SEMTECH CORPSMTC
SEMTECH CORP Commitments Disclosure
Commitments and Contingencies
Unconditional Purchase Commitments
The following table presents the Company’s open capital commitments and other open purchase commitments for the purchase of plant, equipment, raw material, supplies and services as of January 25, 2026:
| (in thousands) | Less than 1 year | 1-3 years | Total | ||||||||||||||
| Open capital purchase commitments | $ | 5,812 | $ | 250 | $ | 6,062 | |||||||||||
| Other open purchase commitments | 360,821 | 47,255 | 408,076 | ||||||||||||||
| Total purchase commitments | $ | 366,633 | $ | 47,505 | $ | 414,138 | |||||||||||
Legal Matters
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 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 and if the amount can be reasonably estimated. 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. However, for liabilities that are reasonably possible but not probable, the Company discloses the amount of reasonably possible loss or range of reasonably possible loss, if material and if the amount can be reasonably estimated. 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 for such proceedings cannot be reasonably made, an adverse outcome from such proceedings could have a material adverse effect on the Company's financial condition and results of operations in any given reporting period. 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 financial condition, results of operations or cash flows. 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.
On March 25, 2022, Harman Becker Automotive Systems GmbH and several of its affiliates (collectively "Harman") filed a complaint against certain Sierra Entities in the District Court of Munich, Germany. Harman asserted claims that the Sierra Entities, in connection with the delivery of certain modules by the Sierra Entities, violated a frame supply agreement, a quality assurance agreement and the United Nations Convention on Contracts for the International Sales of Goods. Harman alleged that it incurred approximately $16 million in damages and costs, the bulk of which amount related to settling with a customer that had to implement a firmware update provided by Sierra Entities' supplier in late 2018, before Sierra Wireless disposed of the automotive business, to address the alleged product defect. At this stage, the Company is unable to form a conclusion as to the likelihood of an unfavorable outcome or an estimate of the amount or range of any possible loss resulting from the alleged claims. The Company intends to defend the claims vigorously.
On February 20, 2025, February 25, 2025 and March 7, 2025, three Company stockholders filed separate, but substantively identical, putative class action complaints against the Company and certain of its current officers, Hong Q. Hou and Mark Lin, in the U.S. District Court for the Central District of California on behalf of persons and entities that purchased or otherwise acquired Company securities between August 27, 2024 and February 7, 2025. On June 9, 2025, the court entered an order consolidating the three actions (the "Securities Action"), appointing Luis Collazos as Lead Plaintiff, and Block & Leviton, LLP as Lead Counsel. On July 14, 2025, Lead Plaintiff filed a consolidated putative class action complaint (the "Consolidated
Complaint") against the Company, Hou and Lin, on behalf of persons and entities that purchased or otherwise acquired Company securities between October 10, 2024 and February 7, 2025. The Consolidated Complaint asserts Exchange Act violations related to the Company’s disclosure surrounding its CopperEdgeTM products. Lead Plaintiff seeks compensatory damages and other relief. The Company, Hou and Lin filed a motion to dismiss the Consolidated Complaint on August 11, 2025, which the Court granted in part, and denied in part on October 8, 2025. By virtue of the ruling, Lin is no longer a defendant. On February 6, 2026, the Leading Plaintiff filed a motion for class certification for the period November 25, 2024 to February 7, 2025. At this stage, the Company is unable to form a conclusion as to the likelihood of an unfavorable outcome or an estimate of the amount or range of any possible loss resulting from the alleged claims.
On May 9, 2025 and August 12, 2025, other Company stockholders filed separate derivative actions in the U.S. District Court for the Central District of California against certain of the Company's directors and officers. On June 6, 2025 and November 24, 2025, other Company stockholders filed separate derivative actions in the Superior Court of the State of California for the County of Ventura against certain of the Company's directors and officers, (together with the complaints filed in federal court, the "Derivative Actions"). The Derivative Actions assert breach of fiduciary duty and other claims based on factual allegations similar to those raised in the Securities Action. The plaintiffs in the Derivative Actions seek damages payable to the Company and declaratory, injunctive and other relief.
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 total range of probable loss to be between $9.1 million and $9.4 million. To date, the Company has made $8.0 million in payments towards the remedial action plan. The estimated range of probable loss remaining as of January 25, 2026 was between $1.1 million and $1.4 million. 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 and as of January 25, 2026, has a remaining accrual of $1.1 million related to this matter. 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.
The Company is a party to a variety of agreements in the ordinary course of business under which the Company may be obligated to indemnify a third party with respect to certain matters. The impact on the Company's future financial results is not subject to reasonable estimation because considerable uncertainty exists as to the final outcome of any claims and whether claims will be made.
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.
Licenses
Under certain license agreements, the Company is committed to make royalty payments based on the sales of products using certain technologies. The Company recognizes royalty obligations as determinable in accordance with agreement terms.
Retirement Plans
The Company contributed $1.5 million, $0.8 million and $1.9 million in fiscal years 2026, 2025 and 2024, respectively, to a defined contribution retirement plan maintained for its employees based in the U.S. and contributed $1.5 million, $1.3 million
and $1.7 million in fiscal years 2026, 2025 and 2024, respectively, to a defined contribution plan for its employees based in Canada.
The Company has defined benefit pension plans for the employees of its Swiss subsidiaries (the "Swiss Plans"), which it accounts for in accordance with ASC 715-30, "Defined Benefit Plans – Pension." The Swiss Plans provide government-mandated retirement, death and disability benefits. Under the Swiss Plans, the Company and its employees make government-mandated minimum contributions. Minimum contributions are based on the respective employee’s age, salary and gender. As of January 25, 2026 and January 26, 2025, the Swiss Plans had an unfunded net pension obligation of approximately $2.4 million and $5.4 million, respectively, plan assets of approximately $52.3 million and $48.1 million, respectively, and projected benefit obligation of approximately $53.5 million and $52.4 million, respectively. For fiscal years 2026, 2025 and 2024, net periodic pension expense was $0.9 million, $1.1 million and $1.6 million, respectively, and contributions made by the Company were $1.9 million, $1.7 million and $1.8 million, respectively.
The Company records a post-retirement benefit for the employees of its French subsidiaries (the "French Plan"), which it accounts for in accordance with ASC 715-30. The French Plan is defined by the collective bargaining agreement of R&D, IT and consulting firms. Minimum contributions are based on the respective years of service for all permanent employees. As of January 25, 2026, the French Plan had an unfunded net pension obligation of approximately $1.8 million, plan assets of zero and a projected benefit obligation of approximately $1.8 million. As of January 26, 2025, the French Plan had an unfunded net pension obligation of approximately $1.5 million, plan assets of zero and a projected benefit obligation of approximately $1.5 million. For fiscal year 2026, net periodic pension credit was $0.1 million and contributions made by the Company was $1.2 million. For fiscal years 2025 and 2024, net periodic pension expense was $0.2 million and $0.1 million, respectively, and contributions made by the Company were $1.6 million and $0.5 million, respectively.
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.
Under this plan, the Company incurred, net of forfeitures, expense of $9.2 million, expense of $8.4 million and expense of $7.4 million in fiscal years 2026, 2025 and 2024, respectively. For fiscal year 2024, these amounts included a loss of $0.1 million, resulting from total return swap contracts used to hedge the market risk associated with the unfunded portion of the deferred compensation liability, which matured during fiscal year 2024. See Note 18, Derivatives and Hedging Activities, for further discussion of the Company's derivative instruments.
The Company’s liability for the deferred compensation plan is presented below:
| (in thousands) | January 25, 2026 | January 26, 2025 | |||||||||
| Accrued liabilities | $ | 3,529 | $ | 2,930 | |||||||
| Other long-term liabilities | 42,535 | 36,381 | |||||||||
| Total deferred compensation liabilities under this plan | $ | 46,064 | $ | 39,311 | |||||||
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. Changes in the cash surrender value of the corporate-owned life insurance resulted in a net gain of $7.7 million, gain of $5.3 million and gain of $4.9 million in fiscal years 2026, 2025 and 2024, respectively. The $11.2 million increase in the cash surrender value of the corporate-owned life insurance as of January 25, 2026 compared to January 26, 2025 was primarily related to an overall $7.8 million increase in market value reflected in earnings and $3.4 million premium deposited to the corporate-owned life insurance.
The cash surrender value of the Company's corporate owned life insurance is reported in "Other assets" on the Balance Sheets and was $46.2 million and $34.9 million as of January 25, 2026 and January 26, 2025, respectively.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Mar 23, 2026 | Showing above |
| 2025 | Mar 25, 2025 | |
| 2024 | Mar 28, 2024 | |
| 2023 | Mar 30, 2023 | |
| 2022 | Mar 16, 2022 | |
| 2021 | Mar 24, 2021 | |
| 2020 | Mar 20, 2020 | |
| 2019 | Mar 21, 2019 | |
| 2018 | Mar 22, 2018 | |
| 2017 | Mar 23, 2017 | |
| 2016 | Mar 31, 2016 | |
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.