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

12 Months Ended

Feb. 02, 2013

Investment Holdings [Text Block]

6.            Investments in and notes receivable from privately held companies  

The following table sets forth the value of investments in and notes receivable from privately-held companies (in thousands):

	February 2, 2013		January 28, 2012
Equity investments
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		143		143
Total equity investments		6,443		6,443
Notes receivable
Issuer B		750		1,000
Issuer H		2,500		2,500
Total notes receivable		3,250		3,500
Total equity investments and notes receivable	$	9,693	$	9,943

Equity investments

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.  During our 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 related accrued interest.

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.   

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 $0.1 million in a privately-held joint venture (“Issuer G”).

As of February 2, 2013 and January 28, 2012, our equity investments in privately-held companies were valued at $6.4 million, representing their cost.

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, bears 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 had the right, subject to certain performance conditions by Issuer H for one year from the agreement date, to acquire all the outstanding securities of Issuer H for $11.2 million cash, plus the forgiveness of the $2.5 million loan.   As of February 2, 2013, these performance conditions were not met by Issuer H and the purchase rights expired.

As of February 2, 2013 and January 28, 2012, our notes receivable from privately-held companies were valued at $3.3 million and $3.5 million, respectively, 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.  The Company analyzes each investment quarterly for evidence of impairment.

The Company’s President and Chief Executive Officer is a member of the Board of Directors of five of the seven companies we have invested in.  One of our current Board of Directors and one of our former Board of Directors held equity and debt interests in Issuer A in which we had invested an aggregate of $5.0 million and the current Director was a member of the Board of Directors 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 a Director who had no interest in Issuer A to evaluate each investment in Issuer A and to recommend appropriate action to the Company’s Board of Directors.  We viewed this investment as a strategic investment in a technology platform into which we could potentially sell our chipset solutions.

Each of the aforementioned investment transactions are negotiated without the personal involvement of our Board members or, where applicable, the executive officer concerned, and we believe that they are made on an arm’s length basis in line with market practices and conditions.