10-Q 1 d202833d10q.htm 10-Q 10-Q
Table of Contents
falseQ30000751978--12-31The deferred tax assets associated with foreign currency translation (losses) gains and unrealized (losses) gains on available-for-sale securities are completely offset by a tax valuation allowance as of September 30, 2021 and 2020. Therefore, there is no income tax benefit (provision) recognized for the three and nine months ended September 30, 2021 and 2020.Denominator represents weighted average number of shares of Common Stock and Class B Common Stock outstanding. Options to purchase 76,114 and 134,822 shares of Common Stock for the three and nine months ended September 30, 2021, respectively, and options to purchase 265,725 and 130,027 shares of Common Stock for the three and nine months ended September 30, 2020, respectively, were not included in the calculations of net income per share as the effect would have been antidilutive. 0000751978 2021-09-30 0000751978 2020-12-31 0000751978 2020-01-01 2020-09-30 0000751978 2021-01-01 2021-09-30 0000751978 2020-07-01 2020-09-30 0000751978 2021-07-01 2021-09-30 0000751978 2021-04-01 2021-06-30 0000751978 2021-06-30 0000751978 2020-06-30 0000751978 2019-12-31 0000751978 2020-09-30 0000751978 us-gaap:USTreasurySecuritiesMember 2021-09-30 0000751978 us-gaap:AuctionRateSecuritiesMember 2021-09-30 0000751978 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember 2021-09-30 0000751978 us-gaap:MoneyMarketFundsMember 2021-09-30 0000751978 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
 
FORM 10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________________
Commission File Number 0-18277
 
 
VICOR CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
04-2742817
(State
of
Incorporation)
 
(I.R.S. Employer
 
Identification No.)
25 Frontage Road, Andover
, Massachusetts 01810
(Address of Principal Executive Office)
(978) 470-2900
(Registrant’s telephone number)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, par value
 
$0.01 per share
 
VICR
 
The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer      Smaller reporting company  
       
Accelerated filer      Emerging growth company  
       
Non-accelerated filer           
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  
The number of shares outstanding of each of the issuer’s classes of Common Stock as of October
22
, 2021 was:
 
Common Stock, $.01 par value
     32,010,275  
Class B Common Stock, $.01 par value
     11,758,218  
 
 
 
 
VICOR CORPORATION
INDEX
 
 
  
Page
 
  
  
  
 
1
 
  
 
2
 
  
 
3
 
  
 
4
 
  
 
5
 
  
 
7
 
  
 
21
 
  
 
32
 
  
 
32
 
  
  
 
34
 
  
 
34
 
  
 
34
 
  
 
35
 
  
  
  
  
VICOR CORPORATION
Part I – Financial Information
Item 1 – Financial Statements
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
     September 30, 2021     December 31, 2020  
Assets
                
Current assets:
                
Cash and cash equivalents
   $ 178,663     $ 161,742  
Short-term investments
     50,217       50,166  
Accounts receivable, 
net
     51,080       40,999  
Inventories, net
     63,409       57,269  
Other current assets
     6,633       6,756  
    
 
 
   
 
 
 
Total current assets
     350,002       316,932  
Long-term deferred tax assets, net
     221       226  
Long-term investments, net
     2,598       2,517  
Property, plant and equipment, net
     104,446       74,843  
Other assets
     1,563       1,721  
    
 
 
   
 
 
 
Total assets
   $ 458,830     $ 396,239  
    
 
 
   
 
 
 
Liabilities and Equity
                
Current liabilities:
                
Accounts payable
   $ 18,346     $ 14,121  
Accrued compensation and benefits
     13,994       14,094  
Accrued expenses
     3,589       2,624  
Short-term lease liabilities
     1,625       1,629  
Sales allowances
     1,661       597  
Income taxes payable
     10       139  
Short-term deferred revenue and customer prepayments
     3,390       7,309  
    
 
 
   
 
 
 
Total current liabilities
     42,615       40,513  
Long-term deferred revenue
     493       733  
Contingent consideration obligations
     —         227  
Long-term income taxes payable
     564       643  
Long-term lease liabilities
     3,504       2,968  
    
 
 
   
 
 
 
Total liabilities
     47,176       45,084  
Commitments and contingencies (Note 10)
                
Equity:
                
Vicor Corporation stockholders’ equity:
                
Class
 
B Common Stock: 10 votes per share, $.01 par value, 14,000,000 shares authorized, 11,758,218 shares issued and outstanding in 2021 and 2020
     118       118  
Common Stock: 1 vote per share, $.01 par value, 62,000,000 shares authorized 43,635,881 shares issued and 32,001,075 shares outstanding in 2021; 43,204,671 shares issued and 31,569,865 shares outstanding in 2020
     437       433  
Additional paid-in capital
     342,014       328,392  
Retained earnings
     208,753       161,008  
Accumulated other comprehensive loss
     (1,040     (204
Treasury stock at cost: 11,634,806 shares in 2021 and 2020
     (138,927     (138,927
    
 
 
   
 
 
 
Total Vicor Corporation stockholders’ equity
     411,355       350,820  
Noncontrolling interest
     299       335  
    
 
 
   
 
 
 
Total equity
     411,654       351,155  
    
 
 
   
 
 
 
Total liabilities and equity
   $ 458,830     $ 396,239  
    
 
 
   
 
 
 
See accompanying notes.
 
-1-

VICOR CORPORATION
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
 
  
Three Months Ended
 
 
Nine Months Ended
 
 
  
September 30,
 
 
September 30,
 
 
  
2021
 
 
2020
 
 
2021
 
 
2020
 
Net revenues
   $ 84,911     $ 78,112     $ 269,083     $ 212,274  
Cost of revenues
     42,098       44,765       131,699       121,278  
    
 
 
   
 
 
   
 
 
   
 
 
 
Gross margin
     42,813       33,347       137,384       90,996  
Operating expenses:
                                
Selling, general and administrative
     17,322       15,212       50,865       47,036  
Research and development
     13,519       12,032       39,818       38,197  
    
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
     30,841       27,244       90,683       85,233  
    
 
 
   
 
 
   
 
 
   
 
 
 
Income from operations
     11,972       6,103       46,701       5,763  
Other income (expense), net:
                                
Total unrealized gains on available-for-sale securities, net
     37       36       81       81  
Less: portion of gains recognized in other comprehensive income
     (36     (35     (78     (78
    
 
 
   
 
 
   
 
 
   
 
 
 
Net credit gains recognized in earnings
     1       1       3       3  
Other income (expense), net
     393       333       996       712  
    
 
 
   
 
 
   
 
 
   
 
 
 
Total other income (expense), net
     394       334       999       715  
    
 
 
   
 
 
   
 
 
   
 
 
 
Income before income taxes
     12,366       6,437       47,700       6,478  
(Benefit) provision for income taxes
     (886     651       (30     (249
    
 
 
   
 
 
   
 
 
   
 
 
 
Consolidated net income
     13,252       5,786       47,730       6,727  
Less: Net (loss) income attributable to noncontrolling interest
     (7     1       (15     10  
    
 
 
   
 
 
   
 
 
   
 
 
 
Net income attributable to Vicor Corporation
   $ 13,259     $ 5,785     $ 47,745     $ 6,717  
    
 
 
   
 
 
   
 
 
   
 
 
 
Net income per common share attributable to Vicor Corporation:
                                
Basic
   $ 0.30     $ 0.13     $ 1.10     $ 0.16  
Diluted
   $ 0.29     $ 0.13     $ 1.06     $ 0.15  
Shares used to compute net income per common share attributable to Vicor Corporation:
                                
Basic
     43,710       43,164       43,573       41,814  
Diluted
     45,034       44,743       44,905       43,567  
See accompanying notes.
 
-2-

VICOR CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
 
 
  
Three Months Ended
 
  
Nine Months Ended
 
 
  
September 30,
 
  
September 30,
 
 
  
2021
 
 
2020
 
  
2021
 
 
2020
 
Consolidated net income
   $ 13,252     $ 5,786      $ 47,730     $ 6,727  
Foreign currency translation (losses) gains, net of tax (1)
     (12     84        (283     110  
Unrealized (losses) gains on available-for-sale securities, net of tax (1)
     (215     35        (574     78  
    
 
 
   
 
 
    
 
 
   
 
 
 
Other comprehensive (loss) income
     (227     119        (857     188  
    
 
 
   
 
 
    
 
 
   
 
 
 
Consolidated comprehensive income
     13,025       5,905        46,873       6,915  
Less: Comprehensive (loss) income attributable to noncontrolling interest
     (7     7        (36     18  
    
 
 
   
 
 
    
 
 
   
 
 
 
Comprehensive income attributable to Vicor Corporation
   $ 13,032     $ 5,898      $ 46,909     $ 6,897  
    
 
 
   
 
 
    
 
 
   
 
 
 
 
(1)
The deferred tax assets associated with foreign currency translation (losses) gains and unrealized (losses) gains on available-for-sale securities are completely offset by a tax valuation allowance as of September 30, 2021 and 2020. Therefore, there is no income tax benefit (provision) recognized for the three and nine months ended September 30, 2021 and 2020.
See accompanying notes.
 
-3-

VICOR CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
  
Nine Months Ended
 
 
  
September 30,
 
 
  
2021
 
 
2020
 
Operating activities:
                
Consolidated net income
   $ 47,730     $ 6,727  
Adjustments to reconcile consolidated net income to net cash provided by (used for) operating activities:
                
Depreciation and amortization
     8,564       8,175  
Stock-based compensation expense
     5,005       4,286  
Decrease in long-term deferred revenue
     (240     (241
Decrease in contingent consideration obligations
     (74     —    
Gain on disposal of equipment
     —         (9
Decrease in other assets
     56       135  
(Decrease)
i
ncrease in long-term income taxes payable
     (79     8  
Deferred income taxes
     5       16  
Credit gain on available-for-sale securities
     (3     (3
Provision for doubtful accounts
     —         23  
Change in current assets and liabilities, net
     (20,737     (3,742
    
 
 
   
 
 
 
Net cash provided by operating activities
     40,227       15,375  
Investing activities:
                
Purchases of short-term investments
     (50,706     —    
Sales or maturities of short-term investments
     50,000       —    
Additions to property, plant and equipment
     (30,942     (16,837
Proceeds from sale of equipment
     —         9  
    
 
 
   
 
 
 
Net cash used for investing activities
     (31,648     (16,828
Financing activities:
                
Proceeds from employee stock plans
     8,621       10,836  
Payment of contingent consideration obligations
     (153     (186
Proceeds from public offering of Common Stock
     —         109,681  
    
 
 
   
 
 
 
Net cash provided by financing activities
     8,468       120,331  
Effect of foreign exchange rates on cash
     (126     59  
    
 
 
   
 
 
 
Net increase in cash and cash equivalents
     16,921       118,937  
Cash and cash equivalents at beginning of period
     161,742       84,668  
    
 
 
   
 
 
 
Cash and cash equivalents at end of period
   $ 178,663     $ 203,605  
    
 
 
   
 
 
 

See accompanying notes.
 
-4-

VICOR CORPORATION
Condensed Consolidated Statements of Equity
(In thousands)
(Unaudited)
 
 
 
Class B

Common

Stock
 
 
Common

Stock
 
 
Additional

Paid-In

Capital
 
 
Retained

Earnings
 
 
Accumulated

Other

Comprehensive

Income (Loss)
 
 
Treasury

Stock
 
 
Total

Vicor

Corporation

Stockholders’

Equity
 
 
Noncontrolling

Interest
 
 
Total

Equity
 
Three months ended September 30, 2021
                                                                           
Balance on June 30, 2021
   $ 118      $ 436      $ 336,278      $ 195,494     $ (813   $ (138,927   $ 392,586     $ 306     $ 392,892  
Issuance of Common Stock under employee stock plans
              1        3,869                                3,870               3,870  
Stock-based compensation expense
                       1,867                                1,867               1,867  
Components of comprehensive income (loss), net of tax:
                                                                           
Net income
                                13,259                       13,259       (7     13,252  
Other comprehensive loss
                                      
(227
)
 
            (227     —         (227
                                                       
 
 
   
 
 
   
 
 
 
Total comprehensive income (loss)
                                                        13,032       (7     13,025  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance on September 30, 2021
   $ 118      $ 437      $ 342,014      $ 208,753     $ (1,040   $ (138,927   $ 411,355     $ 299     $ 411,654  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
 
Class B

Common

Stock
 
 
Common

Stock
 
 
Additional

Paid-In

Capital
 
 
Retained

Earnings
 
 
Accumulated

Other

Comprehensive

Income (Loss)
 
 
Treasury

Stock
 
 
Total

Vicor

Corporation

Stockholders’

Equity
 
 
Noncontrolling

Interest
 
 
Total

Equity
 
Nine months ended September 30, 2021
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance on December 31, 2020
  
$
118
 
  
$
433
 
  
$
328,392
 
  
$
161,008
 
 
$
(204
 
$
(138,927
 
$
350,820
 
 
$
335
 
 
$
351,155
 
Issuance of Common Stock under employee stock plans
  
 
 
 
  
 
4
 
  
 
8,617
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
8,621
 
 
 
 
 
 
 
8,621
 
Stock-based compensation expense
  
 
 
 
  
 
 
 
  
 
5,005
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
5,005
 
 
 
 
 
 
 
5,005
 
Components of comprehensive income (loss), net of tax:
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
  
 
 
 
  
 
 
 
  
 
 
 
  
 
47,745
 
 
 
 
 
 
 
 
 
 
 
47,745
 
 
 
(15
 
 
47,730
 
Other comprehensive loss
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
(836
)
 
 
 
 
 
 
 
(836
 
 
(21
 
 
(857
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
46,909
 
 
 
(36
 
 
46,873
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance on September 30, 2021
  
$
118
 
  
$
437
 
  
$
342,014
 
  
$
208,753
 
 
$
(1,040
 
$
(138,927
 
$
411,355
 
 
$
299
 
 
$
411,654
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
 
Class B

Common

Stock
 
 
Common

Stock
 
 
Additional

Paid-In

Capital
 
 
Retained

Earnings
 
 
Accumulated

Other

Comprehensive

Income (Loss)
 
 
Treasury

Stock
 
 
Total

Vicor

Corporation

Stockholders’

Equity
 
 
Noncontrolling

Interest
 
 
Total

Equity
 
Three months ended September 30, 2020
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
Balance on June 30, 2020
  
$
118
 
  
$
431
 
  
$
320,988
 
 
$
144,030
 
  
$
(316
 
$
(138,927
 
$
326,324
 
 
$
319
 
  
$
326,643
 
Issuance of Common Stock under employee stock plans
  
 
 
 
  
 
2
 
  
 
3,449
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
3,451
 
 
 
 
 
  
 
3,451
 
Additional expenses associated with issuance of Common Stock in public offering
  
 
 
 
  
 
 
 
  
 
(51
 
 
 
 
  
 
 
 
 
 
 
 
 
 
(51
 
 
 
 
  
 
(51
Stock-based compensation expense
  
 
 
 
  
 
 
 
  
 
1,640
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
1,640
 
 
 
 
 
  
 
1,640
 
Components of comprehensive income, net of tax:
    
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
Net income
    
 
 
  
 
 
 
  
 
 
 
 
 
5,785
 
  
 
 
 
 
 
 
 
 
 
5,785
 
 
 
1
 
  
 
5,786
 
Other comprehensive income
    
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
113
 
 
 
 
 
 
 
113
 
 
 
6
 
  
 
119
 
                                                       
 
 
   
 
 
    
 
 
 
Total comprehensive income
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
5,898
 
 
 
7
 
  
 
5,905
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
Balance on September 30, 2020
  
$
118
 
  
$
433
 
  
$
326,026
 
 
$
149,815
 
  
$
(203
 
$
(138,927
 
$
337,262
 
 
$
326
 
  
$
337,588
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
 
-5-

VICOR CORPORATION
Condensed Consolidated Statements of Equity
(In thousands)
(Unaudited)
 
 
 
Class B

Common

Stock
 
 
Common

Stock
 
 
Additional

Paid-In

Capital
 
 
Retained

Earnings
 
 
Accumulated

Other

Comprehensive

Income (Loss)
 
 
Treasury

Stock
 
 
Total

Vicor

Corporation

Stockholders’

Equity
 
 
Noncontrolling

Interest
 
 
Total

Equity
 
Nine months ended September 30, 2020
                                                                              
Balance on December 31, 2019
   $ 118      $ 405      $ 201,251      $ 143,098      $ (383   $ (138,927   $ 205,562      $ 308      $ 205,870  
Issuance of Common Stock under employee stock plans
              10        10,826                                 10,836                 10,836  
Issuances of Common Stock in public offering
              18        109,663                                 109,681                 109,681  
Stock-based compensation expense
                       4,286                                 4,286                 4,286  
Components of comprehensive income, net of tax:
                                                                              
Net income
                                6,717                        6,717        10        6,727  
Other comprehensive income
                                         180               180        8        188  
                                                        
 
 
    
 
 
    
 
 
 
Total comprehensive income
                                                         6,897        18        6,915  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
Balance on September 30, 2020
   $ 118      $ 433      $ 326,026      $ 149,815      $ (203   $ (138,927   $ 337,262      $ 326      $ 337,588  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
 
See accompanying notes.
 
-6-

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2021
(unaudited)
1.
Basis of Presentation
The accompanying
 unaudited Condensed Consolidated Financial Statements of Vicor Corporation and its consolidated subsidiaries (collectively, the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for any other interim period or the year ending December 31, 2021. The balance sheet at December 31, 2020 presented herein has been derived from the audited financial statements at that date bu
t
 does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed by the Company with the SEC on March 1, 2021 (“2020
Form
10-K”).
2.
Inventories
Inventories
 are valued at the lower of cost (determined using the first-in, first-out method) or net realizable value. Fixed production overhead is allocated to the inventory cost per unit based on the normal capacity of the production facilities. Abnormal production costs, including fixed cost variances from normal production capacity, if any, are charged to cost of revenues in the period incurred. All shipping, handling and customs (e.g., tariff) costs incurred in connection with the sale of products are included in cost of revenues.
Inventory that is estimated to be excess, obsolete or unmarketable is written down to net realizable value. The Company’s estimation process for assessing net realizable value is based upon management’s estimate of expected future utility which is derived based on backlog, historical consumption and expected market conditions. If the Company’s estimated demand and/or market expectation were to change or if product sales were to decline, the Company’s estimation process may cause larger inventory reserves to be recorded, resulting in larger charges to cost of revenues.
Inventories were as follows (in thousands):
 
     September 30, 2021      December 31, 2020  
               
Raw materials
   $  46,912      $  42,556  
Work-in-process
     11,207        7,424  
Finished goods
     5,290        7,289  
 
 
 
 
 
 
 
 
 
     $ 63,409      $ 57,269  
 
 
 
 
 
 
 
 
 
3.
Short-Term and Long-Term Investments
As of September 30, 2021 and December 
31,
 
2020
, the Company held $
50,217
,000 and $
50,166
,000, respectively, of short-term investments, consisting of obligations of the U.S. Treasury, all of which were debt securities with original maturities greater than
three
months but less than
one
year at the time of purchase.
 
-7-

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2021
(unaudited)
 
As of September 30, 2021 and December 31, 2020, the Company held one auction rate security with a par value of $3,000,000, purchased through and held in custody by a broker-dealer affiliate of Bank of America, N.A., that has experienced failed auctions (the “Failed Auction Security”) since February 2008. The Failed Auction Security held by the Company is Aaa/AA+ rated by major credit rating agencies, is collateralized by student loans, and is guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program. Management is not aware of any reason to believe the issuer of the Failed Auction Security is presently at risk of default. Through September 30, 2021, the Company has continued to receive interest payments on the Failed Auction Security in accordance with the terms of its indenture. Management believes the Company ultimately should be able to liquidate the Failed Auction Security without significant loss primarily due to the overall quality of the issue held and the collateral securing the substantial majority of the underlying obligation. However, current conditions in the auction rate securities market have led management to conclude the recovery period for the Failed Auction Security exceeds 12 months. As a result, the Company continued to classify the Failed Auction Security as long
-term as of
September 30, 2021.
Details of our investments are as follows (in thousands):
 
 
  
September 30, 2021
 
 
  
Cash and
Cash
Equivalents
 
  
Short-Term
Investments
 
  
Long-Term
Investments
 
                      
Measured at fair value:
                          
Available-for-sale debt securities:
                          
Money market funds
   $ 89,254      $ —        $ —    
U.S. Treasury Obligations
     —          50,217        —    
Failed Auction Security
     —          —          2,598  
 
  
 
 
    
 
 
    
 
 
 
Total
     89,254        50,217        2,598  
Other measurement basis:
                          
Cash on hand
     89,409        —          —    
 
  
 
 
    
 
 
    
 
 
 
Total
   $ 178,663      $ 50,217      $ 2,598  
    
 
 
    
 
 
    
 
 
 
 
 
  
December 31, 2020
 
 
  
Cash and
Cash
Equivalents
 
  
Short-Term
Investments
 
  
Long-Term
Investments
 
                      
Measured at fair value:
                          
Available-for-sale debt securities:
                          
Money market funds
   $ 69,493      $ —        $ —    
U.S. Treasury Obligations
     19,998        50,166        —    
Failed Auction Security
     —          —          2,517  
    
 
 
    
 
 
    
 
 
 
Total
     89,491        50,166        2,517  
Other measurement basis:
                          
Cash on hand
     72,251        —          —    
    
 
 
    
 
 
    
 
 
 
Total
   $ 161,742      $ 50,166      $ 2,517  
    
 
 
    
 
 
    
 
 
 
 
-8-

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2021
(unaudited)
 
The following is a summary of the
available-for-sale
securities (in thousands):
 
September 30, 2021
   Cost      Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair
Value
 
                             
U.S. Treasury Obligations
   $ 50,216      $ 1      $  —        $ 50,217  
Failed Auction Security
     3,000        —          402        2,598  
 
December 31, 2020
   Cost      Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair
Value
 
                             
U.S. Treasury Obligations
   $ 70,172      $ —        $ 8      $ 70,164  
Failed Auction Security
     3,000        —          483        2,517  
As of September 30, 2021,
 the Failed Auction Security had be
e
n in an unrealized loss position for greater than
12
months.
The amortized cost and estimated fair value of the
available-for-sale
securities on September 30, 2021, by type and contractual maturities, are shown below (in thousands):
 
     Cost      Estimated
Fair Value
 
               
U.S. Treasury Obligations:
                 
Maturities greater than three months but less than one year
   $ 50,216      $ 50,217  
    
 
 
    
 
 
 
     $ 50,216      $ 50,217  
    
 
 
    
 
 
 
 
     Cost      Estimated
Fair Value
 
               
Failed Auction Security:
                 
Due in twenty to forty years
   $ 3,000      $ 2,598  
    
 
 
    
 
 
 
                 
Based on the fair value measurements described in Note 4, the fair value of the Failed Auction Security on September 30, 2021, with a par value of $3,000,000, was estimated by the Company to be approximately $2,598,000. The gross unrealized loss of $402,000 on the Failed Auction Security consists of two types of estimated loss: an aggregate credit loss of $30,000 and an aggregate temporary impairment of $372,000. In determining the amount of credit loss, the Company compared the present value of cash flows expected to be collected to the amortized cost basis of the security, considering credit default risk probabilities and changes in credit ratings as significant inputs, among other factors.
 
-9-

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2021
(unaudited)
 
The following table represents a rollforward of the activity related to the credit loss recognized in earnings on the Failed Auction Security for the nine months ended September 30 (in thousands):
 
     2021      2020  
               
Balance at the beginning of the period
   $ 33      $ 37  
Reductions in the amount related to credit gain for which other-than- temporary impairment was not previously recognized
     (3      (3
    
 
 
    
 
 
 
Balance at the end of the period
   $ 30      $ 34  
    
 
 
    
 
 
 
                 
At this time, the Company has no intent to sell the impaired Failed Auction Security and does not believe it is more likely than not the Company will be required to sell this security. If current market conditions deteriorate further, the Company may be required to record additional unrealized losses. If the credit rating of the security deteriorates, the Company may be required to adjust the carrying value of the investment through impairment charges recorded in the Condensed Consolidated Statements of Operations, and any such impairment adjustments may be material.
Based on the Company’s ability to access cash and cash equivalents, its short-term investments and its expected operating cash flows, management does not anticipate the current lack of liquidity associated with the Failed Auction Security held will affect the Company’s ability to
execute its current operating plan.
4.
Fair Value Measurements
The Company accounts for certain financial assets at fair value, defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions market participants would use in pricing an asset or liability. A three-level hierarchy is used to show the extent and level of judgment used to estimate fair value measurements.
Assets and liabilities measured at fair value on a recurring basis included the following as of September 30, 2021 (in thousands):
 
     Using         
     Quoted Prices
in Active
Markets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
    
Significant
Unobservable
Inputs
(Level
 
3)
     Total Fair
Value as of
September 30, 2021
 
                             
Cash equivalents:
                                   
Money market funds
   $ 89,254      $ —        $ —        $ 89,254  
Short-term investments:
                                   
U.S. Treasury Obligations
     50,217        —          —          50,217  
Long-term investment:
                                   
Failed Auction Security
     —          —          2,598        2,598  
 
-10-

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2021
(unaudited)
 
Assets and liabilities measured at fair value on a recurring basis included the following as of December 31, 2020 (in thousands):
 
 
  
Using
 
  
 
 
 
  
Significant
 
  
 
 
 
  
Quoted Prices
in Active
Markets
(Level 1)
 
  
Other
Observable
Inputs
(Level 2)
 
  
Significant
Unobservable
Inputs
(Level 3)
 
  
Total Fair
Value as of
December 31, 2020
 
                             
Cash equivalents:
                                   
Money market funds
   $ 69,493      $ —        $ —        $ 69,493  
U.S. Treasury Obligations
     19,998        —          —          19,998  
Short-term investments:
                                   
U.S. Treasury Obligations
     50,166        —          —          50,166  
Long-term investment:
                                   
Failed Auction Security
     —          —          2,517        2,517  
Liabilities:
                                   
Contingent consideration obligations
     —          —          (227      (227
As of September 30, 2021, there was insufficient observable auction rate security market information available to determine the fair value of the Failed Auction Security using Level 1 or Level 2 inputs. As such, the Company’s investment in the Failed Auction Security was deemed to require valuation using Level 3 inputs. Management, after consulting with advisors, valued the Failed Auction Security using analyses and pricing models similar to those used by market participants (i.e., buyers, sellers, and the broker-dealers responsible for execution of the Dutch auction pricing mechanism by which each issue’s interest rate was set). Management utilized a probability weighted discounted cash flow (“DCF”) model to determine the estimated fair value of this security as of September 30, 2021. The major assumptions used in preparing the DCF model were similar to those described in
Note 5