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EX-32 - EXHIBIT 32 - MICROCHIP TECHNOLOGY INCa12312015ex32.htm
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EX-31.1 - EXHIBIT 31.1 - MICROCHIP TECHNOLOGY INCa12312015ex311.htm

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

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

For the quarterly period ended December 31, 2015.
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number:  0-21184

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

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

2355 W. Chandler Blvd., Chandler, AZ  85224-6199
(480) 792-7200
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's
Principal Executive Offices)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes  x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer
x
 
Accelerated filer
o
Non-accelerated filer
o
 
Smaller reporting company
o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  (Check One)
Yes    o No   x
Shares Outstanding of Registrant's Common Stock
Class
 
Outstanding at January 27, 2016
Common Stock, $0.001 par value
 
203,501,011 shares
 



MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

INDEX

 
 
 
Page
 
 
 
PART I.  FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II.  OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CERTIFICATIONS
 
 
 
EXHIBITS
 




MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)


Item1.
Financial Statements

ASSETS
December 31,
2015
 
March 31,
2015
Cash and cash equivalents
$
331,451

 
$
607,815

Short-term investments
676,449

 
1,351,054

Accounts receivable, net
248,006

 
273,937

Inventories
319,524

 
279,456

Prepaid expenses
36,488

 
34,717

Deferred tax assets

 
71,045

Assets held for sale

 
13,989

Other current assets
20,803

 
32,604

Total current assets
1,632,721

 
2,664,617

Property, plant and equipment, net
622,842

 
581,572

Long-term investments
1,389,989

 
383,326

Goodwill
1,011,227

 
571,271

Intangible assets, net
654,574

 
504,417

Long-term deferred tax assets
18,910

 

Other assets
116,290

 
75,510

Total assets
$
5,446,553

 
$
4,780,713

LIABILITIES AND EQUITY
 
 
 
Accounts payable
$
69,059

 
$
86,866

Accrued liabilities
111,273

 
100,978

Deferred income on shipments to distributors
163,582

 
166,128

Total current liabilities
343,914

 
353,972

Long-term line of credit
1,008,452

 
461,952

Senior convertible debentures
1,203,048

 
1,174,036

Junior convertible debentures
194,974

 
190,870

Long-term income tax payable
106,081

 
114,336

Long-term deferred tax liability
422,667

 
381,192

Other long-term liabilities
41,073

 
43,329

Stockholders' equity:
 
 
 
Preferred stock, $0.001 par value; authorized 5,000,000 shares; no shares issued or outstanding

 

Common stock, $0.001 par value; authorized 450,000,000 shares; 227,416,789 shares issued and 203,498,524 shares outstanding at December 31, 2015; 218,789,994 shares issued and 202,080,306 shares outstanding at March 31, 2015
203

 
202

Additional paid-in capital
1,385,815

 
999,515

Common stock held in treasury: 23,918,265 shares at December 31, 2015; 16,709,688 shares at March 31, 2015
(837,387
)
 
(515,679
)
Accumulated other comprehensive (loss) income
(10,665
)
 
11,076

Retained earnings
1,588,378

 
1,549,540

Microchip Technology stockholders' equity
2,126,344

 
2,044,654

Noncontrolling interests

 
16,372

Total equity
2,126,344

 
2,061,026

Total liabilities and equity
$
5,446,553

 
$
4,780,713

See accompanying notes to condensed consolidated financial statements

3


MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)

 
Three Months Ended
 
Nine Months Ended
 
December 31,
 
December 31,
 
2015
 
2014
 
2015
 
2014
Net sales
$
540,344

 
$
528,710

 
$
1,615,687

 
$
1,603,829

Cost of sales (1)
247,626

 
226,751

 
713,002

 
687,897

Gross profit
292,718

 
301,959

 
902,685

 
915,932

 
 

 
 

 
 

 
 

Research and development  (1)
97,022

 
88,697

 
276,958

 
261,881

Selling, general and administrative  (1)
76,270

 
66,668

 
223,377

 
207,037

Amortization of acquired intangible assets
48,312

 
47,582

 
126,764

 
129,659

Special (income) charges, net
(5,018
)
 
1,003

 
3,187

 
2,082

 Operating expenses
216,586

 
203,950

 
630,286

 
600,659

 
 
 
 
 
 
 
 
Operating income
76,132

 
98,009

 
272,399

 
315,273

Losses on equity method investments
(56
)
 
(62
)
 
(289
)
 
(129
)
Other income (expense):
 
 
 
 
 
 
 
Interest income
6,677

 
4,924

 
18,610

 
14,197

Interest expense
(27,507
)
 
(14,223
)
 
(77,203
)
 
(41,920
)
Other (expense) income, net
(5,088
)
 
(2,457
)
 
10,163

 
(3,535
)
Income before income taxes
50,158

 
86,191

 
223,680

 
283,886

Income tax (benefit) provision
(11,053
)
 
1,393

 
(32,890
)
 
17,141

Net income
61,211

 
84,798

 
256,570

 
266,745

Less: Net loss attributable to noncontrolling interests

 
1,259

 
207

 
2,862

Net income attributable to Microchip Technology
$
61,211

 
$
86,057

 
$
256,777

 
$
269,607

Basic net income per common share attributable to Microchip Technology stockholders
$
0.30

 
$
0.43

 
$
1.26

 
$
1.34

Diluted net income per common share attributable to Microchip Technology stockholders

$
0.28

 
$
0.39

 
$
1.18

 
$
1.20

Dividends declared per common share
$
0.3585

 
$
0.3565

 
$
1.0740

 
$
1.0680

Basic common shares outstanding
203,294

 
201,203

 
203,267

 
200,673

Diluted common shares outstanding
217,975

 
223,487

 
217,280

 
224,433

(1) Includes share-based compensation expense as follows:
 
 
 
 
 
 
 
Cost of sales
$
2,270

 
$
2,290

 
$
6,325

 
$
6,985

Research and development
7,855

 
7,075

 
23,623

 
20,645

Selling, general and administrative
6,840

 
5,454

 
24,155

 
15,783


See accompanying notes to condensed consolidated financial statements

4


MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)

 
Three Months Ended
 
Nine Months Ended
 
December 31,
 
December 31,
 
2015
 
2014
 
2015
 
2014
Net income
$
61,211

 
$
84,798

 
$
256,570

 
$
266,745

Less: Net loss attributable to noncontrolling interests

 
1,259

 
207

 
2,862

Net income attributable to Microchip Technology
61,211

 
86,057

 
256,777

 
269,607

 
 
 
 
 
 
 
 
Components of other comprehensive (loss) income:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Unrealized holding (losses) gains, net of tax effect of $0, $12,380, $0 and $12,392, respectively
(7,481
)
 
19,844

 
(7,411
)
 
19,439

Reclassification of realized transactions, net of tax effect of $0, $0, $0 and $12, respectively
(89
)
 
(73
)
 
(14,054
)
 
(157
)
Change in net foreign currency translation adjustment

 
1,046

 

 
(5,188
)
Other comprehensive (loss) income, net of taxes
(7,570
)
 
20,817

 
(21,465
)
 
14,094

Less: Other comprehensive (income) loss attributable to noncontrolling interests

 
(149
)
 

 
866

Other comprehensive (loss) income attributable to Microchip Technology
(7,570
)
 
20,668

 
(21,465
)
 
14,960

 
 
 
 
 
 
 
 
Comprehensive income
53,641

 
105,615

 
235,105

 
280,839

Less: Comprehensive loss attributable to noncontrolling interests

 
1,110

 
207

 
3,728

Comprehensive income attributable to Microchip Technology
$
53,641

 
$
106,725

 
$
235,312

 
$
284,567


See accompanying notes to condensed consolidated financial statements


5

MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 
Nine Months Ended
 
December 31,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
256,570

 
$
266,745

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
207,662

 
205,112

Deferred income taxes
(11,116
)
 
5,795

Share-based compensation expense related to equity incentive plans
54,103

 
43,413

Excess tax benefit from share-based compensation
(735
)
 
(1,100
)
Amortization of debt discount on convertible debentures
35,909

 
7,311

Amortization of debt issuance costs
2,916

 
1,632

Losses on equity method investments
289

 
129

Gain on sale of assets
(960
)
 

Loss on write-down of fixed assets

 
285

Impairment of intangible assets
577

 
1,861

Realized gain on available-for-sale investment
(14,054
)
 

Realized gain on equity method investment
(2,225
)
 

Impairment of available-for-sale investment
3,995

 

Amortization of premium on available-for-sale investments
7,230

 
7,561

Special charges
1,351

 

Changes in operating assets and liabilities:
 
 
 
Decrease in accounts receivable
40,027

 
15,449

Decrease in inventories
34,773

 
28,684

(Decrease) increase in deferred income on shipments to distributors
(2,888
)
 
6,466

Decrease in accounts payable and accrued liabilities
(44,434
)
 
(39,001
)
Change in other assets and liabilities
(27,099
)
 
(7,670
)
Net cash provided by operating activities
541,891

 
542,672

Cash flows from investing activities:
 

 
 

Purchases of available-for-sale investments
(1,542,864
)
 
(721,861
)
Sales and maturities of available-for-sale investments
1,193,487

 
821,160

Sale of equity method investment
2,667

 

Acquisition of Micrel, net of cash acquired
(343,928
)
 

Acquisition of ISSC, net of cash acquired

 
(252,469
)
Purchase of additional controlling interest in ISSC
(18,051
)
 
(22,934
)
Acquisition of Supertex, net of cash acquired

 
(375,365
)
Investments in other assets
(5,961
)
 
(5,274
)
Proceeds from sale of assets
14,296

 

Capital expenditures
(81,423
)
 
(120,014
)
Net cash used in investing activities
(781,777
)
 
(676,757
)
Cash flows from financing activities:
 

 
 

Repayments of revolving loan under credit facility
(571,000
)
 
(427,900
)
Proceeds from borrowings on revolving loan under credit facility
1,117,500

 
772,275

Repayments of long-term borrowings

 
(13,125
)
Deferred financing costs
(2,156
)
 

Payment of cash dividends
(217,939
)
 
(214,431
)
Repurchase of common stock
(363,829
)
 

Proceeds from sale of common stock
17,916

 
20,829

Tax payments related to shares withheld for vested restricted stock units
(17,201
)
 
(14,276
)
Capital lease payments
(504
)
 
(450
)
Excess tax benefit from share-based compensation
735

 
1,100

Net cash (used in) provided by financing activities
(36,478
)
 
124,022

Effect of foreign exchange rate changes on cash and cash equivalents

 
(201
)
Net decrease in cash and cash equivalents
(276,364
)
 
(10,264
)
Cash and cash equivalents at beginning of period
607,815

 
466,603

Cash and cash equivalents at end of period
$
331,451

 
$
456,339

See accompanying notes to condensed consolidated financial statements

6



(1)
Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Microchip Technology Incorporated and its majority-owned subsidiaries (the Company).  The Company owned 100% of the outstanding stock in all of its subsidiaries as of December 31, 2015. All intercompany balances and transactions have been eliminated in consolidation.
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (US GAAP), pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC).  The information furnished herein reflects all adjustments which are, in the opinion of management, of a normal recurring nature and necessary for a fair statement of the results for the interim periods reported. Certain information and footnote disclosures normally included in audited consolidated financial statements have been condensed or omitted pursuant to such SEC rules and regulations.  It is suggested that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2015.  The results of operations for the nine months ended December 31, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2016 or for any other period.

(2)
Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09-Revenue from Contracts with Customers, which will supersede nearly all existing revenue recognition guidance under US GAAP.  The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company is evaluating its existing revenue recognition policies to determine whether any contracts in the scope of the guidance will be materially affected by the new requirements.  The effects may include identifying performance obligations in existing arrangements, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.  On July 9, 2015, the FASB delayed the effective date of the new standard by one year to December 15, 2017, for annual and interim reporting periods beginning after that date. In accordance with the delay, the new standard will be effective for the Company beginning no later than April 1, 2018.  Early adoption is permitted, but not before the original effective date of December 15, 2016.  The standard allows for either "full retrospective" adoption, meaning the standard is applied to all of the periods presented, or "modified retrospective" adoption, meaning the standard is applied only to the most current period presented in the financial statements.  The Company is currently evaluating the transition method that will be elected, and the effects of the new standard on its results of operations.

In April 2015, the FASB issued ASU 2015-03-Simplifying the Presentation of Debt Issuance Costs. This standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of as a deferred charge. ASU 2015-03 is effective for interim and annual reporting periods beginning after December 15, 2015 and requires retrospective application. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-05-Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. This standard provides guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the software license element of the arrangement should be accounted for consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. This standard can be adopted either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.


7


In July 2015, the FASB issued ASU 2015-11-Simplifying the Measurement of Inventory. This standard requires that entities measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for interim and annual reporting periods beginning after December 15, 2016 and is applied prospectively. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In September 2015, the FASB issued ASU 2015-16-Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments. This standard amends existing guidance to require acquiring entities in a business combination to recognize measurement-period adjustments in the reporting period in which the adjustment amounts are determined. The standard also requires entities to present separately on the face of the income statement (or disclose in the notes to the financial statements) the amount of the adjustment reflected in the current period earnings, by line item, that would have been recognized in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The standard is to be applied prospectively to measurement-period adjustments that occur after the effective date. The Company adopted this standard beginning in the second quarter of fiscal 2016 and the adoption of this standard did not have a material impact on its consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17-Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.  The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016, with early adoption permitted. In the third quarter ended December 31, 2015, the new guidance was adopted on a prospective basis by the Company; accordingly, prior period amounts in the Company's condensed consolidated balance sheet within this quarterly report on Form 10-Q were not adjusted to conform to the new accounting standard. The adoption of this accounting standard was not material to the Company's condensed consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01-Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is not permitted. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

(3)
Business Acquisitions
Acquisition of Micrel
On August 3, 2015, the Company acquired Micrel, Incorporated (Micrel), a publicly traded company based in San Jose, California. The Company paid an aggregate of approximately $430.0 million in cash and issued an aggregate of 8,626,795 shares of its common stock to Micrel shareholders. The total consideration transferred in the acquisition, including approximately $4.1 million of non cash consideration for the exchange of certain share-based payment awards of Micrel for stock awards of the Company, and approximately $13.1 million of cash consideration for the payout of vested employee stock awards, was approximately $816.2 million. The Company financed the cash portion of the purchase price using borrowings under its existing credit agreement. As a result of the acquisition, Micrel became a wholly owned subsidiary of the Company. Micrel's business is to design, develop, manufacture and market a range of high-performance analog, power and mixed-signal integrated circuits. Micrel's products address a wide range of end markets including industrial and automotive, wireline communications, enterprise and cloud infrastructure and mobility. Micrel also manufactures custom analog and mixed-signal circuits and provides wafer foundry services for customers which produce electronic systems utilizing semiconductor manufacturing processes as well as micro-electrical mechanical system technologies. The Company's primary reason for this acquisition was to expand the Company's range of solutions, products and capabilities by extending its served available market.
The acquisition was accounted for under the acquisition method of accounting, with the Company identified as the acquirer, and the operating results of Micrel have been included in the Company's condensed consolidated financial statements as of the closing date of the acquisition. Under the acquisition method of accounting, the aggregate amount of consideration paid by the Company was allocated to Micrel's net tangible assets and intangible assets based on their estimated fair values as of August 3, 2015.  The excess of the purchase price over the value of the net tangible assets and intangible assets was recorded to goodwill. The factors contributing to the recognition of goodwill were based upon the Company's conclusion that there are strategic and synergistic benefits that are expected to be realized from the acquisition. The goodwill has been allocated to the Company's semiconductor products reporting segment.  None of the goodwill related to the Micrel acquisition is deductible for

8


tax purposes.  The Company retained an independent third-party appraiser to assist management in its valuation; however, the purchase price allocation has not been finalized. This could result in adjustments to the fair values of the assets acquired and liabilities assumed, the useful lives of intangible assets, the residual amount allocated to goodwill and deferred income taxes recognized. The preliminary allocation of the purchase price is based on the best estimates of management and is subject to revision based on the final valuations and estimates of useful lives.
The table below represents the preliminary allocation of the purchase price, including adjustments to the initial preliminary purchase price allocation as previously reported at September 30, 2015, to the net assets acquired based on their estimated fair values as of August 3, 2015, as well as the associated estimated useful lives of the acquired intangible assets at that date (amounts in thousands):
Assets acquired
Previously Reported September 30, 2015
 
Adjustments
 
December 31, 2015
Cash and cash equivalents
$
99,196

 
$

 
$
99,196

Accounts receivable, net
12,296

 
1,800

 
14,096

Inventories
78,967

 
(5,499
)
 
73,468

Prepaid expenses and other current assets
10,548

 
217

 
10,765

Property, plant and equipment, net
38,566

 

 
38,566

Goodwill
437,060

 
2,507

 
439,567

Purchased intangible assets
274,800

 
(1,300
)
 
273,500

Other assets
4,268

 

 
4,268

Total assets acquired
955,701

 
(2,275
)
 
953,426

 
 
 
 
 
 
Liabilities assumed
 
 
 
 
 
Accounts payable
(11,068
)
 

 
(11,068
)
Other current liabilities
(30,241
)
 

 
(30,241
)
Deferred tax liabilities
(88,796
)
 
343

 
(88,453
)
Long-term income tax payable
(9,239
)
 
1,932

 
(7,307
)
Other long-term liabilities
(127
)
 

 
(127
)
Total liabilities assumed
(139,471
)
 
2,275

 
(137,196
)
Purchase price allocated
$
816,230

 
$

 
$
816,230


Purchased Intangible Assets
Useful Life
 
August 3, 2015
 
(in years)
 
(in thousands)
Core/developed technology
10
 
$
175,800

In-process technology
10
 
21,000

Customer-related
5
 
71,100

Backlog
1
 
5,600

Total purchased intangible assets
 
 
$
273,500

Purchased intangible assets include core and developed technology, in-process research and development, customer-related intangibles and acquisition-date backlog. The estimated fair values of the core and developed technology and in-process research and development were determined based on the present value of the expected cash flows to be generated by the respective existing technology or future technology. The core and developed technology intangible assets are being amortized commensurate with the expected cash flows used in the initial determination of fair value. In-process technology is capitalized until such time the related projects are completed or abandoned at which time the capitalized amounts will begin to be amortized or written off.
Customer-related intangible assets consist of Micrel's contractual relationships and customer loyalty related to its distributor and end-customer relationships, and the fair values of the customer-related intangibles were determined based on Micrel's projected revenues. An analysis of expected attrition and revenue growth for existing customers was prepared from Micrel's historical customer information.  Customer relationships are being amortized in a manner consistent with the estimated cash flows associated with the existing customers and anticipated retention rates. Backlog relates to the value of orders not yet

9


shipped by Micrel at the acquisition date, and the preliminary fair values were based on the estimated profit associated with those orders. Backlog related assets are being recognized commensurate with recognition of the revenue for the orders on which the backlog intangible assets were determined.  Amortization expense associated with acquired intangible assets is not deductible for tax purposes.  Thus, approximately $99.7 million was established as a net deferred tax liability for the future amortization of the intangible assets offset by $11.4 million of net deferred tax assets.
The amount of Micrel net sales included in the Company's condensed consolidated statements of income for the three and nine months ended December 31, 2015 was approximately $45.8 million and $67.3 million, respectively. The operations of Micrel were fully integrated into the Company's operations as of November 1, 2015 and as such, cost of sales and operating expenses were no longer segregated in the three or nine months ended December 31, 2015.
The following unaudited pro-forma consolidated results of operations for the three and nine months ended December 31, 2015 and 2014 assume the Micrel acquisition occurred as of April 1, 2014. The pro-forma adjustments are mainly comprised of acquired inventory fair value costs and amortization of purchased intangible assets. The pro-forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the acquisition had taken place on April 1, 2014 or of results that may occur in the future (amounts in thousands except per share data):

 
Three Months Ended
 
Nine Months Ended
 
December 31,
 
December 31,
 
2015
 
2014
 
2015
 
2014
Net sales
$
552,013

 
$
586,628

 
$
1,715,079

 
$
1,771,565

Net income
80,236

 
70,041

 
282,273

 
195,428

Basic earnings per share
$
0.39

 
$
0.35

 
$
1.39

 
$
0.97

Diluted earnings per share
$
0.37

 
$
0.31

 
$
1.30

 
$
0.87

Acquisition of ISSC
On July 17, 2014, the Company acquired an 83.5% interest in Taiwan based ISSC, a leading provider of low power Bluetooth and advanced wireless solutions for the Internet of Things (IoT) market. The Company acquired the 83.5% ownership interest through a tender offer process. Since the completion of the tender offer, the Company continued to acquire additional shares of ISSC, and as of June 30, 2015, the Company had completed the acquisition of 100% of the outstanding shares of ISSC.
The acquisition was accounted for under the acquisition method of accounting. The table below represents the allocation of the purchase price to the net assets acquired based on their estimated fair values as of July 17, 2014 as well as the associated estimated useful lives of the acquired intangible assets at that date. The purchase price allocation was finalized as of June 30, 2015 (amounts in thousands):

10


Assets acquired
June 30, 2015
Cash and cash equivalents
$
15,120

Short-term investments
27,063

Accounts receivable, net
8,792

Inventories
16,542

Prepaid expenses and other current assets
2,501

Property, plant and equipment, net
2,637

Goodwill
154,788

Purchased intangible assets
147,800

Other assets
1,370

Total assets acquired
376,613

 
 
Liabilities assumed
 
Accounts payable
(9,860
)
Other current liabilities
(16,535
)
Long-term income tax payable
(4,791
)
Deferred tax liability
(25,126
)
Other long-term liabilities
(245
)
Total liabilities assumed
(56,557
)
Net assets acquired including noncontrolling interest
320,056

Less: noncontrolling interest
(52,467
)
Net assets acquired
$
267,589


Purchased Intangible Assets
Useful Life
 
July 17, 2014
 
(in years)
 
(in thousands)
Core/developed technology
10
 
$
68,900

In-process technology
10
 
27,200

Customer-related
3
 
51,100

Backlog
1
 
600

 
 
 
$
147,800

Acquisition of Supertex
On April 1, 2014, the Company acquired Supertex Inc., a publicly traded company based in Sunnyvale, California. Supertex is a leader in high voltage analog and mixed signal technologies, with a strong position in the medical, lighting and industrial control markets.
The acquisition was accounted for under the acquisition method of accounting. The table below represents the allocation of the purchase price to the net assets acquired based on their estimated fair values as of April 1, 2014 as well as the associated estimated useful lives of the acquired intangible assets at that date. The purchase price allocation was finalized on March 31, 2015 (amounts in thousands):

11


Assets acquired
March 31, 2015
Cash and cash equivalents
$
14,790

Short-term investments
140,984

Accounts receivable, net
7,047

Inventories
27,630

Prepaid expenses
1,493

Deferred tax assets
2,456

Other current assets
12,625

Property, plant and equipment, net
15,679

Goodwill
143,160

Purchased intangible assets
89,600

Other assets
325

Total assets acquired
455,789

 
 
Liabilities assumed
 
Accounts payable
(8,481
)
Accrued liabilities
(19,224
)
Long-term income tax payable
(3,796
)
Deferred tax liability
(32,511
)
Total liabilities assumed
(64,012
)
Net assets acquired
$
391,777


Purchased Intangible Assets
Useful Life
 
April 1, 2014
 
(in years)
 
(in thousands)
Core/developed technology
10
 
$
68,900

In-process technology
10
 
1,900

Customer-related
2
 
17,700

Backlog
1
 
1,100

 
 
 
$
89,600


(4)
Special (Income) Charges

Special income, net in the three months ended December 31, 2015 was $5.0 million comprised of special charges of $2.2 million related to severance, office closing and other costs associated with the Company's acquisition activity and legal settlement costs of approximately $4.3 million offset by special income of $11.5 million related to an insurance settlement for reimbursement of funds Microchip previously paid to settle a lawsuit in the second quarter of fiscal 2013. Special charges, net in the nine months ended December 31, 2015 was $3.2 million comprised of $10.4 million related to severance, office closing and other costs associated with the Company's acquisition activity and legal settlement costs of approximately $4.3 million partially offset by special income of $11.5 million related to the insurance settlement. During the three and nine months ended December 31, 2014, the Company incurred special charges of $1.0 million and $2.1 million, respectively, related to severance, office closing and other costs associated with its acquisition activity.

(5)
Segment Information
 
The Company's reportable segments are semiconductor products and technology licensing.  The Company does not allocate operating expenses, interest income, interest expense, other income or expense, or provision for or benefit from income taxes to these segments for internal reporting purposes, as the Company does not believe that allocating these expenses is beneficial in evaluating segment performance.  Additionally, the Company does not allocate assets to segments for internal reporting purposes as it does not manage its segments by such metrics.


12


The following table represents net sales and gross profit for each segment for the three and nine months ended December 31, 2015 (amounts in thousands):
 
Three Months Ended
 
Nine Months Ended
 
December 31, 2015
 
December 31, 2015
 
Net Sales
 
Gross Profit
 
Net Sales
 
Gross Profit
Semiconductor products
$
517,628

 
$
270,002

 
$
1,546,533

 
$
833,531

Technology licensing
22,716

 
22,716

 
69,154

 
69,154

 
$
540,344

 
$
292,718

 
$
1,615,687

 
$
902,685


The following table represents net sales and gross profit for each segment for the three and nine months ended December 31, 2014 (amounts in thousands):
 
Three Months Ended
 
Nine Months Ended
 
December 31, 2014
 
December 31, 2014
 
Net Sales
 
Gross Profit
 
Net Sales
 
Gross Profit
Semiconductor products
$
505,763

 
$
279,012

 
$
1,537,861

 
$
849,964

Technology licensing
22,947

 
22,947

 
65,968

 
65,968

 
$
528,710

 
$
301,959

 
$
1,603,829

 
$
915,932


(6)
Investments
 
The Company's investments are intended to establish a high-quality portfolio that preserves principal, meets liquidity needs, avoids inappropriate concentrations, and delivers an appropriate yield in relationship to the Company's investment guidelines and market conditions.  The following is a summary of available-for-sale securities at December 31, 2015 (amounts in thousands):
 
Available-for-sale Securities
 
Adjusted
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Government agency bonds
$
790,187

 
$
112

 
$
(3,084
)
 
$
787,215

Municipal bonds
41,137

 
5

 
(427
)
 
40,715

Auction rate securities
9,825

 

 

 
9,825

Corporate bonds and debt
1,230,023

 
216

 
(4,578
)
 
1,225,661

Marketable equity securities
2,195

 
827

 

 
3,022

 
$
2,073,367

 
$
1,160

 
$
(8,089
)
 
$
2,066,438


The following is a summary of available-for-sale securities at March 31, 2015 (amounts in thousands):
 
Available-for-sale Securities
 
Adjusted
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Government agency bonds
$
741,780

 
$
676

 
$
(200
)
 
$
742,256

Municipal bonds
41,552

 
155

 
(9
)
 
41,698

Auction rate securities
9,825

 

 

 
9,825

Time deposits (1)
506

 

 

 
506

Corporate bonds and debt
924,818

 
2,376

 
(265
)
 
926,929

Marketable equity securities
1,362

 
11,804

 

 
13,166

 
$
1,719,843

 
$
15,011

 
$
(474
)
 
$
1,734,380


(1) Time deposits in various financial institutions with maturities greater than three months that will mature within one year.


13


At December 31, 2015, the Company's available-for-sale securities are presented on the condensed consolidated balance sheets as short-term investments of $676.4 million and long-term investments of $1,390.0 million.  At March 31, 2015, the Company's available-for-sale securities are presented on the condensed consolidated balance sheets as short-term investments of $1,351.1 million and long-term investments of $383.3 million.

At December 31, 2015, the Company's marketable equity securities consisted of an investment in Adesto Technologies Corporation, which effected its initial public offering on the NASDAQ stock exchange on October 26, 2015. This investment was previously classified as available-for-sale corporate debt. At March 31, 2015, the Company's marketable equity securities consisted of an investment in Hua Hong Semiconductor Limited (Hua Hong), which effected its initial public offering on the Hong Kong stock exchange on October 15, 2014. The Company sold all of its remaining shares of Hua Hong in the three months ended June 30, 2015.

The Company sold available-for-sale securities for proceeds of $55.4 million and $191.2 million during the three and nine months ended December 31, 2015, respectively. The Company sold available-for-sale securities for proceeds of $55.9 million and $226.5 million during the three and nine months ended December 31, 2014, respectively. The Company had no material realized gains from the sale of available-for-sale securities during the three months ended December 31, 2015. During the nine months ended December 31, 2015, the Company had net realized gains of $14.1 million, from sales of available-for-sale marketable equity and debt securities. The Company had no material realized gains from the sale of available-for-sale securities during the three and nine months ended December 31, 2014. The Company determines the cost of an investment sold on an average cost basis at the individual security level for sales from multiple lots. For all other sales, the Company uses an adjusted cost basis at the individual security level.

The following tables show all investments in an unrealized loss position for which an other-than-temporary impairment has not been recognized and the related gross unrealized losses and fair value, aggregated by investment category and the length of time that the individual securities have been in a continuous unrealized loss position (amounts in thousands):
 
December 31, 2015
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
Government agency bonds
$
609,982

 
$
(3,049
)
 
$
9,965

 
$
(35
)
 
$
619,947

 
$
(3,084
)
Municipal bonds
37,398

 
(427
)
 

 

 
37,398

 
(427
)
Corporate bonds and debt
966,716

 
(4,480
)
 
30,103

 
(98
)
 
996,819

 
(4,578
)
 
$
1,614,096

 
$
(7,956
)
 
$
40,068

 
$
(133
)
 
$
1,654,164

 
$
(8,089
)


 
March 31, 2015
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
Government agency bonds
$
162,948

 
$
(142
)
 
$
29,942

 
$
(58
)
 
$
192,890

 
$
(200
)
Municipal bonds
13,318

 
(9
)
 

 

 
13,318

 
(9
)
Corporate bonds and debt
163,095

 
(219
)
 
19,021

 
(46
)
 
182,116

 
(265
)
 
$
339,361

 
$
(370
)
 
$
48,963

 
$
(104
)
 
$
388,324

 
$
(474
)

Management does not believe any of the unrealized losses represent an other-than-temporary impairment based on its evaluation of available evidence as of December 31, 2015 and the Company's intent is to hold these investments until these assets are no longer impaired, except for certain auction rate securities (ARS).  For those debt securities not scheduled to mature until after December 31, 2016, such recovery is not anticipated to occur in the next year and these investments have been classified as long-term investments on the condensed consolidated balance sheet.
 

14


The amortized cost and estimated fair value of the available-for-sale securities at December 31, 2015, by contractual maturity, excluding marketable equity securities of $3.0 million, which have no contractual maturity, are shown below (amounts in thousands).  Expected maturities can differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties, and the Company views its available-for-sale securities as available for current operations.
 
Adjusted
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Available-for-sale
 
 
 
 
 
 
 
Due in one year or less
$
454,500

 
$
190

 
$
(310
)
 
$
454,380

Due after one year and through five years
1,481,015

 
143

 
(7,056
)
 
1,474,102

Due after five years and through ten years
125,832

 

 
(723
)
 
125,109

Due after ten years
9,825

 

 

 
9,825

 
$
2,071,172

 
$
333

 
$
(8,089
)
 
$
2,063,416

 
(7)
Fair Value Measurements

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

Level 1-
Observable inputs such as quoted prices in active markets;
Level 2-
Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3-
Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Marketable Debt Instruments

Marketable debt instruments include instruments such as corporate bonds and debt, government agency bonds, bank deposits, municipal bonds, and money market mutual funds. When the Company uses observable market prices for identical securities that are traded in less active markets, the Company classifies its marketable debt instruments as Level 2. When observable market prices for identical securities are not available, the Company prices its marketable debt instruments using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Non-binding market consensus prices are based on the proprietary valuation models of pricing providers or brokers. These valuation models incorporate a number of inputs, including non-binding and binding broker quotes; observable market prices for identical or similar securities; and the internal assumptions of pricing providers or brokers that use observable market inputs and, to a lesser degree, unobservable market inputs. The Company corroborates non-binding market consensus prices with observable market data using statistical models when observable market data exists. The discounted cash flow model uses observable market inputs, such as LIBOR-based yield curves, currency spot and forward rates, and credit ratings.
 
Derivatives

The Company's derivative assets include interest rate swaps that are classified as Level 2 as the Company uses inputs other than quoted prices that are observable for the assets. The Level 2 derivative assets are primarily valued using standard calculations and models that use readily observable market data as their basis.


15


Assets Measured at Fair Value on a Recurring Basis
 
Assets measured at fair value on a recurring basis at December 31, 2015 are as follows (amounts in thousands):
 
Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Balance
Assets
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
Money market mutual funds
$
29,971

 
$

 
$

 
$
29,971

Deposit accounts

 
301,480

 

 
301,480

Short-term investments:
 
 
 
 
 
 
 
Marketable equity securities

3,022

 

 

 
3,022

Corporate bonds and debt

 
481,488

 

 
481,488

Government agency bonds

 
187,319

 

 
187,319

Municipal bonds

 
4,620

 

 
4,620

Long-term investments:
 
 
 
 
 
 
 
Corporate bonds and debt

 
744,173

 

 
744,173

Government agency bonds

 
599,896

 

 
599,896

Municipal bonds

 
36,095

 

 
36,095

Auction rate securities

 

 
9,825

 
9,825

Derivative assets

 
4,693

 

 
4,693

Total assets measured at fair value
$
32,993

 
$
2,359,764

 
$
9,825

 
$
2,402,582


Assets measured at fair value on a recurring basis at March 31, 2015 are as follows (amounts in thousands):
 
Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Balance
Assets
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
Money market mutual funds
$
279,833

 
$

 
$

 
$
279,833

Deposit accounts

 
327,982

 

 
327,982

Short-term investments:
 
 
 
 
 
 
 
Marketable equity securities
13,166

 

 

 
13,166

Corporate bonds and debt

 
756,664

 

 
756,664

Time deposits (1)

 
506

 

 
506

Government agency bonds

 
549,737

 

 
549,737

Municipal bonds

 
30,981

 

 
30,981

Long-term investments:
 
 
 
 
 
 
 
Corporate bonds and debt

 
164,075

 
6,190

 
170,265

Government agency bonds

 
192,519

 

 
192,519

Municipal bonds

 
10,717

 

 
10,717

Auction rate securities

 

 
9,825

 
9,825

Derivative assets

 
8,928

 

 
8,928

Total assets measured at fair value
$
292,999

 
$
2,042,109

 
$
16,015

 
$
2,351,123

(1) Time deposits in various financial institutions with maturities greater than three months that will mature within one year.

16


There were no transfers between Level 1 and Level 2 during the three and nine-month periods ended December 31, 2015 or the year ended March 31, 2015.

At December 31, 2015 and at March 31, 2015, the Company's ARS for which auctions have been unsuccessful are made up of securities related to the insurance industry valued at $9.8 million with a par value of $22.4 million. The Company estimated the fair value of its ARS, which are classified as Level 3 securities, based on the following: (i) the underlying structure of each security; (ii) the present value of future principal and interest payments discounted at rates considered to reflect current market conditions; (iii) consideration of the probabilities of default, auction failure, or repurchase at par for each period; and (iv) estimates of the recovery rates in the event of default for each security. The significant unobservable inputs used in the fair value measurement of the ARS as of December 31, 2015 were estimated risk free discount rates, liquidity risk premium, and the liquidity horizon. The risk free discount rate applied to these securities was 2% to 2.5% adjusted for the liquidity risk premium which ranged from 9.1% to 29.5%. The anticipated liquidity horizon ranged from 7 to 10 years. A significant increase in the liquidity premium, discount rate or liquidity horizon, in isolation, would lead to a significantly lower fair value measurement. Each quarter, the Company investigates material changes in the fair value measurements of its ARS.
The following table presents a reconciliation for all assets measured at fair value on a recurring basis, excluding accrued interest components, using significant unobservable inputs (Level 3) for the nine months ended December 31, 2015 (amounts in thousands):
Nine months ended December 31, 2015
Auction Rate
Securities
 
Corporate
Debt
 
Total Losses
Balance at March 31, 2015
$
9,825

 
$
6,190

 
$

Total gains (losses) (realized):
 
 
 
 
 
Included in earnings

 
(3,995
)
 
(3,995
)
Transfers out of Level 3

 
(2,195
)
 

Balance at December 31, 2015
$
9,825

 
$

 
$
(3,995
)

Transfers into or out of Level 3 are made if the inputs used in the financial models measuring the fair values of the assets and liabilities became unobservable or observable, respectively, in the current marketplace. During the three-months ended December 31, 2015, the Company transferred $2.2 million of corporate debt assets out of Level 3 as the inputs used to value these assets became observable in the current marketplace and are classified as Level 1 as of December 31, 2015. This transfer was effective on October 26, 2015.

Gains and losses recognized in earnings are credited or charged to Other Income (Expense) on the Consolidated Statements of Income.

Assets Measured and Recorded at Fair Value on a Non-Recurring Basis
 
The Company's non-marketable equity, cost method investments, and non-financial assets, such as intangible assets, assets held for sale and property, plant and equipment, are recorded at fair value on a non-recurring basis. These assets are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment.  

The Company's non-marketable and cost method investments are monitored on a quarterly basis for impairment charges.  The fair values of these investments have been determined as Level 3 fair value measurements because the valuations use unobservable inputs that require management's judgment due to the absence of quoted market prices. There were no impairment charges recognized on these investments during each of the three and nine-month periods ended December 31, 2015 and December 31, 2014. These investments are included in other assets on the condensed consolidated balance sheet.

The fair value measurements related to the Company's non-financial assets, such as intangible assets, assets held for sale and property, plant and equipment are based on available market prices at the measurement date based on transactions of similar assets and third-party independent appraisals, less costs to sell where appropriate. The Company classifies these measurements as Level 2.
  


17


(8)
Fair Value of Financial Instruments
 
The carrying amount of cash equivalents approximates fair value because their maturity is less than three months.  Management believes the carrying amount of the equity and cost-method investments materially approximated fair value at December 31, 2015 based upon unobservable inputs. The fair values of these investments have been determined as Level 3 fair value measurements. The fair values of the Company's line of credit borrowings are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements and approximate carrying value. Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of the Company's line of credit borrowings at December 31, 2015 approximated book value and are considered Level 2 in the fair value hierarchy described in Note 7. The carrying amount of accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short-term maturity of the amounts and are considered Level 2 in the fair value hierarchy. 

Fair Value of Subordinated Convertible Debentures

The Company measures the fair value of its senior and junior subordinated convertible debentures for disclosure purposes. These fair values are based on observable market prices for these debentures, which are traded in less active markets and are therefore classified as a Level 2 fair value measurement, and exclude the impacts of derivative activity.

The carrying amounts and fair values of the Company’s senior and junior subordinated convertible debentures as of December 31, 2015 and March 31, 2015 are as follows (amounts in thousands):

 
December 31, 2015
 
March 31, 2015
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
1.625% Senior Subordinated Convertible Debentures
$
1,203,048

 
$
1,733,004

 
$
1,174,036

 
$
1,787,531

2.125% Junior Subordinated Convertible Debentures
$
194,974

 
$
1,081,633

 
$
190,870

 
$
1,124,125


(9)
Accounts Receivable
 
Accounts receivable consists of the following (amounts in thousands):
 
December 31, 2015
 
March 31, 2015
Trade accounts receivable
$
246,434

 
$
269,844

Other
4,142

 
6,714

Total accounts receivable, gross
250,576

 
276,558

Less allowance for doubtful accounts
2,570

 
2,621

Total accounts receivable, net
$
248,006

 
$
273,937


(10)
Inventories

The components of inventories consist of the following (amounts in thousands):
 
December 31, 2015
 
March 31, 2015
Raw materials
$
13,305

 
$
13,263

Work in process
211,117

 
197,565

Finished goods
95,102

 
68,628

Total inventories
$
319,524

 
$
279,456


Inventories are valued at the lower of cost or market using the first-in, first-out method. 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. The inventory balance at December 31, 2015 includes a $11.0 million acquired inventory fair value adjustment resulting from the acquisition of Micrel.


18


(11)
Assets Held for Sale

During the year ended March 31, 2015, the Company began to actively market property it acquired as part of the Supertex acquisition.   The Company sold the property on July 22, 2015 for $14.3 million. As of March 31, 2015, the Company had classified the asset as held for sale on its condensed consolidated balance sheet at its estimated fair value of approximately $14.0 million.

(12)
Property, Plant and Equipment

Property, plant and equipment consists of the following (amounts in thousands):
 
December 31, 2015
 
March 31, 2015
Land
$
63,934

 
$
55,624

Building and building improvements
456,649

 
434,403

Machinery and equipment
1,640,123

 
1,576,074

Projects in process
95,800

 
76,315

Total property, plant and equipment, gross
2,256,506

 
2,142,416

Less accumulated depreciation and amortization
1,633,664

 
1,560,844

Total property, plant and equipment, net
$
622,842

 
$
581,572

 
Depreciation expense attributed to property, plant and equipment was $26.7 million and $77.6 million for the three and nine months ended December 31, 2015, respectively, and $24.7 million and $72.3 million for the three and nine months ended December 31, 2014, respectively.

(13)
Noncontrolling Interests

The following table presents the changes in the components of noncontrolling interests for the nine months ended December 31, 2015 (amounts in thousands):
 
Noncontrolling Interests
Balance at March 31, 2015
$
16,372

Net loss attributable to noncontrolling interests
(207
)
Purchase of additional interests
(16,165
)
Balance at December 31, 2015
$


The following table presents the effect of changes in the Company's ownership interest in ISSC on the Company's stockholders' equity for the nine months ended December 31, 2015 (amounts in thousands):
 
Nine Months Ended
 
December 31, 2015
Net income attributable to Microchip Technology stockholders
$
256,777

Decrease in paid-in capital for purchase of additional interests
(1,610
)
Transfers from noncontrolling interest
(1,610
)
Change from net income attributable to Microchip Technology stockholders and transfers from noncontrolling interest
$
255,167




19


(14)    Intangible Assets and Goodwill
 
Intangible assets consist of the following (amounts in thousands):
 
 
December 31, 2015
 
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
Core and developed technology
 
$
780,768

 
$
(288,216
)
 
$
492,552

Customer-related
 
335,069

 
(239,893
)
 
95,176

Trademarks and trade names
 
15,730

 
(11,085
)
 
4,645

Backlog
 
31,904

 
(29,804
)
 
2,100

In-process technology
 
59,814

 

 
59,814

Distribution rights
 
5,578

 
(5,291
)
 
287

Covenants not to compete
 
400

 
(400
)
 

 
 
$
1,229,263

 
$
(574,689
)
 
$
654,574


 
 
March 31, 2015
 
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
Core and developed technology
 
$
569,942

 
$
(209,676
)
 
$
360,266

Customer-related
 
263,969

 
(193,483
)
 
70,486

Trademarks and trade names
 
15,730

 
(9,529
)
 
6,201

Backlog
 
26,304

 
(26,304
)
 

In-process technology
 
67,142

 

 
67,142

Distribution rights
 
5,580

 
(5,258
)
 
322

Covenants not to compete
 
400

 
(400
)
 

 
 
$
949,067

 
$
(444,650
)
 
$
504,417


The Company amortizes intangible assets over their expected useful lives, which range between 1 and 15 years.  During the nine months ended December 31, 2015, as a result of the Micrel transaction, the Company acquired $175.8 million of core and developed technology which has a weighted average amortization period of 10 years, $71.1 million of customer-related intangible assets which has a weighted average amortization period of 5 years, $5.6 million of intangible assets related to backlog with an amortization period of 1 year and $21.0 million of in-process technology which will begin amortization once the technology reaches technological feasibility. During the nine months ended December 31, 2015, $28.3 million of in-process technology reached technological feasibility and was reclassified as core and developed technology and began being amortized over its estimated useful life. The following is an expected amortization schedule for the intangible assets for the remainder of fiscal 2016 through fiscal 2020, absent any future acquisitions or impairment charges (amounts in thousands):

Year ending
March 31,
Projected Amortization
Expense
2016
$49,303
2017
136,688
2018
110,637
2019
94,241
2020
76,351
 
Amortization expense attributed to intangible assets was $49.4 million and $130.0 million for the three and nine months ended December 31, 2015, respectively. Amortization expense attributed to intangible assets was $48.6 million and $132.8 million for the three and nine months ended December 31, 2014, respectively.  In the three and nine months ended December 31, 2015, approximately $0.9 million and $2.6 million was charged to cost of sales, respectively, and approximately $48.5 million and $127.4 million was charged to operating expenses, respectively.  In the three and nine months ended December 31, 2014, approximately $0.9 million and $2.9 million was charged to cost of sales, respectively, and approximately $47.7 million and $129.9 million was charged to operating expenses, respectively.  The Company recognized impairment

20


charges of $0.6 million in nine months ended December 31, 2015. The Company recognized impairment charges of $1.3 million and $1.9 million the three and nine months ended December 31, 2014, respectively.
 
Goodwill activity for the nine months ended December 31, 2015 was as follows (amounts in thousands):
 
Semiconductor Products
Reporting Unit
 
Technology
Licensing
Reporting Unit
Balance at March 31, 2015
$
552,071

 
$
19,200

Additions due to the acquisition of Micrel
439,567

 

Adjustments due to acquisition of ISSC
389

 

Balance at December 31, 2015
$
992,027

 
$
19,200

 
At March 31, 2015, the Company applied a qualitative goodwill impairment screen to its two reporting units, concluding it was not more likely than not that goodwill was impaired. Through December 31, 2015, the Company has never recorded an impairment charge against its goodwill balance.

(15)
Income Taxes
 
The provision for income taxes reflects tax on foreign earnings and federal and state tax on U.S. earnings.  The Company had an effective tax rate benefit of 14.7% for the nine-month period ended December 31, 2015 and an effective tax rate of 6.0% for the nine-month period ended December 31, 2014.  The Company's effective tax rate for the nine-month period ended December 31, 2015 is lower compared to the prior year primarily due to the favorable tax impact from the integration of previously acquired intangible assets. The Company's effective tax rate is lower than statutory rates in the U.S. due primarily to its mix of earnings in foreign jurisdictions with lower tax rates.

In December 2015, legislation was enacted which retroactively extends the research and experimentation tax credit on a permanent basis. As a result of the law change, the Company recorded a one-time tax benefit of $2.7 million in the three month period ended December 31, 2015, related to research activities incurred during fiscal year 2015. Likewise, the ongoing benefit from this credit is reflected in the Company's effective tax rate beginning in the three month period ended December 31, 2015.

At December 31, 2015, the Company had $257.6 million of unrecognized tax benefits.  Unrecognized tax benefits increased by $58.7 million compared to March 31, 2015. The current year increase is composed of $18.8 million related to acquisitions, $38.6 million related to ongoing accruals and releases, and $1.1 million related to deficiency interest on the positions. The majority of the increase in the uncertain tax position does not result in a change in the Company's effective tax rate for the current year.
 
The Company files U.S. federal, U.S. state, and foreign income tax returns.  For U.S. federal, and in general for U.S. state tax returns, the fiscal 2011 and later tax years remain open for examination by tax authorities.  The U.S. Internal Revenue Service (IRS) is currently auditing Microchip's 2011 and 2012 tax years.  For foreign tax returns, the Company is generally no longer subject to income tax examinations for years prior to fiscal 2007.
 
The Company recognizes liabilities for anticipated tax audit issues in the U.S. and other domestic and international tax jurisdictions based on its estimate of whether, and the extent to which, additional tax payments are more likely than not.  The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax laws applied to the facts of each matter.
 
The Company believes it maintains appropriate reserves to offset any potential income tax liabilities that may arise upon final resolution of matters for open tax years.  If such reserve amounts ultimately prove to be unnecessary, the resulting reversal of such reserves would result in tax benefits being recorded in the period the reserves are no longer deemed necessary.  If such amounts prove to be less than an ultimate assessment, a future charge to expense would be recorded in the period in which the assessment is determined.  Although the timing of the resolution and/or closure of audits is highly uncertain, the Company does not believe it is reasonably possible that the unrecognized tax benefits would materially change in the next 12 months.



21


(16)
1.625% Senior Subordinated Convertible Debentures

In February 2015, the Company issued $1,725.0 million principal amount of 1.625% senior subordinated convertible debentures due February 15, 2025. The debentures are subordinated to the Company's senior debt, including amounts borrowed under its amended credit facility, but are senior to the Company's outstanding 2.125% junior subordinated convertible debentures. The debentures are convertible, subject to certain conditions, into cash, shares of the Company's common stock or a combination thereof, at the Company's election, at an initial base conversion rate of 14.5654 shares of common stock per $1,000 principal amount of debentures, representing an initial base conversion price of approximately $68.66 per share of common stock.  As a result of cash dividends paid since the issuance of the debentures, the conversion rate has been adjusted to 15.0122 shares of common stock per $1,000 of principal amount of debentures, representing a base conversion price of approximately $66.61 per share of common stock. In addition, if at the time of conversion the applicable price of the Company's common stock exceeds the base conversion price, the conversion rate will be increased by up to an additional 7.2827 shares of common stock per $1,000 principal amount of debentures, as determined pursuant to a specified formula. As a result of cash dividends paid since the issuance of the debentures, the maximum number of additional shares that may be issued if the price of the Company's common stock exceeds the base conversion price has been adjusted to 7.5061 shares of common stock per $1,000 principal amount of debentures. However, in no event will the conversion rate exceed 20.3915 (adjusted to 21.0170 as a result of cash dividends paid since the issuance of the debentures) shares of common stock per $1,000 principal amount of debentures. The Company received net proceeds of approximately $1,694.7 million from the issuance of its senior subordinated convertible debentures after deduction of issuance costs of approximately $30.3 million. The $30.3 million in issuance costs was split between a debt component of $20.4 million and an equity component of $9.9 million.  The $20.4 million in debt issuance costs is recorded in other assets and is being amortized using the effective interest method over the term of the debentures.

Prior to the close of business on the business day immediately preceding November 15, 2024, the debentures will be convertible at the option of the debenture holders only upon the satisfaction of specified conditions and during certain periods. Thereafter until close of business on the second scheduled trading day immediately preceding February 15, 2025, the debentures will be convertible at the option of the debenture holders at any time regardless of these conditions. Accrued and unpaid interest will be considered fully paid upon settlement of shares.
 
As the debentures can be settled in cash upon conversion, for accounting purposes, the debentures were bifurcated into a liability component and an equity component, which are both initially recorded at fair value.  The carrying value of the equity component at December 31, 2015 and March 31, 2015 was $564.9 million.  The estimated fair value of the liability component of the debentures at the issuance date was $1,160.1 million resulting in a debt discount of $564.9 million.  The unamortized debt discount was $527.4 million at December 31, 2015 and $559.3 million at March 31, 2015.  The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is 9.12 years.  In the three and nine months ended December 31, 2015, the Company recognized $10.8 million and $31.9 million, respectively, in non-cash interest expense related to the amortization of the debt discount.  The Company recognized $7.0 million and $21.0 million of interest expense related to the 1.625% coupon on the debentures in the three and nine months ended December 31, 2015, respectively. The effective interest rate of the debentures is 6.1%.

(17)
2.125% Junior Subordinated Convertible Debentures
 
The Company's $575.0 million principal amount of 2.125% junior subordinated convertible debentures due December 15, 2037, are subordinated in right of payment to any future senior debt of the Company (including the Company's senior subordinated convertible debentures) and are effectively subordinated in right of payment to the liabilities of the Company's subsidiaries.  The debentures are convertible, subject to certain conditions, into cash, shares of the Company's common stock or a combination thereof, at the Company's election, at an initial conversion rate of 29.2783 shares of common stock per $1,000 principal amount of debentures, representing an initial conversion price of approximately $34.16 per share of common stock.  As of December 31, 2015, the holders of the debentures had the right to convert their debentures between January 1, 2016 and March 31, 2016 because for at least 20 trading days during the 30 consecutive trading day period ending on December 31, 2015, the Company's common stock had a last reported sale price greater than 130% of the conversion price. As of December 31, 2015, a holder could realize more economic value by selling its debentures in the over the counter market than from converting its debentures. As a result of cash dividends paid since the issuance of the debentures, the conversion rate has been adjusted to 40.7888 shares of common stock per $1,000 of principal amount of debentures, representing a conversion price of approximately $24.52 per share of common stock. The if-converted value of the debentures exceed the principal amount by $516.5 million at December 31, 2015. The debentures include a contingent interest mechanism that begins in December 2017. The terms of the contingent interest include a 0.25% interest rate if the debentures are trading at less than $400 and 0.5% if the debentures are trading at greater than $1,500. Based on the current trading price of the debentures, the contingent interest rate in calendar year 2017 would be 0.5%.

22


 
As the debentures can be settled in cash upon conversion, for accounting purposes, the debentures were bifurcated into a liability component and an equity component, which are both initially recorded at fair value.  The carrying value of the equity component at December 31, 2015 and at March 31, 2015 was $411.2 million.  The estimated fair value of the liability component of the debentures at the issuance date was $163.8 million, resulting in a debt discount of $411.2 million.  The unamortized debt discount was $379.7 million at December 31, 2015 and $383.7 million at March 31, 2015.  The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is 22 years.  In the three and nine months ended December 31, 2015, the Company recognized $1.4 million and $4.0 million, respectively, in non-cash interest expense related to the amortization of the debt discount.  In the three and nine months ended December 31, 2014, the Company recognized $2.5 million and $7.3 million, respectively, in non-cash interest expense related to the amortization of the debt discount.  The Company recognized $3.1 million and $9.2 million of interest expense related to the 2.125% coupon on the debentures in the three and nine months ended December 31, 2015, respectively, compared to $6.1 million and $18.3 million in the three and nine months ended December 31, 2014, respectively. The Company acquired $575.0 million in aggregate principal amount of its 2.125% junior subordinated convertible debentures in the March 2015 quarter which is the primary reason for the reductions of interest expense in the three and nine months ended December 31, 2015 compared to the prior year periods. The effective interest rate of the debentures is 9.1%.

(18)
Credit Facility

In February 2015, the Company amended its existing $2.0 billion credit agreement by increasing the revolving credit facility to $2.555 billion and removing the term loan portion of the agreement. The new credit agreement includes two tranches. One tranche consists of bank commitments through February 2020 and another tranche consists of bank commitments through June 2018, the maturity date of the original credit agreement. The Company's increase option was also adjusted to $300 million. The credit agreement provides for a $125 million foreign currency sublimit, a $25 million letter of credit sublimit and a $25 million swingline loan sublimit. The amended credit agreement was accounted for as a modification and as such any remaining unamortized deferred costs associated with the prior credit agreement was associated with the new credit agreement since the borrowing capacity was increased. At December 31, 2015, $1,008.5 million of revolving credit facility borrowings were outstanding under the credit agreement compared to $462.0 million at March 31, 2015.

In December 2015, the Company secured additional revolving credit commitments of $219 million from various banks in the February 2020 tranche under the increase option of the credit agreement, bringing its revolving credit facility to $2.774 billion at December 31, 2015. The remaining increase option was $30.4 million as of December 31, 2015.

In December 2015, the Company amended the Maximum Total Leverage Ratio in Section 6.11 of its existing credit agreement to allow the Total Leverage Ratio to be temporarily increased to 5.00 to 1.00 for a period of four consecutive quarters in conjunction with a Permitted Acquisition occurring during the first of the four quarters. The Total Leverage Ratio then decreases to 4.75 to 1.00 for three consecutive quarters, finally returning to the stated 4.50 to 1.00 Total Leverage Ratio of the credit agreement after a period of seven consecutive fiscal periods. The Company can elect to use this special feature, also referred to as an Adjusted Covenant Period, no more than two times during the term of the credit agreement and also can terminate an Adjusted Covenant Period earlier than the seven consecutive quarters allowed.

The loans under the credit agreement bear interest, at the Company's option, at the base rate plus a spread of 0.25% to 1.25% or an adjusted LIBOR rate (based on one, two, three, or six-month interest periods) plus a spread of 1.25% to 2.25%, in each case with such spread being determined based on the consolidated leverage ratio for the preceding four fiscal quarters (in the case of the 2018 tranche revolving loans) or the consolidated senior leverage ratio (in the case of the 2020 tranche revolving loans). The base rate means the highest of JPMorgan Chase Bank, N.A.'s prime rate, the federal funds rate plus a margin equal to 0.50% and the adjusted LIBOR rate for a 1-month interest period plus a margin equal to 1.00%. Swingline loans accrue interest at a per annum rate based on the base rate plus the applicable margin for base rate loans. Base rate loans may only be made in U.S. dollars. The Company is also obligated to pay other customary administration fees and letter of credit fees for a credit facility of this size and type.

Interest is due and payable in arrears quarterly for loans bearing interest at the base rate and at the end of an interest period (or at each three-month interval in the case of loans with interest periods greater than three months) in the case of loans bearing interest at the adjusted LIBOR rate. Interest expense related to the credit agreement was approximately $6.4 million and $14.9 million in the three and nine months ended December 31, 2015, respectively, and approximately $5.3 million and $15.4 million in the three and nine months ended December 31, 2014, respectively. Principal, together with all accrued and unpaid interest, is due and payable on the respective tranche maturity date, which is June 27, 2018 and February 4, 2020. The weighted average interest rate on short-term borrowings outstanding at December 31, 2015 related to the credit agreement was 2.17%. The Company also pays a quarterly commitment fee on the available but unused portion of its line of credit which is

23


calculated on the average daily available balance during the period. The Company may prepay the loans and terminate the commitments, in whole or in part, at any time without premium or penalty, subject to certain conditions including minimum amounts in the case of commitment reductions and reimbursement of certain costs in the case of prepayments of LIBOR loans.

The Company's obligations under the credit agreement are guaranteed by certain of its subsidiaries meeting materiality thresholds set forth in the credit agreement. To secure the Company's obligations under the credit agreement, the Company and its domestic subsidiaries will be required to pledge the equity securities of certain of their respective material subsidiaries, subject to certain exceptions and limitations.

The credit agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Company and its subsidiaries' ability to, among other things, incur subsidiary indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into certain transactions with affiliates, pay dividends or make distributions, repurchase stock, enter into restrictive agreements and enter into sale and leaseback transactions, in each case subject to customary exceptions for a credit facility of this size and type. The Company is also required to maintain compliance with consolidated senior and total leverage ratios and a consolidated interest coverage ratio. At December 31, 2015, the Company was in compliance with these covenants.

The credit agreement includes customary events of default that include, among other things, non-payment defaults, inaccuracy of representations and warranties, covenant defaults, cross default to material indebtedness, bankruptcy and insolvency defaults, material judgment defaults, ERISA defaults and a change of control default. The occurrence of an event of default could result in the acceleration of the obligations under the credit agreement. Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default under the credit agreement at a per annum rate equal to 2.00% above the applicable interest rate for any overdue principal and 2.00% above the rate applicable for base rate loans for any other overdue amounts.

(19)
Contingencies

In the ordinary course of the Company's business, it is involved in a limited number of legal actions, both as plaintiff and defendant, and could incur uninsured liability in any one or more of them.  The Company also periodically receives notifications from various third parties alleging infringement of patents, intellectual property rights or other matters.  With respect to pending legal actions to which the Company is a party, although the outcomes of these actions are not generally determinable, the Company believes that the ultimate resolution of these matters will not have a material adverse effect on its financial position, cash flows or results of operations.  Litigation relating to the semiconductor industry is not uncommon, and the Company is, and from time to time has been, subject to such litigation.  No assurances can be given with respect to the extent or outcome of any such litigation in the future.
 
The Company's technology license agreements generally include an indemnification clause that indemnifies the licensee against liability and damages (including legal defense costs) arising from any claims of patent, copyright, trademark or trade secret infringement by the Company's proprietary technology.  The terms of these indemnification provisions approximate the terms of the outgoing technology license agreements, which are typically perpetual unless terminated by either party for breach.  The possible amount of future payments the Company could be required to make based on agreements that specify indemnification limits, if such indemnifications were required on all of these agreements, is approximately $140 million. There are some licensing agreements in place that do not specify indemnification limits.  The Company had not recorded any liabilities related to these indemnification obligations as of December 31, 2015.

(20)
Derivative Instruments
 
Freestanding Derivative Forward Contracts

Foreign Currency Exchange Rate Risk

The Company has international operations and is thus subject to foreign currency rate fluctuations.  To help manage the risk of changes in foreign currency rates, the Company periodically enters into derivative contracts comprised of foreign currency forward contracts to hedge its asset and liability foreign currency exposure and a portion of its foreign currency operating expenses.  Approximately 99% of the Company's sales are U.S. dollar denominated.  To date, the exposure related to foreign exchange rate volatility has not been material to the Company's operating results.  As of December 31, 2015 and March 31, 2015, the Company had no foreign currency forward contracts outstanding. The Company recognized an immaterial amount of net realized gains and losses on foreign currency forward contracts in each of the three and nine months ended

24


December 31, 2015 and 2014. Gains and losses from changes in the fair value of these foreign currency forward contracts and foreign currency exchange rate fluctuations are credited or charged to Other Income (Expense) on the condensed consolidated statements of income. The Company does not apply hedge accounting to its foreign currency derivative instruments.

Fair Value Hedges

For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivatives as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in earnings. Interest rate derivative instruments designated as fair value hedges are designed to manage the exposure to interest rate movements and to reduce borrowing costs by converting fixed-rate debt into floating-rate debt. Under these agreements, the Company agrees to exchange, at specified intervals, the difference between the fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount.

In March 2015, the Company entered into ten-year fixed-to-floating interest rate swap agreements designated as fair value hedges of the changes in fair value of a portion of the Company's fixed-rate 1.625% senior subordinated convertible debentures due to changes in the LIBOR swap rate, the designated benchmark interest rate. The Company pays variable interest equal to the three-month LIBOR minus 53.6 basis points, and it receives a fixed interest rate of 1.625%. The notional amount of these contracts outstanding at December 31, 2015 and at March 31, 2015 was $431.3 million, representing 25% of the principal amount of the senior subordinated convertible debentures.

The following table summarizes the fair value amounts of derivative instruments reported on the condensed consolidated balance sheets in other assets (amounts in thousands):
Derivatives designated as hedging instruments
 
December 31, 2015

 
March 31, 2015

Interest rate contracts
 
$
4,692

 
$
8,928


The following table summarizes the location and amount of the gain or loss on the hedged item attributable to the changes in the LIBOR swap rate and the offsetting gain or loss on the related interest rate swap agreements for the three and nine months ended December 31, 2015. The difference represents hedge ineffectiveness (amounts in thousands):
 
 
Three Months Ended
 
Nine Months Ended
 
 
December 31, 2015
 
December 31, 2015
Income Statement Classification
 
Gain (Loss) on Senior Subordinated Convertible Debentures
 
Gain (Loss) on Interest Rate Swap
 
Gain (Loss) on Senior Subordinated Convertible Debentures
 
Gain (Loss) on Interest Rate Swap
Other Income (Expense)
 
$
5,539

 
$
(6,189
)
 
$
2,897

 
$
(3,992
)
 
(21)
Comprehensive Income (Loss)

The following table presents the changes in the components of accumulated other comprehensive income (loss) (AOCI) for the nine months ended December 31, 2015 (amounts in thousands):
 
Unrealized
holding gains (losses)
available-for-sale securities
 
Minimum
pension
liability
 
Foreign
Currency
 
Total
Accumulated other comprehensive income (loss) at March 31, 2015
$
14,537

 
$
13

 
$
(3,474
)
 
$
11,076

Other comprehensive loss before reclassifications
(7,411
)
 

 

 
(7,411
)
Amounts reclassified from accumulated other comprehensive income (loss)
(14,054
)
 

 

 
(14,054
)
Net other comprehensive loss
(21,465
)
 

 

 
(21,465
)
Purchase of shares from noncontrolling interest

 

 
(276
)
 
(276
)
Accumulated other comprehensive income (loss) at December 31, 2015
$
(6,928
)
 
$
13

 
$
(3,750
)
 
$
(10,665
)

25



The table below details where reclassifications of realized transactions out of AOCI are recorded on the condensed consolidated statements of income (amounts in thousands):
 
 
Three Months Ended
 
Nine Months Ended
 
 
 
 
December 31,
 
December 31,
 
 
Description of AOCI Component
 
2015
 
2014
 
2015
 
2014
 
Related Statement
 of Income Line
Unrealized gains on available-for-sale securities
 
$
89

 
$
73

 
$
14,054

 
$
169

 
Other income
Taxes
 

 

 

 
(12
)
 
Provision for income taxes
Reclassification of realized transactions, net of taxes
 
$
89

 
$
73

 
$
14,054

 
$
157

 
Net income