MICROCHIP TECHNOLOGY INC

Previous wording

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, 2024 compared to the three months ended June 30, 2023, 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."

Current wording

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 and six months ended September 30, 2024 compared to the three and six months ended September 30, 2023, 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."

Previous wording

During fiscal 2024, many of our customers felt the adverse effects of slowing economic activity, increasing business uncertainty, persistent inflation and higher interest rates and we received requests to push out or cancel backlog resulting from customer actions to reduce inventory levels. Although we began to see evidence of improvements in our business in the March 2024 quarter which continued in the June 2024 quarter, such as a decrease in customer requests to push out or cancel backlog while bookings increased and the number of expedites and shipment pull in requests grew, overall the macroeconomic environment remained weak in the June 2024 quarter. With the exception of certain markets we serve including aerospace and defense, and the artificial intelligence subset of data centers our customers continued to reduce inventory levels, driven by business uncertainty, ample supply, and shorter product lead times. We continue to prioritize our efforts to manage our high inventory levels, and our global production facilities continue to run at lower utilization rates. Consistent with the weak macroeconomic environment, most of our factory expansion activity remains paused and we have reduced our planned capital investments through fiscal 2025. We are unable to predict the timing or impact of any such slowdown on our business.

Current wording

During fiscal 2024, many of our customers felt the adverse effects of slowing economic activity, increasing business uncertainty, persistent inflation and higher interest rates and we received requests to push out or cancel backlog resulting from customer actions to reduce inventory levels. Although we began to see evidence of improvements in our business in the March 2024 quarter which continued in the June 2024 and September 2024 quarters, such as a decrease in customer requests to push out or cancel backlog while bookings increased and the number of expedites and shipment pull in requests grew, overall the macroeconomic environment remained weak in the first half of fiscal 2025. In the September 2024 quarter, with the exception of certain markets we serve including aerospace and defense and the artificial intelligence subset of data centers, our customers continued to reduce inventory levels, driven by business uncertainty, ample supply, and shorter product lead times. We continue to prioritize our efforts to manage our high inventory levels, and our global production facilities continue to run at lower utilization rates. Consistent with the weak macroeconomic environment, most of our factory expansion activity remains paused and we have reduced our planned capital investments through fiscal 2026.

Previous wording

There were no changes to our critical accounting policies and estimates during the first three months of the fiscal year ending March 31, 2025 compared to our "Critical Accounting Policies and Estimates" as previously described in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024.

Current wording

There were no changes to our critical accounting policies and estimates during the first six months of the fiscal year ending March 31, 2025 compared to our "Critical Accounting Policies and Estimates" as previously described in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024.

Previous wording

The decrease in net sales in the three months ended June 30, 2024 compared to June 30, 2023 was primarily due to adverse economic conditions, including slowing economic activity, increasing business uncertainty, persistent inflation, higher interest rates, and shorter product lead times, which factors resulted in many customers having higher levels of inventory. Due to the size, complexity and diversity of our customer base, we are not able to quantify any material factor contributing to the changes in net sales. See our "Business and Macroeconomic Environment" discussion above for further information on our business outlook.

Current wording

The decreases in net sales in the three and six months ended September 30, 2024 compared to the three and six months ended September 30, 2023 were primarily due to adverse economic conditions, including slowing economic activity, increasing business uncertainty, persistent inflation, high interest rates, and shorter product lead times, which factors resulted in many customers having higher levels of inventory. Due to the size, complexity and diversity of our customer base, we are not able to quantify any material factor contributing to the changes in net sales. See our "Business and Macroeconomic Environment" discussion above for further information on our business outlook.

Previous wording

Other factors that we believe contributed to changes in our reported net sales for the three months ended June 30, 2024 compared to June 30, 2023 and which are drivers of long-term trends in our net sales but which factors we are not able to quantify include:

Current wording

Other factors that we believe contributed to changes in our reported net sales for the three and six months ended September 30, 2024 compared to the three and six months ended September 30, 2023 and which are drivers of long-term trends in our net sales but which factors we are not able to quantify include:

Previous wording

We sell a large number of products to a large and diverse customer base and there was not any single product or customer that accounted for a material portion of the change in our net sales in the three months ended June 30, 2024 or the three months ended June 30, 2023.

Current wording

We sell a large number of products to a large and diverse customer base and there was not any single product or customer that accounted for a material portion of the change in our net sales in the three and six months ended September 30, 2024 or the three and six months ended September 30, 2023.

Previous wording

Our mixed-signal microcontroller product line represents the largest component of our total net sales. Mixed-signal microcontrollers and associated application development systems accounted for approximately 52.0% of our net sales in the three months ended June 30, 2024 compared to approximately 56.9% of our net sales in the three months ended June 30, 2023.

Current wording

Our mixed-signal microcontroller product line represents the largest component of our total net sales. Mixed-signal microcontrollers and associated application development systems accounted for approximately 51.1% and 51.5% of our net sales for the three and six months ended September 30, 2024, respectively, compared to approximately 56.8% of our net sales for each of the three and six months ended September 30, 2023.

Previous wording

Net sales of our mixed-signal microcontroller products decreased 50.5% in the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to adverse economic conditions, including slowing economic activity, increasing business uncertainty, persistent inflation, higher interest rates, and shorter product lead times, which factors resulted in many customers having higher levels of inventory.

Current wording

Net sales of our mixed-signal microcontroller products decreased 53.6% and 52.0% in the three and six months ended September 30, 2024, respectively, compared to the three and six months ended September 30, 2023. These decreases in net sales were primarily due to adverse economic conditions, including slowing economic activity, increasing business uncertainty, persistent inflation, high interest rates, and shorter product lead times, which factors resulted in many customers having higher levels of inventory.

Previous wording

Historically, average selling prices in the semiconductor industry decrease over the life of any particular product. However, the overall average selling prices of our mixed-signal microcontroller products have increased in recent periods and have remained relatively stable over time due to the proprietary nature of these products. We have in the past been able to, and expect in the future to be able to, moderate average selling price declines in our mixed-signal microcontroller product lines by introducing new products with more features and higher prices.

Current wording

Historically, average selling prices in the semiconductor industry decrease over the life of any particular product. However, the overall average selling prices of our mixed-signal microcontroller products have remained relatively stable in recent periods due to the proprietary nature of these products. We have in the past been able to, and expect in the future to be able to, moderate average selling price declines in our mixed-signal microcontroller product lines by introducing new products with more features and higher prices.

Previous wording

Our analog product line includes analog, interface, mixed-signal and timing products. Our analog product line accounted for approximately 26.6% of our net sales in the three months ended June 30, 2024 compared to approximately 27.7% of our net sales in the three months ended June 30, 2023.

Current wording

Our analog product line includes analog, interface, mixed-signal and timing products. Our analog product line accounted for approximately 25.1% and 25.9% of our net sales for the three and six months ended September 30, 2024, respectively, compared to approximately 27.6% and 27.7% of our net sales for the three and six months ended September 30, 2023, respectively.

Previous wording

Net sales from our analog product line decreased 47.8% in the three months ended June 30, 2024 compared to the three months ended June 30, 2023, was primarily due to adverse economic conditions, including slowing economic activity, increasing business uncertainty, persistent inflation, higher interest rates, and shorter product lead times, which factors resulted in many customers having higher levels of inventory.

Current wording

Net sales from our analog product line decreased 53.1% and 50.4% in the three and six months ended September 30, 2024, respectively, compared to the three and six months ended September 30, 2023, primarily due to adverse economic conditions, including slowing economic activity, increasing business uncertainty, persistent inflation, high interest rates, and shorter product lead times, which factors resulted in many customers having higher levels of inventory.

Previous wording

Our other product line includes FPGA products, royalties associated with licenses for the use of our SuperFlash and other technologies, sales of our intellectual property, fees for engineering services, memory products, timing systems, manufacturing services (wafer foundry and assembly and test subcontracting), legacy application specific integrated circuits, and certain products for aerospace applications. Revenue from these services and products accounted for approximately 21.4% of our net sales in the three months ended June 30, 2024 compared to approximately 15.4% of our net sales in the three months ended June 30, 2023.

Current wording

Our other product line includes FPGA products, royalties associated with licenses for the use of our SuperFlash and other technologies, sales of our intellectual property, fees for engineering services, memory products, timing systems, manufacturing services (wafer foundry and assembly and test subcontracting), legacy application specific integrated circuits, and certain products for aerospace applications. Revenue from these services and products accounted for approximately 23.8% and 22.6% of our net sales for the three and six months ended September 30, 2024, respectively, compared to approximately 15.6% and 15.5% of our net sales for the three and six months ended September 30, 2023, respectively. We recently settled an ongoing legal matter with one of our licensees. The impact of this settlement was the release of an accrual, which increased both our revenue and profits by $13.3 million in the September 2024 quarter.

Previous wording

Net sales related to these services and products decreased 24.7% in the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The decrease was primarily due to adverse economic conditions, including slowing economic activity, increasing business uncertainty, persistent inflation, higher interest rates, and shorter product lead times, which factors resulted in many customers having higher levels of inventory. Net sales of our other product line can fluctuate over time based on general economic and semiconductor industry conditions as well as changes in demand for our FPGA products, licenses, engineering services, memory products, timing systems, and manufacturing services (wafer foundry and assembly and test subcontracting).

Current wording

Net sales related to these services and products decreased 21.1% and 22.9% in the three and six months ended September 30, 2024, respectively, compared to the three and six months ended September 30, 2023. These decreases in net sales were primarily due to adverse economic conditions, including slowing economic activity, increasing business uncertainty, persistent inflation, high interest rates, and shorter product lead times, which factors resulted in many customers having higher levels of inventory. Net sales of our other product line can fluctuate over time based on general economic and semiconductor industry conditions as well as changes in demand for our FPGA products, licenses, engineering services, memory products, timing systems, and manufacturing services (wafer foundry and assembly and test subcontracting).

Previous wording

Distributors accounted for approximately 47% of our net sales in the three months ended June 30, 2024 and approximately 48% of our net sales in the three months ended June 30, 2023. With the exception of Arrow Electronics, our largest distributor, which accounted for 11% of our net sales in the three months ended June 30, 2024 and in the three months ended June 30, 2023, no other distributor or direct customer accounted for more than 10% of our net sales in the three months ended June 30, 2024 or in the three months ended June 30, 2023. Our distributors focus primarily on servicing the product requirements of a broad base of diverse customers. We believe that distributors provide an effective means of reaching this broad and diverse customer base and that customers recognize Microchip for its products and brand name and use distributors as an effective supply channel.

Current wording

Distributors accounted for approximately 44% and 45% of our net sales in the three and six months ended September 30, 2024, respectively, and approximately 50% and 49% of our net sales in the three and six months ended September 30, 2023, respectively. With the exception of Arrow Electronics, our largest distributor, which accounted for 10% and 11% of our net sales in the six months ended September 30, 2024 and in the six months ended September 30, 2023, respectively, no other distributor or direct customer accounted for more than 10% of our net sales in the six months ended September 30, 2024 or in the six months ended September 30, 2023. Our distributors focus primarily on servicing the product requirements of a broad base of diverse customers. We believe that distributors provide an effective means of reaching this broad and diverse customer base and that customers recognize Microchip for its products and brand name and use distributors as an effective supply channel.

Previous wording

At June 30, 2024, our distributors maintained 43 days of inventory of our products compared to 41 days at March 31, 2024. Over the past ten fiscal years, the days of inventory maintained by our distributors have fluctuated between approximately 17 days and 43 days. Inventory holding patterns at our distributors may have a material impact on our net sales. Due to the relatively high level of inventory days, we have accommodated efforts by our distributors to manage their inventory levels.

Current wording

At September 30, 2024, our distributors maintained 40 days of inventory of our products compared to 41 days at March 31, 2024. Over the past ten fiscal years, the days of inventory maintained by our distributors have fluctuated between approximately 17 days and 43 days. Inventory holding patterns at our distributors may have a material impact on our net sales. Due to the relatively high level of inventory days, we have accommodated efforts by our distributors to manage their inventory levels.

Previous wording

Americas sales include sales to customers in the U.S., Canada, Central America and South America. Sales to foreign customers accounted for approximately 76% of our total net sales in each of the three months ended June 30, 2024 and June 30, 2023. Our net sales in all geographies decreased in the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to adverse economic conditions, including slowing economic activity, persistent inflation, higher interest rates, and shorter product lead times. Substantially all of our foreign sales are U.S. dollar denominated. Our sales force in the Americas and Europe supports a significant portion of the design activity for products which are ultimately shipped to Asia.

Current wording

Americas sales include sales to customers in the U.S., Canada, Central America and South America. Sales to foreign customers accounted for approximately 74% and 75% of our total net sales in the three and six months ended September 30, 2024, respectively, compared to approximately 75% and 76% of our total net sales in each of the three and six months ended September 30, 2023, respectively. The decreases in net sales in the European market in the three and six months ended September 30, 2024 compared to the three and six months ended September 30, 2023 were due to general weakness in the European economy, and decreases in our net sales in the European industrial and automotive markets, which were particularly weak. Our net sales in the Americas and Asia market decreased in the three and six months ended September 30, 2024 compared to the three and six months ended September 30, 2023, primarily due to adverse economic conditions, including slowing economic activity, persistent inflation, high interest rates, and shorter product lead times. Substantially all of our foreign sales are U.S. dollar denominated. Our sales force in the Americas and Europe supports a significant portion of the design activity for products which are ultimately shipped to Asia.

Previous wording

The primary reason for the decrease in gross profit of $754.1 million in the three months ended June 30, 2024 compared to June 30, 2023 was an unfavorable net impact of sales volume, product mix and average gross profit per unit in the three months ended June 30, 2024. The net impact of product mix and average gross profit per unit may fluctuate over time due to the mix of sales volumes of lower or higher margin products, changes in selling prices, and fluctuations in product costs. We are not able to separately quantify these impacts on our gross profit. The net impact to our gross profit from inventory reserve charges was an adverse impact of $19.9 million in the three months ended June 30, 2024 compared to June 30, 2023. The gross margin impact of changes in licensing revenue, which has no associated cost of sales, was an adverse impact of $11.6 million in the three months ended June 30, 2024 compared to June 30, 2023. The impact of unabsorbed capacity charges was an adverse impact of $36.0 million in the three months ended June 30, 2024 compared to June 30, 2023. In the three months ended June 30, 2023, we operated at or above normal capacity levels. Unabsorbed capacity charges are expensed as incurred when we operate our manufacturing facilities below normal levels.

Current wording

The primary reason for the decreases in gross profit of $799.9 million and $1.54 billion in the three and six months ended September 30, 2024, respectively, compared to the three and six months ended September 30, 2023, respectively, was an unfavorable net impact of sales volume, product mix, geographic mix, and average gross profit per unit in the three and six months ended September 30, 2024. The net impact of product mix and average gross profit per unit may fluctuate over time due to the mix of sales volumes of lower or higher margin products, changes in selling prices, and fluctuations in product costs. We are not able to separately quantify these impacts on our gross profit. The net impact to our gross profit from inventory reserve charges was an adverse impact of $31.1 million and $60.4 million in the three and six months ended September 30, 2024, respectively, compared to the three and six months ended September 30, 2023, respectively. The gross margin impact of changes in licensing revenue, which has no associated cost of sales, was a favorable impact of $12.2 million and $0.6 million in the three and six months ended September 30, 2024, respectively, compared to the three and six months ended September 30, 2023, respectively. The impact of unabsorbed capacity charges was an adverse impact of $40.0 million and $76.0 million in the three and six months ended September 30, 2024, respectively, compared to the three and six months ended September 30, 2023, respectively. In the three and six months ended September 30, 2023, the impact of unabsorbed capacity charges was not material. Unabsorbed capacity charges are expensed as incurred when we operate our manufacturing facilities below normal levels.

Previous wording

Our overall inventory levels were $1.31 billion at June 30, 2024, compared to $1.32 billion at March 31, 2024. We maintained 237 days of inventory on our balance sheet at June 30, 2024 compared to 224 days of inventory at March 31, 2024. Our overall inventory level was flat as a result of our efforts to balance manufacturing production, customer demand and inventory levels. However, our days of inventory increased significantly due to lower net sales. Our inventory amounts are impacted by timing of shipment activity in the quarter, the timing of receipt of raw materials, foundry wafers, and strategic last time buy materials and completion of finished goods.

Current wording

Our overall inventory levels were $1.34 billion at September 30, 2024, compared to $1.32 billion at March 31, 2024. We maintained 247 days of inventory on our balance sheet at September 30, 2024 compared to 224 days of inventory at March 31, 2024. Our overall inventory level was generally flat as a result of our efforts to balance manufacturing production, customer demand and inventory levels. However, our days of inventory increased significantly due to lower net sales. Our inventory amounts are impacted by timing of shipment activity in the quarter, the timing of receipt of raw materials, foundry wafers, and strategic last time buy materials and completion of finished goods.

Previous wording

We operate assembly and test facilities in Thailand, the Philippines, and other locations throughout the world. Approximately 68% of our assembly requirements were performed in our internal assembly facilities during the three months ended June 30, 2024, compared to 58% during the three months ended June 30, 2023. During the three months ended June 30, 2024, approximately 66% of our test requirements were performed in our internal facilities compared to 69% during the three months ended June 30, 2023. The percentage of our assembly and test operations that are performed internally fluctuates over time based on supply and demand conditions in the semiconductor industry, our internal capacity capabilities and our acquisition activities. We believe that the assembly and test operations performed at our internal facilities provide us with significant cost savings compared to third-party contractor assembly and test costs, as well as increased control over these portions of the manufacturing process. We plan to continue to selectively invest in assembly and test equipment to increase our internal capacity capabilities and transition certain outsourced assembly and test capacity to our internal facilities.

Current wording

We operate assembly and test facilities in Thailand, the Philippines, and other locations throughout the world. Approximately 63% and 67% of our assembly requirements were performed in our internal assembly facilities during the three and six months ended September 30, 2024, respectively, compared to approximately 58% during each of the three and six months ended September 30, 2023. Approximately 64% and 67% of our test requirements were performed in our internal facilities during the three and six months ended September 30, 2024, respectively, compared to approximately 73% and 71% during the three and six months ended September 30, 2023, respectively. The percentage of our assembly and test operations that are performed internally fluctuates over time based on supply and demand conditions in the semiconductor industry, our internal capacity capabilities and our acquisition activities. We believe that the assembly and test operations performed at our internal facilities provide us with significant cost savings compared to third-party contractor assembly and test costs, as well as increased control over these portions of the manufacturing process. We plan to continue to selectively invest in assembly and test equipment to increase our internal capacity capabilities and transition certain outsourced assembly and test capacity to our internal facilities.

Previous wording

We rely on outside wafer foundries for a significant portion of our wafer fabrication requirements. Approximately 63% of our net sales came from products that were produced at outside wafer foundries during the three months ended June 30,

Current wording

We rely on outside wafer foundries for a significant portion of our wafer fabrication requirements. Approximately 66% and 65% of our net sales came from products that were produced at outside wafer foundries during the three and six months ended September 30, 2024, respectively, compared to approximately 65% and 66% during the three and six months ended September 30, 2023, respectively. This percentage may vary based on supply and demand conditions in the market.

Previous wording

R&D expenses for the three months ended June 30, 2024 were $241.7 million, or 19.5% of net sales, compared to $298.5 million, or 13.0% of net sales, for the three months ended June 30, 2023. We are committed to investing in new and enhanced products, including development systems software, and in our design and manufacturing process technologies. We believe these investments are significant factors in maintaining our competitive position. R&D costs are expensed as incurred. Assets purchased to support our ongoing research and development activities are capitalized when related to products which have achieved technological feasibility or that have alternative future uses and are amortized over their expected useful lives. R&D expenses include labor, depreciation, masks, prototype wafers, and expenses for the development of process technologies, new packages, and software to support new products and design environments.

Current wording

R&D expenses for the three months ended September 30, 2024 were $240.7 million, or 20.7% of net sales, compared to $292.6 million, or 13.0% of net sales, for the three months ended September 30, 2023. R&D expenses for the six months ended September 30, 2024 were $482.4 million, or 20.1% of net sales, compared to $591.1 million, or 13.0% of net sales, for the six months ended September 30, 2023. We are committed to investing in new and enhanced products, including development systems software, and in our design and manufacturing process technologies. We believe these investments are significant factors in maintaining our competitive position. R&D costs are expensed as incurred. Assets purchased to support our ongoing research and development activities are capitalized when related to products which have achieved technological feasibility or that have alternative future uses and are amortized over their expected useful lives. R&D expenses include labor, depreciation, masks, prototype wafers, and expenses for the development of process technologies, new packages, and software to support new products and design environments.

Previous wording

R&D expenses decreased $56.8 million, or 19.0%, for the three months ended June 30, 2024 over the same period last year. The primary reason for the decrease in R&D expenses were lower employee compensation costs.

Current wording

R&D expenses decreased $51.9 million, or 17.7%, for the three months ended September 30, 2024 over the same period last year. R&D expenses decreased $108.7 million, or 18.4%, for the six months ended September 30, 2024 over the same period last year. The primary reason for the decreases in R&D expenses was lower employee compensation costs.

Previous wording

Selling, general and administrative expenses for the three months ended June 30, 2024 were $150.5 million, or 12.1% of net sales, compared to $203.6 million, or 8.9% of net sales, for the three months ended June 30, 2023. Our goal is to continue to be more efficient with our selling, general and administrative expenses. Selling, general and administrative expenses include salary expenses related to field sales, marketing and administrative personnel, advertising and promotional expenditures and legal expenses as well as costs related to our direct sales force, CEMs and ESEs who work remotely from sales offices worldwide to stimulate demand by assisting customers in the selection and use of our products.

Current wording

Selling, general and administrative expenses for the three months ended September 30, 2024 were $157.0 million, or 13.5% of net sales, compared to $196.6 million, or 8.7% of net sales, for the three months ended September 30, 2023. Selling, general and administrative expenses for the six months ended September 30, 2024 were $307.5 million, or 12.8% of net sales, compared to $400.2 million, or 8.8% of net sales, for the six months ended September 30, 2023. Our goal is to continue to be more efficient with our selling, general and administrative expenses. Selling, general and administrative expenses include salary expenses related to field sales, marketing and administrative personnel, advertising and promotional expenditures and legal expenses as well as costs related to our direct sales force, CEMs and ESEs who work remotely from sales offices worldwide to stimulate demand by assisting customers in the selection and use of our products.

Previous wording

Selling, general and administrative expenses decreased $53.1 million, or 26.1%, for the three months ended June 30, 2024 over the same period last year. The decrease in selling, general and administrative expenses was primarily due to lower employee compensation costs.

Current wording

Selling, general and administrative expenses decreased $39.6 million, or 20.1%, for the three months ended September 30, 2024 over the same period last year. Selling, general and administrative expenses decreased $92.7 million, or 23.2%, for the six months ended September 30, 2024 over the same period last year. The primary reason for the decreases in selling, general and administrative expenses was lower employee compensation costs.

Previous wording

Amortization of acquired intangible assets for the three months ended June 30, 2024 was $123.0 million, compared to $151.5 million for the three months ended June 30, 2023. The primary reason for the decrease in acquired intangible asset amortization was due to the use of accelerated amortization methods for assets placed in service in previous fiscal years.

Current wording

Amortization of acquired intangible assets for the three and six months ended September 30, 2024 was $122.7 million and $245.7 million, respectively, compared to $151.4 million and $302.9 million for the three and six months ended September 30, 2023, respectively. The primary reason for the decreases in acquired intangible asset amortization was due to the use of accelerated amortization methods for assets placed in service in previous fiscal years.

Previous wording

During the three months ended June 30, 2024, and the three months ended June 30, 2023, we incurred special charges and other, net of $2.6 million and $1.7 million, respectively, primarily related to restructuring of acquired and existing wafer fabrication operations to increase operational efficiency.

Current wording

During the three and six months ended September 30, 2024, we incurred special charges and other, net of $1.5 million and $4.1 million, respectively. During the three and six months ended September 30, 2023, we incurred special charges and other, net of $1.8 million and $3.5 million, respectively. The special charges and other, net incurred during these periods, primarily related to restructuring of acquired and existing wafer fabrication operations to increase operational efficiency.

Previous wording

Interest expense in the three months ended June 30, 2024 was $61.8 million compared to $47.2 million for the three months ended June 30, 2023. The primary reason for the increase in interest expense in the three months ended June 30, 2024 compared to the same period last year was due to higher debt balances and higher interest rates on such outstanding debt balances in the three months ended June 30, 2024.

Current wording

Interest expense in the three and six months ended September 30, 2024 was $59.1 million and $120.9 million, respectively, compared to $46.8 million and $94.0 million, respectively, for the three and six months ended September 30, 2023. The primary reasons for the increases in interest expense were higher debt balances and higher interest rates on such outstanding debt balances in the three and six months ended September 30, 2024.

Previous wording

Our provision for income taxes is attributable to U.S. federal, state, and foreign income taxes. A comparison of our tax rates for the three months ended June 30, 2024 and June 30, 2023 is not meaningful due to the amount of pre-tax income, and income tax expense recorded during the prior period.

Current wording

Our provision for income taxes is attributable to U.S. federal, state, and foreign income taxes. A comparison of our tax rates for the six months ended September 30, 2024 and September 30, 2023 is not meaningful due to the amount of pre-tax income, and income tax expense recorded during the prior period.

Previous wording

We are subject to taxation in many jurisdictions in which we have operations. The effective tax rates that we pay in these jurisdictions vary widely, but they are generally lower than our combined U.S. federal and state effective tax rate. Our domestic blended statutory tax rate in each of the three months ended June 30, 2024 and June 30, 2023 was approximately 22%. Our non-U.S. blended statutory tax rates in the three months ended June 30, 2024 and June 30, 2023 were lower than this amount. The difference in rates applicable in foreign jurisdictions results from a number of factors, including lower statutory rates, tax holidays, financing arrangements and other factors. Our effective tax rate has been and will continue to be impacted by the geographical dispersion of our earnings and losses.

Current wording

We are subject to taxation in many jurisdictions in which we have operations. The effective tax rates that we pay in these jurisdictions vary widely, but they are generally lower than our combined U.S. federal and state effective tax rate. Our domestic blended statutory tax rate in each of the six months ended September 30, 2024 and September 30, 2023 was approximately 22%. Our non-U.S. blended statutory tax rates in the six months ended September 30, 2024 and September 30, 2023 were lower than this amount. The difference in rates applicable in foreign jurisdictions results from a number of factors, including lower statutory rates, tax holidays, financing arrangements and other factors. Our effective tax rate has been and will continue to be impacted by the geographical dispersion of our earnings and losses.

Previous wording

As of June 30, 2024, 31 countries have enacted various aspects of the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting Project to ensure that multinational enterprises pay a GMT. In 26 of those countries, the GMT is effective for tax years beginning in our fiscal 2025. As of June 30, 2024, the impact of GMT on the fiscal 2025 results is not material.

Current wording

As of September 30, 2024, 34 countries have enacted various aspects of the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting Project to ensure that multinational enterprises pay a GMT. In 30 of those countries, the GMT is effective for tax years beginning in our fiscal 2025. As of September 30, 2024, the impact of GMT on our fiscal 2025 results is not expected to be material.

Previous wording

We had $315.1 million in cash and cash equivalents at June 30, 2024, a decrease of $4.6 million from the March 31, 2024 balance.

Current wording

We had $286.1 million in cash and cash equivalents at September 30, 2024, a decrease of $33.6 million from the March 31, 2024 balance.

Previous wording

Net cash provided by operating activities was $377.1 million in the three months ended June 30, 2024 primarily due to net income of $129.3 million, adjusted for non-cash and non-operating charges of $224.8 million and net cash inflows of $23.0 million from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities in the three months ended June 30, 2024 include a decrease in trade accounts receivable driven primarily by reduced revenue and timing of shipments and collections, a decrease in inventories related to our efforts to balance manufacturing production, customer demand and inventory levels, an increase in income tax payable, offset by a decrease in accounts payable due to lower spending in adverse economic conditions, decreases in accrued liabilities driven by a decrease in sales related reserves, a decrease due to cash refunded to our customers under the LTSAs, offset by higher accruals related to employee compensation. Net cash provided by operating activities was $993.2 million in the three months ended June 30, 2023 primarily due to net income of $666.4 million, adjusted for non-cash and non-operating charges of $304.7 million and net cash inflows of $22.1 million from changes in our operating assets and liabilities.

Current wording

Net cash provided by operating activities was $420.7 million in the six months ended September 30, 2024 primarily due to net income of $207.7 million, adjusted for non-cash and non-operating charges of $425.0 million and net cash outflows of $212.0 million from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities in the six months ended September 30, 2024 include an increase in inventories related to increased raw materials and foundry wafers, decreases in accrued liabilities driven by decreases in sales related reserves, a decrease due to cash refunded to our customers under the LTSAs, and a decrease in accruals related to employee compensation, a decrease in income tax payable, offset by a decrease in trade accounts receivable driven primarily by reduced revenue and timing of shipments and collections. Net cash provided by operating activities was $1.61 billion in the six months ended September 30, 2023 primarily due to net income of $1.33 billion, adjusted for non-cash and non-operating charges of $580.8 million and net cash outflows of $304.4 million from changes in our operating assets and liabilities.

Previous wording

Net cash used in investing activities was $125.5 million in the three months ended June 30, 2024 compared to $140.9 million in the three months ended June 30, 2023. During the three months ended June 30, 2024, and the three months ended June 30, 2023 net investing activities primarily related to capital purchases and investments in other assets.

Current wording

Net cash used in investing activities was $189.7 million in the six months ended September 30, 2024 compared to $234.7 million in the six months ended September 30, 2023. During the six months ended September 30, 2024, and the six months ended September 30, 2023, net investing activities primarily related to capital purchases and investments in other assets.

Previous wording

Our level of capital expenditures varies from time to time as a result of actual and anticipated business conditions. Capital expenditures in the three months ended June 30, 2024 were $72.9 million compared to $111.1 million in the three months ended June 30, 2023. Capital expenditures were primarily for the selective expansion of production capacity and the addition of research and development equipment. Consistent with the slowing macroeconomic environment in fiscal 2025, we have paused most of our factory expansion actions and reduced our planned capital investments through fiscal 2025. We currently intend to invest between $125 million and $175 million in equipment and facilities during the next 12 months. We believe that the capital expenditures anticipated 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 assembly and test operations that are currently outsourced. We expect to finance our capital expenditures through our existing cash balances and cash flows from operations. In February 2023, we announced our plan to invest $880 million over the next several years to expand our SiC and silicon production capacity, including the production of 8-inch wafers, at our Fab 5 facility. While select investments are still being made, in the fourth quarter of fiscal 2024, we paused most of our expansion activity. In August 2022, the U.S. government enacted the CHIPS Act which is to provide billions of dollars of cash incentives and a new investment tax credit to increase domestic manufacturing capacity in our industry. In December 2023, we reached a Preliminary Memorandum of Terms with the U.S. Department of Commerce for $162 million in CHIPS Act grants for two of our U.S. wafer fabrication facilities. These preliminary terms are subject to a comprehensive due diligence process and continued negotiation and review and there can be no assurance that the grants will receive final approval. If we do receive a CHIPS Act grant, the restrictions and operational requirements that are imposed on CHIPS Act grant recipients could add complexity to our operations and increase our costs. We expect to receive the cash benefit associated with the investment tax credit for qualifying capital expenditures in future periods and expect to apply for other incentives provided by the legislation; however, there can be no assurance that we will receive any such other incentives, what the amount and timing of any incentive we receive will be, as to which other companies will receive incentives and whether the legislation will have a positive or negative impact on our competitive position.

Current wording

Our level of capital expenditures varies from time to time as a result of actual and anticipated business conditions. Capital expenditures in the six months ended September 30, 2024 were $93.7 million compared to $185.5 million in the six months ended September 30, 2023. Capital expenditures were primarily for the selective expansion of production capacity and the addition of research and development equipment. Consistent with the slowing macroeconomic environment in fiscal 2025, we have paused most of our factory expansion actions and reduced our planned capital investments through fiscal 2026. We currently intend to invest between $125 million and $150 million in equipment and facilities during the next 12 months. We believe that the capital expenditures anticipated 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 assembly and test operations that are currently outsourced. We expect to finance our capital expenditures through our existing cash balances and cash flows from operations. In February 2023, we announced our plan to invest $880 million over the next several years to expand our SiC and silicon production capacity, including the production of 8-inch wafers, at our Fab 5 facility. While select investments are still being made, in the fourth quarter of fiscal 2024, we paused most of our expansion activity. In August 2022, the U.S. government enacted the CHIPS Act which is to provide billions of dollars of cash incentives and a new investment tax credit to increase domestic manufacturing capacity in our industry. In December 2023, we reached a Preliminary Memorandum of Terms with the U.S. Department of Commerce for $162 million in CHIPS Act grants for two of our U.S. wafer fabrication facilities. These preliminary terms are subject to a comprehensive due diligence process and continued negotiation and review and there can be no assurance that the grants will receive final approval. If we do receive a CHIPS Act grant, the restrictions and operational requirements that are imposed on CHIPS Act grant recipients could add complexity to our operations and increase our costs. We expect to receive the cash benefit associated with the investment tax credit for qualifying capital expenditures in future periods and expect to apply for other incentives provided by the legislation; however, there can be no assurance that we will receive any such other incentives, what the amount and timing of any incentive we receive will be, as to which other companies will receive incentives and whether the legislation will have a positive or negative impact on our competitive position.

Previous wording

Net cash used in financing activities was $256.2 million in the three months ended June 30, 2024 compared to $815.1 million in the three months ended June 30, 2023. Significant transactions affecting our net financing cash flows included:

Current wording

Net cash used in financing activities was $264.6 million in the six months ended September 30, 2024 compared to $1.35 billion in the six months ended September 30, 2023. Significant transactions affecting our net financing cash flows included:

Previous wording

•in the first three months of fiscal 2025, $80.9 million of net proceeds from the issuance of our 2024 Senior Convertible Debt offset by the purchase of our capped call options, and the pay down of our Commercial Paper, and

Current wording

•in the first six months of fiscal 2025, $328.6 million of net proceeds from the issuances of our 2024 Senior Convertible Debt and our Commercial Paper, offset by the purchase of our capped call options, and the pay down of our 0.983% 2024 Notes, and

Previous wording

•in the first three months of fiscal 2024, $465.1 million of cash used to pay down certain principal of our debt, including our 2015 Senior Convertible Debt, our 2017 Senior Convertible Debt, our 2017 Junior Convertible Debt, our 4.333% 2023 Notes and our Revolving Credit Facility, and

Current wording

•in the first six months of fiscal 2024, $448.8 million of cash used to pay down certain principal of our debt, including our 2015 Senior Convertible Debt, our 2017 Senior Convertible Debt, our 2017 Junior Convertible Debt, our 4.333% 2023 Notes, our 2.670% 2023 Notes, and our Revolving Credit Facility, partially funded by proceeds from borrowings on our 2025 Term Loan Facility and proceeds from the issuance of our Commercial Paper, and

Previous wording

•in the first three months of fiscal 2025 and fiscal 2024, we paid cash dividends to our stockholders of $242.6 million and $208.9 million, respectively, and

Current wording

•in the first six months of fiscal 2025 and fiscal 2024, we paid cash dividends to our stockholders of $486.3 million and $431.6 million, respectively, and

Previous wording

•in the first three months of fiscal 2025 and fiscal 2024, we repurchased shares of our common stock for $72.7 million and $140.3 million, respectively.

Current wording

•in the first six months of fiscal 2025 and fiscal 2024, we repurchased shares of our common stock for $90.0 million and $480.1 million, respectively.

Previous wording

In August 2023, our amended and restated Credit Agreement, dated as of December 16, 2021, was amended by the first incremental term loan amendment, dated as of August 31, 2023. Pursuant to this amendment, we borrowed an aggregate principal amount of $750.0 million under the new 2025 Term Loan Facility bearing interest at the Adjusted Term SOFR Rate, plus a margin of 1.125% to 1.5%, or Alternate Base Rate, plus a margin of 0.125% to 0.5%, with a maturity date of August 31, 2025. The interest rate margins are determined based on our credit ratings. In September 2023, we established a Commercial Paper program under which we may issue short-term unsecured promissory notes up to a maximum principal amount outstanding at any time of $2.75 billion with a maturity of up to 397 days from the date of issue. The Commercial Paper is sold from time to time at a discount from par or alternatively, sold at par and bears interest rates that will vary based on market conditions and the time of issuance. The outstanding Commercial Paper balance will reduce the amounts that would otherwise be available to borrow under our Revolving Credit Facility. As of June 30, 2024, the principal amount of our outstanding indebtedness was $6.20 billion. We had no outstanding borrowings under the Revolving Credit Facility at June 30, 2024 and at March 31, 2024. At June 30, 2024, we had $288.0 million in outstanding principal amount of Commercial Paper compared to $1.36 billion at March 31, 2024.

Current wording

In August 2023, our amended and restated Credit Agreement, dated as of December 16, 2021, was amended by the first incremental term loan amendment, dated as of August 31, 2023. Pursuant to this amendment, we borrowed an aggregate principal amount of $750.0 million under the new 2025 Term Loan Facility bearing interest at the Adjusted Term SOFR Rate, plus a margin of 1.125% to 1.5%, or Alternate Base Rate, plus a margin of 0.125% to 0.5%, with a maturity date of August 31, 2025. The interest rate margins are determined based on our credit ratings. In September 2023, we established a Commercial Paper program under which we may issue short-term unsecured promissory notes up to a maximum principal amount outstanding at any time of $2.75 billion with a maturity of up to 397 days from the date of issue. The Commercial Paper is sold from time to time at a discount from par or alternatively, sold at par and bears interest rates that will vary based on market conditions and the time of issuance. The outstanding Commercial Paper balance will reduce the amounts that would otherwise be available to borrow under our Revolving Credit Facility. As of September 30, 2024, the principal amount of our outstanding indebtedness was $6.45 billion. We had no outstanding borrowings under the Revolving Credit Facility at September 30, 2024 and at March 31, 2024. At September 30, 2024, we had $1.54 billion in outstanding principal amount of Commercial Paper compared to $1.36 billion at March 31, 2024.