Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended December 31, 2019



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

For the transition period from __________ to __________

Commission File Number: 0-21184

MICROCHIP TECHNOLOGY INCORPORATED

(Exact Name of Registrant as Specified in Its Charter)



Delaware		86-0629024
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

2355 W. Chandler Blvd., Chandler, AZ 85224-6199

(480) 792-7200

(Address, Including Zip Code, and Telephone Number,

Including Area Code, of Registrant's

Principal Executive Offices)

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

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x 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 the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:



Large accelerated filer	x	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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). (Check One)

Yes ☐ No ☒

Shares Outstanding of Registrant's Common Stock



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered		January 29, 2020
Common Stock, $0.001 par value	MCHP	NASDAQ	Stock Market LLC	239,538,076 shares
		(Nasdaq Global Select Market)

Table of Contents

MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

INDEX



		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets – December 31, 2019 and March 31, 2019	3

	Condensed Consolidated Statements of Income – Three and Nine Months Ended December 31, 2019 and 2018	4

	Condensed Consolidated Statements of Comprehensive Income – Three and Nine Months Ended December 31, 2019 and 2018	5

	Condensed Consolidated Statements of Cash Flows – Nine Months Ended December 31, 2019 and 2018	6

	Condensed Consolidated Statements of Changes in Equity - Three and Nine Months Ended December 31, 2019 and 2018	8

	Notes to Condensed Consolidated Financial Statements	10

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47

Item 4.	Controls and Procedures	47

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	49

Item 1A.	Risk Factors	49

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65

Item 6.	Exhibits	66

SIGNATURES

CERTIFICATIONS

EXHIBITS

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share amounts)

(unaudited)



ASSETS
	December 31,			March 31,
	2019			2019
Cash and cash equivalents	$	397.1		$	428.6
Short-term investments	5.2			2.3
Accounts receivable, net	807.5			880.6
Inventories	708.8			711.7
Other current assets	185.4			191.6
Total current assets	2,104.0			2,214.8
Property, plant and equipment, net	909.7			996.7
Goodwill	6,664.8			6,663.9
Intangible assets, net	5,939.5			6,685.6
Long-term deferred tax assets	1,738.4			1,677.2
Other assets	232.2			111.8
Total assets	$	17,588.6		$	18,350.0
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	209.3		$	226.4
Accrued liabilities	726.5			787.3
Current portion of long-term debt	1,400.8			1,360.8
Total current liabilities	2,336.6			2,374.5
Long-term debt	8,179.7			8,946.2
Long-term income tax payable	711.4			756.2
Long-term deferred tax liability	386.3			706.1
Other long-term liabilities	358.0			279.5
Stockholders' equity:
Preferred stock, $0.001 par value; authorized 5,000,000 shares; no shares issued or outstanding	—			—
Common stock, $0.001 par value; authorized 450,000,000 shares; 253,232,909 shares issued and 239,534,856 shares outstanding at December 31, 2019; 253,232,909 shares issued and 237,589,501 shares outstanding at March 31, 2019	0.2			0.2
Additional paid-in capital	2,738.7			2,679.6
Common stock held in treasury: 13,698,053 shares at December 31, 2019; 15,643,408 shares at March 31, 2019	(520.8		)	(582.2		)
Accumulated other comprehensive loss	(22.0		)	(20.7		)
Retained earnings	3,420.5			3,210.6
Total stockholders' equity	5,616.6			5,287.5
Total liabilities and stockholders' equity	$	17,588.6		$	18,350.0

See accompanying notes to condensed consolidated financial statements

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MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share amounts)

(unaudited)



	Three Months Ended December 31,						Nine Months Ended December 31,
	2019			2018			2019			2018
Net sales	$	1,287.4		$	1,374.7		$	3,947.8		$	4,019.7
Cost of sales (1)	501.9			595.1			1,519.6			1,908.8
Gross profit	785.5			779.6			2,428.2			2,110.9

Research and development (1)	217.1			217.7			656.0			611.6
Selling, general and administrative (1)	170.7			174.8			510.9			515.5
Amortization of acquired intangible assets	248.7			193.7			745.4			497.2
Special charges (income) and other, net (1)	17.8			(1.3		)	29.5			57.0
Operating expenses	654.3			584.9			1,941.8			1,681.3

Operating income	131.2			194.7			486.4			429.6
Losses on equity method investments	—			(0.1		)	—			(0.2		)
Other income (expense):
Interest income	0.6			0.7			2.3			7.3
Interest expense	(119.7		)	(137.6		)	(381.9		)	(366.7		)
Loss on settlement of debt	—			(0.2		)	(2.0		)	(4.3		)
Other loss, net	(1.5		)	(2.5		)	(0.2		)	(12.4		)
Income before income taxes	10.6			55.0			104.6			53.3
Income tax (benefit) provision	(300.5		)	5.8			(366.1		)	(127.9		)
Net income	$	311.1		$	49.2		$	470.7		$	181.2


Basic net income per common share	$	1.30		$	0.21		$	1.97		$	0.77
Diluted net income per common share	$	1.20		$	0.20		$	1.84		$	0.73
Dividends declared per common share	$	0.3665		$	0.3645		$	1.0980		$	1.0920
Basic common shares outstanding	239.2			236.7			238.5			235.9
Diluted common shares outstanding	258.3			244.6			255.8			249.5

(1) Includes share-based compensation expense as follows:
Cost of sales	$	5.7		$	3.4		$	15.8		$	10.9
Research and development	$	21.2		$	19.4		$	63.0		$	53.2
Selling, general and administrative	$	16.6		$	16.6		$	50.7		$	46.1
Special charges (income) and other, net	$	—		$	0.2		$	—		$	17.3

See accompanying notes to condensed consolidated financial statements

Table of Contents

MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(unaudited)



	Three Months Ended December 31,						Nine Months Ended December 31,
	2019			2018			2019			2018
Net income	$	311.1		$	49.2		$	470.7		$	181.2
Components of other comprehensive income (loss):
Available-for-sale securities:
Unrealized holding losses, net of tax effect	—			—			—			(5.6		)
Reclassification of realized transactions, net of tax effect	—			—			—			5.6
Defined benefit plans:
Actuarial (losses) gains related to defined benefit pension plans, net of tax (provision) benefit	(1.6		)	1.0			0.1			4.5
Reclassification of realized transactions, net of tax effect	0.2			0.3			0.6			0.8
Change in net foreign currency translation adjustment	1.7			(1.6		)	(0.7		)	(3.0		)
Other comprehensive income (loss), net of tax effect	0.3			(0.3		)	—			2.3
Comprehensive income	$	311.4		$	48.9		$	470.7		$	183.5

See accompanying notes to condensed consolidated financial statements

Table of Contents

MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)



	Nine Months Ended December 31,
	2019			2018
Cash flows from operating activities:
Net income	$	470.7		$	181.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	904.7			637.7
Deferred income taxes	(404.2		)	(29.1		)
Share-based compensation expense related to equity incentive plans	129.5			127.5
Loss on settlement of debt	2.0			4.3
Amortization of debt discount	90.9			85.2
Amortization of debt issuance costs	12.8			12.1
Losses on equity method investments	—			0.2
Losses on sale of assets	0.4			—
Losses on write-down of fixed assets	2.7			0.5
Impairment of intangible assets	0.5			3.1
(Gains) losses on available-for-sale investments and marketable equity securities, net	(1.0		)	6.8
Amortization of premium on available-for-sale investments	—			(0.2		)
Changes in operating assets and liabilities, excluding impact of acquisitions:
Decrease in accounts receivable	73.2			189.4
Decrease in inventories	5.6			344.5
Decrease in accounts payable and accrued liabilities	(53.3		)	(143.5		)
Change in other assets and liabilities	(3.9		)	15.2
Change in income tax payable	(58.5		)	(163.5		)
Net cash provided by operating activities	1,172.1			1,271.4
Cash flows from investing activities:
Purchases of available-for-sale investments	(2.0		)	(167.7		)
Maturities of available-for-sale investments	—			75.7
Sales of available-for-sale investments	—			1,376.6
Acquisition of Microsemi, net of cash acquired	—			(7,850.6		)
Investments in other assets	(40.5		)	(12.8		)
Proceeds from sale of assets	0.5			0.2
Capital expenditures	(55.7		)	(188.8		)
Net cash used in investing activities	(97.7		)	(6,767.4		)
Cash flows from financing activities:
Proceeds from issuance of 2023 and 2021 Senior Notes	—			1,989.5
Proceeds from borrowings on term loan facility	—			3,000.0
Repayments of term loan facility	(188.0		)	(287.0		)
Proceeds from borrowings on revolving loan under credit facility	682.0			3,725.5
Repayments of revolving loan under credit facility	(1,324.0		)	(983.0		)
Repayment of debt assumed in Microsemi acquisition	—			(2,056.9		)
Deferred financing costs	(1.8		)	(72.7		)
Payment of cash dividends	(262.1		)	(257.8		)
Proceeds from sale of common stock	38.8			26.9
Tax payments related to shares withheld for vested restricted stock units	(50.2		)	(57.0		)
Capital lease payments	(0.6		)	(0.6		)
Net cash (used in) provided by financing activities	(1,105.9		)	5,026.9
Net decrease in cash and cash equivalents	(31.5		)	(469.1		)
Cash and cash equivalents, and restricted cash at beginning of period ⁽²⁾	428.6			901.3
Cash and cash equivalents, and restricted cash at end of period ⁽²⁾	$	397.1		$	432.2

Table of Contents



	Nine Months Ended December 31,
	2019		2018

Supplemental disclosure of cash flow information
Non-cash activities:
Right-of-use assets obtained in exchange of lease liabilities	$	25.1	$	—
Cash paid for:
Operating lease payments in operating cash flows	$	39.3	$	—

⁽²⁾ Schedule of restricted cash

The following table presents the balance of restricted cash which consists of cash denominated in a foreign currency and restricted in use due to a foreign taxing authority requirement (in millions):



	December 31,		March 31,
	2019		2019
Restricted cash	$	—	$	38.4

See accompanying notes to condensed consolidated financial statements

Table of Contents

MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(in millions)

(unaudited)



	Common Stock and Additional Paid-in-Capital					Common Stock Held in Treasury					Accumulated Other Comprehensive Income			Retained Earnings			Total Equity
	Shares		Amount			Shares		Amount			Accumulated Other Comprehensive Income			Retained Earnings			Total Equity
Balance at March 31, 2018	253.2		$	2,562.7		18.2		$	(662.6	)	$	(17.6	)	$	1,397.3		$	3,279.8
Net income	—		—			—		—			—			35.7			35.7
Other comprehensive income	—		—			—		—			4.4			—			4.4
Adoption of ASU 2016-01, cumulative adjustment	—		—			—		—			(1.7		)	1.7			—
Adoption of ASU 2016-16, cumulative adjustment	—		—			—		—			—			1,558.1			1,558.1
Adoption of ASC 606, cumulative adjustment	—		—			—		—			—			241.9			241.9
Non-cash consideration, exchange of employee stock awards - Microsemi acquisition	—		53.9			—		—			—			—			53.9
Proceeds from sales of common stock through employee equity incentive plans	0.7		6.4					—			—			—			6.4
Restricted stock unit and stock appreciation right withholdings	(0.2	)	(16.8		)			—			—			—			(16.8		)
Treasury stock used for new issuances	(0.5	)	(14.9		)	(0.5	)	14.9			—			—			—
Share-based compensation	—		45.9			—		—			—			—			45.9
Cash dividend	—		—			—		—			—			(85.5		)	(85.5		)
Balance at June 30, 2018	253.2		2,637.2			17.7		(647.7		)	(14.9		)	3,149.2			5,123.8
Net income	—		—			—		—			—			96.3			96.3
Other comprehensive loss	—		—			—		—			(1.8		)	—			(1.8		)
Proceeds from sales of common stock through employee equity incentive plans	0.9		13.9			—		—			—			—			13.9
Restricted stock unit and stock appreciation right withholdings	(0.2	)	(20.1		)	—		—			—			—			(20.1		)
Treasury stock used for new issuances	(0.7	)	(22.3		)	(0.7	)	22.3			—			—			—
Share-based compensation	—		44.0			—		—			—			—			44.0
Cash dividend	—					—		—			—			(85.9		)	(85.9		)
Balance at September 30, 2018	253.2		2,652.7			17.0		(625.4		)	(16.7		)	3,159.6			5,170.2
Net income	—		—			—		—			—			49.2			49.2
Other comprehensive loss	—		—			—		—			(0.3		)	—			(0.3		)
Proceeds from sales of common stock through employee equity incentive plans	1.0		6.6			—		—			—			—			6.6
Restricted stock unit and stock appreciation right withholdings	(0.3	)	(20.1		)	—		—			—			—			(20.1		)
Treasury stock used for new issuances	(0.7	)	(23.6		)	(0.7	)	23.6			—			—			—
Share-based compensation	—		41.9			—		—			—			—			41.9
Cash dividend	—		—			—		—			—			(86.4		)	(86.4		)
Balance at December 31, 2018	253.2		$	2,657.5		16.3		$	(601.8	)	$	(17.0	)	$	3,122.4		$	5,161.1

Balance at March 31, 2019	253.2		$	2,679.8		15.6		$	(582.2	)	$	(20.7	)	$	3,210.6		$	5,287.5
Net income	—		—			—		—			—			50.7			50.7
Other comprehensive income	—		—			—		—			(0.3		)	—			(0.3		)
Adoption of ASU 2018-02, cumulative adjustment	—		—			—		—			(1.3		)	1.3			—

Table of Contents



	Common Stock and Additional Paid-in-Capital					Common Stock Held in Treasury					Accumulated Other Comprehensive Income			Retained Earnings			Total Equity
	Shares		Amount			Shares		Amount			Accumulated Other Comprehensive Income			Retained Earnings			Total Equity
Proceeds from sales of common stock through employee equity incentive plans	0.5		7.3			—		—			—			—			7.3
Restricted stock unit and stock appreciation right withholdings	(0.1	)	(11.4		)	—		—			—			—			(11.4		)
Treasury stock used for new issuances	(0.4	)	(13.8		)	(0.4	)	13.8			—			—			—
Share-based compensation	—		41.6			—		—			—			—			41.6
Cash dividend	—		—			—		—			—			(87.1		)	(87.1		)
Balance at June 30, 2019	253.2		2,703.5			15.2		(568.4		)	(22.3		)	3,175.5			5,288.3
Net Income	—		—			—		—			—			108.9			108.9
Other comprehensive income	—		—			—		—			—			—			—
Proceeds from sales of common stock through employee equity incentive plans	0.9		20.2			—		—			—			—			20.2
Restricted stock unit and stock appreciation right withholdings	(0.2	)	(15.2		)	—		—			—			—			(15.2		)
Treasury stock used for new issuances	(0.7	)	(23.2		)	(0.7	)	23.2			—			—			—
Share-based compensation	—		46.4			—		—			—			—			46.4
Cash dividend	—		—			—		—			—			(87.3		)	(87.3		)
Balance at September 30, 2019	253.2		2,731.7			14.5		(545.2		)	(22.3		)	3,197.1			5,361.3
Net income	—		—			—		—			—			311.1			311.1
Other comprehensive income	—		—			—		—			0.3			—			0.3
Proceeds from sales of common stock through employee equity incentive plans	1.0		11.3			—		—			—			—			11.3
Restricted stock unit and stock appreciation right withholdings	(0.2	)	(23.6		)	—		—			—			—			(23.6		)
Treasury stock used for new issuances	(0.8	)	(24.4		)	(0.8	)	24.4			—			—			—
Share-based compensation	—		43.9			—		—			—			—			43.9
Cash dividend	—		—			—		—			—			(87.7		)	(87.7		)
Balance at December 31, 2019	253.2		$	2,738.9		13.7		$	(520.8	)	$	(22.0	)	$	3,420.5		$	5,616.6

See accompanying notes to condensed consolidated financial statements

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MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Microchip Technology Incorporated and its majority-owned and controlled subsidiaries (the Company). All intercompany balances and transactions have been eliminated in consolidation. All dollar amounts in the financial statements and tables in these notes, except per share amounts, are stated in millions of U.S. dollars unless otherwise noted.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (US GAAP), pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). The information furnished herein reflects all adjustments which are, in the opinion of management, of a normal recurring nature and necessary for a fair statement of the results for the interim periods reported. Certain information and footnote disclosures normally included in audited consolidated financial statements have been condensed or omitted pursuant to such SEC rules and regulations. It is suggested that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2019. As further discussed in Note 3, on May 29, 2018, the Company completed its acquisition of Microsemi Corporation (Microsemi) and the Company's fiscal 2019 financial results include Microsemi's results beginning as of such acquisition date. The results of operations for the three and nine months ended December 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2020 or for any other period.

Note 2. Recently Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

On April 1, 2019, the Company adopted Accounting Standards Codification Topic 842, Leases. This standard requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet and aligns many of the underlying principles of the new lessor model with those in Topic 606, Revenue from Contracts with Customers. Topic 842 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. The Company adopted Topic 842 using the retrospective cumulative effect adjustment transition method by recording right-of-use assets of $124.6 million, accrued lease liabilities of $39.4 million and other long-term liabilities of $97.9 million. Under this method, periods prior to fiscal 2020 remain unchanged. The Company applied the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. See Note 9 for further information and disclosures related to the adoption of this standard.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This guidance provides an option to reclassify from accumulated other comprehensive income to retained earnings the stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the “Act”). This ASU is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company adopted the standard and elected to reclassify the income tax effects of the Act from accumulated other comprehensive income to retained earnings effective April 1, 2019. The cumulative impact of adoption resulted in an immaterial change to retained earnings.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12-Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance enhances and simplifies various aspects of the income tax accounting standard ASC 740, 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 amendments are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements.

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

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

Note 3. Business Acquisitions

Acquisition of Microsemi

On May 29, 2018, the Company completed its acquisition of Microsemi Corporation, a publicly traded company headquartered in Aliso Viejo, California. The Company paid an aggregate of approximately $8.19 billion in cash to the stockholders of Microsemi. The total consideration transferred in the acquisition, including approximately $53.9 million of non-cash consideration for the exchange of certain share-based payment awards of Microsemi for stock awards of the Company, was approximately $8.24 billion. In addition to the consideration transferred, the Company recognized in its consolidated financial statements $3.23 billion in liabilities of Microsemi consisting of debt, taxes payable and deferred, restructuring, and contingent and other liabilities of which $2.06 billion of existing debt was paid off. The Company financed the purchase price using approximately $8.10 billion of borrowings consisting of $3.10 billion under its amended and restated revolving line of credit (the "Revolving Credit Facility"), $3.00 billion of term loans ("Term Loan Facility") provided under the Company's amended and restated credit agreement (the "Credit Agreement"), and $2.00 billion in newly issued senior secured notes. The Company incurred $22.0 million in acquisition costs related to the acquisition. As a result of the acquisition, Microsemi became a wholly owned subsidiary of the Company. Microsemi offers a comprehensive portfolio of semiconductor and system solutions for aerospace and defense, communications, data center and industrial markets. The Company's primary reason for this acquisition was to expand the Company's range of solutions, products and capabilities by extending its served available market.

The acquisition was accounted for under the acquisition method of accounting, with the Company identified as the acquirer, and the operating results of Microsemi have been included in the Company's consolidated financial statements as of the closing date of the acquisition. Under the acquisition method of accounting, the aggregate amount of consideration paid by the Company was allocated to Microsemi's net tangible assets and intangible assets based on their estimated fair values as of May 29, 2018. The excess of the purchase price over the value of the net tangible assets and intangible assets was recorded to goodwill. The factors contributing to the recognition of goodwill were based upon the Company's conclusion that there are strategic and synergistic benefits that are expected to be realized from the acquisition. The goodwill has been allocated to the Company's semiconductor products reporting segment. None of the goodwill related to the Microsemi acquisition is deductible for tax purposes. The Company retained independent third-party appraisers to assist management in its valuation of the acquired assets and liabilities.

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



Assets acquired
Cash and cash equivalents	$	340.0
Accounts receivable	215.6
Inventories	576.2
Other current assets	85.2
Property, plant and equipment	201.5
Goodwill	4,364.9
Purchased intangible assets	5,634.5
Long-term deferred tax assets	5.9
Other assets	53.3
Total assets acquired	11,477.1

Liabilities assumed
Accounts payable	(233.8		)
Other current liabilities	(149.3		)
Long-term debt	(2,056.9		)
Deferred tax liabilities	(565.1		)
Long-term income tax payable	(177.7		)
Other long-term liabilities	(49.8		)
Total liabilities assumed	(3,232.6		)
Purchase price allocated	$	8,244.5



Purchased Intangible Assets	Weighted Average
	Useful Life	May 29, 2018
	(in years)	(in millions)
Core and developed technology	15	$	4,569.1
In-process research and development	—	847.1