving Credit Facility$(7.7)$(8.6)
4.333% 2023 Notes— (0.4)
2.670% 2023 Notes(0.1)(0.2)
0.972% 2024 Notes(0.5)(0.6)
0.983% 2024 Notes(0.7)(0.8)
4.250% 2025 Notes(0.9)(0.9)
2017 Senior Convertible Debt(0.3)(0.4)
2020 Senior Convertible Debt(3.8)(4.4)
Total debt issuance costs$(14.0)$(16.3)

(3) As of June 30, 2023 and March 31, 2023, current maturities consisted of the 0.972% 2024 Notes which mature on February 15, 2024. As of June 30, 2023, the 2.670% 2023 Notes, which mature on September 1, 2023, were excluded
12
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from current maturities as short-term investmentsthe Company has the intent and ability to utilize proceeds from its Revolving Credit Facility to refinance such note on a long-term basis. As of $427.5June 30, 2023, the 2015 Senior Convertible Debt and the 2017 Senior Convertible Debt 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, 2023, the 2.670% 2023 Notes, which mature on September 1, 2023, and the 4.333% 2023 Notes, which matured on June 1, 2023 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, 2023, the 2015 Senior Convertible Debt, the 2017 Senior Convertible Debt and the 2017 Junior Convertible Debt 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 as of June 30, 2023, are as follows (in millions):
Fiscal year ending March 31,Amount
2024$2,400.0 
20251,672.3 
20261,200.0 
2027781.3 
Total$6,053.6 

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 - 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 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). On April 1, 2022, the Company irrevocably elected cash settlement for the principal amount of its Convertible Debt.
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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, 2023
Conversion RateApproximate Conversion PriceIncremental Share FactorMaximum Conversion Rate
2015 Senior Convertible Debt(1)
34.1893 $29.25 17.0964 47.8641 
2017 Senior Convertible Debt(1)
21.9235 $45.61 10.9625 31.2412 
2020 Senior Convertible Debt(1)
10.8324 $92.32 — 15.1653 

(1) As of June 30, 2023, the 2020 Senior Convertible Debt was not convertible. As of June 30, 2023, 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, 2023 and September 30, 2023 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, 2023. As of June 30, 2023, the adjusted conversion rate for the 2015 Senior Convertible Debt and the 2017 Senior Convertible Debt would be increased to 45.7041 shares of common stock and 27.3046 shares of common stock, respectively, per $1,000 principal amount of notes based on the closing price of $89.59 per share of common stock to include an additional maximum incremental share rate per the terms of the applicable indenture. As of June 30, 2023, each of the 2015 Senior Convertible Debt and 2017 Senior Convertible Debt had a conversion value in excess of par of $20.9 million and long-term investments$81.4 million, respectively.

With the exception of $885.4 million.  At March 31, 2017, the Company's available-for-sale securities are presented on2020 Senior Convertible Debt, which became redeemable by the condensed consolidated balance sheetsCompany 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 or through privately negotiated exchange offers. Upon the occurrence of a fundamental change, as short-term investmentsdefined in the applicable indenture of $394.1 millionsuch 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 long-term investmentsunpaid interest.

Interest expense consists of $107.5 million.the following (in millions):

Three Months Ended June 30,
20232022
Debt issuance cost amortization$1.5 $1.7 
Debt discount amortization1.7 1.8 
Interest expense41.5 43.8 
Total interest expense on Senior Indebtedness44.7 47.3 
Debt issuance cost amortization0.7 0.6 
Coupon interest expense0.5 1.0 
Total interest expense on Convertible Debt1.2 1.6 
Other interest expense1.3 1.4 
Total interest expense$47.2 $50.3 
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The Company had no proceeds from salesCompany's debt settlement transactions consists of available-for-sale investments during the nine months ended December 31, 2017. following (in millions):
Principal Amount SettledTotal Cash ConsiderationNet Loss on Inducements and Settlements
May 2023(1)
2015 Senior Convertible Debt$5.6 $18.9 $0.4 
2017 Senior Convertible Debt$25.9 $56.3 $6.6 
2017 Junior Convertible Debt$6.5 $14.9 $2.1 
June 2023(2)
4.333% 2023 Notes$1,000.0 $1,000.0 $— 

(1) The Company sold available-for-sale investmentssettled portions of its 2015 Senior Convertible Debt and 2017 Senior Convertible Debt, and the outstanding principal amount of its 2017 Junior Convertible Debt in privately negotiated transactions that are accounted for proceeds of $470.2 million during the nine months ended December 31, 2016as induced conversions.
(2) The Company used borrowings under its Revolving Credit Facility to finance a portion of the purchase price of its Atmel acquisition which closed on April 4, 2016. No available-for-sale investments were sold during the three months ended December 31, 2016. The Company had no material realized gains from the sale of available-for-sale securities during the three and nine months ended December 31, 2017 and 2016. The Company determines the cost of available-for-sale debt securities sold on a first-in first-out (FIFO) basis at the individual security level for sales from multiple lots. For sales of marketable equity securities, the Company uses an average cost basis at the individual security level. Gains and losses recognized in earnings are credited or charged to other income (expense) on the consolidated statements of operations.such settlement.


The following tables show all investments in an unrealized loss position for which an other-than-temporary impairment has not been recognized and the related gross unrealized losses and fair value, aggregated by investment category and the length of time that the individual securities have been in a continuous unrealized loss position (amounts in thousands):
 December 31, 2017
 Less than 12 Months 12 Months or Greater Total
 Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss
Government agency bonds$790,325
 $(5,615) $19,806
 $(194) $810,131
 $(5,809)
Municipal bonds - taxable9,943
 (57) —
 —
 9,943
 (57)
Corporate bonds and debt447,061
 (1,484) —
 —
 447,061
 (1,484)
Total$1,247,329
 $(7,156) $19,806
 $(194) $1,267,135
 $(7,350)

 March 31, 2017
 Less than 12 Months 12 Months or Greater Total
 Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss
Government agency bonds$196,875
 $(227) $—
 $—
 $196,875
 $(227)
Municipal bonds - tax exempt55,279
 (10) —
 —
 55,279
 (10)
Corporate bonds and debt132,820
 (169) —
 —
 132,820
 (169)
Total$384,974
 $(406) $—
 $—
 $384,974
 $(406)


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Management does not believe any of the unrealized losses represent an other-than-temporary impairment based on its evaluation of available evidence as of December 31, 2017 and the Company's intent is to hold these investments until these assets are no longer impaired. 

The amortized cost and estimated fair value of the available-for-sale securities at December 31, 2017, by contractual maturity, excluding marketable equity securities of $2.5 million, which have no contractual maturity, are shown below (amounts in thousands). Expected maturities can differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties, and the Company views its available-for-sale securities as available for current operations.
 
Adjusted
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Available-for-sale       
Due in one year or less$425,436
 $—
 $(387) $425,049
Due after one year and through five years892,355
 —
 (6,963) 885,392
Due after five years and through ten years—
 —
 —
 —
Total$1,317,791
 $—
 $(7,350) $1,310,441


Note 8. Fair Value Measurements

Accounting rules for fair value clarify that 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.

Marketable Debt Instruments

Marketable debt instruments include instruments such as corporate bonds and debt, government agency bonds, bank deposits, municipal bonds, and money market mutual funds. When the Company uses observable market prices for identical securities that are traded in less active markets, the Company classifies its marketable debt instruments as Level 2. When observable market prices for identical securities are not available, the Company prices its marketable debt instruments using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Non-binding market consensus prices are based on the proprietary valuation models of pricing providers or brokers. These valuation models incorporate a number of inputs, including non-binding and binding broker quotes; observable market prices for identical or similar securities; and the internal assumptions of pricing providers or brokers that use observable market inputs and, to a lesser degree, unobservable market inputs. The Company corroborates non-binding market consensus prices with observable market data using statistical models when observable market data exists. The discounted cash flow model uses observable market inputs, such as LIBOR-based yield curves, currency spot and forward rates, and credit ratings.


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Assets Measured at Fair Value on a Recurring Basis
Assets measured at fair value on a recurring basis at December 31, 2017 are as follows (amounts in thousands):
 
Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Total
Balance
Assets     
Cash and cash equivalents:     
Money market mutual funds$108,204
 $—
 $108,204
Deposit accounts—
 563,875
 563,875
Short-term investments:     
Marketable equity securities

2,465
 —
 2,465
Corporate bonds and debt—
 288,224
 288,224
Government agency bonds—
 136,825
 136,825
Long-term investments:     
Corporate bonds and debt—
 202,143
 202,143
Government agency bonds—
 673,306
 673,306
Municipal bonds - taxable—
 9,943
 9,943
Total assets measured at fair value$110,669
 $1,874,316
 $1,984,985

Assets measured at fair value on a recurring basis at March 31, 2017 are as follows (amounts in thousands):
 
Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Total
Balance
Assets     
Cash and cash equivalents:     
Money market mutual funds$343,815
 $—
 $343,815
Deposit accounts—
 564,869
 564,869
Short-term investments:     
Marketable equity securities1,586
 —
 1,586
Corporate bonds and debt—
 165,207
 165,207
Government agency bonds—
 161,973
 161,973
Municipal bonds - tax-exempt—
 55,279
 55,279
Municipal bonds - taxable—
 10,043
 10,043
Long-term investments:     
Corporate bonds and debt—
 42,565
 42,565
Government agency bonds—
 64,892
 64,892
Total assets measured at fair value$345,401
 $1,064,828
 $1,410,229

There were no transfers between Level 1 and Level 2 during the three and nine months ended December 31, 2017 or the fiscal year ended March 31, 2017. There were no assets measured at fair value on a recurring basis classified as Level 3 at December 31, 2017 or March 31, 2017.



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Assets and Liabilities Measured and Recorded at Fair Value on a Non-Recurring Basis
The Company's non-marketable equity, cost method investments, certain acquired liabilities and non-financial assets, such as intangible assets, assets held for sale and property, plant and equipment, are recorded at fair value on a non-recurring basis. These assets are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment.  

The Company's non-marketable and cost method investments are monitored on a quarterly basis for impairment charges.  The fair values of these investments have been determined as Level 3 fair value measurements because the valuations use unobservable inputs that require management's judgment due to the absence of quoted market prices. There were no impairment charges recognized on these investments during each of the three and nine-month periods ended December 31, 2017 and December 31, 2016. These investments are included in other assets on the condensed consolidated balance sheet.

The fair value measurements related to the Company's non-financial assets, such as intangible assets, assets held for sale and property, plant and equipment are based on available market prices at the measurement date based on transactions of similar assets and third-party independent appraisals, less costs to sell where appropriate. The Company classifies these measurements as Level 2.

Note 9. 6. 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, 2017June 30, 2023 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.  


Fair ValueThe fair value of Subordinated Convertible Debt

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 June 30, 2023 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 seniorConvertible Debt and junior subordinated convertible debtSenior 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.

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The following table shows the carrying amounts and fair values of the Company's senior and junior subordinated convertible debt as of December 31, 2017 and March 31, 2017 (amounts in thousands). As of December 31, 2017 and March 31, 2017, theobligations (in millions):
June 30, 2023March 31, 2023
Carrying Amount(1)
Fair Value
Carrying Amount(1)
Fair Value
Revolving Credit Facility$717.3 $725.0 $91.4 $100.0 
4.333% 2023 Notes— — 999.4 997.1 
2.670% 2023 Notes999.7 994.6 999.4 985.4 
0.972% 2024 Notes1,398.7 1,355.2 1,398.2 1,337.6 
0.983% 2024 Notes998.2 944.5 997.9 941.9 
4.250% 2025 Notes1,192.5 1,159.7 1,191.8 1,176.0 
2015 Senior Convertible Debt6.8 17.9 12.4 41.8 
2017 Senior Convertible Debt56.0 138.2 81.8 189.6 
2020 Senior Convertible Debt661.7 752.7 661.1 732.1 
2017 Junior Convertible Debt— — 6.5 14.5 
Total$6,030.9 $6,087.8 $6,439.9 $6,516.0 

(1) The carrying amounts presented are net of the Company's seniordebt discounts and junior subordinated convertible debt have been reduced by debt issuance costs of $35.2 million(see Note 5 for further information).

Note 7. Intangible Assets and $38.3 million, respectively.Goodwill


 December 31, 2017 March 31, 2017
 Carrying Amount Fair Value Carrying Amount Fair Value
2017 Senior Debt$1,424,169
 $2,436,742
 $1,384,914
 $2,106,225
2015 Senior Debt$1,297,605
 $2,952,993
 $1,261,787
 $2,481,708
2017 Junior Debt$324,528
 $814,329
 $262,298
 $586,609
2007 Junior Debt$—
 $—
 $49,952
 $445,142



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Note 10.Other Financial Statement Details

Accounts Receivable
Accounts receivable consists of the following (amounts in thousands):
 December 31, 2017 March 31, 2017
Trade accounts receivable$547,572
 $473,238
Other7,682
 7,219
Total accounts receivable, gross555,254
 480,457
Less allowance for doubtful accounts2,119
 2,084
Total accounts receivable, net$553,135
 $478,373

Inventories

The components of inventoriesNet amounts excluding fully amortized intangible assets, consist of the following (amounts in thousands)(in millions):
June 30, 2023
Gross AmountAccumulated AmortizationNet Amount
Core and developed technology$7,310.0 $(4,253.4)$3,056.6 
Customer-related199.8 (131.9)67.9 
Software licenses220.8 (92.5)128.3 
Total$7,730.6 $(4,477.8)$3,252.8 
 December 31, 2017 March 31, 2017
Raw materials$22,488
 $14,430
Work in process309,811
 268,281
Finished goods154,766
 134,491
Total inventories$487,065
 $417,202


March 31, 2023
Gross AmountAccumulated AmortizationNet Amount
Core and developed technology$7,296.2 $(4,103.4)$3,192.8 
Customer-related199.8 (128.0)71.8 
In-process research and development5.7 — 5.7 
Software licenses211.7 (113.0)98.7 
Distribution rights and other0.3 (0.3)— 
Total$7,713.7 $(4,344.7)$3,369.0 
Inventories are valued at
The following is an expected amortization schedule for the lowerintangible assets for the remainder of cost and net realizable value using the first-in, first-out method. Inventoryfiscal 2024 through fiscal 2028, absent any future acquisitions or impairment charges establish a new cost basis for inventory(in millions):
Fiscal Year Ending March 31,Amortization Expense
2024$517.0 
2025$555.6 
2026$485.0 
2027$383.0 
2028$297.1 


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The Company amortizes intangible assets over their expected useful lives, which range between 1 and charges are not subsequently reversed to income even if circumstances later suggest that increased carrying amounts are recoverable.

Property, Plant and Equipment

Property, plant and equipment consists of the following (amounts in thousands):
 December 31, 2017 March 31, 2017
Land$73,447
 $73,447
Building and building improvements506,037
 499,668
Machinery and equipment1,911,200
 1,774,920
Projects in process115,006
 104,318
Total property, plant and equipment, gross2,605,690
 2,452,353
Less accumulated depreciation and amortization1,850,910
 1,769,015
Total property, plant and equipment, net$754,780
 $683,338
Depreciation15 years. Amortization expense attributed to property, plantintangible assets are assigned to cost of sales and equipment was $32.0 million and $90.9 million foroperating expenses as follows (in millions):
Three Months Ended June 30,
20232022
Amortization expense charged to cost of sales$3.0 $3.3 
Amortization expense charged to operating expense169.4 184.4 
Total amortization expense$172.4 $187.7 

There were no material impairment charges in the three and nine months ended DecemberJune 30, 2023 or June 30, 2022.

Goodwill activity by segment was as follows (in millions):
 Semiconductor Products Reporting UnitTechnology Licensing Reporting Unit
Balance at March 31, 2023$6,654.4 $19.2 
Additions1.8 — 
Balance at June 30, 2023$6,656.2 $19.2 
At March 31, 2017, respectively, compared2023, the Company applied a qualitative goodwill impairment test to $29.7 million and $90.3 million forits two reporting units, concluding it was not more likely than not that goodwill was impaired. Through June 30, 2023, the three and nine months ended December 31, 2016, respectively.Company has never recorded a goodwill impairment charge.




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Note 11.     Intangible Assets and Goodwill8. Other Financial Statement Details

Accounts Receivable
 
Intangible assets consist of the following (amounts in thousands):
  December 31, 2017
  Gross Amount Accumulated Amortization Net Amount
Core and developed technology $1,936,956
 $(587,415) $1,349,541
Customer-related 716,945
 (312,851) 404,094
Trademarks and trade names 11,700
 (11,185) 515
In-process research and development 29,379
 —
 29,379
Distribution rights 5,578
 (5,379) 199
Other 1,449
 (609) 840
Total $2,702,007
 $(917,439) $1,784,568

  March 31, 2017
  Gross Amount Accumulated Amortization Net Amount
Core and developed technology $1,932,329
 $(419,468) $1,512,861
Customer-related 716,945
 (123,616) 593,329
Trademarks and trade names 11,700
 (9,636) 2,064
In-process research and development 38,511
 —
 38,511
Distribution rights 5,578
 (5,346) 232
Other 1,449
 (354) 1,095
Total $2,706,512
 $(558,420) $2,148,092

The Company amortizes intangible assets over their expected useful lives, which range between 1 and 15 years. During the nine months ended December 31, 2017, $8.9 million of in-process research and development reached technological feasibility and was reclassified as core and developed technology and began being amortized over its estimated useful life. The following is an expected amortization schedule for the intangible assets for the remainder of fiscal 2018 through fiscal 2022, absent any future acquisitions or impairment charges (amounts in thousands):

Fiscal Year Ending
March 31,
Projected Amortization
Expense
2018$122,252
2019361,682
2020313,484
2021257,430
2022190,429
Amortization expense attributed to intangible assets was $122.6 million and $368.1 million for the three and nine months ended December 31, 2017, respectively. Amortization expense attributed to intangible assets was $85.2 million and $250.6 million for the three and nine months ended December 31, 2016, respectively. In the three and nine months ended December 31, 2017, approximately $1.5 million and $4.9 million of amortization expense, respectively, was charged to cost of sales, and approximately $121.1 million and $363.2 million, respectively, was charged to operating expenses.  In the three and nine months ended December 31, 2016, approximately $0.9 million and $2.8 million of amortization expense, respectively, was charged to cost of sales, and approximately $84.3 million and $247.8 million, respectively, was charged to operating expenses.  The Company recognized an immaterial amount of intangible asset impairment charges in the three and nine months ended December 31, 2017. In connection with its acquisition of Atmel, the Company recognized intangible asset impairment charges of $8.2 million and $10.2 million for the three and nine months ended December 31, 2016, respectively. The impairment losses were recognized as a result of changes in the combined product roadmaps after the acquisition of Atmel that affected the use and life of these assets.


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The following shows the goodwill balance as of December 31, 2017 and March 31, 2017 by segment (amounts in thousands):
 
Semiconductor
Products
Reporting Unit
 
Technology
Licensing
Reporting Unit
Goodwill$2,279,809
 $19,200
At March 31, 2017, 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, 2017, the Company has never recorded an impairment charge against its goodwill balance.

Note 12.Income Taxes

The provision for income taxes reflects tax on foreign earnings and federal and state tax on U.S. earnings.   The Company had an effective tax rate of 227.7% for the three months ended December 31, 2017 and a negative effective tax rate of 28.5% for the three months ended December 31, 2016.  The Company had an effective tax rate of 80.2% for the nine months ended December 31, 2017 and a negative effective tax rate of 87.3% for the nine months ended December 31, 2016. 

On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was enacted into law. The Act provides for numerous significant tax law changes and modifications including the reduction of the U.S. federal corporate income tax rate from 35.0% to 21.0%, the requirement for companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and the creation of new taxes on certain foreign-sourced earnings. As a fiscal year-end taxpayer, certain provisions of the Act began to impact the Company in the third quarter of fiscal 2018, while other provisions will impact the Company beginning in fiscal 2019.

The corporate tax rate reduction is effective as of January 1, 2018. Since the Company has a fiscal year rather than a calendar year, it is subject to rules relating to transitional tax rates. As a result, the Company’s fiscal 2018 federal statutory rate will be a blended rate of 31.5%. The change in the statutory tax rate from 35.0% to 31.5% for the Company's fiscal 2018 does not have a significant impact on the Company's effective tax rate.

Accounting Standards Codification ("ASC") 740, Income Taxes, requires companies to recognize the effect of the tax law changes in the period of enactment. However, the SEC staff issued Staff Accounting Bulletin ("SAB") 118 which allows companies to record provisional amounts during a measurement period that is similar to the measurement period used when accounting for business combinations. The Company has recorded a reasonable estimate when possible and with the understanding that the provisional amount is subject to further adjustments under SAB 118. In addition, for significant items for which the Company could not make a reasonable estimate, no provisional amounts were recorded. Amounts will be recorded during the measurement period allowed under SAB 118 when a reasonable estimate can be made, or when the effect of the Act is known. As of December 31, 2017, the Company made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax. The Company recognized a provisional amount of $443.2 million, which decreased diluted net income per common share by $1.79 for the nine months ended December 31, 2017, and which was included as a component of income tax expense from continuing operations. The Company will continue to refine provisional balances and adjustments may be made under SAB 118 during the measurement period as a result of future changes in interpretation, information available, assumptions made by the Company and/or issuance of additional guidance and these adjustments could be material.

The one-time transition tax is based on the Company's total post-1986 earnings and profits ("E&P") of its foreign subsidiaries. Substantially all of the Company's E&P were permanently reinvested outside the U.S prior to the Act. The Company recorded provisional U.S. amounts for its one-time transition tax liabilities, resulting in an increase in income tax expense of $627.7 million. In addition, the Company released the deferred tax liabilities related to non-permanently reinvested E&P, resulting in a decrease in income tax expense of $5.5 million. The net increase to tax expense is $622.2 million. The one-time transition tax may be elected to be paid over a period of eight years. The Company intends to make this election.

The Company has not yet completed its calculation of the total post-1986 E&P for its foreign subsidiaries. In addition, the one-time transition tax is based in part on the amount of those earnings held in cash and other specified assets either as of the end of fiscal 2018 or the average of the year-end balances for fiscal 2016 and fiscal 2017. The Company's calculation of this amount will change with further analysis, fourth quarter activities, and further guidance from the U.S. federal and state tax authorities about the application of these new rules. The Company will continue to evaluate the impact of the tax law change as it relates to the accounting for the outside basis difference of its foreign entities.

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As a result of the reduction of the corporate income tax rate to 21.0%, U.S. GAAP requires companies to remeasure their deferred tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in the reporting period of enactment. The Company remeasured deferred tax assets and liabilities based on the rates at which they are expected to to be utilized in the future. The provisional amount recorded for the remeasurement and resulting income tax benefit of the Company's deferred tax balance was $142.6 million. The Company's actual income tax benefit may vary materially from the provisional amount because the final analysis will be based on balances as of March 31, 2018.

Due to the Act, the Company released its valuation allowance on foreign tax credits during the three months ended December 31, 2017. The provisional amount recorded for the valuation allowance release was an income tax benefit of $36.4 million. The Company is still evaluating how the Act impacts the valuation allowance on state net operating loss carryforwards and state tax credits, and the Company may report an adjustment to the valuation allowances in accordance with SAB 118 in subsequent quarters.

The Company's effective tax rate for the three and nine months ended December 31, 2017 is higher compared to the prior year primarily due to the one-time transition tax net of the reversal of the related deferred tax liabilities. The Company's effective tax rate is different than statutory rates in the U.S. due primarily to the one-time transition tax net of the reversal of the related deferred tax liabilities, as well as its mix of earnings in foreign jurisdictions with lower tax rates as well as 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 Company does not expect the future expiration of any of its tax holiday periods in Thailand to have a material impact on its effected tax rate. The material components of foreign income taxed at a rate lower than the U.S. are earnings accrued in Thailand and Ireland, and earnings accrued by the Company's offshore technology company which is resident in the Cayman Islands.

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 2005 and later tax years remain effectively 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 recognizes liabilities for anticipated tax audit issues in the U.S. and other domestic and international tax jurisdictions based on its estimate of whether, and the extent to which, additional tax payments are more likely than not.  The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax laws applied to the facts of each matter.
The Company believes it maintains appropriate reserves to offset any potential income tax liabilities that may arise upon final resolution of matters for open tax years.  If such reserve amounts ultimately prove to be unnecessary, the resulting reversal of such reserves would result in tax benefits being recorded in the period the reserves are no longer deemed necessary.  If such amounts prove to be less than an ultimate assessment, a future charge to expense would be recorded in the period in which the assessment is determined.  Although the timing of the resolution or closure of audits is highly uncertain, the Company does not believe it is reasonably possible that the unrecognized tax benefits would materially change in the next 12 months.



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Note 13.Debt and Credit Facility

Debt obligations included in the condensed consolidated balance sheets consistedAccounts receivable consists of the following (in millions):
 June 30,March 31,
20232023
Trade accounts receivable$1,460.3 $1,300.4 
Other13.3 13.5 
Total accounts receivable, gross1,473.6 1,313.9 
Less: allowance for expected credit losses8.6 8.6 
Total accounts receivable, net$1,465.0 $1,305.3 
  Coupon Interest Rate Effective Interest Rate 
Fair Value of Liability Component at Issuance (1)
  
     December 31, 2017 March 31, 2017
Senior Indebtedness          
Credit Facility       $—
 $—
Senior Subordinated Convertible Debt - Principal Outstanding      
2017 Senior Debt, maturing February 15, 2027 (2017 Senior Debt) 1.625% 6.0% $1,396.3 $2,070.0
 $2,070.0
2015 Senior Debt, maturing February 15, 2025 (2015 Senior Debt) 1.625% 5.9% 1,160.1 1,725.0
 1,725.0
Junior Subordinated Convertible Debt - Principal Outstanding      
2017 Junior Debt, maturing February 15, 2037 (2017 Junior Debt) 2.250% 7.4% 321.1 686.3
 575.0
2007 Junior Debt, maturing December 15, 2037 (2007 Junior Debt) 2.125% 9.1% — —
 143.8
Total Convertible Debt       4,481.3
 4,513.8
           
Gross long-term debt including current maturities       4,481.3
 4,513.8
Less: Debt discount (2)
       (1,399.8) (1,516.5)
Less: Debt issuance costs (3)
       (41.9) (46.8)
Net long-term debt including current maturities       3,039.6
 2,950.5
Less: Current maturities (4)
       —
 (50.0)
Net long-term debt       $3,039.6
 $2,900.5
           


(1) As eachThe 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 convertible instruments may be settled inconsolidated statements of cash upon conversion, for accounting purposes, they were bifurcated into a liability component and an equity component, which are both initially recorded at fair value.  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 unamortized discount includes the following (in millions):
 December 31, March 31,
 2017 2017
2017 Senior Debt$(629.3) $(667.5)
2015 Senior Debt(412.1) (446.6)
2017 Junior Debt(358.4) (309.3)
2007 Junior Debt—
 (93.1)
Total unamortized discount$(1,399.8) $(1,516.5)
(3) Debt issuance costs include the following (in millions):

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 December 31, March 31,
 2017 2017
Senior Credit Facility$(6.7) $(8.5)
2017 Senior Debt(16.5) (17.6)
2015 Senior Debt(15.3) (16.6)
2017 Junior Debt(3.4) (3.4)
2007 Junior Debt—
 (0.7)
Total debt issuance costs$(41.9) $(46.8)

(4) Current maturities include the full balance of the 2007 Junior Debt as of March 31, 2017.

Ranking of Indebtedness - The Senior Subordinated Convertible Debt and Junior Subordinated Convertible Debt (collectively, the Convertible Debt) are unsecured obligations which are subordinated in right of payment to the amounts outstandingflows. Total trade accounts receivable sold under the Company's Credit Facility. The Junior Subordinated Convertible Debt is expressly subordinatedfactoring arrangement were $64.9 million and $168.7 million in rightthe three months ended June 30, 2023 and June 30, 2022, respectively. Factoring fees for the sales of payment to any existingreceivables were recorded in other income, net and future senior debt of the Company (including the Credit Facility 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 Credit Facility; ranks senior to the Company's indebtedness that is expressly subordinated in right of payment, including the Junior Subordinated Convertible Debt; ranks equal in right of payment towere not material for any of the Company's unsubordinated indebtedness that does not provide thatperiods presented. After the sale of its trade accounts receivable, the Company will collect payment from the customer and remit it is senior to the Senior Subordinated Convertible Debt; ranks junior in right of payment to any of the Company's secured, unsubordinated indebtedness to the extent of the value of the assets securing such indebtedness; and ranks junior 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. Until the three-months immediately preceding the maturity date of the applicable series of Convertible Debt, each series of Convertible Debt is convertible only upon the occurrence of (1) such time as the closing price of the Company's common stock exceeds the 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 (2) 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 principalthird-party financial institution. The amount of notestrade accounts receivable sold for each trading daywhich cash has not been collected from the customer is immaterial as of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stockJune 30, 2023 and the conversion rate on each such trading day or (3) upon the occurrence of certain corporate events specified in the indenture of such series of Convertible Debt. In addition, for each series, 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:2022.

 Dividend adjusted rates as of December 31, 2017
 Conversion Rate, adjusted Approximate Conversion Price, adjusted Incremental Share Factor, adjusted Maximum Conversion Rate, adjusted
2017 Senior Debt10.0722
 $99.28
 5.0361
 14.3529
2015 Senior Debt15.7069
 $63.67
 7.8534
 21.9896
2017 Junior Debt10.2521
 $97.54
 5.1261
 14.3529
Inventories



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As of December 31, 2017, the holders of the 2015 Senior Debt have the right to convert their debentures between January 1, 2018 and March 31, 2018 because the Company's common stock price has exceeded the Conversion Price by 130% for the specified period of time during the quarter ended December 31, 2017. As of December 31, 2017, the 2015 Senior Debt is convertible and had a value if converted above par of $1,108.8 million.


The Company may not redeem any seriescomponents of Convertible Debt prior to the relevant maturity date and no sinking fund is provided for any seriesinventories consist of Convertible Debt. 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 related to convertible debt includes the following (in millions):
 Three Months Ended
December 31,		 Nine Months Ended December 31,
 2017 2016 2017 2016
Debt issuance amortization$0.9
 $0.5
 $2.7
 $1.3
Amortization of debt discount - non cash interest expense26.7
 12.5
 79.0
 36.9
Coupon interest expense19.3
 10.1
 58.1
 30.3
Total$46.9
 $23.1
 $139.8
 $68.5

The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is 9.13 years, 7.13 years, and 19.13 years for the 2017 Senior Debt, 2015 Senior Debt, and 2017 Junior Debt, respectively.  

Issuances and Settlements - In November 2017, the Company called $14.6 million in principal value of the remaining outstanding 2007 Junior Debt with an effective date of December 15, 2017 for which substantially all holders submitted requests to convert. Prior to the call, conversion requests were received in both the second and third quarters of fiscal 2018. Total conversions for the six months ending December 31, 2017 were for a principal amount of $32.4 million for which the Company settled the principal amount in cash and issued 0.5 million shares of its common stock in respect of the conversion value in excess of the principal amount for the conversions occurring prior to the call notice and $41.0 million in cash for the conversion value in excess of the principal amount for the conversion requests received after the call notice. A loss on total conversions for the six months ended December 31, 2017 was recorded for $2.1 million. The 2007 Junior Debt was classified as a current liability on the consolidated balance sheet as of March 31, 2017.

In June 2017, the Company exchanged in privately negotiated transactions $111.3 million aggregate principal amount of its 2007 Junior Debt for (i) $111.3 million principal amount of 2017 Junior Debt with a market value of $119.3 million plus (ii) the issuance of 3.2 million shares of the Company's common stock with a value of $254.6 million, of which $56.3 million was allocated to the fair value of the liability and $321.1 million was allocated to the reacquisition of the equity component for total consideration of $374.0 million. The transaction resulted in a loss on settlement of the 2007 Junior Debt of approximately $13.8 million, which represented the difference between the fair value of the liability component at time of repurchase and the sum of the carrying values of the debt component and any unamortized debt issuance costs. The debt discount on the new 2017 Junior Debt was the difference between the par value and the fair value of the debt resulting in a debt discount of $55.1 million which will be amortized to interest expense using the effective interest method over the term of the debt.

In February 2017, the Company issued the 2017 Senior Debt and 2017 Junior Debt for net proceeds of $2,043.6 million and $567.7 million, respectively. In connection with the issuance of these instruments, the Company incurred issuance costs of $33.7 million, of which $17.8 million and $3.4 million was recorded as debt issuance costs related to the 2017 Senior Debt and 2017 Junior Debt, respectively, and will be amortized using the effective interest method over the term of the debt. The balance of $12.5 million in fees was recorded to equity.  Interest on both instruments is payable semi-annually on February 15 and August 15 of each year.

In February 2015, the Company issued the 2015 Senior Debt for net proceeds of approximately $1,694.7 million. In connection with the issuance, the Company incurred issuance costs of $30.3 million, of which $20.4 million was recorded as debt issuance costs and will be amortized using the effective interest method over the term of the debt. The balance of $9.9 million was recorded to equity.


 June 30,March 31,
20232023
Raw materials$195.0 $192.6 
Work in process854.7 809.8 
Finished goods286.7 322.5 
Total inventories$1,336.4 $1,324.9 
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Property, Plant and Equipment

Property, plant and equipment consists of the following (in millions):
 June 30,March 31,
20232023
Land$89.3 $89.3 
Building and building improvements720.0 716.4 
Machinery and equipment2,715.4 2,669.1 
Projects in process359.9 354.3 
Total property, plant and equipment, gross3,884.6 3,829.1 
Less: accumulated depreciation and amortization2,698.9 2,651.2 
Total property, plant and equipment, net$1,185.7 $1,177.9 
Depreciation expense attributed to property, plant and equipment was $50.5 million for the three months ended June 30, 2023 compared to $71.7 million for the three months ended June 30, 2022. Depreciation expense in the three months ended June 30, 2022 included the impact of higher production levels, manufacturing expansion activities and moving and repurposing floor space and equipment.

The Company utilizedreviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the proceeds from the issuancesrelated carrying amount of the 2017 Senior Debt, 2017 Junior Debt, and 2015 Senior Debt to reduce amounts borrowed under its Credit Facility and to settle a portion of the 2007 Junior Debt in privately negotiated transactions. In February 2017 and February 2015, the Company settled $431.3 million and $575.0 million, respectively, in aggregate principal of its 2007 Junior Debt. The 2015 repurchase consisted solely of cash. In February 2017, the Company used cash of $431.3 million and an aggregate of 12.0 million in shares of the Company's common stock valued at $862.7 million for total consideration of $1,293.9 million to settle $431.3 million of the 2007 Junior Debt, of which $188.0 million was allocated to the liability component and $1,105.9 million was allocated to the equity component. In addition, in February 2017, there was an inducement fee of $5.0 million which was recorded in the consolidated statements of operations in loss on settlement of convertible debt. The consideration transferred in February 2015 was $1,134.6 million, of which $238.3 million was allocated to the liability component and $896.3 million was allocated to the equity component. In the case of both settlements of the 2007 Junior Debt, the consideration was allocated to the liability and equity components using the equivalent rate that reflected the borrowing rate for a similar non-convertible debt prior to the retirement. The transactions resulted in a loss on settlement of convertible debt of approximately $43.9 million and $50.6 million in fiscal 2017 and fiscal 2015, respectively, which represented, in each case, the difference between the fair value of the liability component at time of repurchase and the sum of the carrying values of the debt component and any unamortized debt issuance costs.

Credit Facility

The Company maintains a credit facility which is available until February 4, 2020 (the "Credit Agreement"). At the beginning of the second quarter of fiscal 2018, the credit facility had a borrowing capacity of $2.774 billion comprised of two tranches; one tranche terminating in 2018 (the "2018 Tranche") and one tranche terminating in 2020 (the "2020 Tranche"). During the second quarter of fiscal 2018, the Company terminated the 2018 Tranche and in connection with such termination increased the commitments for the 2020 Tranche inassets may not be recoverable. For each of the three months ended SeptemberJune 30, 20172023 and December 31, 2017. In November 2017,2022, the Company entered into an augmenting lender supplement which added a new lender to the Credit Agreement with a 2020 multicurrency tranche commitment. AsCompany’s evaluation of December 31, 2017, the 2020 Tranche commitment under the credit facility was $3.122 billion.its property, plant and equipment did not result in any material impairments.


The financial covenants include, among others, limits on the Company's consolidated senior ratio and total leverage ratio. The maximum Total Leverage Ratio (capitalized terms not otherwise defined in this Form 10-Q have the meaningAccrued Liabilities

Accrued liabilities consists of the defined terms in the applicable agreements) cannot exceed 5.00 to 1.00following (in millions):
 June 30,March 31,
20232023
Accrued compensation and benefits$214.9 $193.5 
Income taxes payable200.8 106.2 
Deferred revenue151.9 121.4 
Sales related reserves634.7 536.1 
Current portion of lease liabilities31.7 31.5 
Accrued expenses and other liabilities305.6 334.8 
Total accrued liabilities$1,539.6 $1,323.5 

Note 9. Commitments and is calculated as Consolidated Total Indebtedness, excluding the Junior Debt up to a $700 million maximum, to Consolidated EBIDTA for a period of four quarters. The Total Leverage Ratio may be temporarily increased to 5.50 to 1.00 for a period of four consecutive quarters in conjunction with a Permitted Acquisition occurring during the first four quarters following the acquisition. The Total Leverage Ratio then decreases to 5.25 to 1.00 for three consecutive quarters, finally returning to the stated 5.00 to 1.00 Total Leverage Ratio after a period of seven consecutive fiscal periods. The Company can elect to use this special feature, also referred to as an Adjusted Covenant Period, not more than one time from and after February 8, 2017, the effective date of the February 2017 amendment (discussed below), and may elect to terminate an Adjusted Covenant Period prior to the end of the Adjusted Covenant Period. The Credit Facility also requires that the Senior Leverage Ratio not exceed 3.50 to 1.00, which is calculated as Consolidated Senior Indebtedness to Consolidated EBIDTA for four consecutive quarters. The Company is also required to comply with an Interest Coverage Ratio of less than 3.50 to 1.00, measured quarterly.Contingencies


In June 2017, in connection with the settlement of the 2007 Junior Debt, the Company amended the Credit Agreement to (i) extend the time period during which the Company is permitted to repurchase, redeem or exchange the 2007 Junior Debt and (ii) amend the maximum total leverage ratio covenant to extend the time period for permitted refinancings or exchanges of the 2007 Junior Debt that may be excluded from the calculation of the ratio, subject to certain conditions.Purchase Commitments

The Credit Agreement has a $125 million foreign currency sublimit, a $25 million letter of credit sublimit and a $25 million swingline loan sublimit. The Company has the option to obtain additional tranche commitments or additional indebtedness as long as the Senior Leverage Ratio is equal to or less than 2.50 to 1.00.

In February 2017, the Company used $1,682.5 million of the proceeds from the issuance of the 2017 Senior Debt and 2017 Junior Debt to pay off the entire balance on its line of credit. In connection with the February 2017 amendment to the Credit Agreement, the Company incurred $2.1 million of issuance fees which will be amortized over the term of the facility and for which the balance is recorded net of any outstanding Credit Facility balance. At December 31, 2017 and March 31, 2017, there were no outstanding borrowings under the revolving credit facility.


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 under the Credit Agreement are guaranteed by certain of its subsidiaries meeting materiality thresholds set forth in the Credit Agreement. To securewith the Company's obligations under the Credit Agreement, the Companywafer foundries, and its domestic subsidiaries are required to pledge the equity securities of certain of their respective materialmanufacturing supply capacity reservation commitments.


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subsidiaries, subject to certain exceptions and limitations. In addition, in connection with the February 2017 amendment, the Company and the guarantor subsidiaries granted a security interest in substantially allTotal purchase commitments as of their personal property to secure the obligations under the Credit Agreement.

The loans under the Credit Agreement bear interest, at the Company's option, at the base rate plus a spread of 0.25% to 1.25% or an adjusted LIBOR rate (based on one, two, three, or six-month interest periods) plus a spread of 1.25% to 2.25%, in each case with such spread being determined based on the consolidated leverage ratio for the preceding four fiscal quarters (in the case of the 2018 tranche revolving loans) or the consolidated senior leverage ratio (in the case of the 2020 tranche revolving loans). The base rate means the highest of JPMorgan Chase Bank, N.A.'s prime rate, the federal funds rate plus a margin equal to 0.50% and the adjusted LIBOR rate for a 1-month interest period plus a margin equal to 1.00%. Swingline loans accrue interest at a per annum rate based on the base rate plus the applicable margin for base rate loans. Base rate loans may only be made in U.S. Dollars. The Company is also obligated to pay other customary administration fees and letter of credit fees for a credit facility of this size and type.

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 LIBOR rate. Interest expense related to the credit agreement was approximately $2.3 million and $7.3 million in the three and nine months ended December 31, 2017, respectively, compared to $11.9 million and $35.5 million for the three and nine months ended December 31, 2016, respectively. Principal, together with all accrued and unpaid interest, is due and payable on the tranche maturity date, which is February 4, 2020. The Company pays a quarterly commitment fee on the available but unused portion of its line of credit which is calculated on the average daily available balance during the period. The Company may prepay the loans and terminate the commitments, in whole or in part, at any time without premium or penalty, subject to certain conditions including minimum amounts in the case of commitment reductions and reimbursement of certain costs in the case of prepayments of LIBOR loans.

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 assets, make investments, make acquisitions, enter into certain transactions with affiliates, pay dividends or make distributions, repurchase stock, enter into restrictive agreements and enter into sale and leaseback transactions, 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 senior leverage ratio, a total leverage ratio and an interest coverage ratio, all measured quarterly and calculated on a consolidated bases. At December 31, 2017, the Company was in compliance with these covenants.

The Credit Agreement includes customary events of default that include, among other things, non-payment defaults, inaccuracy of representations and warranties, covenant defaults, cross default to material indebtedness, bankruptcy and insolvency defaults, material judgment defaults, ERISA defaults and a change of control default. The occurrence of an event of default could result in the acceleration of the obligations under the Credit Agreement. Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default under the Credit Agreement at a per annum rate equal to 2.00% above the applicable interest rate for any overdue principal and 2.00% above the rate applicable for base rate loans for any other overdue amounts.

Note 14.     Pension Plans

In connection with its acquisition of Atmel, the Company assumed unfunded defined benefit pension plans that cover certain French and German employees. Plan benefits are provided in accordance with local statutory requirements. Benefits are based on years of service and employee compensation levels. Pension liabilities and charges are based upon various assumptions, updated annually, including discount rates, future salary increases, employee turnover, and mortality rates. The Company's French pension plan provides for termination benefits paid to covered French employees only at retirement, and consists of approximately one to five months of salary. The Company's German pension plan provides for defined benefit payouts for covered German employees following retirement.


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The aggregate net pension expense relating to these two plansJune 30, 2023, are as follows (amounts(in millions):
Fiscal Year Ending March 31,Purchase Commitments
2024$724.0 
2025201.6 
2026217.4 
2027195.6 
2028171.0 
Thereafter196.3 
Total$1,705.9 

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 $187.0 million. There are some licensing agreements in thousands):

 Three Months Ended Nine Months Ended
 December 31, December 31,
 2017 2016 2017 2016
Service costs$390
 $327
 $1,131
 $1,054
Interest costs253
 214
 742
 698
Amortization of actuarial loss214
 —
 630
 —
Settlements and curtailments—
 354
 (36) 585
Net pension period cost$857
 $895
 $2,467
 $2,337
Interest costsplace that do not specify indemnification limits. As of June 30, 2023, the Company had not recorded any liabilities related to these indemnification obligations and amortization of actuarial losses are recordedthe Company believes that any amounts that it may be required to pay under these agreements in the other income, net line item in the statementsfuture will not have a material adverse effect on its financial position, cash flows or results of operations. The Company's net periodic pension cost for fiscal 2018 is expected to be approximately $3.3 million. Cash funding for benefits paid was $0.3 million

Warranty Costs and $0.6 million for the three and nine months ended December 31, 2017, respectively, and $0.1 million and $0.3 million for the three and nine months ended December 31, 2016, respectively. Product Liabilities

The Company expects total contributions toaccrues 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 plans to be approximately $0.7 million in fiscal 2018.claims will have a material adverse effect on its financial condition, results of operations or liquidity.


Legal Matters
Note 15.Contingencies


In the ordinary course of the Company's business, it is exposed to various liabilitieslegal actions as a result of contracts, product liability, customer claims, pricing or royalty disputes with customers and licensees, governmental investigations and other matters. Additionally, theThe Company is involved in a limited number of these legal actions, both as plaintiff and defendant.defendant, with respect to the foregoing types of matters. Consequently, the Company could incur uninsured liability in any of thosethese 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 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 matter:

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. 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 in both cases. The parties entered an agreement to settle the Reid and Dutrisac actions. On March 29, 2023, the court granted preliminary approval of the settlement. The terms of the settlement include corporate government enhancements, payment of $4.0 million to the Company from the Company's directors and officers insurance carrier (a portion of which plaintiffs sought as attorney fees), and a payment of $1.8 million in
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plaintiff attorneys' fees by the Company. In June 2023, the court granted final approval of the settlement and the cases are now concluded.

As a result of its acquisition of Atmel, which closed April 4, 2016, the Company became involved with the following legal matters:matter:
In re: Continental Airbag Products Liability Litigation. On May 11, 2016, an Amended and Consolidated Class Action Complaint ("Complaint") was filed in the United States District Court for the Southern District of Florida (Miami Division) against Atmel, Continental Automotive Systems, Inc., Honda Motor Co., Ltd. and an affiliate, and Daimler AG and an affiliate. The Complaint included claims arising under federal law and Florida, California, New Jersey, Michigan and Louisiana state law and alleged that class members unknowingly purchased or leased vehicles containing defective airbag control units (incorporating allegedly defective application specific integrated circuits manufactured by the Company's Atmel subsidiary between 2006 and 2010), and thereby suffered financial harm, including a loss in the value of their purchased or leased vehicles. The plaintiffs were seeking, individually and on behalf of a putative class, unspecified compensatory and exemplary damages, statutory penalties, pre- and post-judgment interest, attorneys' fees, and injunctive and other relief. The Company's Atmel subsidiary contested plaintiffs' claims vigorously, and on May 23, 2017 the case was ordered to be dismissed.
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").  The Continental airbag control units, ASICs and vehicle recalls were also at issue in In re: Continental Airbag Products Liability Litigation, described above.  Continental seeks to recover from Atmel all related costs and damages incurred as a result of the vehicle manufacturers’ airbag control unit-related recalls, currently alleged to be $69.7 million (but subject to increase). 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

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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, LFRbecame insolvent and later liquidated. In the wake of LFR's insolvency and liquidation, over 500 former employees of LFR have filed individual labor actions against Atmel Rousset in a French labor court. The Company'scourt, and in 2019 a French labor court dismissed all of the employees’ claims against Atmel Rousset. In 2020, the Plaintiffs filed appeals with the Court of Appeals requesting reconsideration of the earlier dismissals. In December 2022, the Court of Appeals dismissed these appeals and held that there had been no co-employment of the plaintiffs by Atmel Rousset subsidiary believesand LFoundry Rousset. However, in 2017 these same claims were 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 the Atmel Rousset subsidiaryany of these entities is based substantially on the same specious arguments that the Paris Commercial Court summarily rejected in 2014 in related proceedings. The Company's Atmel Rousset subsidiary defendant entitiestherefore intendsintend 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 LFoundry GmbHLF was fraudulent and should be voided. These claims are based largely onspecious and the same specious arguments as listed in the Southern District of New York Action listed above. 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, 2017,June 30, 2023, the Company's estimate of the aggregate potential liability for legal matters that is possible but not probable is approximately $100$150.0 million in excess of amounts accrued.
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 $159.0 million. There are some licensing agreements in place that do not specify indemnification limits.  As of December 31, 2017, 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.

Note 16.Derivative Instruments
Note 10. Income Taxes
Freestanding Derivative Forward Contracts


The Company has international operationsaccounts 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 used for interim periods is thus subjectbased on an estimated annual effective tax rate including the tax effect of items required to foreign currency rate fluctuations.  Approximately 99%be recorded discretely in the interim periods in which those items occur. A comparison of the Company's sales are U.S. Dollar denominated. However, a significant amount of the Company's expenses and liabilities are denominated in foreign currencies and subject to foreign currency rate fluctuations.  To help manage the risk of changes in foreign currencyCompany’s effective tax rates the Company periodically enters into derivative contracts comprised of foreign currency forward contracts to hedge its asset and liability foreign currency exposure and a portion of its foreign currency operating expenses.  Foreign exchange rate fluctuations after the effects of hedging activity resulted in net losses of $2.4 million for the three months ended December 31, 2017June 30, 2023 and net gainsJune 30, 2022 is not meaningful due to the amount of $7.1 millionpre-tax income, and income tax expense recorded during the nine months ended December 31, 2017, comparedprior period.

The Company's effective tax rate is different than the statutory rates in the U.S. due to net gainsforeign income taxed at different rates than the U.S., changes in uncertain tax benefit positions, changes to valuation allowances, generation of $1.3 million fortax credits, and the three months ended December 31, 2016 and net lossesimpact of $0.8 million duringGlobal Intangible Low Tax Income (GILTI) in the nine months ended December 31, 2016.  As of December 31, 2017 and March 31, 2017,U.S. In addition, the Company had nohas 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 currency forward contracts outstanding. income taxed at a rate lower than the U.S. are earnings accrued in Thailand, Malta, and Ireland.

The Company recognized net realized gains on foreign currency forward contracts of $0.3 million and $3.5 million in the three and nine months ended December 31, 2017, respectively. The Company recognized net realized losses on foreign currency forward contracts of $3.1 million in each of the three and nine months ended December 31, 2016. Gains and losses from changes in the fair value of these foreign currency forward contractsfiles U.S. federal, U.S. state, and foreign currency exchange rate fluctuations are credited or chargedincome 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 other income (expense). The Company does not apply hedge accountingtax examinations for years prior to its foreign currency derivative instruments.fiscal 2007.


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Commodity Price Risk

The Company is exposed to fluctuations in prices for energy that it consumes, particularly electricity and natural gas. The Company also enters into variable-priced contracts for some purchases of electricity and natural gas, on an index basis. The Company seeks, or may seek, to partially mitigate these exposures through fixed-price contracts. These contracts meet the characteristics of derivative instruments, but generally qualify for the “normal purchases or normal sales” exception under authoritative guidance and require no mark-to-market adjustment.

Note 17.Comprehensive (Loss) Income

The following table presents the changes in the components of accumulated other comprehensive (loss) income (AOCI), net of tax, for the nine months ended December 31, 2017 (amounts in thousands):
 
Unrealized
holding gains (losses)
available-for-sale securities
 Defined benefit pension plans 
Foreign
Currency
 Total
Accumulated other comprehensive income (loss) at March 31, 2017$312
 $(5,263) $(9,427) $(14,378)
Other comprehensive loss before reclassifications(6,161) (2,284) —
 (8,445)
Amounts reclassified from accumulated other comprehensive loss—
 630
 —
 630
Net other comprehensive loss(6,161) (1,654) —
 (7,815)
Accumulated other comprehensive loss at December 31, 2017$(5,849) $(6,917) $(9,427) $(22,193)

The table below details where reclassifications of realized transactions out of AOCI are recorded on the condensed consolidated statements of operations (amounts in thousands):
  Three Months Ended Nine Months Ended  
  December 31, December 31,  
Description of AOCI Component 2017 2016 2017 2016 
Related Statement
 of Income Line
Unrealized losses on available-for-sale securities $—
 $(1,433) $—
 $(1,522) Other income (loss)
Amortization of actuarial loss (214) —
 (630) —
 Other income (loss)
Reclassification of realized transactions, net of taxes $(214) $(1,433) $(630) $(1,522) Net income

Note 18.Share-Based Compensation
Note 11. Share-Based Compensation
 
The following table presents the details of the Company's share-based compensation expense (amounts in thousands)(in millions):
Three Months Ended June 30,
20232022
Cost of sales(1)
$6.8 $7.7 
Research and development22.9 20.1 
Selling, general and administrative14.8 13.4 
Pre-tax effect of share-based compensation44.5 41.2 
Income tax benefit9.4 8.8 
Net income effect of share-based compensation$35.1 $32.4 
 Three Months Ended Nine Months Ended
 December 31, December 31,
 2017 2016 2017 2016
Cost of sales (1)
$3,494
 $3,468
 $10,587
 $15,465
Research and development10,921
 9,881
 31,797
 37,569
Selling, general and administrative9,588
 8,771
 27,637
 53,055
Pre-tax effect of share-based compensation24,003
 22,120
 70,021
 106,089
Income tax benefit (2)
6,604
 7,376
 21,878
 36,622
Net income effect of share-based compensation$17,399
 $14,744
 $48,143
 $69,467

(1)During the three and nine months ended December 31, 2017, $3.1June 30, 2023, $5.2 million and $8.9 million, respectively, of share-based compensation expense was capitalized to inventory and $3.5$6.8 million and $10.6 million, respectively, of previously capitalized

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share-based compensation expense in inventory was sold. During the three and nine months ended December 31, 2016, $2.8June 30, 2022, $4.8 million and $8.3 million, respectively, of share-based compensation expense was capitalized to inventory. The amount of share-based compensation included in cost of sales during the three months ended December 31, 2016 included $3.5inventory and $7.7 million of previously capitalized share-based compensation expense in inventory that was sold. The amount of share-based compensation included in cost of sales during the nine months ended December 31, 2016 included $11.3 million of previously capitalized share-based compensation expense in inventory that was sold and $4.2 million of share-based compensation expense related to

Note 12. Stock Repurchase Activity

In November 2021, the Company's acquisitionBoard of Atmel that was not previously capitalizedDirectors approved a new stock repurchase program to inventory.

(2) Amounts exclude excess tax benefits relatedrepurchase up to share-based compensation of $5.7 million and $19.8 million, respectively, for the three and nine months ended December 31, 2017 and $6.1 million and $18.6 million, respectively, for the three and nine months ended December 31, 2016.

Atmel Acquisition-related Equity Awards

During the three months ended December 31, 2016, the Company recognized $3.9 million of share-based compensation expense in connection with the acquisition of Atmel. During the nine months ended December 31, 2016, the Company recognized $53.3 million of share-based compensation expense in connection with awards assumed in the acquisition of Atmel, of which $38.8 million was due to the accelerated vesting of outstanding equity awards upon termination of certain Atmel employees.

Note 19.Net (Loss) Income Per Common Share From Continuing Operations
The following table sets forth the computation of basic and diluted net (loss) income per common share from continuing operations (in thousands, except per share amounts):
 Three Months Ended Nine Months Ended
 December 31, December 31,
 2017 2016 2017 2016
Net (loss) income from continuing operations$(251,086) $107,335
 $108,657
 $33,684
Weighted average common shares outstanding234,106
 216,210
 232,278
 215,360
Dilutive effect of stock options and RSUs—
 4,330
 4,460
 4,317
Dilutive effect of 2007 Junior debt—
 14,884
 1,735
 13,674
Dilutive effect of 2015 Senior debt—
 —
 9,551
 —
Dilutive effect of 2017 Senior debt—
 —
 —
 —
Dilutive effect of 2017 Junior debt—
 —
 —
 —
Weighted average common and potential common shares outstanding234,106
 235,424
 248,024
 233,351
Basic net (loss) income per common share from continuing operations$(1.07) $0.50
 $0.47
 $0.16
Diluted net (loss) income per common share from continuing operations$(1.07) $0.46
 $0.44
 $0.14

The Company computed basic net (loss) income per common share from continuing operations using net (loss) income from continuing operations and the weighted average number of common shares outstanding during the period. The Company computed diluted net (loss) income per common share from continuing operations using net (loss) income from continuing operations and 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.  For the three months ended December 31, 2017, the calculation of diluted net loss per common share excluded 4,400,046 common shares from employee equity incentive plans as the related impact would have been anti-dilutive as the Company generated a net loss. There were no anti-dilutive option shares for the nine months ended December 31, 2017, and the three and nine months ended December 31, 2016.


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For the three months ended December 31, 2017, the calculation of diluted net loss per common share excluded 398,430 shares and 11,920,246 shares issuable upon the exchange of the Company's 2007 Junior Debt, and the Company's 2015 Senior Debt, respectively, as the related impact would have been anti-dilutive as the Company generated a net loss. Diluted net income per common share from continuing operations for the nine months ended December 31, 2017, includes 1,734,984 shares and 9,551,342 shares issuable upon the exchange of the Company's 2007 Junior Debt, and the Company's 2015 Senior Debt, respectively. The Company's 2007 Junior Debt was fully settled as of December 31, 2017. Diluted net income per common share from continuing operations for the three and nine months ended December 31, 2016 included 14,883,643 shares and 13,673,578 shares issuable upon the exchange of the Company's 2007 Junior Debt, respectively (see Note 13 for details on the convertible debt).  The convertible debt has no impact on diluted net income per common share unless the average price$4.00 billion of the Company's common stock exceeds the conversion price because the principal amount of the debentures will be settled 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 13 for details on the convertible debt):

 Three Months Ended Nine Months Ended
 December 31, December 31,
 2017 2016 2017 2016
2007 Junior Debt$23.49
 $23.93
 $23.59
 $24.08
2015 Senior Debt$63.80
 $65.00
 $64.07
 $65.40
2017 Senior Debt$99.50
 $—
 $99.92
 $—
2017 Junior Debt$97.75
 $—
 $98.16
 $—
Note 20. Stock Repurchase

The Company's Board of Directors previously approved a share repurchase program under which up to 15.0 million shares of common stock may be repurchased in the open market or in privately negotiated transactions. There were no repurchases of common stock during the three and nine months ended December 31, 2017.  There is no expiration date associated with thisthe repurchase program. During the three months ended June 30, 2023, the Company purchased approximately 1.8 million shares of its common stock for a total cost of $141.2 million including the 1% excise tax on stock repurchases enacted by the Inflation Reduction Act of 2022 (Inflation Reduction Act). As of December 31, 2017,June 30, 2023, approximately $2.49 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, 2023, the Company heldhad approximately 18.933.5 million shares as treasury shares.


Note 21.Dividends

Note 13. 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 LiabilityForeign CurrencyTotal
Balance at March 31, 2023$11.0 $(15.1)$(4.1)
Net other comprehensive loss(0.3)— (0.3)
Balance at June 30, 2023$10.7 $(15.1)$(4.4)

Note 14. Dividends

A quarterly cash dividend of $0.3625$0.383 per share was paid on DecemberJune 5, 20172023 in the aggregate amount of $84.9 million.  Through the first nine months of fiscal 2018, cash dividends of $1.0860 per share have been paid in the aggregate amount of $252.4$208.9 million.  A quarterly cash dividend of $0.3630$0.410 per share was declared on February 6, 2018August 3, 2023 and will be paid on March 6, 2018September 5, 2023 to stockholders of record as of February 21, 2018.August 22, 2023. The Company expects the March 6, 2018September 2023 payment of its quarterly cash dividend to be approximately $85.2$223.0 million.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Note Regarding Forward-looking Statements

This report, including "Part I – Item 22. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II - Item 1A1A. Risk Factors" contains certain forward-looking statements that involve risks and uncertainties, including statements regarding our strategy, financial performance and revenue sources.  We use words such as "anticipate," "believe," "plan,"can," "continue," "could," "expect," "future," "continue,"intend," "intend""plan," and similar expressions to identify forward-looking statements.  Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors including those set forth under "Risk Factors," beginning at page 51 34and elsewhere in this Form 10-Q.  10-Q.  Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  You should not place undue reliance on these forward-looking statements.  We disclaim any obligation to update information contained in any forward-looking statement.  These forward-looking statements include, without limitation, statements regarding the following:
•The future impact on our business in response to the COVID-19 pandemic or other public health concerns;
•Our expectation that we will experience period-to-period fluctuations in operating results, gross margins, product mix and average gross profit per unit;
•The effects that adverseuncertain global economic conditions and fluctuations in the global credit and equity markets may have on our financial condition and results of operations;
•The effects and amount of competitive pricing pressure on our product lines and modest pricing declines in certain of our more mature proprietary product lines;
•Our ability to moderate future average selling price declines;
The effect of product mix, capacity utilization, yields, fixed cost absorption, competition and economic conditions on gross margin;
•The amount of, and changes in, demand for our products and those of our customers;
•The impact of national security protections, trade restrictions and changes in tariffs, including those impacting China;
•Our expectation that in the future we will acquire additional businesses that we believe will complementintent to vigorously defend our existing businesses;legal positions;
•Our expectation that in the future we will enter into joint development agreements or other business or strategic relationshipsgoal to continue to be more efficient with other companies;our selling, general and administrative expenses;
The level of orders that will be received and shipped within a quarter;
Our expectation that our days of inventory levels will increase modestly in the March 2018 quarter. Our belief that our existing level of inventory will allow us to maintain competitive lead times and provide strong delivery performance to our customers;
The effect that distributor and customer inventory holding patterns will have on us;
•Our belief that customers recognize our products and brand name and our use of distributors as an effective supply channel;
Anticipating increased customer requirements to meet voluntary criteria related to the reduction or elimination of substances in our products;
•Our belief that deferred costfamiliarity with and adoption of sales are recorded at their approximate carrying valuedevelopment tools from us and from our third-party development tool partners will have low risk of material impairment;
Our belief that our direct sales personnel combined with our distributors providebe an effective means of reaching our customer base;
Our ability to increaseimportant factor in the proprietary portionfuture selection of our embedded control products;
•The accuracy of our estimates of the useful life and values of our property, assets and other liabilities;
•Fluctuations in our analog and interface product lines and the effect of such an increase;line;
Our belief that our processes afford us both cost-effective designs in existing and derivative products and greater functionality in new product designs;
•The impact of any supply disruption we may experience;
•Our ability to effectively utilize our facilities at appropriate capacity levels and anticipated costs;levels;
That we adjust capacity utilization to respond to actual and anticipated business and industry-related conditions;
That our existing facilities will provide sufficient capacity to respond to increases in demand with modest incremental capital expenditures;
That manufacturing costs will be reduced by transition to advanced process technologies;
•Our ability to maintain manufacturing yields;
Continuing•The maintenance of our competitive position based on our investments in new and enhanced products;
•The cost effectiveness of using our own assembly and test operations;
•Our plans to continue to transition certain outsourced assembly and test capacity to our internal facilities;
•Our expectations regarding investments in our manufacturing capacity;
•The continued development of the embedded control market based on our strong technical service presence;
•Our anticipated level of capital expenditures;
Continuation•The possibility that loss of, or disruption in the operations of, one or more of our distributors could reduce our future net sales and/or increase our inventory returns;
•Our expectations regarding LTSAs and Preferred Supply Program;
•The continuation and amount of quarterly cash dividends;
That the Atmel acquisition was structured in a manner that enabled us to utilize a substantial portion of the cash, cash equivalents, short-term investments and long-term investments held by certain of our foreign subsidiaries in a tax efficient manner and that our determinations with respect to the tax consequences of the acquisition are reasonable;

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•The sufficiency of our existing sources of liquidity to finance anticipated capital expenditures and otherwise meet our anticipated cash requirements, and the effects that our contractual obligations are expected to have on them;
That our U.S. operations and•Our belief that the capital requirements are funded primarily by cash generated from U.S. operating activities, which has been and is expectedexpenditures to be incurred over the next 12 months will provide sufficient manufacturing capacity to meetsupport the growth of our production capabilities for our new products and technologies and to bring in-house more of the production requirements that are currently outsourced;
•Our belief that our IT system compromise has not had a material adverse effect on our business needsor resulted in any material damage to us;
•Our expectation that we will continue to be the U.S. fortarget of cyber-attacks, computer viruses, unauthorized access and other attempts to breach or otherwise compromise the foreseeable future;security of our IT systems and data;
•The impact of seasonality on our business;
The accuracy of our estimates used in valuing employee equity awards;
That the resolution of legal actions will not have a material effect on our business, and the accuracy of our assessment of the probability of loss and range of potential loss;
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•The recoverabilityamounts and timing, and our plans and expectations relating to the Statutory Notice of Deficiency and proposed income adjustment from the Malaysian Inland Revenue Board;
•Our expectation regarding the treatment of our deferredunrecognized tax assets;benefits in calendar year 2023;
The adequacy of our tax reserves to offset any potential tax liabilities, having the appropriate support for our income tax positions and the accuracy of our estimated tax rate;
That we intend to pay the one-time transition tax over a period of eight years;
Our belief that our determinations with respect to the tax consequences of the Atmel acquisition are reasonable;
•Our belief that the expiration of any tax holidays will not have a material impact on our overalleffective tax rate;
•Our expectations regarding our tax expense, orcash taxes and effective tax rate;
•Our belief that the estimates used in preparing our condensed consolidated financial statements are reasonable;
•Our actions to vigorously and aggressively defend and protect our intellectual property on a worldwide basis;
•Our ability to obtain and maintain patents and intellectual property licenses and minimize the effects of litigation;litigation or other disputes or the loss of patent protection;
•The level of risk we are exposed to for product liability claims or indemnification claims;
•The effect of fluctuations in market interest rates on our income and/or cash flows;
•The effect of fluctuations in currency rates;
That•The impact of inflation on our offshore earnings are consideredbusiness;
•Our ability to be permanently reinvested offshore and that we could determineincrease our borrowings or seek additional equity or debt financing to repatriate some ofmaintain or expand our offshore earnings in future periodsfacilities, or to fund stockholdercash dividends, share repurchases, acquisitions or other corporate activities;
That a significant portion of our future cash generation will be in our foreign subsidiaries;
Our intention to satisfyactivities, and that the lesser of the principaltiming and amount or the conversion value of our debentures in cash;
Changes to the taxation of undistributed foreign earnings could change our future intentions regarding reinvestment of such earnings;financing requirements will depend on a number of factors;
•Our intent to maintain a high-quality investment portfolioexpectations regarding the amounts and timing of repurchases under our stock repurchase program;
•Our expectation that preserves principal, meets liquidity needs, avoids inappropriate concentrations and delivers an appropriate yield; andour reliance on third-party contractors may increase over time as our business grows;
•Our ability to collect accounts receivable.receivable;

•The impact of the legislative and policy changes implemented or which may be implemented by the current administration, on our business and the trading price of our stock;
•Our belief that our culture, values, and organizational development and training programs provide an inclusive work environment where our employees are empowered and engaged to deliver the best embedded control solutions;
•Our belief that our continued success is driven by the skills, knowledge, and innovative capabilities of our personnel, a strong technical service presence, and our ability to rapidly commercialize new and enhanced products;
•The potential impact of changes in regulations or in their enforcement, including with respect to the capital expenditures or other costs or expenses;
•The impact of any failure by use to adequately control the storage, use, discharge and disposal of regulated substances;
•Estimates and plans regarding pension liability and payments expected to be made for benefits earned; and
•The impact on our business stemming from Russia’s invasion of Ukraine.

Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors including those set forth in "Item 1A. Risk Factors," and elsewhere in this Form 10-Q.  Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  You should not place undue reliance on these forward-looking statements.  We disclaim any obligation to update the information contained in any forward-looking statement.

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Introduction

The following discussion should be read in conjunction with the condensed consolidated financial statements and the related notes that appear elsewhere in this document.

We begin our Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) with a summary of business and macroeconomic developments followed by a summary of our overall business strategy to give the readerprovide an overview of the goals of our business and the overall direction of our business and products.business. This is followed by a discussion of the Critical Accounting Policies and Estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. We then discuss our Results of Operations for the three and nine months ended December 31, 2017June 30, 2023 compared to the three and nine months ended December 31, 2016.  We then provideJune 30, 2022, followed by an analysis of changes in our balance sheet and cash flows, and discuss our financial commitments in sectionsthe section titled "Liquidity and Capital Resources,Resources." "Contractual Obligations"

Business and "Off-Balance Sheet Arrangements." Macroeconomic Environment


While strong customer demand for our products outpaced capacity in fiscal 2023, many of our customers felt the effects of slowing economic activity, increasing business uncertainty, persistent inflation and higher interest rates in the March 2023 quarter which continued in the June 2023 quarter. Starting in early June 2023, we experienced unfavorable business conditions in our distribution channels in the China market, and we began to see signs of weakness and uncertainty in the automotive and industrial markets and economic weakness in Europe. As a result, customer requests to push out or cancel backlog increased in the first quarter of fiscal 2024 and we expect such requests to continue through calendar 2023. Consistent with the slowing macroeconomic environment, we have paused most of our factory expansion activity and reduced our planned capital investments through fiscal 2025.

In order to provide prioritized capacity to our customers, we launched our Preferred Supply Program in February 2021, which provides our customers with prioritized capacity beginning six months after the customer places an order for 12 months of continuous, non-cancellable and non-reschedulable backlog. Although orders under our original program cannot be cancelled or rescheduled by the customer, in recent periods, we have accommodated requests by customers to push-out certain orders to help them manage inventory levels and, in some cases, to help other customers that are experiencing supply shortages. In response to industry capacity conditions improving and our product lead times reducing, we modified our Preferred Supply Program in August 2023 to allow customers to place orders for six months of continuous backlog rather than 12 months in the original program. Preferred Supply Program orders placed during or after August 2023 can be cancelled or rescheduled if our planned delivery date is greater than six months from the request date. Since the March 2022 quarter, we have been entering into long-term supply agreements (LTSAs) with certain of our customers for products that will be shipped in future periods. We also entered into certain LTSAs with key suppliers.

Strategy
 
Our goal is to be a worldwide leader in providing specialized semiconductor productsWe develop, manufacture and sell smart, connected and secure embedded control solutions used by our customers for a wide variety of embedded control applications. Our strategic focus is on embedded control solutions, includingincludes general purpose and specialized 8-bit, 16-bit, and 32-bit mixed-signal microcontrollers, development toolsmicroprocessors, analog, FPGA, and related software, analog, interface, mixed signal and timing products, wired and wireless connectivity products, memory products andproducts. With over 30 years of technology licensing. We provide highly cost-effective embedded control solutions that also offer the advantages of small size, high performance, extreme low power usage, wide voltage range operation, mixed signal integration and ease of development, thus enabling timely and cost-effective integration ofleadership, our solutions bybroad product portfolio is a Total System Solution (TSS) for our customers that can provide a large portion of the silicon requirements in their applications. TSS is a combination of hardware, software and services which help our customers increase their revenue, reduce their costs and manage their risks compared to other solutions. Our synergistic product portfolio empowers disruptive growth trends, including 5G, data centers, sustainability, Internet of Things (IoT) and edge computing, advanced driver assist systems (ADAS) and autonomous driving, and electric vehicles, in key end products.  We license our SuperFlash technologymarkets such as automotive, aerospace and other technologies to wafer foundries, integrated device manufacturersdefense, communications, consumer appliances, data centers and design partners throughout the world for use in the manufacture of advanced microcontroller products, gate array, radio frequency (RF) and analog products that require embedded non-volatile memory.
We sell our products to a broad base of domestic and international customers across a variety of industries.  The principal markets that we serve include consumer, automotive, industrial, office communication, computing, and aerospace.  Our business is subject to fluctuations based on economic conditions within these markets. industrial.

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Our manufacturing operations include wafer fabrication, wafer probe, and assembly and test.  In fiscal 2023 we announced our intent to expand our production capacity in the U.S. In particular, we have continued our multi-year $800 million capacity expansion plan at Fab 4 in Gresham, Oregon and we plan to invest $880 million to expand our silicon carbide (SiC) and silicon production capacity, including the production of 8-inch wafers at Fab 5 in Colorado Springs, Colorado. The ownership of a substantial portion of our manufacturing resources is an important component of our business strategy, enabling us to maintain a high level of manufacturing control, resulting in us being one of the lowest cost producers in the embedded control industry.  By owning wafer fabrication facilities and our assembly and test operations, and by employing statistical techniques (statistical process control, techniques,designed experiments and wafer level monitoring), we have been able to achieve and maintain high production yields.  Direct control over manufacturing resources allows us to shorten our design and production cycles.  This control also allows us to capture a portion of the wafer manufacturing and the assembly and testtesting profit margin. We do outsource a significant portion of our manufacturing requirements to third parties.parties and the amount of our outsourced

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manufacturing has increased in recent years due to our acquisitions of Microsemi and other companies that outsourced all or substantial portions of their manufacturing.

We employ proprietary design and manufacturing processes in developing our embedded control products.  We believe our processes afford us both cost-effective designs in existing and derivative products and greater functionality in new product designs.  While many of our competitors develop and optimize separate processes for their logic and memory product lines, we use a common process technology for both mixed-signal microcontroller and non-volatile memory products.  This allows us to more fully leverage our process research and development costs and to deliver new products to market more rapidly.  Our engineers utilize advanced computer-aided design (CAD) tools and software to perform circuit design, simulation and layout, and our in-house photomask and wafer fabrication facilities enable us to rapidly verify design techniques by processing test wafers quickly and efficiently.


We are committed to continuing our investment in new and enhanced products, including development systems, and in our design and manufacturing process technologies.  We believe these investments are significant factors in maintaining our competitive position.  Our current research and development activities focus on the design of new mixed-signal microcontrollers, digital signal controllers, memory, analog and mixed-signal products, FPGAs, timing systems, Flash-IP, systems, development systems, software and application-specific software libraries.  We are also developing new design and process technologies to achieve further cost reductions and performance improvements in our products.

We market and sell our products worldwide primarily through a network of direct sales personnel and distributors. Our distributors focus primarily on servicing the product and technical support requirements of a broad base of diverse customers.  We believe that our direct sales personnel combined with our distributors provide an effective means of reaching this broad and diverse customer base.  Our direct sales force focuses primarily on majora wide variety of strategic accounts in three geographical markets: the Americas, Europe and Asia.  We currently maintain sales and technical support centers in major metropolitan areas in North America, Europe and Asia.all three geographic markets. We believe that a strong technical service presence is essential to the continued development of the embedded control market.  Many of our client engagement managers (CEMs), embedded system engineers (ESEs),CEMs, ESEs, and sales management personnelmanagers have technical degrees or backgrounds and have been previously employed in an engineering environment.high technology environments.  We believe that the technical and business knowledge of our sales force is a key competitive advantage in the sale of our products.  The primary mission of our ESE team is to provide technical assistance to strategic accountscustomers and to conduct periodic training sessions for CEMs and distributorour sales teams.team.  ESEs also frequently conduct technical seminars for our customersand workshops in major cities around the world or through online webcasts. Our licensing division has dedicated sales, technology, design, product, test and work closely withreliability personnel that support the requirements of our distributors to provide technical assistance and end-user support.licensees.

See "Ourthe risk factor captioned "Our operating results are impacted by both seasonality and the wide fluctuationfluctuations of supply and demand in the semiconductor industry" on page 5541 for discussion of the impact of seasonality on our business.

Critical Accounting Policies and Estimates
 
General
Our discussion and analysis ofThere were no changes to our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S.  We review the accounting policies we use in reporting our financial results on a regular basis.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent liabilities.  On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, business combinations, share-based compensation, inventories, income taxes, senior and junior subordinated convertible debt and contingencies.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.  Our results may

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differ from these estimates due to actual outcomes being different from those on which we based our assumptions.  We review these estimates and judgments on an ongoing basis.  We believe the following critical accounting policies affect our more significant judgments and estimates usedduring the first three months of the fiscal year ending March 31, 2024 compared to our "Critical Accounting Policies and Estimates" as previously described in the preparationPart II, Item 7 of our condensed consolidated financial statements.  We also have other policies that we consider key accounting policies, such as our policy regarding revenue recognition to original equipment manufacturers (OEMs); however, we do not believe these policies require us to make estimates or judgments that are as difficult or subjective as our policies described below.

Revenue Recognition - Distributors
Our distributors worldwide generally have broad price protection and product return rights which prevent the sales pricing from being fixed or determinable at the time of shipment to our distributors. Therefore, revenue recognition is deferred until the pricing uncertainty is resolved, which generally occurs when the distributor sells the product to their customer. At the time of shipment to these distributors, we record a trade receivableAnnual Report on Form 10-K for the selling price as there is a legally enforceable right to payment, relieve inventory for the carrying value of goods shipped since legal title has passed to the distributor, and record the gross margin in deferred income on shipments to distributors on our condensed consolidated balance sheets.

In connection with our acquisition of Atmel, we acquired certain distributor relationships where revenue was recognized upon shipment to the distributors based on certain contractual terms or prevailing business practices that resulted in the price not being fixed and determinable at such time. Following an acquisition, we undertake efforts to align the contract terms and business practices of the acquired entity with our own. Once these efforts are complete, revenue recognition is changed. With respect to such distributor relationships acquired in the Atmel acquisition, as of October 1, 2016, these business practices were conformed to those of our other distributors resulting in the deferral of revenue recognition until the distributor sells the product to their customers.

Deferred income on shipments to distributors effectively represents the gross margin on the sale to the distributor; however, the amount of gross margin that we recognize in future periods could be less than the deferred margin as a result of credits granted to distributors on specifically identified products and customers to allow the distributors to earn a competitive gross margin on the sale of our products to their end customers and price protection concessions related to market pricing conditions.

We sell the majority of the items in our product catalog to our distributors worldwide at a uniform list price.  However, distributors resell our products to end customers at a broad range of individually negotiated price points.  The majority of our distributors' resales require a reduction from the original list price paid.  Often, under these circumstances, we remit back to the distributor a portion of their original purchase price after the resale transaction is completed in the form of a credit against the distributors' outstanding accounts receivable balance.  The credits are on a per unit basis and are not given to the distributor until they provide information to us regarding the sale to their end customer.  The price reductions vary significantly based on the customer, product, quantity ordered, geographic location and other factors. Discounts to a price less than our cost have historically been rare.  The effect of granting these credits establishes the net selling price to our distributors for the product and results in the net revenue recognized by us when the product is sold by the distributors to their end customers.  Thus, a portion of the "deferred income on shipments to distributors" balance represents the amount of distributors' original purchase price that will be credited back to the distributors in the future.  The wide range and variability of negotiated price concessions granted to distributors does not allow us to accurately estimate the portion of the balance in the deferred income on shipments to distributors account that will be credited back to the distributors.  Therefore, we do not reduce deferred income on shipments to distributors or accounts receivable by anticipated future concessions; rather, price concessions are typically recorded against deferred income on shipments to distributors and accounts receivable when incurred, which is generally at the time the distributor sells the product.  At December 31, 2017, we had approximately $472.7 million of deferred revenue and $137.0 million in deferred cost of sales recognized as $335.7 million of deferred income on shipments to distributors.  At March 31, 2017, we had approximately $418.0 million of deferred revenue and $125.2 million in deferred cost of sales recognized as $292.8 million of deferred income on shipments to distributors.  The deferred income on shipments to distributors that will ultimately be recognized in our income statement will be lower than the amount reflected on the balance sheet due to additional price credits to be granted to the distributors when the product is sold to their customers.  These additional price credits historically have resulted in the deferred income approximating the overall gross margins that we recognize in the distribution channel of our business.
Distributor advances, reflected as a reduction of deferred income on shipments to distributors on our condensed consolidated balance sheets, totaled $194.2 million at December 31, 2017 and $203.9 million at March 31, 2017.  On sales to distributors, our payment terms generally require the distributor to settle amounts owed to us for an amount in excess of their ultimate cost.  The sales price to our distributors may be higher than the amount that the distributors will ultimately owe us because distributors often negotiate price reductions after purchasing products from us and such reductions are often

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significant.  It is our practice to apply these negotiated price discounts to future purchases, requiring the distributor to settle receivable balances, on a current basis, generally within 30 days, for amounts originally invoiced.  This practice has an adverse impact on the working capital of our distributors.  As such, we have entered into agreements with certain distributors whereby we advance cash to the distributors to reduce the distributors' working capital requirements.  These advances are reconciled at least on a quarterly basis and are estimated based on the amount of ending inventory as reported by the distributor multiplied by a negotiated percentage.  Such advances have no impact on our revenue recognition or our condensed consolidated statements of operations.  We process discounts taken by distributors against our deferred income on shipments to distributors' balance and true-up the advanced amounts generally after the end of each completed fiscal quarter.  The terms of these advances are set forth in binding legal agreements and are unsecured, bear no interest on unsettled balances and are due upon demand.  The agreements governing these advances can be canceled by us at any time.
We reduce product pricing through price protection based on market conditions, competitive considerations and other factors.  Price protection is granted to distributors on the inventory they have on hand at the date the price protection is offered.  When we reduce the price of our products, it allows the distributor to claim a credit against its outstanding accounts receivable balances based on the new price of the inventory it has on hand as of the date of the price reduction.  There is no immediate revenue impact from the price protection, as it is reflected as a reduction of the deferred income on shipments to distributors' balance.
Products returned by distributors and subsequently scrapped have historically been immaterial to our consolidated results of operations.  We routinely evaluate the risk of impairment of the deferred cost of sales component of the deferred income on shipments to distributors account.  Because of the historically immaterial amounts of inventory that have been scrapped, and historically rare instances where discounts given to a distributor result in a price less than our cost, we believe the deferred costs are recorded at their approximate carrying value.

Recent Updates to Revenue Recognition

In May 2014, the FASB issued ASU 2014-09-Revenue from Contracts with Customers (Topic 606) and in August 2015, the FASB subsequently issued ASU 2015-14 "Deferral of the Effective Date," which supersedes existing revenue recognition guidance pursuant to US GAAP and will no longer permit us to defer revenue on sales to distributors until the products are sold to the end customer. Upon our adoption of ASU 2014-09 and 2015-14 beginning April 1, 2018, we will be required to recognize revenue at the time of shipment to the distributors.  The amount of revenue recognized will be adjusted for estimates of returns and allowances provided to distributors.  These estimates will require significant judgment and will be based on historical data and other information available at the time.  After adoption, the effect of the new standard on our future consolidated financial statements will depend on the relative percentage of sales through distributors; the level of and changes in the amount of inventory held by distributors; the individual products and product types held in inventory by distributors; and our ability to accurately estimate pricing variability at the time of sale to the distributor. See Note 2 to our condensed consolidated financial statements for additional information on the new guidance.

Business Combinations

All of our business combinations are accounted for at fair value under the acquisition method of accounting.  Under the acquisition method of accounting, (i) acquisition-related costs, except for those costs incurred to issue debt or equity securities, will be expensed in the period incurred; (ii) non-controlling interests will be valued at fair value at the acquisition date; (iii) in-process research and development will be recorded at fair value as an intangible asset at the acquisition date and amortized once the technology reaches technological feasibility; (iv) restructuring costs associated with a business combination will be expensed subsequent to the acquisition date; and (v) changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date will be recognized through income tax expense or directly in contributed capital.  The measurement of the fair value of assets acquired and liabilities assumed requires significant judgment.  The valuation of intangible assets, in particular, requires that we use valuation techniques such as the income approach. The income approach includes the use of a discounted cash flow model, which includes discounted cash flow scenarios and requires the following significant estimates: revenue, expenses, capital spending and other costs, and discount rates based on the respective risks of the cash flows.  Under the acquisition method of accounting, the aggregate amount of consideration we pay for a company is allocated to net tangible assets and intangible assets based on their estimated fair values as of the acquisition date.  The excess of the purchase price over the value of the net tangible assets and intangible assets is recorded to goodwill. On an annual basis, we test goodwill for impairment and, through December 31, 2017, we have never recorded an impairment charge against our goodwill balance.




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Share-based Compensation
We measure at fair value and recognize compensation expense for all share-based payment awards, including grants of employee stock options, restricted stock units (RSUs) and employee stock purchase rights, to be recognized in our financial statements based on their respective grant date fair values.  For the past several years, we have utilized RSUs as our primary equity incentive compensation instrument for employees. Share-based compensation cost is measured on the grant date based on the fair market value of our common stock discounted for expected future dividends and is recognized as expense straight-line over the requisite service periods. Total share-based compensation during the nine months ended December 31, 2017 was $70.0 million, of which $59.4 million was reflected in operating expenses and $10.6 million was reflected in cost of sales.  Total share-based compensation included in our inventory balance was $7.9 million at December 31, 2017.
During the fiscal year ended March 31, 2017, we elected to early adopt ASU 2016-09, Compensation - Stock Compensation, Improvements to Employee Share-Based Payment Accounting (Topic 718). Under this standard, entities are permitted to make an accounting policy election to either estimate forfeitures on share-based payment awards, as previously required, or to recognize forfeitures as they occur. We have elected to recognize forfeitures as they occur.  Prior to the adoption of ASU 2016-09, we estimated the number of share-based awards to be forfeited due to employee turnover.2023.

If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned share-based compensation expense.  Future share-based compensation expense and unearned share-based compensation will increase to the extent that we grant additional equity awards to employees or we assume unvested equity awards in connection with acquisitions.
Inventories
Inventories are valued at the lower of cost and net realizable value using the first-in, first-out method.  We write down our inventory for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions.  If actual market conditions are less favorable than those we projected, additional inventory write-downs may be required.  Inventory impairment charges establish a new cost basis for inventory and charges are not subsequently reversed to income even if circumstances later suggest that increased carrying amounts are recoverable.  In estimating our inventory obsolescence, we primarily evaluate estimates of demand over a 12-month period and record impairment charges for inventory on hand in excess of the estimated 12-month demand. Estimates for projected 12-month demand are generally based on the average shipments of the prior three-month period, which are then annualized to adjust for any potential seasonality in our business. The estimated 12-month demand is compared to our most recently developed sales forecast to further reconcile the 12-month demand estimate. Management reviews and adjusts the estimates as appropriate based on specific situations. For example, demand can be adjusted up for new products for which historic sales are not representative of future demand. Alternatively, demand can be adjusted down to the extent any existing products are being replaced or discontinued.

In periods where our production levels are substantially below our normal operating capacity, the reduced production levels of our manufacturing facilities are charged directly to cost of sales.  There was no charge to cost of sales for reduced production levels in each of the three and nine month periods ended December 31, 2017 and 2016.

Income Taxes
As part of the process of preparing our condensed consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate.  This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes.  These differences result in deferred tax assets and liabilities, which are included within our condensed consolidated balance sheets.  We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income within the relevant jurisdiction and to the extent we believe that recovery is not likely, we must establish a valuation allowance.  We provided valuation allowances for certain of our deferred tax assets, including state net operating loss carryforwards and state tax credits, where it is more likely than not that some portion, or all of such assets, will not be realized. Due to the Tax Cuts and Jobs Act (the "Act"), we released our valuation allowance on foreign tax credits during the period ending December 31, 2017. We are still evaluating how the Act impacts our valuation allowance on state net operating loss carryforwards and state tax credits, and we may report an adjustment to the valuation allowances under Staff Accounting Bulletin ("SAB") 118 in subsequent quarters. Should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.  

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Various taxing authorities in the U.S. and other countries in which we do business scrutinize the tax structures employed by businesses.  Companies of our size and complexity are regularly audited by the taxing authorities in the jurisdictions in which they conduct significant operations.  We are currently being audited by the tax authorities in various foreign jurisdictions. At this time, we do not know what the outcome of these audits will be. We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional tax payments are probable.  We believe that we maintain adequate tax reserves to offset any potential tax liabilities that may arise upon these and other pending audits in the U.S. and other countries in which we do business.  If such amounts ultimately prove to be unnecessary, the resulting reversal of such reserves would result in tax benefits being recorded in the period the reserves are no longer deemed necessary.  If such amounts ultimately prove to be less than an ultimate assessment, a future charge to expense would be recorded in the period in which the assessment is determined. 

The accounting model as defined in Accounting Standards Codification ("ASC") 740 related to the valuation of uncertain tax positions requires us to presume that the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information and that each tax position will be evaluated without consideration of the possibility of offset or aggregation with other positions.  The recognition requirement for the liability exists even if we believe the possibility of examination by a taxing authority or discovery of the related risk matters is remote or where we have a long history of the taxing authority not performing an exam or overlooking an issue.  We will record an adjustment to a previously recorded position if new information or facts related to the position are identified in a subsequent period.  All adjustments to the positions are recorded through the income statement.  Generally, adjustments will be recorded in periods subsequent to the initial recognition if the taxing authority has completed an audit of the period or if the statute of limitation expires.  Due to the inherent uncertainty in the estimation process and in consideration of the criteria of the accounting model, amounts recognized in the financial statements in periods subsequent to the initial recognition may significantly differ from the estimated exposure of the position under the accounting model.

On December 22, 2017, the Act was enacted into law. The Act provides for numerous significant tax law changes and modifications including the reduction of the U.S. federal corporate income tax rate from 35.0% to 21.0%, the requirement for companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and the creation of new taxes on certain foreign-sourced earnings. As a fiscal year-end taxpayer, certain provisions of the Act began to impact us in our third quarter of fiscal 2018, while other provisions will impact us beginning in fiscal 2019.

The corporate tax rate reduction is effective as of January 1, 2018. Since we have a fiscal year rather than a calendar year, we are subject to rules relating to transitional tax rates. As a result, our fiscal 2018 federal statutory rate will be a blended rate of 31.5%.

In addition to the impacts of tax reform on fiscal 2018, the Act also establishes new tax laws that will be effective for our fiscal 2019, including, but not limited to, (1) a new provision designed to tax low-taxed income of foreign subsidiaries, which allows for the possibility of using foreign tax credits ("FTCs") and a deduction of up to 50% to offset the income tax liability (subject to some limitations); (2) limitations on the deductibility of certain executive compensation; (3) limitations on the deductibility of entertainment expenses; and (4) limitations on the use of FTCs to reduce the U.S. income tax liability. While each of these provisions is expected to have an impact on our tax expense for fiscal 2019 and future periods, we expect the tax on low-taxed income of foreign subsidiaries to have the most significant, adverse impact.

Due to the complexity of the new tax on low-taxed income of foreign subsidiaries, we are continuing to evaluate this provision of the Act and the application of ASC 740. Based on recent FASB deliberations, it appears we will be allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income as a current-period expense when incurred or (2) factoring such amounts into our measurement of our deferred taxes. Our selection of an accounting policy will depend, in part, on analyzing our facts to determine what the impact is expected to be under each method.

Senior and Junior Subordinated Convertible Debt

We separately account for the liability and equity components of our senior and junior subordinated convertible debt in a manner that reflects our nonconvertible debt (unsecured debt) borrowing rate when interest cost is recognized.  This results in a bifurcation of a component of the debt, classification of that component in equity and the accretion of the resulting discount on the debt to be recognized as part of interest expense in our condensed consolidated statements of operations.  Lastly, we include the dilutive effect of the shares of our common stock issuable upon conversion of the outstanding senior and junior subordinated convertible debt in our diluted income per share calculation regardless of whether the market price triggers or other contingent conversion features have been met.  We apply the treasury stock method as we have the intent and have adopted an accounting policy to settle the principal amount of the senior and junior subordinated convertible debentures in

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cash.  This method results in incremental dilutive shares when the average fair value of our common stock for a reporting period exceeds the conversion prices per share and adjusts as dividends are recorded in the future.
Contingencies
In the ordinary course of our business, we are exposed to various liabilities as a result of contracts, product liability, customer claims and other matters.  Additionally, we are involved in a limited number of legal actions, both as plaintiff and defendant.  Consequently, we could incur uninsured liability in any of those actions.  We also periodically receive 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 we are a party and other claims, although the outcomes are generally not determinable, we believe that the ultimate resolution of these matters will not have a material adverse effect on our financial position, cash flows or results of operations.  Litigation and disputes relating to the semiconductor industry are not uncommon, and we are, from time to time, subject to such litigation and disputes.  As a result, no assurances can be given with respect to the extent or outcome of any such litigation or disputes in the future.

We accrue for claims and contingencies when losses become probable and reasonably estimable. As of the end of each applicable reporting period, we review each of our matters and, where it is probable that a liability has been or will be incurred, we accrue for all probable and reasonably estimable losses. Where we can reasonably estimate a range of losses we may incur regarding such a matter, we record an accrual for the amount within the range that constitutes our best estimate. If we can reasonably estimate a range but no amount within the range appears to be a better estimate than any other, we use the amount that is the low end of such range. Contingencies of an acquired company that exist as of the date of the acquisition are measured at fair value if determinable, which generally is based on a probability weighted model. If fair value is not determinable, contingencies of an acquired company are recognized when they become probable and reasonably estimable.

Results of Continuing Operations
 
The following table sets forth certain operational data as a percentage of net sales for the periods indicated:covered by this report:
Three Months Ended June 30,
20232022
Net sales100.0 %100.0 %
Cost of sales31.9 33.3 
Gross profit68.1 66.7 
Research and development13.0 13.7 
Selling, general and administrative8.9 9.6 
Amortization of acquired intangible assets6.6 8.6 
Special charges (income) and other, net0.1 (0.9)
Operating income39.5 %35.7 %

25
 Three Months Ended Nine Months Ended
 December 31, December 31,
 2017 2016 2017 2016
Net sales100.0% 100.0% 100.0% 100.0%
Cost of sales38.9
 44.2
 39.4
 51.1
Gross profit61.1
 55.8
 60.6
 48.9
        
Research and development13.2
 15.9
 13.3
 16.7
Selling, general and administrative11.0
 13.3
 11.3
 15.5
Amortization of acquired intangible assets12.2
 9.9
 12.2
 9.7
Special charges and other, net—
 2.5
 0.6
 2.1
Operating income24.7% 14.2% 23.2% 4.9%
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Net Sales
 
We operate in two industry segments and engage primarily in the design, development, manufacture and sale of semiconductor products as well as the licensing of our SuperFlash and other technologies.  We sell our products to distributors and original equipment manufacturers, referred to as OEMs in a broad range of markets, perform ongoing credit evaluations of our customers and generally require no collateral.  In certain circumstances, a customer's financial condition may require collateral, and, in such cases, the collateral would be typically provided byin the form of letters of credit.

Net Sales: comparison to prior quarter

OurThe following table summarizes our net sales for the quarter ended December 31, 2017 were $994.2 million, a decrease of 1.8% from the previous quarter's net sales of $1,012.1 million. periods covered by this report (dollars in millions):
Three Months Ended June 30,
20232022Change
Net sales$2,288.6 $1,963.6 16.6 %

The decreaseincrease in net sales in the three months ended December 31, 2017June 30, 2023 compared to the three months ended SeptemberJune 30, 20172022 was primarily due to our ability to satisfy our backlog of customer orders as more capacity became available. In the impactsecond half of seasonalityfiscal 2023 there began to be some increased uncertainty as to the future direction of the global economy due to rising interest rates and high inflation. Additionally, semiconductor industry conditions have resulted in increased costs throughout our supply chain, which we have been generally passing on to our business.


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Net Sales: comparison to prior year

The following table summarizes our revenue for the periods covered by this report:

 Three Months Ended Nine Months Ended
 December 31, December 31,
 2017 2016 % Change 2017 2016 % Change
Net sales$994,205 $834,366 19.2% $2,978,485 $2,505,141 18.9%


The increases in net salescustomers in the threeform of price increases. Our price increases were implemented at various times and nine months ended December 31, 2017 comparedin various amounts throughout fiscal 2023 with respect to our very broad range of customers and products. These price increases also contributed to the three and nine months ended December 31, 2016 were impacted by the following two accounting factors, which occurred in the 2016 periods:

An amount of revenue that could not be recognized under US GAAP relating to Atmel's inventory in the distribution channel on the acquisition date; and
The impact of the change in timing of revenue recognition for some of Atmel's distributors from shipment to the distributor to upon sale by the distributor to their customers.

Excluding the impact of these two accounting factors, net sales for the three and nine months ended December 31, 2017 compared to the same periods in the prior year increased 12.8% and 15.0%, respectively. These increases were primarily due to growth in our business driven by favorable economic and semiconductor industry conditions. Approximately 7% and 5% of the respective increasesincrease in net sales during the three and nine months ended December 31, 2017June 30, 2023 compared to the three and nine months ended December 31, 2016 were dueJune 30, 2022. Due to the complexity of the implementation of the price increases and the changes in product, geographic and customer mix, we are not able to quantify the impact of the price increases on our net sales. Additionally, the increase in net sales was positively impacted by strength in all of our product lines. Due to the size, complexity and diversity of our customer base, we are not able to quantify any material factor contributing to the changes other than the net demand fluctuations in the average priceend market we serve. See our "Business and Macroeconomic Environment" discussion above for further information on our business outlook.

Other factors that we believe contributed to changes in our reported net sales for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 and which are drivers of long-term trends in our net sales but which factors we are not able to quantify include:
•semiconductor industry conditions;
•our various new product offerings that have increased our served available market;
•customers’ increasing needs for the flexibility offered by our programmable solutions; and
•increasing semiconductor content in our customers’ products sold as a result of favorable market conditions and product mix.  The remaining sales growth was primarily due to a net increase in the volume of products sold.  through our Total Systems Solutions.

We sell a large number of products to a large and diverse customer base and there was not any single product customer or marketcustomer that accounted for a material portion of the increase.

As discussedchange in our net sales in the following paragraphs, there were revenue gains across our product lines in the 2017 periods compared to the 2016 periods, with the largest increase in microcontrollers, which is our largest product line.  This growth was due to favorable economic and semiconductor conditions and market share gains.  Key factors related to the amount of net sales duringthree months ended June 30, 2023 or the three and nine months ended December 31, 2017 compared to the three and nine months ended December 31, 2016 include:June 30, 2022.

global economic conditions in the markets we serve;
semiconductor industry conditions;
our new product offerings that have increased our served available market;
customers' increasing needs for the flexibility offered by our programmable solutions;
inventory holding patterns of our customers;
increasing semiconductor content in our customers' products; and
continued market share gains in the segments of the markets we address.

Net sales by product line for the three and nine months ended December 31, 2017 and 2016periods covered by this report were as follows (dollars in thousands)millions):

Three Months Ended June 30,
2023%2022%
Mixed-signal Microcontrollers$1,301.7 56.9 $1,063.0 54.2 
Analog633.6 27.7 580.0 29.5 
Other353.3 15.4 320.6 16.3 
Total net sales$2,288.6 100.0 $1,963.6 100.0 
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 Three Months Ended Nine Months Ended
 December 31, December 31,
 (unaudited) (unaudited)
 2017 % 2016 % 2017 % 2016 %
Microcontrollers$661,014
 66.5
 $516,766
 61.9
 $1,961,761
 65.9
 $1,566,881
 62.6
Analog, interface, mixed signal and timing products231,454
 23.3
 220,983
 26.5
 709,698
 23.8
 658,396
 26.3
Memory products48,156
 4.8
 46,210
 5.5
 149,743
 5.0
 138,611
 5.5
Technology licensing27,527
 2.8
 23,834
 2.9
 78,340
 2.6
 68,092
 2.7
Multi-market and other26,054
 2.6
 26,573
 3.2
 78,943
 2.7
 73,161
 2.9
Total sales$994,205
 100.0% $834,366
 100.0% $2,978,485
 100.0% $2,505,141
 100.0%


Mixed-signal Microcontrollers
 
Our mixed-signal microcontroller product line represents the largest component of our total net sales.  MicrocontrollersMixed-signal microcontrollers and associated application development systems accounted for approximately 66.5% and 65.9%56.9% of our net sales forin the three and nine months ended December 31, 2017, respectively,June 30, 2023 compared to approximately 61.9% and 62.6%54.2% of our net sales forin the three and nine months ended December 31, 2016, respectively.June 30, 2022.

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Net sales of our mixed-signal microcontroller products increased 27.9% and 25.2%22.5% in the three and nine months ended December 31, 2017, respectively,June 30, 2023 compared to the three and nine months ended December 31, 2016. These sales increases wereJune 30, 2022 due primarily to growthstrength in demand for our business driven by favorable economicmixed-signal microcontroller products in end markets that we serve and semiconductor industry conditions and market share gains.our price increases.

Historically, average selling prices in the semiconductor industry decrease over the life of any particular product. TheHowever, the overall average selling prices of our mixed-signal microcontroller products have increased in recent periods and have remained relatively constantstable over time due to the proprietary nature of these products.  We have experienced, and expect to continue to experience, moderate pricing pressure in certain microcontroller product lines, primarily due to competitive conditions.  We have in the past been able to, and expect in the future to be able to, moderate average selling price declines in our mixed-signal microcontroller product lines by introducing new products with more features and higher prices.  We may be unable to maintain average selling prices for our microcontroller products as a result of increased pricing pressure in the future, which would adversely affect our operating results.


Analog Interface, Mixed Signal and Timing Products
 
Sales of ourOur analog product line includes analog, interface, mixed signalmixed-signal and timing productsproducts. Our analog product line accounted for approximately 23.3% and 23.8%27.7% of our net sales forin the three and nine months ended December 31, 2017, respectively,June 30, 2023 compared to approximately 26.5% and 26.3%29.5% of our net sales for the three and nine months ended December 31, 2016, respectively.

Net sales of our analog, interface, mixed signal and timing products increased 4.7% and 7.8% in the three and nine months ended December 31, 2017, respectively,June 30, 2022.

Net sales from our analog product line increased 9.2% in the three months ended June 30, 2023 compared to the three and nine months ended December 31, 2016. These sales increases wereJune 30, 2022, primarily due primarily to growthstrength in demand for our business driven by favorable economicanalog products in end markets that we serve and semiconductor industry conditions and market share gains.our price increases.

Analog, interface, mixed signal and timing products can be proprietary or non-proprietary in nature.  Currently, weWe consider a majority of the products in our analog interface, mixed signal and timing productsproduct line to be proprietary in nature, where prices are relatively stable, similar to the pricing stability experienced in our mixed-signal microcontroller products. The non-proprietary portion of our analog interface, mixed signal and timing businessproduct line will experience price fluctuations, driven primarily by the current supply and demand for those products.  We may be unable to maintain the average selling prices of our analog, interface, mixed signal and timing products as a result of increased pricing pressure in the future, which would adversely affect our operating results.  We anticipate the proprietary portion of our analog, interface, mixed signal and timing products will increase over time.




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Memory ProductsOther
 
Sales of our memoryOur other product line includes FPGA products, accounted for approximately 4.8% and 5.0% of our net sales for the three and nine-month periods ended December 31, 2017, respectively, compared to approximately 5.5% of our net sales for each of the three and nine-month periods ended December 31, 2016, respectively. 

Net sales of our memory products increased 4.2% and 8.0% in the three and nine months ended December 31, 2017, respectively, compared to the three and nine months ended December 31, 2016. These sales increases were due primarily to growth in our business driven by favorable economic and semiconductor industry conditions.
Memory product pricing has historically been cyclical in nature, with steep price declines followed by periods of relative price stability, driven by changes in industry capacity at different stages of the business cycle.  We have experienced, and expect to continue to experience, varying degrees of competitive pricing pressures in our memory products.  We may be unable to maintain the average selling prices of our memory products as a result of increased pricing pressure in the future, which could adversely affect our operating results.
Technology Licensing
Technology licensing revenue includes a combination of royalties associated with licenses for the use of our SuperFlash and other technologies, andsales of our intellectual property, fees for engineering services.  Technology licensing accounted for approximately 2.8% and 2.6% of our net sales for the three and nine months ended December 31, 2017, respectively, compared to approximately 2.9% and 2.7% of our net sales for the three and nine months ended December 31, 2016, respectively.

Net sales related to our technology licensing increased 15.5% and 15.1% in the three and nine months ended December 31, 2017, respectively, compared to the three and nine months ended December 31, 2016. Revenue from technology licensing can fluctuate over time based on the production activities of our licensees as well as general economic and semiconductor industry conditions.

Multi-Market and Other

Multi-market and Other (MMO) consists ofservices, memory products, timing systems, manufacturing services (wafer foundry and assembly and test subcontracting), legacy application specific integrated circuits, complex programmable logic devices, and certain products for aerospace products.applications. Revenue from these services and products accounted for approximately 2.6% and 2.7%15.4% of our net sales for the three and nine months ended December 31, 2017, respectively, compared to approximately 3.2% and 2.9% of our net sales for the three and nine months ended December 31, 2016, respectively.

MMO net sales decreased 2.0% in the three months ended December 31, 2017June 30, 2023 compared to approximately 16.3% of our net sales in the three months ended June 30, 2022.

Net sales related to these services and products increased 10.2% in the three months ended June 30, 2023 compared to the three months ended December 31, 2016. MMOJune 30, 2022. The increase in net sales increased 7.9%was primarily due to strength in the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016. MMO netdemand for our products in end markets that we serve and our price increases. Net sales of our other product line can fluctuate over time based on general economic and semiconductor industry conditions as well as changes in demand for our FPGA products, licenses, engineering services, memory products, timing systems, and manufacturing services (wafer foundry and assembly and test subcontracting) as well as general economic and semiconductor industry conditions..
  
Distribution
 
Distributors accounted for approximately 53.7%48% of our net sales in the three months ended December 31, 2017June 30, 2023 and approximately 52.6%47% of our net sales in the three months ended December 31, 2016. DistributorsJune 30, 2022. With the exception of Arrow Electronics, our largest distributor, which made up 11% of our net sales, no other distributor or direct customer accounted for approximately 54.2%more than 10% of our net sales in the ninethree months ended December 31, 2017 and approximately 54.9% of our net salesJune 30, 2023 or in the ninethree months ended December 31, 2016.June 30, 2022. Our distributors focus primarily on servicing the product requirements of a broad base of diverse customers. We believe that distributors provide an effective means of reaching this broad and diverse customer base.  We believe that customers recognize Microchip for its products and brand name and use distributors as an effective supply channel.

Generally, we do not have long-term agreements with our distributors and we, or our distributors, may terminate our relationships with each other with little or no advance notice.notice, with the exception of certain orders placed under our original Preferred Supply Program or otherwise designated as non-cancellable.  The loss of, or the disruption in the operations of, one or more of our distributors could reduce our future net sales in a given quarter and could result in an increase in inventory returns.

At December 31, 2017,June 30, 2023, our distributors maintained 3429 days ofinventory of our products compared to 3324 days of inventory at our distributors at March 31, 2017.2023.  Over the past fiveten fiscal years, the days of inventory maintained by our distributors have fluctuated between 30 days and 37days.  We do not believe that inventory holding patterns at our distributors

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will materially impact our net sales prior to the adoption of ASU 2014-09-Revenue from Contracts with Customers (Topic 606), as we do not recognize revenue until the inventory is sold by the distributors. Upon our adoption of ASC 606 commencing on April 1, 2018, we will be required to recognize revenue from distributors at the time our products are sold to the distributor.  As a result, beginning April 1, 2018, inventoryapproximately 17 days and 40 days.  Inventory holding patterns at our distributors may have a material impact on our net sales.
 
Sales by Geography
 
Sales by geography for the three and nine months ended December 31, 2017 and 2016periods covered by this report were as follows (dollars in thousands)millions):
Three Months Ended June 30,
2023%2022%
Americas$642.8 28.1 $496.2 25.3 
Europe558.5 24.4 397.6 20.2 
Asia1,087.3 47.5 1,069.8 54.5 
Total net sales$2,288.6 100.0 $1,963.6 100.0 
 Three Months Ended Nine Months Ended
 December 31, December 31,
 (unaudited) (unaudited)
 2017 % 2016 % 2017 % 2016 %
Americas$172,637
 17.4
 $164,442
 19.7
 $536,996
 18.0
 $469,613
 18.7
Europe228,148
 22.9
 199,652
 23.9
 697,345
 23.4
 581,739
 23.2
Asia593,420
 59.7
 470,272
 56.4
 1,744,144
 58.6
 1,453,789
 58.1
Total sales$994,205
 100.0% $834,366
 100.0% $2,978,485
 100.0% $2,505,141
 100.0%


Americas sales include sales to customers in the U.S., Canada, Central America and South America. Sales to foreign customers accounted for approximately 85% of our total net sales in each of the three and nine months ended December 31, 2017 compared to approximately 83% and 84%76% of our total net sales in the three and nine months ended December 31, 2016, respectively.June 30, 2023 compared to approximately 78% of our total net sales in the three months ended June 30, 2022. Although our net sales in all geographies increased in the three months ended June 30, 2023 compared to the three months ended June 30, 2022, net sales in Asia decreased as a percentage of total net sales primarily due to economic weakness in the China market caused by uncertain economic conditions, slowing growth, and the impact of COVID-19 related lockdowns. Substantially all of our foreign sales are U.S. dollar denominated.  Sales to customers in Asia have generally increased over time due to many of our customers transitioning their manufacturing operations to Asia and growth in demand from the emerging Asian market. Our sales force in the Americas and Europe supports a significant portion of the design activity for products which are ultimately shipped to Asia.
 
Gross Profit
 
Our gross profit in the three months ended December 31, 2017June 30, 2023 was $607.1 million,$1.56 billion, or 61.1%68.1% of net sales, compared to $465.3 million,$1.31 billion, or 55.8%66.7% of net sales, in the three months ended December 31, 2016. OurJune 30, 2022. The primary reason for the increase in gross profit in the ninethree months ended December 31, 2017 was $1,805.6 million, or 60.6% of net sales,June 30, 2023 compared to $1,224.4 million, or 48.9% of net sales, in the ninethree months ended December 31, 2016.

The most significant factors affecting ourJune 30, 2022 was the net impact of product mix and average gross profit percentage in the periods covered by this Form 10-Q were:
chargesper unit of approximately $12.0 million and $186.7$266.1 million in the three and nine months ended December 31, 2016, respectively, relatedJune 30, 2023. The net impact of product mix and average gross profit per unit may fluctuate over time due to the recognitionmix of acquiredsales volumes of lower or higher margin products, changes in selling prices, and fluctuations in product costs. We are not able to separately quantify these impacts on our gross profit. The net impact to our gross profit of inventory reserve charges was $21.8 million in the three months ended June 30, 2023 which adversely impacted our gross profit in the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The gross margin impact of changes in licensing revenue, which has no associated cost of sales, and the impact of unabsorbed capacity charges in the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was not material.

Our overall inventory levels were $1.34 billion at June 30, 2023, compared to $1.32 billion at March 31, 2023. We maintained 167 days of inventory on our balance sheet at June 30, 2023 compared to 169 days of inventory at fair valueMarch 31, 2023. Our inventory was relatively flat as a result of our acquisitions which increasedefforts to balance manufacturing production, customer demand and inventory levels including accommodating requests from certain customers to push-out orders. Our inventory levels are impacted by the valuetiming of our acquired inventoryreceipt of raw materials, foundry wafers, and subsequently increased our coststrategic last time buy materials and completion of sales and reduced our gross margins when the related revenue was recognized;finished goods.
inventory write-downs being higher than the gross margin impact of sales of inventory that was previously written down in the three and nine months ended December 31, 2016;
inventory write-downs being lower than the gross margin impact of sales of inventory that was previously written down in the three and nine months ended December 31, 2017; and
fluctuations in the product mix of microcontrollers, analog, interface, mixed signal and timing products, memory products and technology licensing.

Other factors that impacted our gross profit percentage in the periods covered by this Form 10-Q include:

continual cost reductions in wafer fabrication andWe operate assembly and test manufacturing, such as new manufacturing technologiesfacilities in Thailand, the Philippines, and more efficient manufacturing techniques;
lower depreciation as aother locations throughout the world. Approximately 58% of our assembly requirements were performed in our internal assembly facilities during each of the three months ended June 30, 2023 and June 30, 2022. During the three months ended June 30, 2023, approximately 69% of our test requirements were performed in our internal facilities compared to 62% during the three months ended June 30, 2022. The percentage of cost of sales;
increasesour assembly and test operations that are performed internally fluctuates over time based on supply and demand conditions in the level ofsemiconductor industry, our internal capacity capabilities and our acquisition activities. We believe that the assembly and test operations performed at our internal facilities provide us with significant cost savings compared to third-party contractor assembly and test operations performed by our third-party contractors, which lower our manufacturing costs, as well as increased control over these functions are performed internally;portions of the manufacturing process. We plan to continue to invest in assembly and
favorable market conditions test equipment to increase our internal capacity capabilities and product mix.


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We adjust our wafer fabrication andtransition certain outsourced assembly and test capacity utilization as required to respond to actual and anticipated business and industry-related conditions. When production levels are below normal capacity, we charge costour internal facilities.

We rely on outside wafer foundries for a significant portion of sales for the unabsorbed capacity. During each of the three and nine months ended December 31, 2017 and 2016, our wafer fabrication facilities and assembly and test facilities operated at normal capacity levels, which we measure as a percentage of the capacity of the installed equipment.

The process technologies utilized in our wafer fabrication facilities impact our gross margins.  Our wafer fabrication facility located in Tempe, Arizona (Fab 2) currently utilizes various manufacturing process technologies, but predominantly utilizes our 0.5 micron to 1.0 micron processes.  Our wafer fabrication facility located in Gresham, Oregon (Fab 4) predominantly utilizes our 0.13 micron to 0.5 micron processes.  We continue to transition products to more advanced process technologies to reduce future manufacturing costs.  Substantially allrequirements. Approximately 66% of our production in Fab 2 and Fab 4 has been on 8-inch wafersnet sales came from products that were produced at outside wafer foundries during the periods covered by this report. We consider normal capacity at Fab 2 and Fab 4 to be 90% to 95%. Our wafer fabrication facility in Colorado Springs, Colorado (Fab 5) currently utilizes processes between 0.25 micron and 1.0 micron that run on 6-inch wafers. We consider normal capacity at Fab 5 to be 70% to 75%. During the ninethree months ended December 31, 2017, we completed the saleJune 30,
28
Table of the decommissioned San Jose wafer fabrication facility and assets from our Micrel acquisition for proceeds of $10.0 million.Contents
Our overall inventory levels were $487.1 million at December 31, 2017,2023, compared to $417.2 million at March 31, 2017.  We maintained 115 days of inventory63% during the three months ended June 30, 2022. These percentages may vary from quarter to quarter based on our balance sheet at December 31, 2017 compared to 103 days of inventory at March 31, 2017.  We expect our days of inventory level to increase modestlysupply and demand conditions in the March 2018 quarter. We believe our existing level of inventory will allow us to maintain competitive lead times and provide strong delivery performance to our customers.market.

We anticipate that our gross margins will fluctuate over time, driven primarily by capacity utilization levels, the overall product mix of mixed-signal microcontroller, analog, interface, mixed signal and timingFPGA products, memory products, and technology licensing revenue and the percentage of net sales of each of these products in a particular quarter, as well as manufacturing yields, fixed cost absorption, and competitive and economic conditions in the markets we serve. We continue to transition products to more advanced process technologies to reduce future manufacturing costs.

We operate assembly and test facilities in Thailand and, as a result of our acquisition of Atmel, we acquired a test facility in Calamba, Philippines. Approximately 41% and 39% of our assembly requirements were performed in our Thailand facilities in the three and nine months ended December 31, 2017, respectively, compared to approximately 32% and 37% during the three and nine months ended December 31, 2016, respectively.  Third-party contractors located primarily in Asia perform the balance of our assembly operations.  During the three and nine months ended December 31, 2017, approximately 67% and 62%, respectively, of our test requirements were performed in our Thailand and Philippines facilities compared to approximately 58% and 61% of our test requirements performed in our Thailand and Philippines facilities during the three and nine months ended December 31, 2016, respectively. The percentage of our assembly and test work that is performed internally fluctuates over time based on supply and demand conditions in the semiconductor industry, our internal capacity capabilities and our acquisition activities.  The increases in the percentage of assembly and test work that was performed internally in the three and nine months ended December 31, 2017 compared to the three and nine months ended December 31, 2016 are primarily due to our recent investments in assembly and test equipment, which have increased our internal capacity capabilities. We believe that the assembly and test operations performed at our internal facilities provide us with significant cost savings compared to contractor assembly and test costs, as well as increased control over these portions of the manufacturing process.
We rely on outside wafer foundries for a significant portion of our wafer fabrication requirements. Approximately 43% and 42% of our net sales came from products that were produced at outside wafer foundries in the three and nine months ended December 31, 2017, respectively, and approximately 42% and 41% of our net sales came from products that were produced at outside wafer foundries in the three and nine months ended December 31, 2016, respectively.

Our use of third parties involves some reduction in our level of control over the portions of our business that we subcontract.  While we review the quality, delivery and cost performance of our third-party contractors, our future operating results could suffer if any third-party contractor is unable to maintain manufacturing yields, assembly and test yields and costs at approximately their current levels.

Research and Development (R&D)

R&D expenses for the three months ended December 31, 2017June 30, 2023 were $131.6$298.5 million, or 13.2%13.0% of net sales, compared to $132.4$269.0 million, or 15.9%13.7% of net sales, for the three months ended December 31, 2016. R&D expenses for the nine months ended December 31, 2017 were $395.7 million, or 13.3% of net sales, compared to $418.1 million, or 16.7% of net sales, for

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the nine months ended December 31, 2016.June 30, 2022. We are committed to investing in new and enhanced products, including development systems software, and in our design and manufacturing process technologies.  We believe these investments are significant factors in maintaining our competitive position.  R&D costs are expensed as incurred.  Assets purchased to support our ongoing research and development activities are capitalized when related to products which have achieved technological feasibility or that have alternative future uses and are amortized over their expected useful lives.  R&D expenses include labor, depreciation, masks, prototype wafers, and expenses for the development of process technologies, new packages, and software to support new products and design environments.


R&D expenses decreased $0.9increased $29.5 million, or 0.7%11.0%, for the three months ended December 31, 2017 over the same period last year.  R&D expenses decreased $22.5 million, or 5.4%, for the nine months ended December 31, 2017June 30, 2023 over the same period last year.  The primary reasons for the decreasesincrease in R&D costsexpenses were reductionsincreases in personnelheadcount and associated costs in connection with synergies realized from our Atmel acquisition and lower share-basedemployee compensation expense due to accelerated vesting of equity awards held by terminated Atmel employees during the three and nine months ended December 31, 2016.as well as higher product development costs.


R&D expenses fluctuate over time, primarily due to revenue and operating expense investment levels.


Selling, General and Administrative

Selling, general and administrative expenses for the three months ended December 31, 2017June 30, 2023 were $109.1$203.6 million, or 11.0%8.9% of net sales, compared to $111.0$188.9 million, or 13.3%9.6% of net sales, for the three months ended December 31, 2016. Selling,June 30, 2022.  Our goal is to continue to be more efficient with our selling, general and administrative expenses for the nine months ended December 31, 2017 were $337.6 million, or 11.3% of net sales, compared to $388.7 million, or 15.5% of net sales, for the nine months ended December 31, 2016.expenses. Selling, general and administrative expenses include salary expenses related to field sales, marketing and administrative personnel, advertising and promotional expenditures and legal expenses.  Selling, general and administrative expenses also includeas well as costs related to our direct sales force, CEMs and ESEs who work inremotely from sales offices worldwide to stimulate demand by assisting customers in the selection and use of our products.

Selling, general and administrative expenses decreased $2.0increased $14.7 million, or 1.8%7.8%, for the three months ended December 31, 2017 over the same period last year.  Selling, general and administrative expenses decreased $51.0 million, or 13.1%, for the nine months ended December 31, 2017June 30, 2023 over the same period last year.  The primary reasons for the decreasesincrease in selling, general and administrative expenses were reductions in personnel and associated costs in connection with synergies realized from our Atmel acquisition and lower share-based compensation expensewas primarily due to accelerated vesting of equity awards held by terminated Atmel employees during the period ended June 30, 2016.increases in headcount and employee compensation.


Selling, general and administrative expenses fluctuate over time, primarily due to revenue and operating expense investment levels.

Amortization of Acquired Intangible Assets


Amortization of acquired intangible assets for the three and nine months ended December 31, 2017June 30, 2023 was $121.0$151.5 million, and $362.8 million, respectively, compared to $82.8 million and $243.4$167.6 million for the three and nine months ended December 31, 2016, respectively.June 30, 2022. The primary reason for the increasesdecrease in acquired intangible asset amortization was due to the use of accelerated amortization of in-process R&Dmethods for assets from our acquisition of Atmel, which assets started to amortize duringplaced in service in previous fiscal years.

Special Charges (Income) and Other, Net

During the three months ended December 31, 2016.

Special Charges and Other, Net

During the three and nine months ended December 31, 2017,June 30, 2023, we incurred special charges and other, net of $0.2$1.7 million, primarily related to restructuring of acquired and $17.3 million, respectively. The special charges and other, net incurred in the nine months ended December 31, 2017 is comprised primarily of a $19.5 million charge for fees associated with transitioning from the public utility provider in Oregonexisting wafer fabrication operations to a lower cost direct access provider.increase operational efficiency. During the three and nine months ended December 31, 2016,June 30, 2022, we incurredearned special chargesincome and other, net of $20.9$16.9 million and $52.5 million comprised primarily related to the favorable resolution of employee separation costs and impairment charges.a previously accrued legal matter.

Other Income (Expense)
Interest income in the three and nine months ended December 31, 2017 was $6.3 million and $14.4 million, respectively. Interest income in the three and nine months ended December 31, 2016 was $0.5 million and $1.8 million, respectively. The primary reason for the increases in interest income in the three and nine months ended December 31, 2017

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compared to the same periods last year relates to higher cash and investment balances. During the quarter ended June 30, 2016, we used cash to finance a significant portion of the purchase price of our April 4, 2016 acquisition of Atmel.


Interest expense in the three and nine months ended December 31, 2017June 30, 2023 was $49.7$47.2 million and $148.7compared to $50.3 million respectively. Interest expense infor the three and nine months ended December 31, 2016 was $35.1 million and $104.7 million, respectively.June 30, 2022. The primary reason for the increasesdecrease in interest expense in the three and nine months ended December 31, 2017June 30,
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2023 compared to the same periodsperiod last year relates primarily towas the issuancecumulative pay down of our 2017 senior and junior debt partially offset by lowerhigher interest expense on amounts borrowed under our credit facility. In February 2017, we paid off the remaining balancerates on our credit facility.outstanding variable rate debt.


During the three and nine months ended December 31, 2017,June 30, 2023, we settledrecognized losses of $9.1 million related to the remainingsettlement of approximately $5.6 million in principal amount of our 2007 junior debt resulting2015 Senior Convertible Debt, approximately $25.9 million in a loss on settlementprincipal amount of convertible debtour 2017 Senior Convertible Debt and the outstanding principal amount of $2.1$6.5 million and $16.0 million, respectively.

Other loss, net inof our 2017 Junior Convertible Debt. During the three months ended December 31,June 30, 2022, we recognized losses of $6.2 million related to the settlement of approximately $31.0 million in principal amount of our 2017 was $3.0Senior Convertible Debt and approximately $3.6 million and other income, net in the nine months ended December 31,principal amount of our 2017 was $7.2 million. Other income, net in the three months ended December 31, 2016 was $0.1 million and other loss, net in the nine months ended December 31, 2016 was $0.7 million. The primary reason for these changes relates to foreign currency exchange rate fluctuations.Junior Convertible Debt.


Provision for Income Taxes

TheOur provision for income taxes reflectsis attributable to U.S. federal, state, and foreign income taxes. A comparison of our tax on foreign earnings and federal and state tax on U.S. earnings.   We had an effective tax rate of 227.7%rates for the three months ended December 31, 2017June 30, 2023 and a negative effective tax rate of 28.5% for the three months ended December 31, 2016.  We had an effective tax rate of 80.2% for the nine months ended December 31, 2017 and a negative effective tax rate of 87.3% for the nine months ended December 31, 2016.  

The geographic dispersion of our earnings and losses contributesJune 30, 2022 is not meaningful due to the period-to-period changes in our effectiveamount of pre-tax income, and income tax rate. In fiscal 2018, approximately 18% of our net sales are expected to be generated inexpense recorded during the U.S. at a combined federal and state effective tax rate that is higher than our overall effective tax rate. prior period.

We are also subject to taxation in many other jurisdictions wherein which we have operations. The effective tax rates that we pay in these jurisdictions vary widely, but they are generally lower than our combined U.S. federal and state effective tax rate. Our domestic blended statutory tax rate forin each of the ninethree months ended December 31, 2017June 30, 2023 and June 30, 2022 was approximately 33% and our domestic statutory tax rate for fiscal 2017 was approximately 37%22%. Our non-U.S. blended statutory tax rates forin the ninethree months ended December 31, 2017June 30, 2023 and fiscal 2017June 30, 2022 were much lower than this amount. The difference in rates applicable in foreign jurisdictions results from a number of factors, including lower statutory rates, historical loss carry-forwards,tax holidays, financing arrangements and other factors. Our effective tax rate has been and will continue to be impacted by the geographical dispersion of our earnings and losses. To the extent that domestic earnings increase while the foreign earnings remain flat or decrease, or increase at a lower rate, our effective tax rate will increase.


Our foreign tax rate differential benefit primarily relates to our operations in Thailand, CaymanMalta taxed at a 5.0% statutory tax rate and Ireland. OurIreland taxed at a 12.5% statutory tax rate. Additionally, our Thailand manufacturing operations are currently subject to numerous tax holidays granted to us based on our investment in property, plant, and equipment in Thailand. Our tax holiday periods in Thailand expire at various times in the future,future; however, we actively seek to obtain new tax holidays, orotherwise we will be subject to tax at the statutory tax rate of 20%20.0%. We do not expect the future expiration of any of our tax holiday periods in Thailand to have a material impact on our effective tax rate.

In September 2021, we received a Statutory Notice of Deficiency (Notice) from the United States Internal Revenue Service (IRS) for fiscal 2007 through fiscal 2012. The remaining material components of foreign income taxed atdisputed amounts largely relate to transfer pricing matters. In December 2021, we filed a rate lower thanpetition in the U.S. are earnings accruedTax Court challenging the Notice.

In May 2023, we received a proposed income adjustment from the Malaysian Inland Revenue Board (IRB) for fiscal 2020, which if upheld by the highest court that has jurisdiction over this matter in Ireland atMalaysia, could result in income taxes up to $420.0 million, exclusive of interest and penalties. The disputed amounts largely relate to the characterization of certain assets. Depending on the outcome of the IRB audit, we may need to take the matter to court in Malaysia, and if we do, we may be required to pay the assessment and then request a 12.5% statutory tax rate and earnings accrued by Microchip’s offshore technology company whichrefund from the court upon a series of favorable rulings. The timing of adjudicating this matter is residentuncertain but could commence in the Cayman Islands atnext 12 months.

We firmly believe that the assessments described above are without merit and plan to pursue all available administrative and judicial remedies necessary to resolve these matters. We intend to vigorously defend our positions and we are confident in our ability to prevail on the merits. We regularly assess the likelihood of adverse outcomes resulting from examinations such as these to determine the adequacy of our tax reserves. We believe that the final adjudication of these matters will not have a 0% statutorymaterial impact on our consolidated financial position and results of operations or cash flows. However, 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, rate.penalties, and deficiency interest could have a material adverse impact on our financial position, results of operations or cash flows.


Various taxing authorities in the U.S. and other countries in which we do business are increasing their scrutiny of the tax structures employed by businesses.  Companies of our size and complexity are regularly audited by the taxing authorities in the jurisdictions in which they conduct significant operations.  For U.S. federal, and in general for U.S. state tax returns, our fiscal 20052007 and later tax returns remain effectively open for examination by the taxing authorities. We are currently being audited by the tax authorities in the U.S. and in various foreign jurisdictions. At this time, we do not know what the outcome of these audits will be. We recognize liabilitiesrecord benefits for anticipateduncertain tax audit issues in the U.S. and other tax jurisdictionspositions based on our estimatean assessment of whether andit is more likely than not that the extent to which, additional tax payments are probable.  We believe that we maintain adequate tax reserves to offset any potential tax liabilities that may arise upon these and other pending audits in the U.S. and other countries in which we do business.positions will be sustained based on their technical merits under currently enacted law. If such amounts ultimately prove to be unnecessary, the resulting reversal of such reserves would result in tax benefits being recorded in the period the reserves are no longer deemed necessary.  If such amounts ultimately prove to be less than any final assessment, a future charge to expense would be recorded in the period in which the assessment is determined.



this threshold
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Results of Discontinued Operations

Discontinued operations represent the mobile touch operations that we acquired as part of our acquisition of Atmel. On November 10, 2016, we completed the saleis not met, no tax benefit of the mobile touch assetsuncertain tax position is recognized. If the threshold is met, we recognize the largest amount of the tax benefit that is more than 50% likely to Solomon Systech (Limited) International,be realized upon ultimate settlement.

In August 2022, the U.S. government enacted the Inflation Reduction Act into law. The Inflation Reduction Act includes a Hong Kong based semiconductor company. The transaction includednew corporate alternative minimum tax (Corporate AMT) of 15.0% on the sale of certain semiconductor products, equipment, customer list, backlog, patents, and a license to certain other intellectual property and patents related to Atmel's mobile touch product line. We also agreed to provide certain transition services to Solomon Systech. Foradjusted financial statement purposes,income (AFSI) of corporations with average AFSI exceeding $1.00 billion over a three-year period, as well as a 1% excise tax on the resultsnet fair market value of operations for this discontinued business have been segregated from those of the continuing operations and are presented in our condensed consolidated financial statements as discontinued operations. Net loss from discontinued operations for the three and nine months endedstock repurchases made after December 31, 2016 was $0.2 million2022. The Corporate AMT is effective in fiscal 2024. Based on currently enacted tax laws, we do not expect the Inflation Reduction Act to have a material impact upon our tax expense, cash taxes, and $6.0 million, respectively.effective tax rate.


Liquidity and Capital Resources

We had $1,985.0$271.2 million in cash and cash equivalents and short-term and long-term investments at December 31, 2017,June 30, 2023, an increase of $574.8$37.2 million from the March 31, 20172023 balance.  
 
Operating Activities

Net cash provided by operating activities was $1,060.1$993.2 million in the ninethree months ended December 31, 2017, compared to $736.9 million in the nine months ended December 31, 2016. The increase in net cash provided from operating activities wasJune 30, 2023 primarily due to higher net income of $666.4 million, adjusted for non-cash and non-operating charges of $304.7 million and net cash inflows of $22.1 million from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities in the three months ended June 30, 2023 include an increase in trade accounts receivable driven primarily by higher net sales as well as operating cash flows resulting from synergies realized from our process efficiency and restructuring effortsan increase in inventories related to increased raw materials, foundry wafers, finished goods, receipt of strategic last time buy materials, and accommodating requests from certain customers to push-out orders, offset by increases in accrued and other liabilities driven by higher deferred revenue and sales related reserves, including cash collected from customers under our acquisition of Atmel.

DuringLTSAs, and an increase in income tax payable. The cash collected from these LTSAs is refundable when customers fulfill their purchase commitments. In future periods, we expect cash inflows under these LTSAs to decrease, and cash outflows to increase as amounts are refunded to customers (see "Note 3. Net Sales" to our condensed consolidated financial statements). Net cash provided by operating activities was $840.4 million in the ninethree months ended December 31, 2017,June 30, 2022 primarily due to net income of $507.2 million, adjusted for non-cash and non-operating charges of $385.4 million and net cash outflows of $52.2 million from changes in our operating assets and liabilities.

Investing Activities

Net cash used in investing activities was $961.6 million compared to $2,350.5$140.9 million in the ninethree months ended December 31, 2016.  Net cash used in investing activitiesJune 30, 2023 compared to $153.8 million in the ninethree months ended December 31, 2017 was primarily to purchase available-for-sale investments. InJune 30, 2022. During the ninethree months ended December 31, 2016, investing cash flows included net cashJune 30, 2023 and cash equivalents used to finance our acquisition of Atmel of $2,747.5 million. Excluding investing cash flows used for acquisitions in the nine months ended December 31, 2016,June 30, 2022, net investing activities resulted in a source of cash of $397.0 million primarily fromrelated to capital purchases and sales and maturities of available-for-sale securities.investments in other assets.


Our level of capital expenditures varies from time to time as a result of actual and anticipated business conditions. Capital expenditures in the ninethree months ended December 31, 2017June 30, 2023 were $148.4$111.1 million compared to $52.3$121.9 million in the ninethree months ended December 31, 2016.June 30, 2022. Capital expenditures were primarily for the expansion of production capacity and the addition of research and development equipment and new office buildings.  Capital expendituresequipment. Consistent with the slowing macroeconomic environment in fiscal 2017 were relatively less thanthe June 2023 quarter, we have experienced in recent years as we delayed certain purchases until we had finalizedpaused most of our factory expansion actions and developed plans followingreduced our acquisition of Atmel regarding technology platforms and other manufacturing activities.planned capital investments through fiscal 2025. We currently intend to spend approximately $190.0invest between $300 million and $350 million in equipment and facilities during the next twelve months to invest in equipment and facilities.12 months. We believe that the capital expenditures anticipated to be incurred over the next twelve12 months will provide sufficient manufacturing capacity to support the growth of our production capabilities for our new products and technologies and to bring in-house more of the assembly and test operations that are currently outsourced. We expect to finance our capital expenditures through our existing cash balances and cash flows from operations.In February 2023, we announced our plan to invest $880 million over the next several years to expand our SiC and silicon production capacity, including the production of 8-inch wafers, at our Fab 5 facility. In August 2022, the U.S. government enacted the CHIPS Act which is to provide billions of dollars of cash incentives and a new investment tax credit to increase domestic manufacturing capacity in our industry. We expect to receive the cash benefit associated with the investment tax credit for qualifying capital expenditures in future periods and expect to apply for other incentives provided by the legislation; however, there can be no assurance that we will receive any such other incentives, what the amount and timing of any incentive we receive will be, as to which other companies will receive incentives and whether the legislation will have a positive or negative impact on our competitive position. If we do receive a CHIPS Act grant, the restrictions and operational requirements that are imposed on CHIPS Act grant recipients could add complexity to our operations and increase our costs.
 
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Financing Activities

Net cash used in financing activities was $335.1$815.1 million in the ninethree months ended December 31, 2017June 30, 2023 compared to net cash provided of $185.8$626.9 million in the ninethree months ended December 31, 2016.  TheJune 30, 2022. Significant transactions affecting our net financing cash provided by financing activities was lower flows included:
•in the ninefirst three months ended December 31, 2017 compared to the nine months ended December 31, 2016 because of net proceedsfiscal 2024, $465.1 million of $438.5 million from borrowings under our credit facility to fund operations, finance acquisitions and pay dividends in the nine months ended December 31, 2016. In addition, financing activities in the nine months ended December 31, 2017 includes $73.4 million in cash used to settle conversionspay down certain principal of our 2007debt, including our 2015 Senior Convertible Debt, our 2017 Senior Convertible Debt, our 2017 Junior Debt.Convertible Debt, our 4.333% 2023 Notes, and our Revolving Credit Facility, and

In June 2017, •in connection with the settlementfirst three months of $111.3fiscal 2023, $272.5 million of cash used to pay down certain principal of our 2007debt, including our 2017 Senior Convertible Debt, our 2017 Junior Debt, we amended our credit agreement to (i) extend the time period during which we are permitted to repurchase, redeem or exchange our 2007 JuniorConvertible Debt, and (ii) amend the maximum total leverage ratio covenant to extend the time period for permitted refinancings or exchanges of the 2007 Junior Debt that may be excluded from the calculation of the ratio, subject to certain conditions.our Revolving Credit Facility, and

In February 2017, we amended our credit agreement to, among other things, increase certain covenant compliance ratios. The February 2017 amendment included a new collateral agreement that secures our borrowings with all assets of our guarantor subsidiaries with the exception of real property. Proceeds of loans made under the credit agreement may be used for working capital and general corporate purposes. At December 31, 2017 and March 31, 2017, we had no borrowings outstanding under our credit facility, which had a capacity as of December 31, 2017 of $3,122.3 million. See Note 13 of the notes to consolidated financial statements for more information regarding our credit agreement.

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Our total cash, cash equivalents, short-term investments and long-term investments held by our foreign subsidiaries was $1,429.5 million at December 31, 2017 and $909.2 million at March 31, 2017. Under tax laws and regulations as of December 31, 2017, if accumulated earnings and profits held by our foreign subsidiaries that U.S. taxes had not previously been provided for were to be distributed to the U.S., •in the formfirst three months of fiscal 2024 and fiscal 2023, we paid cash dividends or otherwise, we would be subject to additional U.S. income taxesour stockholders of $208.9 million and foreign withholding taxes. However, under the Act, our earnings$153.0 million, respectively, and profits (E&P) accumulated after December 31, 2017 held by our foreign subsidiaries are now currently taxed
•in the U.S.,first three months of fiscal 2024 and as such, distributions of E&P to the U.S. no longer generate additional negative U.S. income tax consequences. Foreign withholding may still apply on distributions. Our balance of cash, cash equivalents, short-term investments and long-term investments available for our U.S. operations as of December 31, 2017 and March 31, 2017 was approximately $555.4 million and $501.0 million, respectively. Our U.S. operations and capital requirements are funded primarily by cash generated from U.S. operating activities, which has been and is expected to be sufficient to meet our business needs in the U.S. for the foreseeable future. We utilize a variety of tax planning and financing strategies (including borrowings under our credit agreement) with the objective of having our worldwide cash available in the locations in which it is needed. Should our U.S. cash needs exceed funds generated by our U.S. operations for any reason, including acquisitions of large capital assets or acquisitions of U.S. businesses, we may require additional funds in the U.S. and would expect to borrow such additional funds under our existing credit facility, pursue other U.S. borrowing alternatives, issue equity securities or utilize a combination of these sources. We consider our offshore earnings to be permanently reinvested offshore. The Act may provide opportunities for us to repatriate amounts at a tax rate that would be advantageous to us. However, our management is still evaluating the effects of the Act and our tax structure and, as such, we have not changed our position on permanent reinvestment of such amounts at this time. We could determine to repatriate some of our offshore earnings in future periods to fund stockholder dividends, share repurchases, acquisitions or other corporate activities.  We expect that a significant portion of our future cash generation will be in our foreign subsidiaries.

During the December 2017 quarter, we recognized a one-time transition tax on accumulated unrepatriated foreign earnings, estimated at $627.7 million, as a result of the recent U.S. tax reform. This value is identified as provisional in our condensed consolidated financial statements for the period ended December 31, 2017, and is subject to future measurement period adjustments in accordance with SAB 118. We intend to elect to pay this tax over a period of eight years, with 8% of the transition tax paid each year for fiscal 2018 through fiscal 2022, and 15%, 20%, and 25%, respectively, to be paid during fiscal 2023, 2024, and 2025.

We enter into derivative transactions from time to time in an attempt to reduce our exposure to currency rate fluctuations.  Although none of the countries in which we conduct significant foreign operations has had a highly inflationary economy in the last five years, there is no assurance that inflation rates or fluctuations in foreign currency rates in countries where we conduct operations will not adversely affect our operating results in the future.  At December 31, 2017, we had no foreign currency forward contracts outstanding.
On April 4, 2016, we completed our acquisition of Atmel. Under the terms of the merger agreement executed on January 19, 2016, Atmel stockholders received $8.15 per share consisting of $7.00 per share in cash and $1.15 per share in shares of Microchip common stock. We financed the purchase price of our Atmel acquisition using approximately $2.04 billion of cash held by certain of our foreign subsidiaries, approximately $941.6 million from additional borrowings under our existing credit agreement and approximately $486.1 million through the issuance of an aggregate of 10.1 million shares of our common stock. The acquisition price represents a total equity value of approximately $3.47 billion, and a total enterprise value of approximately $3.43 billion, after excluding Atmel's cash and investments net of debt on its balance sheet of approximately $39.3 million. The acquisition was structured in a manner that enabled us to utilize a substantial portion of the cash, cash equivalents, short-term investments and long-term investments held by certain of our foreign subsidiaries in a tax efficient manner. Although we believe our determinations with respect to the tax consequences of the acquisition are reasonable, we are regularly audited by the IRS and may be audited by other taxing authorities, and there can be no assurance as to the outcome of any such audit.

Our Board of Directors previously approved a share repurchase program under which up to 15.0 millionrepurchased shares of our common stock may be repurchasedfor $140.3 million and $195.2 million, respectively.

In December 2021, we amended and restated our Credit Agreement in its entirety. 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 us, subject to certain conditions, to add one or more incremental term loan facilities or increase the revolving loan commitments up to $750.0 million. As of June 30, 2023, the principal amount of our outstanding indebtedness was $6.05 billion. At June 30, 2023, we had $725.0 million of outstanding borrowings under the Revolving Credit Facility compared to $100.0 million at March 31, 2023. Our 2.670% 2023 Notes mature on September 1, 2023, and we intend to finance the repayment of such notes using available borrowings under our Revolving Credit Facility.

Capital Returns

In November 2021, our Board of Directors authorized the repurchase of up to $4.00 billion of our common stock in the open market or in privately negotiated transactions. There were no repurchasesIn the first three months of fiscal 2024, we repurchased approximately 1.8 million shares of our common stock duringfor $140.3 million under this authorization. In the ninefirst three months ended December 31, 2017.  There is no expiration date associated withof fiscal 2023, we repurchased approximately 2.9 million shares of our common stock for $195.2 million under this repurchaseauthorization. As of June 30, 2023, approximately $2.49 billion remained available for repurchases under the program. As of December 31, 2017,June 30, 2023, we held approximately 18.933.5 million shares as treasury shares. Our current intent is to regularly repurchase shares of our common stock over time based on our cash generation, leverage metrics, and market conditions.


OnIn October 28, 2002, we announced that our Board of Directors had approved and instituted a quarterly cash dividend on our common stock.  To date, our cumulative dividend payments have totaled approximately $5.95 billion. A quarterly cash dividend of $0.3625$0.383 per share was paid on DecemberJune 5, 20172023 in the aggregate amount of $84.9$208.9 million. A quarterly dividend of $0.3630$0.410 per share was declared on February 6, 2018August 3, 2023 and will be paid on March 6, 2018September 5, 2023 to stockholders of record as of February 21, 2018.August 22, 2023. We expect the aggregate cash dividend for March 2018the September 2023 quarter to be approximately $85.2$223.0 million. Our Board is free to change our dividend practices at any time and to increase or decrease the dividend paid, or not to pay a dividend on our common stock on the basis of our results of operations, financial condition, cash requirements and

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future prospects, and other factors deemed relevant by our Board.  Our current intent is to provide for ongoingincrease our quarterly cash dividends depending upon market conditions, our results of operations, and potential changes in tax laws.


We believe that our existing sources of liquidity combined with cash generated from operations and borrowings under our credit agreementRevolving Credit Facility will be sufficient to meet our currently anticipated cash requirements for at least the next 12 months. However, theOur long-term liquidity requirements primarily arise from working capital requirements, interest and principal repayments related to our outstanding indebtedness, capital expenditures, cash dividends, share repurchases, and income tax payments. For additional information regarding our cash requirements see "Note 9. Commitments and Contingencies", "Note 5. Debt" and "Note 10. Income Taxes" to our condensed consolidated financial statements. The semiconductor industry is capital intensive.  Inintensive and in order to remain competitive, we must constantly evaluate the need to make significant investments in capital equipment for both production and research and development.development and to expand our existing facilities or potentially construct new facilities.  We may increase our borrowings under our credit agreementRevolving Credit Facility or seek additional equity or debt financing from time to time to refinance our existing debt, maintain or expand our wafer fabrication and product assembly and test facilities, for cash dividends, for share repurchases or for acquisitions or other purposes.  The timing and amount of any such financing requirements will depend on a number of factors, including the maturity dates of our existing debt, our level of dividend payments, changes in tax laws and regulations regarding the repatriation of offshore cash, (including the impact of the Act), demand for our products, changes in industry conditions, product mix, competitive factors and our ability to identify suitable acquisition candidates.  We plan to refinance certain of our existing notes as they mature and we may from time to time seek to refinance certain of our other outstanding debt or Convertible Debt through issuances of new notes or convertible debt, term
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loans, commercial paper, tender offers, exchange transactions or open market repurchases. Such issuances, tender offers or exchanges or purchases, if any, will depend on prevailing market conditions, our ability to negotiate acceptable terms, our liquidity position and other factors. There can be no assurance that suchany financing will be available on acceptable terms due to uncertainties resulting from rising interest rates, higher inflation, economic uncertainty, instability in the banking sector, the COVID-19 pandemic, or other factors, and any additional equity financing would result in incremental ownership dilution to our existing stockholders.

Contractual Obligations

There have not been any material changes in We also plan to pursue incentives under the CHIPS Act to increase our contractual obligations from what we disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.

During the December 2017 quarter, we recognized a one-time transition tax on accumulated unrepatriated foreign earnings, estimated at $627.7 million, as a result of the recent U.S. tax reform of which we expect to result in future cash payments of approximately $300.0 million. This one-time transition tax is identified as provisional in our condensed consolidated financial statements for the period ended December 31, 2017, and is subject to future measurement period adjustments in accordance with SAB 118. We intend to elect to pay this tax over a period of eight years, with 8% of the transition tax paid each year for fiscal 2018 through fiscal 2022, and 15%, 20%, and 25%, respectively, todomestic manufacturing capacity; however, there can be paid during fiscal 2023, 2024, and 2025.

Off-Balance Sheet Arrangements (Including Guarantees)
As of December 31, 2017, we are not involved in any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K. In the ordinary course of business, we may provide standby letters of credit or other guarantee instruments to certain parties as required for certain transactions initiated by us or our subsidiaries. We have not recorded any liability in connection with these guarantee arrangements. Based on historical experience and information currently available, we believeno assurance that we will not be required to makereceive any payments under these guarantee arrangements.such incentives or what the amount and timing of any incentive we receive will be.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
Our investments are intendedInterest Rate Risk

As of June 30, 2023, our current and long-term debt totaled $6.05 billion. We have no interest rate exposure to establish a high-quality portfolio that preserves principal, meets liquidity needs, avoids inappropriate concentrations, and delivers an appropriate yield in relationship torate changes on our investment guidelines and market conditions.  Our investment portfolio, consisting of fixed income securities, money market funds, cash deposits, and marketable securities that we hold on an available-for-sale basis, was $1,985.0 millionrate debt, which totaled $5.32 billion as of December 31, 2017 comparedJune 30, 2023. We have interest rate exposure with respect to $1,410.2the $725.0 million of our variable interest rate debt outstanding under our Revolving Credit Facility as of March 31, 2017. TheJune 30, 2023. A 50-basis point increase is due to cash generated from operations. Our available-for-sale debt securities, like all fixed income instruments, are subject to interest rate risk and will decline in value if market interest rates increase.would increase our expected annual interest expense for the next 12 months by approximately $3.6 million. We haveintend to finance the ability to holdrepayment of a portion of our fixed income investments untilrate debt maturing within the next 12 months using available borrowings under our Revolving Credit Facility, new fixed rate notes, term loans, commercial paper or other instruments at which point, changes in interest rates will have a more significant impact on our interest expense if we refinance such fixed rate debt with variable rate debt. For additional information, refer to "Note 5. Debt" for a summary of our debt obligations by maturity and, therefore, we woulddate.

Inflation Risk

Inflation has not expect to recognize anyhad a material adverse impact on our operating results in income or cash flowsrecent periods. However, if market interest rates increase. The following table provides information about our available-for-sale securities that are sensitivecosts were to changes in interest rates. We have aggregatedcontinue to become subject to significant inflationary pressures, we may not be able to continue to offset such higher costs through price increases which could adversely impact our available-for-sale securities for presentation purposes since they are all very similar in nature. The amounts for fiscal 2018 refer to the remaining three months of the current fiscal year (dollars in thousands):operating results.


 Financial instruments maturing during the fiscal year ended March 31,
 2018 2019 2020 2021 2022 Thereafter
Available-for-sale securities$258,290
 $166,759
 $170,339
 $715,053
 $—
 $—
Weighted-average yield rate1.21% 1.52% 1.76% 1.84% —% —%


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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
 
As of the end of the period covered by this Quarterly Report on Form 10-Q, as required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act, of 1934, as amended, we evaluated under the supervision of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended)Act).  Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures arewere effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.  Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management.  Our disclosure controls and procedures include components of our internal control over financial reporting.  Management's assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance because a control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system's objectives will be met.

Changes in Internal Control over Financial Reporting
 
During the three months ended December 31, 2017,June 30, 2023, there was no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.






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PART II.  OTHER INFORMATION


Item 1.Legal Proceedings
Item 1. Legal Proceedings

Refer to Note 15"Note 9. Commitments and Contingencies" to our condensed consolidated financial statements for information regarding legal proceedings.


Item 1A. Risk Factors
 
When evaluating Microchip and its business, you should give careful consideration to the factors listed below, in addition toas well as the information provided elsewhere in this Form 10-Q and in other documents thatfilings we filemake with the SecuritiesSEC.

Risk Factor Summary

Risks Related to Our Business, Operations, and Exchange Commission.Industry

•impact of global economic conditions on our operating results, net sales and profitability;
•impact of economic conditions on the financial viability and performance of our licensees, customers, distributors, or suppliers;
•impact of price increases, increased tariffs, raw material availability or other factors affecting our suppliers;
•dependence on wafer foundries and other contractors by our licensees and ourselves;
•dependence on foreign sales, suppliers, and operations, which exposes us to foreign political and economic risks;
•dependence on orders received and shipped in the same quarter, limited visibility to product shipments other than those shipped through our Preferred Supply Program or LTSAs;
•intense competition in the markets we serve, leading to pricing pressures, reduced sales or market share;
•ineffective utilization of our manufacturing capacity or failure to maintain manufacturing yields;
•inability to achieve expected returns from capacity expansions;
•impact of seasonality and wide fluctuations of supply and demand in the industry;
•dependence on distributors;
•ability to introduce new products on a timely basis;
•business interruptions affecting our operations or that of key vendors, licensees or customers;
•technology licensing business exposes us to various risks;
•reliance on sales into governmental projects, and compliance with associated regulations;
•risks related to grants from, or tax arrangements with, governments, agencies and research organizations;
•ability to realize anticipated benefits from completed or future acquisitions or divestitures;
•future impairments to goodwill or intangible assets;
•our failure to maintain proper and effective internal control and remediate future control deficiencies;
•customer demands to implement business practices that are more stringent than legal requirements;
•ability to attract and retain qualified personnel; and
•the occurrence of events for which we are self-insured, or which exceed our insurance limits.

Risks Related to Cybersecurity, Privacy, Intellectual Property, and Litigation
•attacks on our IT systems, interruptions in our IT systems, our products or our improper handling of data;
•risks related to compliance with privacy and data protection laws and regulations;
•risks related to legal proceedings, investigations or claims;
•risks related to contractual relationships with our customers; and
•protecting and enforcing our intellectual property rights.

Risks Related to Taxation, Laws and Regulations
•impact on our reported financial results by new accounting pronouncements or changes in existing accounting standards and practices;
•the issuance of new export controls or trade sanctions, fines, restrictions or delays in our ability to export or import products, or increase costs associated with the manufacture or transfer of products;
•outcome of future examinations of our income tax returns;
•exposure to greater than anticipated income tax liabilities, changes in or the interpretation of tax rules and regulations including the TCJA, or unfavorable assessments from tax audits;
•impact of the legislative and policy changes implemented globally by the current or future administrations;
•impact of stringent environmental, climate change, conflict-free minerals and other regulations or customer demands;
•ESG considerations; and
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•requirement to fund our foreign pension plans.

Risks Related to Capitalization and Financial Markets
•impact of various factors on our future trading price of our common stock;
•fluctuations in the amount and timing of our common stock repurchases;
•our ability to effectively manage current or future debt;
•our ability to generate sufficient cash flows or obtain access to external financing;
•impact of conversion of our convertible debt on the ownership interest of our existing stockholders; and
•fluctuations in foreign currency exchange rates.

Risks Related to Our Business, Operations, and Industry

Our operating results are impacted by global economic conditions and may fluctuate in the future due to a number of factors that could reduce our net sales and profitability.


Our operating results are affected by a wide variety of factors that could reduce our net sales and profitability, many of which are beyond our control. Some of the factors that may affect our operating results include:

•general economic, industry, public health or political conditions in the U.S. or internationally;internationally, including uncertain economic conditions in U.S., China and Europe, increases in interest rates, high inflation or instability in the banking sector;
•the level of order cancellations or push-outs due to uncertain economic conditions or other factors;
•disruptions in our business, our supply chain or our customers' businesses due to public health concerns (including viral outbreaks such as COVID-19), cybersecurity incidents, terrorist activity, armed conflict, war (including Russia's invasion of Ukraine), worldwide oil prices and supply, fires, natural disasters or disruptions in the transportation system;
•availability of raw materials including rare earth minerals, supplies and equipment due to supply chain constraints or other factors;
•constrained availability from other electronic suppliers impacting our customers' ability to ship their products, which in turn may adversely impact our sales to those customers;
•our ability to continue to increase our factory capacity as needed to respond to changes in customer demand;
•our ability to secure sufficient wafer foundry, assembly and testing capacity;
•changes in demand or market acceptance of our products and products of our customers, and market fluctuations in the industries into which such products are sold;
our ability to ramp our factory capacity to meet customer demand;•trade restrictions and increase in tariffs, including those on business in China, or focused on specific companies;
our ability to secure sufficient wafer foundry,•increased costs and availability of raw materials, supplies, equipment, utilities, labor, and/or subcontracted services for wafers, assembly and testing capacity;test;
changes or fluctuations in customer order patterns and seasonality;
changes in tax regulations and policies in the U.S. and other countries in which we do business including the impact of the Tax Cuts and Jobs Act of 2017;
new accounting pronouncements or changes in existing accounting standards and practices, including with respect to revenue recognition;
changes in utilization of our manufacturing capacity and fluctuations in manufacturing yields;
•the mix of inventory we hold and our ability to satisfy orders from our inventory;
our ability to continue to realize the expected benefits•changes in utilization of our acquisitions including our acquisition of Atmel;manufacturing capacity and fluctuations in manufacturing yields;
•changes or fluctuations in customer order patterns and seasonality;
•changes in tax regulations in countries in which we do business;
•new accounting pronouncements or changes in existing accounting standards and practices;
•levels of inventories held by our customers;customers and the customers of our distributors;
•risk of excess and obsolete inventories;
•competitive developments including pricing pressures;
•unauthorized copying of our products resulting in pricing pressure and loss of sales;
availability of raw materials and equipment;
•our ability to successfully transition products to more advanced process technologies to reduce manufacturing costs;
•the level of orders that are received and can be shipped in a quarter;quarter, including the impact of product lead times;
•the level of sell-through of our products through distribution;distribution or resale;
•our ability to continue to realize the expected benefits of our past or future acquisitions;
•fluctuations in our mix of product sales;
•announcements of other significant acquisitions by us or our competitors;
disruptions in our business or our customers' businesses due to terrorist activity, armed conflict, war, worldwide oil prices and supply, public health concerns, natural disasters or disruptions in the transportation system;
constrained availability from other electronic suppliers impacting our customers' ability to ship their products, which in turn may adversely impact our sales to those customers;
•costs and outcomes of any current or future tax audits or any litigation, investigation or claims involving intellectual property, our Microsemi acquisition, customers or other issues; and
fluctuations in commodity or energy prices; and
•property damage or other losses, whether or not covered by insurance.


We believe that period-to-periodPeriod-to-period comparisons of our operating results are not necessarily meaningful and that you should not rely upon any such comparisons as indications of our future performance. In future periods, our operating results may fall below our public guidance or the expectations of public market analysts and investors, which would likely have a negative effect on the price of our common stock. Uncertain global economic and public health conditions, such as the ongoing economic recovery and uncertainty surrounding the strength and duration of such recoveryCOVID-19 pandemic, have caused
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and may in the future cause our operating results to fluctuate significantly and make comparabilitycomparisons between periods less meaningful.



Our operating results may be adversely impacted by the financial viability and performance of our licensees, customers, distributors, or suppliers.

We regularly review the financial viability and performance of our licensees, customers, distributors and suppliers. Any downturn in global or regional economic conditions, as a result of rising interest rates, high inflation, instability in the banking sector, the enactment of broad sanctions by the U.S. or other countries against Russia or China, the COVID-19 pandemic or other factors, may adversely impact their financial viability. The financial failure of a large licensee, customer, reseller or distributor, an important supplier, or a group thereof, could have an adverse impact on our operating results and could result in our inability to collect our accounts receivable balances, higher allowances for credit losses, and higher operating costs as a percentage of net sales. Also, these parties may not comply with their contractual commitments, or may interpret them differently than we do, which could lead to termination of their performance with little or no notice to us, which could limit our ability to mitigate our exposure. If one of our counterparties becomes insolvent, files for bankruptcy, has business leverage, or favorable contractual terms, then our ability to recover any losses suffered as a result of that counterparty's cessation of performance may be limited by their liquidity, the applicable laws, or their willingness to negotiate a resolution. In the event of such default or cessation of performance, we could incur significant losses, which could have a material adverse effect on our business, results of operations, or financial condition.

We have various arrangements with financial institutions for our cash deposits, and other banking activities, that subject us to risk if such institutions were to experience financial or regulatory difficulties. As a result, we may experience losses on our holdings of cash and cash equivalents due to failures of financial institutions or other related parties.

We may lose sales if suppliers of raw materials, components or equipment fail to meet our or our customers' needs, increase prices, are impacted by increases in tariffs, or such raw materials, components or equipment become restricted or unavailable.

Our manufacturing operations require raw and processed materials and equipment that must meet exacting standards.  We generally have multiple sources for these supplies, but there may be a limited number of suppliers capable of meeting our standards.  We have experienced supply shortages from time to time in the past, and on occasion our suppliers have told us they need more time to fill our orders, that they cannot fill certain orders, that they will no longer support certain equipment with updates or parts, or that they are increasing prices. In particular, in fiscal 2023 and in fiscal 2022, we experienced increased prices at certain suppliers for certain materials required for production purposes. However, in recent months, we believe that the pricing environment may be stabilizing. An interruption of any materials or equipment sources, or the lack of supplier support for a particular piece of equipment, could harm our business. The supplies necessary for our business could become more difficult to obtain as worldwide use of semiconductors increases, or due to supply chain disruptions, trade restrictions or political instability. Additionally, consolidation in our supply chain due to mergers and acquisitions may reduce the number of suppliers or change our relationships with them. Also, the reduced availability of necessary labor, the application of sanctions, trade restrictions or tariffs by the U.S. or other countries or the impact of the COVID-19 pandemic, may adversely impact the industry supply chain. For example, in 2019, the U.S. government increased tariffs on U.S. imports with China as their country of origin. Likewise, the China government increased tariffs on China imports with U.S. as their country of origin. We have taken steps to attempt to mitigate the costs of these tariffs on our business. Although these increases in tariffs did not significantly increase the operating costs of our business, they did, however, adversely impact demand for our products during fiscal 2020 and fiscal 2019. The additional tariffs imposed on components or equipment that we or our suppliers source from China will increase our costs and could have an adverse impact on our operating results in future periods. We may also incur increases in manufacturing costs in mitigating the impact of tariffs on our operations. This could also impair our sourcing flexibility.

Our customers may also be adversely affected by these same issues. The labor, supplies and equipment necessary for their businesses could become more difficult to obtain for various reasons not limited to business interruptions of suppliers, reduced availability of labor, consolidation in their supply chain, or sanctions, trade restrictions or tariffs or the impact of the COVID-19 pandemic that impair sourcing flexibility or increase costs. If our customers are not able to produce their products, then their need for our products will decrease. Such interruptions of our customers’ businesses could harm our business.

We do not, nor have we historically, purchased significant amounts of equipment from Russia, Belarus, or Ukraine. However, the semiconductor industry, and purchasers of semiconductors, use raw materials that are sourced from these regions, such as neon, palladium, cesium, rubidium, and nickel. If we, or our direct or indirect customers, are unable to obtain the requisite raw materials or components needed to manufacture products, our ability to manufacture products, or demand
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for our products, may be adversely impacted. This could have a material adverse effect on our business, results of operations or financial condition. While there has been an adverse impact on the world’s palladium, neon, cesium, and rubidium supply chains, at this time, our supply chains have been able to meet our needs. While sales of our products into Russia, Belarus and Ukraine and to customers that sell into these countries, have been negatively impacted by the Russian invasion of Ukraine, at this time, we have not experienced a material impact on our business, results of operations or financial conditions.

Additionally, certain materials are primarily available in a limited number of countries, including rare earth elements, minerals, and metals. Trade disputes, geopolitical tensions, economic circumstances, political conditions, or public health issues, such as COVID-19, may limit our ability to obtain materials or equipment. Although rare earth and other materials are generally available from multiple suppliers, China is the predominant producer of certain of these materials. If China were to restrict or stop exporting these materials, our suppliers' ability to obtain such supply may be constrained and we may be unable to obtain sufficient quantities, or obtain supply in a timely manner, or at a commercially reasonable cost. Constrained supply of rare earth elements, minerals, and metals may restrict our ability to manufacture certain of our products and make it difficult or impossible to compete with other semiconductor memory manufacturers who are able to obtain sufficient quantities of these materials from China or other countries.

We are dependent on wafer foundries and other contractors, as are our SuperFlash and other licensees.

We rely on outside wafer foundries for a significant portion of our wafer fabrication needs. Specifically, during the first three months of fiscal 2024, approximately 66% of our net sales came from products that were produced at outside wafer foundries compared to 63% of our net sales in fiscal 2023. We also use several contractors for a portion of the assembly and testing of our products. Specifically, during the first three months of fiscal 2024, approximately 42% of our assembly requirements and 31% of our test requirements were performed by third-party contractors, compared to approximately 41% and 33%, respectively, during fiscal 2023. Due to increased demand for our products, we took actions in fiscal 2023 and fiscal 2022 to increase our capacity allocation from our wafer fabrication, assembly and test subcontractors. There can be no assurance that we will be able to secure the necessary allocation of capacity from our wafer foundries and other contractors, that any such additional capacity will have the ability to manufacture the process technologies that we need, or that such capacity will be available on acceptable terms. Although we are continuing to expand our internal wafer fabrication, assembly and test capacity, we expect that our reliance on third-party contractors may increase over time as our business grows, and any inability to secure necessary external capacity could adversely affect our operating results.

As our manufacturing subcontractors move to more advanced process technologies over time, we may find that they do not invest in some of the trailing edge process technologies on which a large portion of our products are manufactured. If this occurs, it may limit the amounts of net sales that we can achieve or require us to make significant investments to be able to manufacture these products in our own existing facilities, at new facilities or at other foundries and assembly and testing contractors. In August 2022, the U.S. government passed the CHIPS Act to provide billions of dollars of cash incentives and a new investment tax credit to increase domestic manufacturing capacity in our industry. We expect to receive the cash benefit associated with the investment tax credit for qualifying capital expenditures in future periods and have applied for other incentives provided by the legislation; however, there can be no assurance that we will receive any such other incentives, what the amount and timing of any incentive we receive will be, as to which other companies will receive incentives and whether the legislation will have a positive or negative impact on our competitive position. If we do receive a CHIPS Act grant, the restrictions and operational requirements that are imposed on CHIPS Act grant recipients could add complexity to our operations and increase our costs.

Our use of third parties reduces our control over the subcontracted portions of our business. Our future operating results could suffer if a significant contractor were to experience production difficulties, insufficient capacity, decreased manufacturing, reduced availability of labor, assembly and test yields, or increased costs due to disruptions such as political upheaval, infrastructure disruption or pandemics. Additionally, our future operating results could suffer if our wafer foundries and other contractors increase the prices of the products and services that they provide to us. If third parties do not timely deliver products or services in accordance with our quality standards, we may be unable to qualify alternate manufacturing sources in a timely manner or on favorable terms, or at all. Additionally, these subcontractors could abandon processes that we need, or fail to adopt technologies that we desire to control costs. In such event, we could experience an interruption in production, an increase in manufacturing costs or a decline in product reliability, and our business and operating results could be adversely affected. Further, use of subcontractors increases the risks of misappropriation of our intellectual property.

Certain of our SuperFlash and other technology licensees rely on wafer foundries. If our licensees experienced disruption in supply at such foundries, this would reduce the revenue from our technology licensing business and would harm our operating results.
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We are highly dependent on foreign sales, suppliers, and operations, which exposes us to foreign political and economic risks.

Sales to foreign customers account for a substantial portion of our net sales. During the first three months of fiscal 2024, approximately 76% of our net sales were made to foreign customers, including 18% in China and 13% in Taiwan. During fiscal 2023, approximately 78% of our net sales were made to foreign customers, including 21% in China and 14% in Taiwan.

A strong position in the Chinese market is a key component of our global growth strategy. Although our sales in the Chinese market were very strong in calendar 2021, competition in China is intense, and China's economic growth slowed in calendar 2022 and through the first half of calendar 2023. In the first quarter of fiscal 2024, economic weakness in the Chinese market adversely impacted our sales volumes in China. As discussed above, the trade relationship between the U.S. and China remains challenging, economic conditions in China remain uncertain, and we are unable to predict whether such uncertainty will continue or worsen in future periods. Additionally, over the last several years, the impact of unpredictable COVID-19 related lockdowns and the adverse impact of the rapid transmission of COVID-19 when lockdowns in China were lifted has adversely impacted Chinese customers and the supply chain. Further, increasing investment in the semiconductor industry by the Chinese government and various state-owned of affiliated entities are intended to advance China's stated national policy objectives. The Chinese government may restrict us from participating in the China market, or may prevent us from competing effectively with Chinese companies. Weakening of foreign markets would likely result in lower demand for our products, which could have a material adverse effect on our business, results of operations or financial conditions.

We purchase a substantial portion of our raw materials and equipment from foreign suppliers. Please see the risks related to access to raw materials, components, or equipment on page 36. In addition, we own product assembly and testing facilities, and finished goods warehouses near Bangkok, Thailand, which has experienced periods of political instability and severe flooding in the past. There can be no assurance that any future flooding or political instability in Thailand would not have a material adverse impact on our operations. We have a test facility in Calamba, Philippines. We use foundries and other foreign contractors for a significant portion of our assembly and testing and wafer fabrication requirements.

Our reliance on foreign operations, foreign suppliers, maintenance of substantially all of our finished goods inventory at foreign locations and significant foreign sales exposes us to foreign political and economic risks, including, but not limited to:
•economic uncertainty in the worldwide markets served by us;
•political instability, including changes in relations between China and Taiwan which could disrupt the operations of our Taiwan-based third-party wafer foundries, and subcontractors;
•social and economic instability due to public health concerns, wars, or other factors;
•trade restrictions and changes in tariffs;
•supply chain disruptions or delays;
•potentially adverse tax consequences;
•import and export license requirements and restrictions;
•changes in laws related to taxes, trade, environmental, health and safety, technical standards and consumer protection;
•restrictions on the transfer of funds, including currency controls in China, which could negatively affect the amount and timing of certain customer payments, and as a results our cash flows;
•currency fluctuations and foreign exchange regulations;
•difficulties in staffing and managing international operations;
•employment regulations;
•disruptions due to cybersecurity incidents;
•disruptions in international transport or delivery;
•public health conditions (including viral outbreaks such as COVID-19); and
•difficulties in collecting receivables and longer payment cycles.

If any of these risks occur or are worse than we anticipate, our sales could decrease and our operating results could suffer, we could face an increase in the cost of components, production delays, business interruptions, delays in obtaining export licenses, or denials of such licenses, tariffs and other restrictions, longer payment cycles, increased taxes, restrictions on the repatriation of funds and the burdens of complying with a variety of foreign laws, any of which could ultimately have a material adverse effect on our business. Further changes in trade policy, tariffs, additional taxes, or restrictions on supplies, equipment, and raw materials including rare earth minerals, may limit our ability to produce products, increase our selling and/or manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial conditions.
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We depend on orders that are received and shipped in the same quarter and have limited visibility to product shipments other than orders placed under our Preferred Supply Program and under our LTSAs.

Our net sales in any given quarter depend upon a combination of shipments from backlog, and orders that are both received and shipped in the same quarter, which we call turns orders. We measure turns orders at the beginning of a quarter based on the orders needed to meet the shipment targets that we set entering the quarter. Historically, our ability to respond quickly to customer orders has been part of our competitive strategy, resulting in customers placing orders with relatively short delivery schedules. Shorter lead times generally mean that turns orders as a percentage of our business are relatively high in any particular quarter and reduce our visibility on future shipments. Turns orders correlate to overall semiconductor industry conditions and product lead times. Although our backlog has been strong in recent periods due to the impact of our Preferred Supply Program and our LTSAs, in the future we expect turns orders to remain important to our ability to meet our business objectives. Because turns orders can be difficult to predict, especially in times of economic volatility where customers may change order levels within the quarter, varying levels of turns orders make it more difficult to forecast net sales. The level of turns orders may also decrease in future periods in situations where customers are holding excess inventory of our products. Our customers may have increased their order levels in recent previous periods to help ensure they have sufficient inventory of our products to meet their needs, or they may have been unable to sell their products at their forecasted levels which would reduce our level of turns orders. As a significant portion of our products are manufactured at foundries, foundry lead times may affect our ability to satisfy certain turns orders. If we do not achieve a sufficient level of turns orders in a particular quarter relative to our revenue targets or effectively manage our production based on changes in order forecasts, our revenue and operating results will likely suffer.

In February 2021, we announced our Preferred Supply Program and, starting in the first quarter of calendar 2022, we began entering into LTSAs, which offer our customers the ability to receive prioritized capacity. To participate in the original Preferred Supply Program, customers were expected to place 12 months of orders, which could not be cancelled or rescheduled by the customer except in the event of price increases. The capacity priority under the Preferred Supply Program began for shipments in July 2021. In response to industry capacity conditions improving and our product lead times reducing, we modified our Preferred Supply Program in August 2023 to allow customers to place orders for six months of continuous backlog rather than 12 months in the original program. Preferred Supply Program orders placed during or after August 2023 can be cancelled or rescheduled if our planned delivery date is greater than six months from the request date. The Preferred Supply Program and the LTSAs are not a guarantee of supply; however, they will provide the highest priority for those orders which are under these programs, and the capacity priority will be on a first-come, first-served basis until the available capacity is booked. A significant portion of our capacity is booked under these programs. We believe these programs will enable us to be in a stronger position to make capacity and raw material commitments to our suppliers, buy capital equipment with confidence, hire employees and ramp up manufacturing and manufacture products more efficiently. Since these are relatively new programs, there can be no assurance that the programs will be successful or that they will provide the benefits we expect to our business. For example, in recent periods, we have accommodated requests by customers to push-out certain orders to help them manage inventory levels and, in some cases, to help other customers that are experiencing supply shortages. However, in the event that customers under these programs attempt to cancel or reschedule orders, or refuse shipment, we may have to take legal or other action to enforce the terms of the programs, and any such actions could result in damage to our customer relationships or cause us to incur significant costs. We may be unable to recover damages from customers that default under these programs. Additionally, as orders under these programs cannot be cancelled or returned except in the event of price increases, these programs may result in customers holding excess inventory of our products and thus decrease their need to place new orders, including turns orders, in later periods.

Intense competition in the markets we serve may lead to pricing pressures, reduced sales or reduced market share.

The semiconductor industry is intensely competitive and faces price erosion and rapid technological change. We compete with major domestic and international semiconductor companies, many of which have greater market recognition and substantially greater financial, technical, marketing, distribution and other resources than we do. In addition, some governments, such as China, may provide, or have provided and may continue to provide, significant assistance financial or otherwise, to some of our competitors, or to new entrants, and may intervene in support of national industries and/or competitors. The semiconductor industry has experienced significant consolidation in recent years which has resulted in several of our competitors becoming much larger in terms of revenue, product offerings and scale. We may be unable to compete successfully in the future, which could harm our business. Our ability to compete successfully depends on a number of factors, including, but not limited to:
•changes in demand in the markets that we serve and the overall rate of growth or contraction of such markets, including but not limited to the automotive, personal computing and consumer electronics markets;
•our ability to obtain adequate foundry and assembly and test capacity and supplies at acceptable prices;
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•our ability to ramp production and increase capacity as needed, at our wafer fabrication and assembly and test facilities;
•the quality, performance, reliability, features, ease of use, pricing and diversity of our products;
•our success in designing and manufacturing new products including those implementing new technologies;
•the rate at which customers incorporate our products into their applications and the success of such applications;
•the rate at which the markets that we serve redesign and change their own products;
•product introductions by our competitors;
•the number, nature and success of our competitors in a given market;
•our ability to protect our products and processes by effective utilization of intellectual property rights;
•our ability to address the needs of our customers; and
•general market and economic conditions.

Historically, average selling prices in the semiconductor industry decrease over the life of a product.  The average selling prices of our mixed-signal microcontroller, FPGA products, and proprietary products in our analog product line have remained relatively constant over time, while average selling prices of our memory and non-proprietary products in our analog product line have declined over time. The overall average selling price of our products is affected by these trends; however, variations in our product and geographic mix of sales can cause wider fluctuations in our overall average selling price in any given period.

We have experienced, and may experience in the future, modest pricing declines in certain of our proprietary product lines, primarily due to competitive conditions. In the past, we have moderated average selling price declines in many of our proprietary product lines by introducing new products with more features and higher prices. However, we may not be able to do so in the future. We have experienced in the past, and may experience in the future, competitive pricing pressures on our memory and non-proprietary products in our analog product line. In fiscal 2023 and fiscal 2022, we experienced cost increases which we were able to pass on to our customers. However, in the future, we may be unable to maintain average selling prices due to increased pricing pressure, which could adversely impact our operating results.

We, and our competitors, seek to expand production capacity, increase wafer output, improve yields, and reduce die size, which could result in significant increases in worldwide supply and downward pressure on prices. Increases in worldwide supply of semiconductor products, if not accompanied by commensurate increases in demand, could lead to declines in average selling prices for our products, and could materially adversely affect our business, results of operations, or financial condition.

Our operating results will suffer if we ineffectively utilize our manufacturing capacity or fail to maintain manufacturing yields.

Integrated circuit manufacturing processes are complex and sensitive to many factors, including contaminants in the manufacturing environment or materials used, the performance of our personnel and equipment, and other quality issues. As is typical in the industry, we have from time to time experienced lower than anticipated manufacturing yields. Our operating results will suffer if we are unable to maintain yields at or above approximately the current levels. This could include delays in the recognition of revenue, loss of revenue, and penalties for failure to meet shipment deadlines. Our operating results are adversely affected when we operate below normal capacity. In the first three months of fiscal 2024 and in fiscal 2023, we operated at or above normal capacity levels.

We may not be able to achieve expected returns from our planned capacity expansions.

In fiscal 2023 we announced our intent to expand our production capacity in the U.S. In particular, we have continued our multi-year $800 million capacity expansion plan at Fab 4 in Gresham, Oregon and we plan to invest $880 million to expand our SiC and silicon production capacity, including the production of 8-inch wafers at Fab 5 in Colorado Springs, Colorado.

These expansion projects subject us to a number of risks, including the following:
•availability of necessary funding, which may include external sources;
•ability to realize expected grants, investment tax credits, and other government incentives, including through the CHIPS Act and foreign, state, and local grants;
•increases to our cost structure until new production is ramped to adequate scale;
•sufficient customer demand to utilize our increased capacity;
•slowing macroeconomic business conditions;
•growth in our inventories;
•ability to timely ramp production in a cost-effective manner;
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•potential changes in laws or provisions of grants, investment tax credits, and other government incentives;
•availability of labor, services, equipment, and construction materials;
•ability to complete construction as scheduled, and within budget; and
•availability of the necessary workforce to support the expanded capacity.

Investments in capital expenditures for our capacity expansion projects may not generate expected returns, or cash flows. Significant judgement is required to determine which capital investments will result in optimal returns, and we could invest in projects that are ultimately less profitable than those projects we do not select. Delays in commencement, completion and ramping of expanded production facilities, or failure to optimize our investment choices, or increased costs could significantly adversely impact our ability to realize expected returns on our capital expenditures. Changes in laws or rulemaking in jurisdictions where we have planned expansion may cause us to reconsider the location of such expansion plans. For example, proposed rulemaking in Colorado would require companies to significantly reduce greenhouse gas emissions in a shorter timeframe than we would be able to achieve. Because we have contractual obligations to certain customers to assess the impact that manufacturing process changes may have on the products that we provide to such customers, even with the installation of costly equipment we would be unable to meet the timelines on greenhouse gas reduction proposed by the state of Colorado. If such rulemaking were to be adopted in its current proposed form this would require us to limit, if not completely curtail, our expansion plans in Colorado. Further, adverse impacts to our construction projects could negatively impact our ability to reduce costs or meet customer demand. If we do receive government incentives through the CHIPS Act, or through foreign, state, and local grants, the restrictions and operational requirements that are associated with such grants could add complexity to our operations and increase our costs. Any of the above factors could have a material adverse effect on our business, results of operations, or financial condition.

Our operating results are impacted by seasonality and wide fluctuations of supply and demand in the industry.

The semiconductor industry is characterized by seasonality and wide fluctuations of supply and demand.  Historically, since a significant portion of our revenue is from international sales and consumer markets, our business generates stronger revenues in the first half and comparatively weaker revenues in the second half of our fiscal year. However, broad fluctuations in our business, changes in semiconductor industry and global economic conditions (including the impact of strong demand in the industry, public health conditions or trade tensions) and our acquisition activity (including our acquisition of Microsemi) have had and can have a more significant impact on our results than seasonality. In periods when broad fluctuations, changes in business conditions or acquisitions occur, it is difficult to assess the impact of seasonality on our business. The semiconductor industry has had significant economic downturns, characterized by diminished product demand and production over-capacity. We have sought to reduce our exposure to this industry cyclicality by selling proprietary products, that cannot be quickly replaced, to a geographically diverse customer base across a broad range of market segments. However, we have experienced substantial period-to-period fluctuations in operating results and expect, in the future, to experience period-to-period fluctuations in operating results due to general industry or economic conditions. In this regard, in recent months many of our customers felt the effects of slowing economic activity and increasing business uncertainty and customer requests to push-out or cancel backlog increased in the fourth quarter of fiscal 2023 and in the first quarter of fiscal 2024. Consistent with the slowing macroeconomic environment, and the growth in our inventory, we have paused most of our factory expansion actions and reduced our planned capital investments through fiscal 2025. We are unable to predict the timing or impact of any such slowdown on our business.

Our business is dependent on distributors to service our end customers.

Sales to distributors accounted for approximately 48% of our net sales in the first three months of fiscal 2024 and approximately 47% of our net sales in fiscal 2023. With the exception of certain orders placed under our original Preferred Supply Program and LTSAs, we do not have long-term purchase agreements with our distributors, and we and our distributors may each terminate our relationship with little or no advance notice.

Future adverse conditions in the U.S. or global economies and labor markets or credit markets could materially impact distributor operations. Any deterioration in the financial condition, or disruption in the operations of our distributors, could adversely impact the flow of our products to our end customers and adversely impact our results of operation. In addition, during an industry or economic downturn, there may be an oversupply and decrease in demand for our products, which could reduce our net sales in a given period, increase order push-outs, increase inventory returns, and cause us to carry elevated levels of inventory. For example, in recent periods, we have accommodated requests by customers to push-out certain orders to help them manage inventory levels and, in some cases, to help other customers that are experiencing supply shortages. As a result of the foregoing, we may incur charges in connection with obsolete or excess inventory, or we may not fully recover our costs, which would reduce our gross margins. Violations of the Foreign Corrupt Practices Act, export controls and sanction laws, or similar laws, by our distributors could have a material adverse impact on our business.
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Our success depends on our ability to introduce new products on a timely basis.

Our future operating results depend on our ability to develop and timely introduce new products that compete effectively on the basis of price and performance and which address customer requirements. The success of our new product introductions depends on various factors, including, but not limited to:
•effective new product selection;
•timely completion and introduction of new product designs;
•availability of skilled employees;
•procurement of licenses for intellectual property rights from third parties under commercially reasonable terms, including those that may be needed to offer interoperability between our products and third-party products;
•implementation of appropriate technical standards developed by standard setting organizations;
•timely filing and protection of intellectual property rights for new product designs;
•availability of development and support tools and collateral literature that make complex new products easy for engineers to understand and use; and
•market acceptance of our customers' end products.

Because our products are complex, we have experienced delays from time to time in completing new product development. New products may not receive or maintain substantial market acceptance.  We may be unable to timely design, develop and introduce competitive products, which could adversely impact our future operating results.

Our success also depends upon our ability to develop and implement new design and process technologies. Semiconductor design and process technologies are subject to rapid technological change and require significant R&D expenditures. We and others in the industry have, from time to time, experienced difficulties in transitioning to advanced process technologies and have suffered reduced manufacturing yields or delays in product deliveries. Our future operating results could be adversely affected if any transition to future process technologies is substantially delayed or inefficiently implemented.

Business interruptions to our operations or those of our key vendors, licensees or customers could harm our business.

Operations at any of our facilities, at the facilities of any of our wafer fabrication or assembly and test subcontractors, or at any of our significant vendors, licensees or customers may be disrupted due to public health concerns (including outbreaks such as COVID-19), work stoppages or reduction in available labor, power loss, insufficient water, cyber attacks, computer network compromises, incidents of terrorism or security risk, political instability, governmental actions, telecommunications, transportation or other infrastructure failure, radioactive contamination, or fire, earthquake, floods, droughts, volcanic eruptions or other natural disasters. We have taken steps to mitigate the impact of some of these events should they occur; however, we cannot be certain that we will avoid a significant impact on our business in the event of a business interruption. For example, in the first three months of fiscal 2023 and in fiscal 2022, COVID-19 related restrictions adversely impacted our manufacturing operations in the U.S., Philippines and Thailand along with our subcontractors' manufacturing operations in Malaysia, Taiwan and China. Similar challenges arose for our logistics service providers, which adversely impacted their ability to ship product to our customers. The pandemic could adversely impact our business in future periods if the impact of COVID-19 again becomes severe in one or more of our key markets such as China or in areas where our suppliers or manufacturing operations are located. In the future, local governments could require us to reduce production, cease operations at any of our facilities, or implement mandatory vaccine requirements, and we could experience constraints in fulfilling customer orders.

Additionally, operations at our customers and licensees may be disrupted for a number of reasons. In April and May 2020, we received a greater number of order cancellations and requests by our customers to reschedule deliveries to future dates. Some customers requested order cancellations within our firm order window and claimed applicability of force majeure clauses due to the impact of COVID-19. Likewise, if our licensees are unable to manufacture and ship products incorporating our technology, or if there is a decrease in product demand due to a business disruption, our royalty revenue may decline.

Also, Thailand has experienced periods of severe flooding in recent years. While our facilities in Thailand have continued to operate normally, there can be no assurance that future flooding in Thailand would not have a material adverse impact on our operations. If operations at any of our facilities, or our subcontractors' facilities are interrupted, we may not be able to timely shift production to other facilities, and we may need to spend significant amounts to repair or replace our facilities and equipment.  Business interruptions would likely cause delays in shipments of products to our customers, and alternate sources for production may be unavailable on acceptable terms. This could result in reduced revenues, cancellation of orders,
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or loss of customers. Although we maintain business interruption insurance, such insurance will likely not compensate us for any losses or damages, and business interruptions could significantly harm our business.

Our technology licensing business exposes us to various risks.

Our technology licensing business is based on our SuperFlash and other technologies. The success of our licensing business depends on the continued market acceptance of these technologies and on our ability to further develop such technologies, to introduce new technologies, and to enforce our license terms. To be successful, any such technology must be able to be repeatably implemented by licensees, provide satisfactory yield rates, address licensee and customer requirements, and perform competitively. The success of our technology licensing business depends on various other factors, including, but not limited to:
•proper identification of licensee requirements;
•timely development and introduction of new or enhanced technology;
•our ability to protect and enforce our intellectual property rights for our licensed technology, and enforce the terms of our licenses;
•our ability to limit our liability and indemnification obligations to licensees;
•availability of development and support services to assist licensees in their design and manufacture of products;
•availability of foundry licensees with sufficient capacity to support OEM production; and
•market acceptance of our customers' end products.

Because our licensed technologies are complex, there may be delays from time to time in developing and enhancing such technologies. There can be no assurance that our existing or any enhanced or new technology will achieve or maintain substantial market acceptance. Our licensees may experience disruptions in production or reduced production levels which would adversely affect the revenue that we receive. Our technology license agreements generally include a clause that indemnifies the licensee against liability and damages (including legal defense costs) arising from certain intellectual property matters. We could be exposed to substantial liability for claims or damages related to intellectual property matters or indemnification claims. We have a program to audit the royalty payments made by our licensees to help ensure that the payments are in accordance with the terms of the applicable license agreements. From time to time, we or our licensees have contested the amount of royalty payments and related claims have resulted and could result in significant legal fees and require significant attention from our management. These issues may adversely impact the success of our licensing business and adversely affect our future operating results.

Reliance on sales into governmental projects, and compliance with associated regulations, could have a material adverse effect on our results of operations.

As a result of our Microsemi acquisition, in May 2018, a significant portion of our sales are from or are derived from government agencies or customers who sell to U.S. government agencies.  Such sales are subject to uncertainties regarding governmental spending levels, spending priorities, regulatory and policy changes.  Future sales into U.S. government projects are subject to uncertain government appropriations and national defense policies and priorities, including the budgetary process, changes in the timing and spending priorities, the impact of any past or future government shutdowns, contract terminations or renegotiations, future sequestrations, changes in regulations that we must comply with to be eligible to accept new contracts, such as the Cybersecurity Maturity Model Certification requirements and mandatory vaccine requirements, or the impact of the COVID-19 pandemic.  For example, in fiscal 2022, as a result of the COVID-19 pandemic, we experienced suspensions and stop work orders for some of our subcontracts. Additionally, the amendment to the U.S. National Defense Authorization Act (NDAA) was signed into law on December 23, 2022, and its provisions go into effect in December 2027. The NDAA amendment prohibits U.S. government agencies from buying semiconductor products or services manufactured by SMIC, YMTC, CXMT and any other entity that the U.S. government determines is owned, controlled, or connected to the government of a foreign country of concern (Prohibited Companies). Some of our products are manufactured at SMIC, and some of our suppliers buy products manufactured at YMTC. If we are unable to alternately source or manufacture certain of our products, or discontinue use of products from Prohibited Companies, if any, when the NDAA amendment goes into effect in December 2027, this could adversely impact our sales to U.S. government agencies and their prime customers. Although such actions have not yet had a material adverse impact on our business, there can be no assurance as to the future costs or implications of such actions. Sales into government projects are also subject to uncertainties related to monetary, regulatory, tax and trade policies implemented by current or future administrations or by the U.S. Congress.

In the past, Microsemi experienced delays and reductions in appropriations on programs that included its products. For example, in 2018 there were two federal government shutdowns. Further delays, reductions in or terminations of government contracts or subcontracts, including those caused by any past or future shutdown of the U.S. federal government,
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could materially and adversely affect our operating results. If, in the future, the U.S. government fails to complete its annual budget process, provide for a continuing resolution to fund government operations or increase the federal debt limit, another federal government shutdown may occur, during which we may experience further delays, reductions in or terminations of government contracts or subcontracts, which could materially and adversely affect our operating results. While we generally function as a subcontractor in these type of transactions, further changes in U.S. government procurement regulations and practices, particularly surrounding initiatives to reduce costs or increase compliance obligations (such as the Cybersecurity Maturity Model Certification and mandatory vaccine requirements), may adversely impact the contracting environment, our ability to hire and retain employees, and our operating results.

The U.S. government and its contractors may terminate their contracts with us at any time. For example, in 2014, the U.S. government terminated a $75 million contract with Microsemi.  Uncertainty in government spending and termination of contracts for government related projects could have a material adverse impact on the revenue from our government related business.  Our contracts with U.S. governmental agencies or prime customers require us to comply with the contract terms, and governmental regulations, particularly for our facilities, systems and personnel that service such customers.  To be awarded new contracts, we may be required to meet certain levels of the Cybersecurity Maturity Model Certification that we may not meet, or choose to meet. Complying with these regulations, including audit requirements, requires that we devote significant resources to such matters in terms of training, personnel, information technology and facilities.  Any failure to comply with these requirements may result in fines and penalties, or loss of current or future business, that may materially and adversely affect our operating results.

From time to time we receive grants from governments, agencies and research organizations, or enter into tax arrangements. If we are unable to comply with the terms of those grants or arrangements, we may not be able to receive or recognize benefits or we may be required to repay benefits, recognize related charges, or could be required to implement certain limitations on our business, which would adversely affect our operating results and financial position.

From time to time, we have received, and may in the future receive, economic incentive grants, tax benefits, and allowances from national, state and local governments, agencies and research organizations targeted at increasing employment, production or investment at specific locations. Tax arrangements and subsidy grant agreements typically contain economic incentive, headcount, capital and research and development expenditures and other covenants that must be met to receive and retain benefits, and these programs can be subjected to periodic review by the relevant governments. The CHIPS Act and its associated regulations, for example, contain certain restrictions on grant recipients' technology licensing activities and on the expansion of certain facilities. Compliance with these restrictions could add complexity to our operations and increase our costs. In addition, noncompliance with the conditions of the grants or arrangements could result in our forfeiture of all or a portion of any future amounts to be received, as well as the repayment of all or a portion of amounts received to date. We may be unable to obtain future incentives to continue to fund a portion of our capital expenditures and operating costs, without which our cost structure would be adversely impacted. Further, any decrease in amounts received could have a material adverse effect on our business, results of operations, or financial condition.

We may not fully realize the anticipated benefits of our completed or future acquisitions or divestitures including our acquisition of Atmel.divestitures.


We have acquired, and expect in the future to acquire, additional businesses that we believe will complement or augment our existing businesses. On April 4, 2016,In May 2018, we acquired Atmel,Microsemi, which was our largest and most complex acquisition ever. In addition, in August 2015, we completed our acquisitionIntegration of Micrel; in July 2014, we completed our acquisition of a controlling interest in ISSC; in April 2014, we completed our acquisition of Supertex, Inc.; and in August 2012, we completed our acquisition of SMSC. The integration process for our acquisitions is complex and may be costly and time consuming and include unanticipated issues, expenses and liabilities. We may not be able to successfully or profitably integrate, operate, maintain and manage any newly acquired operations or employees. We may not be able to maintain uniform standards, procedures and policies and wepolicies. We may be unable tonot realize the expected synergies and cost savings from the integration. There may be increased risk due to integrating financial reporting and internal control systems. WeIt may have difficulty in developing, manufacturingbe difficult to develop, manufacture and marketingmarket the products of a newly acquired company, or in growinggrow the business at the rate we anticipate. Following an acquisition, we may not achieve the revenue or net income levels that justify the acquisition. We may suffer loss of key employees, customers and strategic partners of acquired companies and it may be difficult to implement our corporate culture at acquired companies. We have been and may in the future be subject to claims from terminated employees, shareholders of Microchip or the acquired companies and other third parties related to the transaction. In particular, as a result ofin connection with our Microsemi and Atmel acquisition,acquisitions, we became involved with third-party claims, litigation, governmental investigations and disputes related to the Atmel business.such businesses and transactions. See Note 15"Note 9. Commitments and Contingencies" to our condensed consolidated financial statements for information regarding pending litigation.such matters which are still pending. Acquisitions may also result in charges (such as acquisition-related expenses, write-offs, restructuring charges, or future impairment of goodwill), contingent liabilities, adverse tax consequences, additional share-based compensation expense and other charges that adversely affect our operating results. To fund our acquisition of Atmel,Microsemi, we used a significant portion of our cash balances borrowed under our credit agreement and issuedincurred approximately 10.1 million shares$8.10 billion of our common stock. Additionally, weadditional debt. We may fund future acquisitions of new businesses or strategic alliances by utilizing cash,
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borrowings under our credit agreement,Revolving Credit Facility, raising debt, issuing shares of our common stock, or other mechanisms.


Further, if we decide to divest assets or a business, weit may encounter difficulty in findingbe difficult to find or completingcomplete divestiture opportunities or alternative exit strategies, which may include site closures, timely or on acceptable terms or in a timely manner.terms. These circumstances could delay the achievement of our strategic objectives or cause us to incur additional expenses with respect to assetsthe desired divestiture, or a business that we want to dispose of, or we may dispose of assets or a business at athe price or on terms that areof the divestiture may be less favorable than we had anticipated. Even following a divestiture or other exit strategy, we may be contractually obligated with respect tohave certain continuing obligations to former employees, customers, vendors, landlords or other third parties. We may also have continuing obligations for pre-existing liabilities related to theformer employees, assets or businesses. Such obligations may have a material adverse impact on our results of operations and financial condition.


In addition to acquisitions, we have in the past, and expect in the future, to enter into joint development agreements or other business or strategic relationships with other companies. These transactions are subject to a number of risks similar to those we face with our acquisitions including our ability to realize the expected benefits of any such transaction, to successfully market and sell any products resulting from such transactions or to successfully integrate any technology developed through such transactions.


Our financial condition and results of operations could be adversely affected if we do not effectively manage our current or future debt.

As of December 31, 2017, the principal amount of our outstanding indebtedness was $4,481.3 million. In February 2017, we issued $2,645.0 million of aggregate principal value of senior and junior convertible debt and amended our existing credit agreement to, among other things, increase certain covenant compliance ratios. The February 2017 credit agreement amendment included a new collateral agreement that secures our borrowings with all assets of our guarantor subsidiaries with the exception of real property. We used a portion of the proceeds from the issuance of the 2017 senior and junior convertible debt to settle $431.3 million in principal value of our 2007 Junior Debt and $1,682.5 million to pay off the outstanding balance under our credit facility. In June 2017, we exchanged $111.3 million of our outstanding 2007 Junior Debt with $111.3 million of our 2017 Junior Debt. In November 2017, we called $14.6 million in principal value of the remaining outstanding 2007 Junior Debt with an effective date of December 15, 2017 for which substantially all holders submitted requests to convert. Prior to the call, conversion requests were received in both the second and third quarters of fiscal 2018. Total conversions for the nine months ending December 31, 2017 were for a principal amount of $32.4 million for which we settled in cash and shares. At December 31, 2017, there were no outstanding borrowings under our credit facility which had a capacity of $3,122.3 million and is comprised of one tranche expiring in February 2020. In February 2015, we issued $1,725.0 million of principal value of our 2015 Senior Debt. As a result of such transactions, we have a substantially greater amount of debt than we had maintained in the past. Our maintenance of substantial levels of debt could adversely affect our ability to take advantage of

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corporate opportunities and could adversely affect our financial condition and results of operations. We may need or desire to refinance our convertible debt or any other future indebtedness and there can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms, if at all.

Servicing our debt may require a significant amount of cash, and we may not have sufficient cash flow from our business to fund future payments.

Our ability to make scheduled payments of principal, to pay interest on or to refinance our indebtedness, including our outstanding debentures, depends on our future performance, which is subject to economic, financial, competitive and other factors. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and to fund capital expenditures, dividend payments, share repurchases or acquisitions. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time.

We are dependent on orders that are received and shipped in the same quarter and therefore have limited visibility to future product shipments.

Our net sales in any given quarter depend upon a combination of shipments from backlog and customer orders that are both received and shipped in that same quarter, which we refer to as turns orders. We measure turns orders at the beginning of a quarter based on the orders needed to meet the shipment targets that we set entering the quarter. Historically, we have relied on our ability to respond quickly to customer orders as part of our competitive strategy, resulting in customers placing orders with relatively short delivery schedules. Shorter lead times generally mean that turns orders as a percentage of our business are relatively high in any particular quarter and reduce our backlog visibility on future product shipments. Turns orders correlate to overall semiconductor industry conditions and product lead times. Because turns orders are difficult to predict, varying levels of turns orders make it more difficult to forecast net sales. As a significant portion of our products are manufactured at foundries, foundry lead times may affect our ability to satisfy certain turns orders. If we do not achieve a sufficient level of turns orders in a particular quarter relative to our revenue targets, our revenue and operating results will likely suffer.

Intense competition in the markets we serve may lead to pricing pressures, reduced sales of our products or reduced market share.

The semiconductor industry is intensely competitive and has been characterized by price erosion and rapid technological change. We compete with major domestic and international semiconductor companies, many of which have greater market recognition and substantially greater financial, technical, marketing, distribution and other resources than we do. The semiconductor industry has experienced significant merger and acquisition activity and consolidation in recent years which has resulted in several of our competitors becoming much larger in terms of revenue, product offerings and scale. We may be unable to compete successfully in the future, which could harm our business. Our ability to compete successfully depends on a number of factors both within and outside our control, including, but not limited to:

the quality, performance, reliability, features, ease of use, pricing and diversity of our products;
our success in designing and manufacturing new products including those implementing new technologies;
our ability to ramp production and increase capacity, as needed, at our wafer fabrication and assembly and test facilities;
the rate at which customers incorporate our products into their own applications and the success of such applications;
the rate at which the markets that we serve redesign and change their own products;
our ability to obtain adequate foundry and assembly and test capacity and supplies of raw materials and other supplies at acceptable prices;
changes in demand in the markets that we serve and the overall rate of growth or contraction of such markets, including but not limited to the automotive, personal computing and consumer electronics markets;
product introductions by our competitors;
the number, nature and success of our competitors in a given market;
our ability to protect our products and processes by effective utilization of intellectual property rights;
our ability to remain price competitive against companies that have copied our proprietary product lines, especially in countries where intellectual property rights protection is difficult to achieve and maintain;
our ability to address the needs of our customers; and
general market and economic conditions.


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Historically, average selling prices in the semiconductor industry decrease over the life of any particular product. The overall average selling prices of our microcontroller and proprietary analog, interface, mixed signal and timing products have remained relatively constant, while average selling prices of our memory and non-proprietary analog, interface, mixed signal and timing products have declined over time.

We have experienced, and expect to continue to experience, modest pricing declines in certain of our more mature proprietary product lines, primarily due to competitive conditions. We have been able to moderate average selling price declines in many of our proprietary product lines by continuing to introduce new products with more features and higher prices. However, there can be no assurance that we will be able to do so in the future. We have experienced in the past, and expect to continue to experience in the future, varying degrees of competitive pricing pressures in our memory and non-proprietary analog, interface, mixed signal and timing products. We may be unable to maintain average selling prices for our products as a result of increased pricing pressure in the future, which could adversely impact our operating results.

We are dependent on wafer foundries and other contractors to perform key manufacturing functions for us, and our licensees of our SuperFlash and other technologies also rely on foundries and other contractors.

We rely on outside wafer foundries for a significant portion of our wafer fabrication needs. Specifically, during the first nine months of fiscal 2018, approximately 42% of our net sales came from products that were produced at outside wafer foundries. During fiscal 2017, approximately 41% of our net sales came from products that were produced at outside wafer foundries. We also use several contractors located primarily in Asia for a portion of the assembly and testing of our products. Specifically, during the first nine months of fiscal 2018, approximately 61% of our assembly requirements and 38% of our test requirements were performed by third party contractors compared to approximately 64% of our assembly requirements and 40% of our test requirements during fiscal 2017. Our reliance on third party contractors and foundries increased as a result of our acquisitions of Atmel, Micrel, SMSC, Supertex and ISSC. The disruption or termination of any of our contractors could harm our business and operating results.

Our use of third parties somewhat reduces our control over the subcontracted portions of our business. Our future operating results could suffer if any contractor were to experience financial, operational or production difficulties or situations when demand exceeds capacity, or if they were unable to maintain manufacturing yields, assembly and test yields and costs at approximately their current levels, or if the countries in which such contractors are located were to experience political upheaval or infrastructure disruption. If these third parties are unable or unwilling to timely deliver products or services conforming to our quality standards, we may not be able to qualify additional manufacturing sources for our products in a timely manner on terms favorable to us, or at all. Additionally, these subcontractors could abandon fabrication processes that are important to us, or fail to adopt advanced manufacturing technologies that we desire to control costs. In any such event, we could experience an interruption in production, an increase in manufacturing and production costs or a decline in product reliability, and our business and operating results could be adversely affected. Further, our use of subcontractors increases the risks of potential misappropriation of our intellectual property.

Certain of our SuperFlash and other technology licensees also rely on outside wafer foundries for wafer fabrication services. If our licensees were to experience any disruption in supply from outside wafer foundries, this would reduce the revenue we receive in our technology licensing business and would harm our operating results.

Our operating results will suffer if we ineffectively utilize our manufacturing capacity or fail to maintain manufacturing yields.

The manufacture and assembly of integrated circuits, particularly non-volatile, erasable CMOS memory and logic devices such as those that we produce, are complex processes. These processes are sensitive to a wide variety of factors, including the level of contaminants in the manufacturing environment, impurities in the materials used, the performance of our wafer fabrication and assembly and test personnel and equipment, and other quality issues. As is typical in the semiconductor industry, we have from time to time experienced lower than anticipated manufacturing yields. Our operating results will suffer if we are unable to maintain yields at or above approximately the current levels. This could include delays in the recognition of revenue, loss of revenue or future orders, and customer-imposed penalties for our failure to meet contractual shipment deadlines. Our operating results are also adversely affected when we operate at less than optimal capacity. Although we operated at normal capacity levels during fiscal 2017 and the first three quarters of fiscal 2018, there can be no assurance that such production levels will be maintained in future periods.


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Our operating results are impacted by both seasonality and the wide fluctuations of supply and demand in the semiconductor industry.

The semiconductor industry is characterized by seasonality and wide fluctuations of supply and demand.  Since a significant portion of our revenue is from consumer markets and international sales, our business tends to generate historically stronger revenues in the first and second quarters and comparatively weaker revenues in the third and fourth quarters of our fiscal year. However, broad fluctuations in our overall business, changes in semiconductor industry and global economic conditions, and our acquisition activity (including our acquisition of Atmel) can have a more significant impact on our results than seasonality. As a result, in periods when these broad fluctuations, changes in business conditions or acquisitions occur, it is difficult to assess the impact of seasonal factors on our business. The semiconductor industry has also experienced significant economic downturns, characterized by diminished product demand and production over-capacity. We have sought to reduce our exposure to this industry cyclically by selling proprietary products, that cannot be easily or quickly replaced, to a geographically diverse customer base across a broad range of market segments. However, we have experienced substantial period-to-period fluctuations in operating results and expect, in the future, to experience period-to-period fluctuations in operating results due to general industry or economic conditions.

Our business is dependent on selling through distributors.

Sales through distributors accounted for approximately 54.2% of our net sales in the first nine months of fiscal 2018 and approximately 55.3% of our net sales in fiscal 2017. We do not have long-term agreements with our distributors, and we and our distributors may each terminate our relationship with little or no advance notice.

Any future adverse conditions in the U.S. or global economies or in the U.S. or global credit markets could materially impact the operations of our distributors. Any deterioration in the financial condition of our distributors or any disruption in the operations of our distributors could adversely impact the flow of our products to our end customers and adversely impact our results of operation. In addition, during an industry or economic downturn, it is possible there will be an oversupply of products and a decrease in demand for our products from our distributors, which could reduce our net sales in a given period and result in an increase in inventory returns. Violations of the Foreign Corrupt Practices Act, or similar laws, by our distributors or other channel partners could have a material adverse impact on our business.

Our success depends on our ability to introduce new products on a timely basis.

Our future operating results depend on our ability to develop and timely introduce new products that compete effectively on the basis of price and performance and which address customer requirements. The success of our new product introductions depends on various factors, including, but not limited to:

proper new product selection;
timely completion and introduction of new product designs;
procurement of licenses for intellectual property rights from third parties under commercially reasonable terms;
timely filing and protection of intellectual property rights for new product designs;
availability of development and support tools and collateral literature that make complex new products easy for engineers to understand and use; and
market acceptance of our customers' end products.

Because our products are complex, we have experienced delays from time to time in completing new product development. In addition, our new products may not receive or maintain substantial market acceptance.  We may be unable to timely design, develop and introduce competitive products, which could adversely impact our future operating results.

Our success also depends upon our ability to develop and implement new design and process technologies. Semiconductor design and process technologies are subject to rapid technological change and require significant R&D expenditures. We and other companies in the industry have, from time to time, experienced difficulties in effecting transitions to advanced process technologies and, consequently, have suffered reduced manufacturing yields or delays in product deliveries. Our future operating results could be adversely affected if any transition to future process technologies is substantially delayed or inefficiently implemented.


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We may lose sales if our suppliers of raw materials and equipment fail to meet our needs.

Our semiconductor manufacturing operations require raw and processed materials and equipment that must meet exacting standards.  We generally have more than one source for these supplies, but there are only a limited number of suppliers capable of delivering various materials and equipment that meet our standards.  The materials and equipment necessary for our business could become more difficult to obtain as worldwide use of semiconductors in product applications increases. Additionally, consolidation in our supply chain due to mergers and acquisitions may reduce the number of suppliers or change the relationships that we have with our suppliers. This could impair sourcing flexibility or increase costs. We have experienced supply shortages from time to time in the past, and on occasion our suppliers have told us they need more time than expected to fill our orders or that they will no longer support certain equipment with updates or spare and replacement parts. In particular, we have recently experienced longer lead times for equipment which we need for capacity expansion at certain of our manufacturing facilities. An interruption of any materials or equipment sources, or the lack of supplier support for a particular piece of equipment, could harm our business.

Our technology licensing business exposes us to various risks.

Our technology licensing business is based on our SuperFlash and other technologies. The success of our licensing business depends on the continued market acceptance of these technologies and on our ability to further develop and enhance such technologies and to introduce new technologies in the future. To be successful, any such technology must be able to be repeatably implemented by licensees, provide satisfactory yield rates, address licensee and customer requirements, and perform competitively. The success of our technology licensing business depends on various other factors, including, but not limited to:

proper identification of licensee requirements;
timely development and introduction of new or enhanced technology;
our ability to protect and enforce our intellectual property rights for our licensed technology;
our ability to limit our liability and indemnification obligations to licensees;
availability of sufficient development and support services to assist licensees in their design and manufacture of products integrating our technology;
availability of foundry licensees with sufficient capacity to support original equipment manufacturers (OEM) production; and
market acceptance of our customers' end products.

Because our licensed technologies are complex, there may be delays from time to time in developing and enhancing such technologies. There can be no assurance that our existing or any enhanced or new technology will achieve or maintain substantial market acceptance. Our licensees may experience disruptions in production or lower than expected production levels which would adversely affect the revenue that we receive from them. Our technology license agreements generally include an indemnification clause that indemnifies the licensee against liability and damages (including legal defense costs) arising from intellectual property matters. We could be exposed to substantial liability for claims or damages related to intellectual property matters or indemnification claims. Any claim, with or without merit, could result in significant legal fees and require significant attention from our management. Any of the foregoing issues may adversely impact the success of our licensing business and adversely affect our future operating results.

We are exposed to various risks related to legal proceedings or claims.

We are currently, and in the future may be, involved in legal proceedings or claims regarding patent infringement, other intellectual property rights, product failures, contracts and other matters. As is typical in the semiconductor industry, we receive notifications from third parties from time to time who believe that we owe them indemnification or other obligations related to claims made against us, our direct or indirect customers or our licensees. These legal proceedings and claims, even if meritless, could result in substantial costs to us and divert our resources. If we are not able to resolve a claim, settle a matter, obtain necessary licenses on commercially reasonable terms, reengineer our products or processes to avoid infringement, provide a cost-effective remedy, or successfully prosecute or defend our position, we could incur uninsured liability in any of them, be required to take an appropriate charge to operations, be enjoined from selling a material portion of our products or using certain processes, suffer a reduction or elimination in the value of our inventories, and our business, financial condition or results of operations could be harmed.

It is also possible that from time to time we may be subject to claims related to the manufacture, performance or use of our products. These claims may be due to injuries, economic damage or environmental exposures related to manufacturing, a product's nonconformance to our specifications or specifications agreed upon with the customer, changes in our manufacturing

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processes, or unexpected customer system issues due to the integration of our products or insufficient design or testing by our customers. We could incur significant expenses related to such matters, including, but not limited to:

costs related to writing off the value of our inventory of nonconforming products;
recalling nonconforming products;
providing support services, product replacements, or modifications to products and the defense of such claims;
diversion of resources from other projects;
lost revenue or a delay in the recognition of revenue due to cancellation of orders or unpaid receivables;
customer imposed fines or penalties for failure to meet contractual requirements; and
a requirement to pay damages or penalties.

Because the systems into which our products are integrated have a higher cost of goods than the products we sell, the expenses and damages we are asked to pay may be significantly higher than the sales and profits we received from the products involved. While we specifically exclude consequential damages in our standard terms and conditions, certain of our contracts may not exclude such liabilities. Further, our ability to avoid such liabilities may be limited by applicable law. We do have liability insurance which covers certain damages arising out of product defects, but we do not expect that insurance will cover all claims or be of a sufficient amount to fully protect against such claims. Costs or payments we may make in connection with these customer claims may adversely affect the results of our operations.

Further, we sell to customers in industries such as automotive, aerospace, defense, safety, security, and medical, where failure of the systems in which our products are integrated could cause damage to property or persons. We may be subject to claims if our products, or the integration of our products, cause system failures. We will face increased exposure to claims if there are substantial increases in either the volume of our sales into these applications or the frequency of system failures integrating our products.

Failure to adequately protect our intellectual property could result in lost revenue or market opportunities.

Our ability to obtain patents, licenses and other intellectual property rights covering our products and manufacturing processes is important for our success. To that end, we have acquired certain patents and patent licenses and intend to continue to seek patents on our technology and manufacturing processes. The process of seeking patent protection can be long and expensive, and patents may not be issued from currently pending or future applications. In addition, our existing and new patents, trademarks and copyrights that issue may not have sufficient scope or strength to provide meaningful protection or commercial advantage to us. We may be subject to, or may ourselves initiate, interference proceedings in the U.S. Patent and Trademark Office, patent offices of a foreign country or U.S. or foreign courts, which can require significant financial and management resources. In addition, the laws of certain foreign countries do not protect our intellectual property rights to the same extent as the laws of the U.S. Infringement of our intellectual property rights by a third party could result in uncompensated lost market and revenue opportunities for us. Although we continue to vigorously and aggressively defend and protect our intellectual property on a worldwide basis, there can be no assurance that we will be successful in our endeavors.

Our operating results may be adversely impacted if economic conditions impact the financial viability of our licensees, customers, distributors, or suppliers.

We regularly review the financial performance of our licensees, customers, distributors and suppliers. However, any downturn in global economic conditions may adversely impact the financial viability of our licensees, customers, distributors or suppliers. The financial failure of a large licensee, customer or distributor, an important supplier, or a group thereof, could have an adverse impact on our operating results and could result in our not being able to collect our accounts receivable balances, higher reserves for doubtful accounts, write-offs for accounts receivable, and higher operating costs as a percentage of net sales.

We are highly dependent on foreign sales and operations, which exposes us to foreign political and economic risks.

Sales to foreign customers account for a substantial portion of our net sales. During the first nine months of fiscal 2018, approximately 85% of our net sales were made to foreign customers, including 31% in China. During fiscal 2017, approximately 84% of our net sales were made to foreign customers, including 32% in China.


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A strong position in the Chinese market is a key component of our global growth strategy. The market for integrated circuit products in China is highly competitive, and both international and domestic competitors are aggressively seeking to increase their market share. Increased competition or economic weakness in the China market may make it difficult for us to achieve our desired sales volumes in China. In particular, economic conditions in China remain uncertain and we are unable to predict whether such uncertainty will continue or worsen in future periods.

We purchase a substantial portion of our raw materials and equipment from foreign suppliers. In addition, we own product assembly and testing facilities near Bangkok, Thailand, which has experienced periods of political instability in the past. A large portion of our finished goods inventory is maintained in Thailand. From time to time, Thailand has also experienced periods of severe flooding. There can be no assurance that any future flooding or political instability in Thailand would not have a material adverse impact on our operations. As part of our Atmel acquisition, we acquired a test facility in Calamba, Philippines. We use various foundries and other foreign contractors for a significant portion of our assembly and testing and wafer fabrication requirements.

Our reliance on foreign operations, foreign suppliers, maintenance of substantially all of our finished goods inventory at foreign locations and significant foreign sales exposes us to foreign political and economic risks, including, but not limited to:

political, social and economic instability;
economic uncertainty in the worldwide markets served by us;
trade restrictions and changes in tariffs;
import and export license requirements and restrictions;
changes in rules and laws related to taxes, environmental, health and safety, technical standards and consumer protection in various jurisdictions;
currency fluctuations and foreign exchange regulations;
difficulties in staffing and managing international operations;
employment regulations;
disruptions in international transport or delivery;
public health conditions;
difficulties in collecting receivables and longer payment cycles; and
potentially adverse tax consequences.

If any of these risks materialize, or are worse than we anticipate, our sales could decrease and our operating results could suffer.

Our contractual relationships with our customers expose us to risks and liabilities.

We do not typically enter into long-term contracts with our customers, and therefore we cannot be certain about future order levels from our customers. When we do enter into customer contracts, the contract is generally cancelable at the convenience of the customer. Even though we had over 115,000 customers and our ten largest direct customers made up approximately 12% of our total revenue for the nine months ended December 31, 2017 and three of our top ten direct customers are contract manufacturers that perform manufacturing services for many customers, cancellation of customer contracts could have an adverse impact on our revenue and profits.

We have contracts with certain customers that differ from our standard terms of sale. For several of the significant markets that we sell into, such as the automotive and personal computer markets, our current or potential customers may possess significant leverage over us in negotiating the terms and conditions of supply as a result of their market size and position. For example, under certain contracts we may commit to supply specific quantities of products on scheduled delivery dates, or agree to extend our obligations for certain liabilities such as warranties or indemnification for quality issues or claims of intellectual property infringement. If we are unable to supply the customer as required under the contract, the customer may incur additional production costs, lost revenues due to subsequent delays in their own manufacturing schedule, or quality-related issues. We may be liable for the customer's costs, expenses and damages associated with their claims and we may be obligated to defend the customer against claims of intellectual property infringement and pay the associated legal fees. While we try to minimize the number of contracts which contain such provisions, manage the risks underlying such liabilities, and set caps on our liability exposure, sometimes we are not able to do so. In order to win important designs, avoid losing business to competitors, maintain existing business, or be permitted to bid on new business, we have been, and may in the future be, forced to agree to uncapped liability for such items as intellectual property infringement, product failure, or confidentiality. Such provisions expose us to risk of liability far exceeding the purchase price of the products we sell under such contracts, the lifetime revenues we receive from such products, or various forms of potential consequential damages. Further, where we do

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not have negotiated contracts with our customers, the terms of our customer's orders may govern the transaction and contain terms that are not favorable to us. These significant additional risks could result in a material adverse impact on our results of operations and financial condition.

We must attract and retain qualified personnel to be successful, and competition for qualified personnel can be intense.

Our success depends upon the efforts and abilities of our senior management, engineering, manufacturing and other personnel. The competition for qualified engineering and management personnel can be intense. We may be unsuccessful in retaining our existing key personnel or in attracting and retaining additional key personnel that we require. The loss of the services of one or more of our key personnel or the inability to add key personnel could harm our business. The loss of, or any inability to attract personnel, even if not key personnel, if experienced in sufficient numbers could harm our business. We have no employment agreements with any member of our senior management team. 

Our reported financial results may be adversely affected by new accounting pronouncements or changes in existing accounting standards and practices.

We prepare our financial statements in conformity with accounting principles generally accepted in the U.S. These accounting principles are subject to interpretation or changes by the FASB and the SEC. New accounting pronouncements and varying interpretations of accounting standards and practices have occurred in the past and are expected to occur in the future. New accounting pronouncements or a change in the interpretation of existing accounting standards or practices may have a significant effect on our reported financial results and may even affect our reporting of transactions completed before the change is announced or effective. In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09 - Revenue from Contracts with Customers (Topic 606), which supersedes nearly all existing revenue recognition guidance under US GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Upon our adoption of ASU 2014-09 beginning with our fiscal year commencing on April 1, 2018, we will no longer defer revenue until sale by the distributor to the end customer, but rather, will be required to estimate the effects of returns and allowances provided to distributors and record revenue at the time of sale to the distributor. We will adopt the standard under the modified retrospective method. Refer to Note 2 to our consolidated financial statements for additional information on the new guidance and its potential impact on us.

Business interruptions to our operations or the operations of our key vendors, subcontractors, licensees or customers, whether due to natural disasters or other events, could harm our business.

Operations at any of our facilities, at the facilities of any of our wafer fabrication or assembly and test subcontractors, or at any of our significant vendors or customers may be disrupted for reasons beyond our control. These reasons may include work stoppages, power loss, cyber attacks, incidents of terrorism or security risk, political instability, public health issues, telecommunications, transportation or other infrastructure failure, radioactive contamination, fire, earthquake, floods, volcanic eruptions or other natural disasters. We have taken steps to mitigate the impact of some of these events should they occur; however, we cannot be certain that our actions will be effective to avoid a significant impact on our business in the event of a disaster or other business interruption.

In particular, Thailand has experienced periods of severe flooding in recent years. While our facilities in Thailand have continued to operate normally, there can be no assurance that any future flooding in Thailand would not have a material adverse impact on our operations. If operations at any of our facilities, or our subcontractors' facilities are interrupted, we may not be able to shift production to other facilities on a timely basis, and we may need to spend significant amounts to repair or replace our facilities and equipment.  If we experienced business interruptions, we would likely experience delays in shipments of products to our customers and alternate sources for production may be unavailable on acceptable terms. This could result in reduced revenues and profits and the cancellation of orders or loss of customers. Although we maintain business interruption insurance, such insurance will likely not be enough to compensate us for any losses that may occur and any losses or damages incurred by us as a result of business interruptions could significantly harm our business.

Additionally, operations at our customers and licensees may be disrupted for a number of reasons. In the event of customer disruptions, sales of our products may decline and our revenue, profitability and financial condition could suffer. Likewise, if our licensees are unable to manufacture and ship products incorporating our technology, or if there is a decrease in product demand due to a business disruption, our royalty revenue may decline.




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Fluctuations in foreign currency exchange rates could adversely impact our operating results.

We use forward currency exchange contracts in an attempt to reduce the adverse earnings impact from the effect of exchange rate fluctuations on our non-U.S. dollar net balance sheet exposures. Nevertheless, in periods when the U.S. dollar significantly fluctuates in relation to the non-U.S. currencies in which we transact business, the value of our non-U.S. dollar transactions can have an adverse effect on our results of operations and financial condition. In particular, in periods when a foreign currency significantly declines in value in relation to the U.S. dollar, customers transacting in that foreign currency may find it more difficult to fulfill their previously committed contractual obligations or to undertake new obligations to make payments or purchase products. In periods when the U.S. dollar is significantly declining in relation to the British pound, Euro and Thai baht, the operational costs in our European and Thailand subsidiaries are adversely affected. Although our business has not been materially adversely impacted by recent changes in the value of the U.S. dollar, there can be no assurance as to the future impact that the strength of the U.S. dollar will have on our business or results of operations.

Interruptions in our information technology systems, or improper handling of data, could adversely affect our business.

We rely on the efficient and uninterrupted operation of complex information technology systems and networks to operate our business.  Any significant disruption to our systems or networks, including, but not limited to, new system implementations, computer viruses, security breaches, facility issues, natural disasters, terrorism, war, telecommunication failures or energy blackouts could have a material adverse impact on our operations, sales and operating results.  Such disruption could result in a loss of our intellectual property or the release of sensitive competitive information or supplier, customer or employee personal data. Any loss of such information could harm our competitive position, result in a loss of customer confidence, and cause us to incur significant costs to remedy the damages caused by any such disruptions or security breaches. Additionally, any failure to properly manage the collection, handling, transfer or disposal of personal data of employees and customers may result in regulatory penalties, enforcement actions, remediation obligations, litigation, fines and other sanctions.

From time to time, we have experienced verifiable attacks on our data, attempts to breach our security and attempts to introduce malicious software into our IT systems; however, such attacks have not previously resulted in any material damage to us. Were future attacks successful, we may be unaware of the incident, its magnitude, or its effects until significant harm is done. In recent years, we have implemented improvements to our protective measures which are not limited to the following: firewalls, antivirus measures, patches, log monitors, routine backups with offsite retention of storage media, system audits, data partitioning and routine password modifications. There can be no assurance that such system improvements will be sufficient to prevent or limit the damage from any future cyber attacks or disruptions. Any such attack or disruption could result in additional costs related to rebuilding of our internal systems, defending litigation, responding to regulatory actions, or paying damages. Such attacks or disruptions could have a material adverse impact on our business, operations and financial results.

Third-party service providers, such as wafer foundries, assembly and test contractors, distributors, credit card processors and other vendors have access to certain portions of our and our customers' sensitive data. In the event that these service providers do not properly safeguard the data that they hold, security breaches and loss of data could result. Any such loss of data by our third-party service providers could negatively impact our business, operations and financial results, as well as our relationship with our customers.

The occurrence of events for which we are self-insured, or which exceed our insurance limits, may adversely affect our profitability and liquidity.

We have insurance contracts with independent insurance companies related to many different types of risk; however, we self-insure for some potentially significant risks and obligations. In these circumstances, we believe that it is more cost effective for us to self-insure certain risks than to pay the high premium costs. The risks and exposures that we self-insure include, but are not limited to certain property, product defects, employment risks, environmental matters, political risks, and intellectual property matters. Should there be a loss or adverse judgment or other decision in an area for which we are self-insured, then our financial condition, results of operations and liquidity may be adversely affected.

We are subject to stringent environmental and other regulations, which may force us to incur significant expenses.

We must comply with all applicable federal, state, local and foreign governmental regulations related to the use, storage, discharge and disposal of toxic, volatile or otherwise hazardous substances used in our products and manufacturing processes. Our failure to comply with applicable regulations could result in fines, suspension of production, cessation of operations or future liabilities. Such environmental regulations have required us in the past, and could require us in the future, to buy costly equipment or to incur significant expenses to comply with such regulations. Our failure to control the use of, or

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adequately restrict the discharge of, hazardous substances could impact the health of our employees and others and could impact our ability to operate. Such failure could also restrict our ability to ship certain products to certain countries, require us to modify our operations' logistics, or require us to incur other significant costs and expenses. There is a continuing expansion in environmental laws with a focus on reducing or eliminating hazardous substances and substances of high concern in electronic products and shipping materials. These and other future environmental regulations could require us to reengineer certain of our existing products and may make it more expensive for us to manufacture, sell and ship our products. In addition, the number and complexity of laws focused on the energy efficiency of electronic products and accessories, the recycling of electronic products, and the reduction in the quantity and the recycling of packing materials have expanded significantly. It may be difficult for us to timely comply with these laws and we may not have sufficient quantities of compliant products to meet customers' needs, thereby adversely impacting our sales and profitability. We may also have to write off inventory in the event that we hold unsaleable inventory as a result of changes to regulations or customer requirements. We expect these risks and trends to continue. In addition, we anticipate increased customer requirements to meet voluntary criteria related to the reduction or elimination of substances of high concern in our products, energy efficiency measures, and supplier practices associated with sourcing and manufacturing. These requirements may increase our own costs, as well as those passed on to us by our supply chain.

Customer demands for us to implement business practices that are more stringent than existing legal requirements may reduce our revenue opportunities or cause us to incur higher costs.

Some of our customers and potential customers are requiring that we implement operating practices that are more stringent than what is required by applicable laws with respect to workplace and labor requirements, the type of materials we use in our products, environmental matters or other items. To comply with such requirements, we may have to pass these same operating practices on to our suppliers. Our suppliers may refuse to implement these operating practices, or may charge us more for complying with them. The cost to implement such practices may cause us to incur higher costs and reduce our profitability, and if we choose not to implement such practices, such customers may disqualify us as a supplier, resulting in decreased revenue opportunities. Developing, administering, monitoring and auditing these customer-requested practices at our own sites and those in our supply chain will increase our costs and may require that we hire more personnel.

Customer demands and regulations related to conflict-free minerals may force us to incur additional expenses.

As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, in August 2012, the SEC released investigation, disclosure and reporting requirements regarding the use of "conflict" minerals mined from the Democratic Republic of Congo and adjoining countries and which are necessary to the functionality or production of products.  We filed a report on Form SD with the SEC regarding such matters on May 31, 2017. Other countries are considering similar regulations.  If we cannot certify that we are using conflict-free minerals, customers may demand that we change the sourcing of minerals and other materials used in the manufacture of our products, even if the costs for compliant minerals and materials significantly increases and availability is limited.  If we make changes to materials or suppliers, there will likely be costs associated with qualifying new suppliers and production capacity and quality could be negatively impacted.  Our relationships with customers and suppliers may be adversely affected if we are unable to certify that our products are "conflict-free." We have incurred, and expect in the future to incur, additional costs associated with complying with these new disclosure requirements, such as costs related to determining the source of any conflict minerals used in our products.  We may also encounter challenges to satisfy those customers who require that all of the components of our products be certified as conflict free in a materially different manner than advocated by the Conflict Free Smelter Initiative or the Dodd-Frank Wall Street Reform and Consumer Protection Act.  If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier and we may have to write off inventory in the event that it cannot be sold.

Regulatory authorities in jurisdictions into which we ship our products could levy fines or restrict our ability to export or transfer products.

A significant portion of our sales are made through the exporting and importing of products. In addition to local jurisdictions' trade regulations, our U.S.-manufactured products or products based on U.S. technology are subject to U.S. laws and regulations governing international trade, including, but not limited to the Foreign Corrupt Practices Act, Export Administration Regulations (EAR), International Traffic in Arms Regulations (ITAR) and trade sanctions against embargoed countries and denied entities administered by the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC). Licenses or proper license exceptions are required for the shipment of our products to certain countries. A determination by the U.S. or foreign government that we have failed to comply with trade or export regulations or anti-bribery regulations can result in penalties which may include denial of export privileges, fines, civil or criminal penalties, and seizure of products. Such penalties could have a material adverse effect on our business, sales and earnings. Further, a change in these laws and regulations could restrict our ability to transfer product to previously permitted countries, customers, distributors or other third

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parties. Any one or more of these sanctions or a change in laws or regulations could have a material adverse effect on our business, financial condition and results of operations.

The outcome of future examinations of our income tax returns could have an adverse effect on our results of operations.

We are subject to examination of our income tax returns by the IRS and other tax authorities for fiscal 2005 and later.  We are subject to certain income tax examinations in foreign jurisdictions for fiscal 2007 and later. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuing examinations will not have an adverse effect on our future operating results.

Exposure to greater than anticipated income tax liabilities, changes in tax rules and regulations (including the Act), changes in the interpretation of tax rules and regulations, or unfavorable assessments from tax audits could affect our effective tax rates, financial condition and results of operations

We are a U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Our income tax obligations could be affected by many factors, including but not limited to changes to our corporate operating structure, intercompany arrangements and tax planning strategies.

Our income tax expense is computed based on tax rates at the time of the respective financial period. Our future effective tax rates, financial condition and results from operations could be unfavorably affected by changes in the tax rates in jurisdictions where our income is earned, by changes in the tax rules and regulations or the interpretation of tax rules and regulations in the jurisdictions in which we do business or by changes in the valuation of our deferred tax assets

Currently, a majority of our revenue is generated from customers located outside the U.S., and a substantial portion of our assets, including employees, are located outside of the U.S. Recently enacted U.S. tax legislation will significantly change the taxation of U.S.-based multinational corporations, by, among other things, reducing the U.S. corporate income tax rate, adopting elements of a territorial tax system, assessing a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creating new taxes on certain foreign-sourced earnings. The new legislation is unclear in some respects and will require interpretations and implementing regulations by the Internal Revenue Service, as well as state tax authorities, and the legislation could be subject to potential amendments and technical corrections, any of which could lessen or increase certain adverse impacts of the legislation. A significant portion of our earnings are earned by our subsidiaries outside the U.S. Changes to the taxation of certain foreign earnings resulting from the newly enacted U.S. tax legislation, along with the state tax impact of these changes and potential future cash distributions, will likely have an adverse effect on our effective tax rate. Furthermore, changes to the taxation of undistributed foreign earnings could change our future intentions regarding reinvestment of such earnings. The foregoing items could have a material adverse effect on our business, cash flow, results of operations or financial conditions.

In addition, we are subject to examinations of our income tax returns by domestic and foreign tax authorities. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from the current examinations. There can be no assurance that the final determination of any of these examinations will not have an adverse effect on our effective tax rates, financial position and results of operations.

The future trading price of our common stock could be subject to wide fluctuations in response to a variety of factors.

The market price of our common stock has fluctuated significantly in the past and is likely to fluctuate in the future. The future trading price of our common stock could be subject to wide fluctuations in response to a variety of factors, many of which are beyond our control, including, but not limited to:

quarterly variations in our operating results or the operating results of other technology companies;
general conditions in the semiconductor industry;
global economic and financial conditions;
changes in our financial guidance or our failure to meet such guidance;
changes in analysts' estimates of our financial performance or buy/sell recommendations;
any acquisitions we pursue or complete; and
actual or anticipated announcements of technical innovations or new products by us or our competitors.


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In addition, the stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices for many companies and that often have been unrelated to the operating performance of such companies. These broad market fluctuations and other factors have harmed and may harm the market price of our common stock. Some or all of the foregoing factors could also cause the market price of our convertible debentures to decline or fluctuate substantially.

Anti-takeover defenses in our charter documents and under Delaware law could discourage takeover attempts, which could also reduce the market price of our common stock.

Our certificate of incorporation and bylaws contain provisions that could delay or prevent a change in control of Microchip. These provisions could also make it difficult for stockholders to elect directors that are not nominated by the current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions include:

the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror;
the right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
the requirement that a special meeting of stockholders may be called only by the holders of 50% or more of the combined voting power of all classes of our capital stock, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;
the ability of our board of directors, by majority vote, to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquiror to amend the bylaws to facilitate an unsolicited takeover attempt; and
advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders' meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror's own slate of directors or otherwise attempting to obtain control of us.

In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. The application of Section 203 also could have the effect of delaying or preventing a change in control of us.

Any of these provisions could, under certain circumstances, depress the market price of our common stock.

As a result of our acquisition activity, including our acquisition of Microsemi in May 2018, our goodwill and intangible assets have increased significantly in recent years and we may in the future incur impairments to goodwill or intangible assets.


When we acquire a business, a substantial portion of the purchase price of the acquisition is allocated to goodwill and other identifiable intangible assets. The amount of the purchase price which is allocated to goodwill is determined by the excess of the purchase price over the net identifiable assets acquired. As of December 31, 2017,June 30, 2023, we had goodwill of $2,299.0 million$6.68 billion and net intangible assets of $1,784.6 million.$3.25 billion. In connection with the completion of our acquisition of Microsemi in May 2018, our goodwill and intangible assets increased significantly. We review our indefinite-lived intangible assets, including goodwill, for impairment annually in the fourth fiscal quarter or whenever events or changes in circumstances indicate that the carrying amount of those assets is more likely than not impaired.  Factors that may be considered in assessing whether goodwill or intangible assets may be impaired include a decline in our stock price or market capitalization, reduced estimates of future cash flows and slower growth rates in our industry.  Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on historical experience and to rely heavily on projections of future operating performance.  Because we operate in highly competitive environments, projections of our future operating results and cash flows may vary significantly from our actual results.  No goodwill impairment charges were recorded in the first ninethree months of fiscal 20182024 or in fiscal 2017.  No2023. There were no material intangible asset impairment charges were recordedto intangible assets in the first ninethree months of fiscal 2018. In fiscal 2017, we recognized $11.9 million of intangible asset impairment charges.2024. If in future periods, we determine that our goodwill or intangible assets are impaired, we will be required to write down these assets which would have a negative effect on our condensed consolidated financial statements.



If we fail to maintain proper and effective internal control and remediate any future control deficiencies, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and our reputation with investors.

We have in the past identified a material weakness in our internal controls related to accounting for income taxes and we also identified a material weakness in our internal controls related to IT system access. Although such material weaknesses were remediated in fiscal 2020, there can be no assurance that similar control issues will not be identified in the future. If we cannot remediate future material weaknesses or significant deficiencies in a timely manner, or if we identify additional control deficiencies that individually or together constitute significant deficiencies or material weaknesses, our ability to accurately record, process, and report financial information and our ability to prepare financial statements within required time periods, could be adversely affected. Failure to maintain effective internal controls could result in violations of applicable securities laws, stock exchange listing requirements, and the covenants under our debt agreements, subject us to litigation and investigations, negatively affect investor confidence in our financial statements, and adversely impact our stock price and our ability to access capital markets.

Ensuring that we have adequate internal financial and accounting controls and procedures so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 which requires an annual management assessment of the effectiveness of our internal control over financial reporting and a report by our independent auditors. In addition to the identified material weaknesses related to accounting for income taxes and to IT system access, which were remediated as of March 31, 2020, we have from time to time identified other significant deficiencies. If we fail to remediate any future material weaknesses or significant deficiencies or to maintain proper and effective internal control over financial reporting in the future, our ability to
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produce accurate and timely financial statements could be impaired, which could harm our operating results, harm our ability to operate our business and reduce the trading price of our stock.

Customer demands for us to implement business practices that are more stringent than legal requirements may reduce our revenue opportunities or cause us to incur higher costs.

Some of our customers require that we implement practices that are more stringent than those required by applicable laws with respect to labor requirements, the materials contained in our products, energy efficiency, environmental matters or other items. To comply with such requirements, we also require our suppliers to adopt such practices. Our suppliers may in the future refuse to implement these practices, or may charge us more for complying with them. If certain of our suppliers refuse to implement the practices, we may be forced to source from alternate suppliers. The cost to implement such practices may cause us to incur higher costs and reduce our profitability, and if we do not implement such practices, such customers may disqualify us as a supplier, resulting in decreased revenue opportunities. Developing, enforcing, and auditing customer-requested practices at our own sites and in our supply chain will increase our costs and may require more personnel.

We must attract and retain qualified personnel to be successful, and competition for qualified personnel has intensified.

We must attract and retain qualified personnel to be successful, and competition for qualified personnel has intensified in recent periods in our industry due to high demand for skilled employees. Availability of labor is currently constrained in certain geographic markets in which we operate due to the tight and competitive labor market in our industry. Competition for available labor has intensified for a variety of reasons, including the increase in work-from home arrangements brought about by COVID-19, and the wage inflation in our industry. We expect labor conditions will likely intensify further due to the expected construction of new wafer fabrication facilities by foundries and third parties in locations near our existing facilities.

Our ability to attract and retain skilled employees such as management, technical, marketing, sales, research and development, manufacturing, and operational personnel is critical to our business. We rely on a direct labor force at our manufacturing facilities. Any inability to maintain our labor force at our facilities may disrupt our operations, delay production, shipments and revenue and result in us being unable to timely satisfy customer demand, and ultimately could materially and adversely affect our business, financial condition and results of operations. Our inability to attract and retain hardware and software engineers and sales and marketing personnel, could delay the development and introduction of, and harm our ability to sell, our products. We have no employment agreements with any member of our senior management team, and it is possible that they could leave with little or no notice, which could make it more difficult for us to execute our planned business strategy. Our inability to retain, attract or motivate personnel could have a material adverse effect on our business, financial condition and results of operations.

The occurrence of events for which we are self-insured, or which exceed our insurance limits, may adversely affect our profitability and liquidity.

We have insurance coverage related to many different types of risk; however, we self-insure for some potentially significant risks and obligations, because we believe that it is more cost effective for us to self-insure than to pay the high premium costs. The risks and exposures that we self-insure include, but are not limited to, employee health matters, certain property matters, product defects, cybersecurity matters, employment risks, environmental matters, political risks, and intellectual property matters. Should there be a loss or adverse judgment in an area for which we are self-insured, then our financial condition, results of operations and liquidity may be materially adversely affected.

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Risks Related to Cybersecurity, Privacy, Intellectual Property, and Litigation

We continue to be the target of attacks on our IT systems. Interruptions in and unauthorized access to our IT systems, our products, or our improper handling of data, could adversely affect our business.

We rely on the uninterrupted operation of complex IT systems and networks to operate our business.  Any improper handling of confidential data, or significant disruption to our systems or networks, including, but not limited to, new system implementations, computer viruses, security breaches, facility issues, natural disasters, terrorism, war, telecommunication failures or energy blackouts could have a material adverse impact on our business, operations, supply chain, sales and operating results.  Such improper handling of confidential data, or system or network disruption, could result in an unauthorized release of our, our suppliers’ or our customers’ intellectual property or confidential, proprietary or sensitive information, or the release of personal data. Any release of such information or data could harm our business or competitive position, result in a loss of customer confidence, and cause us to incur significant costs to remedy the damages. In addition, any release of such information or data or the failure to properly manage the collection, handling, transfer or disposal of such information may result in regulatory inquiries or penalties, enforcement actions, remediation obligations, claims for damages, litigation, and other sanctions.

We have experienced verifiable attacks on our IT systems and data, including network compromises, attempts to breach our security measures and attempts to introduce malicious software into our IT systems. For example, in fiscal 2019, we learned of an ongoing compromise of our computer networks by what is believed to be sophisticated hackers. We engaged outside legal counsel and a leading forensic investigatory firm with experience in such matters. We took steps to identify malicious activity on our network including a compromise of our network and, in May 2019, we began implementing a containment plan. We routinely evaluate the effectiveness of the containment mechanisms that were implemented and continue to implement additional measures. We have analyzed the information that was compromised. We do not believe that this IT system compromise has had a material adverse effect on our business or resulted in any material damage to us. As a result of the IT system compromise, our management, including our chief executive officer and our chief financial officer, concluded that our internal controls related to IT system access were not effective resulting in a material weakness in our internal controls for fiscal 2019. Although this material weakness in our internal control was remediated in fiscal 2020, there can be no assurance that similar control issues will not be identified in future periods.

Due to the types of products we sell and the significant amount of sales we make to government agencies or customers whose principal sales are to U.S. government agencies, we have experienced and expect to continue to experience in the future, attacks on our IT systems and data, including attempts to breach our security, network compromises and attempts to introduce malicious software into our IT systems. Were any future attacks to be successful, we may be unaware of the incident, its magnitude, or its effects until significant harm is done. In recent years, we have regularly implemented improvements to our protective measures which include, but are not limited to, implementation of the following: firewalls, endpoint intrusion detection and response software, regular patches, log monitors, event correlation tools, network segmentation, routine backups with offsite retention of storage media, system audits, dual factor identification, data partitioning, privileged account segregation and monitoring, routine password modifications, and an enhanced information security program including training classes and phishing exercises for employees and contractors with system access, along with tabletop exercises conducted by information security personnel. As a result of the material weakness in our internal controls resulting from the IT systems compromise in fiscal 2019, we have taken remediation actions and implemented additional controls and we are continuing to take actions to attempt to address evolving threats. However, our system improvements have not been fully effective in preventing attacks on our IT systems and data, including breaches of our security measures, and there can be no assurance that any future system improvements will be effective in preventing future cyber-attacks or disruptions or limiting the damage from any future cyber-attacks or disruptions. Such system improvements have resulted in increased costs to us and any future improvements, attacks or disruptions could result in additional costs related to rebuilding our internal systems, defending litigation, complaints or other claims, providing notices to regulatory agencies or other third parties, responding to regulatory actions, or paying damages. Such attacks or disruptions could have a material adverse impact on our business, operations and financial results.

Our products, or IP that we purchase or license from third parties for use in our products, as well as industry-standard specifications that we implement in our products, may be subject to security vulnerabilities. And, while some of our products contain encryption or security algorithms to protect third-party content or user-generated data stored on our products, these products could still be hacked or the encryption schemes could be compromised, breached, or circumvented by motivated and sophisticated attackers. Our products are being used in application areas that create new or increased cybersecurity, privacy or safety risks including applications that gather and process data, such as the cloud or Internet of Things, and automotive applications. We, our customers, and the users of our products may not promptly learn of or have the ability to
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fully assess the magnitude or effects of a vulnerability, including the extent, if any, to which a vulnerability has been exploited. Security vulnerabilities and any limitations of, or adverse effects resulting from, mitigation techniques can adversely affect our results of operations, financial condition, sales, customer relationships, share price, prospects, and reputation in a number of ways, any of which may be material. Adverse publicity about security vulnerabilities or mitigations could damage our reputation with customers or users and reduce demand for our products and services. These effects may be greater to the extent that competing products are not susceptible to the same vulnerabilities or if vulnerabilities can be more effectively mitigated in competing products. Moreover, third parties can release information regarding potential vulnerabilities of our products before mitigations are available. This, in turn, could lead to attempted or successful exploits of vulnerabilities, adversely affect our ability to introduce mitigations, or otherwise harm our business and reputation.

Third-party service providers, such as wafer foundries, assembly and test contractors, distributors, credit card processors and other vendors have access to portions of our and our customers' data. In the event that these service providers do not properly safeguard the data that they hold, security breaches and loss of data could result. Any such breach or loss of data by our third-party service providers could negatively impact our business, operations and financial results, as well as our relationship with our customers.

Our failure to comply with federal, state, or international privacy and data protection laws and regulations may materially adversely affect our business, results of operations and financial condition.

We are subject to numerous laws and regulations in the U.S. and internationally regarding privacy and data protection such as the European Union’s (EU) General Data Protection Regulation (GDPR), the U.K. equivalent to the GDPR, the California Consumer Privacy Act, and the California Privacy Rights Act. The scope of these laws and regulations is rapidly evolving, subject to differing interpretations, and may be inconsistent among jurisdictions. Some of these laws create a broad definition of personal information, establish data privacy rights, impose data breach notification requirements, and create potentially severe statutory damages frameworks and private rights of action for certain data breaches. Some of the laws and regulations also place restrictions on our ability to collect, store, use, transmit and process personal information and other data across our business. For example, the GDPR restricts the ability of companies to transfer personal data from the European Economic Area (EEA) to the U.S. and other countries. Further, such laws and regulations have resulted and will continue to result in significantly greater compliance burdens and costs for companies such as us that have employees, customers, and operations in the EEA.

In order to comply with the GDPR, we have relied mainly on the European Commission’s Standard Contractual Clauses (SCCs), for transfers of personal information from the EEA to the U.S. or other countries. However, the Court of Justice of the EU in a July 2020 decision (Schrems II) invalidated the EU-U.S. Privacy Shield Framework, and also called for stricter conditions in the use of the SCCs. Following the Schrems II decision, certain data protection authorities in the EU have issued statements advising companies within their jurisdiction not to transfer personal data to the U.S. under the SCCs. At present, there are few, if any, viable alternatives to the SCCs. If we are unable to implement sufficient safeguards to ensure that our transfers of personal information from the EEA are lawful, we may face increased exposure to regulatory actions and substantial fines and injunctions against processing personal information from the EEA. The loss of our ability to lawfully transfer personal data out of the EEA may cause reluctance or refusal by European customers to communicate with us as they are currently, and we may be required to increase our data processing capabilities in the EEA at significant expense. Additionally, other countries outside of the EEA have passed or are considering passing laws requiring local data residency which could increase the cost and complexity of providing our products in those jurisdictions.

Furthermore, the GDPR and the U.K. equivalent of the GDPR expose us to two parallel data protection regimes in Europe, each of which potentially authorizes fines and enforcement actions for certain violations. Substantial fines may be imposed for breaches of data protection requirements, which can be up to 4% of a company’s worldwide revenue or 20 million Euros, whichever is greater. Although the U.K. data protection regime currently permits data transfers from the U.K. to the EEA and other third countries, covered by a European Commission 'adequacy decision' through the continued use of SCCs and binding corporate rules, these laws and regulations are subject to change, and any such changes could have adverse implications for our transfer of personal data from the U.K. to the EEA and other third countries.

While we plan to continue to undertake efforts to conform to current regulatory obligations and evolving best practices, such efforts may be unsuccessful or result in significant costs. We may also experience reluctance, or refusal by European or multi-national customers to continue to provide us with personal data due to the potential risk exposure of personal data transfers and the current data protection obligations imposed on them by applicable data protection laws or by certain data protection authorities. These and any other data privacy laws and their interpretations continue to develop and their uncertainty and inconsistency may increase the cost of compliance, cause compliance challenges, restrict our ability to offer products in certain locations in the same way that we have been, potentially adversely affect certain third-party service
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providers, or subject us to sanctions by data protection regulators, all of which could adversely affect our business, financial condition and results of operations.

We are exposed to various risks related to legal proceedings, investigations or claims.

We are currently, and in the future may be, involved in legal proceedings, investigations or claims regarding intellectual property rights, product failures, contracts, export controls and sanctions, and other matters. As is typical in the semiconductor industry, we receive notifications from third parties from time to time who believe that we owe them indemnification or other obligations related to claims made against us, our direct or indirect customers, or our licensees. These legal proceedings and claims, even if meritless, have in the past and could in the future result in unexpected and substantial costs to us. If we are unable to resolve or settle a matter, obtain necessary licenses on reasonable terms, reengineer products or processes to avoid infringement, provide a cost-effective remedy, or successfully prosecute or defend our position, we could incur uninsured liability in any of them, be required to take a charge to operations, be enjoined from selling a material portion of our products or using certain processes, suffer a reduction or elimination in the value of our inventories, incur reputational damage, and our business, financial condition or results of operations could be harmed.

It is also possible that from time to time we may be subject to claims related to the manufacture, performance, or use of our products. These claims may be due to injuries, economic damage or environmental exposures related to manufacturing, a product's nonconformance to our or our customer’s specifications, changes in our manufacturing processes, or unexpected customer system issues due to the integration of our products or insufficient design or testing by our customers. We could incur significant expenses related to such matters, including, but not limited to:
•costs related to writing off the value of our inventory of nonconforming products;
•recalling nonconforming products;
•providing support services, product replacements, or modifications to products and the defense of such claims;
•diversion of resources from other projects;
•lost revenue or a delay in the recognition of revenue due to cancellation of orders, unpaid receivables, or reimbursement of costs or damages;
•customer imposed fines or penalties for failure to meet contractual requirements; and
•a requirement to pay damages, penalties or recall costs.

Because the systems into which our products are integrated have a higher cost of goods than the products we sell, the expenses and damages we are asked to pay may be significantly higher than the revenue and profits we received. While we exclude consequential damages in our standard terms and conditions, certain of our contracts may not exclude such liabilities. Further, our ability to avoid such liabilities may be limited by law. We have liability insurance which covers certain damages arising out of product defects, but we do not expect that insurance will fully protect against such claims. Payments we may make in connection with these customer claims may adversely affect the results of our operations.

Further, we sell to customers in industries such as automotive, aerospace, defense, safety, security, and medical, where failure of the application could cause damage to property or persons. We may be subject to claims if our products, or the integration of our products, cause system failures. We will face increased exposure to claims if there are substantial increases in either the volume of our sales into these applications or the frequency of system failures integrating our products.

Our contractual relationships with our customers expose us to risks and liabilities.

With the exception of orders placed under our Preferred Supply Program and LTSAs, we do not typically enter into long-term contracts with our non-distributor customers, and therefore we cannot be certain about future order levels from our customers. When we enter into customer contracts (other than under our original Preferred Supply Program and LTSAs), the contracts are generally cancelable based on standard terms and conditions. Under our original Preferred Supply Program and LTSAs, customers may cancel contracts in the event of price increases. Preferred Supply Program orders placed during or after August 2023 can be cancelled or rescheduled if our planned delivery date is greater than six months from the request date. While we had approximately 125,000 customers, and our ten largest direct customers accounted for approximately 12% of our total revenue in the first three months of fiscal 2024, and four of our top ten direct customers are contract manufacturers that perform manufacturing services for many customers, cancellation of customer contracts could have an adverse impact on our revenue and profits. For example, due to uncertainty related to the COVID-19 pandemic, we experienced an increase in order cancellations and requests to reschedule deliveries to future dates in the first quarter of fiscal 2021. Also, in recent months many of our customers felt the effects of slowing economic activity and increasing business uncertainty, and customer requests to push-out or cancel backlog increased in the fourth quarter of fiscal 2023 and in the first quarter of fiscal 2024.

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Certain customer contracts differ from our standard terms of sale. For some of the markets that we sell into, such as the automotive and personal computer markets, our customers may have negotiating leverage over us as a result of their market size. For example, under certain contracts we have committed to supply products on scheduled delivery dates, or extended our obligations for liabilities such as warranties or indemnification for quality issues or intellectual property infringement. If we are unable to supply the customer as contractually required, the customer may incur additional production costs, lost revenues due to delays in their manufacturing schedule, or quality-related issues. We may be liable for costs and damages associated with customer claims, and we may be obligated to defend the customer against claims of intellectual property infringement and pay associated legal fees. While we try to minimize the number of contracts which contain such provisions, manage the risks of such liabilities, and set caps on our liability exposure, sometimes we are unable to do so. In order to win important designs, avoid losing business to competitors, maintain existing business, or be permitted to bid on new business, we have, and may in the future, have to agree to uncapped liability for such items as intellectual property infringement or product failure, or have to agree to liquidated damage provisions. This exposes us to risk of liability far exceeding the purchase price of the products sold under such contracts, the lifetime revenues we receive under such contracts, or potential consequential damages. Further, where we do not have negotiated customer contracts, our customer's order terms may govern the transaction and contain terms unfavorable to us. These risks could result in a material adverse impact on our results of operations and financial condition.

Failure to adequately protect our intellectual property could result in lost revenue or market opportunities.

Our ability to obtain patents, licenses and other intellectual property rights covering our products and manufacturing processes is important for our success. To that end, we have acquired certain patents and licenses and intend to continue to seek patents on our technology and manufacturing processes. The process of seeking patent protection can be expensive, and patents may not be issued from currently pending or future applications. In addition, our existing and new patents, trademarks and copyrights that are issued may not have sufficient scope or strength to provide meaningful protection or commercial advantage to us. We may be subject to, or may initiate, interference proceedings in the U.S. Patent and Trademark Office, patent offices of a foreign country or U.S. or foreign courts, which can require significant financial resources. In addition, the laws of certain foreign countries do not protect our intellectual property rights to the same extent as the laws of the U.S. Infringement of our intellectual property rights by a third-party could result in uncompensated lost market and revenue opportunities for us. Although we continue to aggressively defend and protect our intellectual property on a worldwide basis, there can be no assurance that we will be successful.

Risks Related to Taxation, Laws and Regulations

Our reported financial results may be adversely affected by new accounting pronouncements or changes in existing accounting standards and practices.

We prepare our financial statements in conformity with U.S. GAAP. These accounting principles are subject to interpretation or changes by the FASB and the SEC. New accounting pronouncements and interpretations of accounting standards and practices have occurred in the past and are expected to occur in the future. New accounting pronouncements or a change in the interpretation of accounting standards or practices may have a significant effect on our reported financial results and may affect our reporting of transactions completed before the change is effective.

Regulatory authorities in jurisdictions into or from which we ship our products or import supplies could issue new export controls or trade sanctions, levy fines, restrict or delay our ability to export products or import supplies, or increase costs associated with the manufacture or transfer of products.

A significant portion of our sales require export and import activities. Our U.S.-manufactured products or products based on U.S. technology or U.S. software are subject to laws and regulations that govern international trade, including but not limited to the Foreign Corrupt Practices Act, Export Administration Regulations (EAR), International Traffic in Arms Regulations and trade sanctions against embargoed countries and restricted parties, including those administered by the U.S. Departments of State, Commerce, and Treasury. Licenses or license exceptions are often required for the shipment of our products to certain countries. Our inability to timely obtain a license, for any reason, including a delay in license processing due to a federal government shutdown like that which occurred in 2018, or changes in government policies of approval or denial of licenses, could cause a delay in scheduled shipments which could have a material adverse impact on our revenue within the quarter of a shutdown, and in following quarters depending on the extent that license processing is delayed. Further, determination by a government that we have failed to comply with trade regulations or anti-bribery regulations can result in penalties which may include denial of export privileges, fines, penalties, and seizure of products, or loss of reputation, any of which could have a material adverse effect on our business, sales and earnings. A change in laws and regulations could restrict our ability to transfer product to previously permitted countries, customers, distributors or others.
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For example, in October 2022, the U.S. Commerce Department published an interim final rule entitled "Implementation of Additional Export Controls: Certain Advanced Computing and Semiconductor Manufacturing Items; Supercomputer and Semiconductor End Use; Entity List Modification." This regulation imposes restrictions on advanced computing integrated circuits (ICs), computer commodities that contain such ICs, as well as on certain semiconductor manufacturing items, and expands controls on transactions involving items for supercomputer and semiconductor manufacturing end-uses. This rule, for example, expands the scope of foreign-produced items subject to license requirements for 28 existing entities on the Entity List that are located in China. An additional example occurred in April 2018, when the U.S. Commerce Department banned U.S. companies from selling products or transferring technology to ZTE, a Chinese company, and certain subsidiaries. This ban was lifted in July 2018. In fiscal 2020, the U.S. Commerce Department effectively banned U.S. companies from selling products or transferring technology to certain Chinese companies, including Huawei and their related companies worldwide. In fiscal 2020, the U.S. Federal Acquisition Regulation prohibited U.S. governmental agencies from buying equipment incorporating covered telecommunications equipment, as a substantial component or critical technology, where the technology came from certain Chinese companies. In July 2020, this was expanded to prohibit U.S. governmental agencies from entering into a contract with any company that uses covered telecommunications equipment whether or not the Chinese technology is related to the procurement. The EAR also effectively prohibits sales of items for a “military end use,” to a "military end-user," or for a "military intelligence" end-user, or end-use to certain countries, such as Belarus, Burma, Cambodia, Cuba, China, Iran, North Korea, Russia, Syria and Venezuela. Any of the foregoing changes could adversely impact our operational costs due to the administrative impacts of complying with these regulations and may limit those with whom we conduct business. Any one or more of these sanctions, future sanctions, a change in laws or regulations, or a prohibition on shipment of our products or transfer of our technology to significant customers could have a material adverse effect on our business, financial condition and results of operations.

The U.S. and other countries have levied tariffs and taxes on certain goods, implemented trade restrictions, and introduced national security protection policies. Trade tensions between the U.S. and China, which escalated in 2018, have continued and include the U.S. increasing tariffs on Chinese origin goods and China increasing tariffs on U.S. origin goods. We took steps to mitigate the costs of these tariffs on our business by making adjustments in operations and supply. Although these tariff increases did not result in a material adverse impact on our operating costs in fiscal 2019 or fiscal 2020, they did reduce demand for our products during fiscal 2019 and fiscal 2020. Increased tariffs on our customers' products could adversely impact their sales, and increased tariffs on our products in comparison to those of our competitors could each result in lower demand for our products.

Further changes in trade or national security protection policy, tariffs, additional taxes, restrictions on exports or other trade barriers, including those taken against the U.S. in retaliation for U.S. policies, may limit our ability to obtain equipment, components or raw materials (including rare earth minerals), limit our ability to produce products, increase our selling and/or manufacturing costs, decrease margins, reduce the competitiveness of our products, reduce our ability to sell products, or reduce our ability to have mergers and acquisitions approved by governmental agencies, any of which could have a material adverse effect on our business, results of operations or financial conditions.

The outcome of future examinations of our income tax returns and existing tax disputes could have an adverse effect on our results of operations.

We are subject to examination of our U.S. and certain foreign income tax returns for fiscal 2007 and later. We regularly assess the likelihood of adverse outcomes of these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from current or future examinations. There can be no assurance that the final determination of any of these or any future examinations will not have an adverse effect on our effective tax rates, financial position and results of operations.

In September 2021, we received a Statutory Notice of Deficiency (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, we filed a petition in the U.S. Tax Court challenging the Notice. In May 2023, we received a proposed income adjustment from the Malaysian Inland Revenue Board (IRB) for fiscal 2020, which if upheld by the highest court that has jurisdiction over this matter in Malaysia, could result in income taxes up to $420.0 million, exclusive of interest and penalties. The disputed amounts largely relate to the characterization of certain assets. Depending on the outcome of the IRB audit, we may need to take the matter to court in Malaysia, and if we do, we may be required to pay the assessment and then request a refund from the court upon a series of favorable rulings. The timing of adjudicating this matter is uncertain but could commence in the next 12 months. We believe that the final adjudication of these matters will not have a material impact on our consolidated financial position and results of operations or cash flows. However, 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 our financial position, results of operations or cash flows.
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Exposure to greater than anticipated income tax liabilities, changes in tax rules and regulations, changes in the interpretation of tax rules and regulations, or unfavorable assessments from tax audits could affect our effective tax rates, financial condition and results of operations.

We are a U.S.-based multinational company subject to tax in many U.S. and foreign jurisdictions. Our income tax obligations could be affected by many factors, including changes to our operating structure, intercompany arrangements and tax planning strategies.

Our income tax expense is computed based on tax rates at the time of the respective financial period. Our future effective tax rates, financial condition and results from operations could be unfavorably affected by changes in the tax rates in jurisdictions where our income is earned, by changes in the tax rules and regulations or the interpretation of tax rules and regulations in the jurisdictions in which we do business or by changes in the valuation of our deferred tax assets. For example, the Organization for Economic Cooperation and Development has been working on a Base Erosion and Profit Shifting Project and released an implementation package in December 2022 which provides a coordinated system to ensure that multinational enterprises pay a global minimum tax. The guidelines and proposals may change aspects of the existing framework under which our tax obligations are determined in many of the countries where we do business. Similarly, the European Commission and several countries have issued proposals that would change aspects of the current tax framework under which we are taxed. These proposals include changes to the existing income tax framework, possibilities of a global minimum tax, and proposals to change or impose new types of non-income taxes, including taxes based on a percentage of revenue. In August 2022, the U.S. government enacted the Inflation Reduction Act of 2022. The Inflation Reduction Act includes a new Corporate AMT of 15.0% on the AFSI of corporations with average AFSI exceeding $1.00 billion over a three-year period. The Corporate AMT is effective in fiscal 2024. Based on currently enacted tax laws, we do not expect the Inflation Reduction Act to have a material impact upon our tax expense, cash taxes, and effective tax rate.

Our business, financial condition and operating results may be adversely impacted by policies implemented globally by the current or future administrations.

The current administration in the U.S. and administrations in other global jurisdictions in which we operate, have indicated support for significant legislative and policy changes in areas including but not limited to tax, trade, labor, and the environment. If implemented, these changes could increase our effective tax rate, and increase our selling and/or manufacturing costs, which could have a material adverse effect on our business, results of operations or financial conditions. Changes in tax policy, trade regulations or other matters, and any uncertainty surrounding the scope or timing of such changes, could negatively impact the stock market, and reduce the trading price of our stock. For example, in February 2022, the U.S. began implementing widescale sanctions against Russia due to Russia's invasion of Ukraine. Sanctions against Belarus and certain Ukrainian regions were later implemented. Because the actions by Russia against Ukraine are in conflict with our Guiding Values, Microchip chose to cease shipments into Russia and Belarus, and we will continue to comply with applicable U.S. sanctions regarding Ukraine. While sales of our products into these regions, and to customers that sell into these regions, have been negatively impacted, at this time, we have not experienced a material adverse impact on our revenue. Retaliatory acts by Russia in response to the sanctions could include cyber attacks, sanctions, or other actions that could disrupt the economy. As a result of the foregoing risks or similar risks, the imposition of sanctions could have a material adverse effect on our business, results of operations or financial condition.

We are subject to stringent environmental and other regulations, which may force us to incur significant expenses.

We must comply with federal, state, local and foreign governmental regulations related to the use, storage, emissions, discharge and disposal of hazardous substances used in our products and manufacturing processes, or that are the result of our manufacturing operations, such as greenhouse gases. Our failure to comply, or the failure of entities that we have acquired over time to have complied, with regulations could result in significant fines, litigation or administrative actions by regulators or others, liability for clean-up, reduction or suspension of production, cessation of operations or future liabilities. Such regulations have required us in the past, and could require us in the future, to incur significant expenses to comply with such regulations. Our failure to control the use of, or adequately restrict the discharge of, hazardous substances could impact the health of our employees and others and could impact our ability to operate. Such failure could also restrict our ability to ship certain products to certain countries, require us to modify our products, shipping materials or logistics, or require us to incur other significant costs and expenses. Environmental laws continue to expand with a focus on reducing or eliminating hazardous substances in electronic products and shipping materials. Future environmental regulations could require us to reengineer certain of our existing products and may make it more expensive for us to manufacture, sell and ship our products. For example, proposed rulemaking in Colorado would require companies to significantly reduce greenhouse gas emissions in a
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shorter timeframe than we would be able to achieve as described in our risk factor regarding our planned capacity expansions. If such rulemaking were to be adopted in its current proposed form this would require us to limit, if not completely curtail, our expansion plans in Colorado, to ramp down our existing operations significantly or risk entering immediate noncompliance with the rule. The magnitude of penalties that may be imposed for non-compliance is not currently known but could include monetary penalties and orders to reduce or cease production.

In addition, the number and complexity of laws focused on the energy efficiency of electronic products, the recycling of electronic products, and the reduction in the amount and the recycling of packing materials have expanded significantly. It may be difficult for us to timely comply with these laws and we may have insufficient quantities of compliant products to meet customers' needs, thereby adversely impacting our sales and profitability. We may have to write off inventory if we hold unsaleable inventory as a result of changes to regulations. We expect these risks to continue. These requirements may increase our own costs, as well as those passed on to us by our supply chain.

Climate change regulations and sustained adverse climate change pose risks that could harm our results of operations.

Climate change regulations or voluntary actions we may have taken as part of our ESG initiatives could require us to limit emissions, change manufacturing processes, substitute materials which may cost more or be less available, fund offset projects, obtain new permits or undertake other costly activities. Failure to obtain required permits could result in fines, suspension or cessation of production. Restrictions on emissions could result in significant costs such as higher energy costs, carbon taxes, and emission cap and trade programs. The cost of compliance with such regulations could restrict our manufacturing operations, increase our costs, and have an adverse effect on our operating results.

In March 2022, the SEC proposed a rule entitled Enhancement and Standardization of Climate-Related Disclosures for Investors. While the proposed rule is not yet in effect and is subject to change as a result of the SEC comment process, if it were to go in effect in its current form, we would incur significant additional costs of compliance due to the need for expanded data collection, analysis, and certification. Further, certain elements of the proposed rule, such as mandatory third-party verification of emissions, may be difficult to comply with in the proposed required timeframe as there may be an insufficient number of qualified third-party verification entities to meet demand.

Sustained adverse change in climate could have a direct adverse economic impact on us, such as utility shortages, and higher costs of utilities. Certain of our operations are located in arid or tropical regions, which some experts believe may become vulnerable to fires, storms, severe floods and droughts. While our business recovery plans are intended to allow us to recover from natural disasters or other disruptive events, our plans may not protect us from all events. 

Customer demands and regulations related to conflict-free minerals may force us to incur additional expenses.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, in August 2012, the SEC released investigation, and disclosure requirements regarding the use of "conflict" minerals mined from the Democratic Republic of Congo and adjoining countries. We filed a Form SD with the SEC regarding such matters on May 26, 2023. Other countries are considering similar regulations. If we cannot certify that our supply chain is free from the risk of irresponsible sourcing, customers may demand that we change the sourcing of materials used in the manufacture of our products, even if the costs for compliant materials significantly increases or availability is limited.  If we change materials or suppliers, there will likely be costs associated with qualifying new suppliers and production capacity and quality could be negatively impacted.  Our relationships with customers and suppliers may be adversely affected if we are unable to certify that our products are free from the risk of irresponsible sourcing. We have incurred, and expect in the future to incur, additional costs associated with complying with these disclosure requirements, such as costs related to determining the source of any conflict minerals used in our products.  We may be unable to satisfy customers who require that all of the components of our products be certified as conflict free in a materially different manner than advocated by the Responsible Minerals Initiative or the Dodd-Frank Wall Street Reform and Consumer Protection Act.  If we are unable to meet customer requirements, customers may disqualify us as a supplier, resulting in a permanent or temporary loss of sales to such customer or reduce purchase from us, and we may have to write off inventory if it cannot be sold.

In addition to concerns over “conflict” minerals mined from the Democratic Republic of Congo, our customers may require that other minerals and substances used within our supply chain be evaluated and reported on. An increase in reporting obligations will increase associated operating costs. This could have negative effects on our overall operating profits.

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Failure to meet ESG expectations or standards, or achieve our ESG goals, could adversely affect our business, results of operations, financial condition, or stock price.

In recent years, there has been an increased focus on ESG matters, including greenhouse gas emissions and climate-related risks, renewable energy, water stewardship, waste management, diversity, equality and inclusion, responsible sourcing and supply chain, human rights, and social responsibility. We are committed to ESG and actively manage these issues. We have publicly announced certain goals, which we may refine or expand further in the future. These goals reflect our current plans and aspirations, and are not guarantees that we will be able to achieve them. Evolving stakeholder expectations, and our efforts to manage these issues, report on them, and accomplish our goals, present numerous operational, regulatory, reputational, financial, legal, and other risks, any of which could have a material adverse impact, including on our reputation and stock price.

Such risks and uncertainties include:
•reputational harm, including damage to our relationship with customers, supplies, investors, governments, or other stakeholders;
•adverse impacts on our ability to sell and manufacture products;
•increased risk of litigation, investigations, or regulatory enforcement action;
•unfavorable ESG ratings or investor sentiment;
•diversion of resources and increased costs to control, assess, and report on ESG metrics;
•our ability to achieve our goals within announced timeframes;
•increased costs to achieve our goals;
•unforeseen operational and technological difficulties;
•access to and increased cost of capital; and
•adverse impacts on our stock price.

Any failure, or perceived failure, to meet evolving expectations and industry standards, or achieve our ESG goals could have an adverse effect on our business, results of operations, financial condition, or stock price.

A requirement to fund our foreign pension plans are unfunded, and any requirement to fund these plans in the future could negatively affect our cash position and operating capital.


In connection with our acquisitionacquisitions of Microsemi and Atmel, we assumed unfunded defined benefit pension plans that cover certain of our French and German employees. Plan benefits are managed in accordance with local statutory requirements. Benefits are based on yearsMost of service and employee compensation levels. The projected benefit obligation totaled $57.4 million at December 31, 2017. Thethese plans are unfunded in compliance with local statutory regulations,requirements, and we have no immediate intention of funding these plans. The projected benefit obligation totaled $53.9 million at March 31, 2023. Benefits are paid when amounts become due, commencing when participants retire.due. We expect to pay approximately $0.7$1.8 million in fiscal 20182024 for benefits earned. Should legislative regulations require complete or partial funding of these plans in the future, it could negatively affect our cash position and operating capital.


FromRisks Related to Capitalization and Financial Markets

The future trading price of our common stock could be subject to wide fluctuations in response to a variety of factors.

The market price of our common stock has fluctuated significantly in the recent past and is likely to fluctuate in the future. The future trading price of our common stock could be subject to wide fluctuations in response to a variety of factors, many of which are beyond our control, including, but not limited to:
•global economic and financial uncertainty due to higher interest rates, higher inflation, instability in the banking sector, public health concerns or other factors;
•quarterly variations in our operating results or the operating results of other technology companies;
•changes in our financial guidance or our failure to meet such guidance;
•changes in analysts' estimates of our financial performance or buy/sell recommendations;
•general conditions in the semiconductor industry;
•the amount and timing of repurchases of shares of our common stock;
•our ability to realize the expected benefits of our completed or future acquisitions; and
•actual or anticipated announcements of technical innovations or new products by us or our competitors.

In addition, the stock market has recently and in the past experienced significant price and volume fluctuations that have affected the market prices for many companies and that often have been unrelated to their operating performance. These broad market fluctuations and other factors have harmed and may harm the market price of our common stock. The foregoing factors could also cause the market price of our Convertible Debt to decline or fluctuate substantially.

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The amount and timing of our share repurchases may fluctuate in response to a variety of factors.

The amount, timing, and execution of repurchases of shares of our common stock may fluctuate based on the share price of our common stock, general business and market conditions, tax regulations impacting share repurchases and other factors including our operating results, level of cash flow, capital expenditures and dividend payments. Although our Board of Directors has authorized share repurchases of up to $4.00 billion, of which $2.49 billion is still available, the authorization does not obligate us to acquire any particular amount of shares. We cannot guarantee that our share repurchase authorization will be fully consummated or that it will enhance long-term shareholder value. The repurchase authorization may be suspended or discontinued at any time at our discretion and may affect the trading price of our common stock and increase volatility.

Our financial condition and results of operations could be adversely impacted if we do not effectively manage or refinance our current or future debt.

As of June 30, 2023, the principal amount of our outstanding indebtedness was $6.05 billion. As a result of our acquisition of Microsemi, we have substantially more debt than we had prior to timeMay 2018. At June 30, 2023, we receive grants from governments, agencieshad $725.0 million in outstanding borrowings under our Revolving Credit Facility which provides up to $2.75 billion of revolving loan commitments that terminate in 2026. At June 30, 2023, we had $4.60 billion in aggregate principal amount of Senior Notes and research organizations.$728.6 million in aggregate principal of Convertible Debt outstanding.

With respect to such balance of Senior Notes, our 2.670% 2023 Notes in the principal amount of $1.00 billion mature on September 1, 2023 and our 0.972% 2024 Notes in the principal amount of $1.40 billion mature on February 15, 2024, and we intend to finance the repayment of such notes using available borrowings under our Revolving Credit Facility, new fixed rate notes, term loans, commercial paper or other instruments. Since interest rates have increased significantly since we issued our 2.670% 2023 Notes and our 0.972% 2024 Notes, we expect our interest expense will increase as a result of the refinancing of such notes. Also, if we refinance such fixed rate notes with variable rate debt, changes in interest rates will have a more significant impact on our interest expense in future periods. There can be no assurance that we will be able to refinance our current or future debt on reasonable terms, if at all.

Servicing our debt requires a significant amount of cash, we may not have sufficient cash to fund payments and adverse changes in our credit ratings could increase our borrowing costs and adversely affect our ability to access the debt markets.

Our ability to make scheduled payments of principal, interest, or to refinance our indebtedness, including our outstanding Senior Notes and Convertible Debt, depends on our future performance, which is subject to economic, competitive and other factors. Our business may not continue to generate sufficient cash flow to service our debt and to fund capital expenditures, dividend payments, share repurchases or acquisitions. If we are unable to comply with the terms of those grants, we may not be able to receive or recognize grant benefits orgenerate such cash flow, we may be required to repay grant benefits previously paidundertake alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on onerous or highly dilutive terms. Our ability to usrefinance our indebtedness will depend on the capital markets and recognize related charges, which wouldour financial condition at such time. Our senior notes are rated by certain major credit rating agencies. These credit ratings impact our cost of borrowing and our ability to access the capital markets and are based on our financial performance and financial metrics including debt levels. There is no assurance that we will maintain our current credit ratings. A downgrade of our credit rating by a major credit rating agency could result in increased borrowing costs and could adversely affect our operatingability to access the debt markets to refinance our existing debt or finance future debt. Our maintenance of substantial levels of debt could adversely affect our ability to take advantage of opportunities and could adversely affect our financial condition and results and financial position.of operations.

From time to time, we receive economic incentive grants and allowances from European governments, agencies and research organizations targeted at increasing employment at specific locations. The subsidy grant agreements typically contain economic incentive, headcount, capital and research and development expenditure and other covenants that must be met to receive and retain grant benefits, and these programs can be subjected to periodic review by the relevant governments. Noncompliance by us with the conditions of the grants could result in our forfeiture of all or a portion of any future amounts to be received, as well as the repayment of all or a portion of amounts received to date.


Conversion of our debenturesConvertible Debt will dilute the ownership interest of our existing stockholders.


The conversion of some or all of our outstanding debenturesConvertible Debt will dilute the ownership interest of our existing stockholders to the extent we deliver common stock upon conversion of the debentures. Uponsuch debt. Following our irrevocable settlement election made on April 1, 2022, upon conversion, we mayare required to satisfy our conversion obligation with respect to such converted Convertible Debt by delivering cash equal to the principal amount of such converted Convertible Debt and cash and shares of common stock or any combination, at our option. If upon conversion we electoption, with respect to deliver cash for the lesser of the conversion value and principal amount of the debentures, we would pay the holder the cash value of the applicable number of shares of our common stock. Upon conversion, we intend to satisfy the lesser of the principal amount or the conversion value of the debentures in cash. If the conversion value of a debenture exceeds the principal amount of the debenture, we may also elect to deliver cash in lieu of common stock for theany conversion value in excess of the one thousand dollars principal amountthereof (i.e., the conversion spread). There would be no adjustment to the numerator in the net income per common share computation for the cash settled portion of the debenturesConvertible Debt as that portion of the debt instrument will always be settled in cash. The conversion spread will be included in the denominator for the computation of diluted net income per common share. Any sales in the public market of any common stock issuable upon conversion of our debenturesConvertible Debt could adversely affect prevailing market prices of our common stock. In addition, the existence of the debenturesConvertible Debt may encourage short selling by market participants because the conversion of the debenturesConvertible Debt could be used to satisfy short positions, or anticipated
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conversion of the debenturesConvertible Debt into shares of our common stock could depress the price of our common stock.


Climate change regulations and sustainedFluctuations in foreign currency exchange rates could adversely impact our operating results.

We use forward currency exchange contracts in an attempt to reduce the adverse climate change pose regulatory and physical risks that could harmearnings impact from the effect of exchange rate fluctuations on our resultsnon-U.S. dollar net balance sheet exposures. Nevertheless, in periods when the U.S. dollar significantly fluctuates in relation to the non-U.S. currencies in which we transact business, the value of operations or affect the way we conduct business.

Climate change regulations at the federal, state or local level or in international jurisdictions could require us to limit emissions, change our manufacturing processes, obtain substitute materials which may cost more or be less available, increase our investment in control technology for greenhouse gas emissions, fund offset projects or undertake other costly activities. These regulations could significantly increase our costs and restrict our manufacturing operations by virtue of requirements for new equipment. New permits may be required for our current operations, or expansions thereof. Failure to timely receive permits could result in fines, suspension of production, or cessation of operations at one or more facilities. In addition, restrictions on carbon dioxide or other greenhouse gas emissions could result in significant costs such as higher energy costs, and utility companies passing down carbon taxes, emission cap and trade programs and renewable portfolio standards. The cost of complying, or of failing to comply, with these and other climate change and emissions regulations couldnon-U.S. dollar transactions can have an adverse effect on our operating results.results of operations and financial condition. In particular, in periods when the value of a non-U.S. currency significantly declines relative to the U.S. dollar, customers transacting in that currency may be unable to fulfill their contractual obligations or to undertake new obligations to make payments or purchase products. In periods when the U.S. dollar declines significantly relative to the British pound, Euro, Thai baht and Taiwan dollar, the operational costs in our European and Thailand subsidiaries are adversely affected. Although our business has not been materially adversely impacted by recent changes in the value of the U.S. dollar, there can be no assurance as to the future impact that any weakness or strength in the U.S. dollar will have on our business or results of operations.



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Further, any sustained adverse change in climate could have a direct adverse economic impact on us, such as water and power shortages, and higher costs of water or energy to control the temperature of our facilities. Certain of our operations are located in arid or tropical regions, such as Arizona and Thailand. Some environmental experts predict that these regions may become vulnerable to storms, severe floods and droughts due to climate change. While we maintain business recovery plans that are intended to allow us to recover from natural disasters or other events that can interrupt business, we cannot be certain that our plans will protect us from all such disasters or events. 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


We did not repurchase any sharesThe following table sets forth our purchases of our common stock in the three months ended December 31, 2017.June 30, 2023:

PeriodTotal number of shares purchased
Average price paid per share(1)
Total number of shares purchased as part of publicly announced program
Approximate dollar value of shares that may yet be purchased under the program(1)(2) (in millions)
April 1, 2023 - April 30, 2023— $— — 
May 1, 2023 - May 31, 20231,091,456 $75.33 1,091,456 
June 1, 2023 - June 30, 2023718,861 $80.81 718,861 
1,810,317 1,810,317 $2,488.3 


(1) The amounts above do not include the 1% excise tax on stock repurchases enacted by the Inflation Reduction Act.
(2) In November 2021, our Board of Directors authorized the repurchase of up to $4.00 billion of our common stock in the open market or in privately negotiated transactions. There is no expiration date associated with this authorization.

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Securities Trading Plans of Directors and Executive Officers

During our last fiscal quarter, no director or officer, as defined in Rule 16a-1(f), adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Regulation S-K Item 408.


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Item 6.Exhibits

Item 6. Exhibits
Incorporated by Reference
Exhibit NumberExhibit DescriptionFormFile NumberExhibitFiling DateFiled or Furnished Herewith
3.18-K000-211843.1August 26, 2021 
 
3.28-K000-211843.1June 26, 2023 
 
10.1*X
 
10.2X
 
31.1X
 
31.2X
 
32**X
 
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive File because its XBRL tags are embedded within the Inline XBRL documentX
 
101.SCHInline XBRL Taxonomy Extension Schema DocumentX
 
101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentX
 
101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentX
 
101.LABInline XBRL Taxonomy Extension Label Linkbase DocumentX
 
101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentX
 
104Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document or included within the Exhibit 101 attachmentsX
 
*Compensation plans or arrangements in which directors or executive officers are eligible to participate.
** This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing of the registrant under the Securities Act of 1933, as amended, or Securities Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


MICROCHIP TECHNOLOGY INCORPORATED
Date:February 7, 2018August 3, 2023
By: /s/ J. Eric Bjornholt
J. Eric Bjornholt
Senior Vice President and Chief Financial Officer
(Duly Authorized Officer, and
Principal Financial and Accounting Officer)


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