Microchip Technology Inc 10-Q for FY2021 Q1

Microchip Technology Inc (MCHP)

10-Q 2020-08-04 For: 2020-06-30

Added on April 10, 2026

About this 10-Q

Microchip Technology Inc filed this 10-Q on August 4, 2020, covering the quarter ended June 30, 2020 (FY2021 Q1).

Headline figures

Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.31B; down 1.0% from $1.32B a year earlier
Net income: $123.6M; up 143.8% from net income of $50.7M a year earlier
Diluted EPS: $0.48; up 140.0% from $0.20 a year earlier

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



Large accelerated filer	x	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered		July 29, 2020
Common Stock, $0.001 par value	MCHP	NASDAQ	Stock Market LLC	252,451,515 shares
		(Nasdaq Global Select Market)



PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets – June 30, 2020 and March 31, 2020	3

	Condensed Consolidated Statements of Income – Three Months Ended June 30, 2020 and 2019	4

	Condensed Consolidated Statements of Comprehensive Income – Three Months Ended June 30, 2020 and 2019	5

	Condensed Consolidated Statements of Cash Flows – Three Months Ended June 30, 2020 and 2019	6

	Condensed Consolidated Statements of Changes in Equity - Three Months Ended June 30, 2020 and 2019	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4.	Controls and Procedures	39

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57

Item 6.	Exhibits	58

	Signatures

	Certifications

	Exhibits



ASSETS
	June 30,			March 31,
	2020			2020
Cash and cash equivalents	$	378.2		$	401.0
Short-term investments	2.0			2.0
Accounts receivable, net	894.3			934.0
Inventories	657.2			685.7
Other current assets	203.3			194.5
Total current assets	2,135.0			2,217.2
Property, plant and equipment, net	844.0			876.1
Goodwill	6,664.8			6,664.8
Intangible assets, net	5,486.8			5,702.3
Long-term deferred tax assets	1,639.1			1,748.5
Other assets	258.4			217.2
Total assets	$	17,028.1		$	17,426.1
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	211.1		$	246.8
Accrued liabilities	778.4			781.8
Current portion of long-term debt	1,596.3			608.8
Total current liabilities	2,585.8			1,637.4
Long-term debt	7,730.0			8,873.4
Long-term income tax payable	681.1			668.4
Long-term deferred tax liability	112.3			318.5
Other long-term liabilities	417.6			342.9
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; 265,047,572 shares issued and 252,450,046 shares outstanding at June 30, 2020; 258,391,231 shares issued and 245,325,643 shares outstanding at March 31, 2020	0.3			0.2
Additional paid-in capital	2,542.3			2,675.1
Common stock held in treasury: 12,597,526 shares at June 30, 2020; 13,065,588 shares at March 31, 2020	(485.8		)	(500.6		)
Accumulated other comprehensive loss	(21.1		)	(21.6		)
Retained earnings	3,465.6			3,432.4
Total stockholders' equity	5,501.3			5,585.5
Total liabilities and stockholders' equity	$	17,028.1		$	17,426.1



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



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



	Three Months Ended June 30,
	2020			2019
Net sales	$	1,309.7		$	1,322.6
Cost of sales ⁽¹⁾	511.4			507.4
Gross profit	798.3			815.2

Research and development⁽¹⁾	198.0			219.1
Selling, general and administrative ⁽¹⁾	146.3			167.9
Amortization of acquired intangible assets	235.4			248.5
Special charges and other, net	0.3			8.1
Operating expenses	580.0			643.6

Operating income	218.3			171.6
Other income (expense):
Interest income	0.3			0.7
Interest expense	(99.1		)	(132.6		)
Loss on settlement of debt	(26.8		)	(1.9		)
Other (loss) income, net	(3.2		)	2.7
Income before income taxes	89.5			40.5
Income tax benefit	(34.1		)	(10.2		)
Net income	$	123.6		$	50.7


Basic net income per common share	$	0.50		$	0.21
Diluted net income per common share	$	0.48		$	0.20
Dividends declared per common share	$	0.3675		$	0.3655
Basic common shares outstanding	247.7			237.8
Diluted common shares outstanding	257.8			253.9

⁽¹⁾Includes share-based compensation expense as follows:
Cost of sales	$	6.4		$	4.9
Research and development	$	20.5		$	19.5
Selling, general and administrative	$	15.5		$	16.3



	Common Stock and Additional Paid-in-Capital					Common Stock Held in Treasury					Accumulated Other Comprehensive Loss			Retained Earnings			Total Equity
	Shares		Amount			Shares		Amount			Accumulated Other Comprehensive Loss			Retained Earnings			Total Equity
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 loss	—		—			—		—			(0.3		)	—			(0.3		)
Adoption of ASU 2018-02, cumulative adjustment	—		—			—		—			(1.3		)	1.3			—
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

Balance at March 31, 2020	258.4		$	2,675.3		13.1		$	(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 plans	0.6		11.0			—		—			—			—			11.0
Restricted stock unit and stock appreciation right withholdings	(0.1	)	(11.0		)	—		—			—			—			(11.0		)
Treasury stock used for new issuances	(0.5	)	(14.8		)	(0.5	)	14.8			—			—			—
Shares issued to settle convertible debt	6.6		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, 2020	265.0		$	2,542.6		12.6		$	(485.8	)	$	(21.1	)	$	3,465.6		$	5,501.3



Accounting Standards Updates		Description
ASU 2018-15		Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
ASU 2018-13		Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
ASU 2017-04		Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
ASU 2016-13		Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments



	Three Months Ended
	June 30, 2020
	Net Sales		Gross Profit
Semiconductor products	$	1,287.8	$	776.4
Technology licensing	21.9		21.9
Total	$	1,309.7	$	798.3



	Three Months Ended
	June 30, 2019
	Net Sales		Gross Profit
Semiconductor products	$	1,304.0	$	796.6
Technology licensing	18.6		18.6
Total	$	1,322.6	$	815.2



	Coupon Interest Rate	Effective Interest Rate	Fair Value of Liability Component at Issuance ⁽¹⁾
				June 30,			March 31,
				2020			2020
Senior Secured Indebtedness
Revolving Credit Facility				$	1,454.6		$	2,388.5
Term Loan Facility				1,705.7			1,723.5
Bridge Loan Facility				—			615.0
2023 Notes, maturing June 1, 2023 ("4.333% 2023 Notes")	4.333%	4.7%		1,000.0			1,000.0
2021 Notes, maturing June 1, 2021 ("3.922% 2021 Notes")	3.922%	4.5%		1,000.0			1,000.0
2023 Notes, maturing September 1, 2023 ("2.670% 2023 Notes")	2.670%	2.8%		1,000.0			—
Senior Unsecured Indebtedness
2025 Notes, maturing September 1, 2025 ("4.250% 2025 Notes")	4.250%	4.6%		1,200.0			—
Total Senior Indebtedness				7,360.3			6,727.0
Senior Subordinated Convertible Debt - Principal Outstanding
2017 Senior Convertible Debt, maturing February 15, 2027 ("2017 Senior Convertible Debt")	1.625%	6.0%	$1,085.8	1,426.1			2,070.0
2015 Senior Convertible Debt, maturing February 15, 2025 ("2015 Senior Convertible Debt")	1.625%	5.9%	$604.2	726.7			1,110.0
Junior Subordinated Convertible Debt - Principal Outstanding
2017 Junior Convertible Debt, maturing February 15, 2037 ("2017 Junior Convertible Debt")	2.250%	7.4%	$321.1	686.3			686.3
Total Convertible Debt				2,839.1			3,866.3

Gross long-term debt including current maturities				10,199.4			10,593.3
Less: Debt discount ⁽²⁾				(815.0		)	(1,043.2		)
Less: Debt issuance costs ⁽³⁾				(58.1		)	(67.9		)
Net long-term debt including current maturities				9,326.3			9,482.2
Less: Current maturities ⁽⁴⁾				(1,596.3		)	(608.8		)
Net long-term debt				$	7,730.0		$	8,873.4



Fiscal year ending March 31,	Expected Maturities
2021	$	—
2022	1,000.0
2023	—
2024	3,454.6
2025	726.7
Thereafter	5,018.1
Total	$	10,199.4



	Dividend adjusted rates as of June 30, 2020
	Conversion Rate	Approximate Conversion Price		Incremental Share Factor	Maximum Conversion Rate
2017 Senior Convertible Debt ⁽¹⁾	10.5000	$	95.24	5.2500	14.9625
2015 Senior Convertible Debt ⁽¹⁾	16.3740	$	61.07	8.1870	22.9236
2017 Junior Convertible Debt ⁽¹⁾	10.6875	$	93.57	5.3438	14.9625



	Three Months Ended June 30,
	2020			2019
Cash flows from operating activities:
Net income	$	123.6		$	50.7
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	292.8			307.1
Deferred income taxes	(49.4		)	(16.8		)
Share-based compensation expense related to equity incentive plans	42.4			40.7
Loss on settlement of debt	26.8			1.9
Amortization of debt discount	25.3			29.9
Amortization of debt issuance costs	4.8			4.2
Gains on sale of assets	(0.9		)	—
Impairment of intangible assets	—			0.5
Gains on available-for-sale investments and marketable equity securities, net	(0.2		)	(0.8		)
Other non-cash adjustment	0.5			(0.1		)
Changes in operating assets and liabilities, excluding impact of acquisitions:
Decrease (increase) in accounts receivable	39.7			(56.2		)
Decrease (increase) in inventories	24.9			(20.5		)
(Decrease) increase in accounts payable and accrued liabilities	(46.6		)	49.7
Change in other assets and liabilities	1.4			14.4
Change in income tax payable	16.7			(24.1		)
Net cash provided by operating activities	501.8			380.6
Cash flows from investing activities:
Investments in other assets	(7.6		)	(2.6		)
Proceeds from sale of assets	0.2			0.2
Capital expenditures	(9.5		)	(23.9		)
Net cash used in investing activities	(16.9		)	(26.3		)
Cash flows from financing activities:
Payments on settlement of convertible debt	(1,027.2		)	—
Proceeds from issuance of senior notes	2,182.0			—
Repayment of bridge loan facility	(615.0		)	—
Repayments of term loan facility	(17.8		)	(188.0		)
Proceeds from borrowings on revolving loan under credit facility	1,238.0			204.0
Repayments of revolving loan under credit facility	(2,171.9		)	(273.5		)
Deferred financing costs	(5.2		)	—
Payment of cash dividends	(90.4		)	(87.1		)
Proceeds from sale of common stock	11.0			7.3
Tax payments related to shares withheld for vested restricted stock units	(11.0		)	(11.4		)



	Three Months Ended June 30,
	2020		2019
Microcontrollers	$	716.4	$	708.3
Analog, interface, mixed signal and timing products	370.2		386.4
Field-programmable gate array products	86.8		91.0
Licensing, memory and other	136.3		136.9
Total net sales	$	1,309.7	$	1,322.6


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.



	June 30, 2020				March 31, 2020
	Carrying Amount ⁽¹⁾		Fair Value		Carrying Amount ⁽¹⁾		Fair Value
Revolving Credit Facility	$	1,441.1	$	1,454.6	$	2,373.9	$	2,388.5
Term Loan Facility	$	1,691.8	$	1,705.7	$	1,708.9	$	1,723.5
Bridge Loan Facility	$	—	$	—	$	608.8	$	615.0
4.333% 2023 Notes	$	989.7	$	1,080.0	$	988.8	$	990.0
3.922% 2021 Notes	$	994.6	$	1,020.0	$	993.1	$	985.0
2.670% 2023 Notes	$	995.4	$	1,030.0	$	—	$	—
4.250% 2025 Notes	$	1,183.2	$	1,207.6	$	—	$	—
2017 Senior Convertible Debt	$	1,080.4	$	2,104.4	$	1,552.8	$	2,130.3
2015 Senior Convertible Debt	$	601.7	$	1,613.4	$	910.1	$	1,601.8
2017 Junior Convertible Debt	$	348.4	$	997.4	$	345.8	$	656.2



	June 30, 2020
	Gross Amount		Accumulated Amortization			Net Amount
Core and developed technology	$	7,333.0	$	(2,132.2	)	$	5,200.8
Customer-related	903.6		(701.2		)	202.4
In-process research and development	7.7		—			7.7
Distribution rights and other	132.9		(57.0		)	75.9
Total	$	8,377.2	$	(2,890.4	)	$	5,486.8



Fiscal Year Ending March 31,	Projected Amortization Expense
2021	$	740.2
2022	$	906.0
2023	$	701.5
2024	$	622.8
2025	$	505.6



	Semiconductor Products Reporting Unit		Technology Licensing Reporting Unit
Goodwill	$	6,645.6	$	19.2



	Minimum Pension Liability			Foreign Currency			Total
Balance at March 31, 2020	$	(5.1	)	$	(16.5	)	$	(21.6	)
Other comprehensive income (loss) before reclassifications	(0.8		)	1.0			0.2
Amounts reclassified from accumulated other comprehensive income (loss)	0.3			—			0.3
Net other comprehensive income (loss)	(0.5		)	1.0			0.5
Balance at June 30, 2020	$	(5.6	)	$	(15.5	)	$	(21.1	)



	Three Months Ended June 30,
Description of AOCI Component	2020			2019			Related Statement of Income Line
Amortization of actuarial loss	$	(0.3	)	$	(0.2	)	Other income, net


•	The impact of disruptions to our manufacturing and the distribution of our products, including disruptions due to the COVID-19 pandemic and related government responses;


•	That our lead times and ability to fulfill orders were significantly adversely impacted by the COVID-19 pandemic in the early part of the fiscal quarter ended June 30, 2020, but improved as the quarter progressed and the pandemic could adversely impact our business in the fiscal quarter ended September 30, 2020;


•	That local governments could require us to temporarily reduce production further or cease operations at any of our facilities and we could experience constraints in fulfilling customer orders;


•	Our belief that our actions to combat the spread of the COVID-19 virus will help preserve the health of our team members, customers, suppliers, visitors to our facilities, people with whom we conduct business and our communities, and allow us to safely continue operations;


•	Our inability to predict how the COVID-19 pandemic, and actions taken by others in response to it, will affect our business;


•	The effects that uncertain global economic conditions and fluctuations in the global credit and equity markets may have on our financial condition and results of operations;


•	The effects and amount of competitive pricing pressure on our product lines and modest pricing declines in certain of our more mature proprietary product lines;


•	Our ability to moderate future average selling price declines;


•	The effect of product mix, capacity utilization, yields, fixed cost absorption, competition and economic conditions on gross margin;


•	The amount of, and changes in, demand for our products and those of our customers;


•	The impact of national security protections, trade restrictions and changes in tariffs, including those impacting China;


•	Our expectation that in the future we will acquire additional businesses that we believe will complement our existing businesses;


•	The level of orders that will be received and shipped within a quarter, including the impact of our product lead times;