Cost Method Investment and Collaborative Arrangement

9 Months Ended

Sep. 29, 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.

We assessed this investment for impairment as of September 29, 2018 by applying a fair value analysis using a revenue multiple approach and concluded that a $0.3 million impairment adjustment was necessary during the third quarter of fiscal 2018, which is the only impairment adjustment in the first nine months of fiscal 2018. For the third quarter and first nine months of fiscal 2017, we recorded impairment adjustments of approximately $0.2 million and $0.7 million, respectively. These impairment adjustments of a cost method investment are included in Other expense, net on our Consolidated Statements of Operations.

Through September 29, 2018, we have reduced the value of our investment by approximately $4.0 million. The net balance of our investment included in Other long-term assets in the Consolidated Balance Sheets is approximately $2.0 million.

At September 29, 2018, our maximum exposure to loss as a result of involvement with this VIE totals $5.3 million, which is comprised of the $2.0 million carrying value of our investment plus $3.3 million of prepaid royalties further described in the section below on the related collaborative arrangement.

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. This arrangement was modified in 2017, and we entered into new service and licensing agreements that provided for: (i) the assignment of certain Intellectual Property ("IP") from the investee to us, (ii) a license of certain IP from the investee to us, (iii) payment of royalties between the parties for future sales of co-developed products, (iv) the performance of certain services for each other at no additional charge. We have agreed to make quarterly minimum payments to the investee, which will be automatically credited against any future revenue share amount owed to investee under the agreements and will be accounted for as prepaid royalties under ASC 340. In each of the first three quarters of fiscal 2018, we made quarterly payments of $0.9 million. As of September 29, 2018, expected future royalty prepayments are as follows:

Fiscal year	(in thousands)
2018 (remaining 3 months)	$	875
2019	$	5,000

At September, 2018, royalties prepaid to the investee total $3.3 million, which is included in Other long-term assets in our Consolidated Balance Sheets. We have not recorded a 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.

We assessed this investment for impairment as of September 29, 2018 by applying a fair value analysis using a revenue multiple approach and concluded that a $0.3 million impairment adjustment was necessary during the third quarter of fiscal 2018, which is the only impairment adjustment in the first nine months of fiscal 2018. For the third quarter and first nine months of fiscal 2017, we recorded impairment adjustments of approximately $0.2 million and $0.7 million, respectively. These impairment adjustments of a cost method investment are included in Other expense, net on our Consolidated Statements of Operations.

Through September 29, 2018, we have reduced the value of our investment by approximately $4.0 million. The net balance of our investment included in Other long-term assets in the Consolidated Balance Sheets is approximately $2.0 million.

At September 29, 2018, our maximum exposure to loss as a result of involvement with this VIE totals $5.3 million, which is comprised of the $2.0 million carrying value of our investment plus $3.3 million of prepaid royalties further described in the section below on the related collaborative arrangement.

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. This arrangement was modified in 2017, and we entered into new service and licensing agreements that provided for: (i) the assignment of certain Intellectual Property ("IP") from the investee to us, (ii) a license of certain IP from the investee to us, (iii) payment of royalties between the parties for future sales of co-developed products, (iv) the performance of certain services for each other at no additional charge. We have agreed to make quarterly minimum payments to the investee, which will be automatically credited against any future revenue share amount owed to investee under the agreements and will be accounted for as prepaid royalties under ASC 340. In each of the first three quarters of fiscal 2018, we made quarterly payments of $0.9 million. As of September 29, 2018, expected future royalty prepayments are as follows:

Fiscal year	(in thousands)
2018 (remaining 3 months)	$	875
2019	$	5,000

At September, 2018, royalties prepaid to the investee total $3.3 million, which is included in Other long-term assets in our Consolidated Balance Sheets. We have not recorded a liability related to the future payments, as the agreement is cancelable.