Commitments and Contingencies

12 Months Ended

Jan. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

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 31, 2021:


(in thousands)	Less than 1 year		1-3 years		Total
Open capital purchase commitments	$	1,560	$	—	$	1,560
Other open purchase commitments	78,668		5,038		83,706

Total purchase commitments	$	80,228	$	5,038	$	85,266

Legal 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 such disclosure is necessary for its consolidated financial statements not to be misleading. 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 IP, 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.

Settlements

On August 1, 2018, the Company announced the settlement of a lawsuit filed against HiLight Semiconductor Limited and related individual defendants in accordance with which the Company was paid $9.0 million to cover damages for claims, costs and attorneys' fees. The Company recorded gains of $1.0 million and $8.0 million during fiscal years 2020 and 2019, respectively, for recoveries related to this settlement. All recoveries were presented in "Selling, general and administrative" ("SG&A") expense in the Statements of Income in the respective periods in which the cash was received.

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 $7.4 million and $8.0 million. To date, the Company has made $5.3 million in payments towards the remedial action plan and, as of January 31, 2021, has a remaining accrual of $2.1 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 contain comparable 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.

Retirement Plans

The Company contributed $1.2 million, $1.2 million and $1.0 million in fiscal years 2021, 2020 and 2019, respectively, to the 401(k) retirement plan maintained for its employees based in the U.S.

In addition, the Company also contributed $0.7 million, $0.8 million and $0.6 million in fiscal years 2021, 2020 and 2019, respectively, to a defined contribution plan for its employees 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 31, 2021 and January 26, 2020, the Swiss Plans had an unfunded net pension obligation of approximately $13.9 million and $13.4 million, respectively, plan assets of approximately $36.3 million and $32.8 million, respectively, and projected benefit obligation of approximately $50.2 million and $46.2 million, respectively. For fiscal years 2021 and 2020, net periodic pension expense was $2.4 million and $2.4 million, respectively, and contributions made by the Company were $1.6 million and $1.6 million, respectively. The entire pension liability has been classified as non-current because the current portion of the liability is not material.

The Company records a post-retirement benefit for the employees of its French subsidiary (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 31, 2021, the French Plan had an unfunded net pension obligation of approximately $0.4 million, plan assets of zero and a projected benefit obligation of approximately $0.4 million. As of January 26, 2020, the French Plan had an unfunded net pension obligation of approximately $0.4 million, plan assets of zero and a projected benefit obligation of approximately $0.4 million. For fiscal year 2021, net periodic pension expense was $0.1 million and contributions made by the Company were $0.6 million. For fiscal year 2020, net periodic pension expense and contributions made by the Company were not material. The entire pension liability has been classified as non-current because the current portion of the liability is not material.

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 vesting period.

Under this plan, the Company incurred expense, net of forfeitures, of $7.0 million, $6.8 million and $1.3 million in fiscal years 2021, 2020 and 2019, respectively. The fiscal year 2021 expense includes a $0.3 million net gain resulting from total return swap contracts used to hedge the market risk associated with the unfunded portion of the deferred compensation liability. See Note 19 for further discussion of the Company's derivative instruments.

The Company’s liability for the deferred compensation plan is presented below:


(in thousands)	January 31, 2021		January 26, 2020
Accrued liabilities	$	1,709	$	1,365
Other long-term liabilities	39,299		35,243
Total deferred compensation liabilities under this plan	$	41,008	$	36,608

The Company has purchased whole life insurance on the lives of certain current deferred compensation plan participants. This Company-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 Company-owned life insurance was $27.6 million and $24.3 million as of January 31, 2021 and January 26, 2020, respectively, and is included in "Other assets" in the Balance Sheets. Changes in the cash surrender value of the Company-owned life insurance resulted in a net gain of $3.3 million, a net gain of $3.8 million and a net loss of $1.8 million in fiscal years 2021, 2020 and 2019, respectively.

Earn-out Liability

Pursuant to the terms of an amended earn-out arrangement ("Cycleo Earn-out") with the former shareholders of Cycleo SAS ("Cycleo Earn-out Beneficiaries"), which the Company acquired in March 2012, the Company must make payments based on the achievement of a combination of certain sales and operating income milestones over the period of April 27, 2015 to April 26, 2020. For certain of the Cycleo Earn-out Beneficiaries, payment of the earn-out liability is contingent upon continued employment and is accounted for as post-acquisition compensation expense over the service period. The portion of the earn-out liability that is not dependent on continued employment is not considered as compensation expense. As of January 31, 2021, the Cycleo Earn-out liability balance was $2.0 million, including $1.7 million of compensation expense and $0.3 million not contingent upon continued employment. As of January 26, 2020, the Cycleo Earn-out liability balance was $2.1 million, including $1.8 million of compensation expense and $0.3 million not contingent upon continued employment. No payments have been made during fiscal year 2021 for the remaining earn-out milestone. Any remaining payment for the earn-out is not expected to be material.