Cost Method Investment and Collaborative Arrangement

3 Months Ended

Mar. 31, 2018

Investments, All Other Investments [Abstract]

Cost Method Investment

Cost Method Investment and Collaborative Arrangement

During fiscal 2015, we purchased a series of preferred stock ownership interests in a privately-held company that designs human-computer interaction technology for total consideration of $5.0 million. This gross investment constituted a 22.7% ownership interest. In the third quarter of fiscal 2016, we made an additional investment of $1.0 million via a convertible debt instrument, bringing our gross investment in the investee to $6.0 million.

In 2017, we signed new development and licensing contracts with the investee, and the investee incurred preferred debt that effectively subordinates our ownership position between their debt and common shareholders. After evaluating these events and our investment position, we concluded that we have a variable interest in the privately-held company. However, we are not the primary beneficiary of the investee, are not holding in-substance common stock, and do not have a significant amount of influence to direct the activities that most significantly impact the investee’s economic performance. Accordingly, we account for our investment in this company under the cost method.

Through March 31, 2018, we have reduced the value of our investment by approximately $3.7 million. The net balance of our investment included in Other long-term assets in the Consolidated Balance Sheets is approximately $2.3 million.

At March 31, 2018, our maximum exposure to loss as a result of involvement with this VIE totals $3.8 million, which is comprised of the $2.3 million carrying value of our investment plus $1.5 million of prepaid royalties further described in the section below on the related collaborative arrangement.

We assessed this investment for impairment as of March 31, 2018 by applying a fair value analysis using a revenue multiple approach and concluded that no impairment adjustment was necessary during the first quarter of fiscal 2018. Approximately $0.3 million of impairment of a cost method investment is included in Other income (expense), net on our Consolidated Statements of Operations for the three months ended April 1, 2017.

Collaborative Arrangement

Concurrent with the initiation of the investment discussed above, we entered into a collaborative arrangement with the investee during fiscal 2015. Under this arrangement, the parties undertook the development of certain fast, multi-touch sensing devices for touch screen controller applications. The new development and licensing agreements we entered into in 2017 specified the transfer of certain Intellectual Property ("IP") from the investee to us, payment of royalties from us to the investee and from investee to us for future sales of co-developed products, as well as an agreement to perform certain services for each other at no charge. We will also make quarterly payments to the investee. These will be automatically credited against any future revenue share amount owed to investee and will be accounted for as prepaid royalties under ASC 340-10-05-05. In the first quarter of fiscal 2018, we made a quarterly payment of $0.9 million. As of March 31, 2018, expected future royalty prepayments are as follows:

Fiscal year	(in thousands)
2018 (remaining 9 months)	$	2,625
2019	$	5,000

At March 31, 2018, royalties prepaid to the investee total $1.5 million. Of this amount, approximately $0.2 million are included in Prepaid expenses and other current assets, and approximately $1.3 million are included in Other long-term assets in our Consolidated Balance Sheets. There is no liability related to the future payments, as the agreement is cancelable.

Collaborative Arrangement

Cost Method Investment and Collaborative Arrangement

During fiscal 2015, we purchased a series of preferred stock ownership interests in a privately-held company that designs human-computer interaction technology for total consideration of $5.0 million. This gross investment constituted a 22.7% ownership interest. In the third quarter of fiscal 2016, we made an additional investment of $1.0 million via a convertible debt instrument, bringing our gross investment in the investee to $6.0 million.

In 2017, we signed new development and licensing contracts with the investee, and the investee incurred preferred debt that effectively subordinates our ownership position between their debt and common shareholders. After evaluating these events and our investment position, we concluded that we have a variable interest in the privately-held company. However, we are not the primary beneficiary of the investee, are not holding in-substance common stock, and do not have a significant amount of influence to direct the activities that most significantly impact the investee’s economic performance. Accordingly, we account for our investment in this company under the cost method.

Through March 31, 2018, we have reduced the value of our investment by approximately $3.7 million. The net balance of our investment included in Other long-term assets in the Consolidated Balance Sheets is approximately $2.3 million.

At March 31, 2018, our maximum exposure to loss as a result of involvement with this VIE totals $3.8 million, which is comprised of the $2.3 million carrying value of our investment plus $1.5 million of prepaid royalties further described in the section below on the related collaborative arrangement.

We assessed this investment for impairment as of March 31, 2018 by applying a fair value analysis using a revenue multiple approach and concluded that no impairment adjustment was necessary during the first quarter of fiscal 2018. Approximately $0.3 million of impairment of a cost method investment is included in Other income (expense), net on our Consolidated Statements of Operations for the three months ended April 1, 2017.

Collaborative Arrangement

Concurrent with the initiation of the investment discussed above, we entered into a collaborative arrangement with the investee during fiscal 2015. Under this arrangement, the parties undertook the development of certain fast, multi-touch sensing devices for touch screen controller applications. The new development and licensing agreements we entered into in 2017 specified the transfer of certain Intellectual Property ("IP") from the investee to us, payment of royalties from us to the investee and from investee to us for future sales of co-developed products, as well as an agreement to perform certain services for each other at no charge. We will also make quarterly payments to the investee. These will be automatically credited against any future revenue share amount owed to investee and will be accounted for as prepaid royalties under ASC 340-10-05-05. In the first quarter of fiscal 2018, we made a quarterly payment of $0.9 million. As of March 31, 2018, expected future royalty prepayments are as follows:

Fiscal year	(in thousands)
2018 (remaining 9 months)	$	2,625
2019	$	5,000

At March 31, 2018, royalties prepaid to the investee total $1.5 million. Of this amount, approximately $0.2 million are included in Prepaid expenses and other current assets, and approximately $1.3 million are included in Other long-term assets in our Consolidated Balance Sheets. There is no liability related to the future payments, as the agreement is cancelable.