- Microchip's inventory days at March 31, 2016 are expected to be up between 2 days and 8 days, to between 122 days and 128 days. Our actual inventory level will depend on the inventory that our distributors decide to hold to support their customers, overall demand for our products and our production levels.
- Capital expenditures for the quarter ending March 31, 2016 are expected to be approximately $28 million. Capital expenditures for all of fiscal year 2016 are expected to be approximately $110 million. We are continuing to invest in the equipment needed to support the growth of our production capabilities for fast growing new products and technologies.
- We expect net cash generation during the March quarter of $140 million to $160 million prior to the dividend payment, changes in borrowing levels, and our acquisition-related activities.
1 Use of Non-GAAP Financial Measures: Our non-GAAP adjustments, where applicable, include the effect of share-based compensation, expenses related to our acquisition activities (including intangible asset amortization, inventory valuation costs, severance costs, and legal and other general and administrative expenses associated with acquisitions), GAAP non-recognition of revenue for inventory in the distribution channel at the acquisition dates for our acquisitions, revenue recognition changes related to Micrel distributors, revenue recognition changes related to ISSC distributors, non-cash interest expense on our convertible debentures, gains on equity securities, impairments on available-for-sale investments, the related income tax implications of these items and non-recurring tax events. Our non-GAAP net sales outlook for the March 2016 quarter reflects revenue from the sell-through of products from Micrel's distributors that the distributors owned as of the acquisition date that is not recognized for GAAP purposes. We believe that our disclosure of non-GAAP net sales provides investors with useful information regarding the actual end market demand for our products.
We are required to estimate the cost of certain forms of share-based compensation, including employee stock options, restricted stock units and our employee stock purchase plan, and to record a commensurate expense in our income statement. Share-based compensation expense is a non-cash expense that varies in amount from period to period and is affected by the price of our stock at the date of grant. The price of our stock is affected by market forces that are difficult to predict and are not within the control of management. Our other non-GAAP adjustments are either non-cash expenses or non-recurring expenses related to such transactions. Accordingly, management excludes all of these items from its internal operating forecasts and models.
We are using non-GAAP net sales, non-GAAP gross profit, non-GAAP gross profit percentage, non-GAAP operating expenses in dollars and as a percentage of sales including non-GAAP research and development expenses and non-GAAP selling, general and administrative expenses, non-GAAP operating income, non-GAAP other expense, net, non-GAAP income tax provision (benefit)/tax rate, non-GAAP net income, and non-GAAP diluted earnings per share which exclude the items noted above, as applicable, to permit additional analysis of our performance.
Management believes these non-GAAP measures are useful to investors because they enhance the understanding of our historical financial performance and comparability between periods. Many of our investors have requested that we disclose this non-GAAP information because they believe it is useful in understanding our performance as it excludes non-cash and other charges that many investors feel may obscure our underlying operating results. Management uses these non-GAAP measures to manage and assess the profitability of our business. Specifically, we do not consider such items when developing and monitoring our budgets and spending. Our determination of the above non-GAAP measures might not be the same as similarly titled measures used by other companies, and it should not be construed as a substitute for amounts determined in accordance with GAAP. There are limitations associated with using non-GAAP measures, including that they exclude financial information that some may consider important in evaluating our performance. Management compensates for this by presenting information on both a GAAP and non-GAAP basis for investors and providing reconciliations of the GAAP and non-GAAP results.
2 Generally, gross margin fluctuates over time, driven primarily by the mix of microcontrollers, mixed-signal products, analog products and memory products sold and licensing revenue; variances in manufacturing yields; fixed cost absorption; wafer fab loading levels; costs of wafers from foundries; inventory reserves; pricing pressures in our non-proprietary product lines; and competitive and economic conditions. Operating expenses fluctuate over time, primarily due to net sales and profit levels.
3 Diluted Common Shares Outstanding can vary for, among other things, the trading price of our common stock, the actual exercise of options or vesting of restricted stock units, the potential for incremental dilutive shares from our convertible debentures (additional information regarding our share count is available in the investor relations section of our website under the heading "Supplemental Financial Information"), and the repurchase or the issuance of stock. The diluted common shares outstanding presented in the guidance table above assumes an average Microchip stock price in the March 2016 quarter of $45 per share (however, we make no prediction as to what our actual share price will be for such period or any other period and we cannot estimate what our stock option exercise activity will be during the quarter).
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES | ||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||
(in thousands except per share amounts) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
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Three months ended |
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Nine months ended | ||||||||||||
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December 31, |
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December 31, | ||||||||||||
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2015 |
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2014 |
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2015 |
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2014 | ||||||||
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Net sales |
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$ |
540,344 |
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$ |
528,710 |
|
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$ |
1,615,687 |
|
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$ |
1,603,829 |
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Cost of sales |
|
247,626 |
|
|
226,751 |
|
|
713,002 |
|
|
687,897 |
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Gross profit |
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292,718 |
|
|
301,959 |
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|
902,685 |
|
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915,932 |
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Research and development |
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97,022 |
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88,697 |
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276,958 |
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261,881 |
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Selling, general and administrative |
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76,270 |
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66,668 |
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223,377 |
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207,037 |
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Amortization of acquired intangible assets |
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48,312 |
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|
47,582 |
|
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126,764 |
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129,659 |
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Special (income) charges, net |
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(5,018) |
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|
1,003 |
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3,187 |
|
|
2,082 |
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Operating expenses |
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216,586 |
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203,950 |
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630,286 |
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600,659 |
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Operating income |
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76,132 |
|
|
98,009 |
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272,399 |
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|
315,273 |
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Losses on equity method investments |
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(56) |
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(62) |
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(289) |
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(129) |
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Other expense, net |
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(25,918) |
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(11,756) |
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(48,430) |
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(31,258) |
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Income before income taxes |
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50,158 |
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86,191 |
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223,680 |
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283,886 |
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Income tax (benefit) provision |
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(11,053) |
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|
1,393 |
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(32,890) |
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|
17,141 |
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Net income |
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61,211 |
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|
84,798 |
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|
256,570 |
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|
266,745 |
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Less: Net loss attributable to noncontrolling interests |
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— |
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1,259 |
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|
207 |
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2,862 |
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Net income attributable to Microchip Technology |
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$ |
61,211 |
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$ |
86,057 |
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$ |
256,777 |
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$ |
269,607 |
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Basic net income per common share attributable to Microchip Technology stockholders |
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$ |
0.30 |
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$ |
0.43 |
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$ |
1.26 |
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$ |
1.34 |
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Diluted net income per common share attributable to Microchip Technology stockholders |
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$ |
0.28 |
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$ |
0.39 |
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$ |
1.18 |
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$ |
1.20 |
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Basic common shares outstanding |
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203,294 |
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201,203 |
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203,267 |
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200,673 |
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Diluted common shares outstanding |
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217,975 |
|
|
223,487 |
|
|
217,280 |
|
|
224,433 |
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