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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, 2021

OR
☐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

mchp-20211231_g1.jpg
 
  
MICROCHIP TECHNOLOGY INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
Delaware86-0629024
(State or Other Jurisdiction of Incorporation or Organization)(IRS Employer Identification No.)

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

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 the 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 (§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  ☒ 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☒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 SymbolName of Each Exchange on Which RegisteredJanuary 27, 2022
Common Stock, $0.001 par valueMCHPNASDAQ Stock Market LLC555,990,729 shares
(Nasdaq Global Select Market)


Table of Contents
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

INDEX

PART I.  FINANCIAL INFORMATION
PART II.  OTHER INFORMATION

2
Table of Contents
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
Defined Terms(1)
TermDefinition
3.922% 2021 Notes2021 Senior Secured Notes, matured on June 1, 2021
4.333% 2023 Notes2023 Senior Unsecured Notes, maturing June 1, 2023
2.670% 2023 Notes2023 Senior Unsecured Notes, maturing September 1, 2023
0.972% 2024 Notes2024 Senior Unsecured Notes, maturing February 15, 2024
0.983% 2024 Notes2024 Senior Unsecured Notes, maturing September 1, 2024
4.250% 2025 Notes2025 Senior Unsecured Notes, maturing September 1, 2025
2015 Senior Convertible Debt2015 Senior Convertible Debt, maturing February 15, 2025
2017 Senior Convertible Debt2017 Senior Convertible Debt, maturing February 15, 2027
2020 Senior Convertible Debt2020 Senior Convertible Debt, maturing November 15, 2024
2017 Junior Convertible Debt2017 Junior Convertible Debt, maturing February 15, 2037
ASUAccounting Standards Update
Bridge Loan Facility364-Day Senior Secured bridge credit agreement which provides for a term loan facility
CEMsClient engagement managers
Convertible Debt2015 Senior Convertible Debt, 2017 Senior Convertible Debt, 2020 Senior Convertible Debt, and 2017 Junior Convertible Debt
Credit AgreementAmended and Restated Credit Agreement, dated as of December 16, 2021, among the Company, as borrower, the lenders from time to time party thereto, and J.P.Morgan Chase Bank, N.A., as administrative agent
EARExport Administration Regulation
ESEsEmbedded solutions engineers
EURIBOREuro Interbank Offered Rate
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
FPGAField-programmable gate array
OEMsOriginal equipment manufacturers
R&DResearch and development
Revolving Credit Facility$2.75 billion revolving credit facility created pursuant to the Credit Agreement
RSUsRestricted stock units
SARsStock appreciation rights
SECU.S. Securities and Exchange Commission
Senior IndebtednessRevolving Credit Facility, Term Loan Facility, Bridge Loan 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
Senior Notes3.922% 2021 Notes, 4.333% 2023 Notes, 2.670% 2023 Notes, 0.972% 2024 Notes, 0.983% 2024 Notes, and 4.250% 2025 Notes
SOFRSecured Overnight Financing Rate
SONIASterling Overnight Index Average
TCJATax Cuts and Jobs Act of 2017
Term Loan Facility$3.00 billion term loan facility available under the Credit Agreement prior to the December 16, 2021 amendment to such agreement
U.S. GAAPU.S. Generally Accepted Accounting Principles

(1) Certain terms used within this Form 10-Q are defined in the above table.








3
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)

ASSETS
December 31,March 31,
 20212021
Cash and cash equivalents$313.5 $280.0 
Short-term investments2.0 2.0 
Accounts receivable, net930.1 997.7 
Inventories768.2 665.0 
Other current assets186.7 200.5 
Total current assets2,200.5 2,145.2 
Property, plant and equipment, net929.9 854.7 
Goodwill6,673.6 6,670.6 
Intangible assets, net4,256.3 4,794.8 
Long-term deferred tax assets1,721.5 1,749.2 
Other assets265.4 264.3 
Total assets$16,047.2 $16,478.8 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable$301.3 $292.4 
Accrued liabilities917.4 794.3 
Current portion of long-term debt— 1,322.9 
Total current liabilities1,218.7 2,409.6 
Long-term debt7,868.5 7,581.2 
Long-term income tax payable673.5 689.9 
Long-term deferred tax liability41.4 43.9 
Other long-term liabilities441.8 417.1 
Stockholders' equity:  
Preferred stock, $0.001 par value; authorized 5,000,000 shares; no shares issued or outstanding
— — 
Common stock, $0.001 par value; authorized 900,000,000 shares; 576,756,917 shares issued and 555,988,669 shares outstanding at December 31, 2021; 568,958,158 shares issued and 547,057,188 shares outstanding at March 31, 2021
0.6 0.5 
Additional paid-in capital2,500.6 2,403.1 
Common stock held in treasury: 20,768,248 shares at December 31, 2021; 21,900,970 shares at March 31, 2021
(552.7)(433.8)
Accumulated other comprehensive loss(23.3)(26.2)
Retained earnings3,878.1 3,393.5 
Total stockholders' equity5,803.3 5,337.1 
Total liabilities and stockholders' equity$16,047.2 $16,478.8 

See accompanying notes to condensed consolidated financial statements
4
Table of Contents

MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)

Three Months Ended December 31,Nine Months Ended December 31,
 2021202020212020
Net sales$1,757.5 $1,352.1 $4,976.7 $3,971.3 
Cost of sales604.2 506.3 1,747.5 1,519.3 
Gross profit1,153.3 845.8 3,229.2 2,452.0 
Research and development245.4 210.1 730.0 607.9 
Selling, general and administrative177.5 154.2 531.7 445.2 
Amortization of acquired intangible assets215.7 231.6 647.0 699.9 
Special (income) charges and other, net(0.3)4.3 20.4 8.9 
Operating expenses638.3 600.2 1,929.1 1,761.9 
Operating income515.0 245.6 1,300.1 690.1 
Other income (expense):
Interest income0.1 0.2 0.5 0.8 
Interest expense(62.1)(86.5)(199.2)(278.9)
Loss on settlement of debt(16.1)(142.1)(101.6)(214.0)
Other income (loss), net4.6 (0.4)3.5 (2.9)
Income before income taxes441.5 16.8 1,003.3 195.1 
Income tax provision (benefit)88.7 (19.4)155.7 (38.3)
Net income$352.8 $36.2 $847.6 $233.4 
Basic net income per common share$0.64 $0.07 $1.54 $0.46 
Diluted net income per common share$0.62 $0.07 $1.50 $0.44 
Dividends declared per common share$0.2320 $0.1843 $0.6570 $0.5521 
Basic common shares outstanding554.9 526.8 551.2 511.4 
Diluted common shares outstanding567.3 550.8 566.1 533.9 

See accompanying notes to condensed consolidated financial statements
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MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)

Three Months Ended December 31,Nine Months Ended December 31,
2021202020212020
Net income$352.8 $36.2 $847.6 $233.4 
Components of other comprehensive income (loss):
Defined benefit plans:
Actuarial gains (losses) related to defined benefit pension plans, net of tax effect2.1 (3.5)2.8 (6.9)
Reclassification of realized transactions, net of tax effect0.6 0.3 1.8 0.9 
Change in net foreign currency translation adjustment(1.6)1.8 (1.7)5.3 
Other comprehensive income (loss), net of tax effect1.1 (1.4)2.9 (0.7)
Comprehensive income$353.9 $34.8 $850.5 $232.7 

See accompanying notes to condensed consolidated financial statements

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

 Nine Months Ended December 31,
 20212020
Cash flows from operating activities:  
Net income$847.6 $233.4 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization850.3 865.5 
Deferred income taxes6.1 (82.9)
Share-based compensation expense related to equity incentive plans163.2 143.3 
Loss on settlement of debt101.6 214.0 
Amortization of debt discount34.9 57.5 
Amortization of debt issuance costs9.2 13.2 
Other non-cash adjustment(9.5)(0.2)
Changes in operating assets and liabilities, excluding impact of acquisitions:
Decrease in accounts receivable67.6 40.2 
(Increase) decrease in inventories(105.0)17.5 
Increase in accounts payable and accrued liabilities73.8 6.6 
Change in other assets and liabilities30.3 (23.3)
Change in income tax payable24.9 (17.5)
Net cash provided by operating activities2,095.0 1,467.3 
Cash flows from investing activities:  
Proceeds from sales of assets12.2 0.2 
Investments in other assets(91.7)(73.1)
Capital expenditures(255.5)(37.2)
Net cash used in investing activities(335.0)(110.1)
Cash flows from financing activities:
  
Proceeds from borrowings on Revolving Credit Facility2,947.0 3,073.0 
Repayments of Revolving Credit Facility(3,753.5)(3,104.9)
Proceeds from issuance of senior notes997.0 3,577.8 
Repayment of senior notes(1,000.0)— 
Repayment of Bridge Loan Facility— (615.0)
Repayments of Term Loan Facility— (1,723.5)
Payments on settlement of convertible debt(359.8)(2,252.2)
Deferred financing costs(7.8)(18.3)
Purchase of capped call options— (35.8)
Proceeds from sale of common stock47.1 40.2 
Tax payments related to shares withheld for vested RSUs(66.9)(46.5)
Repurchase of common stock(166.0)— 
Payment of cash dividends(363.0)(281.7)
Capital lease payments(0.6)(0.6)
Net cash used in financing activities(1,726.5)(1,387.5)
Net increase (decrease) in cash and cash equivalents33.5 (30.3)
Cash and cash equivalents, and restricted cash at beginning of period280.0 401.0 
Cash and cash equivalents, and restricted cash at end of period$313.5 $370.7 

See accompanying notes to condensed consolidated financial statements
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MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions)
Common Stock and Additional Paid-in-CapitalCommon Stock Held in TreasuryAccumulated Other Comprehensive LossRetained EarningsTotal Equity
SharesAmountSharesAmount
Balance at March 31, 2020516.8 $2,675.3 26.1 $(500.6)$(21.6)$3,432.4 $5,585.5 
Net income— — — — — 123.6 123.6 
Other comprehensive income— — — — 0.5 — 0.5 
Proceeds from sales of common stock through employee equity incentive plans1.2 11.0 — — — — 11.0 
RSU and SAR withholdings(0.3)(11.0)— — — — (11.0)
Treasury stock used for new issuances(0.9)(14.8)(0.9)14.8 — — — 
Shares issued to settle convertible debt13.3 651.5 — — — — 651.5 
Settlement of convertible debt— (810.7)— — — — (810.7)
Share-based compensation— 41.3 — — — — 41.3 
Cash dividend— — — — — (90.4)(90.4)
Balance at June 30, 2020530.1 2,542.6 25.2 (485.8)(21.1)3,465.6 5,501.3 
Net Income— — — — — 73.6 73.6 
Other comprehensive income— — — — 0.2 — 0.2 
Proceeds from sales of common stock through employee equity incentive plans1.5 18.6 — — — — 18.6 
RSU and SAR withholdings(0.3)(14.4)— — — — (14.4)
Treasury stock used for new issuances(1.2)(18.8)(1.2)18.8 — — — 
Shares issued to settle convertible debt14.4 768.7 — — — — 768.7 
Settlement of convertible debt— (859.4)— — — — (859.4)
Share-based compensation— 50.4 — — — — 50.4 
Cash dividend— — — — — (95.3)(95.3)
Balance at September 30, 2020544.5 2,487.7 24.0 (467.0)(20.9)3,443.9 5,443.7 
Net income— — — — — 36.2 36.2 
Other comprehensive loss— — — — (1.4)— (1.4)
Proceeds from sales of common stock through employee equity incentive plans1.4 10.6 — — — — 10.6 
RSU and SAR withholdings(0.3)(21.1)— — — — (21.1)
Treasury stock used for new issuances(1.1)(16.8)(1.1)16.8 — — — 
Shares issued to settle convertible debt16.9 1,160.1 — — — — 1,160.1 
Settlement of convertible debt— (1,339.0)— — — — (1,339.0)
Purchase of capped call options— (35.8)— — — — (35.8)
Issuance of 2020 Senior Convertible Debt— 87.7 — — — — 87.7 
Share-based compensation— 52.0 — — — — 52.0 
Cash dividend— — — — — (96.0)(96.0)
Balance at December 31, 2020561.4 $2,385.4 22.9 $(450.2)$(22.3)$3,384.1 $5,297.0 
Balance at March 31, 2021569.0 $2,403.6 21.9 $(433.8)$(26.2)$3,393.5 $5,337.1 
Net income— — — — — 252.8 252.8 
Other comprehensive income— — — — — — — 
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Common Stock and Additional Paid-in-CapitalCommon Stock Held in TreasuryAccumulated Other Comprehensive LossRetained EarningsTotal Equity
SharesAmountSharesAmount
Proceeds from sales of common stock through employee equity incentive plans1.4 12.2 — — — — 12.2 
RSU and SAR withholdings(0.4)(25.3)— — — — (25.3)
Treasury stock used for new issuances(1.0)(16.3)(1.0)16.3 — — — 
Share-based compensation— 56.2 — — — — 56.2 
Cash dividend— — — — — (113.1)(113.1)
Balance at June 30, 2021569.0 2,430.4 20.9 (417.5)(26.2)3,533.2 5,519.9 
Net Income— — — — — 242.0 242.0 
Other comprehensive income— — — — 1.8 — 1.8 
Proceeds from sales of common stock through employee equity incentive plans1.6 21.2 — — — — 21.2 
RSU and SAR withholdings(0.3)(23.8)— — — — (23.8)
Treasury stock used for new issuances(1.3)(19.6)(1.3)19.6 — — — 
Shares issued to settle convertible debt5.4 399.2 — — — — 399.2 
Settlement of convertible debt— (391.1)— — — — (391.1)
Share-based compensation— 54.9 — — — — 54.9 
Cash dividend— — — — — (121.2)(121.2)
Balance at September 30, 2021574.4 2,471.2 19.6 (397.9)(24.4)3,654.0 5,702.9 
Net income— — — — — 352.8 352.8 
Other comprehensive income— — — — 1.1 — 1.1 
Proceeds from sales of common stock through employee equity incentive plans1.0 13.7 — — — — 13.7 
RSU and SAR withholdings(0.2)(17.8)— — — — (17.8)
Treasury stock used for new issuances(0.8)(11.2)(0.8)11.2 — — — 
Repurchase of common stock— — 2.0 (166.0)— — (166.0)
Shares issued to settle convertible debt2.4 196.9 — — — — 196.9 
Settlement of convertible debt— (201.9)— — — — (201.9)
Share-based compensation— 50.3 — — — — 50.3 
Cash dividend— — — — — (128.7)(128.7)
Balance at December 31, 2021576.8 $2,501.2 20.8 $(552.7)$(23.3)$3,878.1 $5,803.3 

See accompanying notes to condensed consolidated financial statements
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MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Note 1. Basis of Presentation

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, pursuant to the rules and regulations of the SEC.  The information furnished herein reflects all adjustments which are, in the opinion of management, of a normal recurring nature and necessary for a fair statement of the results for the interim periods reported. Certain information and footnote disclosures normally included in audited consolidated financial statements have been condensed or omitted pursuant to such SEC rules and regulations.  It is suggested that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2021.  The results of operations for the three and nine months ended December 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2022 or for any other period.

On August 24, 2021, at our Annual Meeting of Stockholders, our stockholders approved a two-for-one forward stock split and the amendment and restatement of the Company's Certificate of Incorporation to increase the number of authorized shares of common stock from 450.0 million shares to 900.0 million shares. As a result, each stockholder of record at the close of market on October 4, 2021 received one additional share of common stock for every share held. Such shares were distributed after the close of trading on October 12, 2021. All share, equity award, and per share amounts and related shareholders' equity balances presented herein have been adjusted to reflect the stock split.

Note 2. Recently Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

On April 1, 2021, the Company adopted ASU 2019-12-Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance enhances and simplifies various aspects of income tax accounting, including requirements related to hybrid tax regimes, the tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of entities not subject to tax, the intraperiod tax allocation exception to the incremental approach, ownership changes in investments, interim-period accounting for enacted changes in tax law, and the year-to-date loss limitation in interim-period tax accounting. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity, which simplifies the guidance for certain convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company expects the primary impacts of this new standard will be to increase the carrying value of its Convertible Debt and reduce its reported interest expense. In addition, the Company will be required to use the if-converted method for calculating diluted earnings per share. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements.

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Note 3. Segment Information

The Company's reportable segments are semiconductor products and technology licensing.  The Company does not allocate operating expenses, interest income, interest expense, other income or expense, or provision for or benefit from income taxes to these segments for internal reporting purposes, as the Company does not believe that allocating these expenses is beneficial in evaluating segment performance.  Additionally, the Company does not allocate assets to segments for internal reporting purposes as it does not manage its segments by such metrics.

The following tables represent net sales and gross profit for each segment for the periods presented (in millions):

Three Months Ended December 31, 2021Nine Months Ended December 31, 2021
Net SalesGross ProfitNet SalesGross Profit
Semiconductor products$1,725.5 $1,121.3 $4,884.5 $3,137.0 
Technology licensing32.0 32.0 92.2 92.2 
Total$1,757.5 $1,153.3 $4,976.7 $3,229.2 

Three Months Ended December 31, 2020Nine Months Ended December 31, 2020
Net SalesGross ProfitNet SalesGross Profit
Semiconductor products$1,319.9 $813.6 $3,893.9 $2,374.6 
Technology licensing32.2 32.2 77.4 77.4 
Total$1,352.1 $845.8 $3,971.3 $2,452.0 

Note 4. Net Sales

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

Three Months Ended December 31,Nine Months Ended December 31,
2021202020212020
Microcontrollers$972.2 $726.3 $2,768.7 $2,145.8 
Analog500.5 372.8 1,423.5 1,104.7 
Other284.8 253.0 784.5 720.8 
Total net sales$1,757.5 $1,352.1 $4,976.7 $3,971.3 

The product lines listed above are included entirely in the Company's semiconductor product segment with the exception of the other product line, which includes products from both the semiconductor product and technology licensing segments.

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

Three Months Ended December 31,Nine Months Ended December 31,
2021202020212020
Distributors$787.1 $681.6 $2,387.2 $2,003.7 
Direct customers938.4 638.3 2,497.3 1,890.2 
Licensees32.0 32.2 92.2 77.4 
Total net sales$1,757.5 $1,352.1 $4,976.7 $3,971.3 

Distributors are customers that buy products with the intention of reselling them. Distributors generally have a distributor agreement with the Company to govern the terms of the relationship. Direct customers are non-distributor customers, which generally do not have a master sales agreement with the Company. The Company's direct customers primarily consist of OEMs and, to a lesser extent, contract manufacturers. Licensees are customers of the Company's technology licensing segment, which include purchasers of intellectual property and customers that have licensing agreements to use the Company's SuperFlash® embedded flash and Smartbits® one time programmable NVM technologies. All of the contract types listed in the table above are included in the Company's semiconductor product segment with the exception of licenses, which is included in the technology licensing segment.

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