Mail Stop 6010
February 13, 2006
Via U.S. Mail and Facsimile (858) 450-9885
Robert G. Gargus
Senior Vice President and Chief Financial Officer
Applied Micro Circuits Corporation
215 Moffett Park Drive
Sunnyvale, California 94089
Re: Applied Micro Circuits Corporation
Form 10-K for the fiscal year ended March 31, 2005
Filed June 7, 2005
File No. 000-23193
Dear Mr. Gargus:
We have reviewed your response letter dated February 9, 2006
and your filing and have the following comments. In our comments,
we
ask you to provide us with information so we may better understand
your disclosure. After reviewing this information, we may raise
additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comment or on any other
aspects
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the Fiscal Year Ended March 31, 2005
Item 8. Financial Statements and Supplementary Data, page F-1
Note 1. Summary of Significant Accounting Policies, page F-7
1. Please refer to prior comment 2 from our January 27, 2006
letter.
You indicate that your three product lines are identifiable
operating
segments under paragraph 10 of SFAS 131 and you have one
reportable
segment because you aggregate the operating segments under
paragraph
17. You refer to a long range "expected" gross margin of 55% to
65%
for each product line. While paragraph 17 refers to "similar
long-
term average gross margins" as an indicator of similar economic
characteristics, paragraphs 73 and 74 in the Basis for Conclusions
place an emphasis on the similarity of results and performance and
explain that an historical convergence of these performance
indicators must have already happened and there must be an
expectation that the financial statistics will remain similar in
the
future. As a result, gross margins are not necessarily the
primary
or exclusive measure of economic performance for this purpose.
Also,
management should consider both historical and expected future
performance. Evaluating similar economic characteristics is a
matter
of judgment that depends on specific facts and circumstances.
Accordingly, please tell us which quantitative measures management
identified as the most appropriate measure (or group of measures)
of
economic performance for the specific operating segments being
evaluated and why. Also include a quantitative analysis of how
management evaluated the historical and expected future
performance
measures to determine that the three operating segments have
similar
economic characteristics. Discuss your view that a variance from
55%
to 65% is highly similar for purposes of paragraph 17 of SFAS 131.
2. We also note from your response a contradictory argument that
the
three product lines are not operating segments under paragraph 10
of
SFAS 131. You note "that the presentation of any expanded
financial
information about these product lines would be inconsistent with
management`s view of the Company." You also state that while
there
are "certain characteristics of the product lines that meet the
definition of an operating segment, the CODM makes financial
decisions and allocates resources based on a consolidated view of
the
projected financial returns for a proposed project." In your
response please reconcile and state management`s conclusions about
how you evaluated the requirements in SFAS 131 in determining that
you have only one reportable segment. If you believe that you
have
only one identifiable/reporting operating segment (and therefore
paragraph 17 of SFAS 131 is not applicable), then you should
provide
us with a copy of the information you provide to the CODM showing
the
information outlined in your response. In your response, explain
how
you rebutted the presumption that the product lines included in
the
reports reviewed by your CODM are segments.
Note 5. Stockholders` Equity, page F-20
3. Please refer to prior comment 4 from our January 27, 2006
letter.
With respect to your structured stock repurchases, we note that
these
instruments are prepaid written put options and you considered
SFAS
150 and concluded that the agreements did not meet the definition
under paragraph 11 since "there is no obligation to transfer
assets
in the future to repurchase the shares." Under paragraph 11 of
SFAS
150, you should classify as a liability or an asset a financial
instrument that at inception embodies an obligation to repurchase
your equity shares, or is indexed to such an obligation and
requires
or may require the issuer to settle the obligation by transferring
assets. Paragraph 11 specifically includes written put options as
an
example of such an instrument. Please discuss further your
consideration of why the transfer of assets (monetary
consideration)
at the beginning of the contract term does not meet the second
part
of the definition in paragraph 11. Discuss how you would treat an
instrument where the monetary consideration was not prepaid but
settled upon termination/expiration of the contract and why.
As appropriate, please respond to these comments within 10
business days or tell us when you will provide us with a response.
Please furnish a cover letter that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please file your cover
letter
on EDGAR. Please understand that we may have additional comments
after reviewing your responses to our comments.
You may contact Praveen Kartholy at (202) 551-3778 or me at
(202) 551-3604 if you have questions regarding these comments. In
this regard, do not hesitate to contact Brian Cascio, Accounting
Branch Chief, at (202) 551-3676.
Sincerely,
Kate Tillan
Assistant Chief
Accountant
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Robert G. Gargus
Applied Micro Circuits Corporation
February 13, 2006
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