UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended March 31, 2022
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _________ to __________
OR
MICROCHIP TECHNOLOGY INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
0-21184
(Commission File No.)
86-0629024
(IRS Employer Identification No.)
2355 W. Chandler Blvd., Chandler, AZ 85224-6199
(Address of Principal Executive Offices, Including Zip Code)
(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
Common Stock, $0.001 Par Value Per Share
MCHP
Securities registered pursuant to Section 12(g) of the Act: None
Name of Each Exchange on Which
Registered
NASDAQ Stock Market LLC
(Nasdaq Global Select Market)
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☒ Yes ☐ No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
☐ Yes ☒ No
Indicate by check 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 such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files).
☒ Yes ☐ No
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 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 ☐
Emerging growth
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 has filed a report on and attestation to its management's assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by
the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☒ No
Aggregate market value of the voting and non-voting common equity held by non-affiliates as of September 30, 2021 based upon
the closing price of the common stock as reported by the NASDAQ Global Market on such date was approximately $41.7 billion.
Number of shares of Common Stock, $0.001 par value, outstanding as of May 12, 2022: 554,501,300 shares
Documents Incorporated by Reference
Document
Annual Report on Form 10-K for the fiscal year ended March 31,
2021
Proxy Statement for the 2022 Annual Meeting of Stockholders
Part of Form 10-K
II
III
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
FORM 10-K
TABLE OF CONTENTS
PART I
PART II
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
[Reserved]
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
Exhibit Index
Signatures
Power of Attorney
Page
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12
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34
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Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
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MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
Defined Terms(1)
Term
3.922% 2021 Notes
4.333% 2023 Notes
2.670% 2023 Notes
0.972% 2024 Notes
0.983% 2024 Notes
4.250% 2025 Notes
2015 Senior Convertible Debt
2017 Senior Convertible Debt
2020 Senior Convertible Debt
2017 Junior Convertible Debt
ASU
Bridge Loan Facility
CEMs
Convertible Debt
Credit Agreement
EAR
EEPROM
EERAM
ESEs
EURIBOR
Exchange Act
FASB
FPGA
OEMs
PSUs
R&D
Revolving Credit Facility
RF
ROU
RSUs
SARs
SEC
Senior Indebtedness
Senior Notes
SRAM
SOFR
SONIA
TCJA
Term Loan Facility
U.S. GAAP
Definition
2021 Senior Secured Notes, matured on June 1, 2021
2023 Senior Unsecured Notes, maturing June 1, 2023
2023 Senior Unsecured Notes, maturing September 1, 2023
2024 Senior Unsecured Notes, maturing February 15, 2024
2024 Senior Unsecured Notes, maturing September 1, 2024
2025 Senior Unsecured Notes, maturing September 1, 2025
2015 Senior Convertible Debt, maturing February 15, 2025
2017 Senior Convertible Debt, maturing February 15, 2027
2020 Senior Convertible Debt, maturing November 15, 2024
2017 Junior Convertible Debt, maturing February 15, 2037
Accounting Standards Update
364-Day Senior Secured bridge credit agreement which provided for a term loan facility
Client engagement managers
2015 Senior Convertible Debt, 2017 Senior Convertible Debt, 2020 Senior Convertible Debt,
and 2017 Junior Convertible Debt
Amended 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
Export Administration Regulation
Electrically erasable programmable read only memory
Electrically erasable random access memory
Embedded solutions engineers
Euro Interbank Offered Rate
Securities Exchange Act of 1934, as amended
Financial Accounting Standards Board
Field-programmable gate array
Original equipment manufacturers
RSUs with a market condition or a performance condition, and a service condition
Research and development
$2.75 billion revolving credit facility created pursuant to the Credit Agreement
Radio frequency
Right-of-use
Restricted stock units
Stock appreciation rights
U.S. Securities and Exchange Commission
Revolving Credit Facility, 3.922% 2021 Notes, 4.333% 2023 Notes, 2.670% 2023 Notes,
0.972% 2024 Notes, 0.983% 2024 Notes, and 4.250% 2025 Notes
3.922% 2021 Notes, 4.333% 2023 Notes, 2.670% 2023 Notes, 0.972% 2024 Notes, 0.983%
2024 Notes, and 4.250% 2025 Notes
Static random access memory
Secured Overnight Financing Rate
Sterling Overnight Index Average
Tax Cuts and Jobs Act of 2017
$3.00 billion term loan facility available under the Credit Agreement prior to the December
16, 2021 amendment to such agreement
U.S. Generally Accepted Accounting Principles
(1) Certain terms used within this Form 10-K are defined in the above table.
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PART I
This Form 10-K contains certain forward-looking statements that involve risks and uncertainties, including statements
regarding our strategy and future financial performance and those statements identified under "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations – Note Regarding Forward-looking Statements." Our
actual results could differ materially from the results described in these forward-looking statements as a result of certain
factors including those set forth under "Item 1A. Risk Factors," beginning below at page 12, and elsewhere in this Form 10-
K. Although we believe that the matters 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. In this Form 10-K,
"we," "us," "our," and "Microchip" each refers to Microchip Technology Incorporated and its subsidiaries.
Item 1. Business
Overview
We develop, manufacture and sell smart, connected and secure embedded control solutions used by our customers for a
wide variety of applications. With over 30 years of technology leadership, our broad 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, artificial intelligence and machine learning, Internet of Things (IoT) and edge computing, advanced
driver assist systems (ADAS) and autonomous driving, and electric vehicles, in key end markets such as automotive, aerospace
and defense, communications, consumer appliances, data centers and computing, and industrial.
Business and Macroeconomic Environment
The COVID-19 pandemic initially resulted in a global disruption in economic activity by adversely affecting production,
creating supply chain and market disruption, and adversely impacting businesses and individuals. However, in the second half
of fiscal 2021, business conditions were unexpectedly strong as businesses and individuals adapted to the effects of the
pandemic. In response to global supply constraints, we worked to mitigate the impact of the pandemic on our business by
qualifying alternative suppliers, increasing our inventory of raw materials, ramping our internal factories and adding assembly
and test capacity to increase our manufacturing capability while securing additional capacity with our subcontractors
wherever possible. However, strong customer demand outpaced capacity improvements in fiscal 2022 as we continued to
experience constraints in our internal and external factories and their related manufacturing supply chains. We expect that
certain supply chain constraints will persist through calendar 2022 and into calendar 2023. 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.
In response to the pandemic, we have taken proactive preventative measures to enable a safe environment for our
employees and operation of our manufacturing sites. While our global manufacturing sites are fully operational, we
strategically implemented plans intended to provide more assurance of business continuity in the event severe outbreaks or
government requirements were to impact our operations.
Industry Background
Competitive pressures require OEMs of a wide variety of products to expand product functionality and provide
differentiation while maintaining or reducing cost. To address these requirements, manufacturers often use integrated
circuit-based embedded control systems that enable them to:
differentiate their products
replace less efficient electromechanical control devices
reduce the number of components in their system
add product functionality
reduce the system level energy consumption
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• make systems safer to operate
add security to their products
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decrease time to market for their products
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significantly reduce product cost
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Embedded control systems have been incorporated into thousands of products and subassemblies in a wide variety of
applications and markets worldwide, including:
actuators
applications requiring touch buttons, touch screens and graphical user interfaces
automotive access control
automotive comfort, safety, information and entertainment applications
avionics
communication infrastructure systems
consumer electronics
defense and military hardware
electric vehicles
handheld tools
home and building automation
industrial automation
large and small home appliances
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• medical devices
• motor controls
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• wireless communication
portable computers and accessories
power supplies
residential and commercial security systems
robotics
routers and video surveillance systems
satellites
smart home and IoT edge devices
smart meters and energy monitoring
storage and server systems
touch control
Embedded control systems typically incorporate a microcontroller as the principal active, and sometimes sole,
component. A microcontroller is a self-contained computer-on-a-chip consisting of a central processing unit, often with on-
board non-volatile program memory for program storage, random access memory for data storage and various analog and
digital input/output peripheral capabilities. In addition to the microcontroller, a complete embedded control system often
incorporates application-specific software, various analog, mixed-signal, timing, connectivity, security and non-volatile
memory components such as EEPROMs and Flash memory.
The increasing demand for embedded control systems has made the market for microcontrollers a significant segment of
the semiconductor market at $22.5 billion in calendar year 2021. Microcontrollers are primarily available in 8-bit through 32-
bit architectures. 8-bit microcontrollers remain very cost-effective and easy to use for a wide range of high-volume
embedded control applications and, as a result, continue to represent a significant portion of the overall microcontroller
market. 16-bit and 32-bit microcontrollers provide higher performance and functionality, and are generally found in more
complex embedded control applications. FPGAs are programmable integrated circuits that are used to implement complex
logic functions and can be re-programmed at any time, allowing for multiple implementations and revisions during or after
the end customer system is manufactured. Some versions of FPGAs also include a microcontroller or microprocessor core to
provide additional system on chip functionality for compute intensive tasks. The analog and mixed-signal segment of the
semiconductor market was $72.8 billion in calendar year 2021, and this market is fragmented into a large number of sub
segments.
Our Products
Our strategic focus is on providing 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 of our solutions by our customers in their end products.
Microcontrollers
We offer a broad family of proprietary general purpose microcontroller products marketed under multiple brand
names. We believe that our microcontroller product families provide leading function and performance characteristics in the
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worldwide microcontroller market. We target the 8-bit, 16-bit, and 32-bit microcontroller and 32-bit embedded
microprocessor markets. We have shipped more than 31.6 billion microcontrollers to customers worldwide since 1990. We
also offer specialized microcontrollers for automotive, industrial, computing, communications, lighting, power supplies, motor
control, human machine interface, security, wired connectivity and wireless connectivity applications.
We leverage our circuit design, process technologies, development tools, applications knowledge, and manufacturing
experiences to enable our customers to implement various embedded control functions in their end systems with our
microcontrollers.
Analog
Our analog product line consists of several families including power management, linear, mixed-signal, high voltage,
thermal management, discrete diodes and MOSFETS, RF, drivers, safety, security, timing, USB, ethernet, wireless and other
interface products.
We market and sell our analog product line into our microcontroller, microprocessor and FPGA customer base, and to
customers who use microcontrollers and FPGA products from other suppliers and to customers who use other products that
may not fit our traditional microcontroller, FPGA and memory products customer base.
Other
Our other product line includes FPGA products, royalties associated with licenses for the use of our SuperFlash and other
technologies, sales of our intellectual property, fees for engineering services, memory products, timing systems,
manufacturing services (wafer foundry and assembly and test subcontracting), legacy application specific integrated circuits,
and products for aerospace applications.
Our FPGA products were primarily acquired as a part of our acquisition of Microsemi Corporation (Microsemi) in May
2018. Our portfolio of non-volatile FPGAs are recognized for their low power, high security and extended reliability. We
market and sell our FPGA products and related solutions into a broad range of applications within the industrial, automotive,
defense, aviation, space and communications markets.
Our technology licensing business generates license fees and royalties associated with technology licenses for the use of
our SuperFlash® embedded flash and other technologies. We also generate fees for engineering services related to these
technologies. We license our NVM technologies to foundries, integrated device manufacturers and design partners
throughout the world for use in the manufacture of their advanced microcontroller products, gate array, RF, analog and
neuromorphic compute products that require embedded non-volatile memory.
Our memory products consist of EEPROMs, Serial Flash memories, Parallel Flash memories, Serial SRAM memories and
EERAMs. Serial EEPROMs, Serial Flash memories, Serial SRAMs and EERAMs have a very low I/O pin requirement, permitting
production of very small footprint devices. We sell our memory products primarily into the embedded control
market, complementing our microcontroller offerings.
Microcontroller Development Tools
We offer a comprehensive set of low-cost and easy-to-learn application development tools. These tools enable system
designers to quickly and easily program our microcontroller and microprocessor products for specific applications and, we
believe, they are an important factor for facilitating design wins.
Our family of development tools for our microcontroller and microprocessor products range from entry-level systems,
which include an assembler or a compiler and programmer or in-circuit debugging hardware, to fully configured systems that
provide in-circuit emulation capability. We also offer a complete suite of compilers, software code configurators and
simulators. Customers moving from entry-level designs to those requiring real-time emulation are able to preserve their
investment in learning and tools as they migrate to future microcontroller devices in our portfolio.
Many independent companies also develop and market application development tools that support our microcontroller
and microprocessor product architectures, including an extensive amount of third-party tool suppliers whose products
support our microcontroller architectures.
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We believe that familiarity with and adoption of development tools from Microchip as well as from third-party
development tool partners by an increasing number of product designers will be an important factor in the future selection of
our embedded control products. These development tools allow design engineers to develop thousands of application-
specific products from our standard microcontrollers.
Manufacturing
Our manufacturing operations include wafer fabrication, wafer probe, assembly and test. 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, 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 assembly and testing profit margin. We do
outsource a significant portion of our manufacturing requirements to third parties and the amount of our outsourced
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 comply with several quality systems, including: ISO9001 (2015 version),
IATF16949 (2016 version), AS9100 (2016 version), and TL9000.
Refer to "Item 2. Properties" for further information regarding the location and principal operations of our manufacturing
facilities.
Wafer Fabrication
Fab 2 currently produces 8-inch wafers and supports various manufacturing process technologies, but predominantly
utilizes our 0.25 microns to 1.0 microns processes. During fiscal 2022, we increased Fab 2's capacity to support more
advanced technologies by making process improvements, upgrading existing equipment, and adding equipment.
Fab 4 currently produces 8-inch wafers using predominantly 0.13 microns to 0.5 microns manufacturing
processes. During fiscal 2022, we increased Fab 4's capacity to support more advanced technologies by making process
improvements, upgrading existing equipment, and adding equipment. A significant amount of additional clean room capacity
in Fab 4 is being brought on line to support incremental wafer fabrication capacity needs.
Fab 5 currently manufactures discrete and specialty products in addition to a lower volume of a diversified set of
standard products.
We believe the combined capacity of Fab 2, Fab 4, and Fab 5 will allow us to respond to future demand of internally
fabricated products with incremental capital expenditures.
As a result of our acquisition of Microsemi, we acquired several smaller wafer fabrication facilities, which utilize older
technologies that are appropriate for the discrete products they manufacture. We currently plan to continue to operate
these fabrication facilities with modest investment to keep them operational with the exception of the facility in Santa Clara,
California, which we closed in fiscal 2022.
We continue to transition products to more advanced process technologies to reduce future manufacturing costs. We
believe that our ability to successfully transition to more advanced process technologies is important for us to remain
competitive.
We augment our internal manufacturing capabilities by outsourcing a significant portion of our wafer production
requirements to third-party wafer foundries. As a result of our acquisitions, we have become more reliant on outside wafer
foundries for our wafer fabrication requirements. In fiscal 2022, approximately 60% of our sales came from products that
were produced at outside wafer foundries.
Assembly and Test
We perform product assembly and test at various facilities located around the world. During fiscal 2022, we increased
capacity at our Thailand and Philippines facilities to support more technologies by making process improvements, upgrading
existing equipment, and adding equipment. During fiscal 2022, approximately 59% of our assembly requirements were being
performed in our internal facilities and approximately 64% of our test requirements were performed in internal facilities. We
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use third-party assembly and test contractors for the balance of our assembly and test requirements. Over time, we intend to
continue to migrate a portion of the outsourced assembly and test activities to our internal facilities.
General Matters Impacting Our Manufacturing Operations
Due to the high fixed costs inherent in semiconductor manufacturing, consistently high manufacturing yields have
significant positive effects on our gross profit and overall operating results. Our continuous focus on manufacturing
productivity has allowed us to maintain excellent manufacturing yields at our facilities. Our manufacturing yields are primarily
driven by a comprehensive implementation of statistical process control, extensive employee training and effective use of our
manufacturing facilities and equipment. Maintenance of manufacturing productivity and yields are important factors in the
achievement of our operating results. The manufacture of integrated circuits, particularly non-volatile, erasable
complementary metal-oxide semiconductor (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 and the performance of our manufacturing personnel and equipment. 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.
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. In order to respond to such requirements, we
have historically maintained a significant work-in-process and finished goods inventory. Refer to Note 3 for a summary of our
long-lived assets, consisting of property, plant and equipment and right-of-use assets, by geography.
We have many suppliers of raw materials and subcontractors that provide our various materials and service needs. We
generally seek to have multiple sources of supply for our raw materials and services, but, in some cases, we may rely on a
single or limited number of suppliers.
Sales and Distribution
General
We market and sell our products worldwide primarily through a network of direct sales personnel and distributors.
Our direct sales force focuses on a 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 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 CEMs, ESEs, and sales management have technical degrees or backgrounds and have been
previously employed in 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 customers and to conduct periodic training sessions for the balance of our sales team. ESEs also frequently
conduct technical seminars and workshops in major cities around the world or through online webcasts.
Our licensing division has dedicated sales, technology, design, product, test and reliability personnel that support the
requirements of our licensees.
For information regarding our revenue, results of operations, and total assets for each of our last three fiscal years, refer
to our financial statements included in this Form 10-K.
Distribution
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 us for our products and brand name and use distributors as an effective supply channel.
In fiscal 2022 and fiscal 2021, we derived 48% and 50%, respectively, of our net sales through distributors compared to
52% and 50%, respectively, of our net sales from customers serviced directly by us. The decrease in the distribution
percentage of our total net sales was primarily due to lower Preferred Supply Program participation among our distributors as
priority of supply under the Preferred Supply Program is more prevalent with direct customers. No distributor or end
customer accounted for more than 10% of our net sales in fiscal 2022 or fiscal 2021.
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With the exception of orders placed under our Preferred Supply Program, we do not have long-term purchase
commitments from our distributors and we, or our distributors, may each terminate our relationship with little or no
advanced notice. 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.
Competition
The semiconductor industry is intensely competitive and has historically been characterized by price erosion and rapid
technological change. We compete with major domestic and international semiconductor companies, some of which have
greater market recognition and greater financial, technical, marketing, distribution and other resources than we have with
which to pursue engineering, manufacturing, marketing and distribution of their products. We also compete with a number
of companies that we believe have copied, cloned, pirated or reverse engineered our proprietary product lines in such
countries as China and Taiwan. We are continuing to take actions to vigorously and aggressively defend and protect our
intellectual property on a worldwide basis.
We currently compete principally on the basis of the technical innovation and performance of our embedded control
products, including the following product characteristics:
performance
analog, digital and mixed signal functionality and level of functional integration
field programmability
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• memory density
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low power consumption
extended voltage ranges
reliability
security and functional safety
packaging alternatives
comprehensive suite of development tools
We believe that other important competitive factors in the embedded control market include:
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ease of use
functionality of application development systems
hardware, software and tool compatibility within product families to increase migration flexibility
dependable delivery, quality and availability
technical and innovative service and support
time to market
price
We believe that we compete favorably with other companies on all of these factors, but we may be unable to compete
successfully in the future, which could harm our business.
Patents, Licenses and Trademarks
We maintain a portfolio of U.S. and foreign patents, expiring on various dates from 2022 through 2041. We also have
numerous additional U.S. and foreign patent applications pending. We do not expect that the expiration of any particular
patent will have a material impact on our business. While our intention is to continue to patent our technology and
manufacturing processes, we believe that our continued success depends primarily on the technological skills and innovative
capabilities of our personnel and our ability to rapidly commercialize new and enhanced products. As with any operating
company, the scope and strength of our intellectual property assets, including our pending and existing patents, trademarks,
copyrights, and other intellectual property rights may be insufficient to provide meaningful protection or commercial
advantage. Moreover, pursuing violations of intellectual property rights on a worldwide basis is a complex challenge involving
multinational patent, trademark, copyright and trade secret laws. Further, the laws of particular foreign countries often fail to
protect our intellectual property rights to the same extent as the laws of the U.S.
We have also entered into certain in-bound and outbound intellectual property licenses and cross-licenses with other
companies and those licenses relate to semiconductor products and manufacturing processes. As is typical in the
semiconductor industry, we and our customers from time to time receive, and may continue to receive, demand letters from
third parties asserting infringement of patent and other intellectual property rights. We diligently investigate all such notices
and respond as we believe appropriate. In most cases we believe that we can obtain necessary licenses on commercially
reasonable terms, however, we cannot be certain that this would be the case, or that litigation or damages for any past
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infringement could be avoided. Licensees of our technology may become unable to pay, and have in the past and are
currently disputing their obligations to pay us royalties or fees. Litigation, arbitration or other proceedings, which could result
in substantial costs and require significant attention from management, has been and is expected to be necessary to enforce
our intellectual property rights, or to defend against claimed infringement of the rights of others. The failure to obtain
necessary licenses, the necessity of engaging in defensive legal proceedings, or any negative results of these proceedings
could harm our business.
Environmental Regulation
We must comply with many different federal, state, local and foreign governmental regulations related to the use,
storage, discharge and disposal of certain chemicals and gases used in our manufacturing processes. Our facilities have been
designed to comply with these regulations and we believe that our activities are conducted in material compliance with such
regulations. Any changes in such regulations or in their enforcement could result in an increase in capital expenditures such
as acquiring costly equipment or other significant expenses to comply with environmental regulations. Any failure by us to
adequately control the storage, use, discharge and disposal of regulated substances could result in significant future liabilities.
Increasing public attention has been focused on the environmental impact of electronic manufacturing operations. While
we have not experienced any materially adverse effects on our operations from recently adopted environmental regulations,
technological changes, or weather, our business and results of operations could suffer if for any reason we fail to control the
storage or use of, or to adequately restrict the discharge or disposal of, hazardous substances under present or future
environmental regulations.
Human Capital Resources
Our Employees
We invest in our highly-skilled global workforce of approximately 21,000 people in accordance with our Guiding Value:
employees are our greatest strength. We believe 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 to our customers.
Culture and Core Values
Before Microchip went public in 1993, Microchip created a cultural framework to unite its employees through shared
workplace values, and to guide employees’ strategies, decisions, actions and job performance. Microchip’s culture is centered
on a values-based, highly-empowered, continuous-improvement oriented approach. This corporate culture strengthens our
business, and enables us to fulfill our purpose. Our focus on communication aims to provide transparency among leadership,
to promote trust among employees, and is a critical part of Microchip’s culture. Our culture is important to our employees,
and is a key reason why we have had a strong worldwide retention rate for many years, and have a significant number of
employees with long tenure with Microchip that have grown from individual contributors in the early stages of their careers
into senior leadership positions today. This long tenure among our employee-base results in deep relationships and trust
being built among colleagues, retention of our knowledge base, and continuation of our culture. More information on our
Guiding Values can be found at www.microchip.com/en-us/about/investors/investor-information/mission-statement.
We promote employee adoption of our culture through a number of methods including training, mentorship, values-
based performance reviews, employee engagement surveys, company-wide quarterly meetings, town hall meetings with the
President and Chief Executive Officer and other executive team members, and an open-door policy of communication where
employees are encouraged to interact directly with management.
Training and Development
Microchip’s culture focuses on continuous improvement. We provide training on our culture, management skills,
communication, technical skills, and personal improvement. Microchip also has a leadership program that provides for the
growth and development of its future leaders. This program helps us develop leaders that serve as role models of Microchip
culture, and support empowerment and open communication.
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Compensation Programs
We strive to provide competitive pay and benefits, that help meet the varying needs of our employees. Our total
compensation package includes base pay, broad-based stock grants and bonuses, healthcare and retirement plans, employee
stock purchase plans, and paid time off and family leave.
Executive Officers of the Registrant
The following sets forth certain information regarding our executive officers as of April 30, 2022:
Name
Ganesh Moorthy
Steve Sanghi
J. Eric Bjornholt
Stephen V. Drehobl
Mitchell R. Little
Richard J. Simoncic
Age
62
66
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Position
President, Chief Executive Officer, and Director
Executive Chair
Senior Vice President and Chief Financial Officer
Senior Vice President, MCU8 and MCU16 Business Units
Senior Vice President, Worldwide Client Engagement
Senior Vice President, Analog Power and Interface Business Units
Mr. Moorthy was appointed as Chief Executive Officer in March 2021 and to the Board of Directors in January 2021. Mr.
Moorthy has served as President since February 2016 and Chief Operating Officer since June 2009. He also served as
Executive Vice President from October 2006 to August 2012 and as a Vice President in various roles since he joined Microchip
in 2001. Prior to this time, he served in various executive capacities with other semiconductor companies. Mr. Moorthy holds
an M.B.A. in Marketing from National University, a B.S. degree in Electrical Engineering from the University of Washington and
a B.S. degree in Physics from the University of Mumbai, India. Mr. Moorthy was elected to the Board of Directors of Rogers
Corporation in July 2013 and serves on the Audit Committee of the Board and as the Nominating and Governance Committee
Chairperson.
Mr. Sanghi transitioned to Executive Chair in March 2021. He served as Chief Executive Officer from October 1991 to
March 2021 and as Chair of the Board since October 1993. He served as President from August 1990 to February 2016 and
has served as a director since August 1990. Mr. Sanghi holds an M.S. degree in Electrical and Computer Engineering from the
University of Massachusetts and a B.S. degree in Electronics and Communication from Punjab University. Mr. Sanghi served
on the Board of Directors of Myomo, Inc., a publicly traded commercial stage medical robotics company that offers expanded
mobility for those suffering from neurological disorders and upper-limb paralysis, from November 2016 through October
2019. Mr. Sanghi served on the board of Mellanox Technologies Ltd., a publicly traded supplier of end-to-end Ethernet and
InfiniBand intelligent interconnect solutions and services for servers, storage, and hyper-converged infrastructure, from
February 2018 through April 2020. Mr. Sanghi was elected to the Board of Directors of Impinj, Inc. in March 2021 and will
assume the role of Board Chair following Impinj's annual meeting of stockholders.
Mr. Bjornholt was promoted to Senior Vice President in 2019 and has served as Vice President of Finance since 2008 and
as Chief Financial Officer since January 2009. He has served in various financial management capacities since he joined
Microchip in 1995. Mr. Bjornholt holds a Master's degree in Taxation from Arizona State University and a B.S. degree in
Accounting from the University of Arizona.
Mr. Drehobl was promoted to Senior Vice President in 2019 and has served as Vice President of the MCU8 business unit
and various other divisions and business units since July 2001. He has been employed by Microchip since August 1989 and
has served as a Vice President in various roles since February 1997. Mr. Drehobl holds a Bachelor of Technology degree from
the University of Dayton.
Mr. Little was promoted to Senior Vice President in 2019 and has served as Vice President of Worldwide Sales since July
2000. He has been employed by Microchip since 1989 and has served as a Vice President in various roles since September
1993. Mr. Little holds a B.S. degree in Engineering Technology from United Electronics Institute. In November 2021, Mr. Little
notified the Company of his decision to retire from the Company effective May 31, 2022.
Mr. Simoncic was promoted to Senior Vice President in 2019 and has served as Vice President, Analog Power and
Interface Business Units since September 1999. From October 1995 to September 1999, he served as Vice President in
various roles. Since joining Microchip in 1990, Mr. Simoncic held various roles in Design, Device/Yield Engineering and Quality
Systems. Mr. Simoncic holds a B.S. degree in Electrical Engineering Technology from DeVry Institute of Technology.
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Available Information
Microchip Technology Incorporated was incorporated in Delaware in 1989. Our executive offices are located at 2355
West Chandler Boulevard, Chandler, Arizona 85224-6199 and our telephone number is (480) 792-7200.
Our Internet address is www.microchip.com. We post the following filings on our website as soon as reasonably
practicable after they are electronically filed with or furnished to the SEC:
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our annual report on Form 10-K
our quarterly reports on Form 10-Q
our current reports on Form 8-K
our proxy statement
any amendments to the above-listed reports filed or furnished pursuant to Sections 13(a) or 15(d) of the
Exchange Act
All of our SEC filings on our website are available free of charge. The information on our website is not incorporated into
this Form 10-K.
Item 1A. Risk Factors
When evaluating Microchip and its business, you should give careful consideration to the factors below, as well as the
information provided elsewhere in this Form 10-K and in other filings we make with the SEC.
Risk Factor Summary
Risks Related to Our Business, Operations, and Industry
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impact of global economic conditions on our operating results, net sales and profitability;
impact of economic conditions on the financial viability of our licensees, customers, distributors, or suppliers;
impact of the COVID-19 pandemic, increased tariffs or other factors affecting our suppliers;
dependency 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;
limited visibility to product shipments;
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;
impact of seasonality and wide fluctuations of supply and demand in the industry;
dependency on distributors;
ability to introduce new products on a timely basis;
business interruptions, including natural disasters, 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 governments, agencies and research organizations;
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
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attacks on our IT systems, interruptions in our IT systems, or 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
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impact of new accounting pronouncements or changes in existing accounting standards and practices;
fines, restrictions or delay in our ability to export or import products, or increase costs associated with the
manufacture or transfer of products;
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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, the American Rescue Plan Act of 2021 (ARPA), 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; and
requirement to fund our foreign pension plans.
Risks Related to Capitalization and Financial Markets
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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:
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general economic, industry, public health or political conditions in the U.S. or internationally, including uncertain
economic conditions in China or the ongoing uncertainty surrounding the COVID-19 pandemic and its
implications;
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 the Ukraine), worldwide oil prices and supply, fires, natural disasters or disruptions
in the transportation system;
availability of raw materials, 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 to respond to changes in customer demand;
our ability to secure sufficient wafer foundry, assembly and testing capacity;
increased costs and availability of raw materials, supplies, equipment, utilities, labor, and/or subcontracted
services for wafers, assembly and test;
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;
the level of order cancellations or push-outs due to the impact of the COVID-19 pandemic or other factors;
trade restrictions and increase in tariffs, including those on business in China, or focused on specific companies;
the mix of inventory we hold and our ability to satisfy orders from our inventory;
changes in utilization of our 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;
risk of excess and obsolete inventories;
competitive developments including pricing pressures;
unauthorized copying of our products resulting in pricing pressure and loss of sales;
our ability to successfully transition to more advanced process technologies to reduce manufacturing costs;
the level of orders that are received and can be shipped in a quarter, including the impact of product lead times;
the level of sell-through of our products through distribution;
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;
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;
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rising interest rates or inflation; and
property damage or other losses, whether or not covered by insurance.
Period-to-period comparisons of our operating results are not necessarily meaningful and 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 COVID-19 pandemic, have caused
and may in the future cause our operating results to fluctuate significantly and make comparisons between periods less
meaningful.
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. Any downturn in
global or regional economic conditions, as a result of the COVID-19 pandemic, the enactment of broad sanctions by the U.S. or
other countries against Russia, or risks of rising interest rates or inflation, may adversely impact their financial viability. 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 inability to collect our accounts receivable balances, higher allowances
for credit losses, and higher operating costs as a percentage of net sales.
We may lose sales if suppliers of raw materials, components or equipment fail to meet our or our customers' needs,
increase prices or are impacted by increases in tariffs.
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 2022, we experienced increased prices at
certain suppliers, and longer lead times for some assembly raw materials required for production purposes. Such conditions
are expected to continue. 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 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 impact of the COVID-19 pandemic, or the
application of sanctions, trade restrictions or tariffs by the U.S. or other countries 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 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, the impact of the COVID-19 pandemic, or sanctions, trade
restrictions or tariffs 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 purchase significant amounts of equipment from Russia, Belarus, or the Ukraine. However, the semiconductor
industry, and purchasers of semiconductors, use raw materials that are sourced from these regions, such as neon, palladium
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 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 and neon supply chains, at this time, our palladium and neon supply chains have
been able to meet our needs. While sales of our products into the regions, and to customers that sell into these regions, have
been negatively impacted by the Russian invasion of the Ukraine, at this time, we have not experienced a material impact on
our business, results of operations or financial conditions.
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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 fiscal 2022
and fiscal 2021, approximately 60% and 61%, respectively, 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 fiscal 2022, approximately 41% of our assembly requirements and 36% of our test requirements
were performed by third-party contractors compared to approximately 47% of our assembly requirements and 43% of our
test requirements during fiscal 2021. Due to increased demand for our products, we have taken actions in recent quarters to
increase our capacity allocation from our wafer fabrication, assembly and test subcontractors. However, we expect foundry
capacity to continue to be limited due to strong demand for wafers across the industry and there can be no assurance that we
will be able to secure the necessary allocation of capacity from our wafer foundries and other contractors, further additional
capacity with the ability to manufacture the process technologies that we need, or that such capacity will be available on
acceptable terms. 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 facilities or at other foundries and assembly and testing
contractors. 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.
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 from the
COVID-19 pandemic, political upheaval or infrastructure disruption. 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. Some of
our subcontractors in China experienced production difficulties due to COVID-19 related disruptions in March 2022, but this
did not have a significant impact on our operating results. 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.
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 fiscal 2022, approximately 78% of
our net sales were made to foreign customers, including 22% in China and 15% in Taiwan. During fiscal 2021, approximately
77% of our net sales were made to foreign customers, including 22% in China and 16% 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 have been strong in recent quarters, competition in China is intense, and China's economic growth has been
projected to slow in calendar 2022. In the past, 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, the impact of COVID-19 related lockdowns in the first quarter of calendar 2022 has adversely impacted
Chinese customers and the supply chain. Weakening of foreign markets could 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. 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.
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We do not have significant sales or operations in Russia, Belarus, or the Ukraine, and we do not purchase significant
amounts of equipment from these regions. However, the semiconductor industry, and purchasers of semiconductors, use
raw materials that are sourced from these regions, such as neon, palladium 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 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
and neon supply chains due to the Russia Ukraine conflict, at this time, our palladium and neon supply chains have been able
to meet our needs. While sales of our products into the regions impacted by the Russia Ukraine conflict, and to customers
that sell into these regions, have been negatively impacted by the Russian invasion of the Ukraine, at this time, we have not
experienced a material impact on our business, results of operations or financial condition.
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:
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political, social and economic instability due to the COVID-19 pandemic or other factors;
trade restrictions and changes in tariffs;
supply chain disruptions or delays;
potentially adverse tax consequences;
economic uncertainty in the worldwide markets served by us;
import and export license requirements and restrictions;
changes in laws related to taxes, environmental, health and safety, technical standards and consumer
protection;
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, 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.
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.
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 very strong in recent periods due
to favorable industry conditions and the impact of our Preferred Supply Program, turns orders 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 periods where customers are holding excess inventory of our
products. Our customers may have increased their order levels in 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.
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.
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In February 2021, we announced our Preferred Supply Program which offers our customers the ability to receive
prioritized capacity. To participate in the program, customers have to place 12 months of orders, which cannot be cancelled
or rescheduled except in the event of price increases. The capacity priority began for shipments in July 2021. The program is
not a guarantee of supply; however, it will provide the highest priority for those orders which are under this program, 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 this new program. We believe this program 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 this is a new program, there can be no assurance that
the program will be successful or that it will benefit our business. In the event that customers under this program attempt to
cancel or reschedule orders, we may have to take legal or other action to enforce the terms of the program, and any such
actions could result in damage to our customer relationships or cause us to incur significant costs. Additionally, as orders
under this program cannot be cancelled or returned except in the event of price increases, this may result in customers
holding excess inventory of our products and thus decrease their need to place new 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. 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:
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the relative impact of the COVID-19 pandemic on us relative to our competitors;
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;
our ability to ramp production and increase capacity, 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 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 more mature
proprietary product lines, primarily due to competitive conditions. At this time, we are not experiencing these types of pricing
declines due to favorable industry conditions and demand. 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 in our memory and non-proprietary products in our analog product line. At this time, we are not experiencing these
types of pricing declines due to favorable industry conditions and demand. In 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.
Our operating results will suffer if we ineffectively utilize our manufacturing capacity or fail to maintain manufacturing
yields.
Integrated circuits manufacturing processes are complex and sensitive to many factors, including contaminants in the
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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 fiscal 2022, we operated at above normal capacity levels and
we expect this to continue if the current supply constraints relative to demand continue. In fiscal 2021, we operated at below
normal capacity levels resulting in unabsorbed capacity charges of $29.6 million.
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 consumer markets and international sales, 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
continued strong demand in the industry, the COVID-19 pandemic 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.
Our business is dependent on distributors to service our end customers.
Sales to distributors accounted for approximately 48% of our net sales in fiscal 2022 and approximately 50% of our net
sales in fiscal 2021. With the exception of orders placed under our Preferred Supply Program, 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 (including the impact of the COVID-19
pandemic) 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 and increase inventory returns.
Violations of the Foreign Corrupt Practices Act, or similar laws, by our distributors 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:
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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;
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
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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, 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 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 becomes more severe. 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. 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,
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 and to introduce new technologies. 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 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
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• 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. Any claim 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.
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Reliance on sales into governmental projects could have a material adverse effect on our results of operations.
A significant portion of the sales of Microsemi, which we acquired in May 2018, 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. 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 has 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,
could materially and adversely affect our operating results. If the U.S. government fails to complete its annual budget process
or to provide for a continuing resolution to fund government operations, 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 Microsemi
acquisition. 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. If we are unable to comply
with the terms of those grants, we may not be able to receive or recognize grant benefits or we may be required to repay
grant benefits and recognize related charges, which would adversely affect our operating results and financial position.
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 expenditures 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 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.
We may not fully realize the anticipated benefits of our completed or future acquisitions or divestitures.
We have acquired, and expect in the future to acquire, additional businesses that we believe will complement or
augment our existing businesses. In May 2018, we acquired Microsemi, which was our largest and most complex acquisition
ever. Integration of our acquisitions is complex and may be costly and time consuming and include unanticipated issues,
expenses and liabilities. We may not 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. We may not realize
the expected synergies and cost savings from the integration. There may be increased risk due to integrating financial
reporting and internal control systems. It may be difficult to develop, manufacture and market the products of a newly
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acquired company, or grow 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, in connection with our Microsemi and Atmel acquisitions, we
became involved with third-party claims, litigation, governmental investigations and disputes related to such businesses and
transactions. See Note 11 to our consolidated financial statements for information regarding such matters. 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 Microsemi, we used a significant portion of our cash
balances and incurred approximately $8.10 billion of additional debt. We may fund future acquisitions of new businesses or
strategic alliances by utilizing cash, borrowings under our Revolving Credit Facility, raising debt, issuing shares of our common
stock, or other mechanisms.
Further, if we decide to divest assets or a business, it may be difficult to find or complete divestiture opportunities or
alternative exit strategies, which may include site closures, timely or on acceptable terms. These circumstances could delay
the achievement of our strategic objectives or cause us to incur additional expenses with respect to the desired divestiture, or
the price or terms of the divestiture may be less favorable than we had anticipated. Even following a divestiture or other exit
strategy, we may have certain continuing obligations to former employees, customers, vendors, landlords or other third
parties. We may also have continuing liabilities related to former 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 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 products resulting from such transactions or to successfully integrate any technology developed through such
transactions.
As a result of our acquisition activity, 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 March 31, 2022, we had goodwill of $6.67
billion and net intangible assets of $4.04 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 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 fiscal 2022 or fiscal
2021. In fiscal 2022, we recognized $3.0 million of intangible asset impairment charges. No intangible asset impairment
charges were recorded in fiscal 2021. 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 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
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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
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 across 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.
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, or
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 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 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, recent 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.
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.
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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
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, our Microsemi acquisition, 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, have in the past and could in the future result in 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, and our business, financial
condition or results of operations could be harmed.
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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:
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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 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, 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 do enter into customer contracts (other than under our Preferred Supply Program), the contract is
generally cancelable based on standard terms and conditions. Under our Preferred Supply Program, customers may cancel
contracts in the event of price increases. While we had approximately 124,000 customers, and our ten largest direct
customers accounted for approximately 12% of our total revenue in fiscal 2022, and five 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.
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. 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,
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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 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 are subject to laws and regulations on international trade, including but not limited to the Foreign Corrupt
Practices Act, EARs, International Traffic in Arms Regulations and trade sanctions against embargoed countries and denied
entities, including those administered by the U.S. Department of the Treasury, Office of Foreign Assets Control. Licenses or
license exceptions are 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, 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, 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. For example, in February 2022, the U.S.
began implementing widescale sanctions against Russia due to Russia's invasion of the Ukraine. Sanctions against Belarus and
certain Ukraine regions were later implemented. Because the actions by Russia against the 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. 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, when the U.S. Commerce Department banned U.S. companies from selling products or transferring technology to
certain Chinese companies, including Huawei and certain subsidiaries. In fiscal 2020, the U.S. Federal Acquisition Regulation
prohibited U.S. governmental agencies from buying equipment using 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. Effective June 2020,
amendments to the EAR regarding prohibitions of sales of items with a “military end use” into China, Russia, and Venezuela,
and Belarus effective March 2021, and elimination of an EAR License Exception, apply to more of our products than the
previous regulations. 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
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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, may limit our ability to produce products, increase our selling and/or manufacturing costs, decrease margins,
reduce the competitiveness of our products, or reduce our ability to sell products, 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 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.
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.
The Organization for Economic Cooperation and Development has been working on a Base Erosion and Profit Shifting
Project and is expected to continue to issue guidelines and proposals that 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.
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 the Ukraine. Sanctions against
Belarus and certain Ukraine regions were later implemented. Because the actions by Russia against the 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.
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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, discharge and
disposal of hazardous substances used in our products and manufacturing processes. 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, liability for clean-
up, 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 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. 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 Environmental, Social, and Governance
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.
The SEC has recently 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 28, 2021. 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 and we may have to write off inventory if it cannot be sold.
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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.
A requirement to fund our foreign pension plans could negatively affect our cash position and operating capital.
In connection with our acquisitions of Microsemi and Atmel, we assumed pension plans that cover certain French and
German employees. Most of these plans are unfunded in compliance with statutory requirements, and we have no
immediate intention of funding these plans. The projected benefit obligation totaled $74.6 million at March 31, 2022.
Benefits are paid when amounts become due. We expect to pay approximately $1.6 million in fiscal 2023 for benefits earned.
Should regulations require funding of these plans in the future, it could negatively affect our cash position and operating
capital.
Risks 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 the COVID-19 pandemic 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.
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, 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 current or
future debt.
As of March 31, 2022, the principal amount of our outstanding indebtedness was $7.84 billion. As a result of our
acquisition of Microsemi, we have substantially more debt than we had prior to May 2018. At March 31, 2022, we had $1.40
billion in outstanding borrowings under our Revolving Credit Facility which provides up to $2.75 billion of revolving loan
commitments that terminate in 2026. At March 31, 2022, we had $5.60 billion in aggregate principal amount of Senior Notes
and $838.1 million in aggregate principal of Convertible Debt outstanding.
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 of operations. We may need or desire to refinance our current or
future debt and there can be no assurance that we will be able to do so on reasonable terms, if at all.
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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
Convertible Debt and Senior Notes, depends on our future performance, which is subject to economic, competitive and other
factors including those related to the COVID-19 pandemic. 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
generate such cash flow, we may be required to undertake alternatives, such as selling assets, restructuring debt or obtaining
additional equity capital on onerous or highly dilutive terms. Our ability to refinance our indebtedness will depend on the
capital markets and our financial condition at such time. Our senior secured 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 ability to access the debt markets to refinance our existing debt or finance future debt.
Conversion of our Convertible Debt will dilute the ownership interest of our existing stockholders.
The conversion of some or all of our outstanding Convertible Debt will dilute the ownership interest of our existing
stockholders to the extent we deliver common stock upon conversion of such debt. Following our irrevocable settlement
election made on April 1, 2022, upon conversion, we are 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, with respect to any conversion value in excess thereof (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 Convertible 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 Convertible Debt could adversely affect
prevailing market prices of our common stock. In addition, the existence of the Convertible Debt may encourage short selling
by market participants because the conversion of the Convertible Debt could be used to satisfy short positions, or anticipated
conversion of the Convertible Debt into shares of our common stock could depress the price of our common stock.
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 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.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
At March 31, 2022, we owned and used the facilities described below:
Location
Gresham, Oregon
Chandler, Arizona
Lamesa, Calamba,
Philippines
Approximate
Total Sq. Ft.
826,500
687,000
610,300
Chacherngsao, Thailand
498,100
Principal Operations
Wafer fabrication (Fab 4), R&D center, warehousing and administrative offices
Executive and administrative offices, wafer probe, R&D center, sales and
marketing, and computer and service functions
Assembly and test, warehousing and administrative offices
Assembly and test, wafer probe, sample center, warehousing and
administrative offices
Colorado Springs, Colorado
Canlubang, Calamba,
Philippines
Tempe, Arizona
Bangalore, India
Chacherngsao, Thailand
Chennai, India
Lawrence, Massachusetts
Rousset, France
Mount Holly Springs,
Pennsylvania
Garden Grove, California
San Jose, California
Neckarbischofsheim,
Germany
Nantes, France
San Jose, California
San Jose, California
Beverly, Massachusetts
Heilbronn, Germany
Karlsruhe, Germany
Ennis County, Ireland
Simsbury, Connecticut
Shanghai, China
Hsinchu, Taiwan
480,000
Wafer fabrication (Fab 5), test and R&D
460,000
388,100
294,000
267,100
187,000
160,000
144,500
100,000
98,100
98,000
83,800
77,000
71,000
57,000
52,100
48,000
46,000
40,000
32,500
21,000
15,000
Wafer probe, test, warehousing and administrative offices
Wafer fabrication (Fab 2), R&D center, warehousing and administrative offices
R&D center, sales and marketing support and administrative offices
Assembly and test, warehousing and administrative offices
R&D center
Manufacturing and administrative offices
Test, R&D and administrative offices
Manufacturing, R&D and administrative offices
Manufacturing, R&D and administrative offices
R&D and administrative offices
Manufacturing and administrative offices
Wafer probe, test, R&D, warehousing and administrative offices
R&D and administrative offices
R&D and administrative offices
Manufacturing
R&D and administrative offices
R&D and administrative offices
Manufacturing, R&D and administrative offices
Manufacturing, R&D and administrative offices
R&D, sales and marketing support and administrative offices
R&D and administrative offices
In addition to the facilities we own, we lease several manufacturing, research and development facilities and sales offices
in North America, Europe and Asia.
We currently believe that our existing facilities are suitable and will be adequate to meet our requirements for at least
the next 12 months.
See page 42 for a discussion of the capacity utilization of our manufacturing facilities.
Item 3. Legal Proceedings
Refer to Note 11 to our consolidated financial statements for information regarding legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the NASDAQ Global Market under the symbol "MCHP."
Stock Price Performance Graph
The following graph and table show a comparison of the five-year cumulative total stockholder return, calculated on a
dividend reinvestment basis, for Microchip Technology Incorporated, the Standard & Poor's (S&P) 500 Stock Index, and the
Philadelphia Semiconductor Index.
Comparison of 5 year Cumulative Total Return*
*$100 invested on March 31, 2017 in stock or index, including reinvestment of dividends
Fiscal year ending March 31.
Copyright © 2022 Standard & Poor's, a division of S&P Global. All rights reserved.
Cumulative Total Return
Microchip Technology Incorporated
S&P 500 Stock Index
Philadelphia Semiconductor Index
March
2017
100.00
100.00
100.00
March
2018
125.97
113.99
133.58
March
2019
116.39
124.82
143.08
March
2020
96.66
116.11
157.93
March
2021
224.15
181.54
331.62
March
2022
219.65
209.94
368.27
Data acquired by Research Data Group, Inc. (www.researchdatagroup.com)
The information in this Form 10-K appearing under the heading "Stock Price Performance Graph" is being "furnished"
pursuant to Item 201(e) of Regulation S-K and shall not be deemed to be "soliciting material" or "filed" with the SEC or subject
to Regulation 14A or 14C, other than as provided in Item 201(e) of Regulation S-K, or to the liabilities of Section 18 of the
Exchange Act except to the extent that we specifically request that it be treated as such.
32
Among Microchip Technology Incorporated, the S&P 500 Indexand the PHLX Semiconductor IndexMicrochip Technology IncorporatedS&P 500PHLX Semiconductor201720182019202020212022$0$100$200$300$400$500
Table of Contents
On May 12, 2022, there were approximately 546 holders of record of our common stock. This figure does not reflect
beneficial ownership of shares held in nominee names.
For a description of our dividend policies, see Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources," included herein.
Refer to "Item 12. Security Ownership of Certain Beneficial Owners And Management And Related Stockholder Matters,"
at page 50 below, for the information required by Item 201(d) of Regulation S-K with respect to securities authorized for
issuance under our equity compensation plans at March 31, 2022.
Issuer Purchases of Equity Securities
The following table sets forth our purchases of our common stock in the three months ended March 31, 2022:
Period
January 1, 2022 - January 31, 2022
February 1, 2022 - February 28, 2022
March 1, 2022 - March 31, 2022
Total
number of
shares
purchased
— $
2,115,188 $
1,519,444 $
3,634,632
Average
price paid
per share
—
73.14
69.06
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) (in millions)
—
2,115,188
1,519,444
3,634,632 $
3,574.4
(1) 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 6. [Reserved]
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Note Regarding Forward-looking Statements
This report, including "Item 1. Business," "Item 1A. Risk Factors," and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations," 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," "expect," "future," "continue," "intend" 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 12 and elsewhere in this Form 10-
K. 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:
• Our expectation that certain supply chain constraints will continue through calendar 2022 and into calendar
•
•
•
2023;
That local governments could require us or our suppliers to reduce production, cease operations, or implement
mandatory vaccine requirements, and we could experience constraints in fulfilling customer orders;
The effects that uncertain 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 complement our
existing businesses;
• Our expectation that in the future we will enter into joint development agreements or other strategic
•
relationships with other companies;
The level of orders that will be received and shipped within a quarter, including the impact of our product lead
times;
• Our expectation that our days of inventory at June 30, 2022 will be 128 to 134 days;
• Our belief that customers recognize our products and brand name and use distributors as an effective supply
The impact of any supply disruption we may experience;
channel;
•
The accuracy of our estimates of the useful life and values of our property, assets and other liabilities;
• Our ability to increase the proprietary portion of our analog product line and the effect of such an increase;
•
• Our ability to effectively utilize our facilities at appropriate capacity levels and anticipated costs;
•
•
• Our ability to maintain manufacturing yields;
•
•
• Our expectation that foundry capacity will continue to be limited due to strong demand for wafers across the
That we adjust capacity utilization to respond to actual and anticipated business and industry-related conditions;
That manufacturing costs will be reduced by transition to advanced process technologies;
Continuing our investments in new and enhanced products;
The cost effectiveness of using our own assembly and test operations;
industry;
• Our expectation that we will continue to operate our manufacturing facilities at or above normal capacity if the
current supply constraints relative to demand continue;
• Our anticipated level of capital expenditures;
•
•
Continuation and amount of quarterly cash dividends;
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;
The impact of seasonality on our business;
•
• Our belief that our IT system compromise has not had a material adverse effect on our business or resulted in
any material damage to us;
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• Our expectation that we will continue to be the target of cyber-attacks, computer viruses, unauthorized access
•
•
and other attempts to breach or otherwise compromise the security of our IT systems and data;
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;
The accuracy of our estimated tax rate;
The impact of the geographical dispersion of our earnings and losses on our effective tax rate;
•
• Our expectation regarding the treatment of our unrecognized tax benefits in calendar year 2022;
• Our belief that the expiration of any tax holidays will not have a material impact on our effective tax rate;
•
• Our belief that the estimates used in preparing our 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 patents and intellectual property licenses and minimize the effects of litigation;
•
•
•
•
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 we could increase our borrowings or seek additional equity or debt financing to maintain or expand our
facilities, or to fund cash dividends, share repurchases, acquisitions or other corporate activities, and that the
timing and amount of such financing requirements will depend on a number of factors;
• Our expectations regarding the amounts and timing of repurchases under our stock repurchase program;
• Our intention to satisfy the lesser of the principal amount or the conversion value of our Convertible Debt in
cash;
• Our expectation that our reliance on third-party contractors may increase over time as our business grows;
• Our ability to collect accounts receivable; and
•
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 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-K. 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 consolidated financial statements and the related notes
that appear elsewhere in this document, as well as with other sections of this Annual Report on Form 10-K, including "Item 8.
Financial Statements and Supplementary Data." For an overview of our business and recent trends, refer to "Part I Item 1.
Business."
We begin our Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) with 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 fiscal 2022
compared to fiscal 2021, followed by an analysis of changes in our balance sheet and cash flows, and discuss our financial
commitments in the section titled "Liquidity and Capital Resources." Our liquidity and capital resources section generally
discusses fiscal 2022 compared to fiscal 2021. For our discussion of our fiscal 2021 results compared to fiscal 2020 for both
our results of operations and our liquidity and capital resources sections, refer to "Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended March
31, 2021 filed with the SEC on May 18, 2021, which is incorporated by reference herein.
Critical Accounting Policies and Estimates
General
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with U.S. GAAP. 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, 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 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 used in the
preparation of our consolidated financial statements.
Revenue Recognition
We generate revenue primarily from sales of our semiconductor products to distributors and non-distributor customers
(direct customers) and, to a lesser extent, from royalties paid by licensees of our intellectual property. We apply the following
five-step approach to determine the timing and amount of revenue recognition: (i) identify the contract with the customer, (ii)
identify performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the
performance obligations in the contract, and (v) recognize revenue when the performance obligation is satisfied.
Sales to our distributors are governed by a distributor agreement, a purchase order, and an order acknowledgment. Sales
to distributors do not meet the definition of a contract until the distributor has sent in a purchase order, we have
acknowledged the order, we have deemed the collectability of the consideration to be probable, and legally enforceable
rights and obligations have been created. As is customary in the semiconductor industry, we offer price concessions and stock
rotation rights to many of our distributors. As these are forms of variable consideration, we estimate the amount of
consideration to which we will be entitled using recent historical data and applying the expected value method. After the
transaction price has been determined and allocated to the performance obligations, we recognize revenue when the
performance obligations are satisfied. Substantially all of the revenue generated from contracts with distributors is
recognized at, or near to, the time risk and title of the inventory transfers to the distributor.
Sales to our direct customers are generally governed by a purchase order and an order acknowledgment. Sales to direct
customers usually do not meet the definition of a contract until the direct customer has sent in a purchase order, we have
acknowledged the order and deemed the collectability of the consideration to be probable, and legally enforceable rights and
obligations have been created. Generally, the transaction price associated with contracts with direct customers is set at the
standalone selling price and is not variable. After the transaction price has been determined and allocated to the
performance obligations, we recognize revenue when the performance obligations are satisfied. Substantially all of the
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revenue generated from contracts with direct customers is recognized at, or near to, the time risk and title of the inventory
transfers to the customer.
Revenue generated from our licensees is governed by licensing agreements. Our primary performance obligation related
to these agreements is to provide the licensee the right to use the intellectual property. The final transaction price is
determined by multiplying the usage of the license by the royalty, which is fixed in the licensing agreement. Revenue is
recognized as usage of the license occurs.
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. 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 March 31, 2022, we have never recorded an impairment charge related to
goodwill.
Share-based Compensation
We utilize RSUs with a service condition as our primary equity incentive compensation instrument for employees and also
grant market-based and performance-based PSUs to executive officers and employees. Share-based compensation cost for
RSUs with a service condition or performance-based PSUs 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 on a straight-line basis over the
requisite service periods. We estimate the fair value of PSUs with a market condition using a Monte Carlo simulation model
as of the date of grant using historical volatility. Total share-based compensation expense recognized during the fiscal 2022
was $210.2 million, of which $175.9 million was reflected in operating expenses and $34.3 million was reflected in cost of
sales. Total share-based compensation included in our inventory was $7.5 million at March 31, 2022.
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 or 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 reserves for obsolescence,
we evaluate projected demand over periods that align with demand forecasts used to develop manufacturing plans and
inventory build decisions and provide reserves for inventory on hand in excess of estimated demand. 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. During fiscal 2022, we operated at above normal
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capacity levels. During fiscal 2021, we operated at below normal capacity levels primarily due to general economic conditions
and uncertainty from the COVID-19 pandemic resulting in unabsorbed capacity charges of $29.6 million.
Income Taxes
As part of the process of preparing our 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 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, where it is more likely than not that some portion, or all of such
assets, will not be realized.
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 the U.S. and in various
foreign jurisdictions. At this time, we do not know what the outcome of these audits will be. We record benefits for
uncertain tax positions based on an assessment of whether it is more likely than not that the tax positions will be sustained
based on their technical merits under currently enacted law. If this threshold is not met, no tax benefit of the uncertain 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 be realized upon ultimate settlement.
The accounting model 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 that results in the position being effectively settled 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.
Convertible Debt
Upon issuance, we separately account for the liability and equity components of our Convertible Debt by estimating the
fair values of the i) liability component without a conversion feature and ii) the conversion feature. 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 consolidated statements of income.
Upon settlement of our Convertible Debt instruments, we allocate the total consideration between the liability and
equity components based on the fair value of the liability component without the conversion feature. The difference
between the consideration allocated to the liability component and the net carrying value of the liability component is
recognized as an extinguishment loss or gain. The remaining settlement consideration is allocated to the equity component
and recognized as a reduction of additional paid-in capital in our consolidated balance sheets. In addition, if the terms of the
settlement are different from the contractual terms of the original instrument, we recognize an inducement loss, which is
measured as the difference between the fair value of the original terms of the instrument and the fair value of the settlement
terms.
Determining the fair value of the liability component without the conversion feature upon issuance and settlement
involves estimating the equivalent borrowing rate for a similar non-convertible instrument. Given the values of these
transactions, fair value estimates are sensitive to changes in the equivalent borrowing rate conclusions. The measurement of
the equivalent borrowing rate requires that we make estimates of volatility and credit spreads to align observable market
inputs with the instrument being valued.
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Lastly, we include the dilutive effect of the shares of our common stock issuable upon conversion of the outstanding
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 Convertible Debt in 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, governmental investigations 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,
governmental investigations and disputes relating to the semiconductor industry are not uncommon, and we are, 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.
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 Operations
The following table sets forth certain operational data as a percentage of net sales for fiscal 2022 and fiscal 2021:
Net sales
Cost of sales
Gross profit
Research and development
Selling, general and administrative
Amortization of acquired intangible assets
Special charges and other, net
Operating income
Net Sales
Fiscal Year Ended March 31,
2021
2022
100.0 %
34.8
65.2
14.5
10.5
12.7
0.4
27.1 %
100.0 %
37.9
62.1
15.4
11.2
17.1
—
18.4 %
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 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 in the form of letters of credit.
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The following table summarizes our net sales for fiscal 2022 and fiscal 2021 (dollars in millions):
Net sales
Fiscal Year Ended March 31,
2021
Change
2022
$
6,820.9 $
5,438.4
25.4 %
The increase in net sales in fiscal 2022 compared to fiscal 2021 was primarily due to strong business conditions that
began in the second half of fiscal 2021 as businesses and individuals adapted to the effects of the COVID-19 pandemic.
Business conditions continued to be exceptionally strong in fiscal 2022. Additionally, semiconductor industry conditions have
resulted in increased costs throughout our supply chain, which we have been passing on to our customers in the form of price
increases. These price increases also contributed to the increase in net sales during fiscal 2022 compared to fiscal 2021. Our
price increases were implemented at various times and in various amounts throughout fiscal 2022 with respect to our very
broad range of customers and products. 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.
The net sales value of inventory at our distributor customers increased $11.2 million during fiscal 2022 compared to a
decrease of $10.4 million during fiscal 2021. Excluding the impact of changes in distributor inventory levels on net sales, net
sales increased by 25.0% in fiscal 2022 compared to fiscal 2021. Our price increases positively impacted net sales during fiscal
2022. Additionally, demand for our products was positively impacted by strength in our microcontroller and analog 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 change other than net demand fluctuations in the end markets that we serve.
Other factors that we believe contributed to changes in our reported net sales for fiscal 2022 compared to fiscal 2021 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 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 or
customer that accounted for a material portion of the change in our net sales in fiscal 2022 or fiscal 2021.
Net sales by product line for fiscal 2022 and fiscal 2021 were as follows (dollars in millions):
Microcontrollers
Analog
Other
Total net sales
Microcontrollers
Fiscal Year Ended March 31,
2022
3,814.8
1,939.1
1,067.0
6,820.9
$
$
%
56.0 $
28.4
15.6
100.0 $
2021
2,961.0
1,519.8
957.6
5,438.4
%
54.5
27.9
17.6
100.0
Our microcontroller product line represents the largest component of our total net sales. Microcontrollers and
associated application development systems accounted for approximately 56.0% and 54.5% of our net sales in fiscal 2022 and
fiscal 2021, respectively.
Net sales of our microcontroller products increased approximately 28.8% in fiscal 2022 compared to fiscal 2021. The
increase in net sales was due primarily to strength in demand for our microcontroller products in end markets that we serve
and our price increases.
Historically, average selling prices in the semiconductor industry decrease over the life of any particular product.
However, the overall average selling prices of our microcontroller products have increased in recent periods and have
remained relatively stable over time due to the proprietary nature of these products. We have in the past been able to, and
expect in the future to be able to, moderate average selling price declines in our microcontroller product lines by introducing
new products with more features and higher prices.
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Analog
Our analog product line includes analog, interface, mixed signal and timing products. Our analog product line accounted
for approximately 28.4% and 27.9% of our net sales in fiscal 2022 and fiscal 2021, respectively.
Net sales from our analog product line increased approximately 27.6% in fiscal 2022 compared to fiscal 2021. The
increase in net sales was primarily due to strength in demand for our analog products in end markets that we serve and our
price increases.
We consider a majority of the products in our analog product line to be proprietary in nature, where prices are relatively
stable, similar to the pricing stability experienced in our microcontroller products. The non-proprietary portion of our analog
product line will experience price fluctuations, driven primarily by the current supply and demand for those products.
Other
Our other product line includes FPGA products, royalties associated with licenses for the use of our SuperFlash and other
technologies, sales of our intellectual property, fees for engineering services, memory products, timing systems,
manufacturing services (wafer foundry and assembly and test subcontracting), legacy application specific integrated circuits,
and certain products for aerospace applications. Revenue from these services and products accounted for approximately
15.6% and 17.6% of our net sales in fiscal 2022 and fiscal 2021, respectively.
Net sales related to these products and services increased approximately 11.4% in fiscal 2022 compared to fiscal 2021.
The increase in net sales was primarily due to strength in demand 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, and
manufacturing services (wafer foundry and assembly and test subcontracting).
Distribution
Distributors accounted for approximately 48% and 50% of our net sales in fiscal 2022 and fiscal 2021, respectively. The
decrease in the distribution percentage of our total net sales is due to lower Preferred Supply Program participation among
our distributors as priority of supply under the Preferred Supply Program is more prevalent with direct customers. No
distributor or end customer accounted for more than 10% of our net sales in fiscal 2022 or fiscal 2021. 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, with the exception of orders placed under our Preferred Supply
Program. 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 March 31, 2022, our distributors maintained 17 days of inventory of our products compared to 22 days at March 31,
2021. Over the past ten fiscal years, the days of inventory maintained by our distributors have fluctuated between
approximately 17 days and 40 days. Inventory holding patterns at our distributors may have a material impact on our net
sales. Our distributor inventory days are at historic lows due to the imbalance between the supply of and the demand for our
products in the current supply-constrained environment.
Sales by Geography
Sales by geography for fiscal 2022 and fiscal 2021 were as follows (dollars in millions):
Americas
Europe
Asia
Total net sales
Fiscal Year Ended March 31,
2022
1,659.3
1,391.0
3,770.6
6,820.9
$
$
%
24.3 $
20.4
55.3
100.0 $
2021
1,389.1
1,042.9
3,006.4
5,438.4
%
25.5
19.2
55.3
100.0
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Americas sales include sales to customers in the U.S., Canada, Central America and South America. Sales to foreign
customers accounted for approximately 78% and 77% of our net sales in fiscal 2022 and fiscal 2021, respectively.
Substantially all of our foreign sales are U.S. dollar denominated. Sales to customers in Europe as a percentage of total net
sales increased in fiscal 2022 compared to fiscal 2021 primarily due to strength in demand in our microcontroller and analog
product lines. 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 fiscal 2022 was $4.45 billion, or 65.2% of net sales, compared to $3.38 billion, or 62.1% of net sales, in
fiscal 2021. The following table summarizes the material and primary drivers of our change in gross profit as a percentage of
net sales, with the material factors discussed in more detail below the table (dollars in millions):
Gross Profit
$
3,378.8
845.4
29.6
152.5
19.1
24.2
4,449.6
$
%
of Net Sales
62.1 Fiscal Year Ended March 31, 2021
Increase in semiconductor net sales at prior year gross margins and excluding the impact of
—
other factors quantified in this table
0.4 Impact of unabsorbed capacity charges
2.1 Net impact of product mix and average gross profit per unit
0.2 Increase in net sales to licensing customers, which has no associated cost of sales
0.4 Net impact of excess and obsolete inventories
65.2 Fiscal Year Ended March 31, 2022
Unabsorbed capacity charges - When production levels are below normal capacity, which we measure as a percentage of
the capacity of the installed equipment, we charge cost of sales for the unabsorbed capacity. We consider normal capacity at
Fab 2 and Fab 4 to be 90% to 95%. We consider normal capacity at Fab 5 to be 70% to 75%. During fiscal 2022, we operated
at above normal capacity levels and we expect this to continue if the current supply constraints relative to demand continue.
During fiscal 2021, we operated at below normal capacity levels primarily due to general economic conditions and uncertainty
from the COVID-19 pandemic resulting in unabsorbed capacity charges of $29.6 million. We adjust our wafer fabrication and
assembly and test capacity utilization as required to respond to actual and anticipated business and industry-related
conditions.
Net impact of product mix and average gross profit per unit - The net impact of product mix and average gross profit per
unit may fluctuate over time due to sales volumes of lower or higher margin products, changes in selling prices, and
fluctuations in product costs. During fiscal 2022, product mix resulted in a decrease of $152.5 million in cost of goods sold and
an increase in gross profit compared to fiscal 2021.
Our overall inventory levels were $854.4 million at March 31, 2022, compared to $665.0 million at March 31, 2021. We
maintained 125 days of inventory on our balance sheet at March 31, 2022 compared to 112 days of inventory at March 31,
2021. We expect our days of inventory levels at June 30, 2022 to be 128 to 134 days.
We anticipate that our gross margins will fluctuate over time, driven primarily by capacity utilization levels, the overall
product mix of microcontroller, analog, FPGA 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, the Philippines, and other locations throughout the world. During
fiscal 2022, approximately 59% of our assembly requirements were performed in our internal assembly facilities, compared to
approximately 53% during fiscal 2021. During fiscal 2022, approximately 64% of our test requirements were performed in our
internal test facilities, compared to approximately 57% during fiscal 2021. The increases in the percentage of assembly and
test operations that were performed internally in fiscal 2022 compared to fiscal 2021 are primarily due to our investments in
assembly and test equipment, which increased our internal capacity capabilities. Third-party contractors located primarily in
Asia perform the balance of our assembly and test operations. The percentage of our assembly and test operations that are
performed internally fluctuates over time based on supply and demand conditions in the semiconductor 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 contractor assembly and test costs, as well as increased
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control over these portions of the manufacturing process. We plan to continue to transition certain outsourced assembly and
test capacity to our internal facilities.
We rely on outside wafer foundries for a significant portion of our wafer fabrication requirements. Approximately 60% of
our net sales came from products that were produced at outside wafer foundries in fiscal 2022, compared to 61% in fiscal
2021.
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 expenses for fiscal 2022 were $989.1 million, or 14.5% of net sales, compared to $836.4 million, or 15.4% of net
sales, for fiscal 2021. 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 increased $152.7 million, or 18.3%, for fiscal 2022 compared to fiscal 2021. The primary reason for the
increase in R&D expenses in fiscal 2022 compared to fiscal 2021 was higher compensation costs. In the first half of fiscal
2021, we initially implemented measures to help prepare for economic uncertainty, such as employee salary cuts, limiting
hiring, reducing business travel costs and discretionary spending. However, in December 2020, we restored previous
reductions in compensation and resumed hiring.
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 fiscal 2022 were $718.9 million, or 10.5% of net sales, compared to
$610.3 million, or 11.2% of net sales, for fiscal 2021. Our goal is to continue to be more efficient with our selling, general and
administrative expenses. Selling, general and administrative expenses include salary expenses related to field sales,
marketing and administrative personnel, advertising and promotional expenditures and legal expenses as well as costs related
to our direct sales force, CEMs and ESEs who work remotely from sales offices worldwide to stimulate demand by assisting
customers in the selection and use of our products.
Selling, general and administrative expenses increased $108.6 million, or 17.8%, for fiscal 2022 compared to fiscal 2021.
The primary reason for the increase in selling, general and administrative expenses was higher compensation costs. In the
first half of fiscal 2021, we initially implemented measures to help prepare for economic uncertainty, such as employee salary
cuts, limiting hiring, reducing business travel costs and discretionary spending. However, in December 2020, we restored
previous reductions in compensation and resumed hiring.
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 in fiscal 2022 was $862.5 million compared to $932.3 million in fiscal 2021.
The primary reason for the decrease in acquired intangible asset amortization was due to the use of accelerated amortization
methods.
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Special Charges and Other, Net
During fiscal 2022, we incurred special charges and other, net of $29.5 million primarily related to restructuring of
acquired and existing wafer fabrication operations to increase operational efficiency, legal contingencies and exiting non-
manufacturing facilities including contract termination costs, employee severance, and the disposal of assets. During fiscal
2021, we incurred special charges and other, net of $1.7 million primarily related to the restructuring of our wafer fabrication
operations partially offset by asset sales and other acquisition related activity. Restructuring expenses incurred during fiscal
2022 and fiscal 2021 include $21.1 million and $15.0 million, respectively, related to the restructuring of our wafer fabrication
operations.
Other Income (Expense)
Interest income in fiscal 2022 was $0.5 million compared to $1.7 million in fiscal 2021.
Interest expense in fiscal 2022 was $257.0 million compared to $356.9 million in fiscal 2021. The primary reason for the
decrease in interest expense in fiscal 2022 compared to fiscal 2021 relates to the cumulative pay down of our debt and lower
interest rates on our outstanding variable rate debt.
Loss on settlement of debt in fiscal 2022 was $113.4 million compared to $299.6 million in fiscal 2021. In fiscal 2022, the
losses primarily related to the settlement of a portion of our outstanding 2015 Senior Convertible Debt, our 2017 Senior
Convertible Debt, and our 2017 Junior Convertible Debt as well as the amendment and restatement of our Credit Agreement
and the repayment of $1.00 billion aggregate principal amount outstanding of our 3.922% 2021 Notes. In fiscal 2021, the
losses primarily related to the settlement of a portion of our outstanding 2015 Senior Convertible Debt, our 2017 Senior
Convertible Debt, and our 2017 Junior Convertible Debt as well as the payment of all amounts outstanding under our Bridge
Loan Facility, and our Term Loan Facility. The net losses recognized on the settlement of our Convertible Debt are comprised
of two components (i) the inducement loss, which is the excess of the fair value of the consideration provided to the holder
over the fair value of the debt and (ii) the extinguishment loss or gain, which is the difference between the fair value of the
debt component and the carrying value on the settlement date.
Other income, net, in fiscal 2022 was $2.8 million compared to other loss, net of $3.8 million in fiscal 2021. The primary
reasons for the change in other (loss) income, net during fiscal 2022 compared to fiscal 2021 relates to foreign currency
exchange rate fluctuations and gains on equity investments.
Provision for Income Taxes
Our provision or benefit for income taxes is attributable to U.S. federal, state, and foreign income taxes. A comparison of
our tax rates in fiscal 2022 and fiscal 2021 is not meaningful due to the amount of pre-tax income, and income tax benefit
recorded during the prior period.
Our effective tax rate in fiscal 2022 includes a $49.5 million tax benefit received from current year generated R&D credits,
which reduced our effective tax rate by 3.3%; a $17.6 million tax benefit for share-based compensation deductions, which
reduced our effective tax rate by 1.2%; a $47.1 million tax benefit related to changes in various tax reserves, which reduced
our effective tax rate by 3.2%; a $139.9 million tax expense for the effects of foreign operations, which increased our effective
tax rate by 9.4%; and a $25.5 million tax benefit related to the settlement of convertible debt, which reduced our effective tax
rate by 1.7%.
Our effective tax rate in fiscal 2021 includes a $47.6 million tax benefit received from generated R&D credits, which
reduced our effective tax rate by 14.0%; a $12.3 million tax benefit for share-based compensation deductions, which reduced
our effective tax rate by 3.6%; a $28.1 million tax expense related to changes in various tax reserves, which increased our
effective tax rate by 8.3%; a $122.5 million tax expense for the effects of foreign operations, which increased our effective tax
rate by 36.1%; a $48.1 million tax benefit related to the settlement of convertible debt, which reduced our effective tax rate
by 14.2%; and a $63.8 million tax benefit related to intra-group transfers of certain intellectual property rights, which reduced
our effective tax rate by 18.8%. The tax benefit for the intra-group asset transfers primarily consisted of $155.5 million
recorded as a deferred tax asset which represents the book and tax basis difference on the transferred assets measured based
on the new applicable statutory tax rate, as well as the reversal of the pre-existing deferred tax asset of $90.3 million, which
represents the book and tax basis difference on the transferred assets measured based on the applicable statutory tax rate
prior to the transfer. Over the next 15 years, we expect to be able to realize the future tax benefit of the deferred tax assets
resulting from the intra-group asset transfers. It is not uncommon for taxing authorities of different countries to have
conflicting views, for instance, with respect to, among other things, the manner in which the arm’s length standard is applied
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with respect to the valuation of intellectual property rights. The taxing authorities of jurisdictions in which we operate may
challenge our methodologies for valuing the intellectual property rights transferred, which could increase our future effective
income tax rate and harm our future results of operations.
We are subject to taxation in many jurisdictions in 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 in each of fiscal 2022 and fiscal 2021 was approximately 22%. Our non-U.S. blended
statutory tax rates in fiscal 2022 and fiscal 2021 were lower than this amount. The difference in rates applicable in foreign
jurisdictions results from a number of factors, including lower statutory rates, 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.
Our foreign tax rate differential benefit primarily relates to our operations and assets in Thailand and Ireland. 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;
however, we actively seek to obtain new tax holidays, otherwise we will be subject to tax at the statutory tax rate of 20%. 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. The remaining material components of foreign income taxed at a rate lower than the U.S. are earnings accrued in
Ireland at a 12.5% statutory tax rate.
In September 2021, we received a Statutory Notice of Deficiency (Notice) from the Internal Revenue Service (IRS) for
fiscal 2007 through fiscal 2012. The disputed amounts largely relate to transfer pricing matters. We firmly believe that the
assessments are without merit and plan to pursue all available administrative and judicial remedies necessary to resolve this
matter. In December 2021, we filed a petition in the United States Tax Court challenging the Notice. We intend to vigorously
defend our position 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 this to determine the adequacy of our tax reserves. We believe that the final
adjudication of this matter will not have a material impact on our consolidated financial position, results of operations or cash
flows and that we have adequate tax reserves for all tax matters. However, the ultimate outcome of disputes of this nature is
uncertain, and if the IRS were to prevail on all of its assertions, the assessed tax, 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 2007 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 record benefits for uncertain tax positions based on an assessment of whether it is more likely
than not that the tax positions will be sustained based on their technical merits under currently enacted law. If this threshold
is not met, no tax benefit of the uncertain 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 be realized upon ultimate settlement.
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Liquidity and Capital Resources
We had $319.4 million in cash, cash equivalents and short-term investments at March 31, 2022, an increase of $37.4
million from the March 31, 2021 balance.
Operating Activities
Net cash provided by operating activities was $2.84 billion for fiscal 2022, primarily due to higher net income of $1.29
billion, adjusted for non-cash and non-operating charges of $1.52 billion and net cash inflows of $34.2 million from changes in
our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities in fiscal 2022 include
an increase in trade accounts receivable driven primarily by higher net sales and an increase in inventories related to
increased production levels and higher costs of materials and production costs in support of customer demand for our
products, offset by increases in accounts payable, accrued and other liabilities driven by timing of payments to our suppliers,
higher accrued employee compensation and sales related reserves. Net cash provided by operating activities was $1.92
billion for fiscal 2021, primarily due to net income of $349.4 million, adjusted for non-cash and non-operating charges of
$1.59 billion and net cash outflows of $27.0 million from changes in our operating assets and liabilities. The primary drivers of
the changes in operating assets and liabilities in fiscal 2021 include an increase in trade accounts receivable and lower
inventories related to improved business conditions in the second half of fiscal 2021 as businesses recovered from the effects
of the COVID-19 pandemic.
Investing Activities
Net cash used in investing activities was $477.7 million for fiscal 2022 compared to $173.3 million for fiscal 2021. Fiscal
2022 and fiscal 2021 investing cash flows primarily related to capital purchases and 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 were $370.1 million and $92.6 million in fiscal 2022 and fiscal 2021, respectively. Capital expenditures
were primarily for the expansion of production capacity and the addition of research and development equipment. Towards
the second half of fiscal 2021 we started to invest more significantly to expand manufacturing capacity in response to supply
constraints relative to current demand levels and we expect this to continue through calendar 2022 and into calendar 2023.
We currently intend to invest between $450 million and $550 million in equipment and facilities during the next twelve
months. We believe that the capital expenditures anticipated to be incurred over the next twelve 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.
Financing Activities
Net cash used in financing activities was $2.33 billion for fiscal 2022 compared to net cash used in financing activities of
$1.86 billion for fiscal 2021. Significant transactions affecting our net financing cash flows include:
•
•
•
•
in fiscal 2022, $1.38 billion of cash used to pay down certain principal of our debt, including the cash portion of
the settlement of our 2015 Senior Convertible Debt, our 2017 Senior Convertible Debt, and our 2017 Junior
Convertible Debt, our Revolving Credit Facility and our 3.922% 2021 Notes, partially funded by the issuance of
our senior notes, and
in fiscal 2021, $1.41 billion of cash used to pay down certain principal of our debt, including our Revolving Credit
Facility, Term Loan Facility and Bridge Loan Facility, and the cash portion of the settlement of our 2015 Senior
Convertible Debt, our 2017 Senior Convertible Debt, and our 2017 Junior Convertible Debt, partially funded by
the issuance of our senior notes, and
in fiscal 2022 and fiscal 2021, we paid cash dividends to our stockholders of $503.8 million and $388.3 million,
respectively, and
in fiscal 2022, we repurchased shares of our common stock for $425.6 million.
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 March 31, 2022, the principal amount of our outstanding
indebtedness was $7.84 billion. At March 31, 2022, we had $1.40 billion of outstanding borrowings under the Revolving
Credit Facility compared to $2.35 billion at March 31, 2021. During fiscal 2021, we used borrowings under our Revolving
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Credit Facility and proceeds from the issuance of our 0.972% 2024 Notes to repay all amounts outstanding under our Term
Loan 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. In fiscal 2022, we repurchased approximately 5.6 million shares of our
common stock for $425.6 million under this authorization. We did not repurchase any shares of our common stock in fiscal
2021. As of March 31, 2022, we held approximately 23.3 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.
In October 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 $5.05 billion. Cash dividends paid per
share were $0.910 and $0.747 during fiscal 2022 and fiscal 2021, respectively. Total dividend payments amounted to $503.8
million and $388.3 million during fiscal 2022 and fiscal 2021, respectively. A quarterly dividend of $0.276 per share was
declared on May 9, 2022 and will be paid on June 3, 2022 to stockholders of record as of May 20, 2022. We expect the
aggregate cash dividend for the June 2022 quarter to be approximately $153.2 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 future prospects, and other factors
deemed relevant by our Board. Our current intent is to increase 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 Revolving Credit Facility will be sufficient to meet our currently anticipated cash requirements for at least the next 12
months. Our 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 11. Commitments and Contingencies",
"Note 10. Leases", "Note 6. Debt" and "Note 12. Income Taxes" of the notes to our consolidated financial statements. The
semiconductor industry is capital intensive 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. We may increase our
borrowings under our Revolving Credit Facility or seek additional equity or debt financing from time to time to 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 our level of dividend payments, changes in tax laws and regulations regarding the repatriation of offshore
cash, demand for our products, changes in industry conditions, product mix, competitive factors and our ability to identify
suitable acquisition candidates. We may from time to time seek to refinance certain of our outstanding notes or Convertible
Debt through issuances of new notes or convertible debt, 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 any financing will be
available on acceptable terms due to uncertainties resulting from the COVID-19 pandemic, rising interest rates, higher
inflation, economic uncertainty, or other factors, and any additional equity financing would result in incremental ownership
dilution to our existing stockholders.
Recently Issued Accounting Pronouncements
Refer to Note 1 to our consolidated financial statements regarding recently issued accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 2022, our long-term debt totaled $7.84 billion. We have no interest rate exposure to rate changes on our
fixed rate debt, which totaled $6.44 billion as of March 31, 2022. We do have interest rate exposure with respect to the $1.40
billion of our variable interest rate debt outstanding as of March 31, 2022. A 50-basis point increase in interest rates would
impact our expected annual interest expense for the next 12 months by approximately $7.0 million.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements listed in the index appearing under Item 15(a)(1) hereof are filed as part of this
Form 10-K. See also Index to Financial Statements below.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, as required by paragraph (b) of Rule 13a-15 or
Rule 15d-15 under the Exchange Act, 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
Exchange Act). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our
disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we
file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in
SEC 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.
Management Report on Internal Control Over Financial Reporting
Our management, including our principal executive officer and our principal financial officer, is responsible for
establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S.
GAAP. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with U.S. GAAP, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial
statements.
Management assessed our internal control over financial reporting as of March 31, 2022, the end of our fiscal
year. Management based its assessment on criteria established in Internal Control – Integrated Framework (2013 framework)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management's assessment included an
evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process
documentation, accounting policies, and our overall control environment. This assessment is supported by testing and
monitoring performed by our finance organization.
Based on our assessment, management has concluded that our internal control over financial reporting was effective as
of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external reporting purposes in accordance with U.S. GAAP. We reviewed the results of
management's assessment with the Audit Committee of our Board of Directors.
Ernst & Young LLP, an independent registered public accounting firm, who audited our consolidated financial statements
included in this Form 10-K has issued an attestation report on our internal control over financial reporting as of March 31,
2022, which is included on page F-4.
Changes in Internal Control over Financial Reporting
During the three months ended March 31, 2022, we transitioned certain of Microsemi's processes to our internal control
processes and we expect to transition more of such processes throughout the remainder of calendar year 2022. Other than
with respect to our transition of Microsemi to our systems and control environment as described above, during the three
months ended March 31, 2022, 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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Item 9B. Other Information
Steve Sanghi, our Executive Chair, J. Eric Bjornholt, our Senior Vice President and Chief Financial Officer, Mitch Little, our
Senior Vice President, Worldwide Client Engagement, and Matthew W. Chapman, our Board Member, have entered into
trading plans as contemplated by Rule 10b-5-1 under the Exchange Act and periodic sales of our common stock have occurred
and are expected to occur under such plans.
The foregoing disclosure is being made on a voluntary basis and not pursuant to any specific requirement under Form
10-K, Form 8-K or otherwise.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information on the members of our Board of Directors is incorporated herein by reference to our proxy statement for our
2022 annual meeting of stockholders under the captions "The Board of Directors," and "Proposal One – Election of Directors."
Information on the composition of our audit committee and the members of our audit committee, including information
on our audit committee financial experts, is incorporated by reference to our proxy statement for our 2022 annual meeting of
stockholders under the caption "The Board of Directors – Committees of the Board of Directors – Audit Committee."
Information on our executive officers is provided in Item 1, Part I of this Form 10-K under the caption "Executive Officers
of the Registrant" at page 11, above.
Information with respect to compliance with Section 16(a) of the Exchange Act, is incorporated herein by reference to
our proxy statement for our 2022 annual meeting of stockholders under the caption "Delinquent Section 16(a) Reports."
Information with respect to our code of ethics that applies to our directors, executive officers (including our principal
executive officer and our principal financial and accounting officer) and employees is incorporated by reference to our proxy
statement for our 2022 annual meeting of stockholders under the caption "Code of Business Conduct and Ethics." A copy of
our Code of Business Conduct and Ethics is available on our website at the Investor Relations section under Mission
Statement/Corporate Governance on www.microchip.com.
Information regarding material changes, if any, to procedures by which security holders may recommend nominees to
our Board of Directors is incorporated by reference to our proxy statement for the 2022 annual meeting of stockholders
under the caption "Requirements, Including Deadlines, for Receipt of Stockholder Proposals for the 2022 Annual Meeting of
Stockholders; Discretionary Authority to Vote on Stockholder Proposals."
Item 11. Executive Compensation
Information with respect to executive compensation is incorporated herein by reference to the information under the
caption "Executive Compensation" in our proxy statement for our 2022 annual meeting of stockholders.
Information with respect to director compensation is incorporated herein by reference to the information under the
caption "The Board of Directors – Director Compensation" in our proxy statement for our 2022 annual meeting of
stockholders.
Information with respect to compensation committee interlocks and insider participation in compensation decisions is
incorporated herein by reference to the information under the caption "The Board of Directors – Compensation Committee
Interlocks and Insider Participation" in our proxy statement for our 2022 annual meeting of stockholders.
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Our Board compensation committee report on executive compensation is incorporated herein by reference to the
information under the caption "Executive Compensation – Compensation Committee Report on Executive Compensation" in
our proxy statement for our 2022 annual meeting of stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information with respect to securities authorized for issuance under our equity compensation plans is incorporated
herein by reference to the information under the caption "Executive Compensation – Equity Compensation Plan Information"
in our proxy statement for our 2022 annual meeting of stockholders.
Information with respect to security ownership of certain beneficial owners, members of our Board of Directors and
management is incorporated herein by reference to the information under the caption "Security Ownership of Principal
Stockholders, Directors and Executive Officers" in our proxy statement for our 2022 annual meeting of stockholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item pursuant to Item 404 of Regulation S-K is incorporated by reference to the
information under the caption "Certain Transactions" contained in our proxy statement for our 2022 annual meeting of
stockholders.
The information required by this Item pursuant to Item 407(a) of Regulation S-K regarding the independence of our
directors is incorporated by reference to the information under the caption "Meetings of the Board of Directors" contained in
our proxy statement for our 2022 annual meeting of stockholders.
Item 14. Principal Accountant Fees and Services
The information required by this Item related to principal accountant fees and services as well as related pre-approval
policies is incorporated by reference to the information under the caption "Independent Registered Public Accounting Firm"
contained in our proxy statement for our 2022 annual meeting of stockholders.
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Form 10-K:
PART IV
(1) Financial Statements:
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Consolidated Balance Sheets as of March 31, 2022 and 2021
Consolidated Statements of Income for each of the three years in the period ended March 31, 2022
Consolidated Statements of Comprehensive Income for each of the three years in the period ended March 31,
2022
Consolidated Statements of Cash Flows for each of the three years in the period ended March 31, 2022
Consolidated Statements of Changes in Equity for each of the three years in the period ended March 31, 2022
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
(3)
The Exhibits filed with this Form 10-K or incorporated herein by reference are set forth in the Exhibit Index,
which is incorporated herein by this reference.
(b) See Item 15(a)(3) above.
(c) See "Index to Financial Statements" included under Item 8 to this Form 10-K.
Page
F-1
F-4
F-5
F-6
F-7
F-8
F-10
F-11
None
Item 16. Form 10-K Summary
Not applicable.
50
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
Table of Contents
Exhibit
Number
3.1
Exhibit Description
Amended and Restated Certificate of
Incorporation of Microchip Technology
Incorporated
EXHIBIT INDEX
Incorporated by Reference
Form File Number Exhibit
000-21184
8-K
3.1
Filing Date
August 26, 2021
Included
Herewith
Amended and Restated Bylaws of Registrant,
as amended effective May 25, 2021
8-K
000-21184
3.1
May 28, 2021
Indenture dated as of February 11, 2015
between Microchip Technology Incorporated
and Wells Fargo Bank, N.A.
Indenture dated as of February 15, 2017
between Microchip Technology Incorporated
and Wells Fargo Bank, National Association
Indenture dated as of February 15, 2017
between Microchip Technology Incorporated
and Wells Fargo Bank, National Association
8-K
000-21184
4.1
February 11, 2015
8-K
000-21184
4.1
February 15, 2017
8-K
000-21184
4.3
February 15, 2017
Description of Registered Securities
10-K
000-21184
8-K
000-21184
4.4
4.1
May 22, 2020
June 3, 2020
Senior Secured Notes Indenture, dated as of
May 29, 2020, by and among Microchip
Technology Incorporated, the subsidiary
guarantors named therein and Wells Fargo
Bank, National Association, as trustee and
collateral agent
Senior Notes Indenture, dated as of May 29,
2020, by and among Microchip Technology
Incorporated, the subsidiary guarantors
named therein and Wells Fargo Bank,
National Association, as trustee
Form of 2.670% Senior Secured Note due
2023 (included in Exhibit 4.1 of 8-K filed on
June 3, 2020)
Form of 4.250% Senior Note due 2025
(included in Exhibit 4.2 of 8-K filed on June 3,
2020)
Indenture, dated as of December 1, 2020,
between Microchip Technology Incorporated
and Wells Fargo Bank, National Association,
as trustee
Form of 0.125% Convertible Senior Note due
2024 (included in Exhibit 4.1 of the 8-K filed
on December 2, 2020)
Senior Secured Notes Indenture, dated as of
December 17, 2020, by and among
Microchip Technology Incorporated, the
subsidiary guarantors named therein and
Wells Fargo Bank, National Association, as
trustee and collateral agent
8-K
000-21184
4.2
June 3, 2020
8-K
000-21184
4.3
June 3, 2020
8-K
000-21184
4.4
June 3, 2020
8-K
000-21184
4.1 December 2, 2020
8-K
000-21184
4.2 December 2, 2020
8-K
000-21184
4.1 December 18, 2020
4.12
Form of 0.972% Senior Secured Note due
2024 (included in Exhibit 4.1 of the 8-K filed
on December 18, 2020)
8-K
000-21184
4.2 December 18, 2020
51
Table of Contents
EXHIBIT INDEX
Incorporated by Reference
Exhibit
Number
4.13
Exhibit Description
Senior Secured Notes Indenture, dated as of
May 28, 2021, by and among Microchip
Technology Incorporated, the subsidiary
guarantors named therein and Wells Fargo
Bank, National Association, as trustee and
collateral agent
4.14
Form of 0.983% Senior Secured Note due
2024 (included in Exhibit 4.1 of 8-K filed on
May 28, 2021)
10.1
Form of Capped Call Confirmation
10.2
10.3
10.4
10.5*
10.6*
10.7*
Amended and Restated Guaranty, dated as
of May 29, 2018, made by the subsidiaries of
Microchip Technology Incorporated party
thereto as guarantors in favor of JPMorgan
Chase Bank, N.A., as Administrative Agent
Amended and Restated Credit Agreement,
dated as of December 16, 2021, by and
among Microchip Technology Incorporated,
the lenders from time to time party thereto
and JPMorgan Chase Bank, N.A., as
administrative agent
Form of Indemnification Agreement between
Registrant and its directors and certain of its
officers
Form of Notice of Grant for 2004 Equity
Incentive Plan (including Exhibit A Stock
Option Agreement)
Form of RSU Grant Notice and Global RSU
Agreement V-4004
Form of Notice of Stock Option Grant and
Stock Option Agreement
Form File Number Exhibit
000-21184
8-K
4.1
Included
Herewith
Filing Date
May 28, 2021
8-K
000-21184
4.2
May 28, 2021
8-K
8-K
000-21184
10.2 November 20, 2020
000-21184
10.3
May 29, 2018
8-K
000-21184
10.1 December 16, 2021
X
S-8 333-119939
4.5
October 25, 2004
10-K
000-21184
10.17
May 30, 2019
10-K
000-21184
10.18
May 30, 2019
10.8*
Form of CEO RSU Grant and RSU Agreement
10-K
000-21184
10.19
May 30, 2019
10.9*
Form of Notice of Grant of RSU Agreement
10-K
000-21184
10.20
May 30, 2019
10.10* Notice of Grant of Restricted Stock Units
8-K
000-21184
10.1
January 7, 2020
(TSR)
10.11* Management Incentive Compensation Plan
8-K
000-21184
10.1
March 2, 2021
(as amended through February 26, 2021)
10.12* Microchip Technology Incorporated
Supplemental Retirement Plan
S-8 333-101696
4.1.1 December 6, 2002
10.13* Amendments to Supplemental Retirement
10-Q 000-21184
10.1
February 9, 2006
Plan
10.14* Amended and Restated Adoption Agreement
10-K
000-21184
10.28
May 24, 2016
to the Microchip Technology Incorporated
Supplemental Retirement Plan dated
October 8, 2008, as amended December 15,
2008
10.15* 2004 Equity Incentive Plan, as amended and
10-Q 000-21184
10.1 November 4, 2021
restated on October 12, 2021
10.16* 2001 Employee Stock Purchase Plan, as
10-Q 000-21184
10.2 November 4, 2021
amended through October 12, 2021
52
Table of Contents
EXHIBIT INDEX
Exhibit
Number
10.17* 1994 International Employee Stock Purchase
Plan, as amended through October 12, 2021
Exhibit Description
10.18* Form of Notice of Grant of Restricted Stock
Units (Performance) for 2004 Equity
Incentive Plan (including Exhibit A
Performance Matrix)
10.19* Form of Notice of Grant of Restricted Stock
Units for 2004 Equity Incentive Plan
Incorporated by Reference
Form File Number Exhibit
Filing Date
10-Q 000-21184
10.3 November 4, 2021
Included
Herewith
10.20* Change of Control Severance Agreement
10.21* Change of Control Severance Agreement
8-K
8-K
000-21184
10.1 December 18, 2008
000-21184
10.2 December 18, 2008
10.22 Development Agreement dated as of August
29, 1997 by and between Registrant and the
City of Chandler, Arizona
10-Q 000-21184
10.1
February 13, 1998
10.23 Addendum to Development Agreement by
10-K
000-21184
10.14
May 15, 2001
10-Q 000-21184
10.2
February 13, 1998
and between Registrant and the City of
Tempe, Arizona, dated May 11, 2000
10.24 Development Agreement dated as of July 17,
1997 by and between Registrant and the City
of Tempe, Arizona
21.1** Subsidiaries of Registrant
23.1
Consent of Independent Registered Public
Accounting Firm
24.1** Power of Attorney
31.1** Certification of Chief Executive Officer
Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended (the
Exchange Act)
31.2** Certification of Chief Financial Officer
Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended (the
Exchange Act)
32**
Certifications Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document - the instance
document does not appear in the Interactive
File because its XBRL tags are embedded
within the Inline XBRL document
101.SCH XBRL Taxonomy Extension Schema
Document
101.CAL Taxonomy Extension Calculation Linkbase
Document
101.DEF XBRL Taxonomy Extension Definition
Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase
Document
101.PRE XBRL Taxonomy Presentation Linkbase
Document
53
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Table of Contents
EXHIBIT INDEX
Incorporated by Reference
Form File Number Exhibit
Filing Date
Included
Herewith
X
Exhibit
Number
104
Exhibit Description
Cover Page Interactive Data File - the cover
page XBRL tags are embedded within the
Inline XBRL document.
*Compensation plans or arrangements in
which directors or executive officers are
eligible to participate
** Furnished herewith
54
Table of Contents
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
May 20, 2022
MICROCHIP TECHNOLOGY INCORPORATED
(Registrant)
By: /s/ Ganesh Moorthy
Ganesh Moorthy
President, Chief Executive Officer, and Director
55
Table of Contents
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or director of Microchip Technology Incorporated, a
Delaware corporation (the Company), does hereby constitute and appoint each of GANESH MOORTHY and J. ERIC
BJORNHOLT, with full power to each of them to act alone, as the true and lawful attorneys and agents of the undersigned,
with full power of substitution and resubstitution to each of said attorneys to execute, file or deliver any and all instruments
and to do any and all acts and things which said attorneys and agents, or any of them, deem advisable to enable the Company
to comply with the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange
Commission in respect thereto relating to this annual report on Form 10-K, including specifically, but without limitation of the
general authority hereby granted, the power and authority to sign such person's name individually and on behalf of the
Company as an officer or director (as indicated below opposite such person's signature) to the Company's annual report on
Form 10-K or any amendments or supplements thereto; and each of the undersigned does hereby fully ratify and confirm all
that said attorneys and agents or any of them, shall do or cause to be done by virtue hereof. This Power of Attorney revokes
any and all previous powers of attorney granted by any of the undersigned which such power would have entitled said
attorneys and agents, or any of them, to sign such person's name, individually or on behalf of the Company, to any Form 10-K.
IN WITNESS WHEREOF, each of the undersigned has executed the foregoing power of attorney on this 20th day of May, 2022.
56
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Name and Signature
Title
Date
/s/ Ganesh Moorthy
Ganesh Moorthy
/s/ Steve Sanghi
Steve Sanghi
/s/ Matthew W. Chapman
Matthew W. Chapman
/s/ Esther L. Johnson
Esther L. Johnson
/s/ Karlton D. Johnson
Karlton D. Johnson
/s/ Wade F. Meyercord
Wade F. Meyercord
/s/ Karen M. Rapp
Karen M. Rapp
/s/ J. Eric Bjornholt
J. Eric Bjornholt
President, Chief Executive Officer,
and Director
(Principal Executive Officer)
May 20, 2022
Executive Chair
May 20, 2022
Director
Director
Director
Director
Director
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
May 20, 2022
May 20, 2022
May 20, 2022
May 20, 2022
May 20, 2022
May 20, 2022
57
Table of Contents
Annual Report on Form 10-K
Item 8, Item 15(a)(1) and (2), (b) and (c)
_________________________________
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
EXHIBITS
_________________________________
YEAR ENDED MARCH 31, 2022
MICROCHIP TECHNOLOGY INCORPORATED
AND SUBSIDIARIES
CHANDLER, ARIZONA
Table of Contents
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Consolidated Balance Sheets as of March 31, 2022 and 2021
Consolidated Statements of Income for each of the three years in the period ended March 31, 2022
Consolidated Statements of Comprehensive Income for each of the three years in the period ended
March 31, 2022
Consolidated Statements of Cash Flows for each of the three years in the period ended March 31, 2022
Consolidated Statements of Changes in Equity for each of the three years in the period ended March 31,
2022
Notes to Consolidated Financial Statements
Page
F-1
F-4
F-5
F-6
F-7
F-8
F-10
F-11
i
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Microchip Technology Incorporated
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Microchip Technology Incorporated (the Company) as of
March 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in equity and cash
flows for each of the three years in the period ended March 31, 2022, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company at March 31, 2022 and 2021, and the results of its operations and its cash
flows for each of the three years in the period ended March 31, 2022, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of March 31, 2022, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated May 20, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions
on the critical audit matters or on the accounts or disclosures to which they relate.
F-1
Table of Contents
Unrecognized tax benefits
Description of
the Matter
As more fully described in Note 12 to the consolidated financial statements, the Company operates in a
number of tax jurisdictions and its income tax returns are subject to examination by tax authorities in
those jurisdictions that may challenge any tax position on these returns. Because the matters challenged
by authorities are typically complex and subject to interpretation, their ultimate outcome is uncertain.
The Company uses significant judgment in (1) determining whether a tax position’s technical merits are
more-likely-than-not to be sustained and (2) measuring the amount of tax benefit that qualifies for
recognition. As of March 31, 2022, the Company recognized accrued liabilities for unrecognized tax
benefits associated with various tax positions totaling $804.1 million.
Because of the complexity of tax laws and regulations, auditing the recognition and measurement of
unrecognized tax benefits requires a high degree of auditor judgment and increased extent of effort,
including the involvement of our tax professionals.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls
over the Company’s accounting process for unrecognized tax benefits. This included testing controls over
management’s review of the technical merits of tax positions, including the process to measure the
financial statement impact of these tax matters.
Our audit procedures included, among others, evaluating the assumptions the Company used to develop
its tax positions and related unrecognized tax benefit amounts by jurisdiction and testing the
completeness and accuracy of the underlying data used by the Company to calculate its uncertain tax
positions. We involved our tax professionals located in the respective jurisdictions to assess the technical
merits of the Company’s tax positions and to evaluate the application of relevant tax laws in the
Company’s recognition determination. We assessed the Company’s correspondence with the relevant tax
authorities and evaluated tax or legal opinions or other third-party advice obtained by the Company. We
also evaluated the adequacy of the Company’s disclosures included in Note 12 in relation to these tax
matters.
F-2
Table of Contents
Convertible debt transactions
Description of
the Matter
As described in Note 6 to the consolidated financial statements, the Company privately negotiated
several transactions to settle an aggregate of (1) $107.0 million principal amount of its 2015 Senior
Convertible Debt, (2) $205.3 million principal amount of its 2017 Senior Convertible Debt and (3) $112.4
million principal amount of its 2017 Junior Convertible Debt. Through these transactions the Company
provided holders an aggregate of (1) $424.7 million of cash and (2) 8.8 million shares of the Company’s
common stock. The transactions were complex because the Company used significant judgment to
estimate the current comparable borrowing rates for otherwise identical non-convertible debt
instruments to determine the fair value of the liability components at each transaction date.
Auditing the valuation of the liability components was challenging because the Company used complex
valuation methodologies and subjective assumptions, including the expected volatility and credit spread.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company’s process to estimate the fair value of the liability components of the convertible debt
instruments, including controls over management’s review of the valuation model and the significant
assumptions used in the calculation.
Our audit procedures included, among others, inspecting the transaction agreements and involving our
internal valuation specialist to assist in evaluating the reasonableness of valuation methodologies,
models and significant assumptions. We also performed sensitivity analyses to evaluate the
reasonableness of certain significant assumptions, including the current comparable borrowing rates. We
tested the completeness and accuracy of the underlying data supporting the significant assumptions and
estimates. We also evaluated the Company’s financial statement disclosures related to these matters
included in Note 6 to the consolidated financial statements.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2001.
Phoenix, Arizona
May 20, 2022
F-3
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Microchip Technology Incorporated
Opinion on Internal Control Over Financial Reporting
We have audited Microchip Technology Incorporated’s internal control over financial reporting as of March 31, 2022, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Microchip Technology Incorporated (the
Company) maintained, in all material respects, effective internal control over financial reporting as of March 31, 2022, based
on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of March 31, 2022 and 2021, the related consolidated
statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period
ended March 31, 2022, and the related notes and our report dated May 20, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Phoenix, Arizona
May 20, 2022
F-4
Table of Contents
Item 1. Financial Statements
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share amounts)
ASSETS
March 31,
2022
2021
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Long-term deferred tax assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable
Accrued liabilities
Current portion of long-term debt
Total current liabilities
Long-term debt
Long-term income tax payable
Long-term deferred tax liability
Other long-term liabilities
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; 577,805,396
shares issued and 554,500,524 shares outstanding at March 31, 2022; 568,958,158
shares issued and 547,057,188 shares outstanding at March 31, 2021
Additional paid-in capital
Common stock held in treasury: 23,304,872 shares at March 31, 2022; 21,900,970
shares at March 31, 2021
Accumulated other comprehensive loss
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
$
$
$
317.4 $
2.0
1,072.6
854.4
206.2
2,452.6
967.9
6,673.6
4,043.1
1,797.1
265.2
16,199.5 $
344.7 $
1,054.3
—
1,399.0
7,687.4
704.6
39.8
473.9
280.0
2.0
997.7
665.0
200.5
2,145.2
854.7
6,670.6
4,794.8
1,749.2
264.3
16,478.8
292.4
794.3
1,322.9
2,409.6
7,581.2
689.9
43.9
417.1
—
—
0.6
2,535.9
(796.3)
(20.6)
4,175.2
5,894.8
$
16,199.5 $
0.5
2,403.1
(433.8)
(26.2)
3,393.5
5,337.1
16,478.8
See accompanying notes to consolidated financial statements
F-5
Table of Contents
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
Net sales
Cost of sales
Gross profit
Research and development
Selling, general and administrative
Amortization of acquired intangible assets
Special charges and other, net
Operating expenses
Operating income
Other income (expense):
Interest income
Interest expense
Loss on settlement of debt
Other income (loss), net
Income before income taxes
Income tax provision (benefit)
Net income
Basic net income per common share
Diluted net income per common share
Dividends declared per common share
Basic common shares outstanding
Diluted common shares outstanding
Fiscal Year Ended March 31,
2021
2020
2022
$
6,820.9 $
2,371.3
4,449.6
5,438.4 $
2,059.6
3,378.8
989.1
718.9
862.5
29.5
2,600.0
1,849.6
0.5
(257.0)
(113.4)
2.8
1,482.5
197.0
1,285.5 $
2.33 $
2.27 $
0.910 $
552.3
565.9
836.4
610.3
932.3
1.7
2,380.7
998.1
1.7
(356.9)
(299.6)
(3.8)
339.5
(9.9)
349.4 $
0.67 $
0.65 $
0.747 $
519.2
541.2
$
$
$
$
5,274.2
2,032.1
3,242.1
877.8
676.6
993.9
46.7
2,595.0
647.1
2.8
(497.3)
(5.4)
3.2
150.4
(420.2)
570.6
1.19
1.11
0.733
477.7
512.4
See accompanying notes to consolidated financial statements
F-6
Table of Contents
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Net income
Components of other comprehensive income (loss):
Defined benefit plans:
Actuarial gains (losses) related to defined benefit pension
plans, net of tax effect
Reclassification of realized transactions, net of tax effect
Change in net foreign currency translation adjustment
Other comprehensive income (loss), net of tax effect
Comprehensive income
$
Fiscal Year Ended March 31,
2021
2020
2022
$
1,285.5 $
349.4 $
570.6
6.9
0.9
(2.2)
5.6
1,291.1 $
(9.4)
1.1
3.7
(4.6)
344.8 $
1.4
0.8
(1.8)
0.4
571.0
See accompanying notes to consolidated financial statements
F-7
Table of Contents
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Deferred income taxes
Share-based compensation expense related to equity incentive
plans
Loss on settlement of debt
Amortization of debt discount
Amortization of debt issuance costs
Impairment of intangible assets
Other non-cash adjustment
Changes in operating assets and liabilities, excluding impact of
acquisitions:
Increase in accounts receivable
(Increase) decrease in inventories
Increase in accounts payable and accrued liabilities
Change in other assets and liabilities
Change in income tax payable
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of available-for-sale investments
Sales of available-for-sale investments and marketable equity
securities
Proceeds from sales of assets
Investments in other assets
Capital expenditures
Net cash used in investing activities
Cash flows from financing activities: (1)
Proceeds from borrowings on Revolving Credit Facility
Repayments of Revolving Credit Facility
Proceeds from issuance of senior notes
Repayment of senior notes
Proceeds from borrowings on Bridge Loan Facility
Repayment of Bridge Loan Facility
Repayments of Term Loan Facility
Payments on settlement of convertible debt
Deferred financing costs
Purchase of capped call options
Proceeds from sale of common stock
Tax payments related to shares withheld for vested RSUs
Repurchase of common stock
Payment of cash dividends
Capital lease payments
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, and restricted cash at beginning of
period
Cash and cash equivalents, and restricted cash at end of period
F-8
Fiscal Year Ended March 31,
2021
2022
2020
$
1,285.5 $
349.4 $
570.6
1,153.3
(138.9)
1,215.6
(490.3)
1,143.5
7.9
210.2
113.4
44.9
11.5
3.0
(11.4)
(74.9)
(177.8)
192.7
79.4
14.8
2,842.7
—
—
14.1
(121.7)
(370.1)
(477.7)
4,176.0
(5,123.5)
997.0
(1,000.0)
—
—
—
(424.7)
(8.5)
—
70.5
(84.2)
(425.6)
(503.8)
(0.8)
(2,327.6)
37.4
198.3
299.6
71.1
17.1
—
(6.4)
(63.7)
18.4
17.6
(16.7)
17.4
1,916.5
—
—
8.3
(89.0)
(92.6)
(173.3)
3,966.0
(4,007.9)
3,577.8
—
—
(615.0)
(1,723.5)
(2,611.4)
(21.2)
(35.8)
60.3
(64.6)
—
(388.3)
(0.6)
(1,864.2)
(121.0)
170.2
5.4
121.7
17.1
2.2
(2.0)
(53.3)
28.8
11.4
(13.1)
(40.5)
1,543.8
(2.0)
4.7
3.2
(71.5)
(67.6)
(133.2)
1,026.0
(1,904.0)
—
—
611.9
—
(188.0)
(615.0)
(8.9)
—
58.8
(68.1)
—
(350.1)
(0.8)
(1,438.2)
(27.6)
428.6
401.0
$
280.0
317.4 $
401.0
280.0 $
Table of Contents
Supplemental disclosure of cash flow information:
Restricted cash
Non-cash activities:
ROU assets obtained in exchange of lease liabilities
Cash paid for:
Fiscal Year Ended March 31,
2021
2022
2020
$
$
— $
— $
27.5 $
65.6 $
25.0
24.8
Interest
Income taxes
Operating lease payments in operating cash flows
355.2
101.3
46.5
(1) During the fiscal year ended March 31, 2021, the Company completed the December 2020 settlement of $1,086.5 million
principal amount of convertible debt in exchange for $428.9 million in cash, 8.4 million shares of common stock and $665.5
million principal amount of 2020 Senior Convertible Debt. Refer to Note 6 for further information.
207.8 $
141.4 $
45.7 $
265.4 $
87.3 $
47.4 $
$
$
$
See accompanying notes to consolidated financial statements
F-9
Table of Contents
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions)
Common Stock and
Additional Paid-in-
Capital
Common Stock Held
in Treasury
Shares
Amount
Shares
Amount
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Total
Equity
Balance at March 31, 2019
Net income
Other comprehensive income
Adoption of ASU 2018-02,
cumulative adjustment
Proceeds from sales of common
stock through employee equity
incentive plans
RSU and SAR withholdings
Treasury stock used for new
issuances
Shares issued to settle
convertible debt
Settlement of convertible debt
Share-based compensation
Cash dividend
Balance at March 31, 2020
Net income
Other comprehensive loss
Proceeds from sales of common
stock through employee equity
incentive plans
RSU and SAR withholdings
Treasury stock used for new
issuances
Shares issued to settle
convertible debt
Settlement of convertible debt
Purchase of capped call options
Issuance of 2020 Senior
Convertible Debt
Share-based compensation
Cash dividend
Balance at March 31, 2021
Net income
Other comprehensive income
Proceeds from sales of common
stock through employee equity
incentive plans
RSU and SAR withholdings
Treasury stock used for new
issuances
Repurchase of common stock
Shares issued to settle
convertible debt
Settlement of convertible debt
Share-based compensation
Cash dividend
Balance at March 31, 2022
506.5 $ 2,679.8
—
—
—
—
—
—
6.4
(1.2)
(5.2)
58.8
(68.1)
(81.6)
10.3
—
—
—
516.8
—
—
351.8
(438.1)
172.7
—
2,675.3
—
—
5.4
(1.2)
(4.2)
60.3
(64.6)
(66.8)
52.2
—
—
3,171.1
(3,622.1)
(35.8)
—
—
—
569.0
—
—
87.7
198.5
—
2,403.6
—
—
5.4
(1.2)
70.5
(84.2)
(4.2)
(63.1)
8.8
—
—
—
670.7
(668.5)
207.5
—
577.8 $ 2,536.5
31.3 $ (582.2) $
—
—
—
—
—
—
—
—
—
—
(5.2)
81.6
—
—
—
—
26.1
—
—
—
—
—
—
—
—
(500.6)
—
—
—
—
(4.2)
66.8
—
—
—
—
—
—
21.9
—
—
—
—
—
—
—
—
—
—
(433.8)
—
—
—
—
(4.2)
5.6
63.1
(425.6)
—
—
—
—
—
—
—
—
23.3 $ (796.3) $
(20.7) $ 3,210.6 $ 5,287.5
570.6
570.6
0.4
—
—
0.4
(1.3)
1.3
—
—
—
—
—
—
—
—
(21.6)
—
(4.6)
—
—
—
—
—
—
—
—
—
(26.2)
—
5.6
—
—
—
—
—
—
—
—
—
(350.1)
3,432.4
349.4
—
—
—
—
—
—
—
—
—
(388.3)
3,393.5
1,285.5
—
—
—
—
58.8
(68.1)
—
351.8
(438.1)
172.7
(350.1)
5,585.5
349.4
(4.6)
60.3
(64.6)
—
3,171.1
(3,622.1)
(35.8)
87.7
198.5
(388.3)
5,337.1
1,285.5
5.6
70.5
(84.2)
—
(425.6)
—
—
—
—
—
670.7
—
(668.5)
—
207.5
(503.8)
(503.8)
(20.6) $ 4,175.2 $ 5,894.8
See accompanying notes to consolidated financial statements
F-10
Table of Contents
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1. Significant Accounting Policies
Nature of Business
Microchip Technology Incorporated (Microchip or the Company) develops, manufactures and sells smart, connected and
secure embedded control solutions used by its customers for a wide variety of applications. The Company provides 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 of the Company's solutions by its customers in their end products.
Principles of Consolidation
The Company prepares its consolidated financial statements in accordance with U.S. GAAP. The consolidated financial
statements include the accounts of Microchip and its majority-owned and controlled subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation. All dollar amounts in the financial statements
and tables in these notes, except per share amounts, are stated in millions of U.S. dollars unless otherwise noted.
In August 2021, at our Annual Meeting of Stockholders, our stockholders approved a two-for-one forward stock split and
the amendment and restatement of the Company's Certificate of Incorporation to increase the number of authorized shares
of common stock from 450.0 million shares to 900.0 million shares. As a result, each stockholder of record at the close of
market on October 4, 2021 received one additional share of common stock for every share held. Such shares were distributed
after the close of trading on October 12, 2021. All share, equity award, and per share amounts and related shareholders'
equity balances presented herein have been adjusted to reflect the stock split.
Revenue Recognition
The Company generates revenue primarily from sales of semiconductor products to distributors and non-distributor
customers (direct customers) and, to a lesser extent, from royalties paid by licensees of intellectual property. The Company
applies the following five-step approach to determine the timing and amount of revenue recognition: (i) identify the contract
with the customer, (ii) identify performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the
transaction price to the performance obligations in the contract, and (v) recognize revenue when the performance obligations
are satisfied.
Sales to distributors are governed by a distributor agreement, a purchase order, and an order acknowledgment. Sales to
distributors do not meet the definition of a contract until the distributor has sent in a purchase order, the Company has
acknowledged the order, the Company has deemed the collectability of the consideration to be probable, and legally
enforceable rights and obligations have been created. As is customary in the semiconductor industry, the Company offers
price concessions and stock rotation rights to many of its distributors. As these are forms of variable consideration, the
Company estimates the amount of consideration to which they will be entitled using recent historical data and applying the
expected value method. The transaction price is net of all taxes imposed on and concurrent with specific revenue-producing
transactions. After the transaction price has been determined and allocated to the performance obligations, the Company
recognizes revenue when the performance obligations are satisfied. Substantially all of the revenue generated from contracts
with distributors is recognized at, or near to, the time risk and title of the inventory transfers to the distributor.
Sales to direct customers are generally governed by a purchase order and an order acknowledgment. Sales to direct
customers usually do not meet the definition of a contract until the direct customer has sent in a purchase order, the
Company has acknowledged the order, the Company has deemed the collectability of the consideration to be probable, and
legally enforceable rights and obligations have been created. Generally, the transaction price associated with contracts with
direct customers is set at the standalone selling price and is not variable. The transaction price is net of all taxes imposed on
and concurrent with specific revenue-producing transactions. After the transaction price has been determined and allocated
to the performance obligations, the Company recognizes revenue when the performance obligations are satisfied.
Substantially all of the revenue generated from contracts with direct customers is recognized at, or near to, the time risk and
title of the inventory transfers to the customer.
Revenue generated from licensees is governed by licensing agreements. The Company's primary performance obligation
related to these agreements is to provide the licensee the right to use the intellectual property. The final transaction price is
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determined by multiplying the usage of the license by the royalty, which is fixed in the licensing agreement. Revenue is
recognized as usage of the license occurs.
Product Warranty
The Company typically warrants its products against defects in materials and workmanship and non-conformance to
specifications for 12 to 24 months. The majority of the Company's product warranty claims are settled through the return of
the defective product and the shipment of replacement product. Warranty returns are included within the Company's
allowance for returns, which is based on historical return rates. Actual future returns could differ from the allowance
established. In addition, the Company accrues a liability for specific warranty costs expected to be settled other than through
product return and replacement, if a loss is probable and can be reasonably estimated. Product warranty expenses were
immaterial for the fiscal years ended March 31, 2022, 2021, and 2020.
Advertising Costs
The Company expenses all advertising costs as incurred. Advertising costs were immaterial for the fiscal years ended
March 31, 2022, 2021 and 2020.
Research and Development
Research and development costs are expensed as incurred. Assets purchased to support the Company's 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 estimated useful lives. Renewals or extensions of these assets
are expensed as incurred. Research and development expenses include expenditures for labor, share-based payments,
depreciation, masks, prototype wafers, and expenses for development of process technologies, new packages, and software
to support new products and design environments.
Restructuring Charges
Restructuring charges are included within special charges and other, net in the consolidated statements of income and
are primarily comprised of employee separation costs, asset impairments, contract exit costs and costs of facility
consolidation and closure, including the related gains or losses associated with the sale of owned facilities. Employee
separation costs include one-time termination benefits that are recognized as a liability at estimated fair value at the time of
communication to employees, unless future service is required, in which case the costs are recognized ratably over the future
service period. Ongoing termination benefits are recognized as a liability at estimated fair value when the amount of such
benefits are probable and reasonably estimable. Contract exit costs include contract termination fees and ROU asset
impairments recognized on the cease-use date of leased facilities. A liability for contract termination fees is recognized in the
period in which the Company terminates the contract.
Foreign Currency Translation
Substantially all of the Company's foreign subsidiaries are considered to be extensions of the U.S. company and any
translation gains and losses related to these subsidiaries are included in other (loss) income, net in the consolidated
statements of income. As the U.S. dollar is utilized as the functional currency, gains and losses resulting from foreign currency
transactions (transactions denominated in a currency other than the subsidiaries' functional currency) are also included in
income. For fiscal 2022, 2021 and 2020, certain foreign subsidiaries acquired as part of the Company's acquisition activities
had the local currency as the functional currency.
Income Taxes
As part of the process of preparing its consolidated financial statements, the Company is required to estimate its income
taxes in each of the jurisdictions in which it operates. This process involves estimating its 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 the Company's consolidated balance
sheets. The Company must then assess the likelihood that its deferred tax assets will be recovered from future taxable
income within the relevant jurisdiction and to the extent the Company believes that recovery is not likely, it must establish a
valuation allowance. The Company provided valuation allowances for certain of its deferred tax assets where it is more likely
than not that some portion, or all of such assets, will not be realized.
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Table of Contents
Various taxing authorities in the U.S. and other countries in which the Company does business scrutinize the tax
structures employed by businesses. Companies of a similar size and complexity as the Company are regularly audited by the
taxing authorities in the jurisdictions in which they conduct significant operations. During the fiscal year ended March 31,
2022, various jurisdictions finalized their audits for certain periods. The close of these audits did not have an adverse impact
on the financial statements. The Company is currently being audited by the tax authorities in the United States and various
foreign jurisdictions for other periods. At this time, the Company does not know what the outcome of these audits will be.
The Company records benefits for uncertain tax positions based on an assessment of whether it is more likely than not that
the tax positions will be sustained based on their technical merits under currently enacted law. If this threshold is not met, no
tax benefit of the uncertain tax position is recognized. If the threshold is met, the Company recognizes the largest amount of
the tax benefit that is more than 50% likely to be realized upon ultimate settlement.
The accounting model related to the valuation of uncertain tax positions requires the Company 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 the Company believes the possibility of examination by a taxing
authority or discovery of the related risk matters is remote or where it has a long history of the taxing authority not
performing an exam or overlooking an issue. The Company 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.
In December 2017, the TCJA was enacted into law and established a new provision designed to tax low-taxed income of
foreign subsidiaries known as global intangible low-taxed income (GILTI). The FASB allows taxpayers to make an accounting
policy election of either (i) treating taxes due on GILTI inclusions as a current-period expense when incurred or (ii) recognizing
deferred taxes for temporary basis differences that are expected to reverse as GILTI in future years. The Company has made a
policy choice to include taxes due on the future GILTI inclusion in taxable income when incurred.
Beginning in fiscal 2023, the TCJA eliminates the option to currently deduct R&D costs in the year incurred for tax
purposes and requires that all U.S. and non-U.S. based R&D expenditures be capitalized and amortized over a five-year and
fifteen-year period, respectively. Although it is possible that the U.S. Congress may defer, modify, or repeal this provision,
potentially with retroactive effect, we have no assurance that the U.S. Congress will take any action with respect to this
provision. Absent any changes to the legislation, cash taxes are expected to increase significantly for several years, and the
Company’s effective tax rate may be adversely impacted. The actual impact on fiscal 2023 cash generated from operations
will depend on the amount of R&D costs incurred by the Company, on whether the U.S. Congress modifies or repeals this
provision, and on whether new guidance and interpretive rules are issued by the U.S. Department of the Treasury, among
other factors.
Cash and Cash Equivalents
All highly liquid investments, including marketable securities with an original maturity to the Company of three months or
less when acquired are considered to be cash equivalents.
Derivative Instruments
Derivative instruments are required to be recorded at fair value as either assets or liabilities in the Company's
consolidated balance sheet. The Company's accounting policies for derivative instruments depends on whether the
instrument has been designated and qualifies as part of a hedging relationship and further, on the type of hedging
relationship.
The Company does not apply hedge accounting to foreign currency forward contracts. Gains and losses associated with
currency rate changes on forward contracts are recorded currently in income. These gains and losses have been immaterial
to the Company's financial statements.
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
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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.
Inventories
Inventories are valued at the lower of cost or net realizable value using the first-in, first-out method. The Company writes
down its 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 projected by the Company, 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 reserves for obsolescence, the Company evaluates projected demand over periods that align with demand
forecasts used to develop manufacturing plans and inventory build decisions and provides reserves for inventory on hand in
excess of estimated demand. 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 the Company's production levels are substantially below normal operating capacity, unabsorbed
overhead production costs associated with the reduced production levels of the Company's manufacturing facilities are
charged directly to cost of sales.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Major renewals and improvements are capitalized, while maintenance
and repairs are expensed when incurred. The Company's property and equipment accounting policies incorporate estimates,
assumptions and judgments relative to the useful lives of its property and equipment. Depreciation is provided for assets
placed in service on a straight-line basis over the estimated useful lives of the relative assets, which range from 10 to 30 years
for buildings and building improvements and 5 to 7 years for machinery and equipment. The Company evaluates the carrying
value of its property and equipment when events or changes in circumstances indicate that the carrying value of such assets
may be impaired. Asset impairment evaluations are, by nature, highly subjective.
Leases
The Company determines if an arrangement is a lease at its inception. Operating lease arrangements are comprised
primarily of real estate and equipment agreements for which the ROU assets are included in other assets and the
corresponding lease liabilities, depending on their maturity, are included in accrued expenses and other current liabilities or
other long-term liabilities in the consolidated balance sheets.
Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease
payments over the lease term. Operating lease ROU assets also include any initial direct costs and prepayments less lease
incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company
will exercise such options.
As the Company's leases generally do not provide an implicit rate, the Company uses its collateralized incremental
borrowing rate based on the information available at the lease commencement date, including lease term, in determining the
present value of lease payments. Lease expense for these leases is recognized on a straight-line basis over the lease term.
The Company accounts for the lease and non-lease components as a single lease component.
Convertible Debt
Upon issuance, the Company separately accounts for the liability and equity components of its Convertible Debt by
estimating the fair values of the i) liability component without a conversion feature and ii) the conversion feature. 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 the Company's consolidated statements of income. The
Convertible Debt is presented as current portion of long-term debt on the balance sheet if the contractual maturity date is
within 12 months of the balance sheet date or when the Convertible debt is convertible and the Company does not have the
ability to settle the principal portion of its Convertible Debt upon conversion on a long-term basis. As of March 31, 2022, the
Company has the ability to settle the principal portion of its Convertible Debt upon conversion on a long-term basis by
utilizing proceeds from its Revolving Credit Facility.
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Upon settlement of Convertible Debt instruments, the Company allocates the total consideration between the liability
and equity components based on the fair value of the liability component without the conversion feature. The difference
between the consideration allocated to the liability component and the net carrying value of the liability component is
recognized as an extinguishment loss or gain. The remaining settlement consideration is allocated to the equity component
and recognized as a reduction of additional paid-in capital in the Company's consolidated balance sheets. In addition, if the
terms of the settlement are different from the contractual terms of the original instrument, the Company recognizes an
inducement loss, which is measured as the difference between the fair value of the original terms of the instrument and the
fair value of the settlement terms.
Determining the fair value of the liability component without the conversion feature upon issuance and settlement
involves estimating the equivalent borrowing rate for a similar non-convertible instrument. Given the values of these
transactions, fair value estimates are sensitive to changes in the equivalent borrowing rate conclusions. The measurement of
the equivalent borrowing rate requires that the Company make estimates of volatility and credit spreads to align observable
market inputs with the instrument being valued.
Lastly, the Company includes the dilutive effect of the shares of its common stock issuable upon conversion of the
outstanding Convertible Debt in its diluted income per share calculation regardless of whether the market price triggers or
other contingent conversion features have been met. The Company applies the treasury stock method as it has the intent and
has adopted an accounting policy to settle the principal amount of the Convertible Debt in cash. This method results in
incremental dilutive shares when the average fair value of the Company's common stock for a reporting period exceeds the
conversion prices per share and adjusts as dividends are recorded in the future.
Defined Benefit Pension Plans
The Company maintains defined benefit pension plans, covering certain of its foreign employees. For financial reporting
purposes, net periodic pension costs and pension obligations are determined based upon a number of actuarial assumptions,
including discount rates for plan obligations, and assumed rates of compensation increases for employees participating in
plans. These assumptions are based upon management's judgment and consultation with actuaries, considering all known
trends and uncertainties.
Contingencies
In the ordinary course of business, the Company is exposed to various liabilities as a result of contracts, product liability,
customer claims and other matters. Additionally, the Company is involved in a limited number of legal actions, both as
plaintiff and defendant. Consequently, the Company could incur uninsured liability in any of those actions. The Company also
periodically receives notifications from various third parties alleging infringement of patents or other intellectual property
rights, or from customers requesting reimbursement for various costs. With respect to pending legal actions to which the
Company is a party and other claims, although the outcomes are generally not determinable, the Company believes that the
ultimate resolution of these matters will not have a material adverse effect on its financial position, cash flows or results of
operations. Litigation and disputes relating to the semiconductor industry are not uncommon, and the Company is, 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.
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, it 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, it 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, it uses the amount that is the low end of such range.
Business Combinations
All of the Company's 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
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allowances and income tax uncertainties after the acquisition date will be recognized through income tax expense. The
aggregate amount of consideration paid by the 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. The measurement of fair value of assets acquired and liabilities assumed
requires significant judgment. The valuation of intangible assets, in particular, requires that the Company 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.
Goodwill and Other Intangible Assets
The Company's intangible assets include goodwill and other intangible assets. Goodwill is recorded when the purchase
price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired.
Other intangible assets include existing technologies, core and developed technology, in-process research and development,
trademarks and trade names, distribution rights and customer-related intangibles. 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. Indefinite-lived intangible assets consist of goodwill and in-process research and
development intangible assets that have not yet been placed in service. All other intangible assets are definite-lived
intangible assets, including in-process research and development assets that have been placed in service, and are amortized
over their respective estimated lives, ranging from 1 to 15 years.
The Company is required to perform an impairment review of indefinite-lived intangible assets, including goodwill
annually, and more frequently under certain circumstances. Indefinite-lived intangible assets are subjected to this annual
impairment test during the fourth quarter of the Company's fiscal year. The Company engages primarily in the development,
manufacture and sale of semiconductor products as well as technology licensing. As a result, the Company concluded there
are two reporting units, semiconductor products and technology licensing. The Company's impairment evaluation consists of
a qualitative impairment assessment in which management evaluates whether it is more likely than not that the indefinite-
lived intangible assets are impaired. If it is determined that it is more likely than not, the Company performs a quantitative
impairment test, which compares the fair value of the reporting unit or indefinite-lived intangible asset to its carrying value. If
the Company determines through the impairment process that the indefinite-lived intangible asset has been impaired, the
Company will record the impairment charge in its results of operation. Through March 31, 2022, the Company has not had
impaired goodwill. In the event that facts and circumstances indicate definite-lived intangible assets may be impaired, the
Company evaluates the recoverability and estimated useful lives of such assets. If such indicators are present, recoverability
is evaluated based on whether the sum of the estimated undiscounted cash flows attributable to the asset (group) in question
is less than their carrying value. If less, the Company measures the fair value of the asset (group) and recognizes an
impairment loss if the carrying amount of the assets exceeds their respective fair values.
Impairment of Long-Lived Assets
The Company assesses whether indicators of impairment of long-lived assets are present. If such indicators are present,
the Company determines whether the sum of the estimated undiscounted cash flows attributable to the assets in question is
less than their carrying value. If less, the Company recognizes an impairment loss based on the excess of the carrying amount
of the assets over their respective fair values. Fair value is determined by discounted future cash flows, appraisals or other
methods. If the assets determined to be impaired are to be held and used, the Company recognizes an impairment loss
through a charge to operating results to the extent the present value of anticipated net cash flows attributable to the asset
are less than the asset's carrying value. The Company would depreciate the remaining value over the remaining estimated
useful life of the asset.
Share-Based Compensation
The Company has equity incentive plans under which non-qualified stock options and RSUs have been granted to
employees and non-employee members of the Board of Directors. The Company uses RSUs with a service condition as its
primary equity incentive compensation instrument for employees and also grants market-based and performance-based PSUs
to executive officers and employees. The Company also has employee stock purchase plans for eligible employees. The
Company estimates the fair value of PSUs with a market condition using a Monte Carlo simulation model as of the date of
grant using historical volatility. Share-based compensation cost for RSUs with a service condition or performance-based PSUs
is measured on the grant date based on the fair market value of the Company’s common stock discounted for expected future
dividends and is recognized as expense on a straight-line attribution method over the requisite service periods. Share-based
compensation cost for performance-based PSUs is recognized if and when the Company concludes that it is probable that the
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performance condition will be achieved. The Company reassess the probability of the performance condition at each
reporting period and a cumulative catch-up adjustment is recorded to share-based compensation cost for any change in the
probability assessment.
If there are any modifications or cancellations of the underlying unvested securities, the Company may be required to
accelerate or increase any remaining unearned share-based compensation expense. Future share-based compensation
expense and unearned share-based compensation will increase to the extent that the Company grants additional equity
awards to employees or it assumes unvested equity awards in connection with acquisitions.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade
receivables. Concentrations of credit risk with respect to accounts receivable are generally not significant due to the diversity
of the Company's customers and geographic sales areas. The Company sells its products primarily to OEMs and distributors in
the Americas, Europe and Asia. The Company performs ongoing credit evaluations of its customers' financial condition and,
as deemed necessary, may require collateral, primarily letters of credit.
Distributor advances in the consolidated balance sheets, totaled $170.0 million and $104.8 million at March 31, 2022 and
March 31, 2021, respectively. On sales to distributors, the Company's payment terms generally require the distributor to
settle amounts owed to the Company for an amount in excess of their ultimate cost. The Company's sales price to its
distributors may be higher than the amount that the distributors will ultimately owe the Company because distributors often
negotiate price reductions after purchasing the products from the Company and such reductions are often significant. It is the
Company's 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 the Company's distributors. As such, the Company has entered into agreements with certain
distributors whereby it advances 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 revenue recognition or the
Company's consolidated statements of income. 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 the Company at any time.
Use of Estimates
The Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues
and expenses and the disclosure of contingent assets and liabilities to prepare its consolidated financial statements in
conformity with U.S. GAAP. Actual results could differ from those estimates.
Business Segments
Operating segments are components of an enterprise about which separate financial information is regularly reviewed by
the chief operating decision maker (CODM) to assess the performance of the component and make decisions about the
resources to be allocated to the component. The Company's President and Chief Executive Officer has been identified as the
CODM. Based on the Company's structure and manner in which the Company is managed and decisions are made, the
Company's business is made up of two operating segments, semiconductor products and technology licensing.
In the semiconductor products segment, the Company designs, develops, manufactures and markets microcontrollers,
development tools and analog, interface, mixed-signal, timing, wired and wireless connectivity devices, and memory products.
Under the leadership of the CODM, the Company is structured and organized around standardized roles and responsibilities
based on product groups and functional activities. The Company's product groups are responsible for product research,
design and development. The Company's functional activities include sales, marketing, manufacturing, information
technology, human resources, legal and finance.
The Company's product groups have similar products, production processes, types of customers and methods for
distribution. In addition, the tools and technologies used in the design and manufacture of the Company's products are
shared among the various product groups. The Company's product group leaders, under the direction of the CODM, define
the product roadmaps and team with sales personnel to achieve design wins and revenue and other performance targets.
Product group leaders also interact with manufacturing and operational personnel who are responsible for the production,
prioritization and planning of the Company's manufacturing capabilities to help ensure the efficiency of the Company's
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operations and fulfillment of customer requirements. This centralized structure supports a global operating strategy in which
the CODM assesses performance and allocates resources based on the Company's consolidated results.
Subsequent Events
The Company evaluated events after March 31, 2022, and through the date the financial statements were issued, and
determined any events or transactions occurring during this period that would require recognition or disclosure are
appropriately addressed in these financial statements.
Recently Adopted Accounting Pronouncements
On April 1, 2021, the Company adopted ASU 2019-12-Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes. This guidance enhances and simplifies various aspects of income tax accounting, including requirements related to
hybrid tax regimes, the tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate
financial statements of entities not subject to tax, the intraperiod tax allocation exception to the incremental approach,
ownership changes in investments, interim-period accounting for enacted changes in tax law, and the year-to-date loss
limitation in interim-period tax accounting. The adoption of this standard did not have a material impact on the Company's
consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2020, the FASB issued ASU 2020-06-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging - Contracts in Entity's Own Equity, which simplifies the guidance for certain convertible debt instruments by
removing the separation models for convertible debt with a cash conversion feature or convertible instruments with a
beneficial conversion feature. As a result, convertible debt instruments will be reported as a single liability instrument with
no separate accounting for embedded conversion features. Additionally, ASU 2020-06 requires the application of the if-
converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The
Company plans to adopt the standard under the modified retrospective transition method for fiscal 2023. The adoption of
this standard is estimated to result in an increase of approximately $105.8 million to our Convertible Debt, to reflect the full
principal amount of the Convertible Debt outstanding net of issuance costs, a reduction to additional paid-in capital of
approximately $133.6 million, net of estimated income tax effects, to remove the equity component separately recorded for
the conversion features associated with the Convertible Debt, a decrease to deferred tax liabilities, and a cumulative-effect
adjustment of approximately $52.0 million, net of estimated income tax effects, to increase the opening balance of retained
earnings as of April 1, 2022. The adoption of this standard is expected to reduce interest expense by approximately
$32.7 million in fiscal 2023. In addition, the required use of the if-converted method in calculating diluted earnings per share
is not expected to increase the number of potentially dilutive shares in fiscal 2023 as the Company irrevocably elected cash
settlement for the principal amount of its Convertible Debt on April 1, 2022. The Company intends to settle any excess value
in shares of its common stock in the event of a conversion.
In November 2021, the FASB issued ASU 2021-10-Government Assistance (Topic 832): Disclosure by Business Entities
about Government Assistance which aims at increasing the transparency of government assistance received by most business
entities. The standard requires business entities to make annual disclosures about the nature of the transactions and the
related accounting policy used to account for the transactions, the line items and applicable amounts on the balance sheet
and income statement that are affected by the transactions, and significant terms and conditions of the transactions,
including commitments and contingencies. If an entity omits any required disclosures because it is legally prohibited, it must
disclose that fact. ASU 2021-10 is effective for financial statements issued for annual periods beginning after December 15,
2021. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial
statements.
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Note 2. Net Sales
The following table represents the Company's net sales by product line (in millions):
Microcontrollers
Analog
Other
Total net sales
Fiscal Year Ended March 31,
2021
2020
2022
$
$
3,814.8 $
1,939.1
1,067.0
6,820.9 $
2,961.0 $
1,519.8
957.6
5,438.4 $
2,817.9
1,511.1
945.2
5,274.2
The product lines listed above are included entirely in the Company's semiconductor product segment with the exception
of the other product line, which includes products from both the semiconductor product and technology licensing segments.
The following table represents the Company's net sales by contract type (in millions):
Distributors
Direct customers
Licensees
Total net sales
Fiscal Year Ended March 31,
2021
2020
2022
$
$
3,248.7 $
3,450.2
122.0
6,820.9 $
2,737.4 $
2,598.1
102.9
5,438.4 $
2,626.9
2,550.4
96.9
5,274.2
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 contract types listed in the table above
are included in the Company's semiconductor product segment with the exception of licenses, which is included in the
technology licensing segment.
Substantially all of the Company's net sales are recognized from contracts with customers.
Semiconductor Product Segment
For contracts related to the purchase of semiconductor products, the Company satisfies its performance obligation when
control of the ordered product transfers to the customer. The timing of the transfer of control depends on the agreed upon
shipping terms with the customer, but generally occurs upon shipment, which is when physical possession of the product has
been transferred and legal title of the product transfers to the customer. Payment is generally due within 30 days of the ship
date. Payment is generally collected after the Company satisfies its performance obligation. Also, the Company usually does
not record contract assets because the Company has an unconditional right to payment upon satisfaction of the performance
obligation, and therefore, a receivable is more commonly recorded than a contract asset. Refer to Note 9 for the opening and
closing balances of the Company's receivables.
The consideration received from customers is fixed, with the exception of consideration from certain distributors. Certain
of the Company's distributors are granted price concessions and return rights, which result in variable consideration. The
amount of revenue recognized for sales to these certain distributors is adjusted for estimates of the price concessions and
return rights that are expected to be claimed. These estimates are based on the recent history of price concessions and stock
rotations.
As of March 31, 2022, the Company had approximately $117.6 million of deferred revenue in the semiconductor product
segment, of which $73.2 million is included within accrued liabilities and the remaining is included within other long-term
liabilities on the balance sheet. As of March 31, 2021, the Company had an immaterial amount of deferred revenue in the
semiconductor product segment. Deferred revenue represents amounts that have been invoiced in advance which are
expected to be recognized as revenue in future periods.
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Many of the Company’s customer contracts have a duration of less than 12 months, however, a portion of the Company's
customer contracts in the semiconductor product segment contain firmly committed orders beyond 12 months at the time of
order. The transaction price the Company expects to receive for non-cancelable commitments in such contracts with
remaining performance obligations as of March 31, 2022 for orders with initial durations in excess of 12 months approximates
the Company’s fiscal 2022 net sales of which approximately 60.0% is expected to be recognized as net sales over the next 12
months. This is inherently uncertain because the transaction prices include variable consideration which is subject to change
based upon market conditions at the time of the sale and may not be indicative of net sales in future periods.
Technology Licensing Segment
The technology licensing segment includes sales and licensing of the Company's intellectual property. For contracts
related to the sale of the Company's intellectual property, the Company satisfies its performance obligation and recognizes
revenue when control of the intellectual property transfers to the customer. For contracts related to the licensing of the
Company's technology, the Company satisfies its performance obligation and recognizes revenue as usage of the license
occurs. The transaction price is fixed by the license agreement. Payment is collected after the Company satisfies its
performance obligation, and therefore no contract liabilities are recorded. The Company does not record contract assets due
to the fact that the Company has an unconditional right to payment upon satisfaction of the performance obligation, and
therefore, the Company recognizes a receivable instead of a contract asset. Refer to Note 9 for the opening and closing
balances of the Company's receivables.
Note 3. Geographic and 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 represents net sales and gross profit for each segment (in millions):
2022
Fiscal Year Ended March 31,
2021
2020
Net Sales
Gross Profit
Net Sales
Gross Profit
Net Sales
Semiconductor products
Technology licensing
Total
$
$
6,698.9 $
122.0
6,820.9 $
4,327.6 $
122.0
4,449.6 $
5,335.5 $
102.9
5,438.4 $
3,275.9 $
102.9
3,378.8 $
5,177.3 $
96.9
5,274.2 $
Gross Profit
3,145.2
96.9
3,242.1
The Company sells its products to distributors and OEMs in a broad range of market segments, performs on-going credit
evaluations of its customers and, as deemed necessary, may require collateral, primarily letters of credit. The Company's
operations outside the U.S. consist of product assembly and final test facilities in Thailand, and sales and support centers and
design centers in certain foreign countries. Domestic operations are responsible for the design, development and wafer
fabrication of products, as well as the coordination of production planning and shipping to meet worldwide customer
commitments. The Company's Thailand assembly and test facility is reimbursed in relation to value added with respect to
assembly and test operations and other functions performed, and certain foreign sales offices receive compensation for sales
within their territory. Accordingly, for financial statement purposes, it is not meaningful to segregate sales or operating
profits for the assembly and test and foreign sales office operations. Identifiable long-lived assets (consisting of property,
plant and equipment net of accumulated depreciation and ROU assets) by geographic area are as follows (in millions):
United States
Thailand
Various other countries
Total long-lived assets
March 31,
2022
2021
$
$
595.5 $
207.9
317.8
1,121.2 $
516.6
178.1
314.3
1,009.0
Sales to unaffiliated customers located outside the U.S., primarily in Asia and Europe, aggregated approximately 78%,
77% and 78% of consolidated net sales for fiscal 2022, fiscal 2021 and fiscal 2020, respectively. Sales to customers in Europe
represented approximately 20%, 19% and 22% of consolidated net sales for fiscal 2022, fiscal 2021 and fiscal 2020,
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respectively. Sales to customers in Asia represented approximately 55% of consolidated net sales for each of fiscal 2022 and
fiscal 2021 and approximately 52% of consolidated net sales for fiscal 2020. Within Asia, sales into China represented
approximately 22% of consolidated net sales for each of fiscal 2022 and fiscal 2021 and 21% of consolidated net sales for fiscal
2020. Sales into Taiwan represented approximately 15%, 16% and 15% of consolidated net sales for fiscal 2022, 2021 and
2020, respectively. Sales into any other individual foreign country did not exceed 10% of the Company's net sales for any of
the three years presented.
With the exception of Arrow Electronics, the Company's largest distributor, which accounted for 10% of net sales in fiscal
2020, no other distributor or end customer accounted for more than 10% of net sales in each of fiscal 2022, fiscal 2021 and
fiscal 2020.
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):
Net income
Basic weighted average common shares outstanding
Dilutive effect of stock options and RSUs
Dilutive effect of 2015 Senior Convertible Debt
Dilutive effect of 2017 Senior Convertible Debt
Dilutive effect of 2017 Junior Convertible Debt
Diluted weighted average common shares outstanding
Basic net income per common share
Diluted net income per common share
Fiscal Year Ended March 31,
2021
2020
2022
$
$
$
1,285.5 $
552.3
7.1
2.6
3.1
0.8
565.9
2.33 $
2.27 $
349.4 $
519.2
7.0
9.4
3.4
2.2
541.2
0.67 $
0.65 $
570.6
477.7
7.0
27.4
0.1
0.2
512.4
1.19
1.11
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. The Company's
Convertible Debt has no impact on diluted net income per common share unless the average price of the Company's common
stock exceeds the conversion price because the Company intends to settle the principal amount of the Convertible Debt in
cash upon conversion. Prior to conversion, the Company will include, in the diluted net income per common share
calculation, the effect of the additional shares that may be issued when the Company's common stock price exceeds the
conversion price using the treasury stock method. The following is the weighted average conversion price per share used in
calculating the dilutive effect (see Note 6 for details on the Convertible Debt):
2015 Senior Convertible Debt
2017 Senior Convertible Debt
2020 Senior Convertible Debt
2017 Junior Convertible Debt
Fiscal Year Ended March 31,
2021
2020
2022
$
$
$
$
30.10 $
46.93 $
93.34 $
46.10 $
30.45 $
47.48 $
93.43 $
46.65 $
30.90
48.19
—
47.34
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Table of Contents
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
consolidated statements of income (in millions):
Restructuring
Employee separation costs
Gain on sale of assets
Impairment charges
Contract exit costs
Wafer fabrication restructuring
Other
Legal contingencies
Contingent consideration revaluation
Total
Fiscal Year Ended March 31,
2021
2020
2022
$
$
0.6 $
(7.9)
—
5.0
21.1
(0.3)
12.5
(1.5)
29.5 $
(1.3) $
(5.8)
—
(1.6)
15.0
0.1
0.2
(4.9)
1.7 $
6.0
(1.5)
0.7
5.2
18.0
2.6
15.7
—
46.7
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 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 future amount of expected employee separation or exit costs that it will incur in connection with its
restructuring activities.
The Company incurred costs of $21.1 million, $15.0 million and $18.0 million associated with restructuring certain of its
wafer fabrication operations and other acquired operations during the fiscal years ended March 31, 2022, 2021 and 2020,
respectively. These wafer fabrication restructuring efforts were substantially completed as of March 31, 2022. The
Company's other restructuring activities during the fiscal years ended March 31, 2022, 2021 and 2020 were primarily related
to the Company's most recent business acquisitions, and resulted from workforce, property and other operating expense
rationalizations as well as combining product roadmaps and manufacturing operations. Additional costs will be incurred in
the future as additional synergies or operational efficiencies are identified in connection with the Microsemi transaction,
other previous acquisitions, or the restructuring of wafer fabrication operations. The Company is not able to estimate the
amount of other such future expenses at this time.
During the fiscal years ended March 31, 2022 and 2020, the Company incurred $12.5 million and $15.7 million,
respectively, of net charges related to legal settlements.
All of the Company's restructuring activities occurred in its semiconductor products segment. The Company incurred
$70.6 million in costs since the start of the fiscal year ended March 31, 2019 in connection with employee separation activities
and $3.9 million in connection with contract exit activities. The Company could incur future expenses as additional synergies
or operational efficiencies are identified. Beyond what is already accrued, the Company is not able to estimate future
expenses, if any, to be incurred.
The liability for restructuring and other exit costs of $16.0 million is included in accrued liabilities and other long-term
liabilities, on the Company's consolidated balance sheet as of March 31, 2022.
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Note 6. Debt
Debt obligations included in the consolidated balance sheets consisted of the following (in millions):
Coupon
Interest
Rate
Effective
Interest
Rate
Fair Value of
Liability
Component
at Issuance(1)
March 31,
2022
2021
3.922%
4.333%
2.670%
0.972%
0.983%
4.250%
Revolving Credit Facility
3.922% 2021 Notes(2)
4.333% 2023 Notes(2)
2.670% 2023 Notes(2)
0.972% 2024 Notes(2)
0.983% 2024 Notes(2)
4.250% 2025 Notes(2)
Total Senior Indebtedness(3)
Senior Subordinated Convertible Debt - Principal Outstanding
2015 Senior Convertible Debt
2017 Senior Convertible Debt
2020 Senior Convertible Debt
Junior Subordinated Convertible Debt - Principal Outstanding
2017 Junior Convertible Debt
Total Convertible Debt
1.625%
1.625%
0.125%
2.250%
Gross long-term debt including current maturities
Less: Debt discount(4)
Less: Debt issuance costs(5)
Net long-term debt including current maturities
Less: Current maturities(6)
Net long-term debt
4.5%
4.7%
2.8%
1.1%
1.1%
4.6%
5.9%
6.0%
5.1%
7.4%
$
$
$
$
30.4
104.2
555.5
5.4
$
1,399.1 $
—
1,000.0
1,000.0
1,400.0
1,000.0
1,200.0
6,999.1
34.4
128.1
665.5
10.1
838.1
7,837.2
(124.6)
(25.2)
7,687.4
—
7,687.4 $
$
2,346.6
1,000.0
1,000.0
1,000.0
1,400.0
—
1,200.0
7,946.6
141.4
333.3
665.5
122.6
1,262.8
9,209.4
(273.0)
(32.3)
8,904.1
(1,322.9)
7,581.2
(1) As each of the Convertible Debt instruments may be settled in cash upon conversion, for accounting purposes, they
were bifurcated into a liability component and an equity component. The amount allocated to the equity component is
the difference between the principal value of the instrument and the fair value of the liability component at issuance. As
of March 31, 2022, the amount allocated to the equity component is $11.3 million, $41.7 million, $110.0 million, and
$5.4 million for the 2015 Senior Convertible Debt, 2017 Senior Convertible Debt, 2020 Senior Convertible Debt, and 2017
Junior Convertible Debt, respectively. 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 3.922% 2021 Notes matured on June 1, 2021 and interest accrued at a rate of 3.922% per annum, payable semi-
annually in arrears on June 1 and December 1 of each year. The 4.333% 2023 Notes mature on June 1, 2023 and interest
accrues at a rate of 4.333% per annum, payable semi-annually in arrears on June 1 and December 1 of each year. The
2.670% 2023 Notes mature on September 1, 2023 and interest accrues at a rate of 2.670% per annum, payable semi-
annually in arrears on March 1 and September 1 of each year. The 0.972% 2024 Notes mature on February 15, 2024 and
interest accrues at a rate of 0.972% per annum, payable semi-annually in arrears on February 15 and August 15 of each
year. The 0.983% 2024 Notes mature on September 1, 2024, and interest is payable semi-annually in arrears on March 1
and September 1 of each year. The 4.250% 2025 Notes mature on September 1, 2025 and interest accrues at a rate of
4.250% per annum, payable semi-annually in arrears on March 1 and September 1 of each year.
(3) All outstanding Senior Notes and the Revolving Credit Facility are senior unsecured debt. Prior to the December 2021
amendment, these debt obligations, with the exception of the 4.250% 2025 Notes, were senior secured debt.
F-23
Table of Contents
(4) The unamortized discount consists of the following (in millions):
3.922% 2021 Notes
4.333% 2023 Notes
2.670% 2023 Notes
0.972% 2024 Notes
0.983% 2024 Notes
4.250% 2025 Notes
2015 Senior Convertible Debt
2017 Senior Convertible Debt
2020 Senior Convertible Debt
2017 Junior Convertible Debt
Total unamortized discount
(5) Debt issuance costs consist of the following (in millions):
Revolving Credit Facility
3.922% 2021 Notes
4.333% 2023 Notes
2.670% 2023 Notes
0.972% 2024 Notes
0.983% 2024 Notes
4.250% 2025 Notes
2015 Senior Convertible Debt
2017 Senior Convertible Debt
2020 Senior Convertible Debt
2017 Junior Convertible Debt
Total debt issuance costs
March 31,
2022
2021
— $
(1.3)
(1.3)
(2.5)
(2.2)
(10.2)
(3.7)
(23.4)
(75.3)
(4.7)
(124.6) $
March 31,
2022
2021
(10.6) $
—
(2.9)
(0.8)
(1.3)
(1.4)
(1.3)
(0.1)
(0.6)
(6.2)
—
(25.2) $
(0.3)
(2.4)
(2.3)
(3.8)
—
(12.8)
(20.1)
(71.3)
(101.6)
(58.4)
(273.0)
(10.0)
(0.7)
(5.3)
(1.3)
(2.0)
—
(1.7)
(0.7)
(1.8)
(8.3)
(0.5)
(32.3)
$
$
$
$
(6) As of March 31, 2022, the liability component of the 2015 Senior Convertible Debt, the 2017 Senior Convertible Debt
and the 2017 Junior Convertible Debt 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, 2021, current maturities consisted of the liability component of the 2017 Senior Convertible Debt and the
2017 Junior Convertible Debt, and the 3.922% 2021 Notes which matured on June 1, 2021.
Expected maturities relating to the Company’s debt obligations as of March 31, 2022 are as follows (in millions):
Fiscal year ending March 31,
Amount
2023
2024
2025
2026
2027
Thereafter
Total
$
$
—
3,400.0
1,700.0
1,200.0
1,527.1
10.1
7,837.2
Ranking of Convertible Debt - Each series of Convertible Debt is an unsecured obligation which is subordinated in right of
payment to the amounts outstanding under the Company's Senior Indebtedness. The 2017 Junior Convertible Debt is
expressly subordinated in right of payment to any existing and future senior debt of the Company (including the Senior
Indebtedness and the Senior Subordinated Convertible Debt) and is structurally subordinated in right of payment to the
liabilities of the Company's subsidiaries. The Senior Subordinated Convertible Debt is subordinated to the Senior
Indebtedness; ranks senior to the Company's indebtedness that is expressly subordinated in right of payment to it, including
F-24
Table of Contents
the 2017 Junior Convertible Debt; ranks equal in right of payment to any of the Company's unsubordinated indebtedness that
does not provide that it is senior to the Senior Subordinated Convertible Debt; ranks junior in right of payment to any of the
Company's secured and unsecured unsubordinated indebtedness to the extent of the value of the assets securing such
indebtedness; and is structurally subordinated to all indebtedness and other liabilities of the Company's subsidiaries.
Summary of Conversion Features - Each series of Convertible Debt is convertible, subject to certain conditions, into cash,
shares of the Company's common stock or a combination thereof, at the Company's election, at specified conversion rates
(see table below), adjusted for certain events including the declaration of cash dividends. Except during the three-month
period immediately preceding the maturity date of the applicable series of Convertible Debt, each series of Convertible Debt
is convertible only upon the occurrence of (i) such time as the closing price of the Company's common stock exceeds the
applicable conversion price (see table below) by 130% for 20 days (whether or not consecutive) during a period of 30
consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter or (ii) during the 5
business day period after any 10 consecutive trading day period, or the measurement period, in which the trading price per
$1,000 principal amount of notes of a given series for each trading day of the measurement period was less than 98% of the
product of the last reported sale price of the Company's common stock and the applicable conversion rate on each such
trading day or (iii) upon the occurrence of certain corporate events specified in the indenture of such series of Convertible
Debt. In addition, for each series, with the exception of the 2020 Senior Convertible Debt, if at the time of conversion the
applicable price of the Company's common stock exceeds the applicable conversion price at such time, the applicable
conversion rate will be increased by up to an additional maximum incremental shares rate, as determined pursuant to a
formula specified in the indenture for the applicable series of Convertible Debt, and as adjusted for cash dividends paid since
the issuance of such series of Convertible Debt. However, in no event will the applicable conversion rate exceed the
applicable maximum conversion rate specified in the indenture for the applicable series of Convertible Debt (see table below).
On April 1, 2022, the Company irrevocably elected cash settlement for the principal amount of its Convertible Debt. See Note
1 for further information.
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 March 31, 2022
2015 Senior Convertible Debt(1)
2017 Senior Convertible Debt(1)
2020 Senior Convertible Debt(1)
2017 Junior Convertible Debt(1)
Conversion Rate
Approximate
Conversion Price
29.90
46.63
93.20
45.81
Incremental Share
Factor
Maximum
Conversion Rate
16.7229
10.7237
—
10.9154
46.8241
30.5627
15.0208
30.5627
33.4459 $
21.4475 $
10.7292 $
21.8305 $
(1) As of March 31, 2022, the 2020 Senior Convertible Debt was not convertible. As of March 31, 2022, the holders of
each of the 2015 Senior Convertible Debt, 2017 Senior Convertible Debt, and 2017 Junior Convertible Debt have the right
to convert their notes between April 1, 2022 and June 30, 2022 because the Company's common stock price has
exceeded the applicable conversion price for such series by 130% for the specified period of time during the quarter
ended March 31, 2022. As of March 31, 2022, the adjusted conversion rate for the 2015 Senior Convertible Debt, 2017
Senior Convertible Debt, and 2017 Junior Convertible Debt would be increased to 43.5146 shares of common stock,
25.5170 shares of common stock, and 26.0916 shares of common stock, respectively, per $1,000 principal amount of
notes based on the closing price of $75.14 per share of common stock to include an additional maximum incremental
share rate per the terms of the applicable indenture. As of March 31, 2022, each of the 2015 Senior Convertible Debt,
2017 Senior Convertible Debt, and 2017 Junior Convertible Debt had a conversion value in excess of par of $78.2 million,
$117.5 million, and $9.8 million, respectively.
With the exception of the 2020 Senior Convertible Debt, which may be redeemed by the Company on or after November
20, 2022, the Company may not redeem any series of Convertible Debt prior to the relevant maturity date and no sinking fund
is provided for any series of Convertible Debt. Under the terms of the applicable indenture, the Company may repurchase any
series of Convertible Debt in the open market through privately negotiated exchange offers. Upon the occurrence of a
fundamental change, as defined in the applicable indenture of such series of Convertible Debt, holders of such series may
require the Company to purchase all or a portion of their Convertible Debt for cash at a price equal to 100% of the principal
amount plus any accrued and unpaid interest.
F-25
Table of Contents
Interest expense consists of the following (in millions):
Debt issuance cost amortization
Debt discount amortization
Interest expense
Total interest expense on Senior Indebtedness
Debt issuance cost amortization
Debt discount amortization
Coupon interest expense
Total interest expense on Convertible Debt
Other interest expense
Total interest expense
Fiscal Year Ended March 31,
2021
2020
2022
$
$
9.1 $
7.0
187.1
203.2
2.4
37.9
8.1
48.4
5.4
257.0 $
14.7 $
6.6
227.4
248.7
2.4
64.5
37.6
104.5
3.7
356.9 $
13.2
2.9
277.6
293.7
3.9
118.8
77.2
199.9
3.7
497.3
The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is 2.9
years, 4.9 years, 2.6 years, and 14.9 years for the 2015 Senior Convertible Debt, 2017 Senior Convertible Debt, 2020 Senior
Convertible Debt, and 2017 Junior Convertible Debt, respectively.
F-26
Table of Contents
The Company's debt settlement transactions consists of the following (in millions)(1):
Consideration
Principal
Amount
Settled
Cash
Paid
Value of
Shares
Issued
Debt
Issued
Fair
Value
Settled(2)
Equity
Component(2)
Total
Net Loss on
Inducements
and
Settlements
64.9 $ 64.9 $ 74.6 $ — $ 139.5 $
60.0 $
75.5 $
11.8
$
$
February 2022(3)
2017 Senior Convertible Debt
December 2021
2015 Senior Convertible
Debt(3)
2017 Senior Convertible
Debt(3)
$
2017 Junior Convertible Debt(3) $
Revolving Credit Facility(4)
$
August 2021(5)
2015 Senior Convertible Debt
2017 Senior Convertible Debt
2017 Junior Convertible Debt
June 2021(6)
3.922% 2021 Notes
February 2021(5)
2015 Senior Convertible Debt
2017 Senior Convertible Debt
2017 Junior Convertible Debt
December 2020(7)
2015 Senior Convertible Debt
2017 Senior Convertible Debt
2017 Junior Convertible Debt
Term Loan Facility
August 2020(5)
2015 Senior Convertible Debt
2017 Senior Convertible Debt
June 2020(8)
2015 Senior Convertible Debt
2017 Senior Convertible Debt
Term Loan Facility
Bridge Loan Facility
March 2020(9)
2015 Senior Convertible Debt
36.6 $ 36.6 $ 103.9 $ — $ 140.5 $
36.2 $
104.2 $
39.7 $ 39.7 $ 61.4 $ — $ 101.1 $
19.9 $ 19.9 $ 31.6 $ — $ 51.5 $
— $
— $ — $ — $
— $
37.4 $
15.7 $
— $
70.4 $ 70.4 $ 159.9 $ — $ 230.3 $
71.0 $
$
$ 100.7 $ 100.7 $ 123.5 $ — $ 224.2 $ 100.0 $
87.7 $
$
92.5 $ 92.5 $ 115.8 $ — $ 208.3 $
$ 1,000.0 $ 1,000.0 $ — $ — $ 1,000.0 $
— $
— $
0.3
81.0 $ 81.0 $ 206.5 $ — $ 287.5 $
79.2 $
$
$ 122.2 $ 122.2 $ 166.4 $ — $ 288.6 $ 115.9 $
$ 156.0 $ 156.0 $ 217.9 $ — $ 373.9 $ 129.8 $
90.0 $ 48.5 $ 221.0 $ — $ 269.5 $
79.4 $
$
$ 588.8 $ 155.4 $ 408.7 $ 601.5 $ 1,165.6 $ 486.7 $
$ 407.7 $ 225.0 $ 530.4 $ 64.0 $ 819.4 $ 246.3 $
— $
$ 1,705.7 $ 1,705.7 $ — $ — $ 1,705.7 $
$ 414.3 $ 414.3 $ 547.6 $ — $ 961.9 $ 351.7 $
$ 381.8 $ 381.8 $ 221.1 $ — $ 602.9 $ 299.0 $
$ 383.3 $ 383.3 $ 405.1 $ — $ 788.4 $ 314.4 $
$ 643.9 $ 643.9 $ 246.4 $ — $ 890.3 $ 481.0 $
— $
$
17.8 $ 17.8 $ — $ — $ 17.8 $
— $
$ 615.0 $ 615.0 $ — $ — $ 615.0 $
$ 615.0 $ 615.0 $ 351.8 $ — $ 966.8 $ 460.4 $
4.1
6.3
5.1
0.6
10.6
31.5
43.1
63.0 $
35.9 $
— $
158.9 $
113.0 $
116.6 $
208.1 $
168.2 $
243.9 $
184.5 $
655.3 $
547.1 $
— $
592.3 $
292.2 $
464.4 $
390.9 $
— $
— $
10.7
25.5
49.4
9.4
57.0
62.8
12.9
25.0
20.1
7.8
13.7
—
5.3
461.1 $
3.4
(1) The Company settled portions of its convertible debt in privately negotiated transactions that are accounted for as
induced conversions.
(2) The total consideration for the convertible debt settlements was allocated to the liability and equity components using
the equivalent rate that reflected the borrowing rate for a similar non-convertible debt instrument prior to the
settlement.
(3) The Company used cash generated from operations to finance a portion of such settlement.
(4) In connection with the amendment and restatement of its Credit Agreement, the Company recognized a loss on
settlement of debt of $0.6 million.
(5) The Company used borrowings under its Revolving Credit Facility to finance a portion of such settlement.
(6) The Company used proceeds from the issuance of the 0.983% 2024 Notes to finance a portion of such settlement.
(7) The Company used proceeds from the issuance of $665.5 million principal amount of 2020 Senior Convertible Debt and
used borrowings under its Revolving Credit Facility to finance a portion of such settlement. The Company also issued
$1.40 billion aggregate principal amount of 0.972% 2024 Notes and used the proceeds in addition to $213.0 million in
borrowings under its Revolving Credit Facility, and cash on hand to repay all amounts outstanding under its Term Loan
Facility.
F-27
Table of Contents
(8) The Company used a portion of the proceeds from the issuance of the 2.670% 2023 Notes and the 4.250% 2025 Notes
to (i) finance a portion of such settlement, and (ii) repay a portion of the amount outstanding under the Company's
existing Revolving Credit Facility as well as for general corporate purposes.
(9) The Company entered into a Bridge Loan Facility (which has since been repaid in full), for an aggregate principal
amount of $615.0 million to finance a portion of such settlement.
In December 2020, in connection with the issuance of the 2020 Senior Convertible Debt, the Company incurred issuance
costs of $10.8 million, of which $9.0 million was recorded as debt issuance costs and will be amortized using the effective
interest method over the term of the debt. The remainder of $1.8 million in fees was recorded to equity. The debt discount
on the 2020 Senior Convertible Debt was the difference between the par value and the fair value of the debt resulting in a
debt discount of $110.0 million which will be amortized to interest expense using the effective interest method over the term
of the debt. Interest on the 2020 Senior Convertible Debt is payable semi-annually in arrears on May 15 and November 15 of
each year. In connection with the issuance of the 2020 Senior Convertible Debt, the Company entered into capped call option
transactions with several financial institutions at a cost of $35.8 million. The capped call options cover, subject to anti-dilution
adjustments, the number of shares of the Company’s common stock initially underlying the 2020 Senior Convertible Debt.
Upon conversion of the 2020 Senior Convertible Debt, the Company may exercise the capped call options subject to a cap
strike price of $116.79 per share which would reduce the potential dilution to the Company’s common stock or offset any
cash payments the Company is required to make in excess of the principal amount of converted notes. Upon conversion of
the 2020 Senior Convertible Debt, there will be no economic dilution from the notes until the average market price of the
Company’s common stock exceeds the cap price of $116.79 per share as the exercise of the capped call options will offset any
dilution from the 2020 Senior Convertible Debt from the conversion price up to the cap price. As these transactions meet
certain accounting criteria, the capped call options are recorded as a reduction of stockholders' equity and are not accounted
for as derivatives.
Senior Notes
The Company may, at its option, redeem some or all of the applicable series of Senior Notes in the manner set forth in
the indenture governing the applicable series of Senior Notes. If the Company experiences a specified change of control
triggering event set forth in the indenture governing the applicable series of Senior Notes, the Company must offer to
repurchase each of the notes of such series at a price equal to 101% of the principal amount of each note of such series
repurchased, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.
The indenture governing each series of Senior Notes contains certain customary affirmative and negative covenants,
including covenants that limit or restrict the Company and its subsidiaries' ability to, among other things, create or incur
certain liens, and enter into sale and leaseback transactions, and consolidate with or merge with or into, or convey, transfer or
lease all or substantially all of its assets, to another person. These covenants are subject to a number of limitations and
exceptions set forth in the indenture governing the applicable series of Senior Notes.
Each series of Senior Notes is guaranteed by certain of the Company's subsidiaries that have also guaranteed the
obligations under the Credit Agreement and under the Company’s existing Senior Indebtedness. In the future, each subsidiary
of the Company that is a guarantor or other obligor of the Credit Agreement is required to guarantee each series of Senior
Notes.
Senior Credit Facilities
In December 2021, the Company amended and restated the Company's Credit Agreement in its entirety. In connection
therewith, the collateral securing the Credit Agreement prior to such amendment and restatement was released. The
amended and restated Credit Agreement provides for an unsecured revolving loan facility up to $2.75 billion that terminates
on December 16, 2026. The Credit Agreement also permits the Company, subject to certain conditions, to add one or more
incremental term loan facilities or increase the revolving loan commitments up to $750.0 million.
The revolving loans bear interest, at the Company’s option, at the base rate plus a spread of 0.125% to 0.50%, an
adjusted daily simple SOFR rate (or SONIA rate in the case of loans denominated in pounds sterling) plus a spread of 1.125%
to 1.50%, or an adjusted term SOFR or adjusted EURIBOR rate (based on one, three or six-month interest periods) plus a
spread of 1.125% to 1.50%, in each case, with such spread being determined based on the credit ratings for certain of the
Company’s senior, unsecured debt. The base rate means the highest of the prime rate, the federal funds rate plus a margin
equal to 0.50% and the adjusted term SOFR rate for a 1-month interest period plus a margin equal to 1.00%. Interest is due
and payable in arrears quarterly for loans bearing interest at the base rate and at the end of an interest period (or at each
F-28
Table of Contents
three-month interval in the case of loans with interest periods greater than three months) in the case of loans bearing interest
at the adjusted term SOFR or adjusted EURIBOR rates.
The Company's obligations under the Credit Agreement are guaranteed by certain of its subsidiaries meeting materiality
thresholds. The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or
restrict the Company and its subsidiaries' ability to, among other things, incur subsidiary indebtedness, grant liens, merge or
consolidate, dispose of substantially all assets, make investments, make acquisitions, enter into certain transactions with
affiliates, pay dividends or make distributions, repurchase stock, enter into restrictive agreements, in each case subject to
customary exceptions for a credit facility of this size and type. The Company is also required to maintain compliance with a
total leverage ratio and an interest coverage ratio, all measured quarterly and calculated on a consolidated basis. As of
March 31, 2022, the Company was in compliance with these financial covenants.
Note 7. Fair Value of Financial Instruments
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants. As such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering
such assumptions, the Company utilizes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair
value as follows:
Level 1-
Level 2-
Level 3-
Observable inputs such as quoted prices in active markets;
Inputs, other than the quoted prices in active markets, that are observable either directly or
indirectly; and
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 investments materially approximated fair value at March 31, 2022
based upon unobservable inputs. The fair values of these investments have been determined as Level 3 fair value
measurements. The carrying amount of accounts receivable, accounts payable and accrued liabilities approximates fair value
due to the short-term maturity of the amounts and are considered Level 2 in the fair value hierarchy.
The fair value of the Company's Revolving Credit Facility is estimated using discounted cash flow analysis, based on the
Company's current incremental borrowing rates for similar types of borrowing arrangements. Based on the borrowing rates
currently available to the Company for bank loans with similar terms and average maturities, the fair value of the Company's
Revolving Credit Facility at March 31, 2022 approximated the carrying value excluding debt discounts and debt issuance costs
and are considered Level 2 in the fair value hierarchy. The Company measures the fair value of its Convertible Debt and
Senior Notes for disclosure purposes. These fair values are based on observable market prices for this debt, which is traded in
less active markets and are therefore classified as a Level 2 fair value measurement.
F-29
Table of Contents
The following table shows the carrying amounts and fair values of the Company's debt obligations (in millions):
Revolving Credit Facility
3.922% 2021 Notes
4.333% 2023 Notes
2.670% 2023 Notes
0.972% 2024 Notes
0.983% 2024 Notes
4.250% 2025 Notes
2015 Senior Convertible Debt
2017 Senior Convertible Debt
2020 Senior Convertible Debt
2017 Junior Convertible Debt
Total
March 31,
2022
2021
Carrying
Amount(1)
Fair Value
Carrying
Amount(1)
Fair Value
$
$
1,388.5 $
—
995.8
997.9
1,396.2
996.4
1,188.5
30.6
104.1
584.0
5.4
7,687.4 $
1,399.1 $
—
1,017.1
997.7
1,343.9
946.3
1,213.6
115.4
285.6
765.5
21.7
8,105.9 $
2,336.6 $
999.0
992.3
996.4
1,394.2
—
1,185.5
120.6
260.2
555.6
63.7
8,904.1 $
2,346.6
1,004.3
1,022.4
1,040.8
1,394.0
—
1,252.6
485.4
731.4
778.3
272.9
10,328.7
(1) The carrying amounts presented are net of debt discounts and debt issuance costs (see Note 6 for further information).
Note 8. Intangible Assets and Goodwill
Intangible assets consist of the following (in millions):
Core and developed technology
Customer-related
In-process research and development
Software licenses
Distribution rights and other
Total
Core and developed technology
Customer-related
In-process research and development
Software licenses
Distribution rights and other
Total
Gross Amount
March 31, 2022
Accumulated
Amortization
Net Amount
7,390.2 $
200.3
6.4
191.2
0.4
7,788.5 $
(3,571.5) $
(112.4)
—
(61.2)
(0.3)
(3,745.4) $
3,818.7
87.9
6.4
130.0
0.1
4,043.1
Gross Amount
March 31, 2021
Accumulated
Amortization
Net Amount
7,371.3 $
835.2
7.7
124.6
5.6
8,344.4 $
(2,771.0) $
(702.6)
—
(70.9)
(5.1)
(3,549.6) $
4,600.3
132.6
7.7
53.7
0.5
4,794.8
$
$
$
$
The following is an expected amortization schedule for the intangible assets for fiscal 2023 through fiscal 2027, absent
any future acquisitions or impairment charges (in millions):
2023
2024
2025
2026
2027
Fiscal Year Ending March 31,
F-30
Amortization
Expense
$
$
$
$
$
746.1
667.1
533.1
462.6
377.2
Table of Contents
The Company amortizes intangible assets over their expected useful lives, which range between 1 and 15 years.
Amortization expense attributed to intangible assets are assigned to cost of sales and operating expenses as follows (in
millions):
Amortization expense charged to cost of sales
Amortization expense charged to operating expense
Total amortization expense
$
$
12.4 $
922.0
934.4 $
9.4 $
983.3
992.7 $
8.9
1,037.8
1,046.7
Fiscal Year Ended March 31,
2021
2020
2022
The Company recognized impairment charges of $3.0 million in fiscal 2022 and $2.2 million in fiscal 2020. There were no
impairment charges in fiscal 2021.
Goodwill activity by segment was as follows (in millions):
Balance at March 31, 2020
Additions
Balance at March 31, 2021
Additions
Balance at March 31, 2022
Semiconductor
Products
Reporting Unit
Technology
Licensing
Reporting Unit
$
$
$
6,645.6 $
5.8
6,651.4 $
3.0
6,654.4 $
19.2
—
19.2
—
19.2
At March 31, 2022, 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 March 31, 2022, the Company has never recorded an
impairment charge.
Note 9. Other Financial Statement Details
Accounts Receivable
Accounts receivable consists of the following (in millions):
Trade accounts receivable
Other
Total accounts receivable, gross
Less: allowance for expected credit losses
Total accounts receivable, net
March 31,
2022
2021
1,069.5 $
9.3
1,078.8
6.2
1,072.6 $
991.6
11.3
1,002.9
5.2
997.7
$
$
The Company sells certain of its trade accounts receivable on a non-recourse basis to a third-party financial institution
pursuant to a factoring arrangement. The Company accounts for these transactions as sales of receivables and presents cash
proceeds as cash provided by operating activities in the consolidated statements of cash flows. Total trade accounts
receivable sold under the factoring arrangement were $485.5 million and $141.9 million during fiscal 2022 and fiscal 2021.
Factoring fees for the sales of receivables were recorded in other income (loss), net and were not material for any of the
periods presented. After the sale of its trade accounts receivable, the Company will collect payment from the customer and
remit it to the third-party financial institution. The amount of trade accounts receivable sold for which cash has not been
collected from the customer is immaterial as of March 31, 2022 and 2021.
F-31
Table of Contents
Inventories
The components of inventories consist of the following (in millions):
Raw materials
Work in process
Finished goods
Total inventories
Property, Plant and Equipment
Property, plant and equipment consists of the following (in millions):
Land
Building and building improvements
Machinery and equipment
Projects in process
Total property, plant and equipment, gross
Less: accumulated depreciation and amortization
Total property, plant and equipment, net
March 31,
2022
2021
$
$
163.0 $
482.8
208.6
854.4 $
115.7
412.8
136.5
665.0
March 31,
2022
2021
$
88.2 $
674.4
2,471.6
182.4
3,416.6
2,448.7
$
967.9 $
83.2
659.7
2,251.1
102.7
3,096.7
2,242.0
854.7
Depreciation expense attributed to property, plant and equipment was $209.1 million, $160.6 million and $168.9 million
for the fiscal years ended March 31, 2022, 2021 and 2020, respectively. The increase in depreciation expense in the fiscal year
ended March 31, 2022 includes the impact of current production levels, manufacturing expansion activities and moving and
repurposing floor space and equipment.
The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances
indicate that the related carrying amount of such assets may not be recoverable. For the three years ended March 31, 2022,
the Company’s evaluation of its property, plant and equipment did not result in any material impairments.
Accrued Liabilities
Accrued liabilities consists of the following (in millions):
Accrued compensation and benefits
Income taxes payable
Sales related reserves
Current portion of lease liabilities
Accrued expenses and other liabilities
Total accrued liabilities
Note 10. Leases
March 31,
2022
2021
$
$
213.7 $
121.5
408.1
33.8
277.2
1,054.3 $
166.7
43.4
350.7
39.8
193.7
794.3
Operating lease arrangements are comprised primarily of real estate and equipment agreements for which
the ROU assets are included in other assets and the corresponding lease liabilities, depending on their maturity, are included
in accrued liabilities or other long-term liabilities in the consolidated balance sheets. There are certain immaterial finance
leases recorded in the consolidated balance sheets. The Company has elected to account for the lease and non-
lease components as a single lease component.
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The Company's leases are included as a component of the following balance sheet lines (in millions):
Other assets:
ROU assets
Total lease assets
Accrued liabilities:
Current portion of lease liabilities
Other long-term liabilities:
Non-current portion of lease liabilities
Total lease liabilities
March 31,
2022
2021
$
$
$
$
153.3 $
153.3 $
33.8 $
128.9
162.7 $
154.3
154.3
39.8
125.4
165.2
The following table presents the maturities of lease liabilities as of March 31, 2022 (in millions):
Fiscal year ending March 31,
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less: Imputed lease interests
Total lease liabilities
Operating Leases
41.0
$
31.1
26.5
21.1
19.0
47.6
186.3
23.6
162.7
$
The Company's weighted-average remaining lease-term and weighted-average discount rate at March 31, 2022 are as
follows:
Weighted average remaining lease-term (years)
Weighted average discount rate
6.62
4.23%
The details of the Company's total lease expense are as follows (in millions):
Operating lease expense
$
58.4 $
63.1 $
70.4
Fiscal Year Ended March 31,
2021
2022
2020
Note 11. Commitments and Contingencies
Purchase Obligations
The Company has agreements for the purchase of property, plant and equipment and other goods and services including
outstanding purchase commitments with the Company's wafer foundries. Commitments for construction or purchases of
property, plant and equipment totaled $395.0 million as of March 31, 2022, all of which will be due within the next year.
Other purchase obligations and commitments totaled approximately $230.0 million, which includes outstanding purchase
commitments with the Company's wafer foundries and other suppliers, for delivery in the fiscal year ended March 31, 2023.
Indemnification Contingencies
The Company's technology license agreements generally include an indemnification clause that indemnifies the licensee
against liability and damages (including legal defense costs) arising from any claims of patent, copyright, trademark or trade
secret infringement by the Company's proprietary technology. The terms of these indemnification provisions approximate
the terms of the outgoing technology license agreements, which are typically perpetual unless terminated by either party for
breach. The possible amount of future payments the Company could be required to make based on agreements that specify
indemnification limits, if such indemnifications were required on all of these agreements, is approximately $178.5 million.
There are some licensing agreements in place that do not specify indemnification limits. As of March 31, 2022, the Company
had not recorded any liabilities related to these indemnification obligations and the Company believes that any amounts that
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it may be required to pay under these agreements in the future will not have a material adverse effect on its financial
position, cash flows or results of operations.
Warranty Costs and Product Liabilities
The Company accrues for known product-related claims if a loss is probable and can be reasonably estimated. During the
periods presented, there have been no material accruals or payments regarding product warranty or product liability.
Historically, the Company has experienced a low rate of payments on product claims. Although the Company cannot predict
the likelihood or amount of any future claims, the Company does not believe these claims will have a material adverse effect
on its financial condition, results of operations or liquidity.
Legal Matters
In the ordinary course of the Company's business, it is exposed to various liabilities as a result of contracts, product
liability, customer claims, governmental investigations and other matters. Additionally, the Company is involved in a limited
number of legal actions, both as plaintiff and defendant. Consequently, the Company could incur uninsured liability in any of
those actions. The Company also periodically receives notifications from various third parties alleging infringement of patents
or other intellectual property rights, or from customers requesting reimbursement for various costs. With respect to pending
legal actions to which the Company is a party and other claims, although the outcomes are generally not determinable, the
Company believes that the ultimate resolution of these matters will not have a material adverse effect on its financial
position, cash flows or results of operations. Litigation, governmental investigations and disputes relating to the
semiconductor industry are not uncommon, and the Company is, from time to time, subject to such litigation, governmental
investigations and disputes. As a result, no assurances can be given with respect to the extent or outcome of any such
litigation, governmental investigations or disputes in the future.
In connection with its acquisition of Microsemi, which closed on May 29, 2018, the Company became involved with the
following legal matters:
Federal Shareholder Class Action Litigation. Beginning on September 14, 2018, the Company and certain of its officers
were named in two putative shareholder class action lawsuits filed in the United States District Court for the District of
Arizona, captioned Jackson v. Microchip Technology Inc., et al., Case No. 2:18-cv-02914-ROS and Maknissian v. Microchip
Technology Inc., et al., Case No. 2:18-cv-02924-JJT. On November 13, 2018, the Maknissian complaint was voluntarily
dismissed. On December 11, 2018, the Court issued an order appointing the lead plaintiff in the Jackson matter. An amended
complaint was filed on February 22, 2019. The complaint is allegedly brought on behalf of a putative class of purchasers of
Microchip common stock between March 2, 2018 and August 9, 2018. The complaint asserts claims for alleged violations of
the federal securities laws and alleges that the defendants issued materially false and misleading statements and failed to
disclose material adverse facts about the Company’s business, operations, and prospects during the putative class period.
The complaint seeks, among other things, compensatory damages and attorneys’ fees and costs on behalf of the putative
class. Defendants filed a motion to dismiss the amended complaint on April 1, 2019, which motion was granted in part and
denied in part on March 11, 2020. Plaintiff filed a motion for class certification, which was granted by the Court. Discovery is
ongoing. The Company and its officers have reached an agreement to settle the litigation. On March 11, 2022, the Court
entered an order granting preliminary approval of the proposed settlement. The settlement remains subject to final court
approval, and a settlement hearing is scheduled for June 22, 2022.
Derivative Litigation. On January 22, 2019, a shareholder derivative lawsuit was filed against certain of the Company’s
officers and directors in the Superior Court of Arizona for Maricopa County, captioned Reid v. Sanghi, et al., Case No.
CV2019-002389. The Company is named as a nominal defendant. The complaint generally alleges that defendants breached
their fiduciary duties by, among other things, purportedly failing to conduct adequate due diligence regarding Microsemi prior
to its acquisition, misrepresenting the Company’s business prospects and health, and engaging in improper practices, and
further alleges that certain defendants engaged in insider trading. The complaint asserts causes of action for breach of
fiduciary duty, waste, and unjust enrichment and seeks unspecified monetary damages, corporate governance reforms,
equitable and/or injunctive relief, restitution, and attorneys’ fees and costs. An amended complaint was filed on February 28,
2020, and a second amended complaint was filed on July 27, 2020. The Company’s Audit Committee filed a motion to
dismiss. On April 4, 2022, the Court entered an order denying the Audit Committee’s motion to dismiss. The case is
proceeding. On August 5, 2021, a second shareholder derivative lawsuit was filed against certain of the Company’s officers
and directors in the Superior Court of Arizona for Maricopa County, captioned Dutrisac v. Sanghi, et al., Case No.
CV2021-012459. The Company is named as a nominal defendant. The complaint asserts substantially the same allegations as
those in the Reid case. The complaint asserts causes of action for breaches of fiduciary duty, insider selling, unjust
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enrichment, waste of corporate assets, indemnification, and contribution and seeks unspecified monetary damages, equitable
and/or injunctive relief, disgorgement, corporate governance reforms, and attorneys’ fees and costs. The Company's Audit
Committee filed a motion to dismiss. On April 7, 2022, the Court entered an order denying the Audit Committee’s motion to
dismiss. The case is proceeding.
Governmental Investigations. The SEC informed the Company in October 2018 that it was investigating matters relating
to the Company's acquisition of Microsemi. The Company believes that the investigation relates to distribution channel issues
and business practices at Microsemi and the allegations made by the plaintiffs in the Peterson v. Sanghi lawsuit which was
described in the Company’s prior filings on Form 10-Q and Form 10-K and which lawsuit has been settled and dismissed. The
Department of Justice, which was also investigating those matters, informed the Company in February 2021 that its
investigation is closed and that no further action will be taken.
As a result of its acquisition of Atmel, which closed April 4, 2016, the Company became involved with the following legal
matters:
Continental Claim ICC Arbitration. On December 29, 2016, Continental Automotive GmbH ("Continental") filed a Request
for Arbitration with the ICC, naming as respondents the Company's subsidiaries Atmel Corporation, Atmel SARL, Atmel Global
Sales Ltd., and Atmel Automotive GmbH (collectively, "Atmel"). The Request alleges that a quality issue affecting Continental
airbag control units in certain recalled vehicles stems from allegedly defective Atmel application specific integrated circuits
("ASICs"). Continental seeks to recover from Atmel all current and future costs and damages incurred as a result of the
vehicle manufacturers’ airbag control unit-related recalls, with current costs and damages alleged to be about $82.0 million to
date. The Company's Atmel subsidiaries intend to defend this action vigorously.
Southern District of New York Action by LFoundry Rousset ("LFR") and LFR Employees. On March 4, 2014, LFR and Jean-
Yves Guerrini, individually and on behalf of a putative class of LFR employees, filed an action in the United States District Court
for the Southern District of New York (the "District Court") against the Company's Atmel subsidiary, French subsidiary, Atmel
Rousset S.A.S. ("Atmel Rousset"), and LFoundry GmbH ("LF"), LFR's German parent. The case purports to relate to Atmel
Rousset's June 2010 sale of its wafer manufacturing facility in Rousset, France to LF, and LFR's subsequent insolvency, and
later liquidation, more than three years later. The District Court dismissed the case on August 21, 2015, and the United States
Court of Appeals for the Second Circuit affirmed the dismissal on June 27, 2016. On July 25, 2016, the plaintiffs filed a notice
of appeal from the District Court's June 27, 2016 denial of their motion for relief from the dismissal judgment. On May 19,
2017, the United States Court of Appeals for the Second Circuit affirmed the June 27, 2016 order dismissing the case.
Individual Labor Actions by former LFR Employees. In June 2010, Atmel Rousset sold its wafer manufacturing business in
Rousset, France to LFoundry GmbH ("LF"), the German parent of LFoundry Rousset ("LFR"). LFR then leased the Atmel
Rousset facility to conduct the manufacture of wafers. More than three years later, LFR became insolvent and later
liquidated. In the wake of LFR's insolvency and liquidation, over 500 former employees of LFR filed individual labor actions
against Atmel Rousset in a French labor court, and in 2019 a French labor court dismissed all of the employees’ claims against
Atmel Rousset. Plaintiffs have filed appeals requesting reconsideration of the earlier dismissals. Furthermore, these same
claims have been filed by this same group of employees in a regional court in France against Microchip Technology
Incorporated and Atmel Corporation. The Company, and the other defendant entities, believe that each of these actions is
entirely devoid of merit, and, further, that any assertion by any of the Claimants of a co-employment relationship with any of
these entities is based substantially on the same specious arguments that the Paris Commercial Court summarily rejected in
2014 in related proceedings. The defendant entities therefore intend to defend vigorously against each of these claims.
Additionally, complaints have been filed in a regional court in France on behalf of the same group of employees against
Microchip Technology Rousset, Atmel Switzerland Sarl, Atmel Corporation and Microchip Technology Incorporated alleging
that the sale of the Atmel Rousset production unit to LF was fraudulent and should be voided. These claims are specious and
the defendant entities therefore intend to defend vigorously against these claims.
The Company accrues for claims and contingencies when losses become probable and reasonably estimable. As of the
end of each applicable reporting period, the Company reviews each of its matters and, where it is probable that a liability has
been or will be incurred, the Company accrues for all probable and reasonably estimable losses. Where the Company can
reasonably estimate a range of losses it may incur regarding such a matter, the Company records an accrual for the amount
within the range that constitutes its best estimate. If the Company can reasonably estimate a range but no amount within the
range appears to be a better estimate than any other, the Company uses the amount that is the low end of such range. As of
March 31, 2022, the Company's estimate of the aggregate potential liability that is possible but not probable is approximately
$100.0 million in excess of amounts accrued.
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Note 12. Income Taxes
The income tax provision consists of the following (amounts in millions):
Pretax (loss) income:
U.S.
Foreign
Current expense (benefit):
U.S. Federal
State
Foreign
Total current expense (benefit)
Deferred expense (benefit):
U.S. Federal
State
Foreign
Total deferred benefit
Total income tax provision (benefit)
Fiscal Year Ended March 31,
2021
2020
2022
$
$
$
$
$
$
132.2 $
1,350.3
1,482.5 $
191.6 $
3.7
(6.2)
189.1 $
(78.7) $
(9.1)
95.7
7.9
197.0 $
(301.7) $
641.2
339.5 $
54.8 $
2.0
72.2
129.0 $
(215.4) $
(22.9)
99.4
(138.9)
(9.9) $
(485.2)
635.6
150.4
21.1
1.0
48.0
70.1
(127.8)
(13.2)
(349.3)
(490.3)
(420.2)
The provision for income taxes differs from the amount computed by applying the statutory federal tax rate to income
before income taxes. The sources and tax effects of the differences in the total income tax provision are as follows (amounts
in millions):
Computed expected income tax provision
State income taxes, net of federal benefit
Effects of foreign operations - rate differential
Effects of foreign operations - other, net of foreign tax credits
Foreign-derived intangible income ("FDII")
Business realignment of intellectual property rights
Change in uncertain tax positions
Share-based compensation
R&D tax credits
Income tax holidays
Convertible debt settlement
Other
Change in valuation allowance
Total income tax provision (benefit)
$
$
Fiscal Year Ended March 31,
2021
2020
2022
311.3 $
3.5
(96.8)
139.9
(27.3)
(3.1)
(47.1)
(17.6)
(49.5)
(22.5)
(25.5)
31.7
—
197.0 $
71.3 $
(3.8)
(37.7)
122.5
(10.5)
(63.8)
28.1
(12.3)
(47.6)
(11.1)
(48.1)
16.4
(13.3)
(9.9) $
31.5
(5.4)
(67.4)
62.1
(10.8)
(334.8)
(8.4)
(11.1)
(40.8)
(11.4)
—
4.9
(28.6)
(420.2)
The foreign tax rate differential benefit primarily relates to the Company's operations in Thailand and Ireland. The
Company's Thailand manufacturing operations are currently subject to numerous tax holidays granted to the Company based
on its investment in property, plant, and equipment in Thailand. The Company's tax holiday periods in Thailand expire
between fiscal 2023 and 2030, 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 effective tax rate.
The aggregate dollar benefit derived from these tax holidays approximated $22.5 million and $11.1 million in fiscal 2022 and
fiscal 2021, respectively. The impact of the tax holidays during fiscal 2022 increased each of the basic and diluted net income
per common share by $0.04. The impact of the tax holidays during fiscal 2021 increased each of the basic and diluted net
income per common share by $0.04.
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The tax effects of temporary differences that give rise to significant portions of the Company's deferred tax assets and
deferred tax liabilities are as follows (amounts in millions):
Deferred tax assets:
Accrued expenses
Capital loss carryforward
Deferred revenue
Income tax credits
Intangible assets
Inventory valuation
Lease liabilities
Net operating loss carryforward
Property, plant and equipment
Share-based compensation
Other
Gross deferred tax assets
Valuation allowances
Deferred tax assets, net of valuation allowances
Deferred tax liabilities:
Convertible debt
Intangible assets
ROU assets
Other
Deferred tax liabilities
Net deferred tax asset
Reported as:
Non-current deferred tax assets
Non-current deferred tax liability
Net deferred tax asset
March 31,
2022
2021
$
81.6 $
9.8
90.4
306.6
1,479.9
26.8
36.1
77.0
40.8
45.8
5.5
2,200.3
(290.3)
1,910.0
(22.7)
(92.4)
(33.6)
(4.0)
(152.7)
1,757.3 $
1,797.1 $
(39.8)
1,757.3 $
$
$
$
83.6
6.3
—
331.1
1,581.5
46.0
37.1
68.0
32.7
46.5
17.4
2,250.2
(290.3)
1,959.9
(53.9)
(158.1)
(34.5)
(8.1)
(254.6)
1,705.3
1,749.2
(43.9)
1,705.3
In assessing whether it is more likely than not that deferred tax assets will be realized, the Company considers all
available evidence, both positive and negative, including its recent cumulative earnings experience and expectations of future
available taxable income of the appropriate character by taxing jurisdiction, tax attribute carryback and carryforward periods
available for tax reporting purposes, and prudent and feasible tax planning strategies.
A summary of additions and deductions related to the valuation allowance for deferred tax asset accounts for the years
ended March 31, 2022, 2021 and 2020 follows (amounts in millions):
Fiscal 2022
Fiscal 2021
Fiscal 2020
Balance at
Beginning of
Year
Additions
Charged to Costs
and Expenses
Deductions
Balance at End
of Year
$
$
$
290.3 $
303.5 $
332.1 $
7.1 $
8.1 $
26.0 $
(7.1) $
(21.3) $
(54.6) $
290.3
290.3
303.5
The Company had federal, state and foreign NOL carryforwards with an estimated tax effect of $77.0 million available at
March 31, 2022. The federal, state and foreign NOL carryforwards expire at various times between fiscal 2023 and fiscal 2042,
of which a portion of the NOL carryforwards do not expire. The Company had state tax credits of $164.4 million available at
March 31, 2022. These state tax credits expire at various times between fiscal 2023 and fiscal 2042. The Company had capital
loss carryforwards with an estimated tax effect of $9.8 million available at March 31, 2022. These capital loss carryforwards
begin to expire in fiscal 2023. The Company had foreign tax credits of $0.7 million available at March 31, 2022. These foreign
tax credits begin to expire in fiscal 2023. The Company had credits for increasing research activity in the amount of $79.5
million available at March 31, 2022. These credits begin to expire in fiscal 2023. The Company had U.S. prior year minimum
tax credits in the amount of $0.1 million available at March 31, 2022. The Company had refundable tax credits in foreign
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jurisdictions of $42.0 million available at March 31, 2022. The Company had withholding tax credits in foreign jurisdictions of
$19.9 million available at March 31, 2022. These credits expire at various times between fiscal 2023 and fiscal 2025.
The Company intends to invest substantially all of its foreign subsidiary earnings, as well as its capital in its foreign
subsidiaries, indefinitely outside of the U.S. in those jurisdictions in which the Company would incur significant, additional
costs upon repatriation of such amounts. It is not practical to estimate the additional tax that would be incurred, if any, if the
permanently reinvested earnings were repatriated.
The enactment of the TCJA imposed a tax on all previously untaxed earnings of non-U.S. subsidiaries of U.S. corporations.
Due to this change, the jurisdiction in which our cash is at any given point in time no longer has a significant impact on our
liquidity. Future distributions of a significant portion of our non-U.S. assets to the U.S. will no longer be subject to U.S. federal
taxation. We intend to invest substantially all of our foreign subsidiary earnings, as well as our capital in our foreign
subsidiaries, indefinitely outside of the U.S. in those jurisdictions in which we would incur significant, additional costs upon
repatriation of such amounts. During fiscal 2018, we recognized a one-time transition tax on accumulated unrepatriated
foreign earnings, of which we expected cash payments of approximately $290.3 million. This tax is payable over a period of
eight years, with 8% of the transition tax payable each year for fiscal 2019 through fiscal 2023, and 15%, 20%, and 25%,
respectively, payable during fiscal 2024, fiscal 2025, and fiscal 2026. As of March 31, 2022, our transition tax payable was
$197.4 million, of which $23.2 million is payable within the next 12 months.
The Company recognizes interest and penalties related to unrecognized tax benefits through income tax expense. The
Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. The Company files U.S. federal, U.S. state,
and foreign income tax returns. For U.S. federal, and in general for U.S. state tax returns, the fiscal 2007 and later tax years
remain 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.
Significant judgment is required in evaluating the Company's uncertain tax positions and determining its provision for
income taxes. Although the Company believes that it has appropriately reserved for its uncertain tax positions, no assurance
can be given that the final tax outcome of these matters will not be different than expectations. The Company will adjust
these reserves in light of changing facts and circumstances, such as the closing of a tax audit, the refinement of an estimate,
the closing of a statutory audit period or changes in applicable tax law. To the extent that the final tax outcome of these
matters is different than the amounts recorded, such differences would impact the provision for income taxes in the period in
which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to
the reserves that are considered appropriate, as well as related net interest.
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, the tax positions are more likely than not to be
sustained based on the technical merits. 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 could 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.
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The following table summarizes the activity related to the Company's gross unrecognized tax benefits from April 1, 2019,
to March 31, 2022 (amounts in millions):
Fiscal Year Ended March 31,
2021
2020
2022
Beginning balance
Decreases related to settlements with tax authorities
Decreases related to statute of limitation expirations
Increases related to current year tax positions
Increases (decreases) related to prior year tax positions
Ending balance
$
$
826.3 $
(0.4)
(12.6)
28.2
(37.4)
804.1 $
757.3 $
(6.0)
(10.9)
35.4
50.5
826.3 $
763.4
(1.2)
(30.9)
30.2
(4.2)
757.3
As of March 31, 2022 and March 31, 2021, the Company had accrued interest and penalties related to tax contingencies
of $72.7 million and $83.9 million, respectively. During the fiscal year ended March 31, 2022, the Company released
previously accrued interest and penalties of $11.2 million, compared to interest and penalties charged to operations of $9.3
million during the fiscal year ended March 31, 2021, and released previously accrued interest and penalties of $13.5 million
during the fiscal year ended March 31, 2020.
The Company is currently under income tax examination in various tax jurisdictions in which it operates. The years under
examination range from fiscal 2007 through fiscal 2020. In some jurisdictions, the Company has received tax assessments in
excess of established reserves. The Company is contesting these tax assessments, and will continue to do so, including
pursuing all available remedies such as appeals and litigation, if necessary. During fiscal 2022, additional assessments were
received for these issues and the Company’s position remains unchanged.
The total amount of gross unrecognized tax benefits was $804.1 million and $826.3 million as of March 31, 2022,
and March 31, 2021, respectively, of which $692.3 million and $720.5 million is estimated to impact the Company's effective
tax rate, if recognized. Unrecognized tax benefits may change in the next 12 months due to expiration of statutes of
limitation, changes in the Company’s judgment about the level of uncertainty, status of tax examinations, and legislative
changes. The Company estimates that it is reasonably possible unrecognized tax benefits as of March 31, 2022, could
decrease by approximately $10.0 million in the next 12 months. Positions that may be resolved include various U.S. and non-
U.S. matters.
In July 2015, in Altera Corp. v. Commissioner, the U.S. Tax Court issued an opinion related to the treatment of stock-based
compensation expense in an intercompany cost-sharing arrangement. In the July 2015 ruling, the Tax Court concluded that
the sharing of the cost of employee stock compensation in a company’s cost-sharing arrangement was invalid under the U.S.
Administrative Procedures Act. In June 2019, a panel of the Ninth Circuit of the U.S. Court of Appeals reversed this decision.
In July 2019, Altera petitioned the U.S. Court of Appeals for the Ninth Circuit to hold an en banc rehearing of the case. In
November 2019, the en banc rehearing petition was denied, and Altera has asked the Supreme Court for a judicial review. In
June 2020, the U.S. Supreme Court declined to issue a writ of certiorari in Altera v Commissioner, leaving intact the decision
reached by the Ninth Circuit of the U.S. Court of Appeals. Based on the Ninth Circuit Opinion, the Company recorded a
cumulative income tax expense of $22.2 million as of March 31, 2022.
Note 13. Employee Benefit Plans
Defined Benefit Plans
The Company has defined benefit pension plans that cover certain French and German employees. Most of these defined
pension plans, which were acquired in prior acquisitions, are unfunded. 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 change in projected benefit obligation and the accumulated benefit obligation, were as follows (in millions):
Projected benefit obligation at the beginning of the year
Service cost
Interest cost
Actuarial (gains) losses
Benefits paid
Foreign currency exchange rate changes
Projected benefit obligation at the end of the year
Accumulated benefit obligation at the end of the year
Weighted average assumptions:
Discount rate
Rate of compensation increase
$
$
$
Fiscal Year Ended March 31,
2021
2022
$
$
$
83.0
1.8
0.7
(5.4)
(1.5)
(4.0)
74.6
68.0
1.59 %
3.03 %
70.0
1.6
1.0
8.2
(1.5)
3.7
83.0
76.3
0.93 %
3.01 %
The Company's pension liability represents the present value of estimated future benefits to be paid. The discount rate is
based on the quarterly average yield for Euros treasuries with a duration of 30 years, plus a supplement for corporate bonds
(Euros, AA rating). Net actuarial (gains) losses, which are included in accumulated other comprehensive loss in the Company's
consolidated balance sheets, will be recognized as a component of net periodic cost over the average remaining service
period.
Future estimated expected benefit payments for fiscal year 2023 through 2032 are as follows (in millions):
Fiscal Year Ending March 31,
Amount
2023
2024
2025
2026
2027
2028 through 2032
Total
$
$
1.6
1.9
2.1
2.4
2.2
14.9
25.1
The Company's net periodic pension cost for fiscal 2023 is expected to be approximately $3.1 million.
Note 14. Share-Based Compensation
Share-Based Compensation Expense
The following table presents the details of the Company's share-based compensation expense (in millions):
Cost of sales (1)
Research and development
Selling, general and administrative
Pre-tax effect of share-based compensation
Income tax benefit
Net income effect of share-based compensation
Fiscal Year Ended March 31,
2021
2020
2022
$
$
34.3 $
97.9
78.0
210.2
44.6
165.6 $
26.6 $
96.8
74.9
198.3
42.3
156.0 $
20.9
82.9
66.4
170.2
36.9
133.3
(1) During the fiscal year ended March 31, 2022, $21.2 million of share-based compensation expense was capitalized to
inventory and $34.3 million of previously capitalized share-based compensation expense in inventory was sold. During
the fiscal year ended March 31, 2021, $16.7 million of share-based compensation expense was capitalized to inventory
and $26.6 million of previously capitalized share-based compensation expense in inventory was sold. During the fiscal
year ended March 31, 2020, $19.8 million of share-based compensation expense was capitalized to inventory and $20.9
million of previously capitalized share-based compensation expense in inventory was sold.
F-40
Table of Contents
Combined Incentive Plan Information
The Company has granted RSUs and stock options to employees and non-employee members of the Board of Directors
under the Company’s 2004 Equity Incentive Plan (the 2004 plan). The Company grants RSUs with a service condition and PSUs
under the 2004 plan. The Company uses RSUs with a service condition as its primary equity incentive compensation
instrument for employees. The Company grants PSUs to a group of executive officers and employees. For the market-based
PSUs, the number of shares of our common stock expected to be received at vesting will range from 0% to 200% of the target
grant amount based on the TSR of our common stock measured against the TSR of a defined peer group of companies over
the applicable two-year or three-year measurement period. TSR is a measure of the stock price appreciation plus any
dividends paid in the performance period. For the performance-based PSUs, the number of shares of our common stock
expected to vest will range from 0% to 200% of the target grant amount based on our three-year cumulative non-GAAP
operating margin percentage. Under the 2004 plan, 64,389,717 shares of common stock have been authorized for issuance
and 11,091,259 shares of common stock remain available for future grants as of March 31, 2022.
RSUs and PSUs share activity is set forth below:
Nonvested shares at March 31, 2019
Granted
Forfeited
Vested
Nonvested shares at March 31, 2020
Granted
Forfeited
Vested
Nonvested shares at March 31, 2021
Granted
Forfeited
Vested
Nonvested shares at March 31, 2022
Number of
Shares
12,583,924 $
4,364,088 $
(681,318) $
(4,782,588) $
11,484,106 $
4,678,494 $
(514,110) $
(3,764,672) $
11,883,818 $
2,995,991 $
(978,325) $
(3,795,469) $
10,106,015 $
Weighted
Average Grant
Date Fair Value
32.41
44.09
37.75
28.74
38.06
50.69
41.69
32.07
44.77
74.36
51.17
43.77
53.30
The total intrinsic value of RSUs and PSUs which vested during the fiscal years ended March 31, 2022, 2021 and 2020 was
$287.6 million, $218.5 million and $223.9 million, respectively. The aggregate intrinsic value of RSUs and PSUs outstanding at
March 31, 2022 was $759.4 million, calculated based on the closing price of the Company's common stock of $75.14 per share
on March 31, 2022. The amount of unearned share-based compensation currently estimated to be expensed in the
remainder of fiscal 2023 through fiscal 2027 related to unvested share-based payment awards at March 31, 2022 is $303.8
million. The weighted average period over which the unearned share-based compensation is expected to be recognized is
approximately 1.92 years. The total number of PSUs granted in fiscal years ended March 31, 2022, 2021 and 2020 was
145,188 shares, 140,160 shares and 32,734 shares, respectively.
Stock option and SARs activity under the Company's stock incentive plans in the three years ended March 31, 2022 is set
forth below:
Outstanding at March 31, 2019
Exercised
Forfeited or expired
Outstanding at March 31, 2020
Exercised
Forfeited or expired
Outstanding at March 31, 2021
Exercised
Forfeited or expired
Outstanding at March 31, 2022
F-41
Number of
Shares
Weighted
Average Exercise
Price per Share
563,764 $
(260,838) $
(4,906) $
298,020 $
(155,768) $
(1,258) $
140,994 $
(39,874) $
(1,788) $
99,332 $
15.08
14.36
10.01
15.80
15.74
9.74
15.91
13.96
17.82
16.65
Table of Contents
The total intrinsic value of options and SARs exercised during the fiscal years ended March 31, 2022, 2021 and 2020 was
$2.6 million, $6.5 million and $8.4 million, respectively. This intrinsic value represents the difference between the fair market
value of the Company's common stock on the date of exercise and the exercise price of each equity award.
The aggregate intrinsic value of options and SARs outstanding and exercisable at March 31, 2022 was $7.5 million. The
aggregate intrinsic values were calculated based on the closing price of the Company's common stock of $75.14 per share on
March 31, 2022. As of March 31, 2022, the weighted average remaining contractual term for options and SARs outstanding
and exercisable was 1.37 years.
As of March 31, 2022 and March 31, 2021, the number of option and SAR shares exercisable was 99,332 and 140,994,
respectively, and the weighted average exercise price per share was $16.65 and $15.91, respectively.
Employee Stock Purchase Plan
The Company’s 2001 Employee Stock Purchase Plan and the 1994 International Employee Stock Purchase Plan
(collectively referred to as the employee stock purchase plans) allows eligible employees to purchase shares of the Company's
common stock at 85% of the value of its common stock on specific dates. Since the inception of the employee stock purchase
plans, 35,000,572 shares of common stock have been authorized for issuance and 10,929,886 shares remain available for
future purchases as of March 31, 2022.
Employees purchased 1,485,477 shares of common stock in the fiscal year ended March 31, 2022 for a purchase price of
$70.0 million under the employee stock purchase plans compared to 1,424,440 shares of common stock for a purchase price
of $57.7 million in the fiscal year ended March 31, 2021 and 1,574,568 shares of common stock for a purchase price of $55.6
million in the fiscal year ended March 31, 2020. As of March 31, 2022, unrecognized share-based compensation costs related
to the employee stock plans totaled $7.2 million, which will be recognized over a period of approximately five months.
Note 15. Stock Repurchase Activity
In November 2021, the Company's Board of Directors approved a new stock repurchase program to repurchase up to
$4.00 billion of the Company's common stock in the open market or in privately negotiated transactions. There is no
expiration date associated with the repurchase program. During the fiscal year ended March 31, 2022, the Company
purchased approximately 5.6 million shares of its common stock for a total of $425.6 million under the new authorization. As
of March 31, 2022, approximately $3.57 billion remained available for repurchases under the program. There were no
repurchases of common stock during the fiscal years ended March 31, 2021 and 2020. Shares repurchased are recorded as
treasury shares and are used to fund share issuance requirements under the Company's equity incentive plans. As
of March 31, 2022, the Company had approximately 23.3 million treasury shares.
Note 16. Accumulated Other Comprehensive Loss
The following table presents the changes in the components of accumulated other comprehensive loss, net of tax, (AOCI)
(in millions):
Minimum Pension
Liability
Foreign Currency
Total
Balance at March 31, 2021
Other comprehensive income (loss) before reclassifications
Reclassification of realized transactions
Net other comprehensive income (loss)
Balance at March 31, 2022
Balance at March 31, 2020
Other comprehensive (loss) income before reclassifications
Reclassification of realized transactions
Net other comprehensive (loss) income
Balance at March 31, 2021
$
$
$
$
(13.4) $
6.9
0.9
7.8
(5.6) $
(5.1) $
(9.4)
1.1
(8.3)
(13.4) $
(12.8) $
(2.2)
—
(2.2)
(15.0) $
(16.5) $
3.7
—
3.7
(12.8) $
(26.2)
4.7
0.9
5.6
(20.6)
(21.6)
(5.7)
1.1
(4.6)
(26.2)
F-42
Table of Contents
Note 17. Dividends
In October 2002, the Company announced that its Board of Directors had approved and instituted a quarterly cash
dividend on its common stock. The Company has continued to pay quarterly dividends and has increased the amount of such
dividends on a regular basis. Cash dividends paid per share were $0.910, $0.747 and $0.733 during fiscal 2022, 2021 and
2020, respectively. Total dividend payments amounted to $503.8 million, $388.3 million and $350.1 million during fiscal 2022,
2021 and 2020, respectively.
F-43
INDEMNIFICATION AGREEMENT
Exhibit 10.4
THIS AGREEMENT is effective as of [DATE], between Microchip Technology Incorporated, a Delaware corporation
(“Corporation”), and __________________________“Indemnified Person.”
WITNESSETH THAT:
WHEREAS, ______________________________ serves as a director, executive officer, employee or agent of the Corporation
and performs a valuable service in such capacity for Corporation; and
WHEREAS, the stockholders of Corporation have adopted Bylaws (the “Bylaws”) providing for the indemnification of each of
its directors, executive officers, employees and agents of Corporation to the maximum extent and in the manner permitted by
the Delaware General Corporation Law, as amended ("Code"); and
WHEREAS, such Bylaws and the Code, by their non-exclusive nature, do not preclude contracts between Corporation and
indemnified persons with respect to indemnification; and
WHEREAS, in order to induce the Indemnified Person to serve or continue to serve as a director, executive officer, employee
or agent of Corporation, Corporation has determined and agreed to enter into this contract with the Indemnified Person;
NOW, THEREFORE, in consideration of the Indemnified Person’s continued service of Corporation after the date hereof, the
parties hereto agree as follows:
Indemnity of Indemnified Person. Corporation hereby agrees to hold harmless and indemnify the Indemnified Person to
1.
the full extent authorized or permitted by the provisions of the Code, as may be amended from time to time.
2. Additional Indemnity. Subject only to the exclusions set forth in Section 3 hereof, Corporation hereby further agrees to
hold harmless and indemnify Indemnified Person:
A.
against any and all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by Indemnified Person in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of
Corporation) to which Indemnified Person is, was or at any time becomes a party, or is threatened to be made a party,
by reason of the fact that Indemnified Person is, was or at any time becomes a director, executive officer, employee or
agent of Corporation or is or was serving or at any time serves at the request of Corporation as a director, executive
officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise; and
B. otherwise to the fullest extent as may be provided to Indemnified Person by Corporation under the non-
exclusive provisions of Article VI, Section 6.1 or 6.2 of the Bylaws (as applicable) and the Code.
3.
Limitations on Additional Indemnity. No indemnity pursuant to Section 2 hereof shall be paid by Corporation:
A.
in respect to remuneration paid to Indemnified Person if it shall be determined by a final judgment or other
final adjudication that such remuneration was in violation of law;
B. on account of any suit in which judgment is rendered against Indemnified Person for an accounting of profits
made from the purchase or sale by Indemnified Person of securities of Corporation pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
1
C. on account of Indemnified Person conduct which is finally adjudged to have been knowingly fraudulent or
deliberately dishonest, or to constitute willful misconduct; or
D.
lawful.
if a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not
4. Contribution. If the indemnification provided in Sections 1 and 2 is unavailable and may not be paid to Indemnified
Person for any reason other than those set forth in paragraphs (A), (B) and (C) of Section 3, then in respect of any
threatened, pending or completed action, suit or proceeding in which Corporation is jointly liable with Indemnified Person
(or would be if joined in such action, suit or proceeding), Corporation shall contribute to the amount of expenses (including
attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by
Indemnified Person in such proportion as is appropriate to reflect (i) the relative benefits received by the Corporation on the
one hand and Indemnified Person on the other hand from the transaction from which such action, suit or proceeding arose,
and (ii) the relative fault of Corporation on the one hand and of Indemnified Person on the other in connection with the
events which resulted in such expenses, judgments, fines or settlement amounts, as well as any other relevant equitable
considerations. The relative fault of Corporation on the one hand and of Indemnified Person on the other shall be
determined by reference to, among other things, the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such expenses, judgments, fines or settlement amounts.
Corporation agrees that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro
rata allocation or any other method of allocation which does not take account of the foregoing equitable considerations.
5. Continuation of Obligations. All agreements and obligations of Corporation contained herein shall continue during the
period Indemnified Person is a director, executive officer, employee or agent of Corporation (or is or was serving at the
request of Corporation as a director, executive officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise) and shall continue thereafter so long as Indemnified Person shall be subject to any possible claim
or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact
that Indemnified Person was an a director, executive officer, employee or agent of Corporation or serving in any other
capacity referred to herein.
6. Notification and Defense of Claim. Promptly after receipt by Indemnified Person of notice of the commencement of any
action, suit or proceeding, Indemnified Person will, if a claim in respect thereof is to be made against Corporation under this
Agreement, notify Corporation of the commencement thereof; but the omission so to notify Corporation will not relieve it
from any liability which it may have to Indemnified Person otherwise than under this Agreement. With respect to any such
action, suit or proceeding as to which Indemnified Person notifies Corporation of the commencement thereof:
A. Corporation will be entitled to participate therein at its own expense;
B.
except as otherwise provided below, to the extent that it may wish, Corporation jointly with any other
indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably acceptable
to Indemnified Person. After notice from Corporation to Indemnified Person of its election so as to assume the defense
thereof, Corporation will not be liable to Indemnified Person under this Agreement for any legal or other expenses
subsequently incurred by Indemnified Person in connection with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. Indemnified Person shall have the right to employ its counsel in such
action, suit or proceeding but the fees and expenses of such counsel incurred after notice from Corporation of its
assumption of the defense thereof shall be at the expense of Indemnified Person unless (i) the employment of counsel
by Indemnified Person has been authorized by Corporation, (ii) Indemnified Person shall have reasonably concluded that
there may be a conflict of interest between Corporation and Indemnified Person in the conduct of the defense of such
action or (iii) Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which
cases the fees and expenses of counsel shall be at the expense of Corporation. Corporation shall not be entitled to
assume the defense of any action, suit or proceeding brought by or on behalf of Corporation or as to which Indemnified
Person shall have made the conclusion provided for in (ii) above; and
C. Corporation shall not be liable to indemnify Indemnified Person under this Agreement for any amounts paid in
settlement of any action or claim effected without its written consent. Corporation shall not settle any action or claim in
2
any manner which would impose any penalty or limitation on Indemnified Person without Indemnified Person’s written
consent. Neither Corporation nor Indemnified Person will unreasonably withhold its consent to any proposed
settlement.
7.
Advancement and Repayment of Expenses.
A.
In the event that Indemnified Person employs its own counsel pursuant to Section 6(B)(i) through (iii) above,
Corporation shall advance to Indemnified Person prior to any final disposition of any threatened or pending action, suit
or proceeding, whether civil, criminal, administrative or investigative, any and all expenses (including legal fees and
expenses) actually and reasonably incurred in investigating or defending any such action, suit or proceeding within thirty
(30) days after receiving copies of invoices presented to Indemnified Person for such expenses.
B.
Indemnified Person agrees that Indemnified Person will reimburse Corporation for all expenses actually and
reasonably incurred and paid by Corporation in defending any civil or criminal action, suit or proceeding against
Indemnified Person in the event and only to the extent it shall ultimately determine that Indemnified Person is not
entitled, under the provisions of the Code, the Bylaws, this Agreement or otherwise, to be indemnified by Corporation
for such expenses.
8.
Enforcement.
A.
Corporation expressly confirms and agrees that it has entered into this Agreement and assumed the
obligations imposed on Corporation hereby in order to induce Indemnified Person to continue as director, executive
officer, employee or agent of Corporation, and acknowledges that Indemnified Person is relying upon this Agreement in
continuing in such capacity.
B.
In the event Indemnified Person is required to bring any action to enforce rights or to collect moneys due
under this Agreement and is successful in such action, Corporation shall reimburse Indemnified Person for all of
Indemnified Person’s expenses (including attorneys’ fees) actually and reasonably incurred in bringing and pursuing such
action.
Separability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the
9.
others, so that if any provision hereof shall be held to be invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other provisions hereof.
10. Governing Law. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware.
Binding Effect. This Agreement shall be binding upon Indemnified Person and upon Corporation, its successors and
11.
assigns, and shall inure to the benefit of Indemnified Person, his heirs, personal representatives and assigns and to the
benefit of Corporation, its successors and assigns.
12. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be
effective unless in writing signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written.
MICROCHIP TECHNOLOGY INCORPORATED
INDEMNIFIED PERSON
By
[NAME]
By
[NAME]
3
Exhibit 10.18
Grant # ###
MICROCHIP TECHNOLOGY INCORPORATED
2004 EQUITY INCENTIVE PLAN
NOTICE OF GRANT OF RESTRICTED STOCK UNITS (PERFORMANCE)
Unless otherwise defined herein, the terms defined in the Microchip Technology Incorporated 2004 Equity Incentive
Plan (the “Plan”) shall have the same defined meanings in this Notice of Grant of Restricted Stock Units (Performance) (the
“Grant Notice”).
Grantee: [NAME]
Grantee has been granted an award of performance-based Restricted Stock Units (“RSUs”) subject to and in accordance
with the express terms and conditions of the Grant Notice (including Exhibit A), the Plan and the Restricted Stock Unit
Agreement, including the appendix for Grantee’s country, if any (the “Appendix” and together with the Restricted Stock
Unit Agreement, the “Agreement”). The Plan and Agreement are incorporated herein in their entirety. Each RSU is
equivalent to the right to receive one share of Common Stock of the Company (“Share”) for purposes of determining the
number of Shares subject to this Award. No Shares will be issued until the vesting conditions of the Award described below
are satisfied and the restrictions lapse, subject to the terms and conditions set forth in the Plan and the Agreement. This
Award does not entitle Grantee to any stockholder rights with respect to the underlying Shares until the vesting conditions
of the Award described below are satisfied, the restrictions lapse and Shares are issued to him/her. Additional terms of this
Award are as follows:
Date of Grant: [DATE]
Target Number of Restricted Stock Units: [SHARES]
Vesting Schedule: [VEST]
Subject to Section 19 of the Plan, the RSUs shall vest on the Determination Date (the “Vesting Date”) to the extent the
RSUs have become Achieved RSUs with respect to the achievement of the performance-based vesting conditions set forth
on Exhibit A. All vesting is contingent upon Grantee remaining a Service Provider through the Vesting Date.
Measurement Period: twelve (12) consecutive fiscal quarter period beginning with the first day of the quarter in
which the grant is approved.
Performance Goals: See Exhibit A attached.
Termination Period. This Award automatically terminates and Grantee’s rights are forfeited with respect to all RSUs
granted hereunder on the date Grantee ceases to be a Service Provider (if such date precedes the Vesting Date), or in the
event that Grantee has not accepted this Grant in accordance with Company procedures 31 days or more prior to the
Determination Date. A portion of the Award may terminate sooner as set forth in Exhibit A, as a result of it not being
achieved. In no event shall this Award vest later than the Vesting Schedule outlined above.
Forfeiture Events. This Award (or any portion thereof) and any Shares issued in settlement of this Award, as applicable, are
subject to recoupment under any clawback policy that the Company is required to adopt pursuant to the listing standards
of any national securities exchange or association on which the Company's securities are listed or as is otherwise required
by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable laws. In addition, to the extent
required by Section 304 of the Sarbanes-Oxley Act of 2002, Grantee shall reimburse the Company the amount of any
payment in settlement of this Award if earned or accrued under the Plan during the 12-month period following the first
public issuance or filing with the Securities and Exchange Commission (whichever first occurred) of the financial document
embodying such financial reporting requirement.
Binding Agreements. Grantee shall be deemed to have accepted this Award and the terms set forth in this Grant Notice,
the Agreement, and the Plan (the “Equity Documents”) until and unless the Company has received written notice via email
to [EMAIL] from Grantee of Grantee’s non-acceptance of this Award no later than the 30th calendar day prior to the first
date on which an RSU is scheduled to vest (the “Notice of Non-Acceptance”), which non-acceptance shall be irrevocable.
The Equity Documents constitute Grantee’s entire agreement with respect to this Award and Grantee and the Award shall
be bound by the terms therein unless and until the Company receives Grantee’s Notice of Non-Acceptance. The
Administrator’s decisions and interpretations with respect to any questions relating to the Equity Documents and/or this
Award shall be binding, conclusive and final. This Award may be modified by the Company, but in accordance with Section
21(c) of the Plan, it may not be modified adversely to Grantee’s interest except by means of a writing signed by the
Company and Grantee. The Company will administer the Plan from the United States of America. The internal laws of the
State of Arizona, United States of America, but not its choice of law principles, will govern this Award.
GRANTEE
Signature:
Print Name:
MICROCHIP TECHNOLOGY INCORPORATED
By:
Ganesh Moorthy, President and CEO
2
EXHIBIT A
PERFORMANCE MATRIX
The following terms shall apply to the Award of Restricted Stock Units granted to the Grantee identified
in the Notice of Grant of Restricted Stock Units (Performance) included as part of the Agreement to which this
Performance Matrix is attached. Unless otherwise defined herein, capitalized terms shall have the meanings set
forth in the Plan or the Agreement, as applicable.
Operating Margin
45%
44%
43%
42%
41%
40%
39%
38%
37%
36%
35%
Vesting Multiple*
200%
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
* For performance falling between two identified “bands” in the first column of the table above, t
*For performance falling between two identified “bands” in the first column of the table above, the
actual vesting multiple for determining the number of RSUs vesting on the applicable Vesting Date will be
calculated by linear interpolation between (a) the two identified bands and (b) the two vesting multiples set
forth in the second column that correspond to the two identified Operating Margin bands.
Definitions
“GAAP” means Generally Accepted Accounting Principles.
“Operating Income” means as to the Measurement Period, the Company’s non-GAAP operating income, which
is determined consistent with how non-GAAP operating income is reported in the Company’s press release for
the applicable fiscal quarter.
“Operating Margin” means as to the Measurement Period, the Company’s Non-GAAP Operating Income divided
by Net Sales (rounded to the second decimal).
“Net Sales” means as to the Measurement Period, the Company’s GAAP net sales, which is determined
consistent with how GAAP net sales is reported in the Company’s press release for the applicable fiscal quarter.
“SEC” means the U.S. Securities and Exchange Commission.
Award Determination and Payout
Following the end of each Measurement Period, the Administrator will certify whether and to what
extent the performance metric has been achieved for the Measurement Period (the date of such certification,
the “Determination Date”).
The actual number of RSUs that will vest under the Agreement, if any, upon achievement of the
performance metric will be rounded down to the nearest whole number so as to avoid fractional shares (such
3
portion, the “Achieved RSUs”). Any RSUs that do not become Achieved RSUs will be immediately forfeited and
returned to the Plan share reserve.
4
MICROCHIP TECHNOLOGY INCORPORATED
2004 EQUITY INCENTIVE PLAN
NOTICE OF GRANT OF RESTRICTED STOCK UNITS
Exhibit 10.19
Grant ###
Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Notice of
Grant.
Name: [NAME]
You have been granted an award of [#SHARES] of Restricted Stock Units (“RSUs”) subject to and in accordance with the
express terms and conditions of the Plan and the Restricted Stock Unit Agreement, including the appendix for your country, if
any (“Appendix” and together with the Restricted Stock Unit Agreement, the “Agreement”) attached hereto as Exhibit A. The
Plan and Agreement are incorporated herein in their entirety. Each RSU is equivalent to the right to receive one share of
Common Stock of the Company (“Share”) for purposes of determining the number of Shares subject to this Award. No Shares
will be issued until the vesting conditions of the Award described below are satisfied and the restrictions lapse, subject to the
terms and conditions set forth in the Plan and the Agreement. This Award does not entitle Grantee to any stockholder rights
with respect to the underlying Shares until the vesting conditions of the Award described below are satisfied, the restrictions
lapse and Shares are issued to him/her. Additional terms of this Award are as follows:
Date of Grant: [DATE]
Vesting Schedule: [VEST]
Termination Period. This Award automatically terminates and Grantee’s rights are forfeited with respect to any portion of
the RSUs unvested on the date Grantee ceases to be a Service Provider or in the event that Grantee has not accepted this
Grant in accordance with Company procedures 31 days or more prior to its Vest Begin Date. In no event shall this Award vest
later than the Vesting Schedule outlined above.
Binding Agreements. Grantee shall be deemed to have accepted this Award and the terms set forth in this Grant Notice, the
Agreement, and the Plan (the “Equity Documents”) until and unless the Company has received written notice via email to
[EMAIL] from Grantee of Grantee’s non-acceptance of this Award no later than the 30th calendar day prior to the first date on
which an RSU is scheduled to vest (the “Notice of Non-Acceptance”), which non-acceptance shall be irrevocable. The Equity
Documents constitute Grantee’s entire agreement with respect to this Award and Grantee and the Award shall be bound by
the terms therein unless and until the Company receives Grantee’s Notice of Non-Acceptance. The Administrator’s decisions
and interpretations with respect to any questions relating to the Equity Documents and/or this Award shall be binding,
conclusive and final. This Award may be modified by the Company, but in accordance with Section 21(c) of the Plan, it may
not be modified adversely to Grantee’s interest except by means of a writing signed by the Company and Grantee. The
Company will administer the Plan from the United States of America. The internal laws of the State of Arizona, United States
of America, but not its choice of law principles, will govern this Award.
MICROCHIP TECHNOLOGY INCORPORATED
By:
Ganesh Moorthy, President and CEO
MICROCHIP TECHNOLOGY INCORPORATED
LIST OF SIGNIFICANT SUBSIDIARIES
Exhibit 21.1
Entity Name
MBarb Malta Limited
Microchip Technology LLC
Microsemi Corp. – Holding
Microsemi Corp. – Holding 2
Microsemi Corporation
Microsemi SoC Corp.
Microchip Communications, LLC
Microsemi Storage Solutions, Inc.
Microchip Malta BMD Limited
Microchip Technology Ireland Limited
Microchip Technology Malta Limited
Microchip Technology Caldicot Limited
Microsemi IOM Limited
Microchip Technology (Thailand) Co. Ltd.
Microsemi Solutions Sdn. Bhd.
Jurisdiction of Incorporation
Malta
USA (Delaware)
Cayman Islands
Cayman Islands
USA (Delaware)
USA (California)
USA (Delaware)
USA (Delaware)
Ireland
Ireland
Ireland
United Kingdom
Isle of Mann
Thailand
Malaysia
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
(1) Form S-8 No. 33-59686,
(2) Form S-8 No. 33-80072,
(3) Form S-8 No. 33-81690,
(4) Form S-8 No. 33-83196,
(5) Form S-8 No. 333-00872,
(6) Form S-8 No. 333-40791,
(7) Form S-8 No. 333-93571,
(8) Form S-8 No. 333-51322,
(9) Form S-8 No. 333-73506,
(10) Form S-8 No. 333-99655,
(11) Form S-8 No. 333-103764,
(12) Form S-8 No. 333-109486,
(13) Form S-8 No. 333-119939,
(14) Form S-8 No. 333-140773,
(15) Form S-8 No. 333-149460,
(16) Form S-8 No. 333-177889,
(17) Form S-8 No. 333-192273,
(18) Form S-8 No. 333-197233,
(19) Form S-8 No. 333-206210,
(20) Form S-8 No. 333-213062,
(21) Form S-8 No. 333-221420,
(22) Form S-8 No. 333-225257,
(23) Form S-8 No. 333-236250, and
(24) Form S-8 No. 333-262497
of our reports dated May 20, 2022 with respect to the consolidated financial statements of Microchip Technology
Incorporated, and the effectiveness of internal control over financial reporting of Microchip Technology
Incorporated, included in this Annual Report (Form 10-K) of Microchip Technology Incorporated for the year ended
March 31, 2022.
/s/ Ernst & Young LLP
Phoenix, Arizona
May 20, 2022
CERTIFICATION
Exhibit 31.1
I, Ganesh Moorthy, certify that:
1.
2.
3.
4.
I have reviewed this Form 10-K of Microchip Technology Incorporated;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and l5d-l5(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting.
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or
persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
May 20, 2022
/s/ Ganesh Moorthy
Ganesh Moorthy
President, Chief Executive Officer, and Director
CERTIFICATION
Exhibit 31.2
I, J. Eric Bjornholt, certify that:
1.
2.
3.
4.
I have reviewed this Form 10-K of Microchip Technology Incorporated;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and l5d-l5(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting.
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or
persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
May 20, 2022
/s/ J. Eric Bjornholt
J. Eric Bjornholt
Senior Vice President and Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
I, Ganesh Moorthy, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that the Annual Report of Microchip Technology Incorporated on Form 10-K for the period ended March 31, 2022
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information
contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of
Microchip Technology Incorporated.
/s/ Ganesh Moorthy
President, Chief Executive Officer, and Director
By:
Name: Ganesh Moorthy
Title:
Date: May 20, 2022
I, J. Eric Bjornholt, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that the Annual Report of Microchip Technology Incorporated on Form 10-K for the period ended March 31, 2022
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information
contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of
Microchip Technology Incorporated.
/s/ J. Eric Bjornholt
Senior Vice President and Chief Financial Officer
By:
Name: J. Eric Bjornholt
Title:
Date: May 20, 2022