APPLIED MICRO CIRCUITS CORP | 2013 | FY | 3

Investments

The Company classifies its short-term investments as “available-for-sale” and records such assets at the estimated fair value with unrealized gains and losses excluded from net loss and reported, net of tax, in comprehensive loss. The portion of such unrealized losses that are deemed to be other-than-temporary in nature are charged to the statements of operations. The basis for computing realized gains or losses is by specific identification. In addition, the Company had approximately $1.0 million and $0.9 million in restricted cash related to its voluntary disability insurance as of March 31, 2013 and 2012 and is included in cash and cash equivalents on the consolidated balance sheet.
The following is a summary of available-for-sale securities (in thousands):
 
 
March 31, 2013
 
March 31, 2012
 
Amortized
Cost
 
Gross Unrealized
 
Estimated
Fair Value
 
Amortized
Cost
 
Gross Unrealized
 
Estimated
Fair Value
 
Gains
 
Losses
 
Gains
 
Losses
 
Cash
$
8,529

 
$
—

 
$
—

 
$
8,529

 
$
15,057

 
$
—

 
$
—

 
$
15,057

Cash equivalents
10,536

 
—

 
—

 
10,536

 
13,008

 
—

 
—

 
13,008

U.S. Treasury securities and agency bonds
12,363

 
10

 
—

 
12,373

 
16,771

 
11

 
19

 
16,763

Corporate bonds
15,567

 
63

 
2

 
15,628

 
23,361

 
56

 
10

 
23,407

Mortgage-backed and asset-backed securities*
3,655

 
355

 
7

 
4,003

 
7,308

 
364

 
61

 
7,611

Closed-end bond funds
21,914

 
5,340

 
39

 
27,215

 
26,401

 
5,161

 
1,649

 
29,913

Preferred stock
4,878

 
2,314

 
—

 
7,192

 
6,209

 
1,878

 
—

 
8,087

 
$
77,442

 
$
8,082

 
$
48

 
$
85,476

 
$
108,115

 
$
7,470

 
$
1,739

 
$
113,846

Reported as:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
$
19,065

 
 
 
 
 
 
 
$
28,065

Short-term investments available-for-sale
 
 
 
 
 
 
66,411

 
 
 
 
 
 
 
85,781

 
 
 
 
 
 
 
$
85,476

 
 
 
 
 
 
 
$
113,846

 ____________________
*
At March 31, 2013 and 2012, approximately $1.4 million and $4.6 million of the estimated fair value presented were mortgage-backed securities, respectively.
 
The established guidelines for measuring fair value and expanded disclosures regarding fair value measurements are defined as a three-level valuation hierarchy for disclosure of fair value measurements as follows:
Level 1 —
  
Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
 
 
 
Level 2 —
  
Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
 
 
 
Level 3 —
  
Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Valuation of instruments includes unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities.
The following is a summary of cash, cash equivalents and available-for-sale investments by type of instruments measured at fair value on a recurring basis (in thousands):
 
March 31, 2013
 
March 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash
$
8,529

 


 
$
—

 
$
8,529

 
$
15,057

 
$
—

 
$
—

 
$
15,057

Cash equivalents
9,508

 
1,028

 
—

 
10,536

 
10,510

 
2,498

 
—

 
13,008

U.S. Treasury securities and agency bonds
12,373

 


 
—

 
12,373

 
16,763

 
—

 
—

 
16,763

Corporate bonds


 
15,628

 
—

 
15,628

 
—

 
23,407

 
—

 
23,407

Mortgage-backed and asset-backed securities


 
4,003

 
—

 
4,003

 
—

 
7,611

 
—

 
7,611

Closed-end bond funds
27,215

 


 
—

 
27,215

 
29,913

 
—

 
—

 
29,913

Preferred stock


 
7,192

 
—

 
7,192

 
—

 
8,087

 
—

 
8,087

 
$
57,625

 
$
27,851

 
$
—

 
$
85,476

 
$
72,243

 
$
41,603

 
$
—

 
$
113,846


There were no significant transfers in and out of Level 1 and Level 2 fair value measurements during the fiscal year ended March 31, 2013.
The Company periodically reviews its strategic investments for other-than-temporary declines in fair value based on the specific identification method and writes down investments when an other-than-temporary decline has occurred. During the fiscal year ended March 31, 2013 and 2012, the Company recognized an impairment charge of its non-marketable strategic investment of $2.3 million and $1.0 million, in other income (expense), net. The fair value was estimated on a non-recurring basis based on Level 3 inputs. The Level 3 inputs used to estimate the fair value of these investments included consideration of the current cash position, recent operational performance, and forecasts of the investees. During the fiscal years ended March 31, 2013 and 2012, the Company invested $0.5 million and $4.8 million, respectively, in non-marketable strategic investments and these amounts were carried at cost. Refer to Other Assets in Note 3 to Notes to Consolidated Financial Statements for the total value of the Company's strategic investments carried at cost as of March 31, 2013.

At March 31, 2013, the cost and estimated fair values of available-for-sale securities with stated maturities are U.S. Treasury securities and agency bonds, corporate bonds and mortgage-backed and asset-backed securities by contractual maturity are as follows (in thousands): 
 
Cost
 
Fair Value
Less than 1 year
$
9,205

 
$
9,217

Mature in 1 – 2 years
19,843

 
20,040

Mature in 3 – 5 years
1,575

 
1,649

Mature after 5 years
962

 
1,098

 
$
31,585

 
$
32,004



The following is a summary of gross unrealized losses (in thousands): 
 
Less Than 12 Months of
Unrealized Losses
 
12 Months or More of
Unrealized Losses
 
Total
As of March 31, 2013
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
U.S. Treasury securities and agency bonds
$
300

 
$
—

 
$
—

 
$
—

 
$
300

 
$
—

Corporate bonds
2,276

 
(2
)
 
113

 
—

 
2,389

 
(2
)
Mortgage-backed and asset-backed securities
647

 
(3
)
 
—

 
(4
)
 
647

 
(7
)
Closed-end bond funds
—

 
—

 
6,991

 
(39
)
 
6,991

 
(39
)
 
$
3,223

 
$
(5
)
 
$
7,104

 
$
(43
)
 
$
10,327

 
$
(48
)
 
 
Less Than 12 Months of
Unrealized Losses
 
12 Months or More of
Unrealized Losses
 
Total
March 31, 2012
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
U.S. Treasury securities and agency bonds
$
8,938

 
$
(19
)
 
$
—

 
$
—

 
$
8,938

 
$
(19
)
Corporate bonds
5,463

 
(10
)
 
—

 
—

 
5,463

 
(10
)
Mortgage-backed and asset-backed securities
894

 
(20
)
 
353

 
(42
)
 
1,247

 
(62
)
Closed-end bond funds
—

 
—

 
6,628

 
(1,648
)
 
6,628

 
(1,648
)
 
$
15,295

 
$
(49
)
 
$
6,981

 
$
(1,690
)
 
$
22,276

 
$
(1,739
)

Other-Than-Temporary Impairment
Based on an evaluation of securities that have been in a loss position, the Company recorded an other-than-temporary impairment of its short term investments and marketable securities of $1.1 million. During the fiscal years ended March 31, 2012 and 2011, the Company did not record any other-than-temporary impairment of its short term investments and marketable securities. The Company considered various factors which included its intent and ability to hold the underlying securities until its estimated recovery of amortized cost. As of March 31, 2013 and 2012, the Company also had $8.1 million and $7.5 million in gross unrealized gains, respectively. The basis for computing realized gains or losses is by specific identification.

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