What changed in Microchip Technology's 10-K for the fiscal year ended March 31, 2026

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[removed] With respect to such balance of Senior Notes, our 4.250% 2025 Notes in the principal amount of $1.20 billion matures on September 1, 2025, and we intend to finance the repayment of such notes using available borrowings under our Revolving Credit Facility or our Commercial Paper program. Since interest rates have increased since we issued our 4.250% 2025 Notes, we expect our interest expense will increase if we refinance such notes using our Revolving Credit Facility or our Commercial Paper Program or other instruments. Also, if we refinance such fixed rate notes with variable rate debt, changes in interest rates will have a more significant impact on our interest expense in future periods. There can be no assurance that we will be able to refinance our current or future debt on reasonable terms, if at all.

[removed] In January 2025, we received several assessments from the German Tax Authorities (GTA) regarding the German extraterritorial taxation of royalty payments between nonresidents (referred to as offshore receipts in respect of intangible property or ORIP) and intellectual property transfers by nonresidents (referred to as extraterritorial capital gains taxation or ETT). If the assessment is upheld, it could result in income taxes and penalties up to $92.0 million. The timing of adjudicating this matter is uncertain but could occur in the next 12 months.

[removed] In January 2025, we received several assessments from the German Tax Authorities (GTA) regarding the German extraterritorial taxation of royalty payments between nonresidents (referred to as offshore receipts in respect of intangible property or ORIP) and intellectual property transfers by nonresidents (referred to as extraterritorial capital gains taxation or ETT). If the assessment is upheld, it could result in income taxes and penalties up to $92.0 million. The timing of adjudicating this matter is uncertain but could occur in the next 12 months.

Our level of capital expenditures varies from time to time as a result of actual and anticipated business conditions. Capital expenditures were $126.0 million and $285.1 million in fiscal 2025 and fiscal 2024, respectively. 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. Our investments in equipment and facilities during the next 12 months are expected to be at or below $100 million. 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. While select investments are still being made, in the fourth quarter of fiscal 2024, we paused most of our expansion activity. In the third quarter of fiscal 2025, we announced the closure of Fab 2 in Tempe, Arizona which was completed in May 2025. Despite pausing our expansion activity, we believe that our current inventory and production capacity are adequate to fulfill the projected requirements of our customers. In August 2022, the U.S. government enacted the CHIPS Act to provide billions of dollars of cash incentives and a new investment tax credit to increase domestic manufacturing capacity in our industry. [removed] 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; however, we have not concluded negotiations with the U.S. Department of Commerce 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 may 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.

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 have continued in fiscal 2025, such as a decrease in customer requests to push out or cancel backlog while the number of expedites and shipment pull in requests grew, the overall macroeconomic environment remained weak throughout fiscal 2025 as we navigated through a large inventory correction. With our inventory levels being high and having ample capacity in place, on December 2, 2024, we announced our decision to close our Tempe, Arizona wafer fabrication facility that we refer to as Fab 2. Many of the process technologies that run in Fab 2 also run in our Oregon and Colorado factories, which both have ample clean room space for expansion. The closure of Fab 2 was completed in May 2025 and we expect that it will generate annual cash savings of approximately $90 million. Due to the high levels of inventory of the products which are manufactured in Fab 2, we do not expect to see income statement savings from the closure until the start of the June 2026 quarter based on a first-in first-out basis. We expect that the Fab 2 closure will begin to help us moderate our inventory levels. [removed] On March 3, 2025, we announced additional restructuring actions to reduce costs, resize manufacturing operations and to reduce headcount at our Fab 4 and Fab 5 facilities and our backend manufacturing facility in the Philippines which will result in approximately $25 million in annual savings from the temporarily reduced compensation costs. These actions resulted in a reduction of inventory in the March 2025 quarter. We also announced a 10% headcount reduction across our company to decrease our operating expenses, which reduction will be fully implemented by the June 2025 quarter. We expect this action to reduce our ongoing operating expenses by approximately $90 million to $100 million on an annualized basis. Consistent with the macroeconomic environment, most of our factory expansion activity remains paused, we have reduced our planned capital investments, and we remain focused on reducing our inventory levels and days of inventory through fiscal 2026.

Our ability to make scheduled payments of principal, interest, or to refinance our indebtedness, including our outstanding Senior Notes, Convertible Debt, and Commercial Paper, depends on our future performance, which is subject to economic, competitive and other factors. Our business may not continue to generate sufficient cash flow to service our debt and to fund capital expenditures, dividend payments, share repurchases or acquisitions. If we are unable to generate such cash flow, we may be required to undertake alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on onerous or highly dilutive terms. Recently, we have used borrowings to finance a portion of our quarterly dividend payments and we may continue to do so in future periods. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. Our Senior Notes and Commercial Paper are rated by certain major credit rating agencies. These credit ratings impact our cost of borrowing and our ability to access the capital markets and are based on our financial performance and financial metrics including debt levels. While we have maintained our investment grade rating, we were recently downgraded by one rating agency and there is no assurance that we will maintain our current credit ratings. A downgrade of our credit rating by a major credit rating agency could result in increased borrowing costs and could adversely affect our ability to access the debt markets to refinance our existing debt or finance future debt. Our maintenance of substantial levels of debt could adversely affect our ability to take advantage of opportunities and could adversely affect our financial condition and results of operations.

As of March 31, [removed] 2025, the principal amount of our outstanding indebtedness was [removed] $5.66 billion. At March 31, [removed] 2025, we had no outstanding borrowings under our Revolving Credit [removed] Facility which provides [removed] up to $2.25 billion of revolving loan commitments that terminate in [removed] 2030 and $175.0 million in outstanding principal amount [removed] of our Commercial [removed] Paper. At March 31, [removed] 2025, we had [removed] $4.20 billion in aggregate principal amount of Senior Notes and [removed] $1.29 billion in aggregate principal of Convertible Debt outstanding.

[removed] Additionally, certain materials are primarily available in a limited number of countries, including rare earth [removed] elements, minerals, and metals. Trade disputes, geopolitical tensions, economic circumstances, transit disruptions, political conditions, or public health issues, may limit our ability to obtain materials or equipment. Although rare earth [removed] and other materials are generally available from multiple suppliers, China is the predominant producer of certain of these materials. In April 2025, China imposed export restrictions on certain rare earth minerals. If China [removed] were to further restrict or stop exporting these materials or pressure other countries to do so, our [removed] suppliers' ability to obtain such supply may be constrained and we may be unable to obtain sufficient quantities, or obtain supply in a timely manner, or at a commercially reasonable cost. Constrained supply of rare earth elements, minerals, and metals may restrict our ability to manufacture certain of our products and make it difficult or impossible to compete with other semiconductor memory manufacturers who are able to obtain sufficient quantities of these materials from China or other countries.

We had [removed] $771.7 million in cash and cash equivalents at March 31, [removed] 2025, an increase of $452.0 million from the March 31, [removed] 2024 balance.

We believe that our existing sources of liquidity combined with cash generated from operations, borrowings under our Revolving Credit Facility and proceeds from issuance of our Commercial Paper will be sufficient to meet our currently anticipated cash requirements for at least the next 12 months. Our long-term liquidity requirements primarily arise from working capital requirements, interest and principal repayments related to our outstanding indebtedness, capital expenditures, cash dividends, share repurchases, and income tax payments. For additional information regarding our cash requirements see "Note 11. Commitments and Contingencies", "Note 10. Leases", "Note 6. Debt" and "Note 12. Income Taxes" to our consolidated financial statements. The semiconductor industry is capital intensive and in order to remain competitive, we must constantly evaluate the need to make significant investments in capital equipment for both production and research and development and to expand our existing facilities or potentially construct new facilities. We may increase our borrowings under our Revolving Credit Facility or our Commercial Paper program or seek additional equity or debt financing from time to time to refinance our existing debt, maintain or expand our wafer fabrication and product assembly and test facilities, for cash dividends, for share repurchases or for acquisitions or other purposes. The timing and amount of any such financing requirements will depend on a number of factors, including the maturity dates of our existing debt, our level of dividend payments on our common stock and Series A Preferred Stock, changes in tax laws and regulations regarding the repatriation of offshore cash, demand for our products, changes in industry conditions, product mix, competitive factors and our ability to identify suitable acquisition candidates. We plan to refinance certain of our existing notes as they mature and we may from time to time seek to refinance certain of our other outstanding debt or Convertible Debt through issuances of new notes or convertible debt, term loans, Commercial Paper, tender offers, exchange transactions or open market repurchases. Such issuances, tender offers or exchanges or purchases, if any, will depend on prevailing market conditions, our ability to negotiate acceptable terms, our liquidity position and other factors. There can be no assurance that any financing will be available on acceptable terms due to uncertainties resulting from tariffs, high interest rates, high inflation, economic uncertainty, instability in the banking sector, public health concerns, or other factors, and any additional equity financing or convertible debt financing would result in incremental ownership dilution to our existing stockholders.

We believe that our existing sources of liquidity combined with cash generated from operations, borrowings under our Revolving Credit Facility and proceeds from issuance of our Commercial Paper will be sufficient to meet our currently anticipated cash requirements for at least the next 12 months. Our long-term liquidity requirements primarily arise from working capital requirements, interest and principal repayments related to our outstanding indebtedness, capital expenditures, cash dividends, share repurchases, and income tax payments. For additional information regarding our cash requirements see "Note 11. Commitments and Contingencies", "Note 10. Leases", "Note 6. Debt" and "Note 12. Income Taxes" to our consolidated financial statements. The semiconductor industry is capital intensive and in order to remain competitive, we must constantly evaluate the need to make significant investments in capital equipment for both production and research and development and to expand our existing facilities or potentially construct new facilities. We may increase our borrowings under our Revolving Credit Facility or our Commercial Paper program or seek additional equity or debt financing from time to time to refinance our existing debt, maintain or expand our wafer fabrication and product assembly and test facilities, for cash dividends, for share repurchases or for acquisitions or other purposes. The timing and amount of any such financing requirements will depend on a number of factors, including the maturity dates of our existing debt, our level of dividend payments on our common stock and Series A Preferred Stock, changes in tax laws and regulations regarding the repatriation of offshore cash, demand for our products, changes in industry conditions, product mix, competitive factors and our ability to identify suitable acquisition candidates. We plan to refinance [removed] certain of our existing notes as they mature and we may from time to time seek to refinance certain of our other outstanding debt or Convertible Debt through issuances of new notes or convertible debt, term loans, Commercial Paper, tender offers, exchange transactions or open market repurchases. Such issuances, tender offers or exchanges or purchases, if any, will depend on prevailing market conditions, our ability to negotiate acceptable terms, our liquidity position and other factors. There can be no assurance that any financing will be available on acceptable terms due to uncertainties resulting from tariffs, high interest rates, high inflation, [removed] economic uncertainty, instability in the banking sector, public health concerns, or other factors, and any additional equity financing or convertible debt financing would result in incremental ownership dilution to our existing stockholders.

In May 2023, we received a proposed income adjustment from the Malaysian Inland Revenue Board (IRB) for fiscal 2020. In December 2023, we received a Notice of Assessment from the IRB asserting the same proposed income adjustment. In March 2025, we entered into a Consent Judgment before the High Court, agreeing that the dispute will be heard before the Special Commissioners of Income Tax (SCIT). It was also agreed that the payment on the taxes assessed is stayed and the IRB will pause all enforcement and proceedings against the collection of the taxes assessed until the appeal before the SCIT is concluded. If the adjustment is upheld by the highest court that has jurisdiction over this matter in Malaysia, it could result in income taxes and penalties up to [removed] $410.0 million. The disputed amounts largely relate to the characterization of certain assets. The timing of adjudicating this matter is uncertain but could occur in the next [removed] 12 months.

In March 2025, we entered into a Second Amended and Restated Credit Agreement [removed] pursuant to which the amended and restated Credit Agreement, dated as of December 16, 2021 was amended and restated in its entirety. The [removed] second amended and restated Credit Agreement provides for an unsecured revolving loan facility in an aggregate principal amount of up to $2.25 billion, with a $250.0 million foreign currency sublimit, a $25.0 million letter of credit sublimit and a $20.0 million swingline loan sublimit. The Second Amended and Restated Credit Agreement amended the maximum total leverage ratio financial covenant to the following: 5.50 to 1.00 for period ending March 31, 2025, 5.50 to 1.00 for period ending June 30, 2025, 6.25 to 1.00 for period ending September 30, 2025, 5.75 to 1.00 for period ending December 31, 2025, 4.75 to 1.00 for period ending March 31, 2026, 4.00 to 1.00 for period ending June 30, 2026, 3.75 to 1.00 for period ending September 30, 2026, and 3.50 to 1.00 for any such period ended after the Restatement Effective Date that is not a period ending during the Covenant Relief Period. The Covenant Relief Period means the period following the Restatement Effective Date to (but excluding) the earlier of (a) December 31, 2026 and (b) the date in which the Total Leverage Ratio for the most recently ended fiscal quarter shall not exceed 3.50 to 1.00 and certain other conditions are satisfied.[removed] In November 2024, the amended and restated Credit Agreement, was amended to amend the maximum total leverage ratio financial covenant for the quarterly periods ending on December 31, 2024 through December 31, 2025 to 4.75 to 1.00. 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, which was repaid in full in December 2024. The interest rate margins are determined based on our credit ratings.

• in fiscal [removed] 2024, $537.7 million of cash used to [removed] pay down certain principal of our debt, including settlement of a portion of our outstanding Convertible Debt, our 4.333% 2023 Notes, our 2.670% 2023 Notes, our 0.972% 2024 Notes, and our Revolving Credit Facility, partially funded by proceeds from borrowings on our 2025 Term Loan Facility, proceeds from the issuance of our [removed] Commercial Paper, and proceeds from the issuance of our 5.050% 2029 Notes, and

During fiscal [removed] 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 have continued in fiscal 2025, such as a decrease in customer requests to push out or cancel backlog while the number of expedites and shipment pull in requests grew, the overall macroeconomic environment remained weak throughout fiscal 2025 as we navigated through a large inventory correction. With our inventory levels being high and having ample capacity in place, on December 2, 2024, we announced our decision to close our Tempe, Arizona wafer fabrication facility that we refer to as Fab 2. Many of the process technologies that run in Fab 2 also run in our Oregon and Colorado factories, which both have ample clean room space for expansion. The closure of Fab 2 was completed in May 2025 and we expect [removed] that it will generate annual cash savings of approximately $90 million. Due to the high levels of inventory of the products which are manufactured in Fab 2, we do not expect to see income statement savings from the closure until the start of the June 2026 quarter based on a first-in first-out basis. We expect that the Fab 2 closure will begin to help us moderate our inventory levels. On March 3, 2025, we announced additional restructuring actions to reduce costs, resize manufacturing operations and to reduce headcount at our Fab 4 and Fab 5 facilities and our backend manufacturing facility in the Philippines which will result in approximately $25 million in annual savings from the temporarily reduced compensation costs. These actions resulted in a reduction of inventory in the March 2025 quarter. We also announced a 10% headcount reduction across our company to decrease our operating expenses, which reduction will be fully implemented by the June 2025 quarter. We expect this action to reduce our ongoing operating expenses by approximately $90 million to $100 million on an annualized basis. Consistent with the macroeconomic environment, most of our factory expansion activity remains paused, we have reduced our planned capital investments, and we remain focused on reducing our inventory levels and days of inventory through fiscal 2026.

The [removed] decrease in net sales in fiscal [removed] 2025 compared to fiscal [removed] 2024 was primarily due to [removed] 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 and delaying or reducing orders. 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.

During fiscal [removed] 2025, we incurred special charges and other, net of [removed] $79.2 million primarily due to restructuring expenses, including [removed] $45.7 million related to [removed] contract exit costs and $27.1 million related to [removed] employee separation costs. During fiscal [removed] 2024, we earned special income and other, net of [removed] $12.3 million primarily [removed] related to a favorable resolution of a previously accrued legal matter partially offset by restructuring costs of acquired and existing wafer fabrication operations to increase operational efficiency. Restructuring expenses incurred during fiscal 2024 include $6.2 million related to [removed] the restructuring of our wafer fabrication operations.

• [removed] Our expectation that the global minimum tax (GMT) [removed] will not have a material impact on our fiscal 2026 results;

• Our ability to effectively utilize our facilities at appropriate capacity [removed] levels;

Net sales from our analog product line [removed] decreased approximately 42.6% in fiscal [removed] 2025 compared to fiscal [removed] 2024. The decrease in net sales was primarily due to [removed] 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 and delaying or reducing orders.

[removed] As of March 31, 2025, 55 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 38 of those countries, the GMT is effective for tax years beginning in our fiscal 2025. As of March 31, 2025, the impact of [removed] GMT on our fiscal 2025 results is not material.

Net sales of our mixed-signal microcontroller products [removed] decreased approximately 47.3% in fiscal [removed] 2025 compared to fiscal [removed] 2024. The decrease in net sales was primarily due to [removed] adverse economic conditions, including slowing economic activity, increasing business uncertainty, competitive pressures, persistent inflation, high interest rates, and shorter product lead times, which factors resulted in many customers having higher levels of inventory and delaying or reducing orders.

Net sales related to these products and services [removed] decreased approximately 26.1% in fiscal [removed] 2025 compared to fiscal [removed] 2024. This decrease in net sales was primarily due to [removed] 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 and delaying or reducing orders. In fiscal 2025, we settled an ongoing legal matter with one of our licensees which resulted in the release of an accrual, which increased both our revenue and profits by $13.3 million in such fiscal period. 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).

R&D expenses [removed] decreased $113.6 million, or 10.4%, for fiscal [removed] 2025 compared to fiscal [removed] 2024. The primary reasons for the [removed] decrease in R&D expenses in fiscal [removed] 2025 compared to fiscal [removed] 2024 was lower employee compensation [removed] costs.

Selling, general and administrative expenses [removed] decreased $116.5 million, or [removed] 15.9%, for fiscal [removed] 2025 compared to fiscal [removed] 2024. The primary [removed] reason for the [removed] decrease in selling, general and administrative expenses [removed] was lower employee compensation [removed] costs.

• The amounts and timing, and our plans and expectations relating to the [removed] U.S. Statutory Notice of Deficiencies and proposed income adjustment from the Malaysian Inland Revenue Board;

Americas sales include sales to customers in the U.S., Canada, Central America and South America. Sales to foreign customers accounted for approximately 75% of our total net sales in each of fiscal [removed] 2025 and fiscal [removed] 2024. The decrease in net sales in the European market in fiscal [removed] 2025 compared to fiscal [removed] 2024 was 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 fiscal 2025 compared to fiscal 2024, primarily due to [removed] adverse economic conditions, including slowing economic activity, persistent inflation, high interest rates, and shorter product lead times which resulted in delayed or reduced orders. 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.

Our level of capital expenditures varies from time to time as a result of actual and anticipated business conditions. Capital expenditures were [removed] $126.0 million and [removed] $285.1 million in fiscal [removed] 2025 and fiscal [removed] 2024, respectively. 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 [removed] have paused most of our factory expansion actions and reduced our planned capital investments through fiscal [removed] 2026. Our investments in equipment and facilities during the next 12 months are expected to be [removed] at or below $100 million. 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.[removed] While select investments are still being made, in the fourth quarter of fiscal 2024, we paused most of our expansion activity. In the third quarter of fiscal 2025, we announced the closure of Fab 2 in Tempe, Arizona which was completed in May 2025. Despite pausing our expansion activity, we believe that our current inventory and production capacity are adequate to fulfill the projected requirements of our customers. In August 2022, the U.S. government enacted the CHIPS Act 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; however, we have not concluded negotiations with the U.S. Department of Commerce 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 may 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.

Our effective tax rate in fiscal [removed] 2024 includes a [removed] $69.8 million tax benefit received from R&D credits, which reduced our effective tax rate by [removed] 3.0%; and a [removed] $62.9 million tax expense for the effects of foreign operations, which increased our effective tax rate by [removed] 2.7%.

Interest expense in fiscal [removed] 2025 was $259.2 million compared to [removed] $198.3 million in fiscal [removed] 2024. The primary reasons for the [removed] increase in interest expense in fiscal [removed] 2025 compared to fiscal [removed] 2024 were higher interest rates on our outstanding variable rate debt and higher outstanding debt balances, offset in part by lower interest [removed] expense on our revolving credit facility.

We firmly believe that the [removed] assessments described above are without merit and we plan to pursue all available administrative and judicial remedies necessary to resolve [removed] this matter. We intend to vigorously defend our position, and we are confident in our ability to prevail on the merits. We regularly assess the likelihood of adverse outcomes resulting from examinations such as these to determine the adequacy of our tax reserves. The ultimate outcome of disputes of this nature is uncertain, and if the [removed] IRS, IRB and GTA were to prevail on [removed] their assertions, the assessed tax, penalties, and deficiency interest could have a material adverse impact on our financial position, results of operations or cash flows.

The primary [removed] reason for the [removed] decrease in gross profit of [removed] $2.34 billion in fiscal [removed] 2025 compared to fiscal [removed] 2024 was an unfavorable net impact of sales volume, product mix, [removed] geographic mix, and average gross profit per unit in fiscal 2025. The net impact of product mix [removed] 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 impact of unabsorbed capacity charges was an [removed] adverse impact of [removed] $132.3 million in fiscal [removed] 2025 compared to fiscal [removed] 2024. Unabsorbed capacity charges are expensed as incurred when we operate our manufacturing facilities below normal levels. The net impact to our gross profit from inventory reserve charges was [removed] an adverse impact of [removed] $87.7 million in fiscal [removed] 2025 compared to fiscal [removed] 2024. The gross margin impact of changes in licensing revenue, which has no associated cost of sales, was a favorable impact of [removed] $27.7 million in fiscal [removed] 2025 compared to fiscal [removed] 2024.

Other factors that we believe contributed to the [removed] decrease in our reported net sales for fiscal [removed] 2025 compared to fiscal [removed] 2024 and which are drivers of long-term trends in our net sales but which factors we are not able to quantify include:

• in fiscal [removed] 2025 and fiscal 2024, we repurchased shares of our common stock for $96.5 [removed] million and $982.1 million, respectively.

We operate assembly and test facilities in [removed] Thailand, the Philippines, and other locations throughout the world. During fiscal 2025, approximately 67% of our assembly requirements were performed in our internal assembly [removed] facilities, compared to approximately 59% during fiscal 2024. During fiscal [removed] 2025, approximately 67% of our test requirements were performed in our internal facilities, compared to approximately [removed] 71% during fiscal [removed] 2024. 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.

Our overall inventory levels were [removed] $1.29 billion at March 31, [removed] 2025, compared to [removed] $1.32 billion at March 31, [removed] 2024. We maintained [removed] 251 days of inventory on our balance sheet at March 31, [removed] 2025 compared to [removed] 224 days of inventory at March 31, [removed] 2024. Our overall inventory level in dollars [removed] was generally flat as a result of our efforts to balance manufacturing production, customer demand and inventory levels. [removed] 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.[removed] We believe that our current inventory and production capacity are adequate to fulfill the projected requirements of our customers.

Our provision for income taxes is attributable to U.S. federal, state, and foreign income taxes. Our effective tax rate for the fiscal year ended March 31, [removed] 2025, increased over the same period last year as a result of changes in the amount of pre-tax income earned, R&D credits, [removed] foreign operations and various tax reserves.

Net cash provided by operating activities was [removed] $898.1 million in fiscal [removed] 2025 primarily due to net [removed] loss of $0.5 million, adjusted for non-cash and non-operating charges of [removed] $798.5 million and net cash [removed] inflows of $100.1 million from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities in fiscal [removed] 2025 include a decrease in trade accounts receivable driven primarily by [removed] reduced revenue and timing of shipments and collections, a decrease in [removed] inventories, offset by decreases in accrued liabilities driven by decreases in sales related reserves, and a decrease due to cash refunded to our customers under [removed] the LTSAs. Net cash provided by operating activities was [removed] $2.89 billion in fiscal [removed] 2024 primarily due to net [removed] income of $1.91 billion, adjusted for non-cash and non-operating charges of [removed] $1.06 billion and net cash [removed] outflows of $76.7 million from changes in our operating assets and liabilities.

• Our expectation that we will experience period-to-period fluctuations in operating results, gross margins, [removed] product mix and average gross profit per unit;

At March 31, [removed] 2025, our distributors maintained [removed] 33 days of inventory of our products compared to [removed] 41 days at March 31, [removed] 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 [removed] have had a material adverse impact on our net sales in [removed] recent periods. Due to the relatively high level of inventory days, we have accommodated efforts by our distributors [removed] to manage their inventory levels by allowing them to push-out or cancel orders.

In September 2021, we received a Statutory Notice of Deficiency (2007 to 2012 Notice) from the United States Internal Revenue Service (IRS) for fiscal 2007 through fiscal 2012. The disputed amounts largely relate to transfer pricing matters. In December 2021, we filed a petition in the U.S. Tax Court challenging the 2007 to 2012 Notice. In September 2023, we received a Revenue Agent Report (RAR) from the IRS for fiscal 2013 and fiscal 2016. In October 2023, we received a Statutory Notice of Deficiency (2014 to 2015 Notice) from the IRS for fiscal 2014 and fiscal 2015. The disputed amounts for fiscal 2013 to fiscal 2016 largely relate to transfer pricing matters. In December 2023, we filed a petition in the U.S. Tax Court challenging the 2014 to 2015 Notice.

In November 2021, our Board of Directors authorized the repurchase of up to $4.00 billion of our common stock in the open market or in privately negotiated transactions. [removed] In fiscal 2025, we repurchased approximately 1.0 million shares of our common stock for $90.0 million under this [removed] authorization. In fiscal [removed] 2024, we repurchased approximately [removed] 11.9 million shares of our common stock for [removed] $982.1 million under this authorization. As of March 31, [removed] 2025, approximately $1.56 billion remained available for repurchases under the program. As of March 31, [removed] 2025, we held approximately [removed] 39.3 million shares as treasury shares. Any future repurchases of shares of our common stock will be evaluated based on our cash generation, leverage metrics, and market conditions.

Various taxing authorities in the U.S. and other countries in which we do business are increasing their scrutiny of the tax structures employed by businesses. Companies of our size and complexity are regularly audited by the taxing authorities in the jurisdictions in which they conduct significant operations. For U.S. federal, and in general for U.S. state tax returns, our fiscal 2007 and later tax returns remain effectively open for examination by the taxing authorities. We are currently being audited by the tax authorities in the U.S. and in various foreign jurisdictions. At this time, we do not know what the outcome of these audits will be. We record benefits for uncertain tax positions based on an assessment of whether it is more likely than not that the tax positions will be sustained based on their technical merits under currently enacted law. If this threshold[removed] is not met, no tax benefit of the uncertain tax position is recognized. If the threshold is met, we recognize the largest amount of the tax benefit that is more than 50% likely to be realized upon ultimate settlement.

Overall, our estimates of adjustments to contract price due to variable consideration under our contracts with distributor customers, based on our assumptions, have been materially consistent with our actual results. However, these estimates are subject to management's judgment and actual provisions could be different from our estimates, resulting in future adjustments to our revenue and operating results. A 100-basis point increase in the blended price concession rate would have changed the measurement of our refund liability recorded within accrued liabilities by [removed] $5.0 million as of March 31, [removed] 2025.

• Our expected debt obligation maturities, including the conversion of debt, Depositary Shares, and Series A Preferred Stock, and plans to refinance our existing debt;

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. We review the accounting policies we use in reporting our financial results on a regular basis. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and [removed] expenses and related disclosure of contingent liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, [removed] inventories, income taxes and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. We review these estimates and judgments on an ongoing basis. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Inventories are valued at the lower of cost or net realizable value using the first-in, first-out method. We record a charge to cost of sales to write down our inventory for estimated excess, obsolete or unmarketable inventory in an amount equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those we projected, additional inventory write-downs may be required. Inventory impairment charges establish a new cost basis for inventory and charges are not subsequently reversed to income even if circumstances later suggest that increased carrying amounts are recoverable. In determining whether there is a risk of excess or obsolete inventory, we evaluate projected demand over periods that align with demand forecasts used to develop manufacturing plans and inventory build decisions and write down inventory on hand that is in excess of estimated demand. Management reviews and adjusts the estimates as appropriate based on specific situations. For example, demand can be adjusted up for new products for which historic sales are not representative of future demand. Alternatively, demand can be adjusted down to the extent any existing products are being replaced or discontinued. A 1% variance in the estimated demand for our products would have changed the estimated net realizable value of our inventory by approximately [removed] $3.8 million as of March 31, [removed] 2025.