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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 October 30, 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 November 25, 2022: 63,837,729



SEMTECH CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 30, 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 to obtain regulatory approvals required for the closing of the proposed acquisition of Sierra Wireless, Inc. ("Sierra Wireless"); the failure to satisfy the conditions to the closing of the proposed acquisition; 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 with Sierra Wireless; the risk that the proposed acquisition will not be consummated within the expected time period, or at all; future responses to and effects of the ongoing COVID-19 pandemic or other similar health crises; 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 EndedNine Months Ended
 October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Net sales$177,618 $194,932 $589,021 $550,308 
Cost of sales62,049 71,243 207,380 206,326 
Gross profit115,569 123,689 381,641 343,982 
Operating costs and expenses, net:
Selling, general and administrative42,366 47,621 133,849 128,402 
Product development and engineering35,161 37,346 114,551 109,633 
Intangible amortization1,000 1,298 3,096 3,894 
Gain on sale of business(327)— (18,313)— 
Total operating costs and expenses, net78,200 86,265 233,183 241,929 
Operating income37,369 37,424 148,458 102,053 
Interest expense(9,009)(1,233)(11,465)(3,617)
Non-operating income, net775 105 1,162 412 
Investment impairments and credit loss reserves, net(29)(216)376 (930)
Income before taxes and equity in net (losses) gains of equity method investments29,106 36,080 138,531 97,918 
Provision for income taxes6,327 3,018 26,415 9,179 
Net income before equity in net (losses) gains of equity method investments22,779 33,062 112,116 88,739 
Equity in net (losses) gains of equity method investments(36)1,363 271 2,115 
Net income22,743 34,425 112,387 90,854 
Net loss attributable to noncontrolling interest(3)(2)(6)(6)
Net income attributable to common stockholders$22,746 $34,427 $112,393 $90,860 
Earnings per share:
Basic$0.36 $0.53 $1.76 $1.40 
Diluted$0.36 $0.53 $1.76 $1.38 
Weighted-average number of shares used in computing earnings per share:
Basic63,764 64,546 63,738 64,786 
Diluted63,855 65,299 64,040 65,664 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
4


SEMTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
  Three Months EndedNine Months Ended
 October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Net income $22,743 $34,425 $112,387 $90,854 
Other comprehensive (loss) income, net:
Unrealized (loss) gain on foreign currency cash flow hedges, net(382)— 164 — 
Reclassifications of realized loss (gain) on foreign currency cash flow hedges, net to net income72 — (69)— 
Unrealized gain (loss) on interest rate cash flow hedges, net505 (388)2,069 341 
Reclassifications of realized (gain) loss on interest rate cash flow hedges, net to net income(625)923 (680)557 
Reclassification of cumulative translation gain to net income— — (48)— 
Change in defined benefit plans, net22 158 68 472 
Other comprehensive (loss) income, net(408)693 1,504 1,370 
Comprehensive income22,335 35,118 113,891 92,224 
Comprehensive loss attributable to noncontrolling interest(3)(2)(6)(6)
Comprehensive income attributable to common stockholders$22,338 $35,120 $113,897 $92,230 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.









5


SEMTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
October 30, 2022January 30, 2022
Assets
Current assets:
Cash and cash equivalents$617,801 $279,601 
Accounts receivable, less allowances of $844 and $747, respectively
80,539 71,507 
Inventories111,083 114,003 
Prepaid taxes2,758 5,983 
Other current assets23,051 31,201 
Total current assets835,232 502,295 
Non-current assets:
Property, plant and equipment, net of accumulated depreciation of $259,308 and $254,764, respectively
135,571 134,940 
Deferred tax assets24,898 27,803 
Goodwill350,306 351,141 
Other intangible assets, net3,708 6,804 
Other assets117,136 107,928 
TOTAL ASSETS$1,466,851 $1,130,911 
Liabilities and Equity
Current liabilities:
Accounts payable$45,072 $50,695 
Accrued liabilities95,021 77,704 
Total current liabilities140,093 128,399 
Non-current liabilities:
Deferred tax liabilities1,075 1,132 
Long-term debt455,113 171,676 
Other long-term liabilities77,973 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 63,837,729 outstanding and 78,136,144 issued and 64,098,565 outstanding, respectively
785 785 
Treasury stock, at cost, 14,298,415 shares and 14,037,579 shares, respectively
(579,268)(549,942)
Additional paid-in capital462,213 491,956 
Retained earnings909,253 796,860 
Accumulated other comprehensive loss(571)(2,075)
Total stockholders’ equity792,412 737,584 
Noncontrolling interest185 191 
Total equity792,597 737,775 
TOTAL LIABILITIES AND EQUITY$1,466,851 $1,130,911 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
6


SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)
Three Months Ended October 30, 2022
Common StockAccumulated Other Comprehensive Loss
Number of Shares OutstandingAmountTreasury Stock, at CostAdditional Paid-in CapitalRetained EarningsStockholders’ EquityNoncontrolling InterestTotal Equity
Balance at July 31, 202263,516,341 $785 $(594,449)$506,178 $886,507 $(163)$798,858 $188 $799,046 
Net income— — — — 22,746 — 22,746 (3)22,743 
Other comprehensive loss— — — — — (408)(408)— (408)
Sale of warrants (see Note 9)
— — — 42,909 — — 42,909 — 42,909 
Purchase of convertible note hedge (see Note 9)
— — — (72,559)— — (72,559)— (72,559)
Share-based compensation— — — 9,016 — — 9,016 — 9,016 
Treasury stock reissued321,388 — 15,181 (23,331)— — (8,150)— (8,150)
Balance at October 30, 202263,837,729 $785 $(579,268)$462,213 $909,253 $(571)$792,412 $185 $792,597 

Nine Months Ended October 30, 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— — — — 112,393 — 112,393 (6)112,387 
Other comprehensive income— — — — — 1,504 1,504 — 1,504 
Sale of warrants (see Note 9)
— — — 42,909 — — 42,909 — 42,909 
Purchase of convertible note hedge (see Note 9)
— — — (72,559)— — (72,559)— (72,559)
Share-based compensation— — — 33,727 — — 33,727 — 33,727 
Repurchase of common stock(762,093)— (50,000)— — — (50,000)— (50,000)
Treasury stock reissued501,257 — 20,674 (33,820)— — (13,146)— (13,146)
Balance at October 30, 202263,837,729 $785 $(579,268)$462,213 $909,253 $(571)$792,412 $185 $792,597 
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 October 31, 2021
Common StockAccumulated Other Comprehensive Loss
Number of Shares OutstandingAmountTreasury Stock, at CostAdditional Paid-in CapitalRetained EarningsStockholders’ EquityNoncontrolling InterestTotal Equity
Balance at August 1, 202164,396,741 $785 $(499,199)$486,693 $727,629 $(7,491)$708,417 $206 $708,623 
Net income— — — — 34,427 — 34,427 (2)34,425 
Other comprehensive income— — — — — 693 693 — 693 
Share-based compensation— — — 13,289 — — 13,289 — 13,289 
Repurchase of common stock(387,163)— (30,000)— — — (30,000)— (30,000)
Treasury stock reissued389,663 — 9,589 (18,221)— — (8,632)— (8,632)
Balance at October 31, 202164,399,241 $785 $(519,610)$481,761 $762,056 $(6,798)$718,194 $204 $718,398 

Nine Months Ended October 31, 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— — — — 90,860 — 90,860 (6)90,854 
Other comprehensive income— — — — — 1,370 1,370 — 1,370 
Share-based compensation— — — 37,819 — — 37,819 — 37,819 
Repurchase of common stock(1,387,624)— (97,000)— — — (97,000)— (97,000)
Treasury stock reissued688,486 — 16,188 (29,786)— — (13,598)— (13,598)
Balance at October 31, 202164,399,241 $785 $(519,610)$481,761 $762,056 $(6,798)$718,194 $204 $718,398 
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)
Nine Months Ended
 October 30, 2022October 31, 2021
Cash flows from operating activities:
Net income$112,387 $90,854 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization22,321 22,686 
Amortization of right-of-use assets3,475 3,289 
Investment impairments and credit loss reserves, net(376)930 
Accretion of deferred financing costs and debt discount520 361 
Deferred income taxes2,383 (1,540)
Share-based compensation27,228 40,697 
Gain on disposition of business operations and assets(18,256)(34)
Equity in net gains of equity method investments(271)(2,115)
Corporate-owned life insurance, net23 4,720 
Changes in assets and liabilities:
Accounts receivable, net(9,032)(3,880)
Inventories(3,470)(17,665)
Other assets4,170 8,130 
Accounts payable(3,430)(3,325)
Accrued liabilities12,127 15,816 
Other liabilities(4,289)(6,787)
Net cash provided by operating activities145,510 152,137 
Cash flows from investing activities:
Proceeds from sales of property, plant and equipment33 82 
Purchase of property, plant and equipment(22,643)(18,081)
Proceeds from sale of investments2,275 — 
Purchase of investments(6,748)(5,832)
Proceeds from sale of business, net of cash disposed26,322 — 
Proceeds from corporate-owned life insurance5,065 — 
Premiums paid for corporate-owned life insurance(5,065)(6,000)
Net cash used in investing activities(761)(29,831)
Cash flows from financing activities:
Proceeds from revolving line of credit10,000 20,000 
Payments of revolving line of credit(33,000)(24,000)
Proceeds from convertible senior notes319,500 — 
Proceeds from sale of warrants42,909 — 
Purchase of convertible note hedge(72,559)— 
Deferred financing costs(10,253)— 
Payment for employee share-based compensation payroll taxes(13,766)(17,885)
Proceeds from exercise of stock options620 4,287 
Repurchase of common stock(50,000)(97,000)
Net cash provided by (used in) financing activities193,451 (114,598)
Net increase in cash and cash equivalents338,200 7,708 
Cash and cash equivalents at beginning of period279,601 268,891 
Cash and cash equivalents at end of period$617,801 $276,599 
Supplemental disclosure of cash flow information:
Interest paid$10,267 $3,237 
Income taxes paid$8,749 $2,989 
Non-cash investing and financing activities:
Accounts payable related to capital expenditures$3,803 $2,424 
Conversion of notes into equity$— $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 third 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 October 30, 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.
In August 2020, the FASB issued ASU No. 2020-06 ("ASU 2020-06"), which amends the accounting standards for convertible debt instruments that may be settled entirely or partially in cash upon conversion. ASU 2020-06 eliminates requirements to separately account for liability and equity components of such convertible debt instruments and eliminates the ability to use the treasury stock method for calculating diluted earnings per share for convertible instruments whose principal amount may be settled using shares. Instead, ASU 2020-06 requires (i) the entire amount of the security to be presented as a liability on the balance sheet and (ii) application of the "if-converted" method for calculating diluted earnings per share. Under the "if-
10


converted" method, diluted earnings per share will generally be calculated assuming that all of the notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive. However, if the principal amount of the convertible debt security being converted is required to be paid in cash and only the excess is permitted to be settled in shares, the if-converted method will produce a similar result as the "treasury stock" method prior to the adoption of ASU 2020-06 for such convertible debt security.
The amendments are effective for the Company's annual and interim reporting periods beginning after December 15, 2021, with early adoption permitted for reporting periods beginning after December 15, 2020. The guidance can be applied on a full retrospective basis to all periods presented or a modified retrospective basis with a cumulative effect adjustment to the opening balance of retained earnings during the period of adoption. The Company adopted ASU 2020-06 as of January 31, 2022 and recorded the issuance of its 1.625% Convertible Senior Notes due 2027 (the "Notes") at their face value net of issuance costs in "Other long-term liabilities" and the value of the associated convertible note hedge and warrants in "Additional paid-in capital" in the Balance Sheets. The Company did not bifurcate the liability and equity components of the Notes in its Balance Sheets, and uses the if-converted method of calculating diluted earnings per share. Because the principal amount of the Notes upon conversion is required to be paid in cash, and only the excess is permitted to be settled in shares, the application of the if-converted method will produce a similar result as the treasury stock method prior to the adoption of ASU 2020-06. The effect of the treasury stock method is that the shares issuable upon conversion of the Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the Notes exceeds their principal amount. There were no changes to the Company’s previously issued financial statements as the Company had no existing convertible notes prior to issuance of the Notes. See Note 9, Long-Term Debt, for further discussion of the Notes.


11


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 date of the Arrangement (the “Effective Date”), each common share of Sierra Wireless that is issued and outstanding immediately prior to the Effective Date 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.
On September 27, 2022, the securityholders of Sierra Wireless approved the Arrangement and on September 29, 2022, the Supreme Court of British Columbia issued its final order approving the Arrangement. In addition, on October 3, 2022, the Company received a no action letter from the Canadian Competition Bureau satisfying the Competition Act approval condition to closing. The closing of the Arrangement remains subject to customary closing conditions, including: (i) receipt of regulatory approvals under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), from the U.S. Department of Justice (the “DOJ”); (ii) the absence of any law, injunction or other governmental order that prohibits the consummation of the Arrangement; and (iii) 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.
On October 17, 2022, each of the Company and Sierra Wireless received a request for additional information and documentary material (commonly known as a “second request”) from the DOJ in connection with the proposed transaction. The second requests were issued under notification requirements of the HSR Act. Issuance of the second requests extends the waiting period under the HSR Act until 30 days after the Company and Sierra Wireless have substantially complied with the second requests, unless that period is extended voluntarily by the parties or otherwise terminated by the DOJ. The parties are working to close the transaction as expeditiously as possible, within the timeframe initially provided under the Arrangement Agreement, which (inclusive of extensions) ends no later than March 3, 2023, unless extended further by mutual agreement of the parties. Until closing of the Arrangement, 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 $26.3 million, net of cash disposed, in an all-cash transaction. The divestiture resulted in a gain of $0.3 million and $18.3 million for the three and nine months ended October 30, 2022, respectively, which was recorded in "Gain on sale of business" in the Statements of Income. The $0.3 million gain in the third quarter of fiscal year 2023 was due to a working capital adjustment resulting from the finalization of the purchase price that had been previously estimated at the time of the transaction. 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.

12


Note 3: Earnings per Share
The computation of basic and diluted earnings per share was as follows:
 Three Months EndedNine Months Ended
(in thousands, except per share data)October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Net income attributable to common stockholders$22,746 $34,427 $112,393 $90,860 
Weighted-average shares outstanding–basic63,764 64,546 63,738 64,786 
Dilutive effect of share-based compensation91 753 302 878 
Weighted-average shares outstanding–diluted63,855 65,299 64,040 65,664 
Earnings per share:
Basic$0.36 $0.53 $1.76 $1.40 
Diluted$0.36 $0.53 $1.76 $1.38 
Anti-dilutive shares not included in the above calculations:
Share-based compensation1,229 31 759 41 
Warrants8,573 — 8,573 — 
Total anti-dilutive shares9,802 31 9,332 41 
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.
Any dilutive effect of the Warrants (see Note 9, Long-Term Debt) is calculated using the treasury-stock method. During the three and nine months ended October 30, 2022, the Warrants were excluded from diluted shares outstanding because the exercise price exceeded the average market price of the Company's common stock for the reporting period.
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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 EndedNine Months Ended
(in thousands)October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Cost of sales$633 $743 $2,018 $2,112 
Selling, general and administrative(1,028)12,528 13,692 26,985 
Product development and engineering3,480 4,070 11,518 11,600 
Total share-based compensation$3,085 $17,341 $27,228 $40,697 
Restricted Stock Units, Employees
The Company grants restricted stock units to certain employees that 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 nine months ended October 30, 2022, the Company granted 270,677 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 nine months ended October 30, 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. Expense is recognized on a straight-line basis over the requisite service periods and is adjusted for any actual forfeitures.
In the nine months ended October 30, 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 nine months ended October 30, 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:
 October 30, 2022January 30, 2022
(in thousands)Fair ValueAmortized
Cost
Gross
Unrealized Gain/(Loss)
Fair ValueAmortized
Cost
Gross
Unrealized Gain/(Loss)
Convertible debt investments$13,691 $15,300 $(1,609)$12,872 $14,401 $(1,529)
Total available-for-sale securities$13,691 $15,300 $(1,609)$12,872 $14,401 $(1,529)
The following table summarizes the maturities of the Company’s available-for-sale securities:
October 30, 2022
(in thousands)Fair ValueAmortized Cost
Within 1 year$1,025 $5,052 
After 1 year through 5 years12,666 10,248 
Total available-for-sale securities$13,691 $15,300 
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:
 October 30, 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$1,999 $— $1,999 $— $229 $— $229 $— 
Total return swap contracts211 — 211 — — — — — 
Convertible debt investments13,691 — — 13,691 12,872 — — 12,872 
Foreign currency forward contracts267 — 267 — — — — — 
Total financial assets$16,168 $— $2,477 $13,691 $13,101 $— $229 $12,872 
Financial liabilities:
Foreign currency forward contracts$406 $— $406 $— $— $— $— $— 
Total return swap contracts— — — — 257 — 257 — 
Total financial liabilities$406 $— $406 $— $257 $— $257 $— 
During the nine months ended October 30, 2022, the Company had no transfers of financial assets or liabilities between Level 1, Level 2 or Level 3. As of October 30, 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 nine months ended October 30, 2022:
(in thousands)
Balance at January 30, 2022$12,872 
Increase in credit loss reserve(79)
Interest accrued898 
Balance at October 30, 2022$13,691 
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 17, 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" in the Balance Sheets and the value of contracts in a loss position are recorded in "Accrued liabilities" in the Balance Sheets. See Note 17, Derivatives and Hedging Activities, for further discussion of the Company’s derivative instruments.
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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 17, Derivatives and Hedging Activities, for further discussion of the Company's derivative instruments.
Instruments Not Recorded at Fair Value
Some of the Company’s financial instruments are not measured at fair value, 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. The Company's convertible senior notes are carried at face value less unamortized debt issuance costs. The estimated fair values are determined based on the actual bid price of the convertible senior notes as of the last business day of the period.
The following table displays the carrying values and fair values of our debt instruments:
 October 30, 2022January 30, 2022
(in thousands)Fair Value HierarchyCarrying ValueFair ValueCarrying ValueFair Value
Revolving loans, net (1)
Level 2$148,421 $148,421 $171,676 $171,676 
1.625% convertible senior notes due 2027, net (2)
Level 2306,692 290,771 — — 
Total long-term debt, net of debt issuance costs$455,113 $439,192 $171,676 $171,676 
(1) The revolving loans, net are reflected net of $1.6 million and $1.3 million of unamortized debt issuance costs as of October 30, 2022 and January 30, 2022, respectively.
(2) The 1.625% convertible senior notes due 2027, net are reflected net of $12.8 million of unamortized debt issuance costs as of October 30, 2022.
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 it determines they are 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 October 30, 2022 and January 30, 2022, respectively. During the three months ended October 30, 2022, the Company's expected credit loss reserves remained flat at $4.1 million, while during the nine months ended October 30, 2022, the Company decreased its expected credit loss reserves by $0.4 million due to a recovery on one of its held-to-maturity debt securities. During the three and nine months ended October 31, 2021, the Company increased its expected credit loss reserves by $0.2 million and $0.9 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.





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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)October 30, 2022January 30, 2022
Raw materials$3,257 $4,304 
Work in progress82,508 85,445 
Finished goods25,318 24,254 
Total inventories$111,083 $114,003 

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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 October 30, 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. The reporting units are the same as the operating segments, which have been aggregated into two reportable segments (see Note 15 on segment information). As of October 30, 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 nine months ended October 30, 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:
 October 30, 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
$22,300 $(18,592)$3,708 $26,300 $(19,496)$6,804 
Total finite-lived intangible assets$22,300 $(18,592)$3,708 $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 EndedNine Months Ended
(in thousands)October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Core technologies$1,000 $1,298 $3,096 $3,894 
Total amortization expense$1,000 $1,298 $3,096 $3,894 
Future amortization expense of finite-lived intangible assets is expected as follows:
(in thousands)
Fiscal Year Ending:
2023 (remaining three months)$906 
20241,676 
2025288 
2026288 
2027288 
Thereafter262 
Total expected amortization expense$3,708 

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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)October 30, 2022January 30, 2022
Revolving loans$150,000 $173,000 
1.625% convertible senior notes due 2027
319,500 — 
Total long-term debt$469,500 $173,000 
Debt issuance costs(14,387)(1,324)
Total long-term debt, net of debt issuance costs$455,113 $171,676 
Weighted-average effective interest rate (1)
1.74 %1.90 %
(1) The revolving loans bear interest at a variable rate based on LIBOR or a Base Rate (as defined herein), 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 LIBOR-referenced portion of interest on the first $150.0 million of debt outstanding under the revolving loans at 0.7275%. As of October 30, 2022, the effective interest rate was a weighted-average rate that represented (a) interest on the Notes outstanding at a fixed rate of 1.625% and (b) interest on the debt outstanding on the revolving loans at a fixed LIBOR rate of 0.7275% plus a margin of 1.25% (total fixed rate of 1.9775%). 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 on the revolving loans 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 on the revolving loans 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%).
Revolving Facility
On November 7, 2019, the Company, with certain of its domestic subsidiaries as guarantors, entered into an amended and restated credit agreement (as amended or otherwise modified from time to time, the "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 revolving credit facility (the "Revolving Facility") is $600.0 million and matures on November 7, 2024. As of October 30, 2022, the Company had $150.0 million outstanding under its Revolving Facility and $450.0 million of undrawn borrowing capacity, and the Company was in compliance with the financial covenants required under the Revolving 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.
On September 1, 2022, the Company entered into the second amendment to the Credit Agreement in order to, among other things, (i) permit the consummation of, and certain transactions in connection with the Arrangement, (ii) revise the financial maintenance covenant by increasing the maximum consolidated leverage ratio permitted for the six successive fiscal quarters following consummation of the Arrangement, (iii) permit the incurrence of up to $1.2 billion (plus the amount of fees and expenses related to the Arrangement) in additional secured debt in connection with the Arrangement, (iv) provide for limited conditions precedent in the event of a borrowing to finance the Arrangement and (v) make certain other changes as set forth in the amendment.
On September 26, 2022, the Company entered into the third amendment and restatement to the Credit Agreement (the "Restatement Agreement"), which substantially concurrently with the consummation of the Arrangement at the Effective Date will, among other things, (i) extend the maturity date of $405.0 million of the $600.0 million in aggregate principal amount of revolving commitments thereunder from November 7, 2024 to the fifth anniversary of the Effective Date (subject to, in certain circumstances, an earlier springing maturity), (ii) provide for incurrence by the Company on the Effective Date of a new five-year term loan facility in an aggregate principal amount of $895.0 million, intended to be used to fund a portion of the cash consideration for the Arrangement and related fees and expenses, (iii) provide for JPMorgan Chase Bank, N.A. to succeed HSBC Bank USA, National Association as administrative agent and collateral agent under the Credit Agreement on the Effective Date, (iv) modify the maximum consolidated leverage covenant as set forth in the Restatement Agreement and (v) make certain other changes as set forth in the Restatement Agreement, including changes consequential to the incorporation of the new term loan facility.
Convertible Senior Notes
On October 6, 2022 and October 21, 2022, the Company issued and sold $300.0 million and $19.5 million, respectively, in aggregate principal amount of the Notes in a private placement. The Notes were issued pursuant to an indenture, dated October 12, 2022, by and among the Company, the Subsidiary Guarantors (as defined below) party thereto and U.S. Bank Trust Company, National Association, as trustee. The Notes will be jointly and severally and fully and unconditionally guaranteed by each of the Company’s current and future direct and indirect wholly-owned domestic subsidiaries (the “Subsidiary Guarantors”)
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that guarantee its borrowings under its Credit Agreement. The Notes will bear interest at a rate of 1.625% per year, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2023. The Notes will mature on November 1, 2027, unless earlier converted, redeemed or repurchased.
The initial conversion rate of the Notes is 26.8325 shares of the Company's common stock per $1,000 principal amount of Notes (which is equivalent to an initial conversion price of approximately $37.27 per share). The conversion rate will be subject to adjustment upon the occurrence of certain events specified in the Indenture but will not be adjusted for accrued and unpaid interest. In addition, upon the occurrence of a Make-Whole Fundamental Change (as defined in the Indenture) or if the Company delivers a Notice of Sale Price Redemption (as defined in the Indenture), the Company will, in certain circumstances, increase the conversion rate by a number of additional shares of common stock as described in the Indenture for a holder who elects to convert its Notes in connection with such Make-Whole Fundamental Change or to convert its Notes called (or deemed called as provided in the Indenture) for redemption in connection with such Notice of Sale Price Redemption, as the case may be.
Prior to the close of business on the business day immediately preceding July 1, 2027, the Notes will be convertible at the option of the holders thereof only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on January 29, 2023 (and only during such fiscal quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period in which, for each trading day of that period, the Trading Price (as defined in the Indenture), as determined following a request by a holder of Notes in accordance with the procedures described in the Indenture, per $1,000 principal amount of Notes for such trading day was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day; (3) if the Company calls such Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the Notes called (or deemed called as provided in the Indenture) for redemption; or (4) upon the occurrence of specified corporate events described in the Indenture. On or after July 1, 2027 until the close of business on the second scheduled trading day immediately preceding the maturity date of the Notes, holders of the Notes may convert all or a portion of their Notes, regardless of the foregoing conditions. Upon conversion, the Notes will be settled in cash up to the aggregate principal amount of the Notes to be converted, and in cash, shares of the Company's common stock or any combination thereof, at the Company’s option, in respect of the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the Notes being converted.
The sale of the Notes closed prior to consummation of the Arrangement. If the Arrangement has not closed as of the close of business on March 3, 2023, or if, before such time, the Arrangement Agreement is terminated or the Company reasonably determines in good faith that the Arrangement will not be consummated, the Company may, at its option, redeem all (but not less than all) of the Notes on a redemption date on or prior to July 3, 2023 in cash at a redemption price equal to 101% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, plus a premium, if any, based on the price of the Company’s common stock prior to the redemption date, as described in the Indenture.
Except as described in the preceding paragraph, the Company may not redeem the Notes prior to November 5, 2025. The Company may redeem for cash all or any portion of the Notes (subject to the limitation described below), at the Company’s option, on or after November 5, 2025 and before the 61st scheduled trading day immediately preceding the maturity date if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides the related notice of sale price redemption, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company redeems less than all the outstanding Notes, at least $75.0 million aggregate principal amount of Notes must be outstanding and not subject to redemption as of the relevant redemption notice date. No sinking fund is provided for the Notes.
Upon the occurrence of a Fundamental Change (as defined in the Indenture) prior to the maturity date of the Notes, holders of the Notes may require the Company to repurchase all or a portion of the Notes for cash at a price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the Fundamental Change Repurchase Date (as defined in the Indenture).
Convertible Note Hedge Transactions
On October 6, 2022 and October 19, 2022, the Company entered into privately negotiated convertible note hedge transactions (the “Convertible Note Hedge Transactions”) with an affiliate of one of the initial purchasers of the Notes and another financial institution (collectively, the “Counterparties”) whereby the Company has the option to purchase the same number of shares of the Company’s common stock initially underlying the Notes in the aggregate for approximately $37.27 per share, which is
21


subject to anti-dilution adjustments substantially similar to those in the Notes. The Convertible Note Hedge Transactions will expire upon the maturity of the Notes, if not earlier exercised. The Convertible Note Hedge Transactions are expected to reduce the dilution to the common stock upon the potential conversion of the Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted Notes, as the case may be, in the event that the market price per share of common stock, as measured under the terms of the Convertible Note Hedge Transactions, is greater than the strike price of the Convertible Note Hedge Transactions, which initially corresponds to the initial conversion price of the Notes, or approximately $37.27 per share of the common stock. The Convertible Note Hedge Transactions are separate transactions, entered into by the Company with each of the Counterparties, and are not part of the terms of the Notes. Holders of the Notes will not have any rights with respect to the Convertible Note Hedge Transactions. The Company used approximately $72.6 million of the net proceeds from the offering of the Notes to pay the cost of the Convertible Note Hedge Transactions. The Convertible Note Hedge Transactions are recorded in additional paid-in capital in the Balance Sheets as they do not require classification outside of equity pursuant to ASC 480 and qualify for equity classification pursuant to ASC 815.
Warrant Transactions
On October 6, 2022 and on October 19, 2022, the Company separately entered into privately negotiated warrant transactions (the “Warrants”) with the Counterparties whereby the holders of the Warrants have the option to acquire, collectively, subject to anti-dilution adjustments, approximately 8.6 million shares of the Company’s common stock at an initial strike price of approximately $51.15 per share. The Warrants were sold in private placements to the Counterparties pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), afforded by Section 4(a)(2) of the Securities Act. If the market price per share of the common stock, as measured under the terms of the Warrants, exceeds the strike price of the Warrants, the Warrants could have a dilutive effect on the common stock, unless the Company elects, subject to certain conditions, to settle the Warrants in cash. The Warrants will expire over a period beginning in February 2028.
The Warrants are separate transactions, entered into by the Company with each of the Counterparties, and are not part of the terms of the Notes. Holders of the Notes will not have any rights with respect to the Warrants. The Company received aggregate proceeds of approximately $42.9 million from the sale of the Warrants to the Counterparties. The Warrants are recorded in additional paid-in capital in the Balance Sheets as they do not require classification outside of equity pursuant to ASC 480 and qualify for equity classification pursuant to ASC 815.
In combination, the Convertible Note Hedge Transactions and the Warrants synthetically increase the strike price of the conversion option of the Notes from approximately $37.27 to $51.15, reducing the dilutive effect of the Notes in exchange for a net cash premium of $29.7 million.
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 Agreement 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. During the third quarter of fiscal year 2023, the amendments and restatement of the Credit Agreement disclosed above and the issuance of the Notes disclosed above occurred to replace the backstop commitment and the Bridge Commitment.
Interest Expense
Interest expense was comprised of the following components for the periods presented:
 Three Months EndedNine Months Ended
(in thousands)October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Contractual interest (1)
$1,475 $1,113 $3,690 $3,256 
Amortization of debt discount and issuance costs279 120 520 361 
Debt commitment fee (2)
7,255 — 7,255 — 
Total interest expense$9,009 $1,233 $11,465 $3,617 
(1) Contractual interest represents the interest on the Company's outstanding debt after giving effect to the interest rate swap agreement.
(2) One-time fee incurred in connection with the Debt Commitment Letter disclosed above.
As of October 30, 2022, there were no amounts outstanding under the letters of credit, swing line loans and alternative currency sub-facilities.
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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 536 
Additions/(decreases) based on tax positions related to the prior fiscal years(146)
Balance at October 30, 2022$27,441 
Included in the balance of gross unrecognized tax benefits at October 30, 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)October 30, 2022January 30, 2022
Deferred tax assets - non-current$16,571 $16,346 
Other long-term liabilities9,493 9,335 
Total accrued taxes$26,064 $25,681 
The Company’s policy is to include net interest and penalties related to unrecognized tax benefits in the "Provision for income taxes" in the Statements of Income.
Tax years prior to 2013 (the Company’s fiscal year 2014) are generally not subject to examination by the United States ("U.S.") Internal Revenue Service except for items involving tax attributes that have been carried forward to tax years whose statute of limitations remains open. For state returns in the U.S., the Company is generally not subject to income tax examinations for calendar years prior to 2012 (the Company’s fiscal year 2013). The Company has a significant tax presence in Switzerland for which Swiss tax filings have been examined through fiscal year 2020. The Company is also subject to routine examinations by various foreign tax jurisdictions in which it operates. The Company believes that adequate provisions have been made for any adjustments that may result from tax examinations. However, the outcome of tax examinations cannot be predicted with certainty. If any issues addressed in the Company’s tax examinations are resolved in a manner not consistent with the Company's expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.
The Company’s regional income (loss) from continuing operations before taxes and equity in net gains of equity method investments was as follows:
 Three Months EndedNine Months Ended
(in thousands)October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Domestic$(52,087)$(5,358)$(39,084)$(17,466)
Foreign81,193 41,438 177,615 115,384 
Total$29,106 $36,080 $138,531 $97,918 
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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. There were no new material leases entered into during the nine months ended October 30, 2022.
The components of lease expense were as follows:
Three Months EndedNine Months Ended
(in thousands)October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Operating lease cost$1,449 $1,441 $4,349 $4,265 
Short-term lease cost334 302 1,082 805 
Sublease income(33)(32)(102)(107)
Total lease cost$1,750 $1,711 $5,329 $4,963 
Supplemental cash flow information related to leases was as follows:
Nine Months Ended
(in thousands)October 30, 2022October 31, 2021
Cash paid for amounts included in the measurement of lease liabilities$4,079 $4,243 
Right-of-use assets obtained in exchange for new operating lease liabilities$2,050 $7,677 
October 30, 2022
Weighted-average remaining lease term–operating leases (in years)5.21
Weighted-average discount rate on remaining lease payments–operating leases6.2 %
Supplemental balance sheet information related to leases was as follows:
(in thousands)October 30, 2022January 30, 2022
Operating lease right-of-use assets in "Other assets"$18,163 $19,777 
Operating lease liabilities in "Accrued liabilities"$3,945 $3,977 
Operating lease liabilities in "Other long-term liabilities"14,322 16,577 
Total operating lease liabilities$18,267 $20,554 
Maturities of lease liabilities as of October 30, 2022 are as follows:
(in thousands)
Fiscal Year Ending:
2023 (remaining three months)$1,318 
20244,706 
20254,570 
20263,546 
20272,365 
Thereafter4,853 
Total lease payments21,358 
Less: imputed interest(3,091)
Total$18,267 

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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 $6.0 million in payments towards the remedial action plan and, as of October 30, 2022, has a remaining accrual of $1.9 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)October 30, 2022January 30, 2022
Accrued liabilities$1,988 $1,966 
Other long-term liabilities38,572 43,197 
Total deferred compensation liabilities under this plan$40,560 $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 $32.1 million and $35.2 million as of October 30, 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 October 30, 2022 compared to January 30, 2022 was primarily related to a $5.6 million decrease in market value and a $2.6 million reduction in cash surrender value related to death benefits, partially offset by the re-investment of $5.1 million of proceeds from the death benefits into the corporate-owned life insurance policy in order to provide substantive coverage for the Company's deferred compensation liability.

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Note 13: Restructuring
From time to time, the Company takes steps to realign the business to focus on high-growth areas, provide customer value and make the Company more efficient. As a result, the Company has re-aligned resources and infrastructure, which resulted in restructuring charges related to one-time employee termination benefits of $2.4 million in the three and nine months ended October 30, 2022. The Company did not have any restructuring charges during the three and nine months ended October 31, 2021. Restructuring related liabilities are included in "Accrued liabilities" in the Balance Sheets.
Restructuring activity is summarized as follows:
(in thousands)
Balance at January 30, 2022$— 
Charges2,372 
Cash payments(685)
Balance at October 30, 2022$1,687 
Restructuring charges were included in the Statements of Income as follows:
Three Months EndedNine Months Ended
(in thousands)October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Cost of sales$128 $— $128 $— 
Selling, general and administrative2,139 — 2,139 — 
Product development and engineering105 — 105 — 
Total restructuring charges$2,372 $— $2,372 $— 
26


Note 14: 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 EndedNine Months Ended
(percentage of net sales)October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Trend-tek Technology Ltd. (and affiliates)14 %18 %15 %17 %
CEAC International Limited13 %%13 %10 %
Frontek Technology Corporation (and affiliates)13 %18 %13 %19 %
Arrow Electronics (and affiliates)%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)October 30, 2022January 30, 2022
Frontek Technology Corporation (and affiliates)17 %17 %
CEAC International Limited11 %10 %
Sonova AG11 %%
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, China and Japan. A significant amount of the Company’s assembly and test operations are conducted by third-party contractors in China, Taiwan and Malaysia.
27


Note 15: 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 had 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 changes 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 EndedNine Months Ended
(in thousands)October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Net sales:
High-Performance Analog Group$137,764 $138,528 $439,360 $399,410 
System Protection Group39,854 56,404 149,661 150,898 
Total net sales$177,618 $194,932 $589,021 $550,308 
Gross profit:
High-Performance Analog Group$94,938 $94,384 $304,223 $268,816 
System Protection Group21,484 29,836 80,074 78,039 
Unallocated costs, including share-based compensation(853)(531)(2,656)(2,873)
Total gross profit$115,569 $123,689 $381,641 $343,982 
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 EndedNine Months Ended
(in thousands, except percentages)October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Signal Integrity$76,705 44 %$75,405 39 %$243,362 42 %$215,187 40 %
Wireless and Sensing61,059 34 %63,123 32 %195,998 33 %184,223 33 %
Protection39,854 22 %56,404 29 %149,661 25 %150,898 27 %
Total net sales$177,618 100 %$194,932 100 %$589,021 100 %$550,308 100 %
Information by Sales Channel
(in thousands, except percentages)Three Months EndedNine Months Ended
October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Distributor$146,626 83 %$170,942 88 %$510,642 87 %$478,096 87 %
Direct30,992 17 %23,990 12 %78,379 13 %72,212 13 %
Total net sales$177,618 100 %$194,932 100 %$589,021 100 %$550,308 100 %
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 third quarter of fiscal year 2023, the Company's largest distributors were based in Asia.
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Geographic Information
Net sales activity by geographic region was as follows:
 Three Months EndedNine Months Ended
(percentage of total net sales)October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Asia-Pacific71 %78 %73 %79 %
North America15 %12 %15 %12 %
Europe14 %10 %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 EndedNine Months Ended
(percentage of total net sales)October 30, 2022October 31, 2021October 30, 2022October 31, 2021
China (including Hong Kong)54 %59 %55 %61 %
United States14 %10 %14 %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.

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Note 16: 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. 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 October 30, 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 Revolving Facility. The Company has no obligation to repurchase any shares under the program and may suspend or discontinue it at any time.
The following table summarizes activity under the program for the presented periods:
Three Months EndedNine Months Ended
October 30, 2022October 31, 2021October 30, 2022October 31, 2021
(in thousands, except number of shares)SharesAmount PaidSharesAmount PaidSharesAmount PaidSharesAmount Paid
Shares repurchased under the stock repurchase program— $— 387,163 $30,000 762,093 $50,000 1,387,624 $97,000 

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Note 17: 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 October 30, 2022:
Balance as of
October 30, 2022
(in thousands, except number of instruments)Number of InstrumentsSell Notional ValueBuy Notional Value
Sell USD/Buy CAD Forward Contract12$15,877 $21,346 
Sell USD/Buy CHF Forward Contract6$3,704 Fr.3,654 
Sell USD/Buy GBP Forward Contract24$6,150 £5,311 
Total42
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 "Selling, general and administrative 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 that fixed the LIBOR-referenced portion of interest on the first $150.0 million of debt outstanding under the Company's Revolving Facility at 0.7275%. 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 AOCI 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 $0.8 million for the three months ended October 30, 2022, compared to a realized loss of $0.9 million for the three months ended October 31, 2021. The interest rate swap agreement resulted in a realized gain of $0.9 million for the nine months ended October 30, 2022, compared to a realized loss of $0.7 million for the nine months ended October 31, 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)October 30, 2022January 30, 2022
Interest rate swap agreement$1,999 $62 
Foreign currency forward contracts267 — 
Total other current assets$2,266 $62 
Interest rate swap agreement$— $167 
Total other long-term assets$— $167 
Foreign currency forward contracts$406 $— 
Total accrued liabilities$406 $— 
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
31


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 October 30, 2022, the notional value of the total return swap contracts was $4.8 million and the fair value resulted in an asset of $0.2 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 loss recognized in earnings of $0.5 million for the three months ended October 30, 2022, compared to a net gain recognized in earnings of $0.4 million for the three months ended October 31, 2021. The total return swap contracts resulted in a net loss recognized in earnings of $0.9 million for the nine months ended October 30, 2022, compared to a net gain recognized in earnings of $2.0 million for the nine months ended October 31, 2021.
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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 wh