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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 June 30, 2023

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

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

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

2355 W. Chandler Blvd., Chandler, AZ  85224-6199
(Address of Registrant's Principal Executive Offices)

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

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

Indicate by 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 filerAccelerated filer
Non-accelerated filerSmaller 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).  
Yes     No   

The number of shares outstanding of the registrant's Common Stock, $0.001 par value, as of July 26, 2023 was 544,334,286.





MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

INDEX

PART I.  FINANCIAL INFORMATION
PART II.  OTHER INFORMATION

2


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

(1) Certain terms used within this Form 10-Q are defined in 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; unaudited)

ASSETS
June 30,March 31,
 20232023
Cash and cash equivalents$271.2 $234.0 
Accounts receivable, net1,465.0 1,305.3 
Inventories1,336.4 1,324.9 
Other current assets197.0 205.1 
Total current assets3,269.6 3,069.3 
Property, plant and equipment, net1,185.7 1,177.9 
Goodwill6,675.4 6,673.6 
Intangible assets, net3,252.8 3,369.0 
Long-term deferred tax assets1,603.7 1,623.3 
Other assets507.4 457.2 
Total assets$16,494.6 $16,370.3 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable$281.3 $396.9 
Accrued liabilities1,539.6 1,323.5 
Current portion of long-term debt1,398.7 1,398.2 
Total current liabilities3,219.6 3,118.6 
Long-term debt4,632.2 5,041.7 
Long-term income tax payable718.9 705.7 
Long-term deferred tax liability42.3 42.7 
Other long-term liabilities1,050.3 948.0 
Stockholders' equity:  
Preferred stock, $0.001 par value; authorized 5,000,000 shares; no shares issued or outstanding
  
Common stock, $0.001 par value; authorized 900,000,000 shares; 577,805,756 shares issued and 544,333,965 shares outstanding at June 30, 2023; 577,805,623 shares issued and 545,459,814 shares outstanding at March 31, 2023
0.5 0.5 
Additional paid-in capital2,400.3 2,413.3 
Common stock held in treasury: 33,471,791 shares at June 30, 2023; 32,345,809 shares at March 31, 2023
(1,786.7)(1,660.2)
Accumulated other comprehensive loss(4.4)(4.1)
Retained earnings6,221.6 5,764.1 
Total stockholders' equity6,831.3 6,513.6 
Total liabilities and stockholders' equity$16,494.6 $16,370.3 

See accompanying notes to condensed consolidated financial statements
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MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts; unaudited)

Three Months Ended June 30,
 20232022
Net sales$2,288.6 $1,963.6 
Cost of sales730.2 653.7 
Gross profit1,558.4 1,309.9 
Research and development298.5 269.0 
Selling, general and administrative203.6 188.9 
Amortization of acquired intangible assets151.5 167.6 
Special charges (income) and other, net1.7 (16.9)
Operating expenses655.3 608.6 
Operating income903.1 701.3 
Interest income1.5 0.1 
Interest expense(47.2)(50.3)
Loss on settlement of debt(9.1)(6.2)
Other income, net 1.7 
Income before income taxes848.3 646.6 
Income tax provision181.9 139.4 
Net income$666.4 $507.2 
Basic net income per common share$1.22 $0.92 
Diluted net income per common share$1.21 $0.90 
Dividends declared per common share$0.3830 $0.2760 
Basic common shares outstanding545.1 553.8 
Diluted common shares outstanding551.4 561.5 

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; unaudited)

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

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; unaudited)

 Three Months Ended June 30,
 20232022
Cash flows from operating activities:  
Net income$666.4 $507.2 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization222.9 259.4 
Deferred income taxes23.9 74.7 
Share-based compensation expense related to equity incentive plans44.5 41.2 
Loss on settlement of debt9.1 6.2 
Amortization of debt discount1.7 1.8 
Amortization of debt issuance costs2.2 2.3 
Impairment of intangible assets0.5  
Other non-cash adjustment(0.1)(0.2)
Changes in operating assets and liabilities, excluding impact of acquisitions:
Increase in accounts receivable(159.7)(72.4)
Increase in inventories(10.6)(65.0)
Increase in accounts payable and accrued liabilities34.9 152.4 
Change in other assets and liabilities50.5 (42.8)
Change in income tax payable107.0 (24.4)
Net cash provided by operating activities993.2 840.4 
Cash flows from investing activities:  
Proceeds from sales of assets0.3 0.4 
Investments in other assets(30.1)(32.3)
Capital expenditures(111.1)(121.9)
Net cash used in investing activities(140.9)(153.8)
Cash flows from financing activities:  
Proceeds from borrowings on Revolving Credit Facility2,585.0 1,306.0 
Repayments of Revolving Credit Facility(1,960.0)(1,505.0)
Repayment of senior notes(1,000.0) 
Payments on settlement of convertible debt(90.1)(73.5)
Proceeds from sale of common stock15.3 13.4 
Tax payments related to shares withheld for vested RSUs(15.7)(19.4)
Repurchase of common stock(140.3)(195.2)
Payment of cash dividends(208.9)(153.0)
Capital lease payments(0.4)(0.2)
Net cash used in financing activities(815.1)(626.9)
Net increase in cash and cash equivalents37.2 59.7 
Cash and cash equivalents, and restricted cash at beginning of period234.0 317.4 
Cash and cash equivalents, and restricted cash at end of period$271.2 $377.1 
    

See accompanying notes to condensed consolidated financial statements
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MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions; unaudited)
Common Stock and Additional Paid-in-CapitalCommon Stock Held in TreasuryAccumulated Other Comprehensive LossRetained EarningsTotal Equity
SharesAmountSharesAmount
Balance at March 31, 2022577.8 $2,536.5 23.3 $(796.3)$(20.6)$4,175.2 $5,894.8 
Adoption of ASU 2020-06, cumulative adjustment— (128.3)— — — 46.5 (81.8)
Net income— — — — — 507.2 507.2 
Other comprehensive income— — — — 4.0 — 4.0 
Proceeds from sales of common stock through employee equity incentive plans1.2 13.4 — — — — 13.4 
RSU withholdings(0.3)(19.4)— — — — (19.4)
Treasury stock used for new issuances(0.9)(16.5)(0.9)16.5 — —  
Repurchase of common stock— — 2.9 (195.2)— — (195.2)
Settlement of convertible debt— (32.9)— — — — (32.9)
Share-based compensation— 40.8 — — — — 40.8 
Cash dividend— — — — — (153.0)(153.0)
Balance at June 30, 2022577.8 $2,393.6 25.3 $(975.0)$(16.6)$4,575.9 $5,977.9 
Balance at March 31, 2023577.8 $2,413.8 32.3 $(1,660.2)$(4.1)$5,764.1 $6,513.6 
Net income— — — — — 666.4 666.4 
Other comprehensive loss— — — — (0.3)— (0.3)
Proceeds from sales of common stock through employee equity incentive plans0.9 15.3 — — — — 15.3 
RSU withholdings(0.3)(15.7)— — — — (15.7)
Treasury stock used for new issuances(0.6)(14.7)(0.6)14.7 — —  
Repurchase of common stock— — 1.8 (141.2)— — (141.2)
Settlement of convertible debt— (43.3)— — — — (43.3)
Share-based compensation— 45.4 — — — — 45.4 
Cash dividend— — — — — (208.9)(208.9)
Balance at June 30, 2023577.8 $2,400.8 33.5 $(1,786.7)$(4.4)$6,221.6 $6,831.3 

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

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Microchip Technology Incorporated and its majority-owned and controlled subsidiaries (the Company).  All significant intercompany 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, 2023.  The results of operations for the three months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2024 or for any other period.

Note 2. Segment Information

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

The following tables represent net sales and gross profit for each segment for the periods presented (in millions):
Three Months Ended June 30, 2023
Net SalesGross Profit
Semiconductor products$2,254.8 $1,524.6 
Technology licensing33.8 33.8 
Total$2,288.6 $1,558.4 

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

Note 3. Net Sales

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

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

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

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

The Company collects amounts in advance for certain of its contracts with customers. These amounts are deferred until control of the product or service is transferred to the customer at which time it is recognized as revenue. As of June 30, 2023, the Company had approximately $863.1 million of deferred revenue, of which $151.9 million is included within accrued liabilities and the remaining $711.2 million is included within other long-term liabilities on the Company's condensed consolidated balance sheet. As of March 31, 2023, the Company had approximately $757.7 million of deferred revenue in the semiconductor product segment, of which $121.4 million is included within accrued liabilities and the remaining $636.3 million is included within other long-term liabilities on the Company's condensed consolidated balance sheets. Deferred revenue represents amounts that have been invoiced in advance which are expected to be recognized as revenue in future periods. Approximately $52.6 million of deferred revenue recorded on the Company's consolidated balance sheets as of March 31, 2023, was recognized as revenue during the three months ended June 30, 2023. This amount was immaterial for the three months ended June 30, 2022.

Of the $863.1 million of deferred revenue as of June 30, 2023, $778.3 million is cash collected from customers under LTSAs, of which $97.4 million is included within accrued liabilities and $680.9 million is included within other long-term liabilities. Under these LTSAs, the Company receives an upfront deposit from the customer in exchange for assured supply over the contract period, which typically ranges from three to five years. If the customer does not meet the minimum purchase commitments defined in the contract, the Company may retain all, or portions of, the deposit as revenue. If the Company fails to assure supply as defined in the contract, the deposit, or portions of it, will be returned to the customer. The remaining performance obligations for the LTSAs were approximately $4.20 billion as of June 30, 2023, of which approximately 18% is expected to be recognized as net sales during the next 12 months. The amount and timing of such net sales is uncertain because it depends on the satisfaction of commitments made in the LTSAs, which may be affected by the timing and amount of orders placed by customers, contract modifications, variable consideration, sales channels, and manufacturing and supply chain conditions. Accordingly, the amount may not be indicative of net sales in future periods. The remaining $84.8 million of deferred revenue as of June 30, 2023 is related to other cash payments received from customers in advance of the Company’s performance obligations being satisfied. Most of the $84.8 million will be recognized as net sales within the next 12 months.

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

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Note 4. Net Income Per Common Share

The following table sets forth the computation of basic and diluted net income per common share (in millions, except per share amounts):
Three Months Ended June 30,
20232022
Net income$666.4 $507.2 
Basic weighted average common shares outstanding545.1 553.8 
Dilutive effect of stock options and RSUs5.1 5.5 
Dilutive effect of 2015 Senior Convertible Debt0.3 1.0 
Dilutive effect of 2017 Senior Convertible Debt0.9 1.1 
Dilutive effect of 2017 Junior Convertible Debt 0.1 
Diluted weighted average common shares outstanding551.4 561.5 
Basic net income per common share$1.22 $0.92 
Diluted net income per common share$1.21 $0.90 

The Company computed basic net income per common share based on the weighted average number of common shares outstanding during the period. The Company computed diluted net income per common share based on the weighted average number of common shares outstanding plus potentially dilutive common shares outstanding during the period.

Potentially dilutive common shares from employee equity incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options and the assumed vesting of outstanding RSUs. Prior to conversion of its Convertible Debt, the Company will include, in the diluted net income per common share calculation, the effect of the additional shares that may be issued when the Company's common stock price exceeds the conversion price using the if-converted method. The Company's Convertible Debt has no impact on diluted net income per common share unless the average price of the Company's common stock exceeds the conversion price because the Company is required to settle the principal amount of the Convertible Debt in cash upon conversion.  

The following is the weighted average conversion price per share used in calculating the dilutive effect (see Note 5 for details on the Convertible Debt):
Three Months Ended June 30,
20232022
2015 Senior Convertible Debt$29.25 $29.77 
2017 Senior Convertible Debt$45.61 $46.43 
2020 Senior Convertible Debt$92.32 $93.07 
2017 Junior Convertible Debt(1)
$44.81 $45.62 
(1) The weighted average conversion price per share for the 2017 Junior Convertible Debt was prior to the settlement of the outstanding principal amount in May 2023.
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Note 5. Debt

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

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

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

(3) As of June 30, 2023 and March 31, 2023, current maturities consisted of the 0.972% 2024 Notes which mature on February 15, 2024. As of June 30, 2023, the 2.670% 2023 Notes, which mature on September 1, 2023, were excluded
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from current maturities as the Company has the intent and ability to utilize proceeds from its Revolving Credit Facility to refinance such note on a long-term basis. As of June 30, 2023, the 2015 Senior Convertible Debt and the 2017 Senior Convertible Debt were convertible and are excluded from current maturities as the Company has the intent and ability to utilize proceeds from its Revolving Credit Facility to settle the principal portion of its Convertible Debt upon conversion. As of March 31, 2023, the 2.670% 2023 Notes, which mature on September 1, 2023, and the 4.333% 2023 Notes, which matured on June 1, 2023 were excluded from current maturities as the Company had the intent and ability to utilize proceeds from its Revolving Credit Facility to refinance such notes on a long-term basis. As of March 31, 2023, the 2015 Senior Convertible Debt, the 2017 Senior Convertible Debt and the 2017 Junior Convertible Debt were excluded from current maturities as the Company had the intent and ability to utilize proceeds from its Revolving Credit Facility to settle the principal portion of its Convertible Debt upon conversion.

Expected maturities relating to the Company’s debt obligations as of June 30, 2023, are as follows (in millions):
Fiscal year ending March 31,Amount
2024$2,400.0 
20251,672.3 
20261,200.0 
2027781.3 
Total$6,053.6 

Ranking of Convertible Debt - Each series of Convertible Debt is an unsecured obligation which is subordinated in right of payment to the amounts outstanding under the Company's Senior Indebtedness. The Senior Subordinated Convertible Debt is subordinated to the Senior Indebtedness; ranks senior to the Company's indebtedness that is expressly subordinated in right of payment to it; ranks equal in right of payment to any of the Company's unsubordinated indebtedness that does not provide that it is senior to the Senior Subordinated Convertible Debt; ranks junior in right of payment to any of the Company's secured and unsecured unsubordinated indebtedness to the extent of the value of the assets securing such indebtedness; and is structurally subordinated to all indebtedness and other liabilities of the Company's subsidiaries.

Summary of Conversion Features - Each series of Convertible Debt is convertible, subject to certain conditions, into cash, shares of the Company's common stock or a combination thereof, at the Company's election, at specified conversion rates (see table below), adjusted for certain events including the declaration of cash dividends. Except during the three-month period immediately preceding the maturity date of the applicable series of Convertible Debt, each series of Convertible Debt is convertible only upon the occurrence of (i) such time as the closing price of the Company's common stock exceeds the applicable conversion price (see table below) by 130% for 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter, (ii) during the 5 business day period after any 10 consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of notes of a given series for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the applicable conversion rate on each such trading day, or (iii) upon the occurrence of certain corporate events specified in the indenture of such series of Convertible Debt. In addition, for each series, with the exception of the 2020 Senior Convertible Debt, if at the time of conversion the applicable price of the Company's common stock exceeds the applicable conversion price at such time, the applicable conversion rate will be increased by up to an additional maximum incremental shares rate, as determined pursuant to a formula specified in the indenture for the applicable series of Convertible Debt, and as adjusted for cash dividends paid since the issuance of such series of Convertible Debt. However, in no event will the applicable conversion rate exceed the applicable maximum conversion rate specified in the indenture for the applicable series of Convertible Debt (see table below). On April 1, 2022, the Company irrevocably elected cash settlement for the principal amount of its Convertible Debt.
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The following table sets forth the applicable conversion rates adjusted for dividends declared since issuance of such series of Convertible Debt and the applicable incremental share factors and maximum conversion rates as adjusted for dividends paid since the applicable issuance date:
Dividend adjusted rates as of June 30, 2023
Conversion RateApproximate Conversion PriceIncremental Share FactorMaximum Conversion Rate
2015 Senior Convertible Debt(1)
34.1893 $29.25 17.0964 47.8641 
2017 Senior Convertible Debt(1)
21.9235 $45.61 10.9625 31.2412 
2020 Senior Convertible Debt(1)
10.8324 $92.32  15.1653 

(1) As of June 30, 2023, the 2020 Senior Convertible Debt was not convertible. As of June 30, 2023, the holders of each of the 2015 Senior Convertible Debt, and 2017 Senior Convertible Debt have the right to convert their notes between July 1, 2023 and September 30, 2023 because the Company's common stock price has exceeded the applicable conversion price for such series by 130% for the specified period of time during the quarter ended June 30, 2023. As of June 30, 2023, the adjusted conversion rate for the 2015 Senior Convertible Debt and the 2017 Senior Convertible Debt would be increased to 45.7041 shares of common stock and 27.3046 shares of common stock, respectively, per $1,000 principal amount of notes based on the closing price of $89.59 per share of common stock to include an additional maximum incremental share rate per the terms of the applicable indenture. As of June 30, 2023, each of the 2015 Senior Convertible Debt and 2017 Senior Convertible Debt had a conversion value in excess of par of $20.9 million and $81.4 million, respectively.

With the exception of the 2020 Senior Convertible Debt, which became redeemable by the Company after November 20, 2022, the Company may not redeem any series of Convertible Debt prior to the relevant maturity date and no sinking fund is provided for any series of Convertible Debt. Under the terms of the applicable indenture, the Company may repurchase any series of Convertible Debt in the open market or through privately negotiated exchange offers. Upon the occurrence of a fundamental change, as defined in the applicable indenture of such series of Convertible Debt, holders of such series may require the Company to purchase all or a portion of their Convertible Debt for cash at a price equal to 100% of the principal amount plus any accrued and unpaid interest.

Interest expense consists of the following (in millions):
Three Months Ended June 30,
20232022
Debt issuance cost amortization$1.5 $1.7 
Debt discount amortization1.7 1.8 
Interest expense41.5 43.8 
Total interest expense on Senior Indebtedness44.7 47.3 
Debt issuance cost amortization0.7 0.6 
Coupon interest expense0.5 1.0 
Total interest expense on Convertible Debt1.2 1.6 
Other interest expense1.3 1.4 
Total interest expense $47.2 $50.3 
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The Company's debt settlement transactions consists of the following (in millions):
Principal Amount SettledTotal Cash ConsiderationNet Loss on Inducements and Settlements
May 2023(1)
2015 Senior Convertible Debt$5.6 $18.9 $0.4 
2017 Senior Convertible Debt$25.9 $56.3 $6.6 
2017 Junior Convertible Debt$6.5 $14.9 $2.1 
June 2023(2)
4.333% 2023 Notes$1,000.0 $1,000.0 $ 

(1) The Company settled portions of its 2015 Senior Convertible Debt and 2017 Senior Convertible Debt, and the outstanding principal amount of its 2017 Junior Convertible Debt in privately negotiated transactions that are accounted for as induced conversions.
(2) The Company used borrowings under its Revolving Credit Facility to finance a portion of such settlement.

Note 6. Fair Value of Financial Instruments

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.  As a basis for considering such assumptions, the Company utilizes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1-Observable inputs such as quoted prices in active markets;
Level 2-Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3-Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
 
The carrying amount of cash equivalents approximates fair value because their maturity is less than three months. Management believes the carrying amount of the equity investments materially approximated fair value at June 30, 2023 based upon unobservable inputs. The fair values of these investments have been determined as Level 3 fair value measurements. The carrying amount of accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short-term maturity of the amounts and are considered Level 2 in the fair value hierarchy.  

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

(1) The carrying amounts presented are net of debt discounts and debt issuance costs (see Note 5 for further information).

Note 7. Intangible Assets and Goodwill

Net amounts excluding fully amortized intangible assets, consist of the following (in millions):
June 30, 2023
Gross AmountAccumulated AmortizationNet Amount
Core and developed technology$7,310.0 $(4,253.4)$3,056.6 
Customer-related199.8 (131.9)67.9 
Software licenses220.8 (92.5)128.3 
Total$7,730.6 $(4,477.8)$3,252.8 

March 31, 2023
Gross AmountAccumulated AmortizationNet Amount
Core and developed technology$7,296.2 $(4,103.4)$3,192.8 
Customer-related199.8 (128.0)71.8 
In-process research and development5.7 — 5.7 
Software licenses211.7 (113.0)98.7 
Distribution rights and other0.3 (0.3) 
Total$7,713.7 $(4,344.7)$3,369.0 

The following is an expected amortization schedule for the intangible assets for the remainder of fiscal 2024 through fiscal 2028, absent any future acquisitions or impairment charges (in millions):
Fiscal Year Ending March 31,Amortization Expense
2024$517.0 
2025$555.6 
2026$485.0 
2027$383.0 
2028$297.1 


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The Company amortizes intangible assets over their expected useful lives, which range between 1 and 15 years. Amortization expense attributed to intangible assets are assigned to cost of sales and operating expenses as follows (in millions):
Three Months Ended June 30,
20232022
Amortization expense charged to cost of sales$3.0 $3.3 
Amortization expense charged to operating expense169.4 184.4 
Total amortization expense$172.4 $187.7 

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

Goodwill activity by segment was as follows (in millions):
 Semiconductor Products Reporting UnitTechnology Licensing Reporting Unit
Balance at March 31, 2023$6,654.4 $19.2 
Additions1.8  
Balance at June 30, 2023$6,656.2 $19.2 
 
At March 31, 2023, 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 June 30, 2023, the Company has never recorded a goodwill impairment charge.

Note 8. Other Financial Statement Details

Accounts Receivable
 
Accounts receivable consists of the following (in millions):
 June 30,March 31,
20232023
Trade accounts receivable$1,460.3 $1,300.4 
Other13.3 13.5 
Total accounts receivable, gross1,473.6 1,313.9 
Less: allowance for expected credit losses8.6 8.6 
Total accounts receivable, net$1,465.0 $1,305.3 

The Company sells certain of its trade accounts receivable on a non-recourse basis to a third-party financial institution pursuant to a factoring arrangement. The Company accounts for these transactions as sales of receivables and presents cash proceeds as cash provided by operating activities in the consolidated statements of cash flows. Total trade accounts receivable sold under the factoring arrangement were $64.9 million and $168.7 million in the three months ended June 30, 2023 and June 30, 2022, respectively. Factoring fees for the sales of receivables were recorded in other income, 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 June 30, 2023 and 2022.

Inventories

The components of inventories consist of the following (in millions):
 June 30,March 31,
20232023
Raw materials$195.0 $192.6 
Work in process854.7 809.8 
Finished goods286.7 322.5 
Total inventories$1,336.4 $1,324.9 
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Property, Plant and Equipment

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

The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amount of such assets may not be recoverable. For each of the three months ended June 30, 2023 and 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):
 June 30,March 31,
20232023
Accrued compensation and benefits$214.9 $193.5 
Income taxes payable200.8 106.2 
Deferred revenue151.9 121.4 
Sales related reserves634.7 536.1 
Current portion of lease liabilities31.7 31.5 
Accrued expenses and other liabilities305.6 334.8 
Total accrued liabilities$1,539.6 $1,323.5 

Note 9. Commitments and Contingencies

Purchase Commitments

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

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Total purchase commitments as of June 30, 2023, are as follows (in millions):
Fiscal Year Ending March 31,Purchase Commitments
2024$724.0 
2025201.6 
2026217.4 
2027195.6 
2028171.0 
Thereafter196.3 
Total$1,705.9 

Indemnification Contingencies

The Company's technology license agreements generally include an indemnification clause that indemnifies the licensee against liability and damages (including legal defense costs) arising from any claims of patent, copyright, trademark or trade secret infringement by the Company's proprietary technology.  The terms of these indemnification provisions approximate the terms of the outgoing technology license agreements, which are typically perpetual unless terminated by either party for breach. The possible amount of future payments the Company could be required to make based on agreements that specify indemnification limits, if such indemnifications were required on all of these agreements, is approximately $187.0 million. There are some licensing agreements in place that do not specify indemnification limits. As of June 30, 2023, the Company had not recorded any liabilities related to these indemnification obligations and the Company believes that any amounts that it may be required to pay under these agreements in the future will not have a material adverse effect on its financial position, cash flows or results of operations.

Warranty Costs and Product Liabilities

The Company accrues for known product-related claims if a loss is probable and can be reasonably estimated. During the periods presented, there have been no material accruals or payments regarding product warranty or product liability. Historically, the Company has experienced a low rate of payments on product claims. Although the Company cannot predict the likelihood or amount of any future claims, the Company does not believe these claims will have a material adverse effect on its financial condition, results of operations or liquidity.

Legal Matters

In the ordinary course of the Company's business, it is exposed to various legal actions as a result of contracts, product liability, customer claims, pricing or royalty disputes with customers and licensees, governmental investigations and other matters. The Company is involved in a limited number of these legal actions, both as plaintiff and defendant, with respect to the foregoing types of matters. Consequently, the Company could incur uninsured liability in any of these legal actions.  The Company also periodically receives notifications from various third parties alleging infringement of patents or other intellectual property rights, or from customers requesting reimbursement for various costs. With respect to pending legal actions to which the Company is a party and other claims, although the outcomes are generally not determinable, the Company believes that the ultimate resolution of these matters will not have a material adverse effect on its financial position, cash flows or results of operations. Litigation, governmental investigations and disputes relating to the semiconductor industry are not uncommon, and the Company is, from time to time, subject to such litigation, governmental investigations and disputes.  As a result, no assurances can be given with respect to the extent or outcome of any such litigation, governmental investigations or disputes in the future.

In connection with its acquisition of Microsemi, which closed on May 29, 2018, the Company became involved with the following legal matter:

Derivative Litigation. On January 22, 2019, a shareholder derivative lawsuit was filed against certain of the Company’s officers and directors in the Superior Court of Arizona for Maricopa County, captioned Reid v. Sanghi, et al., Case No. CV2019-002389. On August 5, 2021, a second shareholder derivative lawsuit was filed against certain of the Company’s officers and directors in the Superior Court of Arizona for Maricopa County, captioned Dutrisac v. Sanghi, et al., Case No. CV2021-012459. The Company is named as a nominal defendant in both cases. The parties entered an agreement to settle the Reid and Dutrisac actions. On March 29, 2023, the court granted preliminary approval of the settlement. The terms of the settlement include corporate government enhancements, payment of $4.0 million to the Company from the Company's directors and officers insurance carrier (a portion of which plaintiffs sought as attorney fees), and a payment of $1.8 million in
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plaintiff attorneys' fees by the Company. In June 2023, the court granted final approval of the settlement and the cases are now concluded.

As a result of its acquisition of Atmel, which closed April 4, 2016, the Company became involved with the following legal matter:

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. In 2020, the Plaintiffs filed appeals with the Court of Appeals requesting reconsideration of the earlier dismissals. In December 2022, the Court of Appeals dismissed these appeals and held that there had been no co-employment of the plaintiffs by Atmel Rousset and LFoundry Rousset. However, in 2017 these same claims were filed by this same group of employees in a regional court in France against Microchip Technology Incorporated and Atmel Corporation. The Company, and the other defendant entities, believe that each of these actions is entirely devoid of merit, and, further, that any assertion by any of the Claimants of a co-employment relationship with 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 June 30, 2023, the Company's estimate of the aggregate potential liability for legal matters that is possible but not probable is approximately $150.0 million in excess of amounts accrued.

Note 10. Income Taxes

The Company accounts for income taxes in accordance with ASC 740. The provision for income taxes is attributable to U.S. federal, state, and foreign income taxes. The Company’s effective tax rate used for interim periods is based on an estimated annual effective tax rate including the tax effect of items required to be recorded discretely in the interim periods in which those items occur. A comparison of the Company’s effective tax rates for the three months ended June 30, 2023 and June 30, 2022 is not meaningful due to the amount of pre-tax income, and income tax expense recorded during the prior period.

The Company's effective tax rate is different than the statutory rates in the U.S. due to foreign income taxed at different rates than the U.S., changes in uncertain tax benefit positions, changes to valuation allowances, generation of tax credits, and the impact of Global Intangible Low Tax Income (GILTI) in the U.S. In addition, the Company has numerous tax holidays it receives related to its Thailand manufacturing operations based on its investment in property, plant and equipment in Thailand. The Company's tax holiday periods in Thailand expire at various times in the future, however, the Company actively seeks to obtain new tax holidays. The material components of foreign income taxed at a rate lower than the U.S. are earnings accrued in Thailand, Malta, and Ireland.

The Company files U.S. federal, U.S. state, and foreign income tax returns.  For U.S. federal, and in general for U.S. state tax returns, the fiscal 2007 and later tax years remain open for examination by tax authorities.  For foreign tax returns, the Company is generally no longer subject to income tax examinations for years prior to fiscal 2007.

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Note 11. Share-Based Compensation
 
The following table presents the details of the Company's share-based compensation expense (in millions):
Three Months Ended June 30,
20232022
Cost of sales(1)
$6.8 $7.7 
Research and development22.9 20.1 
Selling, general and administrative14.8 13.4 
Pre-tax effect of share-based compensation44.5 41.2 
Income tax benefit9.4 8.8 
Net income effect of share-based compensation$35.1 $32.4 
 
(1) During the three months ended June 30, 2023, $5.2 million of share-based compensation expense was capitalized to inventory and $6.8 million of previously capitalized share-based compensation expense in inventory was sold. During the three months ended June 30, 2022, $4.8 million of share-based compensation expense was capitalized to inventory and $7.7 million of previously capitalized share-based compensation expense in inventory was sold.

Note 12. 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 three months ended June 30, 2023, the Company purchased approximately 1.8 million shares of its common stock for a total cost of $141.2 million including the 1% excise tax on stock repurchases enacted by the Inflation Reduction Act of 2022 (Inflation Reduction Act). As of June 30, 2023, approximately $2.49 billion remained available for repurchases under the program. Shares repurchased are recorded as treasury shares and are used to fund share issuance requirements under the Company's equity incentive plans. As of June 30, 2023, the Company had approximately 33.5 million treasury shares.

Note 13. Accumulated Other Comprehensive Loss

The following table presents the changes in the components of accumulated other comprehensive loss, net of tax (in millions):
Minimum Pension LiabilityForeign CurrencyTotal
Balance at March 31, 2023$11.0 $(15.1)$(4.1)
Net other comprehensive loss(0.3) (0.3)
Balance at June 30, 2023$10.7 $(15.1)$(4.4)

Note 14. Dividends

A quarterly cash dividend of $0.383 per share was paid on June 5, 2023 in the aggregate amount of $208.9 million.  A quarterly cash dividend of $0.410 per share was declared on August 3, 2023 and will be paid on September 5, 2023 to stockholders of record as of August 22, 2023. The Company expects the September 2023 payment of its quarterly cash dividend to be approximately $223.0 million.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Note Regarding Forward-looking Statements

This report, including "Part I – Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II - Item 1A. Risk Factors" contains certain forward-looking statements that involve risks and uncertainties, including statements regarding our strategy, financial performance and revenue sources.  We use words such as "anticipate," "believe," "can," "continue," "could," "expect," "future," "intend," "plan," and similar expressions to identify forward-looking statements.  Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors including those set forth under "Risk Factors," beginning at page 34 and elsewhere in this Form 10-Q.  Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  You should not place undue reliance on these forward-looking statements.  We disclaim any obligation to update information contained in any forward-looking statement.  These forward-looking statements include, without limitation, statements regarding the following:
The future impact on our business in response to the COVID-19 pandemic or other public health concerns;
Our expectation that we will experience period-to-period fluctuations in operating results, gross margins, product mix and average gross profit per unit;
The effects that 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 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 intent to vigorously defend our legal positions;
Our goal to continue to be more efficient with our selling, general and administrative expenses;
Our belief that customers recognize our products and brand name and our use of distributors as an effective supply channel;
Our belief that familiarity with and adoption of development tools from us and from our third-party development tool partners will be an important factor in the future selection of our embedded control products;
The accuracy of our estimates of the useful life and values of our property, assets and other liabilities;
Fluctuations in our analog product line;
The impact of any supply disruption we may experience;
Our ability to effectively utilize our facilities at appropriate capacity levels;
Our ability to maintain manufacturing yields;
The maintenance of our competitive position based on our investments in new and enhanced products;
The cost effectiveness of using our own assembly and test operations;
Our plans to continue to transition certain outsourced assembly and test capacity to our internal facilities;
Our expectations regarding investments in our manufacturing capacity;
The continued development of the embedded control market based on our strong technical service presence;
Our anticipated level of capital expenditures;
The possibility that loss of, or disruption in the operations of, one or more of our distributors could reduce our future net sales and/or increase our inventory returns;
Our expectations regarding LTSAs and Preferred Supply Program;
The continuation and amount of quarterly cash dividends;
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;
Our belief that the capital expenditures to be incurred over the next 12 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 production requirements that are currently outsourced;
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;
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 impact of the resolution of legal actions on our business, and the accuracy of our assessment of the probability of loss and range of potential loss;
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The amounts and timing, and our plans and expectations relating to the Statutory Notice of Deficiency and proposed income adjustment from the Malaysian Inland Revenue Board;
Our expectation regarding the treatment of our unrecognized tax benefits in calendar year 2023;
Our belief that the expiration of any tax holidays will not have a material impact on our effective tax rate;
Our expectations regarding our tax expense, cash taxes and effective tax rate;
Our belief that the estimates used in preparing our condensed consolidated financial statements are reasonable;
Our actions to vigorously and aggressively defend and protect our intellectual property on a worldwide basis;
Our ability to obtain and maintain patents and intellectual property licenses and minimize the effects of litigation or other disputes or the loss of patent protection;
The level of risk we are exposed to for product liability claims or indemnification claims;
The effect of fluctuations in market interest rates on our income and/or cash flows;
The effect of fluctuations in currency rates;
The impact of inflation on our business;
Our ability to 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 expectation that our reliance on third-party contractors may increase over time as our business grows;
Our ability to collect accounts receivable;
The impact of the legislative and policy changes implemented or which may be implemented by the current administration, on our business and the trading price of our stock;
Our belief that our culture, values, and organizational development and training programs provide an inclusive work environment where our employees are empowered and engaged to deliver the best embedded control solutions;
Our belief that our continued success is driven by the skills, knowledge, and innovative capabilities of our personnel, a strong technical service presence, and our ability to rapidly commercialize new and enhanced products;
The potential impact of changes in regulations or in their enforcement, including with respect to the capital expenditures or other costs or expenses;
The impact of any failure by use to adequately control the storage, use, discharge and disposal of regulated substances;
Estimates and plans regarding pension liability and payments expected to be made for benefits earned; and
The impact on our business stemming from Russia’s invasion of Ukraine.

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

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Introduction

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

We begin our Management's Discussion and Analysis of Financial Condition and Results of Operations with a summary of business and macroeconomic developments followed by a summary of our overall business strategy to provide an overview of the goals and overall direction of our business. This is followed by a discussion of the Critical Accounting Policies and Estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. We then discuss our Results of Operations for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, 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."

Business and Macroeconomic Environment