| ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) |
OF THE SECURITIES EXCHANGE ACT OF 1934 |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) |
OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 04-2742817 | |
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25 Frontage Road, Andover, Massachusetts | 01810 | |
(Address of principal executive offices) | (Zip code) |
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 | ||
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. ☑
Large Accelerated Filer ☑ | Accelerated Filer ☐ | Non-accelerated Filer ☐ | Smaller Reporting Company ☐ | |||
Emerging growth company ☐ |
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| Class B Common Stock | 11,758,218 |
ITEM 1. |
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electrically-powered devices utilizing alternating current (“AC”) voltage from a primary AC source (for example, a wall outlet), a power system converts AC voltage into the stable direct current (“DC”) voltage necessary to power subsystems and/or individual applications and devices (known as “loads”). In many electronic devices, this DC voltage may be further converted to one or more voltages (expressed as “volts,” and represented by the symbol “V”) and currents (expressed as “amperes,” and represented by the symbol “I”) required by a range of loads. In equipment utilizing DC voltage from a primary DC source (for example, a battery) or a secondary source (such as an
Act of 1934, as amended (the “Exchange Act”).
Our
Although Picor Corporation has been merged with and into the Company, we continue to report our operating segments as the Brick Business Unit, VI Chip, and Picor, reflecting our historical organizational segmentation and management’s operational oversight. See Note 17— Segment Information to the Consolidated Financial Statements presented herein for certain financial information associated with the operations and manufacturing activities of our reported operating segments.
The Company
The Company has two classes of common stock outstanding: shares of our “Common Stock,” listed on The NASDAQ Stock Market under the ticker symbol VICR, and shares of our Class B common stock, which are not subject to registration pursuant to the Exchange Act and are not listed on any exchange.
of advanced technologies and processes, often implemented in proprietary semiconductor circuitry, materials, and packaging. Many of our products incorporate patented or proprietary implementations of high-frequency switching topologies, which enable the design of power system solutions more efficient and much smaller than conventional alternatives. Our strategy emphasizes demonstrable product differentiationThis efficiency and a value proposition based on competitively superior solution performance, advantageous design flexibility,small size is enabled by our proprietary switching circuitry and a compelling total costmagnetic structures, as well as our use of ownership (“TCO”).
highly differentiated packaging.
demonstrably lower electricity costs.
voltages, while remaining within the 60V SELV safety limit.
IBA.
Our FPA implementations with supercomputer and hyperscale datacenter customers involve our PRM®(Pre-Regulator Module), to create anon-isolated, factorized 48V bus voltage at relatively low current, and our VTM® (Voltage Transformation Module), a current multiplier delivering the required high current to the central processing unit (“CPU”). A typical 48V server motherboard implementation of FPA, utilizing aPRM-VTM configuration to power a CPU requiring less than 200W, would typically deliver 1.8V and 95A average current, with far fewer components and far less required motherboard space than competitive, multi-stage solutions with lower system conversion efficiency.
In 2017, we introduced our next generation of power system solution,“Power-on-Package,” which was specifically developed to meet the computational performance requirements of artificial intelligence (“AI”). The microprocessors typically used in AI, particularly in more computationally demanding “machine learning” or “training” applications, are graphics processing units (“GPUs”) and custom application-specific integrated circuits (“ASICs”). Both GPUs and ASICs, in contrast to CPUs,Unlike central processing units (“CPUs”), which are designed for parallel processing throughput, notserial execution of complex and broad instruction sets.sets, GPUs and AI ASICs are designed for massively parallel (i.e., concurrent) processing of repetitive transactions or calculations. As such, GPUs and AI ASICs generally operate at processing frequencies requiring the higher levels of average and peak current are required to achieve this throughput.delivered by our
would deliver delivers 0.7V, and 500A650A average current, and up to 1,000A1,200A peak current to the GPU or AI ASIC, with superior transient response and unmatched power density, which is a critical requirement for small, area-constrained AI accelerator boards. density.
expect to be shipping released products to customers in 2021.
Advanced Products are offered in various package formats across functional families.
subsidiaries, was approximately 64.1%64.2%, 66.6%71.4%, and 75.6%64.1% of the Company’s consolidated revenue for the years ended December 31, 2020, 2019, and 2018, 2017, and 2016, respectively.
Competition
We believe our sustainable competitive advantages are: the differentiation of our Advanced Products’ superior performance and power densities, enabled by our patented and proprietary technologies; the advantageous design flexibility enabled by our Power Component Design Methodology; and a compelling TCO. We seek to position ourselves with customers across all market segments served in a manner that reduces our vulnerability to commoditization. However, the competitive characteristics of market segments we serve with our transitional strategy may vary. Across all market segments we serve, competition generally is based on product performance, design flexibility (i.e., ease of use), product price, and product availability.
Despite significant consolidation of our competitors in the markets we serve with Brick Products, the growth of large-scale,low-cost foreign competitors in the commoditized segments of those markets, and increased application overlap with vendors of solutions based on semiconductors and discrete components in the markets we serve with Advanced Products, the total global merchant (i.e.,non-captive) market forAC-DC andDC-DC power conversion solutions remains fragmented. The markets we serve, among which some overlap exists for our Advanced Product and Brick Product categories, are made up of many large, diversified manufacturers, as well as many smaller manufacturers focused on specialized products or narrowly defined market segments or geographies. The markets we serve with Advanced Products, typically on a direct basis, are generally characterized by relatively extended and highly competitive design cycles, product life cycles of generally less than three years, and many competitors that are far larger vendors of integrated circuits and discrete components, often using price concessions to offset performance limitations. The market segments we serve with Brick Products, typically through sales representatives and distribution partners, are generally characterized by relatively short design cycles, relatively long (i.e., greater than three years) product life cycles, and, given the maturity of many markets and applications, degrees of commoditization and price competition.
Although numerous third party industry studies estimate the total global merchant market forAC-DC andDC-DC switching power supplies to exceed $20 billion of annual revenue, representing approximatelytwo-thirds of the total annual consumption of switching power supplies (i.e., the sum of merchant and captive volumes consumed), the Company competes in smaller, well-defined commercial and military market segments and niches within those segments. We believe, based on these third party estimates,AC-DC power supplies represent more than 85% of the total merchant market, reflecting a wide range of battery charging applications, primarily in the consumer, mobile device, and office computing segments (commodity segments in which we currently do not compete, together representing more than 50% of the total merchant market). These third party industry studies set forth estimates of varying levels of annual, dollar-based, nominal revenue growth across the merchant market segments in which we compete. These studies indicate most of the market segments we serve with Advanced Products have experienced high single-digit and low double-digit growth over the past three years. These studies also indicate most of the market segments we serve with Brick Products have experienced low to middle single-digit growth over the past three years.
Based on our own assessment of the market segments in which we do compete, we estimate the Company’s total addressable market opportunity within theAC-DC portion of the merchant market may be approximately $1 billion annually. However, because this market is particularly commoditized and customer applications generally do not require the superior performance of our solutions, we pursue narrowly defined niches for which our highly differentiatedfront-end products, notably the PFM© and RFM©, are well-suited and competitively superior, thereby reducing our served addressable market opportunity. Should we successfully penetrate these potentially high growth niches, we believe that our served addressable market opportunity inAC-DC should expand. We estimate our total addressable market opportunity within theDC-DC portion of the merchant market may exceed $3 billion annually. We estimate our served addressable market to exceed $1 billion annually, with a relatively high dollar and unit volume growth forecast for the market segments and niches we are pursuing with Advanced Products.
Despite our minor share in the overall merchant market and the competitive presence of numerous, far larger vendors in the market segments and niches we serve with both Advanced Products and Brick Products, we believe we maintain an advantageous competitive position in those market segments and niches. Notably, we believe we have the largest share of 48V distribution opportunities within the segments of the computing market we serve. However, numerous competitors across these market segments and niches have significantly greater engineering, financial, manufacturing, and marketing and sales resources, as well as longer operating histories and longer customer relationships than we do.
times.
export licenses).
Milan, Italy; Tokyo, Japan; Seoul, South Korea; Taipei, Taiwan (Republic of China); and Camberley, United Kingdom. Customers do not place purchase orders with TSCs, but do so directly with the Company or with our distributors.channel partners. In Japan, customers place purchase orders with authorized distributors or, for certain custom products, VJCL.
we expect to do so through 2021, after which we expect to have fully-operational production capabilities on site.
Our plans for the, based on additional machine capacity do not include certain processes necessary for the manufacture of ourSM-ChiP© line of surface-mounted converters. As previously disclosed, in December 2017 we began collaborating with a highly sophisticated contractor capable of meeting our near-term volume expectations with acceptable quality and cost. Through 2018 we expanded our relationship with this contractor, refining process steps and investing in specialized equipment for use by the contractor. As such, we have revised our schedule for taking such processesin-house, and expectaccelerated cycle times due to meet our forecast needs forSM-ChiP production with this contractor for the foreseeable future.
vertical integration.
Our Picor operating segment, given its fabless model, relies on
foreseeable future.
the timing thereof.
innovative approaches to solving customer problems. Our research and development activities have resulted in important domestic and foreign patents protecting our products and enabling technologies, as well as proprietary trade secrets associated with our use of certain components and materials of our own design and proprietary manufacturing, packaging, and testing processes. We incurred approximately $44,286,000, $44,924,000,$50,916,000, $46,588,000, and $41,848,000$44,286,000 in research and development expenses in 2018, 2017,2020, 2019, and 2016,2018, respectively, representing approximately 15.2%17.2%, 19.7%17.7%, and 20.9%15.2% of revenues in 2020, 2019, and 2018, 2017, and 2016, respectively.
Employees
ITEM 1A. |
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potential significant
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Our stock price has been volatile and may fluctuate in the future.
Because of the factors set forth below, among others, the trading price of our Common Stock has fluctuated and may continue to fluctuate significantly:
volatility of the financial markets, notably the equity markets in the United States;
uncertainty regarding the prospects of domestic and foreign economies, including the impact of tariffs, trade restrictions, and volatile currency exchange rates;
uncertainty regarding domestic and international political conditions, including tax and tariff policies;
actual or anticipated fluctuations in our operating performance or that of our competitors;
the performance and prospects of our major customers;
announcements by us or our competitors of significant new products, technical innovations, or litigation;
investor perception of the Company and the industry in which we operate;
the absence of earnings estimates and supporting research by investment analysts;
the liquidity of the market for our Common Stock, reflecting a relatively low trading float and relatively low average trading volumes;
the uncertainty of the declaration and payment of future cash dividends on our Common Stock; and
the concentration of ownership of our Common Stock by Dr. Vinciarelli, our Chairman of the Board, Chief Executive Officer, and President.
We do not actively communicate with investment analysts and, as a consequence, we are not aware of earnings estimates or supporting investment research coverage of Vicor and our Common Stock. While we seek to be transparent in our financial reporting, public statements, and related disclosures, the absence of research coverage may limit investor interest in our Common Stock, as our communications with investors is generally limited to our quarterly earnings announcements and accompanying investor conference calls. Because our operating results have fluctuated on a quarterly and annual basis, investors may have difficulty in assessing our current and future performance, particularly in light of our strategic transition, as discussed above.
In the past, we have declared and paid cash dividends on our Common Stock. The payment of dividends is based on the periodic determination by our Board of Directors that we have adequate capital to fund anticipated operating requirements and that excess cash is available for distribution to stockholders via a dividend. We have no formal policy regarding dividends and, as such, investors cannot make assumptions regarding the possibility of future dividend payments nor the amounts and timing thereof. As of December 31, 2018, we have no plans to declare or pay a cash dividend.
The ownership of our Common Stock is concentrated between Dr. Vinciarelli and a limited number of institutional investors. As of December 31, 2018, Dr. Vinciarelli owned 9,861,605 shares of our Common Stock, as well as 11,023,648 shares of our unregistered Class B Common Stock (which may only be sold or transferred after required conversion, on aone-for-one basis, into registered shares of Common Stock), together representing 52.9% of our total issued and outstanding shares. Accordingly, the market float for our Common Stock and average daily trading volumes are relatively small, which may negatively impact investors’ ability to buy or sell shares of our Common Stock in a timely manner.
Dr. Vinciarelli owns 93.8% of the issued and outstanding shares of our Class B Common Stock, which possess 10 votes per share. Dr. Estia J. Eichten, a member of our Board of Directors, owns the majority of the balance of the Class B Common Stock issued and outstanding. As such, Dr. Vinciarelli, controlling in aggregate 81.9% of our outstanding voting securities, has effective control of our governance.
Dr. Vinciarelli also holds 5,500,000non-qualified options for the purchase of the common stock of our subsidiary, VI Chip Corporation. We anticipate merging VI Chip with and into the Company during 2019, in the same manner as our Picor Corporation subsidiary was merged with and into the Company, effective May 30, 2018. Assuming the same merger structure (i.e., astock-for-stock exchange, compliant with the “spread and ratio” tests and other requirements of Section 424 of the Internal Revenue Code, as amended, by which both the option plan and outstanding options are assumed by the surviving entity (in this case, the Company)), the merger of VI Chip with and into the Company likely would not result in a meaningful change to the percentage held by Dr. Vinciarelli of our total issued and outstanding shares on a fully diluted basis (i.e., the sum of total shares outstanding and exercisable stock options). As of December 31, 2018, we cannot estimate the share values of either VI Chip or the Company at the time of the anticipated merger.
Global economic uncertainty associated with the
Global
our customers and markets with enhanced performance, features and functionality, or lower cost. Larger competitors frequently seek to maintain market share and protect customer relationships through heavily-discounted pricing, which we may not be able to match. If we fail to develop and commercialize leading-edge technologies and products that are cost effective and maintain high standards of quality, and introduce them to the market on a timely basis, our competitive position and results of operations could be materially adversely affected.
Our operating results recently have been influenced by a limited number of customers, and our future results may be similarly influenced.
Since the introduction of our Advanced Products, the Company has derived a substantial portion of its revenue from Advanced Products in any given year from either one customer or a limited number of customers, whether through sales directly to the customer(s) or indirectly to the customers’ contract manufacturers. This concentration of revenue is a reflection of the relatively early stage of adoption of the Advanced Products and the associated technologies and power system architectures, and our targeting of market leading innovators as initial customers. Our current sales and marketing efforts are focused primarily on accelerating the adoption of Advanced Products by a diversified customer base, across a number of identified market segments. However, we cannot assure you our strategy will be successful and such diversification of customers will be achieved.
We may not be able to procure necessary key components or raw materials, or we may purchase excess raw material inventory or unusable inventory, which increases the risk of reserve charges to reduce the value of any inventory deemed excess or obsolete, thereby reducing our profitability.
The power systems industry, and the electronics industry as a whole, can be subject to pronounced, lengthy business cycles and otherwise subject to sudden and sharp changes in demand. Our success, in part, is dependent on our ability to forecast and procure inventories of components and materials to match production schedules and customer delivery requirements. Many of our products require raw materials supplied by a limited number of vendors and, in some instances, a single vendor. During certain periods, key components or materials required to build our products may become unavailable in the timeframe required for us to meet our customers’ needs. Our inability to secure sufficient raw materials to manufacture products for our customers has reduced, in the past, our revenue and profitability and could do so again. We may choose, and have chosen, to mitigate this risk by increasing the levels of inventory for certain components and materials. Such increased inventory levels may increase the potential risk for excess or obsolete inventories, should our forecasts fail to materialize or if there are negative factors impacting our customers’ end markets, leading to order cancellation. If we identify excess inventory or determine certain inventory is obsolete (i.e., unusable), we likely will record additional inventory reserves (i.e., expenses representing thewrite-off of the excess or obsolete inventory), which could have an adverse effect on our gross margins and on our operating results.
We rely on third-party vendors and subcontractors for supply of components, assemblies, and services and, therefore, cannot control the availability or quality of such components, assemblies, and services.
We depend on third-party vendors and subcontractors to supply components, assemblies, and services used in our products, some of which are supplied by a single vendor, and have experienced shortages of certain semiconductor components, incurred additional and unexpected costs to address the shortages, and experienced delays in production and shipping. If suppliers or subcontractors cannot provide their products or services on time or to our specifications, we may not be able to meet the demand for our products and our delivery times may be negatively affected. In addition, we cannot directly control the quality of the products and services provided by third parties. In order to expand revenue, we likely will need to identify and qualify new suppliers and subcontractors to supplant or replace existing suppliers and subcontractors, which may be a time-consuming and expensive process. In addition, any qualification of new suppliers may require customers of our products utilizing products and services from new suppliers and service providers to undergo are-qualification process. Such circumstances likely would lead to disruptions in our production, increased manufacturing costs, delays in shipping to our customers, and/or increases in prices paid to third parties for products and services.
We are exposed to foreign economic, political, and other external risks.
For the years ended December 31, 2018, 2017, and 2016, revenues from sales outside the United States were 62.0%, 63.2%, and 59.8%, respectively, of our total revenues. Net revenues from customers in China, our largest international market, accounted for approximately 37.4% of total net revenues in 2018, approximately 35.8% in
2017, and approximately 32.1% in 2016, respectively. We expect international sales will continue to be a significant component of total sales, since many of the OEMs and ODMs we target as customers are domiciled offshore, and such customers increasingly utilize offshore contract manufacturers, and rely upon those contract manufacturers to place orders directly with us. We also expect international revenue from our distributors to increase.
While our currency risks are limited, as our sales are denominated in U.S. Dollars worldwide, with the exception of sales by VJCL (and a residual volume of sales of Vicor B.V.), our international activities expose us to special risks including, but not limited to, regulatory requirements, economic and political instability, transportation delays, foreign currency controls, trade restrictions and tariffs, and unfavorable shifts in foreign exchange rates. In addition, our international customers’ business may be negatively affected imposition of tariffs, as was the case in 2018 with the imposition of Section 301 Tariffs on certain Chinese goods imported into the United States and the corresponding imposition of import tariffs by China on certain U.S. goods imported into China, and by economic sanctions, as were imposed in 2014 by the U.S. Department of the Treasury against certain Russian entities to which we had sold products in the past. Sudden or unexpected changes in the foregoing could have a material adverse effect on our operating results.
We may face legal claims and litigation from product warranty or other claims that could be costly to resolve.
We have in the past and may in the future encounter legal action from customers, vendors, or others concerning product warranty or other claims. We generally offer atwo-year warranty from the date title passes from us for all of our standard products. Effective January 1, 2017, we extended the warranty period to three years for a range of H Grade, M Grade and MI FamilyDC-DC legacy products sold after that date. In a limited number of circumstances, we have entered into supply contracts with certain high-volume customers calling for extended warranty terms. With our distribution partners, we also enter into contracts providing for our product warranties to transfer to the end customer upon final sale of our product(s) by the distributor.
We invest significant resources in the testing of our products; however, if any of our products contain defects, we may be required to incur additional development and remediation costs, pursuant to our warranty policies. These issues may divert our technical and other resources from other product development efforts and could result in claims against us by our customers or others, including liability for costs associated with product returns, which may adversely influence our operating results. If any of our products contain defects, or have reliability, quality, or compatibility problems, the Company’s reputation may be damaged, which could make it more difficult for us to sell our products to existing and prospective customers and could adversely affect our operating results. We are currently party to a limited number of supply agreements with certain customers contractually committing us to warranty and indemnification requirements exceeding those to which we have been exposed in the past. While we maintain insurance coverage for such exposure, we could incur significant financial cost beyond the limits of such coverage, as well as operational disruption and damage to our competitive position and image if faced with a significant product warranty or other claim.
Extended interruption of production at our manufacturing facility in Andover, Massachusetts, could materially reduce our revenue and increase costs.
All power components and power systems, whether for direct sale to customers or for sale to our subsidiaries for incorporation into their respective products, are manufactured at our Andover, Massachusetts, facility. Substantial damage to this facility due to fire, natural disaster, power loss, or other events, including events associated with our planned expansion of the facility in 2019, could interrupt manufacturing. While we have never experienced any meaningful interruption of manufacturing in our history, any prolonged inability to utilize all or a significant portion of our Andover facility could have a material adverse effect on our results of operations.
Disruption of our information technology infrastructure could adversely affect our business.
We depend heavily on our computing and communications infrastructure to achieve our business objectives, particularly for email communications, financial and operational record keeping, and our computer-integrated manufacturing processes controlling all aspects of our operations in our manufacturing facility in Andover, Massachusetts. If a problem occurs impairing this infrastructure, the resulting disruption could impede our ability to record or process orders, manufacture and ship in a timely manner, or otherwise carry on business in the normal course. Since 2012, we have experienced no interruption of our computing and communications capabilities. While we carry business interruption insurance, to offset financial losses from such an interruption, and cyber-risk insurance to address potential liabilities from such disruption, such insurance may be insufficient to compensate us for the potentially significant costs or liabilities incurred. Any such events, if prolonged, could have a material and adverse effect on our operating results and financial condition.
Our systems are designed to protect us from network security breaches and associated disruptions. However, we remain vulnerable to computer viruses and related software-based challenges to the integrity of our systems, unauthorized or illegalbreak-ins or malicious network hacking, equipment or software sabotage, acts of vandalism to our systems by third parties, and, in the extreme, forms of cyberterrorism. Our security measures or those of our third-party service providers may not detect or prevent such network security breaches or associated disruptions.
Also, we provide confidential information to third-party business partners and/or receive confidential information from third-party business partners in certain circumstances when doing so is necessary to conduct business. As of December 31, 2018, we were compliant with the comprehensive requirements for the protection of controlled unclassified information (“CUI”) as set forth in Special Publication800-171 of the National Institute of Standards and Technology. While we employ confidentiality agreements to protect other sensitive information (i.e., information not considered CUI), our own security measures or those of our third-party service providers may not be sufficient to protect such information in the event the computing infrastructure of these third-party business partners is compromised. Security breaches of our computing and communications infrastructure or that of a third-party business partner could result in the misappropriation or unauthorized release of confidential information belonging to us or to our employees, partners, customers or suppliers, which could result in an interruption to our operations, result in a violation of privacy or other laws, expose us to a risk of litigation, or damage our reputation, any of which could have a material and adverse effect on our operating results and financial condition.
controls over financial reporting are not effective as defined under Section 404, we may be unable to produce reliable financial reports or prevent fraud, which could materially harm our business. In addition, we may be subject to sanctions or investigation by government authorities or self-regulatory organizations, such as the SEC, the Financial Industry Regulatory Authority, or The NASDAQ Stock Market LLC. Any such actions could affect investor perceptions of the Company and result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements, which could cause the market price of our Common Stock to decline or limit our access to capital.
Our ability
Our success dependspayment of future cash dividends on our ability to retain Common Stock; and
ITEM 1B. |
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ITEM 2. |
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Current capital investments are focused inon the expansion of manufacturing capacity for the production of Advanced Products at our Andover Massachusetts facility. Based on our long-term forecast of production levels, we anticipate substantial additional capacity will be required to meet expected requirements beyond 2019. We believe the most appropriate manner2023. During 2020, we began construction of meeting our long-term capacity requirements will be to initially expand the production area of our Andover, Massachusetts facility by approximately 85,000 square feet, through the addition of a two story wing housing ChiP manufacturing equipment. We have entered the design and permitting phase for this project and plan to break ground on this
2023.
ITEM 3. | LEGAL PROCEEDINGS |
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We are the defendant in a patent infringement lawsuit originally filed on January 28, 2011 by SynQor, Inc. (“SynQor”) in the U.S. District Court for the Eastern District of Texas (the “Texas Action”). The complaint, as amended in September 2011, alleges that our products, including but not limited to, unregulated bus converters used in intermediate bus architecture power supply systems, infringe SynQor’s U.S. patent numbers 7,072,190, 7,272,021, 7,564,702, and 8,023,290 (“the ‘190 patent”, “the ‘021 patent”, “the ‘702 patent”, and “the ‘290 patent”, respectively). SynQor’s complaint sought an injunction against further infringement and an award of unspecified compensatory and enhanced damages, interest, costs and attorney fees. We have denied that our products infringe anycomplete description of the SynQor patents, asserted that the SynQor patents are invalid, and asserted that the ‘290 patent is unenforceable due to inequitable conduct by SynQor or its agents during the examination of the ‘290 patent at the United States Patent and Trademark Office (“USPTO”). We also asserted counterclaims seeking damages against SynQor for deceptive trade practices and tortious interference with prospective economic advantage arising from SynQor’s attempted enforcement of its patents against us. On May 23, 2016, after extensive discovery, the Texas Action was stayed by the court pending completion of certaininter partes reexamination proceedings at the USPTO (including any appeals from such proceedings to the Federal Circuit (as defined below)) concerning the SynQor patents, which are described below. On November 2, 2018, SynQor filed a motion to lift the stay of the Texas Action. On January 3, 2019, the Court denied the motion and reaffirmed its original decision that the stay should remain at least until the conclusion of all pendinginter partes reexaminations and related appeals.
In 2011, in response to the filing of the Texas Action, we initiatedinter partes reexamination proceedings at the USPTO challenging the validity of certain claims of the SynQor patents asserted in the Texas Action, including all claims that were asserted against us by SynQor. The current status of these proceedings is as follows. Regarding the ‘190 patent, the United States Court of Appeals for the Federal Circuit (the “Federal Circuit”) issued a decision on March 13, 2015, determining that certain claims were invalid, remanding the matter to the Patent Trial and Appeal Board (“PTAB”) of the USPTO for furtherCompany’s legal proceedings. On May 2, 2016, the PTAB issued a decision affirming the examiner’s original rejection of all but one of the remaining claims of the ‘190 patent, and identifying a new basis for rejecting the remaining claim (“claim 34”), which had been added by SynQor during the reexamination. SynQor then requested further examination of claim 34 by the examiner, pursuant to 37 C.F.R. § 41.77(b)(1). On June 22, 2017, the examiner issued a determination under 37 C.F.R. § 41.77(d), finding claim 34 was unpatentable. That decision is expected to be further reviewed by the PTAB pursuant to 37 C.F.R. § 41.77(f). After the PTAB reviews the examiner’s decision with respect to claim 34, it is expected that the PTAB’s decisions with respect to all of the challenged and still pending claims of the
‘190 patent will be subject to further review by the Federal Circuit. On May 2, 2016, the PTAB also issued decisions finding all challenged claims of SynQor’s ‘021 patent invalid and upholding the validity of all challenged claims of SynQor’s ‘702 and ‘290 patents. On August 30, 2017, the Federal Circuit issued rulings with regard to those decisions. With respect to the ‘021 patent, the Federal Circuit affirmed the PTAB’s determination that all of the challenged claims of the ‘021 patent were invalid. The Federal Circuit remanded the case to the PTAB for further consideration of the patentability of certain claims that had been added by amendment during the reexamination. With respect to the ‘702 patent, the Federal Circuit affirmed the PTAB’s determination that all of the challenged claims of the ‘702 patent were patentable. With respect to the ‘290 patent, the Federal Circuit vacated the PTAB’s decision upholding the patentability of the ‘290 patent claims, and remanded the case to the PTAB for further consideration. The PTAB has not issued any rulings with respect to the ‘290 patent after remand.
On October 31, 2017, we filed a request with the USPTO forex parte reexamination of the asserted claims of the ‘702 patent, based on different prior art references than had been at issue in the previousinter partes reexamination of the ‘702 patent. On December 6, 2017, the USPTO issued a decision initiatingex parte reexamination of the ‘702 patent after finding that our request had raised a substantial new question of patentability of the challenged claims. On March 21, 2018, the examiner issued anon-final office action finding all of the challenged claims of the ‘702 patent to be unpatentable. On May 14, 2018, SynQor filed a petition requesting the USPTO to vacate its prior decision granting our request forex parte reexamination. No action has been taken on the petition to date. On September 12, 2018, the examiner issued a final office action finding all of the challenged claims of the ‘702 patent to be unpatentable. On October 26, 2018, SynQor filed a notice of appeal appealing the examiner’s final rejection to the PTAB. On December 3, 2018, the USPTO denied SynQor’s petition to vacate the decision initiating theex parte reexamination. We continue to monitor the progress of this proceeding.
On August 6, 2018, we filed a request with the USPTO forex parte reexamination of the asserted claims of the ‘190 patent, based on different prior art references than had been at issue in the previousinter partes reexamination of the ‘190 patent. On September 11, 2018, SynQor filed a petition asking the USPTO to reject our request on the ground that it presented substantially the same prior art or arguments presented to the USPTO in the priorinter partes reexamination of the ‘190 patent. On December 3, 2018, the USPTO denied SynQor’s petition to reject ourex parte reexamination request. On December 4, 2018, the USPTO institutedex parte reexamination of the ‘190 patent after finding that our request had raised a substantial new question affecting the patentability of the challenged claims.
On January 23, 2018, the20-year terms of the ‘190 patent, the ‘021 patent and the ‘702 patent expired. The20-year term of the ‘290 patent expired on July 16, 2018. As a consequence of these expirations, we cannot be liable under any of the SynQor patents for allegedly infringing activities occurring after the patents’ respective expiration dates.
We continue to believe none of our products, including our unregulated bus converters, infringe any valid claim of the asserted SynQor patents, either alone or when used in an intermediate bus architecture implementation. We believe SynQor’s claims lack merit and, therefore, we continue to vigorously defend ourself against SynQor’s patent infringement allegations. We do not believe a loss is probable for this matter. If a loss were to be incurred, however, we cannot estimate the amount of possible loss or range of possible loss at this time.
In addition to the SynQor matter, we are involved in certain other litigation and claims incidental to the conduct of our business. While the outcome of lawsuits and claims against us cannot be predicted with certainty, management does not expect any current litigation or claims will have a material adverse impact on our financial position or results of operations.
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Month of Fourth Quarter 2020 | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased Pursuant to November 2000 Plan | Remaining Dollar Value of Shares Authorized For Purchase Pursuant to November 2000 Plan | ||||||||||||
October 1 — 31, 2020 | — | $ | — | — | $ | 8,541,000 | ||||||||||
November 1 — 30, 2020 | — | $ | — | — | $ | 8,541,000 | ||||||||||
December 1 — 31, 2020 | — | $ | — | — | $ | 8,541,000 | ||||||||||
Total | — | $ | — | — | $ | 8,541,000 | ||||||||||
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | |||||||||||||||||
Vicor Corporation | $100.00 | $ | 90.16 | $ | 67.96 | $ | 112.52 | $ | 155.74 | $ | 281.59 | |||||||||||
S&P 500 Index | $100.00 | $ | 113.69 | $ | 115.26 | $ | 129.05 | $ | 157.22 | $ | 150.33 | |||||||||||
S&P SmallCap 600 Index | $100.00 | $ | 105.76 | $ | 103.67 | $ | 131.20 | $ | 148.56 | $ | 135.96 | |||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||||||||||
Vicor Corporation | $100.00 | $ | 165.57 | $ | 229.17 | $ | 414.36 | $ | 512.28 | $ | 1,011.18 | |||||||||||
S&P 500 Index | $100.00 | $ | 111.96 | $ | 136.40 | $ | 130.42 | $ | 171.49 | $ | 203.04 | |||||||||||
S&P SmallCap 600 Index | $100.00 | $ | 126.56 | $ | 143.30 | $ | 131.15 | $ | 161.03 | $ | 179.20 | |||||||||||
ITEM 6. |
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| Year Ended December 31, | ||||||||||||||||||||
Statement of Operations Data | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||
Net revenues | $ | 291,220 | $ | 227,830 | $ | 200,280 | $ | 220,194 | $ | 225,731 | ||||||||||
Net income (loss) from operations | 32,059 | (1,360 | ) | (6,314 | ) | (267 | ) | (14,763 | ) | |||||||||||
Consolidated net income (loss) | 31,846 | 258 | (6,261 | ) | 5,159 | (14,070 | ) | |||||||||||||
Net income (loss) attributable to noncontrolling interest | 121 | 91 | (14 | ) | 232 | (183 | ) | |||||||||||||
Net income (loss) attributable to Vicor Corporation | 31,725 | 167 | (6,247 | ) | 4,927 | (13,887 | ) | |||||||||||||
Net income (loss) per share — basic attributable to Vicor Corporation | 0.80 | 0.00 | (0.16 | ) | 0.13 | (0.36 | ) | |||||||||||||
Net income (loss) per share — diluted attributable to Vicor Corporation | 0.78 | 0.00 | (0.16 | ) | 0.13 | (0.36 | ) | |||||||||||||
Weighted average shares — basic | 39,872 | 39,228 | 38,842 | 38,754 | 38,569 | |||||||||||||||
Weighted average shares — diluted | 40,729 | 39,933 | 38,842 | 39,146 | 38,569 | |||||||||||||||
| As of December 31, | ||||||||||||||||||||
Balance Sheet Data | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
Working capital | $ | 129,062 | $ | 90,796 | $ | 89,545 | $ | 94,905 | $ | 90,321 | ||||||||||
Total assets | 221,068 | 165,724 | 154,067 | 157,545 | 155,542 | |||||||||||||||
Total liabilities | 36,978 | 29,305 | 23,050 | 21,460 | 24,990 | |||||||||||||||
Total equity | 184,090 | 136,419 | 131,017 | 136,085 | 130,552 | |||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
Statement of Operations Data | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
Net revenues | $ | 296,576 | $ | 262,977 | $ | 291,220 | $ | 227,830 | $ | 200,280 | ||||||||||
Income (loss) from operations | 17,368 | 13,821 | 32,059 | (1,360 | ) | (6,314 | ) | |||||||||||||
Consolidated net income (loss) | 17,922 | 14,109 | 31,846 | 258 | (6,261 | ) | ||||||||||||||
Net income (loss) attributable to noncontrolling interest | 12 | 11 | 121 | 91 | (14 | ) | ||||||||||||||
Net income (loss) attributable to Vicor Corporation | 17,910 | 14,098 | 31,725 | 167 | (6,247 | ) | ||||||||||||||
Net income (loss) per share — basic attributable to Vicor Corporation | 0.42 | 0.35 | 0.80 | 0.00 | (0.16 | ) | ||||||||||||||
Net income (loss) per share — diluted attributable to Vicor Corporation | 0.41 | 0.34 | 0.78 | 0.00 | (0.16 | ) | ||||||||||||||
Weighted average shares — basic | 42,186 | 40,330 | 39,872 | 39,228 | 38,842 | |||||||||||||||
Weighted average shares — diluted | 43,869 | 41,677 | 40,729 | 39,933 | 38,842 | |||||||||||||||
As of December 31, | ||||||||||||||||||||
Balance Sheet Data | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||
(In thousands) | ||||||||||||||||||||
Working capital | $ | 276,419 | $ | 149,136 | $ | 129,062 | $ | 90,796 | $ | 89,545 | ||||||||||
Total assets | 396,239 | 240,727 | 221,068 | 165,724 | 154,067 | |||||||||||||||
Total liabilities | 45,084 | 34,857 | 36,978 | 29,305 | 23,050 | |||||||||||||||
Total equity | 351,155 | 205,870 | 184,090 | 136,419 | 131,017 | |||||||||||||||
ITEM 7. |
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We organize and report our operating segments according to our key product lines. Although our Picor Corporation subsidiary was merged with and into the Company in 2018, we continue to report our operating segments as the Brick Business Unit (“BBU”) operating segment, the VI Chip operating segment, and the Picor operating segment, reflecting our historical organizational segmentation and management’s operational oversight. (See Note 16— Picor Merger and Note 17— Segment Information to the Consolidated Financial Statements presented herein for certain financial informationbe associated with the merger of Picor with48V DC distribution, which offers numerous inherent cost and into the Company.)
The BBU segment designs, develops, manufactures,performance advantages over lower distribution voltages. However, we also offer products addressing other DC voltage standards (e.g., 380V for power distribution in data centers, 110V for rail applications, 28V for military and markets our Brick Product lines ofDC-DC convertersavionics applications, and configurable products,24V for industrial automation).
third-party and intra-segment activities of our Vicor Custom Power and VJCL subsidiaries. The VI Chip segmentAdvanced Products category consists of our subsidiary, VI Chip Corporation,more recently introduced products, which designs, develops, manufactures, and markets a range of advanced power converters and power systems, emphasizing implementations ofare largely used to implement our proprietary Factorized Power ArchitectureTM
We categorize our products as either “Advanced Products” or “Brick Products” (referred to in prior reports we filed with the SEC as “Legacy”), generally based on design, performance, and form factor considerations, as well as the range of evolving applications for which the products are appropriate. Revenue from the sale of Advanced Products represents the sum of third party sales of our Picor and VI Chip operating segments. Revenue from the sale of Brick Products represents the sum of third-party revenue of the Brick Business Unit operating segment, inclusive of such sales of our Vicor Custom Power and VJCL subsidiaries. When reporting such revenue, intra-segment and inter-segment revenues are eliminated.
The Advanced Products category consists of our more recently introduced Picor and VI Chip products, which are used to implement FPA designs. function.
2018 Results
volumes, favorable product mix, and improved pricing. The 28% increase in revenue for 2018 compared to 2017 was primarily a result of double-digit percentage increases insupply chain uncertainties, which are often associated with the dollar value of shipments of certain product families across both Advanced Product and Brick Product categories, as well as the start of production shipments in the second halfcyclicality of the yearelectronics industry, regional macroeconomic and trade-related circumstances, and
2018 order bookings increased 27% over 2017 bookings, reflecting customer interest in
Revenue associated with product shipments in 2018 reflected the booking trends discussed above, improving year over year. Revenue for the first half of 2018 reflected backlog expansion that began in 2017, with broad improvement across most product lines. The PRMs and VTMs making up our factorized 48Vto point-of-load solutions were the highest selling products for the year. We also recorded improved revenue across both Advanced Product and Brick Product categories into the third quarter of the year. However, fourth quarter revenue fell short of expectations, primarily because of a single customer’s rescheduling of significant deliveries planned for that quarter.
Gross margins, both in absolute dollars and as a percentage of revenue, increased year over year, reflecting the increase in net revenues and improved mix of products shipped, as well as improved pricing, particularly in Brick Product lines, and higher overhead absorption due to higher unit production volumes. Consolidatedvary meaningfully. Our quarterly gross margin as a percentage of net revenues may vary, depending on production volumes, average selling prices, average unit costs, the mix of products sold during that quarter, and the level of importation of raw materials subject to tariffs. Our quarterly operating margin as a percentage of net revenues also may vary with changes in revenue improved to 47.7% for 2018, from 44.6% for 2017. Meaningful improvements of gross margins were realized across Advanced Product lines, as higher volumes led to lower materialand product level profitability, but our operating costs and improved yields, in addition to higher overhead absorption.
Total operating expenses,are largely associated with compensation and related personnelemployee costs, grew 3.8% from 2017which are not subject to 2018. Marketingsudden or significant changes.
We believe the following considerations may influence our financial performance in 2019:
Operational Considerations
We operate a highly automated electronicsprimary manufacturing facility are located in Andover, Massachusetts, andMassachusetts. However, the Company is designated as essential by the U.S. Department of Homeland Security, given our profitability is closely aligned with production unit volumes. We have invested significantlyrole in state-of-the-art systems, equipment, and robotics, which allow us to generate relatively higher profitability when operating at or near factory capacity, even with a high mix of products produced. However, periods of low volume production and/or brief, low volume production runs contribute to lower profitability, largely due to lower absorption of relatively high manufacturing overhead costs associated with our manufacturing model. While direct labor and associated variable costs generally correlate with volume, manufacturing overhead costs are inflexible and, therefore, problematic during periods of low volume or brief production runs.
We continue to invest in the production capacity to meet our internal volume projections, and believe these projections are reasonable and our investment will be adequate. However, if sustained, uniform, high volume production levels are not achieved, notably in Advanced Products, our product-level profitability likely will not reach the levels necessary to cover our fixed spending, consisting of manufacturing overhead costs and operating costs.
Current capital investments are focused in the expansion of manufacturing capacity for the production of Advanced Products at our Andover facility. Based on our long-term forecast of production levels, we anticipate substantial additional capacity will be required to meet requirements beyond 2019. We believe the most appropriate manner of meeting our long-term capacity requirements will be to initially expand the production area of our Andover facility by approximately 85,000 square feet, through the addition of a two story wing. We have entered the design and permitting phase for this project and plan to break ground on this addition to our existing plant in 2019 and take occupancy in 2020. We also are proceeding with the evaluation of alternative projects for the addition of another, larger manufacturing facility, should we anticipate the need based on our forecasts for capacity beyond 2021. Construction activity can be difficult to schedule, and construction sites can present management and operational challenges. As such, given the proximity of the addition to our existing operations, this construction activity has the potential to disrupt our current operations, which could cause production to be delayed and costs to increase.
Our ability to achieve sustained, high volume production levels is tied to our ability to forecast manufacturing requirements for, and the availability of, a range of inputs, notably raw material inventories. Because we utilize a number of components and other materials of proprietary design, our ability to sustain targeted production schedules and meet customer delivery requirements has been vulnerable to delays or shortages of such inventories, which often cause prices of these components and materials to rise. With the implementation earlier this year of Section 301 Tariffs on certain Chinese goods imported into the United States, we are now exposed to potentially higher costs on certain electronic components and devices we import from China for use in the manufacture of our products. To date, such costs have not been material.
To mitigate supply chain risks, we focus on identifying and reducing potential vulnerabilities to stock-outs, vendor shortages, and similar disruptions. We maintain safety-stock programs for certain critical components and materials, and these programs recently have contributed to increased levels of raw material inventory primarily for Advanced Products. We also have established second-source supply relationships, in order to reduce exposure to material shortages. Although the global electronics supply chain has generally stabilized, we continue to experience lengthened lead times for certain product categories, and our product-level profitability and overall performance could be negatively influenced by an unplanned shortage of a particular component or material. We do not expect lead-times to shorten meaningfully in 2019 and anticipate availability of certain commodity components will remain uncertain into 2019.
We import a range of materials from China used in the manufacture of our products. These products are subject to Section 301 Tariffs that went into effect on July 6, 2018 and August 23, 2018. Given the relatively short length of time since the tariffs were put in effect, our results have not been materially influenced by tariffs incurred on Chinese imports. However, we have assessed the potential amount of additional costs such tariffs may represent going forward and have concluded we will absorb the costs, rather than pass them on to our customers, for the foreseeable future. Should the amount of additional costs expand to be materially higher than our current estimate, we may seek to pass some or all of these costs on to our customers in the form of a surcharge.
As revenue has increased, our operating expenses have declined as a percentage of revenue, although such expenses have not declined meaningfully on an absolute basis. We have expanded and focused our engineering and sales organizations to pursue the promising opportunities afforded by our innovative Advanced Products, and we believe our current level of absolute spending is necessary to
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Market and Macroeconomic Considerations
Based on current customer activity, an expanding customer list, and an expanding backlog, we believe the 48Vto point-of-load opportunity has entered an accelerated, second phase of development, with a broadening of interest, as well as the entry of new vendors offering 48V solutions. OurPower-on-Package solution powering GPUs and ASICs used in AI applications has received strong customer interest, and we have secured significant design wins for the solution. We also believe customer interest in the application of 48V distribution to server racks and datacenter infrastructure is accelerating.supporting industrial sectors considered “critical infrastructure.” As such, we likelyhave continued to operate at, or close to, full manufacturing capacity, although there can be no assurance we will face a more complex competitive landscape, with additional challenges and competitors. Webe able to continue to believe our new products will be adoptedoperate at such levels of manufacturing capacity.
We anticipate aggregate demand for the mature marketspast four quarters. Given ongoing uncertainty, there is no assurance that our financial performance will not continue to be negatively influenced as a result of the pandemic.
2018
year-end,
| Year Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
Net revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Gross margin | 47.7 | % | 44.6 | % | 45.5 | % | ||||||
Selling, general and administrative expenses | 21.4 | % | 25.5 | % | 27.8 | % | ||||||
Research and development expenses | 15.2 | % | 19.7 | % | 20.9 | % | ||||||
Income (loss) before income taxes | 11.3 | % | (0.0 | )% | (3.0 | )% | ||||||
Year Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Net revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Gross margin | 44.3 | % | 46.8 | % | 47.7 | % | ||||||
Selling, general and administrative expenses | 21.3 | % | 23.8 | % | 21.4 | % | ||||||
Research and development expenses | 17.2 | % | 17.7 | % | 15.2 | % | ||||||
Income before income taxes | 6.2 | % | 5.7 | % | 11.3 | % | ||||||
Income Taxes
We make certain estimates, assumptions, and judgments in determining income tax expense for financial statement reporting purposes. These estimates, assumptions, and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain assets and liabilities that arise from differences in the timing and
Deferred Tax Assets
We follow atwo-step process to determine the amount of tax benefit to recognize in our financial statements for tax positions taken on tax returns. The first step is to evaluate the tax position to determine the likelihood it would be sustained upon examination by a tax authority. If the tax position is deemed“more-likely-than-not” to be sustained, the second step is to assess the tax position to determine the amount of tax benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. If the tax position does not meet the“more-likely-than-not” threshold then it is not recognized in the financial statements. We accrue interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. If the estimates, assumptions, and judgments made by us change, the unrecognized tax benefits may have to be adjusted, and such adjustments may be material.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation, referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code,
including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) elimination of the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (3) changing rules related to the usage and limitation of net operating loss carryforwards created in tax years beginning after December 31, 2017; and (4) implementing a territorial tax system, which generally eliminates the U.S. federal income tax on dividends from foreign subsidiaries, and imposes aone-time transition tax on certain earnings of foreign subsidiaries previously untaxed in the United States. We recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. We did not record any adjustments in the year ended December 31, 2018 to these provisional amounts that were material to our financial statements. As of December 31, 2018, our accounting treatment with regards to the Tax Act is complete. Effective for our 2018 tax year, the Tax Act implements certain additional provisions including the Global IntangibleLow-Taxes Income (“GILTI”) inclusion and the Foreign Derived Intangible Income (“FDII”) deduction. We are electing to account for the GILTI inclusion as a period cost.
Lease Accounting
In February 2016, the Financial Accounting Standards Board (“FASB”)
2019
2019.
| Increase | ||||||||||||||||
| 2018 | 2017 | $ | % | |||||||||||||
BBU | $ | 186,704 | $ | 151,702 | $ | 35,002 | 23.1 | % | ||||||||
VI Chip | 81,674 | 59,017 | 22,657 | 38.4 | % | |||||||||||
Picor | 22,842 | 17,111 | 5,731 | 33.5 | % | |||||||||||
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Total | $ | 291,220 | $ | 227,830 | $ | 63,390 | 27.8 | % | ||||||||
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Increase | ||||||||||||||||
2020 | 2019 | $ | % | |||||||||||||
Brick Products | $ | 190,256 | $ | 187,896 | $ | 2,360 | 1.3 | % | ||||||||
Advanced Products | 106,320 | 75,081 | 31,239 | 41.6 | % | |||||||||||
Total | $ | 296,576 | $ | 262,977 | $ | 33,599 | 12.8 | % | ||||||||
Advanced Products.
Income (loss) from operations by reported operating segments and our Corporate segment for the yearsyear ended December 31, were as follows (dollars in thousands):
| Increase (decrease) | ||||||||||||||||
| 2018 | 2017 | $ | % | |||||||||||||
BBU | $ | 22,544 | $ | 5,615 | $ | 16,929 | 301.5 | % | ||||||||
VI Chip | 3,612 | (11,495 | ) | 15,107 | 131.4 | % | ||||||||||
Picor | 7,517 | 5,400 | 2,117 | 39.2 | % | |||||||||||
Corporate | (1,614 | ) | (880 | ) | (734 | ) | (83.4 | )% | ||||||||
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Total | $ | 32,059 | $ | (1,360 | ) | $ | 33,419 | 2457.3 | % | |||||||
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The increase in BBU operating income in 2018 compared to 2017 was due to an increase in revenues2020), a negative influence from production inefficiencies and a related increase in gross margin, partially offset by increases in operating expenses. The primary increases in operating expenses were compensation expenses, audit, tax, and accounting fees, and legal fees. The improvement in VI Chip operating results in 2018 compared to 2017 was due to the increase in revenues and the related increase in gross margin, and decreases in operating expenses. The primary decreases in operating expenses werecost variances associated with lower consumptioninitial production volumes of projectnew products, certain supply chain constraints associated with the
| Increase (decrease) | ||||||||
Compensation | $ | 3,180 | 8.9 | %(1) | ||||
Audit, tax, and accounting fees | 584 | 33.3 | %(2) | |||||
Legal fees | 527 | 40.7 | %(3) | |||||
Advertising expenses | 396 | 14.8 | %(4) | |||||
Employment recruiting | 102 | 70.7 | % | |||||
Depreciation and amortization | (115 | ) | (4.5 | )%(5) | ||||
Royalty expense | (650 | ) | (100.0 | )%(6) | ||||
Other, net | 108 | 0.8 | % | |||||
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| $ | 4,132 | 7.1 | % | |||||
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Increase (decrease) | ||||||||
Compensation | $ | 3,153 | 8.2 | %(1) | ||||
Depreciation and amortization | 318 | 11.3 | %(2) | |||||
Legal fees | 231 | 14.5 | %(3) | |||||
Facilities allocations | (137 | ) | (8.3 | )% | ||||
Outside services | (191 | ) | (8.7 | )%(4) | ||||
Advertising expenses | (281 | ) | (8.5 | )%(5) | ||||
Commissions | (326 | ) | (9.1 | )%(6) | ||||
Travel expense | (1,973 | ) | (63.3 | )%(7) | ||||
Other, net | (188 | ) | (3.2 | )% | ||||
| $ | 606 | 1.0 | % | |||||
| (1) | Increase primarily attributable to non-exempt hourly employees in May |
| (2) | Increase attributable to net additions of furniture and fixtures and capitalization of building improvements. |
| (3) | Increase primarily attributable to higher use of outside legal services associated with the |
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Decrease primarily attributable to a decrease in the use of outside service providers at our Andover, MA facility. |
| (5) | Decrease primarily attributed to |
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| (6) | Decrease primarily attributable to |
| (7) | Decrease primarily attributable to reduced travel by our sales and marketing personnel, due to travel restrictions caused by the COVID-19 pandemic. |
Increase (decrease) | ||||||||
Project andpre-production materials | $ | (1,495 | ) | (21.5 | )%(1) | |||
Compensation | (72 | ) | (0.0 | )%(2) | ||||
Outside services | 98 | 14.6 | % | |||||
Deferred costs | 168 | 14.6 | %(3) | |||||
Facilities expenses | 202 | 9.0 | %(4) | |||||
Supplies expense | 317 | 42.9 | %(5) | |||||
Other, net | 144 | 3.2 | % | |||||
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| $ | (638 | ) | (1.4 | )% | ||||
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Increase (decrease) | ||||||||
Compensation | $ | 2,613 | 7.9 | %(1) | ||||
Deferred costs | 1,004 | 57.6 | %(2) | |||||
Project and pre-production materials | 789 | 11.3 | %(3) | |||||
Computer expense | 170 | 33.3 | % | |||||
Depreciation and amortization | 164 | 9.1 | % | |||||
Overhead absorption | (296 | ) | (33.1 | )%(4) | ||||
Other, net | (116 | ) | (1.7 | )% | ||||
| $4,328 | 9.3% | |||||||
| (1) |
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Increase primarily attributable to non-exempt hourly employees in May |
Increase primarily attributable to a decrease in non-recurring engineering projects for which the related revenues have been deferred. |
Increase primarily attributable to |
Decrease primarily attributable to |
In May 2018, the Company’s management authorized the closure of GPT by the end of 2018. GPT is one of three Vicor Custom Power (“VCP”) entities, located in Manchester, N.H. Certain of GPT’s products will continue to be manufactured and sold by the two remaining VCP entities. As a result, we recordedpre-tax charges of $402,000 in 2018, for the cost of severance and other employee-related costs involving cash payments based on each employee’s respective length of service, and for rent and freight costs.
| 2018 | 2017 | Increase (decrease) | ||||||||||
Rental income | $ | 792 | $ | 792 | $ | — | ||||||
Foreign currency (losses) gains, net | (260 | ) | 323 | (583 | ) | |||||||
Interest income | 257 | 124 | 133 | |||||||||
Gain on disposal of equipment | 57 | 14 | 43 | |||||||||
Credit gains onavailable-for-sale securities | 7 | 11 | (4 | ) | ||||||||
Other | 21 | (2 | ) | 23 | ||||||||
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| $ | 874 | $ | 1,262 | $ | (388 | ) | ||||||
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2020 | 2019 | Increase (decrease) | ||||||||||
Rental income | $ | 792 | $ | 792 | $ | — | ||||||
Foreign currency gains (losses), net | 181 | (108 | ) | 289 | ||||||||
Interest income | 95 | 300 | (205 | ) | ||||||||
Gain on disposal of equipment | 13 | 38 | (25 | ) | ||||||||
Credit gains on available-for-sale | 4 | 4 | — | |||||||||
Other | 8 | 40 | (32 | ) | ||||||||
| $ | 1,093 | $ | 1,066 | $ | 27 | |||||||
Income (loss) before income taxes was $32,933,000 in 2018, as compared to $(98,000) in 2017.
The provision (benefit) for income taxes and the effective income tax rate for the years ended December 31 were as follows (dollars in thousands):
| 2018 | 2017 | |||||||
Provision (benefit) for income taxes | $ | 1,087 | $ | (356 | ) | |||
Effective income tax rate | 3.3 | % | (363.3 | )% | ||||
The 2018 income tax provision includes estimated state and foreign taxes on the Company’spre-tax income. Federal tax expense was offset by net operating loss carryforwards.
In 2017, the benefit for income taxes was primarily due to our AMT credit carryforwards of approximately $736,000 becoming fully refundable in future years, due to the repeal of the corporate AMT under the recently enacted Tax Act, discussed below. The 2017 income tax provision included estimated foreign income taxes and estimated state taxes in jurisdictions in which we do not have net operating loss carryforwards. No tax benefit could be recognized for the majority of our losses during the periods as we maintained a full valuation allowance against all net domestic deferred tax assets due to our inability to project sustained net future taxable income.
See Note 14 to the Consolidated Financial Statements for disclosure regarding our current assessment of the full valuation allowance against all domestic net deferred tax assets, and the possible release (i.e., reduction) of the allowance in the future.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation, referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) elimination of the corporate AMT and changing how existing AMT credits can be realized; (3) changing rules related to the usage and limitation of net operating loss carryforwards created in tax years beginning after December 31, 2017; and (4) implementing a territorial tax system, which generally eliminates the U.S. federal income tax on dividends from foreign subsidiaries, and imposes aone-time transition tax on certain earnings of foreign subsidiaries previously untaxed in the United States. Effective for our 2018 tax year, the Tax Act implements certain additional provisions including the Global IntangibleLow-Taxes Income (“GILTI”) inclusion and the Foreign Derived Intangible Income (“FDII”) deduction. We are electing to account for the GILTI inclusion as a period cost.
Net income per diluted share attributable to Vicor Corporation was $0.78 for the year ended December 31, 2018, compared to net income per diluted share of $0.00 for the year ended December 31, 2017.
Year ended December 31, 2017 compared to Year ended December 31, 2016
Consolidated net revenues for 2017 were $227,830,000, an increase of $27,550,000, or 13.8%, as compared to $200,280,000 for 2016.
Net revenues, by segment, for the years ended December 31 were as follows (dollars in thousands):
| Increase | ||||||||||||||||
| 2017 | 2016 | $ | % | |||||||||||||
BBU | $ | 151,702 | $ | 151,429 | $ | 273 | 0.2 | % | ||||||||
VI Chip | 59,017 | 38,369 | 20,648 | 53.8 | % | |||||||||||
Picor | 17,111 | 10,482 | 6,629 | 63.2 | % | |||||||||||
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|
| |||||||||||
Total | $ | 227,830 | $ | 200,280 | $ | 27,550 | 13.8 | % | ||||||||
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| |||||||||||
The overall increase in consolidated net revenues was primarily due to an overall 20.2% increase in bookings for the year ended December 31, 2017, compared to the year ended December 31, 2016. BBU, VI Chip, and Picor bookings increased by 6.9%, 54.5% and 57.0%, respectively. The increase in BBU revenues was primarily attributable to an increase in Vicor Custom Power revenues of $3,803,000, partially offset by a decrease in BBU module and configurable product revenues of approximately $3,455,000. Increases in revenues recorded by VI Chip and Picor for the year ended December 31, 2017 were associated largely with fulfillment of increased orders for our 48 volt topoint-of-load solutions.
Gross margin for 2017 increased $10,447,000, or 11.5%, to $101,656,000 from $91,209,000 in 2016. Despite the increase in net revenues, gross,margin as a percentage of net revenues decreased to 44.6% in 2017 from 45.5% in 2016, primarily due to a less favorable product mix, most notably the result of a higher proportion of lower margin VI Chip revenues.
Income (loss) from operations by segment for the years ended December 31 were as follows (dollars in thousands):
Increase (Decrease) | ||||||||||||||||
| 2017 | 2016 | $ | % | |||||||||||||
BBU | $ | 5,615 | $ | 11,750 | $ | (6,135 | ) | (52.2 | )% | |||||||
VI Chip | (11,495 | ) | (16,494 | ) | 4,999 | 30.3 | % | |||||||||
Picor | 5,400 | (637 | ) | 6,037 | 947.7 | % | ||||||||||
Corporate | (880 | ) | (933 | ) | 53 | 5.7 | % | |||||||||
|
|
|
|
|
| |||||||||||
Total | $ | (1,360 | ) | $ | (6,314 | ) | $ | 4,954 | 78.5 | % | ||||||
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|
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| |||||||||||
The decrease in BBU operating profit in 2017 compared to 2016 was primarily due to a decrease in gross margin, despite the increase in revenues, and an increase in operating expenses. The primary increases in operating expenses were compensation expenses and royalty expenses associated with a reassessment of our contingent consideration obligations tied to our acquisitions, in late 2015 and early 2016, of the equity of two Vicor Custom Power subsidiaries that we did not already own. The decrease in VI Chip operating loss in 2017 compared to 2016 was due to the increase in revenues and the related increase in gross margin, partially offset by increases in operating expenses. The primary increases in operating expenses were compensation expenses and project andpre-production materials expenses. The VI Chip segment continued to incur significant operating losses as revenue volume and related gross margins are not sufficient to cover fixed manufacturing costs and operating expenses, particularly research and development expenses. The improvement in Picor operating results in 2017 compared to 2016 was due to the increase in revenues and the related increase in gross margin.
Selling, general, and administrative expenses were $58,092,000 for 2017, an increase of $2,417,000, or 4.3%, as compared to $55,675,000 for 2016. As a percentage of net revenues, selling, general, and administrative expenses decreased to 25.5% in 2017 from 27.8% in 2016, primarily due to the increase in net revenues.
The components of the $2,417,000 increase in selling, general, and administrative expenses were as follows (dollars in thousands):
Increase (decrease) | ||||||||
Compensation | $ | 1,954 | 5.8 | %(1) | ||||
Royalty expense | 650 | 100.0 | %(2) | |||||
Advertising expenses | 422 | 18.7 | %(3) | |||||
Audit, tax, and accounting fees | (150 | ) | (7.9 | )%(4) | ||||
Depreciation and amortization | (160 | ) | (5.9 | )%(5) | ||||
Telephone expense | (166 | ) | (14.5 | )%(6) | ||||
Outside services | (172 | ) | (8.6 | )%(7) | ||||
Legal fees | (273 | ) | (17.4 | )%(8) | ||||
Other, net | 312 | 3.0 | % | |||||
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| |||||||
| $ | 2,417 | 4.3 | % | |||||
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Research and development expenses increased $3,076,000, or 7.4%, to $44,924,000 in 2017 from $41,848,000 in 2016. As a percentage of net revenues, research and development decreased to 19.7% in 2017 from 20.9% in 2016, primarily due to the increase in net revenues.
The components of the $3,076,000 increase in research and development expenses were as follows (dollars in thousands):
Increase (decrease) | ||||||||
Compensation | $ | 2,121 | 7.3 | %(1) | ||||
Project andpre-production materials | 1,151 | 19.9 | %(2) | |||||
Facilities expenses | 316 | 16.4 | %(3) | |||||
Supplies expense | (167 | ) | (18.4 | )%(4) | ||||
Deferred costs | (213 | ) | (22.7 | )%(5) | ||||
Outside services | (245 | ) | (23.5 | )%(6) | ||||
Other, net | 113 | 2.8 | % | |||||
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| |||||||
| $ | 3,076 | 7.4 | % | |||||
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The significant changes in the components of “Other income, net” for the years ended December 31 were as follows (in thousands):
| 2017 | 2016 | Increase (decrease) | ||||||||||
Rental income | $ | 792 | $ | 462 | $ | 330 | ||||||
Foreign currency gains (losses), net | 323 | (268 | ) | 591 | ||||||||
Interest income | 124 | 68 | 56 | |||||||||
Gain (loss) on disposal of equipment | 14 | (4 | ) | 18 | ||||||||
Credit gains onavailable-for-sale securities | 11 | 13 | (2 | ) | ||||||||
Other | (2 | ) | 13 | (15 | ) | |||||||
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| |||||||
| $ | 1,262 | $ | 284 | $ | 978 | |||||||
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During the second quarter of 2016, we began recognizing rental income under a new leasing agreement with a third party for the former Westcor facility. Our exposure to market risk fluctuations in foreign currency exchange rates relate primarily to the operations of VJCL, for which the functional currency is the Japanese Yen. The functional currency of all other subsidiaries in Europe and Asia is the U.S. Dollar. While our Vicor B.V. operation also potentially exposes us to exchange rate risk, as that subsidiary’s sales are denominated in Euros and Pounds Sterling, any periodic gains or losses associated with exchange rate fluctuations are small, given the small U.S. Dollar value of shipments we make to Vicor B.V.
LossIncome before income taxes was $(98,000)$18,461,000 in 2017,2020, as compared to $(6,030,000)$14,887,000 in 2016.
2019.
| 2017 | 2016 | |||||||
(Benefit) provision for income taxes | $ | (356 | ) | $ | 231 | |||
Effective income tax rate | (363.3 | )% | 3.8 | % | ||||
In 2017,
2020 | 2019 | |||||||
Provision for income taxes | $ | 539 | $ | 778 | ||||
Effective income tax rate | 2.9 | % | 5.2 | % | ||||
We adopted new guidance for employee stock-based payment accounting during the first quarter of 2017. The new guidance, among other considerations, requires excess tax benefits and tax deficiencies related to employee stock-based compensation to now be recorded in earnings when the awards vest or are settled, rather than in stockholders’ equity under previous guidance. In addition, it eliminates the requirement that excess tax benefits be realized with the taxing authority before they can be recognized. In connection with the adoption of this new guidance, we recorded a cumulative-effect adjustment as of January 1, 2017 to increase gross deferred tax assets, and the related valuationpossible release (i.e., reduction) of the allowance against deferred tax assets by $3,485,000. This amount was allocated and added to deferred tax assets for research and development tax credit carryforwards, net operating loss carryforwards and the alternative minimum tax credit carryforward but, as noted above, was fully offset by a corresponding increase in the valuation allowance against deferred tax assets, resulting in nofuture.
Net income per diluted share attributable to Vicor Corporation was $0.00 for the year ended December 31, 2017,2020 of $17,910,000, or $0.41 per diluted share, as compared to a net loss$14,098,000, or $0.34 per diluted share, of $(0.16) for the year ended December 31, 2016.
2019.
| Increase (decrease) | ||||
Cash and cash equivalents | $ | 26,327 | ||
Accounts receivable | 9,186 | |||
Inventories | 10,871 | |||
Other current assets | (156 | ) | ||
Accounts payable | (7,084 | ) | ||
Accrued compensation and benefits | (766 | ) | ||
Accrued expenses | 358 | |||
Sales allowances | (548 | ) | ||
Accrued severance charges | (234 | ) | ||
Income taxes payable | (410 | ) | ||
Deferred revenue | 722 | |||
|
| |||
| $ | 38,266 | |||
|
| |||
Increase (decrease) | ||||
Cash and cash equivalents | $ | 77,074 | ||
Short-term investments | 50,166 | |||
Accounts receivable | 2,884 | |||
Inventories | 8,082 | |||
Other current assets | (340 | ) | ||
Accounts payable | (5,116 | ) | ||
Accrued compensation and benefits | (3,684 | ) | ||
Accrued expenses | 66 | |||
Sales allowances | 144 | |||
Short-term lease liabilities | (109 | ) | ||
Income taxes payable | (82 | ) | ||
Short-term deferred revenue and customer prepayments | (1,802 | ) | ||
| $ | 127,283 | |||
property and equipment.
| Payments Due by Period | ||||||||||||||||||||
Contractual Obligations | Total | Less than 1 Year | Years 2 & 3 | Years 4 & 5 | More Than 5 Years | |||||||||||||||
Operating lease obligations | $ | 5,429 | $ | 1,962 | $ | 2,190 | $ | 815 | $ | 462 | ||||||||||
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| |||||||||||
We have
Payments Due by Period | ||||||||||||||||||||
Contractual Obligations | Total | Less than 1 Year | Years 2 & 3 | Years 4 & 5 | More Than 5 Years | |||||||||||||||
Operating lease obligations (1) | $ | 4,919 | $ | 1,740 | $ | 2,199 | $ | 980 | $ | — | ||||||||||
| (1) | For further information, refer to Note 13 to the Consolidated Financial Statements, Leases 10-K. |
2020.
February 28, 2019
2019
| 2018 | 2017 | |||||||
| ASSETS |
| |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 70,557 | $ | 44,230 | ||||
Accounts receivable, less allowance of $224 in 2018 and $159 in 2017 | 43,673 | 34,487 | ||||||
Inventories, net | 47,370 | 36,499 | ||||||
Other current assets | 3,460 | 3,616 | ||||||
|
|
|
| |||||
Total current assets | 165,060 | 118,832 | ||||||
Long-term deferred tax assets | 265 | 210 | ||||||
Long-term investment, net | 2,526 | 2,525 | ||||||
Property, plant and equipment, net | 50,432 | 41,356 | ||||||
Other assets | 2,785 | 2,801 | ||||||
|
|
|
| |||||
Total assets | $ | 221,068 | $ | 165,724 | ||||
|
|
|
| |||||
| LIABILITIES AND EQUITY |
| |||||||
Current liabilities: | ||||||||
Accounts payable | $ | 16,149 | $ | 9,065 | ||||
Accrued compensation and benefits | 10,657 | 9,891 | ||||||
Accrued expenses | 2,631 | 2,989 | ||||||
Sales allowances | 548 | — | ||||||
Accrued severance and other charges | 234 | — | ||||||
Income taxes payable | 710 | 300 | ||||||
Deferred revenue | 5,069 | 5,791 | ||||||
|
|
|
| |||||
Total current liabilities | 35,998 | 28,036 | ||||||
Long-term deferred revenue | 232 | 303 | ||||||
Contingent consideration obligations | 408 | 678 | ||||||
Long-term income taxes payable | 238 | 195 | ||||||
Other long-term liabilities | 102 | 93 | ||||||
|
|
|
| |||||
Total liabilities | 36,978 | 29,305 | ||||||
Commitments and contingencies (Note 15) | ||||||||
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 2018 and 2017 | 118 | 118 | ||||||
Common Stock: 1 vote per share, $.01 par value, 62,000,000 shares authorized 40,066,710 shares issued and 28,430,971 shares outstanding in 2018; 39,324,029 shares issued and 27,652,543 shares outstanding in 2017 | 402 | 401 | ||||||
Additionalpaid-in capital | 193,457 | 181,395 | ||||||
Retained earnings | 129,000 | 93,605 | ||||||
Accumulated other comprehensive loss | (394 | ) | (478 | ) | ||||
Treasury stock at cost: 11,635,739 shares in 2018 and 11,671,486 shares in 2017 | (138,927 | ) | (138,927 | ) | ||||
|
|
|
| |||||
Total Vicor Corporation stockholders’ equity | 183,656 | 136,114 | ||||||
Noncontrolling interest | 434 | 305 | ||||||
|
|
|
| |||||
Total equity | 184,090 | 136,419 | ||||||
|
|
|
| |||||
Total liabilities and equity | $ | 221,068 | $ | 165,724 | ||||
|
|
|
| |||||
2020 | 2019 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 161,742 | $ | 84,668 | ||||
Short-term investments | 50,166 | — | ||||||
Accounts receivable, less allowance of $82 in 2020 and $59 in 2019 | 40,999 | 38,115 | ||||||
Inventories, net | 57,269 | 49,187 | ||||||
Other current assets | 6,756 | 7,096 | ||||||
Total current assets | 316,932 | 179,066 | ||||||
Long-term deferred tax assets | 226 | 205 | ||||||
Long-term investment, net | 2,517 | 2,510 | ||||||
Property, plant and equipment, net | 74,843 | 56,952 | ||||||
Other assets | 1,721 | 1,994 | ||||||
Total assets | $ | 396,239 | $ | 240,727 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 14,121 | $ | 9,005 | ||||
Accrued compensation and benefits | 14,094 | 10,410 | ||||||
Accrued expenses | 2,624 | 2,690 | ||||||
Sales allowances | 597 | 741 | ||||||
Short-term lease liabilities | 1,629 | 1,520 | ||||||
Income taxes payable | 139 | 57 | ||||||
Short-term deferred revenue and customer prepayments | 7,309 | 5,507 | ||||||
Total current liabilities | 40,513 | 29,930 | ||||||
Long-term deferred revenue | 733 | 1,054 | ||||||
Contingent consideration obligations | 227 | 451 | ||||||
Long-term income taxes payable | 643 | 567 | ||||||
Long-term lease liabilities | 2,968 | 2,855 | ||||||
Total liabilities | 45,084 | 34,857 | ||||||
Commitments and contingencies (Note 17) | 0 | 0 | ||||||
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 2020 and 2019 | 118 | 118 | ||||||
Common Stock: 1vote per share, $.01 par value, 62,000,000 shares authorized 43,204,671 shares issued and 31,569,865 shares outstanding in 2020; 40,403,058 shares issued and 28,768,252 shares outstanding in 2019 | 433 | 405 | ||||||
Additional paid-in capital | 328,392 | 201,251 | ||||||
Retained earnings | 161,008 | 143,098 | ||||||
Accumulated other comprehensive loss | (204 | ) | (383 | ) | ||||
Treasury stock at cost: 11,634,806 shares in 2020 and 2019 | (138,927 | ) | (138,927 | ) | ||||
Total Vicor Corporation stockholders’ equity | 350,820 | 205,562 | ||||||
Noncontrolling interest | 335 | 308 | ||||||
Total equity | 351,155 | 205,870 | ||||||
Total liabilities and equity | $ | 396,239 | $ | 240,727 | ||||
2018
| 2018 | 2017 | 2016 | ||||||||||
Net revenues | $ | 291,220 | $ | 227,830 | $ | 200,280 | ||||||
Cost of revenues | 152,249 | 126,174 | 109,071 | |||||||||
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| |||||||
Gross margin | 138,971 | 101,656 | 91,209 | |||||||||
Operating expenses: | ||||||||||||
Selling, general and administrative | 62,224 | 58,092 | 55,675 | |||||||||
Research and development | 44,286 | 44,924 | 41,848 | |||||||||
Severance and other charges | 402 | — | — | |||||||||
|
|
|
|
|
| |||||||
Total operating expenses | 106,912 | 103,016 | 97,523 | |||||||||
|
|
|
|
|
| |||||||
Income (loss) from operations | 32,059 | (1,360 | ) | (6,314 | ) | |||||||
Other income (expense), net: | ||||||||||||
Total unrealized gains (losses) onavailable-for-sale securities, net | 1 | 17 | (18 | ) | ||||||||
Portion of losses (gains) recognized in other comprehensive income (loss) | 6 | (6 | ) | 31 | ||||||||
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|
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|
|
| |||||||
Net credit gains recognized in earnings | 7 | 11 | 13 | |||||||||
Other income (expense), net | 867 | 1,251 | 271 | |||||||||
|
|
|
|
|
| |||||||
Total other income (expense), net | 874 | 1,262 | 284 | |||||||||
|
|
|
|
|
| |||||||
Income (loss) before income taxes | 32,933 | (98 | ) | (6,030 | ) | |||||||
Less: Provision (benefit) for income taxes | 1,087 | (356 | ) | 231 | ||||||||
|
|
|
|
|
| |||||||
Consolidated net income (loss) | 31,846 | 258 | (6,261 | ) | ||||||||
Less: Net income (loss) attributable to noncontrolling interest | 121 | 91 | (14 | ) | ||||||||
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|
| |||||||
Net income (loss) attributable to Vicor Corporation | $ | 31,725 | $ | 167 | $ | (6,247 | ) | |||||
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| |||||||
Net income (loss) per common share attributable to Vicor Corporation: | ||||||||||||
Basic | $ | 0.80 | $ | 0.00 | $ | (0.16 | ) | |||||
Diluted | $ | 0.78 | $ | 0.00 | $ | (0.16 | ) | |||||
Shares used to compute net income (loss) per common share attributable to Vicor Corporation: | ||||||||||||
Basic | 39,872 | 39,228 | 38,842 | |||||||||
Diluted | 40,729 | 39,933 | 38,842 | |||||||||
2020 | 2019 | 2018 | ||||||||||
Net revenues | $ | 296,576 | $ | 262,977 | $ | 291,220 | ||||||
Cost of revenues | 165,129 | 140,011 | 152,249 | |||||||||
Gross margin | 131,447 | 122,966 | 138,971 | |||||||||
Operating expenses: | ||||||||||||
Selling, general and administrative | 63,163 | 62,557 | 62,224 | |||||||||
Research and development | 50,916 | 46,588 | 44,286 | |||||||||
Severance and other charges | — | — | 402 | |||||||||
Total operating expenses | 114,079 | 109,145 | 106,912 | |||||||||
Income from operations | 17,368 | 13,821 | 32,059 | |||||||||
Other income (expense), net: | ||||||||||||
Total unrealized gains (losses) on available-for-sale | 7 | (16 | ) | 1 | ||||||||
Portion of losses (gains) recognized in other comprehensive income (loss) | (3 | ) | 20 | 6 | ||||||||
Net credit gains recognized in earnings | 4 | 4 | 7 | |||||||||
Other income (expense), net | 1,089 | 1,062 | 867 | |||||||||
Total other income (expense), net | 1,093 | 1,066 | 874 | |||||||||
Income before income taxes | 18,461 | 14,887 | 32,933 | |||||||||
Less: Provision for income taxes | 539 | 778 | 1,087 | |||||||||
Consolidated net income | 17,922 | 14,109 | 31,846 | |||||||||
Less: Net income attributable to noncontrolling interest | 12 | 11 | 121 | |||||||||
Net income attributable to Vicor Corporation | $ | 17,910 | $ | 14,098 | $ | 31,725 | ||||||
Net income per common share attributable to Vicor Corporation: | ||||||||||||
Basic | $ | 0.42 | $ | 0.35 | $ | 0.80 | ||||||
Diluted | $ | 0.41 | $ | 0.34 | $ | 0.78 | ||||||
Shares used to compute net income per common share attributable to Vicor Corporation: | ||||||||||||
Basic | 42,186 | 40,330 | 39,872 | |||||||||
Diluted | 43,869 | 41,677 | 40,729 | |||||||||
2018
| 2018 | 2017 | 2016 | ||||||||||
Consolidated net income (loss) | $ | 31,846 | $ | 258 | $ | (6,261 | ) | |||||
Foreign currency translation gains, net of tax benefit (1) | 98 | 83 | 52 | |||||||||
Unrealized (losses) gains onavailable-for-sale securities, net of tax (1) | (6 | ) | 6 | (31 | ) | |||||||
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|
|
|
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| |||||||
Other comprehensive income | 92 | 89 | 21 | |||||||||
|
|
|
|
|
| |||||||
Consolidated comprehensive income (loss) | 31,938 | 347 | (6,240 | ) | ||||||||
Less: Comprehensive income (loss) attributable to noncontrolling interest | 129 | 97 | (9 | ) | ||||||||
|
|
|
|
|
| |||||||
Comprehensive income (loss) attributable to Vicor Corporation | $ | 31,809 | $ | 250 | $ | (6,231 | ) | |||||
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| |||||||
2020 | 2019 | 2018 | ||||||||||
Consolidated net income | $ | 17,922 | $ | 14,109 | $ | 31,846 | ||||||
Foreign currency translation gains, net of tax benefit (1) | 200 | 33 | 98 | |||||||||
Unrealized losses on available-for-sale | (6 | ) | (20 | ) | (6 | ) | ||||||
Other comprehensive income | 194 | 13 | 92 | |||||||||
Consolidated comprehensive income | 18,116 | 14,122 | 31,938 | |||||||||
Less: Comprehensive income attributable to noncontrolling interest | 27 | 13 | 129 | |||||||||
Comprehensive income attributable to Vicor Corporation | $ | 18,089 | $ | 14,109 | $ | 31,809 | ||||||
| (1) | The deferred tax assets associated with cumulative foreign currency translation gains and cumulative unrealized |
2018
| 2018 | 2017 | 2016 | ||||||||||
Operating activities: | ||||||||||||
Consolidated net income (loss) | $ | 31,846 | $ | 258 | $ | (6,261 | ) | |||||
Adjustments to reconcile consolidated net income (loss) to net cash provided by (used for) operating activities: | ||||||||||||
Depreciation and amortization | 9,254 | 8,893 | 8,438 | |||||||||
Stock-based compensation expense | 3,396 | 1,735 | 506 | |||||||||
Increase (decrease) in long-term income taxes payable | 43 | (1 | ) | 4 | ||||||||
Deferred income taxes | (55 | ) | (172 | ) | (78 | ) | ||||||
Decrease in long-term deferred revenue | (71 | ) | (71 | ) | (94 | ) | ||||||
Increase in other long-term liabilities | 9 | 93 | — | |||||||||
(Gain) loss on disposal of equipment | (57 | ) | (14 | ) | 4 | |||||||
Provision (benefit) for doubtful accounts | 65 | 6 | (22 | ) | ||||||||
Credit gain onavailable-for-sale securities | (7 | ) | (11 | ) | (13 | ) | ||||||
Increase in refundable income taxes | — | (736 | ) | — | ||||||||
Increase in contingent consideration obligations | — | 650 | — | |||||||||
Increase in other assets | — | — | (505 | ) | ||||||||
Change in current assets and liabilities, net | (8,252 | ) | (13,094 | ) | (1,435 | ) | ||||||
|
|
|
|
|
| |||||||
Net cash provided by (used for) operating activities | 36,171 | (2,464 | ) | 544 | ||||||||
Investing activities: | ||||||||||||
Additions to property, plant and equipment | (18,211 | ) | (12,545 | ) | (8,428 | ) | ||||||
Proceeds from sale of equipment | 57 | 14 | 2 | |||||||||
(Decrease) increase in other assets | (85 | ) | 5 | (93 | ) | |||||||
|
|
|
|
|
| |||||||
Net cash used for investing activities | (18,239 | ) | (12,526 | ) | (8,519 | ) | ||||||
Financing activities: | ||||||||||||
Proceeds from issuance of Common Stock | 8,656 | 3,300 | 1,584 | |||||||||
Payment of contingent consideration obligations | (270 | ) | (225 | ) | (99 | ) | ||||||
Deconsolidation of subsidiary | — | — | (372 | ) | ||||||||
|
|
|
|
|
| |||||||
Net cash provided by financing activities | 8,386 | 3,075 | 1,113 | |||||||||
Effect of foreign exchange rates on cash | 9 | (25 | ) | 52 | ||||||||
|
|
|
|
|
| |||||||
Net increase (decrease) in cash and cash equivalents | 26,327 | (11,940 | ) | (6,810 | ) | |||||||
Cash and cash equivalents at beginning of year | 44,230 | 56,170 | 62,980 | |||||||||
|
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| |||||||
Cash and cash equivalents at end of year | $ | 70,557 | $ | 44,230 | $ | 56,170 | ||||||
|
|
|
|
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| |||||||
Change in current assets and liabilities, excluding effects of deconsolidation of subsidiary: | ||||||||||||
Accounts receivable | $ | (8,834 | ) | $ | (9,210 | ) | $ | 780 | ||||
Inventories, net | (10,827 | ) | (9,309 | ) | (3,677 | ) | ||||||
Other current assets | 176 | (357 | ) | (158 | ) | |||||||
Accounts payable and accrued liabilities | 7,450 | 3,186 | 339 | |||||||||
Accrued severance and other charges | 234 | — | (195 | ) | ||||||||
Income taxes payable | 410 | 208 | 61 | |||||||||
Deferred revenue | 3,139 | 2,388 | 1,415 | |||||||||
|
|
|
|
|
| |||||||
Change in current assets and liabilities, net | $ | (8,252 | ) | $ | (13,094 | ) | $ | (1,435 | ) | |||
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| |||||||
Supplemental disclosures: | ||||||||||||
Cash paid during the year for income taxes, net of refunds | $ | 743 | $ | 373 | $ | 230 | ||||||
2020 | 2019 | 2018 | ||||||||||
Operating activities: | ||||||||||||
Consolidated net income | $ | 17,922 | $ | 14,109 | $ | 31,846 | ||||||
| Adjustments to reconcile consolidated net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 11,056 | 10,334 | 9,254 | |||||||||
Stock-based compensation expense | 5,883 | 3,036 | 3,396 | |||||||||
(Decrease) increase in long-term deferred revenue | (321 | ) | 822 | (71 | ) | |||||||
Increase in long-term income taxes payable | 76 | 329 | 43 | |||||||||
Deferred income taxes | (21 | ) | 60 | (55 | ) | |||||||
Increase in other long-term liabilities | — | — | 9 | |||||||||
Gain on disposal of equipment | (13 | ) | (38 | ) | (57 | ) | ||||||
Provision (recovery) for doubtful accounts | 23 | (144 | ) | 65 | ||||||||
Credit gain on available-for-sale | (4 | ) | (4 | ) | (7 | ) | ||||||
Increase in contingent consideration obligations | — | 280 | — | |||||||||
Change in current assets and liabilities, net | (54 | ) | (6,576 | ) | (8,252 | ) | ||||||
Net cash provided by operating activities | 34,547 | 22,208 | 36,171 | |||||||||
Investing activities: | ||||||||||||
Purchases of short-term investments | (50,166 | ) | — | — | ||||||||
Additions to property, plant and equipment | (28,653 | ) | (12,485 | ) | (18,211 | ) | ||||||
Proceeds from sale of equipment | 13 | 38 | 57 | |||||||||
Decrease (increase) in other assets | 182 | (35 | ) | (85 | ) | |||||||
Net cash used for investing activities | (78,624 | ) | (12,482 | ) | (18,239 | ) | ||||||
Financing activities: | ||||||||||||
| Proceeds from public offering of Common Stock | 109,681 | — | — | |||||||||
| Proceeds from employee stock plans | 11,585 | 4,742 | 8,656 | |||||||||
Payment of contingent consideration obligations | (224 | ) | (237 | ) | (270 | ) | ||||||
Noncontrolling interest dividend paid | — | (139 | ) | — | ||||||||
Net cash provided by financing activities | 121,042 | 4,366 | 8,386 | |||||||||
Effect of foreign exchange rates on cash | 109 | 19 | 9 | |||||||||
Net increase in cash and cash equivalents | 77,074 | 14,111 | 26,327 | |||||||||
Cash and cash equivalents at beginning of year | 84,668 | 70,557 | 44,230 | |||||||||
Cash and cash equivalents at end of year | $ | 161,742 | $ | 84,668 | $ | 70,557 | ||||||
| Change in current assets and liabilities: | ||||||||||||
Accounts receivable | $ | (2,816 | ) | $ | 5,714 | $ | (8,834 | ) | ||||
Inventories, net | (8,049 | ) | (1,812 | ) | (10,827 | ) | ||||||
Other current assets | 369 | (2,895 | ) | 176 | ||||||||
Accounts payable and accrued liabilities | 8,668 | (7,339 | ) | 7,450 | ||||||||
Accrued severance and other charges | — | (234 | ) | 234 | ||||||||
Short-term lease payable | 34 | 12 | — | |||||||||
Income taxes payable | 82 | (653 | ) | 410 | ||||||||
Deferred revenue | 1,658 | 631 | 3,139 | |||||||||
Change in current assets and liabilities, net | $ | (54 | ) | $ | (6,576 | ) | $ | (8,252 | ) | |||
Supplemental disclosures: | ||||||||||||
Cash paid during the year for income taxes, net of refunds | $ | 79 | $ | 2,194 | $ | 743 | ||||||
2018
| 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 | ||||||||||||||||||||||||||||
Balance on December 31, 2015 | $ | 118 | $ | 395 | $ | 174,337 | $ | 99,685 | $ | (577 | ) | $ | (138,927 | ) | $ | 135,031 | $ | 1,054 | $ | 136,085 | ||||||||||||||||
Sales of Common Stock | 2 | 1,587 | 1,589 | 1,589 | ||||||||||||||||||||||||||||||||
Acquisition of noncontrolling interest | (81 | ) | (81 | ) | (837 | ) | (918 | ) | ||||||||||||||||||||||||||||
Stock-based compensation expense | 506 | 506 | 506 | |||||||||||||||||||||||||||||||||
Net settlement stock option exercises | (5 | ) | (5 | ) | (5 | ) | ||||||||||||||||||||||||||||||
Components of comprehensive income, net of tax | ||||||||||||||||||||||||||||||||||||
Net (loss) | (6,247 | ) | (6,247 | ) | (14 | ) | (6,261 | ) | ||||||||||||||||||||||||||||
Other comprehensive income | 16 | 16 | 5 | 21 | ||||||||||||||||||||||||||||||||
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Total comprehensive (loss) | (6,231 | ) | (9 | ) | (6,240 | ) | ||||||||||||||||||||||||||||||
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Balance on December 31, 2016 | 118 | 397 | 176,344 | 93,438 | (561 | ) | (138,927 | ) | 130,809 | 208 | 131,017 | |||||||||||||||||||||||||
Sales of Common Stock | 4 | 3,296 | 3,300 | 3,300 | ||||||||||||||||||||||||||||||||
Stock-based compensation expense | 1,735 | 1,735 | 1,735 | |||||||||||||||||||||||||||||||||
Other | 20 | 20 | 20 | |||||||||||||||||||||||||||||||||
Components of comprehensive income, net of tax | ||||||||||||||||||||||||||||||||||||
Net income | 167 | 167 | 91 | 258 | ||||||||||||||||||||||||||||||||
Other comprehensive income | 83 | 83 | 6 | 89 | ||||||||||||||||||||||||||||||||
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Total comprehensive income | 250 | 97 | 347 | |||||||||||||||||||||||||||||||||
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Balance on December 31, 2017 | 118 | 401 | 181,395 | 93,605 | (478 | ) | (138,927 | ) | 136,114 | 305 | 136,419 | |||||||||||||||||||||||||
Sales of Common Stock | 6 | 6,776 | 6,782 | 6,782 | ||||||||||||||||||||||||||||||||
Stock-based compensation expense | 3,396 | 3,396 | 3,396 | |||||||||||||||||||||||||||||||||
Issuances of stock through employee stock purchase plan | 1 | 1,873 | 1,874 | 1,874 | ||||||||||||||||||||||||||||||||
Cumulative effect of adoption of new accounting principle (Topic 606) | 3,670 | 3,670 | 3,670 | |||||||||||||||||||||||||||||||||
Other | (6 | ) | 17 | 11 | 11 | |||||||||||||||||||||||||||||||
Components of comprehensive income, net of tax | ||||||||||||||||||||||||||||||||||||
Net income | 31,725 | 31,725 | 121 | 31,846 | ||||||||||||||||||||||||||||||||
Other comprehensive income | 84 | 84 | 8 | 92 | ||||||||||||||||||||||||||||||||
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Total comprehensive income | 31,809 | 129 | 31,938 | |||||||||||||||||||||||||||||||||
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Balance on December 31, 2018 | $ | 118 | $ | 402 | $ | 193,457 | $ | 129,000 | $ | (394 | ) | $ | (138,927 | ) | $ | 183,656 | $ | 434 | $ | 184,090 | ||||||||||||||||
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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 | ||||||||||||||||||||||||||||
Balance on December 31, 2017 | $ | 118 | $ | 401 | $ | 181,395 | $ | 93,605 | $ | (478 | ) | $ | (138,927 | ) | $ | 136,114 | $ | 305 | $ | 136,419 | ||||||||||||||||
Issuance of Common Stock under employee stock plans | 7 | 8,649 | 8,656 | 8,656 | ||||||||||||||||||||||||||||||||
Stock-based compensation expense | 3,396 | 3,396 | 3,396 | |||||||||||||||||||||||||||||||||
Cumulative effect of adoption of new accounting principle (Topic 606) | 3,670 | 3,670 | 3,670 | |||||||||||||||||||||||||||||||||
Other | (6 | ) | 17 | 11 | 11 | |||||||||||||||||||||||||||||||
Components of comprehensive income, net of ta x | ||||||||||||||||||||||||||||||||||||
Net income | 31,725 | 31,725 | 121 | 31,846 | ||||||||||||||||||||||||||||||||
Other comprehensive income | 84 | 84 | 8 | 92 | ||||||||||||||||||||||||||||||||
Total comprehensive income | 31,809 | 129 | 31,938 | |||||||||||||||||||||||||||||||||
Balance on December 31, 2018 | 118 | 402 | 193,457 | 129,000 | (394 | ) | (138,927 | ) | 183,656 | 434 | 184,090 | |||||||||||||||||||||||||
Issuance of Common Stock under employee stock plans | 3 | 4,739 | 4,742 | 4,742 | ||||||||||||||||||||||||||||||||
Stock-based compensation expense | 3,036 | 3,036 | 3,036 | |||||||||||||||||||||||||||||||||
Noncontrolling interest dividend paid | — | (139 | ) | (139 | ) | |||||||||||||||||||||||||||||||
Other | 19 | 19 | 19 | |||||||||||||||||||||||||||||||||
Components of comprehensive income, net of tax | ||||||||||||||||||||||||||||||||||||
Net income | 14,098 | 14,098 | 11 | 14,109 | ||||||||||||||||||||||||||||||||
Other comprehensive income | 11 | 11 | 2 | 13 | ||||||||||||||||||||||||||||||||
Total comprehensive income | 14,109 | 13 | 14,122 | |||||||||||||||||||||||||||||||||
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 | 11,575 | 11,585 | 11,585 | ||||||||||||||||||||||||||||||||
Issuance of Common Stock in public offering, net (See Note 1 0 ) | 18 | 109,663 | 109,681 | 109,681 | ||||||||||||||||||||||||||||||||
Stock-based compensation expense | 5,883 | 5,883 | 5,883 | |||||||||||||||||||||||||||||||||
Other | 20 | 20 | 20 | |||||||||||||||||||||||||||||||||
Components of comprehensive income, net of tax | ||||||||||||||||||||||||||||||||||||
Net income | 17,910 | 17,910 | 12 | 17,922 | ||||||||||||||||||||||||||||||||
Other comprehensive income | 179 | 179 | 15 | 194 | ||||||||||||||||||||||||||||||||
Total comprehensive income | 18,089 | 27 | 18,116 | |||||||||||||||||||||||||||||||||
Balance on December 31, 2020 | $ | 118 | $ | 433 | $ | 328,392 | $ | 161,008 | $ | (204 | ) | $ | (138,927 | ) | $ | 350,820 | $ | 335 | $ | 351,155 | ||||||||||||||||
areas
Recently Adopted Accounting Standards
Revenue Recognition
In May 2014,
years ended December 31, 2017
The following tables summarize the impactslong-term investment, the Company compares the present value of adoptingcash flows expected to be collected to the new revenue recognition guidance on certain componentsamortized cost basis of the Company’s consolidated financial statements (in thousands):
|
| As of December 31, 2018 | ||||||||||||
| As reported | Adjustments | Balances without adoption of Topic 606 | ||||||||||
Accounts receivable, net | $ | 43,673 | $ | (72 | ) | $ | 43,601 | |||||
Inventories, net | 47,370 | (110 | ) | 47,260 | ||||||||
Total assets | 221,068 | (182 | ) | 220,886 | ||||||||
Income taxes payable | 710 | (59 | ) | 651 | ||||||||
Deferred revenue | 5,069 | 5,768 | 10,837 | |||||||||
Sales allowances | 548 | (483 | ) | 65 | ||||||||
Total liabilities | 36,978 | 5,226 | 42,204 | |||||||||
Retained earnings | 129,000 | (5,408 | ) | 123,592 | ||||||||
Total equity | 184,090 | (5,408 | ) | 178,682 | ||||||||
Total liabilities and equity | 221,068 | (182 | ) | 220,886 | ||||||||
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| Year Ended December 31, 2018 | ||||||||||||
| As reported | Adjustments | Balances without adoption of Topic 606 | ||||||||||
Net revenues | $ | 291,220 | $ | (3,946 | ) | $ | 287,274 | |||||
Cost of revenues | 152,249 | (2,149 | ) | 150,100 | ||||||||
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Gross margin | 138,971 | (1,797 | ) | 137,174 | ||||||||
Income before income taxes | 32,933 | (1,797 | ) | 31,136 | ||||||||
Provision for income taxes | 1,087 | (59 | ) | 1,028 | ||||||||
Consolidated net income | 31,846 | (1,738 | ) | 30,108 | ||||||||
Net income attributable to Vicor Corporation | 31,725 | (1,738 | ) | 29,987 | ||||||||
security, considering credit default risk probabilities and changes in credit ratings, among other factors.
Prior to January 1, 2018
Product revenue was recognized(expense), net” in the period when persuasive evidenceConsolidated Statements of an arrangement with a customer existed, the products were shipped and title was transferred to the customer, the price was fixed or determinable, and collection was considered probable.
The Company deferred revenue and the related costOperations.
Level 1 | Inputs used to measure fair value are unadjusted quoted prices available in active markets for the identical assets or liabilities as of the reporting date. | |
Level 2 | Inputs used to measure fair value, other than quoted prices included in Level 1, are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in inactive markets. Level 2 also includes assets and liabilities valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument. | |
Level 3 | Inputs used to measure fair value are unobservable inputs supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. | |
per return. The Company evaluated revenue arrangements with potential multi-element deliverables to determine if there were more than one unitperiodically assesses the adequacy of accounting. A deliverable constituted a separate unit of accounting when it had standalone valuewarranty reserves and there were no customer-negotiated refund or return rights foradjusts the undelivered elements. The Company entered into arrangements containing multiple elements that could include a combination ofnon-recurring engineering services (“NRE”), prototype units, and production units. The Company determined NRE and prototype units represented one unit of accounting and production units represented a separate unit of accounting, based on an assessment ofamounts as necessary. Warranty obligations are included in “Accrued expenses” in the respective standalone value. The Company deferred revenueaccompanying Consolidated Balance Sheets.
License fees were recognized as earned. The Company recognized revenue on such arrangements only when the contract was signed, the license term had begun, all obligations had been delivered to the customer, and collection was probable.
Subsequent to January 1, 2018
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
customers for the Company’s power converters and systems are large original equipment manufacturersOEMs, ODMs and the original design manufacturers and contract manufacturers serving them, and smaller, lower volume users, which are broadly distributed across several major market areas. The Company recognizes revenue for product sales at a point in time following the transfer of control of such products to the customer, including sales to stocking distributors, which typically occurs upon shipment or delivery, depending on the terms of the underlying contract. As noted above, theThe Company previously deferred revenue and the related cost of revenuesestablishes sales allowances on shipments to stocking distributors until the distributors resold the products to their customers. The Company now records revenue for such transactions at the time of sale to the stocking distributor. The Company establishes sales allowances for estimated future product returns including distributor returns and price adjustment credits, primarily based upon historical and anticipated rates of product returns and allowances.
above
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the Company’s net revenues disaggregated by geography based on the location of the customer, by reportable segment, (in thousands):
| Year Ended December 31, 2018 | ||||||||||||||||
| BBU | VI Chip | Picor | Total | |||||||||||||
United States | $ | 77,995 | $ | 30,118 | $ | 2,666 | $ | 110,779 | ||||||||
Europe | 23,484 | 3,883 | 322 | 27,689 | ||||||||||||
Asia Pacific | 80,097 | 47,174 | 19,807 | 147,078 | ||||||||||||
All other | 5,128 | 499 | 47 | 5,674 | ||||||||||||
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| $ | 186,704 | $ | 81,674 | $ | 22,842 | $ | 291,220 | |||||||||
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The following table presents the Company’s net revenues disaggregated by the category of revenue, by reportable segment, (in thousands):
| Year Ended December 31, 2018 | ||||||||||||||||
| BBU | VI Chip | Picor | Total | |||||||||||||
Direct customers, contract manufacturers andnon-stocking distributors | $ | 163,206 | $ | 70,919 | $ | 20,660 | $ | 254,785 | ||||||||
Stocking distributors, net of sales allowances | 22,362 | 7,653 | 1,717 | 31,732 | ||||||||||||
Non-recurring engineering | 1,066 | 2,996 | 360 | 4,422 | ||||||||||||
Royalties | 70 | 70 | 70 | 210 | ||||||||||||
Other | — | 36 | 35 | 71 | ||||||||||||
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| $ | 186,704 | $ | 81,674 | $ | 22,842 | $ | 291,220 | |||||||||
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The following table presents the changes in certain contract assets and (liabilities) (in thousands):
| December 31, 2018 | December 31, 2017 | Increase (decrease) | ||||||||||
Accounts receivable | $ | 43,673 | $ | 34,487 | $ | 9,186 | ||||||
Deferred revenue | (3,820 | ) | (5,015 | ) | 1,195 | |||||||
Deferred expenses | 501 | 859 | (358 | ) | ||||||||
Customer prepayments | (1,250 | ) | (776 | ) | (474 | ) | ||||||
Sales allowances | (548 | ) | — | (548 | ) | |||||||
The increase in accounts receivable was primarily due to an increase in net revenues of approximately $14,949 in the fourth quarter of 2018 compared to the fourth quarter of 2017. The decrease in deferred revenue was primarily due to the adoption of the new revenue recognition guidance, as the balances related to stocking distributors were reversed as part of the transition adjustment recorded as of January 1, 2018 (seeRecently Adopted Accounting Standards, above). The increase in sales allowances was due to the establishment of new allowances, in connection with the new revenue recognition guidance, for potential returns and price adjustment credits on sales to stocking distributors.
Deferred expenses are included in Other current assets, and customer prepayments are included in Deferred revenue, in the accompanying Consolidated Balance Sheets, respectively.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Recently Adopted Accounting Standards
In June 2018, the FASB issued new guidance, Improvements to Nonemployee Share-Based Payment Accounting, which more closely aligns the accounting for share-based paymentsto non-employees with the accounting for share-based payments to employees. This new guidance is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Company early-adopted the new standard on July 1, 2018. The adoption of this new guidance did not have a material impact on its consolidated financial statements and related disclosures.
In May 2017, the FASB issued guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718, Compensation — Stock Compensation. The new guidance is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. The Company adopted the new standard on January 1, 2018. The adoption of this new guidance did not have a material impact on its consolidated financial statements and related disclosures.
In August 2016, the FASB issued guidance to clarify how certain cash receipts and cash payments should be presented in the statement of cash flows. These include debt prepayment, settlementof zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees and beneficial interests in securitization transactions. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company adopted the new standard on January 1, 2018. The adoption of this new guidance did not have a material impact on its consolidated financial statements and related disclosures.
Foreign currency translation
The financial statements of Vicor Japan Company, Ltd. (“VJCL”), a majority-owned subsidiary, for which the functional currency is the Japanese Yen, have been translated into U.S. Dollars using the exchange rate in effect at the balance sheet date for balance sheet amounts and the average exchange rates in effect during the year for income statement amounts. The gains and losses resulting from the changes in exchange rates from year to year have been reported in other comprehensive income.
Transaction gains and losses resulting from the remeasurement of foreign currency denominated assets and liabilities of the Company’s foreign subsidiaries where the functional currency is the U.S. Dollar are included in other income (expense), net. Foreign currency gains (losses) included in other income (expense), net, were approximately $(260,000), $323,000, and $(268,000) in 2018, 2017, and 2016, respectively.
Cash and cash equivalents
Cash and cash equivalents include funds held in disbursement (i.e., checking) and money market accounts, certificates of deposit, and debt securities with maturities of less than three months at the time of purchase. Cash and cash equivalents are valued at cost, approximating market value. The Company’s money market securities, which are classified as cash equivalents on the balance sheet, are purchased and redeemed at par value. Their estimated fair value is equal to their cost, and, due to the nature of the securities and their classification as cash equivalents, there are no unrealized gains or losses recorded at the balance sheet dates.
Long-term investment
The Company’s principal sources of liquidity are its existing balances of cash and cash equivalents, as well as cash generated from operations. Consistent with the guidelines of the Company’s investment policy, the
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company can invest, and has historically invested, its cash balances in demand deposit accounts, money market funds, and auction rate securities meeting certain quality criteria. The Company’s long-term investment is subject to credit, liquidity, market, and interest rate risk.
The Company’s long-term investment, which is a debt security, is classified as anavailable-for-sale security. Theavailable-for-sale security is recorded at fair value, with unrealized gains and losses, net of tax, attributable to credit loss recorded through the Consolidated Statement of Operations and unrealized gains and losses, net of tax, attributable to othernon-credit factors recorded in “Accumulated other comprehensive loss,” a component of Total Equity. In determining the amount of credit loss, the Company compares 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, among other factors.
The amortized cost of the debt security is adjusted for amortization of premiums and accretion of discounts to maturity, the net amount of which, along with interest and realized gains and losses, is included in “Other income (expense), net” in the Consolidated Statements of Operations. The Company periodically evaluates the investment to determine if impairment is required, whether an impairment is other than temporary, and the measurement of an impairment loss. The Company considers a variety of impairment indicators such as, but not limited to, a significant deterioration in the earnings performance, credit rating, or asset quality of the investment.
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 that 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:
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The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of these financial instruments.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Inventories
Inventories are valued at the lower of cost (determined using thefirst-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 and handling costs incurred in connection with the sale of products are included in cost of revenues.
The Company provides reserves for inventories estimated to be excess, obsolete, or unmarketable. The Company’s estimation process for assessing net realizable value is based upon its known backlog, projected future demand, historical consumption and expected market conditions. If the Company’s estimated demand and/or market expectations 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.
Concentrations of risk
Financial instruments potentially subjecting the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, of which a significant portion is held by one financial institution, its long-term investment, and trade accounts receivable. The Company maintains cash and cash equivalents and certain other financial instruments with various large financial institutions. Generally, amounts invested with these financial institutions are in excess of federal deposit insurance limits. The Company has not experienced any losses in such accounts, and management believes the Company is not exposed to significant credit risk. The Company’s long-term investment as of December 31, 2018 consists of a single auction rate security with a par value of $3,000,000, which is collateralized by student loans. It is a highly rated (Aaa/AA+) municipal and corporate debt security. Through December 31, 2018, auctions held for the Company’s auction rate security have failed. The funds associated with an auction rate security that has failed auction may not be accessible until a successful auction occurs, a buyer is found outside of the auction process, the security is called, or the underlying securities have matured. If the credit rating of the issuer of the auction rate security held deteriorates, the Company may be required to adjust the carrying value of the investment for an other-than-temporary decline in value through an impairment charge. The Company’s investment policy, approved by the Board of Directors, limits the amount the Company may invest in any issuer, thereby reducing credit risk concentrations.
The Company’s products are sold worldwide to customers ranging from smaller, independent manufacturers of highly specialized electronic devices, to larger OEMs and their contract manufacturers. The Company’s Brick Business Unit (“BBU”) segment has customers concentrated in aerospace and defense electronics, industrial automation, industrial equipment, instrumentation and test equipment, and transportation (e.g., rail). The Company’s other segments, the VI Chip subsidiary and Picor (see Note 17) have customers concentrated in computing (voltage distribution in server racks and across datacenter infrastructure), although they also target applications in aerospace and aviation, defense electronics, industrial automation, instrumentation, test equipment, solid state lighting, telecommunications and networking infrastructure and vehicles (e.g., in autonomous driving applications, electric vehicles, and hybrid electric vehicles). While, overall, the Company has a broad customer base and sells into a variety of industries, VI Chip and Picor have derived a substantial portion of their revenue from a limited number of customers. This concentration of revenue is a reflection of the relatively early stage of adoption of the technologies, architectures and products offered by these subsidiaries, and their targeting of market leading innovators as initial customers. Concentrations of credit risk with respect to trade accounts receivable are limited due to the number of entities comprising the Company’s customer base. As of December 31, 2018 and 2017, one customer accounted for approximately 14.3% and 17.5%, respectively, of trade account receivables.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Components and materials used in the Company’s products are purchased from a variety of vendors. While most of the components are available from multiple sources, some key components for certain VI Chip and Picor products, in particular, are supplied by single vendors. In instances of single source items, the Company maintains levels of inventories management considers appropriate to enable meeting the delivery requirements of customers. If suppliers or subcontractors cannot provide their products or services on time or to the required specifications, the Company may not be able to meet the demand for its products and its delivery times may be negatively affected.
Long-lived assets
The Company reviews property, plant and equipment and finite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying value of such assets may not be recoverable. Management determines whether the carrying value of an asset or asset group is recoverable based on comparison to the undiscounted expected future cash flows the assets are expected to generate over their remaining economic lives. If an asset value is not recoverable, the impairment loss is equal to the amount by which the carrying value of the asset exceeds its fair value, which is determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique. Evaluation of impairment of long-lived assets requires estimates of future operating results that are used in the preparation of the expected future undiscounted cash flows. Actual future operating results and the remaining economic lives of our long-lived assets could differ from the estimates used in assessing the recoverability of these assets. These differences could result in impairment charges, which could be material.
Intangible assets
Values assigned to patents are amortized using the straight-line method over periods ranging from three to 20 years. Patents and other intangible assets are included in “Other assets” in the accompanying Consolidated Balance Sheets.
Advertising expense
Product warranties
The Company generally offers atwo-year warranty for all of its products, though it has extended the warranty period to three years for certain military grade products sold after January 1, 2017. The Company is party to a limited number of supply agreements with certain customers contractually committing the Company to warranty and indemnification requirements exceeding those to which the Company has been exposed in the past. The Company provides for the estimated cost of product warranties at the time product revenue is recognized. Factors influencing the Company’s warranty reserves include the number of units sold, historical and anticipated rates of warranty returns, and the cost per return. The Company periodically assesses the adequacy of warranty reserves and adjusts the amounts as necessary. Warranty obligations are included in “Accrued expenses” in the accompanying Consolidated Balance Sheets.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net income (loss) per common share
The Company computes basic net income (loss) per share using the weighted average number of common shares outstanding and diluted net income (loss) per share using the weighted average number of common shares outstanding plus the effect of outstanding dilutive stock options, if any. The following table sets forth the computation of basic and diluted net income (loss) per share for the years ended December 31 (in thousands, except per share amounts):
| 2018 | 2017 | 2016 | ||||||||||
Numerator: | ||||||||||||
Net income (loss) attributable to Vicor Corporation | $ | 31,725 | $ | 167 | $ | (6,247 | ) | |||||
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Denominator: | ||||||||||||
Denominator for basic net income (loss) per share-weighted average shares (1) | 39,872 | 39,228 | 38,842 | |||||||||
Effect of dilutive securities: | ||||||||||||
Employee stock options (2) | 857 | 705 | — | |||||||||
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Denominator for diluted net income (loss) per share-adjusted weighted-average shares and assumed conversions (3) | 40,729 | 39,933 | 38,842 | |||||||||
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Basic net income (loss) per share | $ | 0.80 | $ | 0.00 | $ | (0.16 | ) | |||||
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Diluted net income (loss) per share | $ | 0.78 | $ | 0.00 | $ | (0.16 | ) | |||||
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Income taxes
Deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted income tax rates and laws expected to be in effect when the temporary differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if management determines it is more likely than not that some portion or all of the deferred tax assets will not be realized. All deferred tax assets and liabilities are classified as noncurrent.
The Company follows atwo-step process to determine the amount of tax benefit to recognize. The first step is to evaluate the tax position to determine the likelihood it would be sustained upon examination by a tax authority. If the tax position is deemed“more-likely-than-not” to be sustained, the second step is to assess the tax position to determine the amount of tax benefit to be recognized in the financial statements. The amount of the benefit that may be recognized is the largest amount that possesses greater than 50 percent likelihood of being realized upon ultimate settlement. If the tax position does not meet the“more-likely-than-not” threshold, then it is not recognized in the financial statements. Additionally, the Company accrues interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. The unrecognized tax benefits, including accrued interest and penalties, if any, are included in “Long-term income taxes payable” in the accompanying Consolidated Balance Sheets.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2020 | 2019 | 2018 | ||||||||||
Numerator: | ||||||||||||
Net income attributable to Vicor Corporation | $ | 17,910 | $ | 14,098 | $ | 31,725 | ||||||
Denominator: | ||||||||||||
Denominator for basic net income per share-weighted average shares (1) | 42,186 | 40,330 | 39,872 | |||||||||
Effect of dilutive securities: | ||||||||||||
Employee stock options (2) | 1,683 | 1,347 | 857 | |||||||||
Denominator for diluted net income per share-adjusted weighted-average shares and assumed conversions (3) | 43,869 | 41,677 | 40,729 | |||||||||
Basic net income per share | $ | 0.42 | $ | 0.35 | $ | 0.80 | ||||||
Diluted net income per share | $ | 0.41 | $ | 0.34 | $ | 0.78 | ||||||
| (1) | Denominator represents weighted average number of Common Shares and Class B Common Shares outstanding. |
| (2) | Options to purchase 181,196, 164,367 and 67,247 shares of Common Stock in 2020, 2019, and 2018, respectively, were not included in the calculation of net income per share as the effect would have been antidilutive. |
| (3) | Denominator represents weighted average number of Common Shares and Class B Common Shares outstanding for the year, adjusted to include the dilutive effect, if any, of outstanding options. |
Lease Accounting
In February 2016, the FASB issued new guidance for lease accounting, which will require lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. The new guidance establishes aright-of-use model (“ROU”) that will require a lessee to recognize a ROU asset and a lease liability on the balance sheet for all leases with a term longer than twelve months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and accounting for sales-type and direct financing leases. The majority of the Company’s leases are for certain of its office and manufacturing space, along with several automobiles. The Company is a party to one arrangement as the lessor, for its former Westcor facility located in Sunnyvale, California.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The new standard is effective for the Company of January 1, 2019, with early adoption permitted. The Company plans to adopt the new guidance on its effective date. The new standard must be adopted using a modified retrospective transition approach, applying the guidance to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of application. The Company plans to adopt the new standard on January 1, 2019 and use the effective date as our date of initial application. As a result, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.
The new standard provides a number of optional practical expedients. The Company expects to elect the ‘package of practical expedients’, which permits companies to not reassess under the new standard lease identification, lease classification and initial direct costs. The Company does not plan to elect theuse-of-hindsight or the practical expedient pertaining to land easements, the latter not being applicable.
The Company estimates the adoption of the standard will result in recognition of ROU assets and lease liabilities of approximately $4,500,000, as of January 1, 2019. The implementation team’s remaining tasks are to complete documentation for the systems and controls to support the lease recognition and disclosure requirements under the new standard, and to complete the required disclosures in preparation for filing the Company’s Form10-Q for the quarter ending March 31, 2019.
2020 | 2019 | |||||||
Raw materials | $ | 42,556 | $ | 35,901 | ||||
Work-in-process | 7,424 | 5,184 | ||||||
Finished goods | 7,289 | 8,102 | ||||||
| $ | 57,269 | $ | 49,187 | |||||
December 31, 2020 | ||||||||||||
Cash and Cash Equivalents | Short-Term Investments | Long-Term Investments | ||||||||||
Measured at fair value: | ||||||||||||
Available-for-sale | ||||||||||||
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 | ||||||
December 31, 2019 | ||||||||||||
Cash and Cash Equivalents | Short-Term Investments | Long-Term Investments | ||||||||||
Measured at fair value: | ||||||||||||
Available-for-sale | ||||||||||||
Money Market Funds | $ | 9,630 | $ | — | $ | — | ||||||
Failed Auction Security | — | — | 2,510 | |||||||||
Total | 9,630 | — | 2,510 | |||||||||
Other measurement basis: | ||||||||||||
Cash on hand | 75,038 | — | — | |||||||||
Total | $ | 84,668 | $ | — | $ | 2,510 | ||||||
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 | ||||||||||||
December 31, 2019 | ||||||||||||||||
Failed Auction Security | $ | 3,000 | $ | — | $ | 490 | $ | 2,510 | ||||||||
U.S. Treasury Obligations: | ||||||||
Cost | Estimated Fair Value | |||||||
Maturities greater than three months but less than one year | $ | 50,174 | $ | 50,166 | ||||
| Maturities less than three months | 19,998 | 19,998 | ||||||
| $ | 70,172 | $ | 70,164 | |||||
Failed Auction Security: | ||||||||
Cost | Estimated Fair Value | |||||||
| Due in twenty to forty years | $ | 3,000 | $ | 2,517 | ||||
2020 | 2019 | 2018 | ||||||||||
Balance at the beginning of the period | $ | 37 | $ | 41 | $ | 48 | ||||||
Reductions in the amount related to credit gain for which other-than-temporary impairment was not previously recognized | (4 | ) | (4 | ) | (7 | ) | ||||||
Balance at the end of the period | $ | 33 | $ | 37 | $ | 41 | ||||||
Using | ||||||||||||||||
Quoted Prices in Active Markets (Level 1) | Significant 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 investments: | �� | |||||||||||||||
Failed Auction Security | — | — | 2,517 | 2,517 | ||||||||||||
Liabilities: | ||||||||||||||||
Contingent consideration obligations | — | — | (227 | ) | (227 | ) | ||||||||||
Using | ||||||||||||||||
Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value as of December 31, 2019 | |||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | $ | 9,630 | $ | — | $ | — | $ | 9,630 | ||||||||
Long-term investments: | ||||||||||||||||
Failed Auction Security | — | — | 2,510 | 2,510 | ||||||||||||
Liabilities: | ||||||||||||||||
Contingent consideration obligations | — | — | (451 | ) | (451 | ) | ||||||||||
Fair Value | Valuation Technique | Unobservable Input | Weighted Average | |||||||||
Failed Auction Security | $ | 2,517 | Discounted cash flow | Cumulative probability of earning the maximum rate until maturity | 0.14 | % | ||||||
| Cumulative probability of principal return prior to maturity | 93.62 | % | ||||||||||
| Cumulative probability of default | 6.23 | % | ||||||||||
| Liquidity risk premium | 5.00 | % | ||||||||||
| Recovery rate in default | 40.00 | % | ||||||||||
Balance at the beginning of the period | $ | 2,510 | ||
Credit gain on available-for-sale | 4 | |||
Gain included in Other comprehensive income | 3 | |||
Balance at the end of the period | $ | 2,517 | ||
Balance at the beginning of the period | $ | 451 | ||
Payments | (224 | ) | ||
Balance at the end of the period | $ | 227 | ||
2020 | 2019 | |||||||
Land | $ | 3,600 | $ | 3,600 | ||||
Buildings and improvements | 45,905 | 45,791 | ||||||
Machinery and equipment | 233,635 | 220,405 | ||||||
Furniture and fixtures | 8,429 | 8,231 | ||||||
Construction in-progress and deposits | 17,987 | 4,362 | ||||||
| 309,556 | 282,389 | |||||||
Accumulated depreciation and amortization | (239,162 | ) | (229,698 | ) | ||||
Right of use asset — net | 4,449 | 4,261 | ||||||
Net balance | $ | 74,843 | $ | 56,952 | ||||
2020 | 2019 | |||||||
Patent costs | $ | 1,859 | $ | 1,992 | ||||
Accumulated amortization | (1,434 | ) | (1,483 | ) | ||||
| $ | 425 | $ | 509 | |||||
2020 | 2019 | 2018 | ||||||||||
Balance at the beginning of the period | $ | 372 | $ | 268 | $ | 290 | ||||||
Accruals for warranties for products sold in the period | 366 | 250 | 173 | |||||||||
Fulfillment of warranty obligations | (398 | ) | (140 | ) | (117 | ) | ||||||
Revisions of estimated obligations | (32 | ) | (6 | ) | (78 | ) | ||||||
Balance at the end of the period | $ | 308 | $ | 372 | $ | 268 | ||||||
Twelve Months Ended December 31, 2020 | ||||||||||||
Brick Products | Advanced Products | Total | ||||||||||
United States | $ | 80,065 | $ | 25,493 | $ | 105,558 | ||||||
Europe | 23,491 | 6,641 | 30,132 | |||||||||
Asia Pacific | 83,985 | 73,899 | 157,884 | |||||||||
All other | 2,715 | 287 | 3,002 | |||||||||
| $ | 190,256 | $ | 106,320 | $ | 296,576 | |||||||
Twelve Months Ended December 31, 2019 | ||||||||||||
Brick Products | Advanced Products | Total | ||||||||||
United States | $ | 98,822 | $ | 22,806 | $ | 121,628 | ||||||
Europe | 22,172 | 5,090 | 27,262 | |||||||||
Asia Pacific | 62,720 | 46,107 | 108,827 | |||||||||
All other | 4,182 | 1,078 | 5,260 | |||||||||
| $ | 187,896 | $ | 75,081 | $ | 262,977 | |||||||
Twelve Months Ended December 31, 2018 | ||||||||||||
Brick Products | Advanced Products | Total | ||||||||||
United States | $ | 77,995 | $ | 32,784 | $ | 110,779 | ||||||
Europe | 23,484 | 4,205 | 27,689 | |||||||||
Asia Pacific | 80,097 | 66,981 | 147,078 | |||||||||
All other | 5,128 | 546 | 5,674 | |||||||||
| $ | 186,704 | $ | 104,516 | $ | 291,220 | |||||||
Twelve Months Ended December 31, 2020 | ||||||||||||
Brick Products | Advanced Products | Total | ||||||||||
Direct customers, contract manufacturers and non-stocking distributors | $ | 160,004 | $ | 91,405 | $ | 251,409 | ||||||
Stocking distributors, net of sales allowances | 29,411 | 8,510 | 37,921 | |||||||||
Non-recurring engineering | 841 | 6,181 | 7,022 | |||||||||
Royalties | — | 152 | 152 | |||||||||
Other | — | 72 | 72 | |||||||||
| $ | 190,256 | $ | 106,320 | $ | 296,576 | |||||||
Twelve Months Ended December 31, 2019 | ||||||||||||
Brick Products | Advanced Products | Total | ||||||||||
Direct customers, contract manufacturers and non-stocking distributors | $ | 159,135 | $ | 63,567 | $ | 222,702 | ||||||
Stocking distributors, net of sales allowances | 27,797 | 9,802 | 37,599 | |||||||||
Non-recurring engineering | 843 | 1,614 | 2,457 | |||||||||
Royalties | 121 | 24 | 145 | |||||||||
Other | — | 74 | 74 | |||||||||
| $ | 187,896 | $ | 75,081 | $ | 262,977 | |||||||
Twelve Months Ended December 31, 2018 | ||||||||||||
Brick Products | Advanced Products | Total | ||||||||||
Direct customers, contract manufacturers and non-stocking distributors | $ | 163,206 | $ | 91,579 | $ | 254,785 | ||||||
Stocking distributors, net of sales allowances | 22,362 | 9,370 | 31,732 | |||||||||
Non-recurring engineering | 1,066 | 3,356 | 4,422 | |||||||||
Royalties | 70 | 140 | 210 | |||||||||
Other | — | 71 | 71 | |||||||||
| $ | 186,704 | $ | 104,516 | $ | 291,220 | |||||||
December 31, 2020 | December 31, 2019 | Change | ||||||||||
Accounts receivable | $ | 40,999 | $ | 38,115 | $ | 2,884 | ||||||
Short-term deferred revenue and customer prepayments | (7,309 | ) | (5,507 | ) | (1,802 | ) | ||||||
Long-term deferred revenue | (733 | ) | (1,054 | ) | 321 | |||||||
Deferred expenses | 1,650 | 1,897 | (247 | ) | ||||||||
Sales allowances | (597 | ) | (741 | ) | 144 | |||||||
2020 | 2019 | 2018 | ||||||||||
United States | $ | 105,558 | $ | 121,628 | $ | 110,779 | ||||||
Europe | 30,132 | 27,262 | 27,689 | |||||||||
Asia Pacific | 157,884 | 108,827 | 147,078 | |||||||||
All other | 3,002 | 5,260 | 5,674 | |||||||||
| $ | 296,576 | $ | 262,977 | $ | 291,220 | |||||||
Picor Corporation (“Picor”) was a privately held, majority-owned subsidiary of Vicor until May 30, 2018, at which date it was merged with and into Vicor, and its separate corporate existence ceased (see Note 16). Until that time, Picor could grant stock options under thePicor Corporation Amended and Restated 2001 Stock Option and Incentive Plan (the “2001 Picor Plan”), that had been approved by its Board of Directors. All awards thereunder were approved by the Compensation Committee of the Company’s Board of Directors. To effect the merger, holders of Picor Common Stock and Picor stock options received an equivalent value of Vicor Common Stock and Vicor stock options, respectively, pursuant to the assumption of the 2001 Picor Plan, and options outstanding thereunder, by Vicor. No additional awards will be granted under the assumed and restated 2001 Picor Plan.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
VI Chip Corporation (“VI Chip”), a privately held, majority-owned subsidiary of Vicor, currently grants stock options under the following equity compensation plan that has been approved by its Board of Directors:
VI Chip Corporation Amended and Restated 2007 Stock Option and Incentive Plan (the “2007 VI Chip Plan”) — Under the 2007 VI Chip Plan, the Board of Directors of VI Chip may grant equity-based awards associated with VI Chip Common Stock, including stock options, restricted stock, or unrestricted stock. Awards may be granted to employees and other key persons, includingnon-employee directors and full or part-time officers. No incentive stock options have been granted since November 11, 2011, and no such options were outstanding as of December 31, 2017.Non-qualified stock options may be granted to employees at a price at least equal to the estimated fair market value per share of the VI Chip Common Stock, based on judgments made by VI Chip’s Board of Directors on the date of grant. All stock option awards must be approved by both the VI Chip Board of Directors and the Compensation Committee of the Company’s Board of Directors. A total of 14,000,000 shares of VI Chip Common Stock have been reserved for issuance under the 2007 VI Chip Plan. The period of time during which an option may be exercised and the vesting periods are determined by the VI Chip Board of Directors. The term of each option may not exceed 10 years from the date of grant.
All time-based (i.e.,non-performance-based) options for the purchase of Vicor common stock are granted at an exercise price equal to or greater than the market price for Vicor Common Stock at the date of the grant. All time-based (i.e.,non-performance-based) options for the purchase of VI Chip, and, prior to the merger and assumption of the 2001 Picor Plan, Picor Common Stock have been granted at an exercise price equal to or greater than the estimated fair market value of the respective share price, based on valuation methodologies consistent with U.S. GAAP and the requirements of Section 409A of the Internal Revenue Code, as amended (“the Code”).
On December 31, 2010, the Company granted 2,984,250non-qualified stock options under the 2007 VI Chip Plan with performance-based vesting provisions tied to achievement of certain margin targets by VI Chip. As of December 31, 2010, the Company determined it was probable the margin targets would be achieved and, accordingly, began recording stock-based compensation expense relating to these options beginning January 1, 2011. During the third quarter of 2016, the Company determined the margin targets would not be met prior to the expiration date of the corresponding options, as VI Chip’s revenue growth had been below levels necessary to achieve the targets. As a result, the Company reversed approximately $768,000 of previously recorded stock-based compensation expense in the third quarter of 2016, representing all expense taken for these performance-based options through June 30, 2016. This resulted in decreases in cost of revenues of $86,000, selling, general and administrative expense of $516,000, and research and development expense of $166,000 in the third quarter of 2016. On April 30, 2018, after approval by the Boards of Directors of the Company and VI Chip, all such options were cancelled.
On April 26, 2017, the Company’s Board of Directors approved the
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
funded by means of periodic payroll deductions, which may not exceed 15.0% of the employee’s eligible compensation, as defined in the Plan. Among other provisions, the Plan limits the number of shares that can be purchased by a participant during any offering period and cumulatively for any calendar year.
| 2018 | 2017 | 2016 | ||||||||||
Cost of revenues | $ | 237 | $ | 187 | $ | 95 | ||||||
Selling, general and administrative | 2,517 | 1,125 | 412 | |||||||||
Research and development | 642 | 423 | (1 | ) | ||||||||
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Total stock-based compensation | $ | 3,396 | $ | 1,735 | $ | 506 | ||||||
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2020 | 2019 | 2018 | ||||||||||
Cost of revenues | $ | 934 | $ | 342 | $ | 237 | ||||||
Selling, general and administrative | 3,164 | 1,979 | 2,517 | |||||||||
Research and development | 1,785 | 715 | 642 | |||||||||
Total stock-based compensation | $ | 5,883 | $ | 3,036 | $ | 3,396 | ||||||
June 2020.
| 2018 | 2017 | 2016 | ||||||||||
Stock options | $ | 2,649 | $ | 1,546 | $ | 506 | ||||||
ESPP | 747 | 189 | — | |||||||||
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Total stock-based compensation | $ | 3,396 | $ | 1,735 | $ | 506 | ||||||
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2020 | 2019 | 2018 | ||||||||||
Stock options | $ | 4,982 | $ | 2,072 | $ | 2,649 | ||||||
ESPP | 901 | 964 | 747 | |||||||||
Total stock-based compensation | $ | 5,883 | $ | 3,036 | $ | 3,396 | ||||||
Vicor: | 2018 | 2017 | 2016 | |||||||||
Risk-free interest rate | 2.9 | % | 2.1 | % | 1.5 | % | ||||||
Expected dividend yield | — | — | — | |||||||||
Expected volatility | 44 | % | 43 | % | 45 | % | ||||||
Expected lives (years) | 6.4 | 7.1 | 7.2 | |||||||||
VI Chip: | 2018 | 2017 | 2016 | |||||||||
Risk-free interest rate | N/A | 1.9 | % | 1.7 | % | |||||||
Expected dividend yield | — | — | — | |||||||||
Expected volatility | N/A | 32 | % | 34 | % | |||||||
Expected lives (years) | N/A | 6.5 | 6.5 | |||||||||
No stock options were granted in 2018 under the 2007 VI Chip Plan.
2020 | 2019 | 2018 | ||||||||||
Risk-free interest rate | 0.5 | % | 1.8 | % | 2.9 | % | ||||||
Expected dividend yield | — | — | — | |||||||||
Expected volatility | 48 | % | 42 | % | 44 | % | ||||||
Expected lives (years) | 6.1 | 6.3 | 6.4 | |||||||||
Vicor —
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
VI Chip — VI Chip uses the yield to maturity of a seven-year U.S. Treasury bond, as it most closely aligns to the expected exercise period.
Vicor —
VI Chip — VI Chip has not and does not expect to declare and pay dividends in the foreseeable future. Therefore, the expected dividend yield is not applicable.
Vicor —
VI Chip — As VI Chip is a nonpublic entity, historical volatility information is not available. An industry sector index of 11 publicly traded fabless semiconductor firms was developed for calculating historical volatility for VI Chip. Historical prices for each of the companies in the index based on the market price of the shares on each day of trading over the expected term were used to determine the historical volatility.
Vicor —
VI Chip— Due to the lack of historical information, the “simplified” method as prescribed by the Securities and Exchange Commission is used to determine the expected term.
Vicor — The Company currently expects, for Vicor options, based
VI Chip — The Company currently expects, for VI Chip options, based on an analysis of historical forfeitures, approximately 89% of its options will actually vest. An annual forfeiture rate of 4.25% has been applied to all unvested options as of December 31, 2018. For 2017 and 2016, the Company expected 76% of its options would actually vest and applied an annual forfeiture rate of 9.00% for both years.
| Options Outstanding | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||
Outstanding on December 31, 2017 | 1,365,917 | $ | 9.63 | |||||||||||||
Granted | 684,077 | $ | 18.40 | |||||||||||||
Forfeited and expired | (25,923 | ) | $ | 16.08 | ||||||||||||
Exercised | (641,090 | ) | $ | 10.58 | ||||||||||||
|
| |||||||||||||||
Outstanding on December 31, 2018 | 1,382,981 | $ | 13.41 | 5.40 | $ | 34,329 | ||||||||||
|
| |||||||||||||||
Exercisable on December 31, 2018 | 888,257 | $ | 8.93 | 4.46 | $ | 25,635 | ||||||||||
|
| |||||||||||||||
Vested or expected to vest as of December 31, 2018 (1) | 1,345,938 | $ | 13.07 | 5.34 | $ | 33,820 | ||||||||||
|
| |||||||||||||||
Options Outstanding | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||
Outstanding on December 31, 2019 | 2,687,896 | $ | 10.81 | |||||||||||||
Granted | 354,075 | $ | 68.34 | |||||||||||||
Forfeited and expired | (69,987 | ) | $ | 23.77 | ||||||||||||
Exercised | (948,507 | ) | $ | 9.62 | ||||||||||||
Outstanding on December 31, 2020 | 2,023,477 | $ | 20.98 | 4.87 | $ | 144,153 | ||||||||||
Exercisable on December 31, 2020 | 924,964 | $ | 9.05 | 3.41 | $ | 76,932 | ||||||||||
Vested or expected to vest as of December 31, 2020(1) | 1,947,127 | $ | 20.22 | 4.79 | $ | 140,186 | ||||||||||
| (1) | In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. The number of options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options. |
2025.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Picor Stock Options
A summary of the activity under the 2001 Picor Plan as of May 30, 2018, the date of the merger with and into Vicor, and changes during the period then ended, is presented below:
| Options Outstanding | Weighted- Average Exercise Price | |||||||
Outstanding on December 31, 2017 | 10,065,987 | $ | 0.62 | |||||
Granted | — | |||||||
Forfeited and expired | — | |||||||
Exercised | — | |||||||
Options transferred in merger with Vicor | (10,065,987 | ) | $ | 1.91 | ||||
|
| |||||||
Outstanding on May 30, 2018 | — | |||||||
|
| |||||||
VI Chip Stock Options
A summary of the activity under the 2007 VI Chip Plan as of December 31, 2018 and changes during the year then ended, is presented below (in thousands except for share and weighted-average data):
| Options Outstanding | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||
Outstanding on December 31, 2017 | 13,092,250 | $ | 0.97 | |||||||||||||
Granted | — | $ | — | |||||||||||||
Forfeited and expired | (2,678,250 | ) | $ | 1.00 | ||||||||||||
Exercised | — | $ | — | |||||||||||||
|
| |||||||||||||||
Outstanding on December 31, 2018 (1) | 10,414,000 | $ | 0.96 | 5.39 | $ | — | ||||||||||
|
| |||||||||||||||
Exercisable on December 31, 2018 | 2,743,400 | $ | 0.97 | 5.04 | $ | — | ||||||||||
|
| |||||||||||||||
Vested or expected to vest as of December 31, 2018 (2) | 9,853,685 | $ | 0.96 | 5.38 | $ | — | ||||||||||
|
| |||||||||||||||
|
|
As of December 31, 2017 and 2016, VI Chip had options exercisable for 810,700 and 7,074,650 shares, respectively, for which the weighted average exercise price was $1.00.
There were no VI Chip options exercised in 2018, 2017 and 2016. The total grant-date fair value of stock options that vested during the years ended December 31, 2018, 2017, and 2016 was approximately $0, $2,900,000, and $0, respectively.
As of December 31, 2018, there was $1,792,000 of total unrecognized compensation cost related to unvested share-based awards for VI Chip. That cost is expected to be recognized over a weighted-average period
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of 3.40 years for all VI Chip awards. The expense will be recognized as follows: $544,000 in 2019, $503,000$17.46, in 2020, $483,000 in 2021,2019, and $262,000 in 2022.
There were no VI Chip options granted in 2018. The weighted-average fair value of VI Chip options granted in 2017 and 2016 was $0.29, and $0.01,2018, respectively.
4. LONG-TERM INVESTMENT
The following is a summary of theavailable-for-sale securityfollows (in thousands):
December 31, 2018 | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||
Failed Auction Security | $ | 3,000 | $ | — | $ | 474 | $ | 2,526 | ||||||||
|
|
|
|
|
|
|
| |||||||||
December 31, 2017 | ||||||||||||||||
Failed Auction Security | $ | 3,000 | $ | — | $ | 475 | $ | 2,525 | ||||||||
|
|
|
|
|
|
|
| |||||||||
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2021 | $ | 1,740 | ||
2022 | 1,316 | |||
2023 | 883 | |||
2024 | 663 | |||
2025 | 317 | |||
Total lease payments | $ | 4,919 | ||
Less: Imputed interest | 322 | |||
Present value of lease liabilities | $ | 4,597 | ||
the Company’s operating leases. The amortized cost and estimated fair valueCompany developed the discount rates used based on a London Interbank Offered Rate (“LIBOR”) over a term approximating the term of theavailable-for-sale security on related lease, plus an additional interest factor, which was generally 1.375%.
| Cost | Estimated Fair Value | |||||||
Due in twenty to forty years | $ | 3,000 | $ | 2,526 | ||||
|
|
|
| |||||
Based on the fair value measurements described in Note 5, the fair value of the Failed Auction Security on2020 and December 31, 2018, with a par value of $3,000,000, was estimated by2019, the Company to bepaid approximately $2,526,000.
The following table represents a rollforward of the activity related to the credit loss recognized in earnings on theavailable-for-sale auction rate security held by the Companynew operating lease liabilities for the years ended December 31, (in thousands):
| 2018 | 2017 | 2016 | ||||||||||
Balance at the beginning of the period | $ | 48 | $ | 59 | $ | 72 | ||||||
Reductions in the amount related to credit gain for which other-than-temporary impairment was not previously recognized | (7 | ) | (11 | ) | (13 | ) | ||||||
|
|
|
|
|
| |||||||
Balance at the end of the period | $ | 41 | $ | 48 | $ | 59 | ||||||
|
|
|
|
|
| |||||||
At this time, the Company has no intent to sell the Failed Auction Security2020 and does not believe it is more likely than not the Company will be required to sell the security. If current market conditions deteriorate further, the Company may be required to record additional unrealized losses. If the credit ratingDecember 31, 2019, respectively.
Assets and liabilities measured at fair value on a recurring basis included the following as of December 31, 2018 (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 December 31, 2018 | |||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | $ | 9,433 | $ | — | $ | — | $ | 9,433 | ||||||||
Long-term investments: | ||||||||||||||||
Failed Auction Security | — | — | 2,526 | 2,526 | ||||||||||||
Liabilities: | ||||||||||||||||
Contingent consideration obligations | — | — | (408 | ) | (408 | ) | ||||||||||
Assets measured at fair value on a recurring basis included the following as of December 31, 2017 (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 December 31, 2017 | |||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | $ | 9,279 | $ | — | $ | — | $ | 9,279 | ||||||||
Long-term investments: | ||||||||||||||||
Failed Auction Security | — | — | 2,525 | 2,525 | ||||||||||||
Liabilities: | ||||||||||||||||
Contingent consideration obligation | — | — | (678 | ) | (678 | ) | ||||||||||
As of December 31, 2018, there was insufficient observable auction rate security market information available to determine the fair value
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the Penalty Rate of the Failed Auction Security with yields of actively traded long-term bonds with similar characteristics and, reflecting the limited liquidity for auction rate securities and the discounts to par value seenleased facility in recent tender offers by issuers and arm’s length market transactions between informed buyers and sellers, estimated the implied yield (i.e., the discount to par value) necessary to complete a sale of the Failed Auction Security. Management has calculated an increase or decrease in the liquidity risk premium of 5.0% referenced above of 1.0% (i.e., 100 basis points) as used in the model, would decrease or increase, respectively, the fair value of the Failed Auction Security by approximately $100,000.
The significant unobservable inputs used in the fair value measurement of the Company’s Failed Auction SecurityCalifornia are the cumulative probability of earning the maximum rate until maturity, the cumulative probability of principal return prior to maturity, the cumulative probability of default, the liquidity risk premium, and the recovery rate in default. Significant increases (decreases) in any of those inputs in isolation would result in changes in fair value measurement. Significant increases (decreases) in the cumulative probability of earning the maximum rate until maturity, the cumulative probability of principal return prior to maturity, and the recovery rate in default would result in a higher (lower) fair value measurement, while increases (decreases) in the cumulative probability of default and the liquidity risk premium would result in a (lower) higher fair value measurement.
Generally, the interrelationships are such that a change in the assumption used for the cumulative probability of principal return prior to maturity is accompanied by a directionally similar change in the assumption used for the cumulative probability of earning the maximum rate until maturity and a directionally opposite change in the assumptions used for the cumulative probability of default and the liquidity risk premium. The recovery rate in default is somewhat independent and based upon the securities’ specific underlying assets and published recovery rate indices.
Quantitative information about Level 3 fair value measurements as of December 31, 2018 are as follows (dollars in thousands):
| Fair Value | Valuation Technique | Unobservable Input | Weighted Average | |||||||||||
Failed Auction Security | $ | 2,526 | | Discounted cash flow | | Cumulative probability of earning the maximum rate until maturity | 0.08 | % | ||||||
| Cumulative probability of principal return prior to maturity | 93.69 | % | ||||||||||||
| Cumulative probability of default | 6.24 | % | ||||||||||||
| Liquidity risk premium | 5.00 | % | ||||||||||||
| Recovery rate in default | 40.00 | % | ||||||||||||
The change in the estimated fair value calculated for the investment valued on a recurring basis utilizing Level 3 inputs (i.e., the Failed Auction Security) for the year ended December 31, 2018 was as follows (in thousands):
Balance at the beginning of the period | $ | 2,525 | ||
Credit gain onavailable-for-sale security included in Other income (expense), net | 7 | |||
Gain included in Other comprehensive income (loss) | (6 | ) | ||
|
| |||
Balance at the end of the period | $ | 2,526 | ||
|
|
2021 | $ | 901 | ||
2022 | 928 | |||
2023 | 955 | |||
2024 | 402 | |||
Total lease payments to be received | $ | 3,186 | ||
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
products over the period of royalty payments at the royalty rate (see Note 8), discounted using the Company’s estimated cost of capital.
The change in the estimated fair value calculated for the liabilities valued on a recurring basis utilizing Level 3 inputs (i.e., the Contingent consideration obligations) for the year ended December 31, 2018 was as follows (in thousands):
Balance at the beginning of the period | $ | 678 | ||
Payments | (270 | ) | ||
|
| |||
Balance at the end of the period | $ | 408 | ||
|
|
There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the year ended December 31, 2018.
6. INVENTORIES
Inventories as of December 31 were as follows (in thousands):
| 2018 | 2017 | |||||||
Raw materials | $ | 37,696 | $ | 27,400 | ||||
Work-in-process | 4,740 | 3,596 | ||||||
Finished goods | 4,934 | 5,503 | ||||||
|
|
|
| |||||
Net balance | $ | 47,370 | $ | 36,499 | ||||
|
|
|
| |||||
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated and amortized over a period of three to 39 years generally under the straight-line method for financial reporting purposes and accelerated methods for income tax purposes.
Property, plant and equipment as of December 31 were as follows (in thousands):
| 2018 | 2017 | |||||||
Land | $ | 2,089 | $ | 2,089 | ||||
Buildings and improvements | 45,170 | 45,147 | ||||||
Machinery and equipment | 208,135 | 243,392 | ||||||
Furniture and fixtures | 7,239 | 6,320 | ||||||
Constructionin-progress and deposits | 9,251 | 4,120 | ||||||
|
|
|
| |||||
| 271,884 | 301,068 | |||||||
Accumulated depreciation and amortization | (221,452 | ) | (259,712 | ) | ||||
|
|
|
| |||||
Net balance | $ | 50,432 | $ | 41,356 | ||||
|
|
|
| |||||
Depreciation expense for the years ended December
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. NONCONTROLLING INTEREST TRANSACTIONS
On March 30, 2016, the Company acquired 100% ownership of certain operating assets and cash of its consolidated Vicor Custom Power subsidiary, Converpower Corporation (“Converpower”), in which it held a 49% ownership interest. The operating assets and cash were acquired in exchange for the Company’s common shares representing that 49% interest and the aggregate dollar amount of royalty payments to be made by the Company to Converpower. The transaction was executed through a newly-formed, wholly-owned Vicor Custom Power subsidiary, Granite Power Technologies, Inc. (“GPT”), the business operations of which had formerly existed as a division of the Company. The shares of Converpower common stock held by the Company were contributed to GPT prior to the transaction. At the same time that it entered into the Asset Purchase Agreement associated with this transaction, the Company and Converpower entered into a license agreement providing the Company the right to continue manufacturing certain Converpower products in exchange for payment of royalties, quarterly through June 30, 2021, equal to a percentage of the revenue generated by the manufacture and sale of these products by GPT. The estimated present value of total future royalties, included in “Contingent consideration obligations” in the accompanying Consolidated Balance Sheet as of December 31, 2018, is $282,000 (initially $208,000, as of March 31, 2016). The Company increased the liability by approximately $448,000 in 2017 based on a reassessment of the total obligation through the end of license agreement. The amount was included in selling, general, and administrative expenses. GPT was merged into Vicor Development Corporation, a wholly-owned subsidiary of Vicor, effective December 31, 2018, at which time the separate corporate existence of GPT ceased. The manufacture of those certain Converpower products going forward will be performed by the two remaining Vicor Custom Power subsidiaries and the payment of royalties will continue as under the license agreement.
On December 28, 2015, the Company acquired the noncontrolling interest holder’s 18% ownership interest in Mission Power Solutions, Inc. (“MPS”) for approximately $216,000, which equaled the noncontrolling interest holder’s share of the net equity of MPS. This transaction was achieved through a statutory merger of MPS with and into an existing Vicor Custom Power wholly-owned subsidiary, Northwest Power, Inc. (“NPI”). In addition to the payment noted above, the selling principal will be eligible to receive quarterly royalty payments through June 30, 2021 equal to a percentage of the revenue generated by the sale of certain MPS legacy products to be manufactured by NPI going forward. The estimated obligation for total future royalties, recorded as Contingent consideration obligation in the accompanying Consolidated Balance Sheets as of December 31, 2018 is $126,000 (initially $144,000 as of December 31, 2015). The Company increased the liability by approximately $202,000 in 2017, based on a reassessment of the total obligation under the royalty arrangement. The amount was included in selling, general, and administrative expenses.
The respective noncontrolling interest holders of Converpower and MPS served as key employees of each company prior to the transactions described above.
9. INTANGIBLE ASSETS
Patent costs, which are included in other assets in the accompanying Consolidated Balance Sheets, as of December 31 were as follows (in thousands):
| 2018 | 2017 | |||||||
Patent costs | $ | 1,979 | $ | 2,093 | ||||
Accumulated amortization | (1,380 | ) | (1,386 | ) | ||||
|
|
|
| |||||
| $ | 599 | $ | 707 | |||||
|
|
|
| |||||
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Definite lived intangible assets, such as patent rights, are amortized and tested for impairment if a triggering event occurs.
Amortization expense was approximately $119,000, $130,000 and $134,000 in 2018, 2017 and 2016, respectively. The estimated future amortization expense from patent assets held as of December 31, 2018, is projected to be $108,000, $103,000, $93,000, $62,000 and $51,000, in fiscal years 2019, 2020, 2021, 2022, and 2023, respectively.
10.
11. PRODUCT WARRANTIES
Product warranty activity for the years ended December 31 was as follows (in thousands):
| 2018 | 2017 | 2016 | ||||||||||
Balance at the beginning of the period | $ | 290 | $ | 214 | $ | 585 | ||||||
Accruals for warranties for products sold in the period | 173 | 346 | 358 | |||||||||
Fulfillment of warranty obligations | (117 | ) | (194 | ) | (527 | ) | ||||||
Revisions of estimated obligations | (78 | ) | (76 | ) | (202 | ) | ||||||
|
|
|
|
|
| |||||||
Balance at the end of the period | $ | 268 | $ | 290 | $ | 214 | ||||||
|
|
|
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|
| |||||||
12. STOCKHOLDERS’ EQUITY
Each share of Common Stock entitles the holder thereof to one vote on all matters submitted to the stockholders.
Each share of Class B Common Stock entitles the holder thereof to ten votes on all such matters.
Shares of Class B Common Stock are not transferable by a stockholder except to or among the stockholder’s spouse, certain of the stockholder’s relatives, and certain other defined transferees. Class B Common Stock is not listed or traded on any exchange or in any market. Class B Common Stock is convertible at the option of the holder thereof at any time and without cost to the stockholder into shares of Common Stock on aone-for-one basis.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In November 2000, the Board of Directors of the Company authorized the repurchase of up to $30,000,000 of the Company’s Common Stock (the “November 2000 Plan”). The plan authorizes the Company to make repurchases from time to time in the open market or through privately negotiated transactions. The timing of this program and the amount of the stock that may be repurchased is at the discretion of management based on its view of economic and financial market conditions. There were no repurchases under the November 2000 Plan in 2018, 2017, and 2016. On December 31, 2018, the Company had approximately $8,541,000 available for share repurchases under the November 2000 Plan.
Dividends are declared at the discretion of the Company’s Board of Directors and depend on actual cash from operations, the Company’s financial condition and capital requirements and any other factors the Company’s Board of Directors may consider relevant at the time. Common Stock and Class B Common Stock participate in dividends and earnings equally.
During the year ended December 31, 2018 and December 31, 2016, one subsidiary paid a total of $632,000 and $750,000, respectively, in cash dividends, all of which was paid to the Company.
On December 31, 2018, 2017, and 2016, there were 21,233,659, 21,976,340, and 14,377,880, respectively, shares of Vicor Common Stock reserved for issuance upon exercise of Vicor stock options, upon conversion of Class B Common Stock and under the ESPP.
13.
| 2018 | 2017 | 2016 | ||||||||||
Rental income | $ | 792 | $ | 792 | $ | 462 | ||||||
Foreign currency (losses) gains, net | (260 | ) | 323 | (268 | ) | |||||||
Interest income | 257 | 124 | 68 | |||||||||
Gain (loss) on disposal of equipment | 57 | 14 | (4 | ) | ||||||||
Credit gains onavailable-for-sale securities | 7 | 11 | 13 | |||||||||
Other | 21 | (2 | ) | 13 | ||||||||
|
|
|
|
|
| |||||||
| $ | 874 | $ | 1,262 | $ | 284 | |||||||
|
|
|
|
|
| |||||||
During the second quarter of 2016, the Company began recognizing rental income under a leasing agreement with a third party for its facility in Sunnyvale, California.
14.
2020 | 2019 | 2018 | ||||||||||
Rental income, net | $ | 792 | $ | 792 | $ | 792 | ||||||
Foreign currency gains (losses), net | 181 | (108 | ) | (260 | ) | |||||||
Interest income | 95 | 300 | 257 | |||||||||
Gain on disposal of equipment | 13 | 38 | 57 | |||||||||
Credit gains on available-for-sale | 4 | 4 | 7 | |||||||||
Other | 8 | 40 | 21 | |||||||||
| �� | ||||||||||||
| $ | 1,093 | $ | 1,066 | $ | 874 | |||||||
On December 22, 2017, H.R.1., known as the Tax Cuts and Jobs Act (the “Tax Act”), was signed into law. The Tax Act did not have a significant impact on the Company’s consolidated financial statements for the year ended December 31, 2017. However, the reduction
rate, which was effective January 1, 2018, is also reflected in the Company’s deferred tax table below. Effective for the 2018 tax year, the Tax Act implements certain additional provisions including the Global IntangibleLow-Taxes Income (“GILTI”) inclusion and the Foreign Derived Intangible Income (“FDII”) deduction. The Company is electing to account for the GILTI inclusion as a period cost.
Also, on December 22, 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The Company recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The Company did not record any adjustments in the year ended December 31, 2018 to these provisional amounts that were material to its financial statements. As of December 31, 2018, the Company’s accounting treatment with regards to the Tax Act is complete.
| 2018 | 2017 | 2016 | ||||||||||
Statutory federal tax rate | 21.0 | % | (34.0 | )% | (34.0 | )% | ||||||
State income taxes, net of federal income tax benefit | 3.6 | 97.2 | 1.9 | |||||||||
Increase (decrease) in valuation allowance | (9.1 | ) | (936.1 | ) | 46.5 | |||||||
Permanent items | (5.9 | ) | (861.2 | ) | 0.9 | |||||||
Tax credits | (5.5 | ) | (1,222.3 | ) | (13.6 | ) | ||||||
Provision vs. tax return differences | (1.7 | ) | — | — | ||||||||
Foreign rate differential and deferred items | 0.7 | (91.8 | ) | (0.8 | ) | |||||||
Decrease in tax reserves | 0.1 | (5.1 | ) | — | ||||||||
Rate change due to tax reform | — | 3,441.1 | — | |||||||||
Refundable income taxes — AMT credit | — | (751.0 | ) | — | ||||||||
Capital gain on sale to noncontrolling interest | — | — | 3.9 | |||||||||
Decrease in unremitted Vicor Custom Power earnings | — | — | (0.9 | ) | ||||||||
Book income attributable to noncontrolling interest | — | — | 0.1 | |||||||||
Other | 0.1 | (0.1 | ) | (0.2 | ) | |||||||
|
|
|
|
|
| |||||||
| 3.3 | % | (363.3 | )% | 3.8 | % | |||||||
|
|
|
|
|
| |||||||
2020 | 2019 | 2018 | ||||||||||
Statutory federal tax rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||
State income taxes, net of federal income tax benefit | (0.5 | ) | (8.1 | ) | 3.6 | |||||||
Increase (decrease) in valuation allowance | 41.2 | 2.2 | (9.1 | ) | ||||||||
Permanent items | (48.7 | ) | (3.9 | ) | (5.9 | ) | ||||||
Tax credits | (11.2 | ) | (15.6 | ) | (5.5 | ) | ||||||
Provision vs. tax return differences | 0.7 | 9.0 | (1.7 | ) | ||||||||
Foreign rate differential and deferred items | 0.1 | 0.6 | 0.7 | |||||||||
Change in tax reserves | — | — | 0.1 | |||||||||
Other | 0.3 | — | 0.1 | |||||||||
| 2.9% | 5.2% | 3.3% | ||||||||||
In 2017 and 2016, the Company did not recognize a tax benefit for the majority of its losses as it maintained a full valuation allowance against all net domestic deferred tax assets due to the inability to project net future taxable income, as described below.
In 2017, the benefit for income taxes was primarily due to the Company’s AMT credit carryforwards of approximately $736,000 becoming fully refundable in future years, due to the repeal of the corporate AMT under the Tax Act.
In 2016, in connection with the Company’s acquisition of 100% ownership of certain operating assets and cash of Converpower, the related deferred tax liability for unremitted earnings of $55,000 was reversed and recorded as a discrete benefit in the first quarter of 2016 (see Note 8).
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| 2018 | 2017 | 2016 | ||||||||||
Domestic | $ | 31,455 | $ | (1,591 | ) | $ | (6,034 | ) | ||||
Foreign | 1,478 | 1,493 | 4 | |||||||||
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| |||||||
| $ | 32,933 | $ | (98 | ) | $ | (6,030 | ) | |||||
|
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| |||||||
2020 | 2019 | 2018 | ||||||||||
Domestic | $ | 17,688 | $ | 13,493 | $ | 31,455 | ||||||
Foreign | 773 | 1,394 | 1,478 | |||||||||
| $ | 18,461 | $ | 14,887 | $ | 32,933 | |||||||
| 2018 | 2017 | 2016 | ||||||||||
Current: | ||||||||||||
Federal | $ | — | $ | (736 | ) | $ | — | |||||
State | 231 | 156 | 172 | |||||||||
Foreign | 911 | 396 | 137 | |||||||||
|
|
|
|
|
| |||||||
| 1,142 | (184 | ) | 309 | |||||||||
Deferred: | ||||||||||||
Federal | — | — | (55 | ) | ||||||||
Foreign | (55 | ) | (172 | ) | (23 | ) | ||||||
|
|
|
|
|
| |||||||
| (55 | ) | (172 | ) | (78 | ) | |||||||
|
|
|
|
|
| |||||||
| $ | 1,087 | $ | (356 | ) | $ | 231 | ||||||
|
|
|
|
|
| |||||||
2020 | 2019 | 2018 | ||||||||||
Current: | ||||||||||||
Federal | $ | 215 | $ | — | $ | — | ||||||
State | 93 | 268 | 231 | |||||||||
Foreign | 252 | 450 | 911 | |||||||||
| 560 | 718 | 1,142 | ||||||||||
Deferred: | ||||||||||||
Foreign | (21 | ) | 60 | (55 | ) | |||||||
| (21 | ) | 60 | (55 | ) | ||||||||
| $ | 539 | $ | 778 | $ | 1,087 | |||||||
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As noted above, the change in the U.S. federal corporate tax rate, which was effective January 1, 2018, is reflected in the Company’s deferred tax table below.
| 2018 | 2017 | |||||||
Deferred tax assets: | ||||||||
Research and development tax credit carryforwards | $ | 23,244 | $ | 20,019 | ||||
Stock-based compensation | 3,133 | 2,793 | ||||||
Inventory reserves | 2,109 | 2,059 | ||||||
Investment tax credit carryforwards | 1,976 | 2,181 | ||||||
Vacation accrual | 1,218 | 1,255 | ||||||
Net operating loss carryforwards | 1,091 | 4,918 | ||||||
UNICAP | 275 | 3 | ||||||
International deferred tax assets | 265 | 210 | ||||||
Unrealized loss on investments | 132 | 135 | ||||||
Sales allowances | 128 | 25 | ||||||
Contingent consideration liabilities | 88 | 148 | ||||||
Deferred revenue | 66 | 79 | ||||||
Bad debt reserves | 52 | 36 | ||||||
Warranty reserves | 35 | 45 | ||||||
Other | 233 | 35 | ||||||
|
|
|
| |||||
Total deferred tax assets | 34,045 | 33,941 | ||||||
Less: Valuation allowance for deferred tax assets | (30,031 | ) | (33,024 | ) | ||||
|
|
|
| |||||
Net deferred tax assets | 4,014 | 917 | ||||||
Deferred tax liabilities: | ||||||||
Depreciation | (3,144 | ) | (76 | ) | ||||
Prepaid expenses | (473 | ) | (470 | ) | ||||
Patent amortization | (107 | ) | (161 | ) | ||||
Other | (25 | ) | — | |||||
|
|
|
| |||||
Total deferred tax liabilities | (3,749 | ) | (707 | ) | ||||
|
|
|
| |||||
Net deferred tax assets (liabilities) | $ | 265 | $ | 210 | ||||
|
|
|
| |||||
2020 | 2019 | |||||||
Deferred tax assets: | ||||||||
Research and development tax credit carryforwards | $ | 29,046 | $ | 27,607 | ||||
Net operating loss carryforwards | 5,923 | 328 | ||||||
Inventory reserves | 2,282 | 1,522 | ||||||
Investment tax credit carryforwards | 1,927 | 2,102 | ||||||
Stock-based compensation | 1,796 | 1,587 | ||||||
Vacation accrual | 1,349 | 1,280 | ||||||
UNICAP | 1,336 | 351 | ||||||
Accrued payroll tax deferral | 764 | — | ||||||
Lease liabilities | 518 | 679 | ||||||
Other | 1,197 | 1,708 | ||||||
Total deferred tax assets | 46,138 | 37,164 | ||||||
Less: Valuation allowance for deferred tax assets | (37,856 | ) | (30,363 | ) | ||||
Net deferred tax assets | 8,282 | 6,801 | ||||||
Deferred tax liabilities: | ||||||||
Depreciation | (6,809 | ) | (5,296 | ) | ||||
Prepaid expenses | (616 | ) | (552 | ) | ||||
ROU assets | (490 | ) | (653 | ) | ||||
Other | (141 | ) | (95 | ) | ||||
Total deferred tax liabilities | (8,056 | ) | (6,596 | ) | ||||
Net deferred tax assets (liabilities) | $ | 226 | $ | 205 | ||||
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2024.
| 2018 | 2017 | 2016 | ||||||||||
Balance on January 1 | $ | 1,104 | $ | 946 | $ | 830 | ||||||
Additions based on tax positions related to the current year | 245 | 138 | 125 | |||||||||
Additions for tax positions of prior years | 120 | 29 | — | |||||||||
Settlements | — | (1 | ) | — | ||||||||
Lapse of statute | (7 | ) | (8 | ) | (9 | ) | ||||||
|
|
|
|
|
| |||||||
Balance on December 31 | $ | 1,462 | $ | 1,104 | $ | 946 | ||||||
|
|
|
|
|
| |||||||
2020 | 2019 | 2018 | ||||||||||
Balance on January 1 | $ | 2,070 | $ | 1,462 | $ | 1,104 | ||||||
Additions based on tax positions related to the current year | 244 | 571 | 245 | |||||||||
| (Reductions) additions for tax positions of prior years | (13 | ) | 43 | 120 | ||||||||
Lapse of statute | (4 | ) | (6 | ) | (7 | ) | ||||||
Balance on December 31 | $ | 2,297 | $ | 2,070 | $ | 1,462 | ||||||
The Company’s subsidiary in Italy, Vicor Italy S.r.l. (“Vicor Italy”), underwent a tax inspection during 2014 for tax years 2009 through 2013, covering corporation, regional and value added taxes. Vicor Italy received a preliminary tax audit report dated June 30, 2014. The Company filed a response to the preliminary tax audit report in the third quarter of 2014. The statute of limitations for the tax authorities in Italy to file an assessment, if any, expired on December 31, 2015 for tax year 2009, on December 31, 2016 for tax year 2010 on December 31, 2017 for tax year 2011, and on December 31, 2018 for tax year 2012. Due to thenon-response by Italian authorities after nearly five years, and the lapse of the first four out of the five years under examination, the Company does not believe the ultimate impact will be material to the Company’s financial statements.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In May 2017, the Company received notice from the Internal Revenue Service that its federal corporate tax return for tax year 2015 had been selected for examination. The examination was completed in May 2018 resulting in no tax liability to the Company. In January 2018, the Company received notice from the New York State Department of Taxation and Finance that its New York State tax returns for tax years 2014 through 2016 were selected for audit. The audit was completed in the third quarter of 2018, resulting in an immaterial assessment.
15.
The Company leases certain of its offices, manufacturing space, and several automobiles. The future minimum rental commitments undernon-cancelable operating leases with remaining terms in excess of one year are as follows (in thousands):
Year | ||||
2019 | $ | 1,962 | ||
2020 | 1,502 | |||
2021 | 688 | |||
2022 | 447 | |||
2023 and thereafter | 830 | |||
Rent expense for the Company’s leases was approximately $2,102,000, $1,889,000 and $1,866,000 in 2018, 2017 and 2016, respectively. The Company also pays tenant-related executory costs such as taxes, maintenance, and insurance.
remains in force.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
proceedings is as follows. Regarding the ‘190 patent IPRx, the United States Court of Appeals for the Federal Circuit (the “Federal Circuit”) issued a decision on March 13, 2015, determining that certain claims were invalid and remanding the matter to the Patent Trial and Appeal Board (“PTAB”) of the USPTO for further proceedings. On May 2, 2016,February 20, 2019, the PTAB issued a decision affirming the examiner’s original rejection offinding that all but one of the remaining challenged claims ofwere unpatentable. SynQor appealed that decision. On February 22, 2021, the ‘190 patent, and identifying a new basis for rejecting the remaining claim (“claim 34”), which had been added by SynQor during the reexamination. SynQor then requested further examination of claim 34 by the examiner, pursuant to 37 C.F.R. § 41.77(b)(1). On June 22, 2017, the examinerFederal Circuit issued a determination under 37 C.F.R. § 41.77(d),decision in that appeal. In a
and entering rejections of all of the claims of the ‘290 patent. On May 20, 2019, as permitted by USPTO rules, SynQor requested the USPTO to reopen prosecution of this proceeding to address the new rejections made by the PTAB. On September 28, 2020, the examiner issued a decision reaffirming the PTAB’s rejection of all of the claims of the ‘290 patent. The Company expects that SynQor will appeal this decision.
On August 6, 2018, the Company filed a similar request with the USPTO forex parte reexamination EPRx of the asserted claims of the ‘190 patent, based on different prior art references than had been at issue in the previousinter partes reexamination of the ‘190 patent. On September 11, 2018, SynQor filed a petition asking the USPTO to reject the Company’s request on the ground that it presented substantially the same prior art or arguments presented to the USPTO in the priorinter partes reexamination IPRx of the ‘190 patent. On December 3, 2018,18, 2020, the USPTO denied SynQor’s petition to rejectPTAB issued rulings upholding the Company’sex parte reexamination request. On December 4, 2018, the USPTO institutedex parte reexaminationvalidity of the asserted claims in the EPRx proceedings for both the ‘702 and ‘190 patent after finding that the Company’s request had raised a substantial new question affecting the patentabilitypatents. Accordingly, both of the challenged claims.
those proceedings are now terminated.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.
MERGERS
17.mergers.
The Company has organized its operating business segments according to its key product lines. The BBU segment designs, develops, manufactures, and markets
The Company’s Chief Executive Officer (i.e., identified as the “chief operating decision maker,”)Operating Decision Maker (“CODM”), pursuant to U.S. GAAP, evaluates performance and allocates resources based on segment revenues and segment operating income (loss). The operating income (loss) for each segment includes selling, general, and administrative and research and development expenses directly attributable toDr. Vinciarelli, the segment. CertainCompany would report as one
recorded in this
The following table provides significant segment financial data as ofmanagement began to make incremental changes in management practices and organizational structure based on a management plan established in 2018 for the years ended December 31 (in thousands):
| BBU | VI Chip | Picor | Corporate | Eliminations | Total | |||||||||||||||||||
| (1) | ||||||||||||||||||||||||
2018: | ||||||||||||||||||||||||
Net revenues | $ | 186,715 | $ | 84,728 | $ | 34,552 | $ | — | $ | (14,775 | ) | $ | 291,220 | |||||||||||
Income (loss) from operations | 22,544 | 3,612 | 7,517 | (1,614 | ) | — | 32,059 | |||||||||||||||||
Total assets | 279,671 | 56,619 | 14,869 | 85,851 | (215,942 | ) | 221,068 | |||||||||||||||||
Depreciation and amortization | 3,621 | 3,504 | 792 | 1,337 | — | 9,254 | ||||||||||||||||||
Capital expenditures | 2,954 | 13,386 | 621 | 1,250 | — | 18,211 | ||||||||||||||||||
2017: | ||||||||||||||||||||||||
Net revenues | $ | 151,789 | $ | 61,330 | $ | 26,297 | $ | — | $ | (11,586 | ) | $ | 227,830 | |||||||||||
Income (loss) from operations | 5,615 | (11,495 | ) | 5,400 | (880 | ) | — | (1,360 | ) | |||||||||||||||
Total assets | 232,255 | 34,809 | 13,509 | 59,550 | (174,399 | ) | 165,724 | |||||||||||||||||
Depreciation and amortization | 3,907 | 2,782 | 747 | 1,457 | — | 8,893 | ||||||||||||||||||
Capital expenditures | 3,188 | 7,505 | 1,249 | 603 | — | 12,545 | ||||||||||||||||||
2016: | ||||||||||||||||||||||||
Net revenues | $ | 151,428 | $ | 39,947 | $ | 16,684 | $ | — | $ | (7,779 | ) | $ | 200,280 | |||||||||||
Income (loss) from operations | 11,750 | (16,494 | ) | (637 | ) | (933 | ) | — | (6,314 | ) | ||||||||||||||
Total assets | 196,987 | 21,389 | 8,583 | 73,253 | (146,145 | ) | 154,067 | |||||||||||||||||
Depreciation and amortization | 4,258 | 2,235 | 545 | 1,400 | — | 8,438 | ||||||||||||||||||
Capital expenditures | 2,325 | 4,041 | 1,178 | 884 | — | 8,428 | ||||||||||||||||||
|
Substantially all long-lived assets are located in the United States.
During 2018, 2017, and 2016, one customer accounted for approximately 13.4%, 13.0%, and 16.4% of net revenues, respectively, which were included in all three business segments in eachdefinitive reconfiguration of the three years.
Net revenues from unaffiliated customers by country, basedbusiness units into one business focused on the locationAdvanced Products and Brick Products product line categorizations, including three significant changes: the merger of Picor with and into Vicor, which was completed on May 25, 2018; the reconfiguration of the customer, for the years endedCompany’s internal reporting systems, which was completed on December 31, were as follows (in thousands):
| 2018 | 2017 | 2016 | ||||||||||
United States | $ | 110,779 | $ | 83,871 | $ | 80,603 | ||||||
Europe | 27,689 | 24,078 | 22,495 | |||||||||
Asia Pacific | 147,078 | 114,365 | 91,848 | |||||||||
All other | 5,674 | 5,516 | 5,334 | |||||||||
|
|
|
|
|
| |||||||
| $ | 291,220 | $ | 227,830 | $ | 200,280 | |||||||
|
|
|
|
|
| |||||||
Net revenues from customers2018; and the merger of VI Chip with and into Vicor, which was completed on June 28, 2019. Our CODM now determines the allocation of resources of the Company based upon the two product groupings, which constitute one segment. Both product lines are built in China (including Hong Kong), our largest international market, accountedthe Company’s manufacturing facility in Andover, Massachusetts employing similar processing and production techniques, and are supported by the same sales and marketing organizations. As such, the Company has conformed the segment reporting to the new reporting structure utilized by the CODM. Accordingly, three-segment information for approximately 37.4% of total net revenues in 2018, 35.8% in 2017 and 32.1% in 2016, respectively.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18.
| First | Second | Third | Fourth | Total | ||||||||||||||||
2018: | ||||||||||||||||||||
Net revenues | $ | 65,269 | $ | 74,196 | $ | 78,035 | $ | 73,720 | $ | 291,220 | ||||||||||
Gross margin | 30,211 | 35,883 | 39,004 | 33,873 | 138,971 | |||||||||||||||
Consolidated net income | 3,982 | 7,909 | 13,048 | 6,907 | 31,846 | |||||||||||||||
Net income (loss) attributable to noncontrolling interest | 39 | 49 | 36 | (3 | ) | 121 | ||||||||||||||
Net income attributable to Vicor Corporation | 3,943 | 7,860 | 13,012 | 6,910 | 31,725 | |||||||||||||||
Net income per share attributable to Vicor Corporation: | ||||||||||||||||||||
Basic | 0.10 | 0.20 | 0.32 | 0.17 | 0.80 | |||||||||||||||
Diluted | 0.10 | 0.19 | 0.32 | 0.17 | 0.78 | |||||||||||||||
| First | Second | Third | Fourth | Total | ||||||||||||||||
2017: | ||||||||||||||||||||
Net revenues | $ | 54,462 | $ | 57,709 | $ | 56,888 | $ | 58,771 | $ | 227,830 | ||||||||||
Gross margin | 23,652 | 25,930 | 25,143 | 26,931 | 101,656 | |||||||||||||||
Consolidated net income (loss) | (954 | ) | (445 | ) | 38 | 1,619 | 258 | |||||||||||||
Net income attributable to noncontrolling interest | 20 | 14 | 49 | 8 | 91 | |||||||||||||||
Net income (loss) attributable to Vicor Corporation | (974 | ) | (459 | ) | (11 | ) | 1,611 | 167 | ||||||||||||
Net income (loss) per share attributable to Vicor Corporation: | ||||||||||||||||||||
Basic and diluted | (0.02 | ) | (0.01 | ) | (0.00 | ) | 0.04 | 0.00 | ||||||||||||
First | Second | Third | Fourth | Total | ||||||||||||||||
2020: | ||||||||||||||||||||
Net revenues | $ | 63,401 | $ | 70,761 | $ | 78,112 | $ | 84,302 | $ | 296,576 | ||||||||||
Gross margin | 27,331 | 30,318 | 33,347 | 40,451 | 131,447 | |||||||||||||||
Consolidated net (loss) income | (1,731 | ) | 2,672 | 5,786 | 11,195 | 17,922 | ||||||||||||||
Net income attributable to noncontrolling interest | 4 | 5 | 1 | 2 | 12 | |||||||||||||||
Net (loss) income attributable to Vicor Corporation | (1,735 | ) | 2,667 | 5,785 | 11,193 | 17,910 | ||||||||||||||
Net (loss) income per share attributable to Vicor Corporation: | ||||||||||||||||||||
Basic | (0.04 | ) | 0.06 | 0.13 | 0.26 | 0.42 | ||||||||||||||
Diluted | (0.04 | ) | 0.06 | 0.13 | 0.25 | 0.41 | ||||||||||||||
First | Second | Third | Fourth | Total | ||||||||||||||||
2019: | ||||||||||||||||||||
Net revenues | $ | 65,725 | $ | 63,355 | $ | 70,772 | $ | 63,125 | $ | 262,977 | ||||||||||
Gross margin | 31,086 | 29,117 | 33,002 | 29,761 | 122,966 | |||||||||||||||
Consolidated net income | 4,306 | 2,556 | 5,932 | 1,315 | 14,109 | |||||||||||||||
Net income (loss) attributable to noncontrolling interest | 20 | (7 | ) | (5 | ) | 3 | 11 | |||||||||||||
Net income attributable to Vicor Corporation | 4,286 | 2,563 | 5,937 | 1,312 | 14,098 | |||||||||||||||
Net income per share attributable to Vicor Corporation: | ||||||||||||||||||||
Basic | 0.11 | 0.06 | 0.15 | 0.03 | 0.35 | |||||||||||||||
Diluted | 0.10 | 0.06 | 0.14 | 0.03 | 0.34 | |||||||||||||||
ITEM 9. |
|
ITEM 9A. |
|
2020.
February 28, 2019
ITEM 9B. |
|
ITEM 10. |
|
ITEM 11. |
|
ITEM 12. |
|
ITEM 13. |
|
ITEM 14. |
|
| * | Indicates a management contract or compensatory plan or arrangement required to be filled pursuant to Item 15(b) of Form 10-K. |
| ** | Filed with this Annual Report on Form 10-K for the year ended December 31, 2020 are the following documents formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated |
| Balance Sheets for the years ended December 31, 2020 and 2019; (ii) the Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018; (iii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018; (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018; (v) the Consolidated Statements of Equity for the years ended December 31, 2020, 2019 and 2018; and (vi) the Notes to Consolidated Financial Statements. |
| (1) | Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 29, 2001 and incorporated herein by reference. |
| (2) | Filed as an exhibit to the Company’s Registration Statement on Form 10, as amended, under the Securities Exchange Act of 1934 (File No. 0-18277), and incorporated herein by reference. (P) |
| (3) | Filed as an exhibit to the Company’s Registration Statement on Form S-8, as amended, under the Securities Act of 1933(No. 333-61177), and incorporated herein by reference. |
| (4) | Filed as Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on May 1, 2017 (File No. 000-18277), and incorporated herein by reference. |
| (5) | Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on November 4, 2004 (FileNo. 0-18277) and incorporated herein by reference. |
| (6) | Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 16, 2005 (FileNo. 0-18277) and incorporated herein by reference. |
| (7) | Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 14, 2006 (FileNo. 0-18277) and incorporated herein by reference. |
| (8) |
|
Filed as an exhibit to the Company’s Current Report on Form 8-K filed on June 4, 2020 (FileNo. 0-18277) and incorporated herein by reference. |
| (9) | Filed as an exhibit to the Company’s Current Report on Form 8-K, dated June 6, 2007 (FileNo. 0-18277) and incorporated herein by reference. |
| (10) | Filed as an exhibit to the Company’s Current Report and Form 8-K, dated March 6, 2008 (FileNo. 0-18277) incorporated herein by reference. |
| (11) | Filed as Appendix B to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on May 1, 2017 (File No. 000-18277), and incorporated herein by reference. |
| (12) | Filed as Appendix C to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on May 1, 2017 (File No. 000-18277), and incorporated herein by reference. |
| (13) | Filed as Appendix D to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on May 1, 2017 (File No. 000-18277), and incorporated herein by reference. |
| (14) | Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 5, 2018 (FileNo. 000-18277), and incorporated herein by reference. |
| (15) | Filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-8, under the Securities Act of 1933 (No.333-232864), and incorporated herein by reference. |
| (16) | Filed herewith. |
Description | Balance at Beginning of Period | Charge (Recovery) to Costs and Expenses | Other Charges, Deductions (1) | Balance at End of Period | ||||||||||||
Allowance for doubtful accounts: | ||||||||||||||||
Year ended: | ||||||||||||||||
December 31, 2018 | $ | 159,000 | $ | 65,000 | $ | — | $ | 224,000 | ||||||||
December 31, 2017 | 153,000 | 6,000 | — | 159,000 | ||||||||||||
December 31, 2016 | 171,000 | (22,000 | ) | 4,000 | 153,000 | |||||||||||
Description | Balance at Beginning of Period | Charge (Recovery)to Costs and Expenses | Other Charges, Deductions (1) | Balance at End of Period | ||||||||||||
Allowance for doubtful accounts: | ||||||||||||||||
Year ended: | ||||||||||||||||
December 31, 2020 | $ | 59,000 | $ | 23,000 | $ | — | $ | 82,000 | ||||||||
December 31, 2019 | 224,000 | (144,000 | ) | (21,000 | ) | 59,000 | ||||||||||
December 31, 2018 | 159,000 | 65,000 | — | 224,000 | ||||||||||||
| (1) | Reflects uncollectible accounts written off, net of recoveries. |
| Vicor Corporation | ||
By: | /s/ James A. Simms | |
| James A. Simms | ||
| Vice President, Chief Financial Officer | ||
March 1, 2021
Signature | Title | Date | ||
/s/ Patrizio Vinciarelli Patrizio Vinciarelli | President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) | |||
/s/ James A. Simms James A. Simms | Chief Financial Officer and Vice President (Principal Financial Officer and Principal Accounting Officer) | |||
/s/ Estia J. Eichten Estia J. Eichten | Director | |||
/s/
Michael S. McNamara | Director | |||
/s/ Samuel J. Anderson Samuel J. Anderson | Director | |||
/s/ Claudio Tuozzolo Claudio Tuozzolo | Director | |||
/s/ Jason L. Carlson Jason L. Carlson | Director | |||
/s/
Philip D. Davies | Director | |||
/s/
Andrew T. D’Amico | Director | |||
89