Note 6. Investments in and Notes Receivable from Privately Held Companies

3 Months Ended

Apr. 28, 2012

Investment Holdings [Text Block]

6.             Investments in and Notes receivable from privately held companies

Issuer A

During fiscal 2009, we purchased shares of preferred stock in a privately held venture capital funded technology company (“Issuer A”) at a total investment cost of $2.0 million.  In the third quarter of fiscal 2010, we purchased a convertible note from Issuer A with a face value equal to the cost of $3.0 million, which is convertible into the issuer’s preferred stock under certain circumstances, bears interest at a rate of 9% per annum and became callable after November 30, 2009.  

Three of our four directors held equity interests in Issuer A in which we had invested an aggregate of $5.0 million and one of these directors was also a director of Issuer A.  In the aggregate, these equity and debt interests did not rise to the level of a material or a controlling interest in Issuer A.  Our board of directors appointed our director who had no interest in Issuer A to evaluate each investment in Issuer A and to recommend appropriate action to the board of directors.  All investment transactions with Issuer A were approved and recommended by this independent director and made as the result of an arms-length negotiation process between Issuer A and us, with our negotiations led by our non-interested director.  We viewed this investment as a strategic investment in a technology platform into which we could potentially sell our chipset solutions.  In connection with this investment, we entered into a commercial agreement with Issuer A as well.

During the second quarter of fiscal 2011, Issuer A determined that additional funding would be required to continue operations.  Issuer A held discussions with various parties, and a third party made a preliminary offer to purchase substantially all of its assets at a price that would not allow us to collect any amount on our investments in Issuer A.  Based on the available information, we determined that the value of our investment in Issuer A had suffered an other-than-temporary decline in value.  Accordingly, at July 31, 2010, we recorded an impairment charge of $5.2 million to fully write down the carrying value of the preferred stock equity investment and fully reserve the convertible note receivable, including accrued interest, due to our expected inability to collect any amounts in connection with these investments.  Subsequently, this issuer was liquidated in bankruptcy and we received no amounts.  Accordingly, as of April 28, 2012 and January 28, 2012, the convertible note in Issuer A was valued at zero.

Issuer B, C, D, E, F and G

During fiscal 2009, we purchased shares of preferred stock in a privately held venture capital funded technology company (“Issuer B”) at a total investment cost of $1.0 million.  In the fourth quarter of fiscal 2010, we purchased additional shares of preferred stock in Issuer B at a cost of $1.0 million. 

In the third quarter of fiscal 2011, we purchased shares of preferred stock in another privately held technology company (“Issuer C”) at a total investment cost of $1.0 million. 

 In the fourth quarter of fiscal 2011, we purchased shares of preferred stock in another privately held technology company (“Issuer D”) at a total investment cost of $1.0 million.  

In the fourth quarter of fiscal 2011, we also purchased a convertible note from another privately held technology company (“Issuer E”) with a face value equal to the cost of $0.3 million.  This amount of $0.3 million will convert to a quantity of equity upon any closing of financing prior to December 31, 2012.  

In the second quarter of fiscal 2012, we purchased shares of preferred stock in another privately held technology company (“Issuer F”) at a total investment cost of $2.0 million.

In the third quarter of fiscal 2012, we made an equity investment of $0.2 million in a privately held joint venture (“Issuer G”).

As of April 28, 2012 and January 28, 2012, our equity investments in privately held companies were valued at $6.4 million, representing their cost, net of reserve for impairment.

Notes receivable from privately held companies

In November 2010, we loaned $1.0 million to Issuer B and received a secured promissory note.  This promissory note is secured by the assets of Issuer B, bearing interest at a rate of 5% per annum, and is scheduled to be fully repaid by June 2013.  In January 2012, we loaned $2.5 million to a privately held venture capital funded technology company (“Issuer H”), pursuant to a strategic agreement dated January 25, 2012.  We made this loan in exchange for a secured promissory note, bearing interest at a rate of 3% per annum.  The note plus the accrued interest is due 36 months from the agreement date.  The note is secured by the assets of Issuer H.  Additionally, pursuant to this agreement we have the right, subject to certain conditions, for one year from the agreement date, to acquire all the outstanding securities of Issuer H for $11.2 million.  As of April 28, 2012, these conditions had not been met and we had not determined whether we intend to exercise this right.  This right will expire in January 2013.  We have a variable interest in Issuer H and it is a variable interest entity, however, we have concluded that we are not the primary beneficiary of Issuer H because we do not have the power to direct the activities that most significantly impact Issuer H’s financial performance.  As of April 28, 2012, our maximum exposure to loss as a result of our involvement with Issuer H was limited to our $2.5 million note receivable.  None of our directors held any interest in these issuers from whom we purchased notes.

As of April 28, 2012 and January 28, 2012, our notes receivable from privately held companies were valued at $3.5 million, representing their cost.  We made each of the above-described investments because we viewed the issuer as either having strategic technology or a business that would complement our technological capabilities or help create an opportunity for us to sell our chipset solutions.  In each case, we entered into a commercial or strategic agreement in connection with our investment.  None of our directors held any interest in each of the issuers described above.

The following table sets forth the value of investments in and notes receivable from privately held companies as of April 28, 2012 and January 28, 2012:

Equity investments	April 28, 2012		January 28, 2012
Issuer A	$	--	$	--
Issuer B		2,000		2,000
Issuer C		1,000		1,000
Issuer D		1,000		1,000
Issuer E		300		300
Issuer F		2,000		2,000
Issuer G		144		143
Total equity investments	$	6,444	$	6,443

Notes receivable	April 28, 2012		January 28, 2012
Issuer B	$	1,000	$	1,000
Issuer H		2,500		2,500
Total notes receivable	$	3,500	$	3,500
Total Investments and Notes	$	9,944	$	9,943