What changed in Microchip Technology's 10-Q for the quarter ended June 30, 2026

No corresponding language in the FY2025 10-Q.

No corresponding language in the FY2025 10-Q.

No corresponding language in the FY2025 10-Q.

No corresponding language in the FY2025 10-Q.

[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 August 2022, the U.S. government enacted the Inflation Reduction Act into law. The Inflation Reduction Act includes a new corporate alternative minimum tax (Corporate AMT) of 15.0% on the adjusted financial statement income (AFSI) of corporations with average AFSI exceeding $1.00 billion over a three-year period, as well as a 1% excise tax on the net fair market value of stock repurchases made after December 31, 2022. The Corporate AMT is effective beginning in fiscal 2024. The Inflation Reduction Act did not have a material impact on our tax expense or effective tax rate during the three months ending June 30, 2025.

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, 2025 were $17.9 million compared to $72.9 million in the three months ended June 30, 2024. Capital expenditures were primarily for the selective expansion of production capacity and the addition of research and development equipment. 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. 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. [removed] 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.

The decrease in net sales in the three months ended June 30, 2025 compared to June 30, 2024 was primarily due to [removed] many customers having high levels of inventory and delaying or reducing orders and, to a lesser extent, adverse economic conditions, including slow economic activity, business uncertainty, persistent inflation and high interest rates. 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.

[removed] • in the first three months of fiscal 2025, we repurchased shares of our common stock for $72.7 million.

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 10. Commitments and Contingencies", "Note 6. Debt" and "Note 11. Income Taxes" to our condensed 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.[removed] 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.

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 September 2023, we established a Commercial Paper program under which we may issue short-term unsecured promissory [removed] notes up to a maximum principal amount outstanding at any time [removed] 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. Our intent is to reduce the amounts that would otherwise be available to borrow under our Revolving Credit Facility by the outstanding amount of Commercial Paper. [removed] Pursuant to the Second Amended and Restated Credit Agreement, in March 2025, the maximum principal amount outstanding at any time under the Commercial Paper program was updated to $2.25 billion. As of June 30, [removed] 2025, the principal amount of our outstanding indebtedness was [removed] $5.49 billion. We had no outstanding borrowings under the Revolving Credit Facility at June 30, [removed] 2025 and at March 31, [removed] 2025. At June 30, [removed] 2025, we had [removed] no outstanding principal amount of Commercial Paper compared to [removed] $175.0 million at March 31, [removed] 2025.

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.

Net cash provided by operating activities was [removed] $275.6 million in the three months ended June 30, [removed] 2025 primarily due to net [removed] loss of $18.6 million, adjusted for non-cash and non-operating charges of [removed] $225.4 million and net cash inflows of [removed] $68.8 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, [removed] 2025 include a decrease in inventories, increases in accrued liabilities driven by increases in [removed] accrued interest and wage related [removed] accruals, partially offset by a decrease due to cash refunded to our customers under [removed] the LTSAs, and offset by an increase in trade accounts receivable driven primarily by higher revenue and timing of shipments and collections. Net cash provided by operating activities was [removed] $377.1 million in the three months ended June 30, [removed] 2024 primarily due to net [removed] income of $129.3 million, adjusted for non-cash and non-operating charges of [removed] $224.8 million and net cash inflows of [removed] $23.0 million from changes in our operating assets and liabilities.