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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
____________________________________
FORM 10-Q
____________________________________
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended July 31, 2022
or
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 001-06395
____________________________________ 
SEMTECH CORPORATION
(Exact name of registrant as specified in its charter)
 ____________________________________
Delaware 95-2119684
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)

200 Flynn Road, Camarillo, California, 93012-8790
(Address of principal executive offices, Zip Code)

Registrant’s telephone number, including area code: (805) 498-2111
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s) Name of each exchange on which registered
Common Stock par value $0.01 per shareSMTC The Nasdaq Global Select Market
____________________________________
 
Indicate by check mark 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 such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes   x   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x  Accelerated filer  
Non-accelerated filer 
  Smaller reporting company  
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No  x 
Number of shares of common stock, $0.01 par value per share, outstanding at August 26, 2022: 63,516,341



SEMTECH CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JULY 31, 2022
 
2


Unless the context otherwise requires, the use of the terms "Semtech," "the Company," "we," "us" and "our" in this Quarterly Report on Form 10-Q refers to Semtech Corporation and, as applicable, its consolidated subsidiaries. This Quarterly Report on Form 10-Q may contain references to the Company’s trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies' trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other company.
Special Note Regarding Forward-Looking and Cautionary Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates and projections about our operations, industry, financial condition, performance, results of operations, and liquidity. Forward-looking statements are statements other than historical information or statements of current condition and relate to matters such as future financial performance, future operational performance, the anticipated impact of specific items on future earnings, and our plans, objectives and expectations. Statements containing words such as "may," "believe," "anticipate," "expect," "intend," "plan," "project," "estimate," "should," "will," "designed to," "projections," or "business outlook," or other similar expressions constitute forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that could cause actual results and events to differ materially from those projected. Potential factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: the failure of Sierra Wireless, Inc. (“Sierra Wireless”) to obtain shareholder approval as required for the proposed acquisition; the failure to obtain regulatory approvals required for the closing of the proposed acquisition, including the approval of the Supreme Court of British Columbia; the failure to satisfy the conditions to the closing of the proposed acquisition; the effect of the announcement of the proposed acquisition on the ability of the Company or Sierra Wireless to retain and hire key personnel and maintain business relationships with customers, suppliers and others with whom they each do business, or on the Company’s or Sierra Wireless’ operating results, the market price of common stock and business generally; potential legal proceedings relating to the proposed acquisition and the outcome of any such legal proceeding; the inherent risks, costs and uncertainties associated with integrating the businesses successfully and risks of not achieving all or any of the anticipated benefits of the proposed acquisition, or the risk that the anticipated benefits of the proposed acquisition may not be fully realized or take longer to realize than expected; the occurrence of any event, change or other circumstances that could give rise to the termination of the arrangement agreement; the risk that the proposed acquisition will not be consummated within the expected time period, or at all; the uncertainty surrounding the impact and duration of supply chain constraints and any associated disruptions; the uncertainty surrounding the impact and duration of the COVID-19 pandemic; export restrictions and laws affecting the Company's trade and investments and tariffs or the occurrence of trade wars; worldwide economic and political disruptions, including as a result of inflation and the current conflict between Russia and Ukraine; competitive changes in the marketplace including, but not limited to, the pace of growth or adoption rates of applicable products or technologies; downturns in the business cycle; decreased average selling prices of the Company’s products; the Company’s reliance on a limited number of suppliers and subcontractors for components and materials; changes in projected or anticipated end-user markets; and the Company's ability to forecast and achieve anticipated net sales and earnings estimates in light of periodic economic uncertainty, including impacts arising from Asian, European and global economic dynamic; and those factors set forth under "Risk Factors" in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2022 filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2022 and under “Risk Factors” in this Quarterly Report on Form 10-Q, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with SEC. In light of the significant risks and uncertainties inherent in the forward-looking information included herein that may cause actual performance and results to differ materially from those predicted, any such forward-looking information should not be regarded as representations or guarantees by the Company of future performance or results, or that its objectives or plans will be achieved, or that any of its operating expectations or financial forecasts will be realized. Reported results should not be considered an indication of future performance. Investors are cautioned not to place undue reliance on any forward-looking information contained herein, which reflect management’s analysis only as of the date hereof. Except as required by law, the Company assumes no obligation to publicly release the results of any update or revision to any forward-looking statement that may be made to reflect new information, events or circumstances after the date hereof or to reflect the occurrence of unanticipated or future events, or otherwise.
In addition to regarding forward-looking statements with caution, you should consider that the preparation of the consolidated financial statements requires us to draw conclusions and make interpretations, judgments, assumptions and estimates with respect to certain factual, legal, and accounting matters. Our consolidated financial statements might have been materially impacted if we had reached different conclusions or made different interpretations, judgments, assumptions or estimates.
3


PART I - FINANCIAL INFORMATION
 
ITEM 1.Financial Statements

SEMTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
 
 Three Months EndedSix Months Ended
 July 31, 2022August 1, 2021July 31, 2022August 1, 2021
Net sales$209,254 $185,004 $411,403 $355,376 
Cost of sales73,435 69,572 145,331 135,083 
Gross profit135,819 115,432 266,072 220,293 
Operating costs and expenses, net:
Selling, general and administrative48,119 41,977 91,483 80,781 
Product development and engineering40,601 35,497 79,390 72,287 
Intangible amortization1,048 1,298 2,096 2,596 
Gain on sale of business(17,986)— (17,986)— 
Total operating costs and expenses, net71,782 78,772 154,983 155,664 
Operating income64,037 36,660 111,089 64,629 
Interest expense(1,259)(1,185)(2,456)(2,384)
Non-operating income, net125 213 387 307 
Investment impairments and credit loss reserves, net429 (468)405 (714)
Income before taxes and equity in net gains of equity method investments63,332 35,220 109,425 61,838 
Provision for income taxes12,019 2,963 20,088 6,161 
Net income before equity in net gains of equity method investments51,313 32,257 89,337 55,677 
Equity in net gains of equity method investments283 674 307 752 
Net income51,596 32,931 89,644 56,429 
Net loss attributable to noncontrolling interest(2)(2)(3)(4)
Net income attributable to common stockholders$51,598 $32,933 $89,647 $56,433 
Earnings per share:
Basic$0.81 $0.51 $1.41 $0.87 
Diluted$0.81 $0.50 $1.39 $0.86 
Weighted-average number of shares used in computing earnings per share:
Basic63,500 64,721 63,725 64,905 
Diluted63,977 65,584 64,270 65,849 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
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SEMTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
  Three Months EndedSix Months Ended
 July 31, 2022August 1, 2021July 31, 2022August 1, 2021
Net income $51,596 $32,931 $89,644 $56,429 
Other comprehensive income, net:
Unrealized gain on foreign currency cash flow hedges, net546 — 546 — 
Reclassifications of realized gain on foreign currency cash flow hedges, net to net income(142)— (142)— 
Unrealized gain on interest rate cash flow hedges, net307 265 1,564 729 
Reclassifications of realized gain on interest rate cash flow hedges, net to net income(174)(187)(54)(366)
Reclassification of cumulative translation gain to net income(48)— (48)— 
Change in defined benefit plans, net23 159 46 314 
Other comprehensive income, net512 237 1,912 677 
Comprehensive income52,108 33,168 91,556 57,106 
Comprehensive loss attributable to noncontrolling interest(2)(2)(3)(4)
Comprehensive income attributable to common stockholders$52,110 $33,170 $91,559 $57,110 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.









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SEMTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
July 31, 2022January 30, 2022
Assets
Current assets:
Cash and cash equivalents$362,150 $279,601 
Accounts receivable, less allowances of $748 and $747, respectively
71,105 71,507 
Inventories107,628 114,003 
Prepaid taxes2,298 5,983 
Other current assets33,905 31,201 
Total current assets577,086 502,295 
Non-current assets:
Property, plant and equipment, net of accumulated depreciation of $253,583 and $254,764, respectively
134,015 134,940 
Deferred tax assets26,977 27,803 
Goodwill350,306 351,141 
Other intangible assets, net4,708 6,804 
Other assets106,740 107,928 
TOTAL ASSETS$1,199,832 $1,130,911 
Liabilities and Equity
Current liabilities:
Accounts payable$53,759 $50,695 
Accrued liabilities86,370 77,704 
Total current liabilities140,129 128,399 
Non-current liabilities:
Deferred tax liabilities1,159 1,132 
Long term debt171,917 171,676 
Other long-term liabilities87,581 91,929 
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock, $0.01 par value, 250,000,000 shares authorized, 78,136,144 issued and 63,516,341 outstanding and 78,136,144 issued and 64,098,565 outstanding, respectively
785 785 
Treasury stock, at cost, 14,619,803 shares and 14,037,579 shares, respectively
(594,449)(549,942)
Additional paid-in capital506,178 491,956 
Retained earnings886,507 796,860 
Accumulated other comprehensive loss(163)(2,075)
Total stockholders’ equity798,858 737,584 
Noncontrolling interest188 191 
Total equity799,046 737,775 
TOTAL LIABILITIES AND EQUITY$1,199,832 $1,130,911 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
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SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)
Three Months Ended July 31, 2022
Common StockAccumulated Other Comprehensive Loss
Number of Shares OutstandingAmountTreasury Stock, at CostAdditional Paid-in CapitalRetained EarningsStockholders’ EquityNoncontrolling InterestTotal Equity
Balance at May 1, 202263,466,933 $785 $(596,187)$496,151 $834,909 $(675)$734,983 $190 $735,173 
Net income— — — — 51,598 — 51,598 (2)51,596 
Other comprehensive income— — — — — 512 512 — 512 
Share-based compensation— — — 12,608 — — 12,608 — 12,608 
Treasury stock reissued49,408 — 1,738 (2,581)— — (843)— (843)
Balance at July 31, 202263,516,341 $785 $(594,449)$506,178 $886,507 $(163)$798,858 $188 $799,046 

Six Months Ended July 31, 2022
Common StockAccumulated Other Comprehensive Loss
Number of Shares OutstandingAmountTreasury Stock, at CostAdditional Paid-in CapitalRetained EarningsStockholders’ EquityNoncontrolling InterestTotal Equity
Balance at January 30, 202264,098,565 $785 $(549,942)$491,956 $796,860 $(2,075)$737,584 $191 $737,775 
Net income— — — — 89,647 — 89,647 (3)89,644 
Other comprehensive income— — — — — 1,912 1,912 — 1,912 
Share-based compensation— — — 24,711 — — 24,711 — 24,711 
Repurchase of common stock(762,093)— (50,000)— — — (50,000)— (50,000)
Treasury stock reissued179,869 — 5,493 (10,489)— — (4,996)— (4,996)
Balance at July 31, 202263,516,341 $785 $(594,449)$506,178 $886,507 $(163)$798,858 $188 $799,046 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.






7



SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)

Three Months Ended August 1, 2021
Common StockAccumulated Other Comprehensive Loss
Number of Shares OutstandingAmountTreasury Stock, at CostAdditional Paid-in CapitalRetained EarningsStockholders’ EquityNoncontrolling InterestTotal Equity
Balance at May 2, 202164,897,920 $785 $(460,249)$476,773 $694,696 $(7,728)$704,277 $208 $704,485 
Net income— — — — 32,933 — 32,933 (2)32,931 
Other comprehensive income— — — — — 237 237 — 237 
Share-based compensation— — — 12,334 — — 12,334 — 12,334 
Repurchase of common stock(639,519)— (42,000)— — — (42,000)— (42,000)
Treasury stock reissued138,340 — 3,050 (2,414)— — 636 — 636 
Balance at August 1, 202164,396,741 $785 $(499,199)$486,693 $727,629 $(7,491)$708,417 $206 $708,623 

Six Months Ended August 1, 2021
Common StockAccumulated Other Comprehensive Loss
Number of Shares OutstandingAmountTreasury Stock, at CostAdditional Paid-in CapitalRetained EarningsStockholders’ EquityNoncontrolling InterestTotal Equity
Balance at January 31, 202165,098,379 $785 $(438,798)$473,728 $671,196 $(8,168)$698,743 $210 $698,953 
Net income— — — — 56,433 — 56,433 (4)56,429 
Other comprehensive income— — — — — 677 677 — 677 
Share-based compensation— — — 24,530 — — 24,530 — 24,530 
Repurchase of common stock(1,000,461)— (67,000)— — — (67,000)— (67,000)
Treasury stock reissued298,823 — 6,599 (11,565)— — (4,966)— (4,966)
Balance at August 1, 202164,396,741 $785 $(499,199)$486,693 $727,629 $(7,491)$708,417 $206 $708,623 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

8


SEMTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
 July 31, 2022August 1, 2021
Cash flows from operating activities:
Net income$89,644 $56,429 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization14,998 15,221 
Amortization of right-of-use assets2,302 2,182 
Investment impairments and credit loss reserves, net(405)714 
Accretion of deferred financing costs and debt discount241 241 
Deferred income taxes261 719 
Share-based compensation24,143 23,356 
(Gain) loss on disposition of business operations and assets(17,978)
Equity in net gains of equity method investments(307)(752)
Corporate-owned life insurance, net831 3,626 
Changes in assets and liabilities:
Accounts receivable, net402 (2,629)
Inventories(15)(15,537)
Other assets2,836 2,434 
Accounts payable5,676 2,274 
Accrued liabilities7,230 2,874 
Other liabilities(2,530)(5,555)
Net cash provided by operating activities127,329 85,599 
Cash flows from investing activities:
Proceeds from sales of property, plant and equipment— 42 
Purchase of property, plant and equipment(15,583)(12,732)
Proceeds from sale of investments2,275 — 
Purchase of investments(3,288)(3,177)
Proceeds from sale of business, net of cash disposed26,812 — 
Proceeds from corporate-owned life insurance2,676 — 
Premiums paid for corporate-owned life insurance(2,676)— 
Net cash provided by (used in) investing activities10,216 (15,867)
Cash flows from financing activities:
Proceeds from revolving line of credit10,000 — 
Payments of revolving line of credit(10,000)(4,000)
Payment for employee share-based compensation payroll taxes(5,616)(7,289)
Proceeds from exercise of stock options620 2,323 
Repurchase of common stock(50,000)(67,000)
Net cash used in financing activities(54,996)(75,966)
Net increase (decrease) in cash and cash equivalents82,549 (6,234)
Cash and cash equivalents at beginning of period279,601 268,891 
Cash and cash equivalents at end of period$362,150 $262,657 
Supplemental disclosure of cash flow information:
Interest paid$1,931 $2,120 
Income taxes paid$5,375 $3,163 
Non-cash investing and financing activities:
Accounts payable related to capital expenditures$3,384 $2,872 
Conversion of notes into equity$— $626 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
9


SEMTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Organization and Basis of Presentation
Nature of Business
Semtech Corporation (together with its consolidated subsidiaries, the "Company" or "Semtech") is a leading global supplier of high performance analog and mixed-signal semiconductors and advanced algorithms. The end customers for the Company’s products are primarily original equipment manufacturers that produce and sell electronics.
Fiscal Year
The Company reports results on the basis of 52 and 53-week periods and ends its fiscal year on the last Sunday in January. The other quarters generally end on the last Sunday of April, July and October. All quarters consist of 13 weeks except for one 14-week period in the fourth quarter of 53-week years. The second quarters of fiscal years 2023 and 2022 each consisted of 13 weeks.
Principles of Consolidation
The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company, in accordance with accounting principles generally accepted in the United States ("GAAP") and on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2022 ("Annual Report"). The Company’s interim unaudited condensed consolidated statements of income are referred to herein as the "Statements of Income." The Company’s interim unaudited condensed consolidated balance sheets are referred to herein as the "Balance Sheets" and interim unaudited condensed consolidated statements of cash flows as the "Statements of Cash Flows." In the opinion of the Company, these interim unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly, in all material respects, the financial position of the Company for the interim periods presented. All intercompany balances have been eliminated. Because the interim unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for a complete set of consolidated financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report. The results reported in these interim unaudited condensed consolidated financial statements should not be regarded as indicative of results that may be expected for any subsequent period or for the entire year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Accounting Guidance Issued, but not yet Adopted as of July 31, 2022
In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2021-08, “Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistencies related to recognition of an acquired contract liability, and to payment terms and their effect on subsequent revenue recognized by the acquirer. Among other changes, this ASU requires that an acquirer account for acquired revenue contracts in accordance with Accounting Standards Codification ("ASC") 606, "Revenue from Contracts with Customers," as if it had originated the contracts. If the acquirer is unable to assess or rely on how the acquiree applied ASC 606, the acquirer should consider the terms of the acquired contracts as of the contract inception or contract modification date in applying ASC 606 to determine what should be recorded at the acquisition date. The amendments also provide certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination. The guidance is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements.


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Note 2: Acquisition and Divestiture
Proposed Transaction with Sierra Wireless, Inc.
Arrangement Agreement
On August 2, 2022, the Company entered into an Arrangement Agreement (the “Arrangement Agreement”) with Sierra Wireless, Inc., a corporation existing under the Canada Business Corporations Act (“Sierra Wireless”), and 13548597 Canada Inc., a corporation formed under the Canada Business Corporations Act, and the Company's wholly owned subsidiary (“Purchaser”), pursuant to which, among other things, Purchaser will acquire all of the issued and outstanding common shares of Sierra Wireless (the “Arrangement”). The Arrangement will be implemented by way of a plan of arrangement (the “Plan of Arrangement”) in accordance with the Canada Business Corporations Act. On the terms and subject to the conditions of the Arrangement Agreement and the Plan of Arrangement, at the effective time of the Arrangement (the “Effective Time”), each common share of Sierra Wireless that is issued and outstanding immediately prior to the Effective Time will be transferred to the Purchaser in consideration for the right to receive $31.00 USD per share of Sierra Wireless’ common shares, in an all-cash transaction representing total purchase consideration of approximately $1.2 billion.
The closing of the Arrangement is subject to customary closing conditions, including: (i) approval by the securityholders of Sierra Wireless; (ii) receipt of applicable regulatory approvals, including approvals under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), from the Federal Trade Commission and the U.S. Department of Justice and approval under the Competition Act (Canada); (iii) approval by the Supreme Court of British Columbia; (iv) the absence of any law, injunction or other governmental order that prohibits the consummation of the Arrangement; and (v) other customary closing conditions, including the accuracy of the other party’s representations and warranties (subject to certain materiality qualifications), and each party’s compliance with its covenants and agreements contained in the Arrangement Agreement.
Assuming the timely satisfaction of the conditions to closing, the Company expects the Arrangement will close during its fiscal year 2023. Until close, the Company and Sierra Wireless will remain separate independent companies.
Divestiture
On May 3, 2022, the Company completed the divestiture of its high reliability discrete diodes and assemblies business (the “Disposal Group”) to Micross Components, Inc. for $26.8 million, net of cash disposed, in an all-cash transaction. The divestiture resulted in a gain of $18.0 million for the three and six months ended July 31, 2022, which was recorded in "Gain on sale of business" in the Statements of Income. As a result of the transaction, the Company disposed of $0.8 million of goodwill based on the relative fair value of the Disposal Group and the portion of the Wireless and Sensing reporting unit that will be retained. The estimated fair value of the Disposal Group less estimated costs to sell exceeded its carrying amount as of the transaction date. As the sale of the Disposal Group is not considered a strategic shift that will have a major effect on the Company’s operations or financial results, it is not reported as discontinued operations.

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Note 3: Earnings per Share
The computation of basic and diluted earnings per share was as follows:
 Three Months EndedSix Months Ended
(in thousands, except per share data)July 31, 2022August 1, 2021July 31, 2022August 1, 2021
Net income attributable to common stockholders$51,598 $32,933 $89,647 $56,433 
Weighted-average shares outstanding–basic63,500 64,721 63,725 64,905 
Dilutive effect of share-based compensation477 863 545 944 
Weighted-average shares outstanding–diluted63,977 65,584 64,270 65,849 
Earnings per share:
Basic$0.81 $0.51 $1.41 $0.87 
Diluted$0.81 $0.50 $1.39 $0.86 
Anti-dilutive shares not included in the above calculations210 83 — 
Diluted earnings per share incorporates the incremental shares issuable, calculated using the treasury stock method, upon the assumed exercise of non-qualified stock options and the vesting of restricted stock units and market-condition restricted stock unit awards if certain conditions have been met, but excludes such incremental shares that would have an anti-dilutive effect.
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Note 4: Share-Based Compensation
Financial Statement Effects and Presentation
Pre-tax share-based compensation was included in the Statements of Income as follows:
Three Months EndedSix Months Ended
(in thousands)July 31, 2022August 1, 2021July 31, 2022August 1, 2021
Cost of sales$610 $651 $1,385 $1,369 
Selling, general and administrative8,588 7,098 14,720 14,457 
Product development and engineering4,052 3,768 8,038 7,530 
Total share-based compensation$13,250 $11,517 $24,143 $23,356 
Restricted Stock Units, Employees
The Company grants restricted stock units to certain employees, which are expected to be settled with shares of the Company's common stock. The grant date for these awards is equal to the measurement date. These awards are valued as of the measurement date, based on the fair value of the Company's common stock at the grant date, and recognized as share-based compensation expense over the requisite vesting period (typically 4 years). In the six months ended July 31, 2022, the Company granted 245,851 restricted stock units to employees.
Restricted Stock Units, Non-Employee Directors
The Company maintains a compensation program pursuant to which restricted stock units are granted to the Company’s directors that are not employed by the Company or any of its subsidiaries. Under the Company's director compensation program, a portion of the restricted stock units granted under the program will be settled in cash and a portion will be settled in shares of the Company's common stock. Restricted stock units awarded under the program are scheduled to vest on the earlier of (i) one year after the grant date or (ii) the day immediately preceding the Company's annual meeting of stockholders in the year following the grant. The portion of a restricted stock unit award under the program that is to be settled in cash will, subject to vesting, be settled when the director who received the award separates from the board of directors. The portion of a restricted stock unit award under the program that is to be settled in shares of the Company's common stock will, subject to vesting, be settled promptly following vesting. In the six months ended July 31, 2022, the Company granted to the non-employee directors 15,579 restricted stock units that settle in cash and 15,579 restricted stock units that settle in shares.
Total Stockholder Return ("TSR") Market-Condition Restricted Stock Units
The Company grants TSR market-condition restricted stock units (the "TSR Awards") to certain executives of the Company. The TSR Awards have a pre-defined market-condition, which determines the number of shares that ultimately vest, as well as a service condition. The TSR Awards are valued as of the grant date using a Monte Carlo simulation, which takes into consideration the possible outcomes pertaining to the TSR market condition and expense is recognized on a straight-line basis over the requisite service periods and is adjusted for any actual forfeitures.
In the six months ended July 31, 2022, the Company granted 125,399 TSR Awards, which are accounted for as equity awards. The market condition is determined based upon the Company’s TSR benchmarked against the TSR of the S&P SPDR Semiconductor ETF (NYSE:XSD) over one, two and three year periods (one-third of the awards vesting each performance period). Generally, the fiscal year 2023 TSR Award recipients must be employed for the entire performance period and be an active employee at the time of vesting of the awards. The grant-date fair value per unit of the TSR Awards granted in the six months ended July 31, 2022 for each one, two and three year performance period was $57.92, $68.94 and $75.69, respectively.

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Note 5: Available-for-sale securities
The following table summarizes the values of the Company’s available-for-sale securities:
 July 31, 2022January 30, 2022
(in thousands)Fair ValueAmortized
Cost
Gross
Unrealized Gain/(Loss)
Fair ValueAmortized
Cost
Gross
Unrealized Gain/(Loss)
Convertible debt$13,403 $14,983 $(1,580)$12,872 $14,401 $(1,529)
Total available-for-sale securities$13,403 $14,983 $(1,580)$12,872 $14,401 $(1,529)
The following table summarizes the maturities of the Company’s available-for-sale securities:
July 31, 2022
(in thousands)Fair ValueAmortized Cost
Within 1 year$11,766 $12,593 
After 1 year through 5 years1,637 2,390 
Total available-for-sale securities$13,403 $14,983 
The Company's available-for-sale securities consist of investments in convertible debt instruments issued by privately-held companies. The available-for-sale securities with maturities within one year were included in "Other current assets" and maturities greater than one year were included in "Other assets" in the Balance Sheets.






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Note 6: Fair Value Measurements
The following fair value hierarchy is applied for disclosure of the inputs used to measure fair value and prioritizes the inputs into three levels as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities in active markets or other inputs that are observable for the assets or liabilities, either directly or indirectly.
Level 3—Unobservable inputs based on the Company’s own assumptions, requiring significant management judgment or estimation.
Instruments Measured at Fair Value on a Recurring Basis
The fair values of financial assets and liabilities measured and recorded at fair value on a recurring basis were presented in the Balance Sheets as follows:
 July 31, 2022January 30, 2022
(in thousands)Total(Level 1)(Level 2)(Level 3)Total(Level 1)(Level 2)(Level 3)
Financial assets:
Interest rate swap agreement$2,152 $— $2,152 $— $229 $— $229 $— 
Total return swap contracts400 — 400 — — — — — 
Convertible debt13,403 — — 13,403 12,872 — — 12,872 
Foreign currency forward contracts539 — 539 — — — — — 
Total financial assets$16,494 $— $3,091 $13,403 $13,101 $— $229 $12,872 
Financial liabilities:
Foreign currency forward contracts$42 $— $42 $— $— $— $— $— 
Total return swap contracts— — — — 257 — 257 — 
Total financial liabilities$42 $— $42 $— $257 $— $257 $— 
During the six months ended July 31, 2022, the Company had no transfers of financial assets or liabilities between Level 1, Level 2 or Level 3. As of July 31, 2022 and January 30, 2022, the Company had not elected the fair value option for any financial assets and liabilities for which such an election would have been permitted.
The convertible debt investments are valued utilizing a combination of estimates that are based on the estimated discounted cash flows associated with the debt and the fair value of the equity into which the debt may be converted, all of which are Level 3 inputs.
The following table presents a reconciliation of the changes in the convertible debt investments in the six months ended July 31, 2022:
(in thousands)
Balance at January 30, 2022$12,872 
Increase in credit loss reserve(50)
Interest accrued581 
Balance at July 31, 2022$13,403 
The interest rate swap agreement is measured at fair value using readily available interest rate curves (Level 2 inputs). The fair value of the agreement is determined by comparing, for each settlement, the contract rate to the forward rate and discounting to the present value. Contracts in a gain position are recorded in "Other current assets" and "Other assets" in the Balance Sheets and the value of contracts in a loss position are recorded in "Accrued liabilities" and "Other long term liabilities" in the Balance Sheets. See Note 16, Derivatives and Hedging Activities, for further discussion of the Company’s derivative instruments.
The foreign currency forward contracts are measured at fair value using readily available foreign currency forward and interest rate curves (Level 2 inputs). The fair value of each contract is determined by comparing the contract rate to the forward rate and discounting to the present value. Contracts in a gain position are recorded in "Other current assets" and "Other assets" in the Balance Sheets and the value of contracts in a loss position are recorded in "Accrued liabilities" and "Other long term
15


liabilities" in the Balance Sheets. See Note 16, Derivatives and Hedging Activities, for further discussion of the Company’s derivative instruments.
The total return swap contracts are measured at fair value using quoted prices of the underlying investments (Level 2 inputs). The fair values of the total return swap contracts are recognized in the Balance Sheets in "Accrued Liabilities" if the instruments are in a loss position and in "Other Current Assets" if the instruments are in a gain position. See Note 16, Derivatives and Hedging Activities, for further discussion of the Company's derivative instruments.
Instruments Not Recorded at Fair Value on a Recurring Basis
Some of the Company’s financial instruments are not measured at fair value on a recurring basis, but are recorded at amounts that approximate fair value due to their liquid or short-term nature. Such financial assets and financial liabilities include: cash and cash equivalents including money market deposits, net receivables, certain other assets, accounts payable, accrued expenses, accrued personnel costs, and other current liabilities. The Company’s long-term debt is recorded at cost, which approximates fair value as the long-term debt bears interest at a floating rate.
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis
The Company reduces the carrying amounts of its goodwill, intangible assets, long-lived assets and non-marketable equity securities to fair value when held for sale or determined to be impaired.
Investment Impairments and Credit Loss Reserves
The total credit loss reserve for the Company's held-to-maturity debt securities and available-for-sale debt securities was $4.1 million and $4.5 million as of July 31, 2022 and January 30, 2022, respectively. During each of the three and six months ended July 31, 2022, the Company decreased its expected credit loss reserves by $0.4 million primarily due to a recovery on one of its held-to-maturity debt securities. During the three and six months ended August 1, 2021, the Company increased its expected credit loss reserves by $0.5 million and $0.7 million, respectively, for its available-for-sale debt securities. Credit loss reserves related to the Company’s available-for-sale debt securities and held-to-maturity debt securities with maturities within one year were included in “Other current assets” and with maturities greater than one year were included in “Other assets” in the Balance Sheets.





16


Note 7: Inventories
Inventories, consisting of material, material overhead, labor, and manufacturing overhead, are stated at the lower of cost (first-in, first-out) or net realizable value and consisted of the following:
(in thousands)July 31, 2022January 30, 2022
Raw materials$3,197 $4,304 
Work in progress79,829 85,445 
Finished goods24,602 24,254 
Total inventories$107,628 $114,003 

17


Note 8: Goodwill and Intangible Assets
Goodwill
The carrying amounts of goodwill by applicable reporting unit were as follows:
(in thousands)Signal IntegrityWireless and SensingProtectionTotal
Balance at January 30, 2022$274,085 $72,128 $4,928 $351,141 
Reduction— (835)— (835)
Balance at July 31, 2022$274,085 $71,293 $4,928 $350,306 
Goodwill is not amortized, but is tested for impairment at the reporting unit level using either a qualitative or quantitative assessment on an annual basis during the fourth quarter of each fiscal year, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair market value of the reporting unit. As of July 31, 2022, there was no indication of impairment of the Company's goodwill balances. As a result of the divestiture of the Disposal Group during the six months ended July 31, 2022, the Company recorded a reduction to its goodwill of $0.8 million based on the relative fair value of the Disposal Group and the portion of the Wireless and Sensing reporting unit that will be retained. See Note 2, Acquisition and Divestiture, for additional information.
Purchased Intangibles
The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and technology licenses purchased, which are amortized over their estimated useful lives:
 July 31, 2022January 30, 2022
(in thousands, except estimated useful life)Estimated
Useful Life
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Core technologies
6-8 years
$26,300 $(21,592)$4,708 $26,300 $(19,496)$6,804 
Total finite-lived intangible assets$26,300 $(21,592)$4,708 $26,300 $(19,496)$6,804 
Amortization expense of finite-lived intangible assets recorded in the Statements of Income for each period was as follows:
Three Months EndedSix Months Ended
(in thousands)July 31, 2022August 1, 2021July 31, 2022August 1, 2021
Core technologies$1,048 $1,298 $2,096 $2,596 
Total amortization expense$1,048 $1,298 $2,096 $2,596 
Future amortization expense of finite-lived intangible assets is expected as follows:
(in thousands)
Fiscal Year Ending:
2023 (remaining six months)$1,906 
20241,676 
2025288 
2026288 
2027288 
Thereafter262 
Total expected amortization expense$4,708 

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Note 9: Long-Term Debt
Long-term debt and the current period interest rates were as follows:
(in thousands, except percentages)July 31, 2022January 30, 2022
Revolving loans$173,000 $173,000 
Debt issuance costs(1,083)(1,324)
Total long-term debt, net of debt issuance costs$171,917 $171,676 
Effective interest rate (1)
2.13 %1.90 %
(1) The revolving loans bear interest at a variable rate based on LIBOR or a Base Rate, at the Company’s option, plus an applicable margin that varies based on the Company’s consolidated leverage ratio. In the first quarter of fiscal year 2021, the Company entered into a three-year interest rate swap agreement that fixed the interest on the first $150.0 million of debt outstanding under the revolving loans at 1.9775%. As of July 31, 2022, the effective interest rate was a weighted-average rate that represented (a) interest on the first $150.0 million of the debt outstanding at a fixed LIBOR rate of 0.7275% plus a margin of 1.25% (total fixed rate of 1.9775%), and (b) interest on the remainder of the debt outstanding at a variable rate based on the one-month LIBOR rate, which was 1.88% as of July 31, 2022, plus a margin of 1.25% (total variable rate of 3.13%). As of January 30, 2022, the effective interest rate was a weighted-average rate that represented (a) interest on the first $150.0 million of the debt outstanding at a fixed LIBOR rate of 0.7275% plus a margin of 1.25% (total fixed rate of 1.9775%), and (b) interest on the remainder of the debt outstanding at a variable rate based on the one-month LIBOR rate, which was 0.11% as of January 30, 2022, plus a margin of 1.25% (total variable rate of 1.36%).
On November 7, 2019, the Company, with certain of its domestic subsidiaries as guarantors, entered into an amended and restated credit agreement with the lenders party thereto and HSBC Bank USA, National Association, as administrative agent, swing line lender and letter of credit issuer. The borrowing capacity of the revolving loans under the senior secured first lien credit facility (the "Credit Facility") is $600.0 million and matures on November 7, 2024. As of July 31, 2022, the Company had $173.0 million outstanding under its Credit Facility and $427.0 million of undrawn borrowing capacity, and the Company was in compliance with the covenants required under the Credit Facility.
On August 11, 2021, the Company entered into an amendment to the Credit Agreement in order to, among other things, (i) provide for contractual fallback language for LIBOR replacement to reflect the Alternative Reference Rates Committee hardwired approach and (ii) incorporate certain provisions that clarify the rights of the administrative agent to recover from lenders or other secured parties erroneous payments made to such lenders or secured parties.
Debt Commitment Letter
In connection with the entry into the Arrangement Agreement (see Note 2, Acquisition and Divestiture), the Company entered into a commitment letter, dated as of August 2, 2022 (the “Commitment Letter”) with JPMorgan Chase Bank, N.A. (“JPM”), pursuant to which JPM has committed to provide (a) a backstop of certain amendments to the Company's existing Credit Facility and (b) a 364-day bridge loan facility in the aggregate principal amount of $1.2 billion (the "Bridge Commitment"), subject to certain mandatory commitment reductions customary for a bridge loan facility. The Company intends to incur one or more financings to replace the Bridge Commitment on or prior to the consummation of the Arrangement.
Interest expense was comprised of the following components for the periods presented:
 Three Months EndedSix Months Ended
(in thousands)July 31, 2022August 1, 2021July 31, 2022August 1, 2021
Contractual interest (1)
$1,139 $1,065 $2,215 $2,143 
Amortization of debt discount and issuance costs120 120 241 241 
Total interest expense$1,259 $1,185 $2,456 $2,384 
(1) Contractual interest represents the interest on the Company's outstanding debt after giving effect to the interest rate swap agreement.
As of July 31, 2022, there were no amounts outstanding under the letters of credit, swing line loans and alternative currency sub-facilities.
19


Note 10: Income Taxes
The Company’s effective tax rate differs from the statutory federal income tax rate of 21% primarily due to the regional mix of income, impact of global intangible low-taxed income ("GILTI") and research and development ("R&D") tax credits. The Tax Cuts and Jobs Act requires R&D costs incurred for tax years beginning after December 31, 2021 to be capitalized and amortized ratably over five or fifteen years for tax purposes, depending on where the research activities are conducted. The Company has elected to treat GILTI as a period cost and the additional capitalization of R&D costs within GILTI increases the Company's provision for income taxes.
The Company uses a two-step approach to recognize and measure uncertain tax positions ("UTP"). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained in audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (before the federal impact of state items) is as follows:
(in thousands)
Balance at January 30, 2022$27,051 
Additions/(decreases) based on tax positions related to the current fiscal year 376 
Additions/(decreases) based on tax positions related to the prior fiscal years11 
Balance at July 31, 2022$27,438 
Included in the balance of gross unrecognized tax benefits at July 31, 2022 and January 30, 2022 are $9.5 million and $9.3 million, respectively, of net tax benefits (after the federal impact of state items), that, if recognized, would impact the effective tax rate, prior to consideration of any required valuation allowance.
The liability for UTP is reflected in the Balance Sheets as follows:        
(in thousands)July 31, 2022January 30, 2022
Deferred tax assets - non-current$16,535 $16,346 
Other long-term liabilities9,524 9,335 
Total accrued taxes$26,059 $25,681 
The Company’s policy is to include net interest and penalties related to unrecognized tax benefits in the "Provision for income taxes" in the Statements of Income.
Tax years prior to 2013 (the Company’s fiscal year 2014) are generally not subject to examination by the United States ("U.S.") Internal Revenue Service except for items involving tax attributes that have been carried forward to tax years whose statute of limitations remains open. For state returns in the U.S., the Company is generally not subject to income tax examinations for calendar years prior to 2012 (the Company’s fiscal year 2013). The Company has a significant tax presence in Switzerland for which Swiss tax filings have been examined through fiscal year 2020. The Company is also subject to routine examinations by various foreign tax jurisdictions in which it operates. The Company believes that adequate provisions have been made for any adjustments that may result from tax examinations. However, the outcome of tax examinations cannot be predicted with certainty. If any issues addressed in the Company’s tax examinations are resolved in a manner not consistent with the Company's expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.
The Company’s regional income (loss) from continuing operations before taxes and equity in net gains of equity method investments was as follows:
 Three Months EndedSix Months Ended
(in thousands)July 31, 2022August 1, 2021July 31, 2022August 1, 2021
Domestic$17,786 $(6,623)$13,004 $(12,108)
Foreign45,546 41,843 96,421 73,946 
Total$63,332 $35,220 $109,425 $61,838 
20


Note 11: Leases
The Company has operating leases for real estate, vehicles, and office equipment, which are accounted for in accordance with ASC 842, "Leases." Real estate leases are used to secure office space for the Company's administrative, engineering, production support and manufacturing activities. The Company's leases have remaining lease terms of up to approximately ten years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year.
The components of lease expense were as follows:
Three Months EndedSix Months Ended
(in thousands)July 31, 2022August 1, 2021July 31, 2022August 1, 2021
Operating lease cost$1,454 $1,487 $2,900 $2,824 
Short-term lease cost477 258 748 503 
Sublease income(34)(54)(69)(75)
Total lease cost$1,897 $1,691 $3,579 $3,252 
Supplemental cash flow information related to leases was as follows:
Six Months Ended
(in thousands)July 31, 2022August 1, 2021
Cash paid for amounts included in the measurement of lease liabilities$2,703 $3,237 
Right-of-use assets obtained in exchange for new operating lease liabilities$1,960 $7,376 
July 31, 2022
Weighted-average remaining lease term–operating leases (in years)5.37
Weighted-average discount rate on remaining lease payments–operating leases6.2 %
Supplemental balance sheet information related to leases was as follows:
(in thousands)July 31, 2022January 30, 2022
Operating lease right-of-use assets in "Other assets"$19,439 $19,777 
Operating lease liabilities in "Accrued liabilities"$4,202 $3,977 
Operating lease liabilities in "Other long-term liabilities"15,838 16,577 
Total operating lease liabilities$20,040 $20,554 
Maturities of lease liabilities as of July 31, 2022 are as follows:
(in thousands)
Fiscal Year Ending:
2023 (remaining six months)$2,757 
20244,850 
20254,724 
20263,679 
20272,467 
Thereafter5,058 
Total lease payments23,535 
Less: imputed interest(3,495)
Total$20,040 

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Note 12: Commitments and Contingencies
In accordance with ASC 450-20, "Loss Contingencies," the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated. The Company also discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if material. The Company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote. The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously accrued, and makes adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount. The Company may be unable to estimate a possible loss or range of possible loss due to various reasons, including, among others: (i) if the damages sought are indeterminate, (ii) if the proceedings are in early stages, (iii) if there is uncertainty as to the outcome of pending appeals, motions or settlements, (iv) if there are significant factual issues to be determined or resolved, and (v) if there are novel or unsettled legal theories presented. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any.
Because the outcomes of litigation and other legal matters are inherently unpredictable, the Company’s evaluation of legal matters or proceedings often involves a series of complex assessments by management about future events and can rely heavily on estimates and assumptions. While the consequences of certain unresolved matters and proceedings are not presently determinable, and an estimate of the probable and reasonably possible loss or range of loss in excess of amounts accrued for such proceedings cannot be reasonably made, an adverse outcome from such proceedings could have a material adverse effect on the Company’s earnings in any given reporting period. However, in the opinion of management, after consulting with legal counsel, any ultimate liability related to current outstanding claims and lawsuits, individually or in the aggregate, is not expected to have a material adverse effect on the Company’s consolidated financial statements, as a whole. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company’s control.
As such, even though the Company intends to vigorously defend itself with respect to its legal matters, there can be no assurance that the final outcome of these matters will not materially and adversely affect the Company’s business, financial condition, operating results, or cash flows.
From time to time, the Company is involved in various claims, litigation, and other legal actions that are normal to the nature of its business, including with respect to intellectual property, contract, product liability, employment, and environmental matters. In the opinion of management, after consulting with legal counsel, any ultimate liability related to current outstanding claims and lawsuits, individually or in the aggregate, is not expected to have a material adverse effect on the Company’s consolidated financial statements, as a whole.
Environmental Matters
The Company vacated a former facility in Newbury Park, California in 2002, but continues to address groundwater and soil contamination at the site. The Company’s efforts to address site conditions have been at the direction of the Los Angeles Regional Water Quality Control Board (“RWQCB”). In October 2013, an order was issued including a scope of proposed additional site work, monitoring, and remediation activities. The Company has been complying with RWQCB orders and direction, and continues to implement an approved remedial action plan addressing the soil, groundwater, and soil vapor at the site. 
The Company has accrued liabilities where it is probable that a loss will be incurred and the cost or amount of loss can be reasonably estimated. Based on the latest determinations by the RWQCB and the most recent actions taken pursuant to the remedial action plan, the Company estimates the range of probable loss between $7.9 million and $9.4 million. To date, the Company has made $5.9 million in payments towards the remedial action plan and, as of July 31, 2022, has a remaining accrual of $2.0 million related to this matter. Given the uncertainties associated with environmental assessment and the remediation activities, the Company is unable to determine a best estimate within the range of loss. Therefore, the Company has recorded the minimum amount of probable loss. These estimates could change as a result of changes in planned remedial actions, further actions from the regulatory agency, remediation technology, and other factors.
Indemnification
The Company has entered into agreements with its current and former executives and directors indemnifying them against certain liabilities incurred in connection with the performance of their duties. The Company’s Certificate of Incorporation and Bylaws also contain indemnification obligations with respect to the Company’s current directors and employees.
Product Warranties
The Company’s general warranty policy provides for repair or replacement of defective parts. In some cases, a refund of the purchase price is offered. In certain instances, the Company has agreed to other or additional warranty terms, including indemnification provisions.
The product warranty accrual reflects the Company’s best estimate of probable liability under its product warranties. The Company accrues for known warranty issues if a loss is probable and can be reasonably estimated, and accrues for estimated incurred but unidentified issues based on historical experience. Historically, warranty expense and the related accrual has been immaterial to the Company’s consolidated financial statements.
Deferred Compensation
The Company maintains a deferred compensation plan for certain officers and key executives that allows participants to defer a portion of their compensation for future distribution at various times permitted by the plan. This plan provides for a discretionary Company match up to a defined portion of the employee's deferral, with any match subject to a defined vesting schedule.
The Company's liability for the deferred compensation plan is presented below:
(in thousands)July 31, 2022January 30, 2022
Accrued liabilities$1,700 $1,966 
Other long-term liabilities40,525 43,197 
Total deferred compensation liabilities under this plan$42,225 $45,163 
The Company has purchased whole life insurance on the lives of certain current deferred compensation plan participants. This corporate-owned life insurance is held in a grantor trust and is intended to cover a majority of the Company's costs of the deferred compensation plan. The cash surrender value of the corporate-owned life insurance was $32.4 million and $35.2 million as of July 31, 2022 and January 30, 2022, respectively, and is included in "Other assets" in the Balance Sheets. The decrease in the cash surrender value of the corporate-owned life insurance as of July 31, 2022 compared to January 30, 2022 was primarily related to a $3.9 million decrease in market value and a $1.6 million reduction in cash surrender value related to a death benefit, partially offset by the re-investment of $2.7 million of proceeds from the death benefit into the corporate-owned life insurance policy in order to provide substantive coverage for the Company's deferred compensation liability.
22


Note 13: Concentration of Risk
The following significant customers accounted for at least 10% of the Company's net sales in one or more of the periods indicated:
Three Months EndedSix Months Ended
(percentage of net sales)July 31, 2022August 1, 2021July 31, 2022August 1, 2021
Trend-tek Technology Ltd. (and affiliates)15 %18 %16 %17 %
CEAC International Limited14 %11 %13 %10 %
Frontek Technology Corporation (and affiliates)12 %19 %13 %19 %
Arrow Electronics (and affiliates)10 %11 %%11 %
The following table shows the customers that had an outstanding receivable balance that represented at least 10% of the Company's total net receivables as of one or more of the dates indicated:
(percentage of net receivables)July 31, 2022January 30, 2022
CEAC International Limited14 %10 %
Frontek Technology Corporation (and affiliates)13 %17 %
Outside Subcontractors and Suppliers
The Company relies on a limited number of third-party subcontractors and suppliers for the production of silicon wafers, packaging and certain other tasks. Disruption or termination of supply sources or subcontractors, including due to the COVID-19 pandemic or natural disasters such as an earthquake or other causes, have delayed and could in the future delay shipments and could have a material adverse effect on the Company. Although there are generally alternate sources for these materials and services, qualification of the alternate sources could cause delays sufficient to have a material adverse effect on the Company. A significant amount of the Company’s third-party subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in the U.S., Taiwan and China. A significant amount of the Company’s assembly and test operations are conducted by third-party contractors in China, Taiwan and Malaysia.
23


Note 14: Segment Information
The Company’s Chief Executive Officer functions as the chief operating decision maker ("CODM"). The CODM makes operating decisions and assesses performance based on the Company's major product lines, which represent its operating segments. The Company has three operating segments—Signal Integrity, Wireless and Sensing and Protection—that historically have been aggregated into one reportable segment identified as the "Semiconductor Products Group." In the fourth quarter of fiscal year 2022, the Company updated its forecasts and assessed the economic performance of the three operating segments and concluded that Protection is no longer expected to be economically similar to the other operating segments. This is primarily because the Company's projections indicate that the gross margin of products within Protection will not be economically similar to products within the other operating segments. Accordingly, the Company concluded that Protection should be separately reported as its own reportable segment. This decision resulted in the formation of two reportable segments, including the High-Performance Analog Group, which is comprised of the Signal Integrity and Wireless and Sensing operating segments, and the System Protection Group, which is comprised of the Protection operating segment. All prior year information in the tables below has been revised retrospectively to reflect the change to the Company's reportable segments.
The Company’s assets are commingled among the three operating segments and the CODM does not use asset information in making operating decisions or assessing performance. Therefore, the Company has not included asset information by reportable segment in the segment disclosures below.
Net sales and gross profit by segment were as follows:
Three Months EndedSix Months Ended
(in thousands)July 31, 2022August 1, 2021July 31, 2022August 1, 2021
Net sales:
High-Performance Analog Group$154,995 $135,680 $301,596 $260,882 
System Protection Group54,259 49,324 109,807 94,494 
Total net sales$209,254 $185,004 $411,403 $355,376 
Gross profit:
High-Performance Analog Group$107,224 $91,352 $209,285 $174,432 
System Protection Group29,403 25,463 58,590 48,203 
Unallocated costs, including share-based compensation(808)(1,383)(1,803)(2,342)
Total gross profit$135,819 $115,432 $266,072 $220,293 
Information by Product Line
The Company operates exclusively in the semiconductor industry and primarily within the analog and mixed-signal sector.
The table below provides net sales activity by product line on a comparative basis:
Three Months EndedSix Months Ended
(in thousands, except percentages)July 31, 2022August 1, 2021July 31, 2022August 1, 2021
Signal Integrity$87,355 42 %$73,087 39 %$166,657 40 %$139,782 39 %
Wireless and Sensing67,640 32 %62,593 34 %134,939 33 %121,100 34 %
Protection54,259 26 %49,324 27 %109,807 27 %94,494 27 %
Total net sales$209,254 100 %$185,004 100 %$411,403 100 %$355,376 100 %
Information by Sales Channel
(in thousands, except percentages)Three Months EndedSix Months Ended
July 31, 2022August 1, 2021July 31, 2022August 1, 2021
Distributor$184,983 88 %$160,754 87 %$364,016 88 %$307,154 86 %
Direct24,271 12 %24,250 13 %47,387 12 %48,222 14 %
Total net sales$209,254 100 %$185,004 100 %$411,403 100 %$355,376 100 %
Generally, the Company does not have long-term contracts with its distributors and most distributor agreements can be terminated by either party with short notice. For the second quarter of fiscal year 2023, the Company's largest distributors were based in Asia.
24


Geographic Information
Net sales activity by geographic region was as follows:
 Three Months EndedSix Months Ended
(percentage of total net sales)July 31, 2022August 1, 2021July 31, 2022August 1, 2021
Asia-Pacific72 %81 %73 %80 %
North America16 %11 %15 %12 %
Europe12 %%12 %%
100 %100 %100 %100 %
The Company attributes sales to a country based on the ship-to address. The table below summarizes sales activity to countries that represented greater than 10% of total net sales for at least one of the periods presented:
 Three Months EndedSix Months Ended
(percentage of total net sales)July 31, 2022August 1, 2021July 31, 2022August 1, 2021
China (including Hong Kong)54 %63 %55 %62 %
United States15 %%13 %10 %
Although a large percentage of the Company's products is shipped into the Asia-Pacific region, a significant number of the products produced by these customers and incorporating the Company's semiconductor products are then sold outside this region.

25


Note 15: Stock Repurchase Program
The Company maintains a stock repurchase program that was initially approved by its Board of Directors in March 2008. The stock repurchase program does not have an expiration date and the Company’s Board of Directors has authorized expansion of the program over the years. The following table summarizes activity under the program for the presented periods:
Three Months EndedSix Months Ended
July 31, 2022August 1, 2021July 31, 2022August 1, 2021
(in thousands, except number of shares)SharesAmount PaidSharesAmount PaidSharesAmount PaidSharesAmount Paid
Shares repurchased under the stock repurchase program— $— 639,519 $42,000 762,093 $50,000 1,000,461 $67,000 
On March 11, 2021, the Company's Board of Directors approved the expansion of the stock repurchase program by an additional $350.0 million. As of July 31, 2022, the Company had repurchased $589.0 million in shares of its common stock under the program since inception and the remaining authorization under the program was $209.4 million. Under the program, the Company may repurchase its common stock at any time or from time to time, without prior notice, subject to market conditions and other considerations. The Company’s repurchases may be made through Rule 10b5-1 and/or Rule 10b-18 or other trading plans, open market purchases, privately negotiated transactions, block purchases or other transactions. The Company intends to fund repurchases under the program from cash on hand and borrowings on its Credit Facility. The Company has no obligation to repurchase any shares under the program and may suspend or discontinue it at any time.
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Note 16: Derivatives and Hedging Activities
The Company is exposed to certain risks arising from both its business operations and economic conditions and principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company, on a routine basis and in the normal course of business, experiences expenses denominated in Swiss Franc ("CHF"), Canadian Dollar ("CAD") and Great British Pound ("GBP"). Such expenses expose the Company to exchange rate fluctuations between these foreign currencies and the U.S. Dollar ("USD"). The Company occasionally uses derivative financial instruments, in the form of forward contracts, to mitigate a portion of the risk associated with adverse movements in these foreign currency exchange rates during a twelve-month window. Currency forward contracts involve fixing the exchange rate for delivery of a specified amount of foreign currency on a specified date. The Company’s accounting treatment for these instruments is based on whether or not the instruments are designated as a hedging instrument. The Company is applying hedge accounting to all foreign currency derivatives and has designated these hedges as cash flow hedges. As of January 30, 2022, the Company had no outstanding foreign currency forward contracts.
The Company's foreign currency forward contracts had the following outstanding balances as of July 31, 2022:
Balance as of
July 31, 2022
(in thousands, except number of instruments)Number of InstrumentsSell Notional ValueBuy Notional Value
Sell USD/Buy CAD Forward Contract6$11,789 C$15,357 
Sell USD/Buy CHF Forward Contract12$7,151 Fr.7,079 
Sell USD/Buy GBP Forward Contract12$4,693 £3,810 
Total30
These contracts have been designated as cash flows hedges and the unrealized gains or losses, net of tax, are recorded as a component of "Accumulated other comprehensive income or loss" ("AOCI") in the Balance Sheets. The effective portions of the cash flow hedges are recorded in AOCI until the hedged item is recognized in "SG&A expense" in the Statements of Income once the foreign exchange contract matures, offsetting the underlying hedged expenses. Any ineffective portions of the cash flow hedges are recorded in "Non-operating income, net" in the Statements of Income. The Company presents its derivative assets and liabilities at their gross fair values in the Balance Sheets.
During the first quarter of fiscal year 2021, the Company entered into an interest rate swap agreement with a three-year term to hedge the variability of interest payments on the first $150.0 million of debt outstanding under the Company's Credit Facility. Interest payments on the first $150.0 million of the Company's debt outstanding under the Credit Facility are now fixed at a rate of 1.9775%, based on the Company's current leverage ratio. The interest rate swap agreement has been designated as a cash flow hedge and unrealized gains or losses, net of income tax, are recorded as a component of "Accumulated other comprehensive income or loss" in the Balance Sheets. As the various settlements are made on a monthly basis, the realized gain or loss on the settlements are recorded in "Interest expense" in the Statements of Income. The interest rate swap agreement resulted in a realized gain of $0.2 million for the three months ended July 31, 2022, compared to a realized loss of $0.2 million for the three months ended August 1, 2021. The interest rate swap agreement resulted in a realized gain of $0.1 million for the six months ended July 31, 2022, compared to a realized loss of $0.5 million for the six months ended August 1, 2021.
The fair values of the Company's derivative assets and liabilities that qualify as cash flow hedges in the Balance Sheets were as follows:
(in thousands)July 31, 2022January 30, 2022
Interest rate swap agreement$2,152 $62 
Foreign currency forward contracts539 — 
Total other current assets$2,691 $62 
Interest rate swap agreement$— $167 
Total other long-term assets$— $167 
Foreign currency forward contracts$(42)$— 
Total accrued liabilities$(42)$— 

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During the fourth quarter of fiscal year 2021, the Company entered into an economic hedge program that uses total return swap contracts to hedge the market risk associated with the unfunded portion of the Company's deferred compensation liability. The total return swap contracts generally have a duration of one month and are rebalanced and re-hedged at the end of each monthly term. While the total returns swap contracts are treated as economic hedges, the Company has not designated them as hedges for accounting purposes. The total return swap contracts are measured at fair value and recognized in the Balance Sheets in "Accrued Liabilities" if the instruments are in a loss position and in "Other Current Assets" if the instruments are in a gain position. Unrealized gains and losses, as well as realized gains and losses for settlements, on the total return swap contracts are recognized in "Selling, general and administrative expenses" in the Statements of Income. As of July 31, 2022, the notional value of the total return swap contracts was $5.1 million and the fair value resulted in an asset of $0.4 million. As of January 30, 2022, the notional value of the total return swap contracts was $7.8 million and the fair value resulted in a liability of $0.3 million. The total return swap contracts resulted in a net gain recognized in earnings of $0.1 million for the three months ended July 31, 2022, compared to a net gain recognized in earnings of $0.6 million for the three months ended August 1, 2021. The total return swap contracts resulted in a net loss recognized in earnings of $0.4 million for the six months ended July 31, 2022, compared to a net gain recognized in earnings of $1.6 million for the six months ended August 1, 2021.
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Note 17: Subsequent Event
Proposed Transaction with Sierra Wireless, Inc.
Arrangement Agreement
On August 2, 2022, the Company entered into the Arrangement Agreement to acquire Sierra Wireless in an all-cash transaction representing total purchase consideration of approximately $1.2 billion. See Note 2, Acquisition and Divestiture, for additional information.
Debt Commitment Letter
In connection with the entry into the Arrangement Agreement, the Company entered into the Commitment Letter with JPM. See Note 9, Long-Term Debt, for additional information.
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following "Management’s Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with our interim unaudited condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this "Quarterly Report"),“Risk Factors” and "Special Note Regarding Forward-Looking and Cautionary Statements" in this Quarterly Report.
Overview
Semtech Corporation (together with its consolidated subsidiaries, the "Company", "we", "our", or "us") designs, develops, manufactures and markets high-performance analog and mixed signal semiconductors and advanced algorithms. We account for results in two reportable segments—the High-Performance Analog Group and the System Protection Group. The High-Performance Analog Group is comprised of our Signal Integrity and Wireless and Sensing product lines, which represent two operating segments. The System Protection Group is comprised of our Protection product line, which represents a separate operating segment.
Signal Integrity. We design, develop, manufacture and market a portfolio of optical data communications and video transport products used in a wide variety of infrastructure and industrial applications. Our comprehensive portfolio of integrated circuits ("ICs") for data centers, enterprise networks, passive optical networks ("PON"), and wireless base station optical transceivers and high-speed interfaces ranges from 100Mbps to 400Gbps and supports key industry standards such as Fibre Channel, Infiniband, Ethernet, PON and synchronous optical networks. Our video products offer advanced solutions for next generation high-definition broadcast applications, as well as highly differentiated video-over-IP technology for professional audio video applications.
Wireless and Sensing. We design, develop, manufacture and market a portfolio of specialized radio frequency products used in a wide variety of industrial, medical and communications applications, and specialized sensing products used in industrial and consumer applications. Our wireless products, which include our LoRa® devices and wireless radio frequency technology, feature industry leading and longest range industrial, scientific and medical radio, enabling a lower total cost of ownership and increased reliability in all environments. These features make these products particularly suitable for machine to machine and Internet-of-Things ("IoT") applications. Our unique sensing technology enables proximity sensing and advanced user interface solutions for our mobile and consumer products. Our wireless and sensing products can be found in a broad range of applications in the industrial, medical, and consumer markets. We also design, develop, and market power product devices that control, alter, regulate, and condition the power within electronic systems focused on the LoRa and IoT infrastructure segment. The highest volume product types within this category are switching voltage regulators, combination switching and linear regulators, smart regulators, isolated switches, and wireless charging.
Protection. We design, develop, manufacture and market high-performance protection devices, which are often referred to as transient voltage suppressors ("TVS"). TVS devices provide protection for electronic systems where voltage spikes (called transients), such as electrostatic discharge, electrical over stress or secondary lightning surge energy, can permanently damage sensitive ICs. Our portfolio of protection solutions include filter and termination devices that are integrated with the TVS device. Our products provide robust protection while preserving signal integrity in high-speed communications, networking and video interfaces. These products also operate at very low voltage. Our protection products can be found in a broad range of applications including smart phones, LCD and organic light-emitting diode TVs and displays, set-top boxes, monitors and displays, tablets, computers, notebooks, base stations, routers, automobile and industrial systems.
Our interim unaudited condensed consolidated balance sheets are referred to herein as the "Balance Sheets" and interim unaudited condensed consolidated statements of income are referred to herein as the "Statements of Income."
Our net sales by product line were as follows:
 Three Months EndedSix Months Ended
(in thousands)July 31, 2022August 1, 2021July 31, 2022August 1, 2021
Signal Integrity$87,355 $73,087 $166,657 $139,782 
Wireless and Sensing67,640 62,593 134,939 121,100 
Protection54,259 49,324 109,807 94,494 
Total$209,254 $185,004 $411,403 $355,376 
We design, develop and market a wide range of products for commercial applications, the majority of which are sold into the infrastructure, high-end consumer and industrial end markets.
Infrastructure: data centers, PON, base stations, optical networks, servers, carrier networks, switches and routers, cable modems, wireless local area network ("LAN") and other communication infrastructure equipment.
High-End Consumer: smartphones, tablets, wearables, desktops, notebooks, and other handheld products, wireless charging, set-top boxes, digital televisions, monitors and displays, digital video recorders and other consumer equipment.
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Industrial: IoT applications, analog and digital video broadcast equipment, video-over-IP solutions, automated meter reading, smart grid, wireless charging, medical, security systems, automotive, industrial and home automation and other industrial equipment.
Our end customers are primarily original equipment manufacturers that produce and sell electronics.
Recent Developments
Proposed Transaction with Sierra Wireless, Inc.
Arrangement Agreement
On August 2, 2022, we entered into an Arrangement Agreement (the “Arrangement Agreement”) with Sierra Wireless, Inc., a corporation existing under the Canada Business Corporations Act (“Sierra Wireless”), and 13548597 Canada Inc., a corporation formed under the Canada Business Corporations Act, and our wholly owned subsidiary (“Purchaser”), pursuant to which, among other things, Purchaser will acquire all of the issued and outstanding common shares of Sierra Wireless (the “Arrangement”). The Arrangement will be implemented by way of a plan of arrangement (the “Plan of Arrangement”) in accordance with the Canada Business Corporations Act. On the terms and subject to the conditions of the Arrangement Agreement and the Plan of Arrangement, at the effective time of the Arrangement (the “Effective Time”), each common share of Sierra Wireless that is issued and outstanding immediately prior to the Effective Time will be transferred to the Purchaser in consideration for the right to receive $31.00 USD per share of Sierra Wireless’ common shares, in an all-cash transaction representing total purchase consideration of approximately $1.2 billion.
The closing of the Arrangement is subject to customary closing conditions, including: (i) approval by the securityholders of Sierra Wireless; (ii) receipt of applicable regulatory approvals, including approvals under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), from the Federal Trade Commission and the U.S. Department of Justice and approval under the Competition Act (Canada); (iii) approval by the Supreme Court of British Columbia; (iv) the absence of any law, injunction or other governmental order that prohibits the consummation of the Arrangement; and (v) other customary closing conditions, including the accuracy of the other party’s representations and warranties (subject to certain materiality qualifications), and each party’s compliance with its covenants and agreements contained in the Arrangement Agreement.
Assuming the timely satisfaction of the conditions to closing, we expect the Arrangement will close during our fiscal year 2023. Until close, we and Sierra Wireless will remain separate independent companies.
Debt Commitment Letter
In connection with the entry into the Arrangement Agreement, we entered into a commitment letter, dated as of August 2, 2022 (the “Commitment Letter”) with JPMorgan Chase Bank, N.A. (“JPM”), pursuant to which JPM has committed to provide (a) a backstop of certain amendments to our existing Credit Facility (defined below) and (b) a 364-day bridge loan facility in the aggregate principal amount of $1.2 billion (the "Bridge Commitment"), subject to certain mandatory commitment reductions customary for a bridge loan facility. We intend to incur one or more financings to replace the Bridge Commitment on or prior to the consummation of the Arrangement.
Divestiture
On May 3, 2022, we completed the divestiture of our high reliability discrete diodes and assemblies business (the “Disposal Group”) to Micross Components, Inc. for $26.8 million, net of cash disposed, in an all-cash transaction. For additional information on the divestiture, see Note 2 to our interim unaudited condensed consolidated financial statements.
Impact of COVID-19 and Macroeconomic Conditions
The COVID-19 pandemic has significantly affected health and economic conditions throughout the United States ("U.S.") and the rest of the world including Asia, where a significant percentage of our customers, suppliers, third party foundries and subcontractors are located. As a result of the pandemic, certain of our facilities and the third-party foundries and assembly and test contractors to which we outsource our manufacturing functions, have had to periodically reduce or suspend operations. The disruption experienced during such closures has resulted in reduced production of our products, delays for delivery of our products to our customers, and reduced ability to receive supplies, which have had and may continue to have, individually and in the aggregate, an adverse effect on our results.
As supply remains tight, many of our suppliers may continue to run at or near capacity while our customers are competing for limited inventory. We have increased our inventory levels to minimize the impact of potential supply shortages; however, we cannot provide assurance that we will have sufficient inventory to support demand for all of our product applications. In addition, the prices to obtain raw materials and convert them into the necessary inventory have increased in certain cases due to current inflationary pressures and supply chain shortages and prices may continue to increase. While we have been largely successful with passing on selective price increases to our customers, we cannot provide assurance that all future potential price increases can be absorbed through increased pricing to our customers.
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We believe the general supply chain constraints in the industry are motivating certain customers to increase their orders and inventory levels to protect against supply risk. To the extent that this cautionary purchasing is occurring, we could experience a decrease in future demand as potential excess inventory is worked down.
Factors Affecting Our Performance
Most of our sales to customers are made on the basis of individual customer purchase orders. Many customers include cancellation provisions in their purchase orders. As a result of current macro conditions where demand is exceeding supply and we are seeing global shortages, lead times may continue to expand, resulting in fewer orders being shipped and received in the same quarter. Orders received and shipped in the second quarters of fiscal years 2023 and 2022 represented 5% and 3% of net sales, respectively. Sales made directly to customers during the second quarters of fiscal years 2023 and 2022 were 12% and 13% of net sales, respectively. The remaining sales were made through independent distributors. The decline in direct sales is due to customers electing to leverage the value of distribution to better manage their supply chain.
Our business relies on foreign-based entities. Many of our third-party subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in foreign countries or territories including Taiwan and China. Foreign sales constituted approximately 85% and 91% of our net sales during the second quarters of fiscal years 2023 and 2022, respectively. Approximately 72% and 81% of our sales during the second quarters of fiscal years 2023 and 2022, respectively, were to customers located in the Asia-Pacific region. The remaining foreign sales were primarily to customers in Europe. Doing business in foreign locations also subjects us to export restrictions and trade laws, which may limit our ability to sell to certain customers.
We use several metrics as indicators of future potential growth. The indicators that we believe best correlate to potential future sales growth are design wins and new product releases. There are many factors that may cause a design win or new product release not to result in sales, including a customer's decision not to go to system production, a change in a customer’s perspective regarding a product’s value or a customer’s product failing in the end market. As a result, although a design win or new product introduction is an important step towards generating future sales, it does not inevitably result in us being awarded business or receiving a purchase commitment.
Inflationary factors have not had a significant effect on our performance over the past several years. A significant increase in inflation would affect our future performance if we were unable to pass these higher costs on to our customers.
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Results of Operations
The following table sets forth, for the periods indicated, our interim unaudited condensed consolidated statements of income expressed as a percentage of net sales.
 Three Months EndedSix Months Ended
July 31, 2022August 1, 2021July 31, 2022August 1, 2021
Net sales100.0 %100.0 %100.0 %100.0 %
Cost of sales35.1 %37.6 %35.3 %38.0 %
Gross profit64.9 %62.4 %64.7 %62.0 %
Operating costs and expenses, net:
Selling, general and administrative23.0 %22.7 %22.2 %22.7 %
Product development and engineering19.4 %19.2 %19.3 %20.3 %
Intangible amortization0.5 %0.7 %0.5 %0.7 %
Gain on sale of business(8.6)%— %(4.4)%— %
Total operating costs and expenses, net34.3 %42.6 %37.7 %43.8 %
Operating income30.6 %19.8 %27.0 %18.2 %
Interest expense(0.6)%(0.6)%(0.6)%(0.7)%
Non-operating income, net0.1 %0.1 %0.1 %0.1 %
Investment impairments and credit loss reserves, net0.2 %(0.3)%0.1 %(0.2)%
Income before taxes and equity in net gains of equity method investments30.3 %19.0 %26.6 %17.4 %
Provision for income taxes5.7 %1.6 %4.9 %1.7 %
Net income before equity in net gains of equity method investments24.5 %17.4 %21.7 %15.7 %
Equity in net gains of equity method investments0.1 %0.4 %0.1 %0.2 %
Net income24.7 %17.8 %21.8 %15.9 %
Net loss attributable to noncontrolling interest— %— %— %— %
Net income attributable to common stockholders24.7 %17.8 %21.8 %15.9 %
Percentages may not add precisely due to rounding.
Our regional mix of income (loss) before taxes and equity in net gains (losses) of equity method investments was as follows:
 Three Months EndedSix Months Ended
(in thousands)July 31, 2022August 1, 2021July 31, 2022August 1, 2021
Domestic$17,786 $(6,623)$13,004 $(12,108)
Foreign45,546 41,843 96,421 73,946 
Total