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Investments and Fair Value Measurements | 6 Months Ended
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Jun. 30, 2016
Investments and Fair Value Measurements |
Investments and Fair Value Measurements | Note 2. Investments and Fair Value Measurements Our cash and cash equivalents consist of cash and instruments with original maturities of less than 90 days. Our investments consist of instruments with original maturities of more than 90 days. As of June 30, 2016 and December 31, 2015, our cash, cash equivalents and investments are classified as follows (in thousands):
|  | June 30, 2016 |  | December 31, 2015 |
|  |  |  |  | Gross |  | Gross |  |  |  |  |  |  |  | Gross |  | Gross |  |  |  |
|  | Amortized |  | Unrealized |  | Unrealized |  | Fair |  | Amortized |  | Unrealized |  | Unrealized |  | Fair |
|  | Cost |  | Gain |  | (Loss) |  | Value |  | Cost |  | Gain |  | (Loss) |  | Value |
Classified as: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash |  | $ | 13,364 |  | $ | — |  | $ | — |  | $ | 13,364 |  | $ | 10,289 |  | $ | — |  | $ | — |  | $ | 10,289 |
Cash equivalents: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit 1 |  |  | 12,751 |  |  | — |  |  | — |  |  | 12,751 |  |  | 14,586 |  |  | — |  |  | — |  |  | 14,586 |
Total cash and cash equivalents |  |  | 26,115 |  |  | — |  |  | — |  |  | 26,115 |  |  | 24,875 |  |  | — |  |  | — |  |  | 24,875 |
Investments (available for sale): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit 2 |  |  | 9,957 |  |  | 3 |  |  | (6) |  |  | 9,954 |  |  | 9,795 |  |  | 1 |  |  | (13) |  |  | 9,783 |
Corporate bonds |  |  | 8,597 |  |  | 9 |  |  | (13) |  |  | 8,593 |  |  | 8,776 |  |  | — |  |  | (63) |  |  | 8,713 |
Corporate equity securities |  |  | 77 |  |  | 223 |  |  | — |  |  | 300 |  |  | 200 |  |  | 432 |  |  | — |  |  | 632 |
Total investments |  |  | 18,631 |  |  | 235 |  |  | (19) |  |  | 18,847 |  |  | 18,771 |  |  | 433 |  |  | (76) |  |  | 19,128 |
Total cash, cash equivalents and investments |  | $ | 44,746 |  | $ | 235 |  | $ | (19) |  | $ | 44,962 |  | $ | 43,646 |  | $ | 433 |  | $ | (76) |  | $ | 44,003 |
Contractual maturities on investments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Due within 1 year |  | $ | 10,249 |  |  |  |  |  |  |  | $ | 10,460 |  | $ | 11,022 |  |  |  |  |  |  |  | $ | 11,437 |
Due after 1 through 5 years |  |  | 8,382 |  |  |  |  |  |  |  |  | 8,387 |  |  | 7,749 |  |  |  |  |  |  |  |  | 7,691 |
|  | $ | 18,631 |  |  |  |  |  |  |  | $ | 18,847 |  | $ | 18,771 |  |  |  |  |  |  |  | $ | 19,128 |
| 1. |  | Certificate of deposit with original maturities of less than 90 days.
| 2. |  | Certificate of deposit with original maturities of more than 90 days.
We manage our investments as a single portfolio of highly marketable securities that is intended to be available to meet our current cash requirements. We have no investments in auction rate securities. Certificates of deposit and corporate bonds are typically held until maturity. Corporate equity securities have no maturity and may be sold at any time. Our holding of corporate equity securities consists of common stock of GCS Holdings, Inc. (“GHI”) (previously Global Communication Semiconductors, Inc.), a Taiwan publicly-traded company. Previously, we also owned the common stock of Intelligent Epitaxy Technology, Inc. (“IntelliEpi”).We began classifying IntelliEpi stock as an available-for-sale security upon its initial public offering in 2013. We sold our remaining IntelliEpi stock in the second quarter of 2015. During the three months ended June 30, 2015, our cash proceeds from sales of available-for-sale investments was $515,000. Our cost was $23,000 and our gross realized gain from sales of available-for-sale investments was $492,000. During the six months ended June 30, 2015, our cash proceeds from sales of available-for-sale investments was $902,000. Our cost was $43,000 and our gross realized gain from sales of available-for-sale investments was $859,000. As of June 30, 2016, we no longer hold any IntelliEpi stock. We began classifying GHI as an available-for-sale security in the second quarter of 2015 when we determined that there was sufficient trading volume in the exchange for the stock to be deemed readily marketable. An unrealized gain of $223,000 net of tax was recorded as of June 30, 2016. This security is valued at fair market value at June 30, 2016 and will be marked to market with changes through other comprehensive income until sold. There is no assurance that we will realize this value when the stock is sold in the future. D uring the three months ended June 30, 2016, we sold some of our GHI stock and our cash proceeds from sales of available-for-sale investments was $222,000. Our cost was $58,000 and our gross realized gain from sales of available-for-sale investments was $164,000. D uring the six months ended June 30, 2016, we sold some of our GHI stock and our cash proceeds from sales of available-for-sale investments was $468,000. Our cost was $123,000 and our gross realized gain from sales of available-for-sale investments was $345,000. The gross unrealized losses related to our portfolio of available-for-sale securities were primarily due to changes in interest rates and market and credit conditions of the underlying securities. We have determined that the gross unrealized losses on some of our available-for-sale securities as of June 30, 2016 are temporary in nature. We periodically review our investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is temporary include the magnitude of the decline in market value, the length of time the market value has been below cost (or adjusted cost), credit quality, and our ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value. A portion of our investments would generate a loss if we sold them on June 30, 2016. The following table summarizes the fair value and gross unrealized losses related to available-for-sale securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2016 (in thousands):
|  | In Loss Position |  | In Loss Position |  | Total In |
|  | < 12 months |  | > 12 months |  | Loss Position |
|  |  |  |  | Gross |  |  |  |  | Gross |  |  |  |  | Gross |
|  | Fair |  | Unrealized |  | Fair |  | Unrealized |  | Fair |  | Unrealized |
As of June 30, 2016 |  | Value |  | (Losses) |  | Value |  | (Losses) |  | Value |  | (Losses) |
Investments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit |  | $ | 2,104 |  | $ | (5) |  | $ | 2,399 |  | $ | (1) |  | $ | 4,503 |  | $ | (6) |
Corporate bonds |  |  | 1,701 |  |  | (1) |  |  | 3,513 |  |  | (12) |  |  | 5,214 |  | $ | (13) |
Total in loss position |  | $ | 3,805 |  | $ | (6) |  | $ | 5,912 |  | $ | (13) |  | $ | 9,717 |  | $ | (19) |
The following table summarizes the fair value and gross unrealized losses related to available-for-sale securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2015 (in thousands):
|  | In Loss Position |  | In Loss Position |  | Total In |
|  | < 12 months |  | > 12 months |  | Loss Position |
|  |  |  |  | Gross |  |  |  |  | Gross |  |  |  |  | Gross |
|  | Fair |  | Unrealized |  | Fair |  | Unrealized |  | Fair |  | Unrealized |
As of December 31, 2015 |  | Value |  | (Loss) |  | Value |  | (Loss) |  | Value |  | (Loss) |
Investments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit |  | $ | 4,509 |  | $ | (11) |  | $ | 3,543 |  | $ | (2) |  | $ | 8,052 |  | $ | (13) |
Corporate bonds |  |  | 6,866 |  |  | (56) |  |  | 1,847 |  |  | (7) |  |  | 8,713 |  | $ | (63) |
Total in loss position |  | $ | 11,375 |  | $ | (67) |  | $ | 5,390 |  | $ | (9) |  | $ | 16,765 |  | $ | (76) |
Investments in Privately-held Companies We have made strategic investments in private companies located in China in order to gain access at a competitive cost to raw materials that are critical to our substrate business (see Note 7). The investment balances for all of these companies, including minority investments indirectly in privately-held companies made by our consolidated subsidiaries, are accounted for under the equity method and included in “other assets” in the condensed consolidated balance sheets and totaled $11.1 million and $12.1 million as of June 30, 2016 and December 31, 2015, respectively. As noted above, in the second quarter of 2015, we re-classified our minority investment in GHI, which was accounted for under the cost method, as an available-for- sale security and valued the security at fair market value. As of June 30, 2016 and December 31, 2015, we did not maintain any investments under the cost method. Fair Value Measurements We invest primarily in money market accounts, certificates of deposits, corporate bonds and notes, and government securities. ASC topic 820, Fair value measurement (“ASC 820”) establishes three levels of inputs that may be used to measure fair value. Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets of the asset or identical assets. Level 2 instrument valuations are obtained from readily-available, observable pricing sources for comparable instruments. Level 3 instrument valuations are obtained from unobservable inputs in which there is little or no market data, which require us to develop our own assumptions. On a recurring basis, we measure certain financial assets and liabilities at fair value, primarily consisting of our short-term and long-term investments. The type of instrument valued based on quoted market prices in active markets include our money market funds, which are generally classified within Level 1 of the fair value hierarchy. Other than corporate equity securities which are based on quoted market prices and classified as Level 1, we classify our available-for-sale securities including certificates of deposit and corporate bonds as having Level 2 inputs. The valuation techniques used to measure the fair value of these financial instruments having Level 2 inputs were derived from bank statements, quoted market prices, broker or dealer statements or quotations, or alternative pricing sources with reasonable levels of price transparency. We place short-term foreign currency hedges that are intended to offset the potential cash exposure related to fluctuations in the exchange rate between the United States dollar and Japanese Yen. We measure the fair value of these foreign currency hedges at each month end and quarter end using current exchange rates and in accordance with generally accepted accounting principles. At quarter end any foreign currency hedges not settled are netted in “accrued liabilities” on the condensed consolidated balance sheet and classified as Level 3 assets and liabilities. As of June 30, 2016 the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact to the consolidated results. There were no changes in valuation techniques or related inputs in the three months ended June 30, 2016. There have been no transfers between fair value measurements levels during the three months ended June 30, 2016. The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of June 30, 2016 (in thousands):
|  |  |  |  | Quoted Prices in |  |  |  |  | Significant |
|  |  |  |  | Active Markets of |  | Significant Other |  | Unobservable |
|  | Balance as of |  | Identical Assets |  | Observable Inputs |  | Inputs |
|  | June 30, 2016 |  | (Level 1) |  | (Level 2) |  | (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents and investments: |  |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit |  | $ | 9,954 |  | $ | — |  | $ | 9,954 |  | $ | — |
Corporate bonds |  |  | 8,593 |  |  | — |  |  | 8,593 |  |  | — |
Corporate equity securities |  |  | 300 |  |  | 300 |  |  | — |  |  | — |
Total |  | $ | 18,847 |  | $ | 300 |  | $ | 18,547 |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency hedge obligations |  | $ | 142 |  | $ | — |  | $ | — |  | $ | 142 |
The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of December 31, 2015 (in thousands):
|  |  |  |  | Quoted Prices in |  |  |  |  | Significant |
|  |  |  |  | Active Markets of |  | Significant Other |  | Unobservable |
|  | Balance as of |  | Identical Assets |  | Observable Inputs |  | Inputs |
|  | December 31, 2015 |  | (Level 1) |  | (Level 2) |  | (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents and investments: |  |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit |  |  | 9,783 |  |  | — |  |  | 9,783 |  |  | — |
Corporate bonds |  |  | 8,713 |  |  | — |  |  | 8,713 |  |  | — |
Corporate equity securities |  |  | 632 |  |  | 632 |  |  | — |  |  | — |
Total |  | $ | 19,128 |  | $ | 632 |  | $ | 18,496 |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency hedge obligations |  | $ | 36 |  | $ | — |  | $ | — |  | $ | 36 |
Items Measured at Fair Value on a Nonrecurring Basis Certain assets that are subject to nonrecurring fair value measurements are not included in the table above. These assets include investments in privately-held companies accounted for by the equity or cost method (See Note 7). We did not record other-than-temporary impairment charges for either of these investments during the three and six months ended June 30, 2016 and 2015.

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