1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
----------------------------------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from
----------------------------------------
Commission File Number 0-18277
-------------------------------------
VICOR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2742817
(State of Incorporation) (IRS Employer Identification Number)
23 Frontage Road, Andover, Massachusetts 01810
(Address of registrant's principal executive office)
(508) 470-2900
(Registrant's telephone number)
--------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of June 30, 1997.
Common Stock, $.01 par value ................... 30,357,905
Class B Common Stock, $.01 par value ........... 12,235,261
================================================================================
2
VICOR CORPORATION
INDEX TO FORM 10-Q
Page
----
Part I - Financial Information:
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet at 1
June 30, 1997 and December 31, 1996
Condensed Consolidated Statement of Income 2
for the quarters ended June 30, 1997 and 1996 and
for the six months ended June 30, 1997 and 1996
Condensed Consolidated Statement of Cash Flows 3
for the six months ended June 30, 1997 and 1996
Notes to Condensed Consolidated Financial 4-5
Statements
Item 2 - Management's Discussion and Analysis of 6-8
Financial Condition and Results of Operations
Part II - Other Information:
Item 1 - Legal Proceedings 9
Item 2 - Changes in Securities 9
Item 3 - Defaults Upon Senior Securities 9
Item 4 - Submission of Matters to a Vote of 9
Security Holders
Item 5 - Other Information 9
Item 6 - Exhibits and Reports on Form 8-K 9
Signature(s) 10
3
FORM 10-Q
PART 1
ITEM 1
PAGE 1
VICOR CORPORATION
Condensed Consolidated Balance Sheet
(In thousands)
(Unaudited)
Assets June 30, 1997 December 31, 1996
------ ------------- -----------------
Current assets:
Cash and cash equivalents $ 80,843 $ 73,647
Accounts receivable, net 30,142 25,001
Inventories 19,777 21,129
Other current assets 2,890 2,765
-------- --------
Total current assets 133,652 122,542
Property, plant and equipment, net 61,902 57,613
Notes receivable 9,010 3,795
Other assets 2,738 2,493
-------- --------
$207,302 $186,443
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 6,782 $ 5,558
Accrued liabilities 9,421 8,433
-------- --------
Total current liabilities 16,203 13,991
Deferred income taxes 1,708 1,708
Stockholders' equity:
Preferred Stock - -
Class B Common Stock 122 123
Common Stock 336 331
Additional paid-in capital 92,146 85,842
Retained earnings 137,178 124,839
Treasury stock, at cost (40,391) (40,391)
-------- --------
Total stockholders' equity 189,391 170,744
-------- --------
$207,302 $186,443
======== ========
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
4
FORM 10-Q
PART 1
ITEM 1
PAGE 2
VICOR CORPORATION
Condensed Consolidated Statement of Income
(In thousands except per share data)
(Unaudited)
Three Months Ended Six Months Ended
------------------- -------------------
June 30, June 30,
1997 1996 1997 1996
------- ------- ------- -------
Net revenues $39,718 $36,702 $77,657 $72,508
Costs and expenses:
Cost of revenue 19,302 16,855 37,179 33,402
Selling, general and administrative 7,483 6,772 14,930 13,007
Research and development 4,221 3,306 8,600 6,748
------- ------- ------- -------
31,006 26,933 60,709 53,157
------- ------- ------- -------
Income from operations 8,712 9,769 16,948 19,351
Other income 1,230 893 2,332 1,883
------- ------- ------- -------
Income before income taxes 9,942 10,662 19,280 21,234
Provision for income taxes 3,579 3,944 6,941 7,856
------- ------- ------- -------
Net income $ 6,363 $ 6,718 $12,339 $13,378
======= ======= ======= =======
Net income per common share $ 0.15 $ 0.16 $ 0.29 $ 0.32
======= ======= ======= =======
Weighted average number of common
shares and equivalents 43,120 42,567 42,835 42,437
======= ======= ======= =======
See accompanying notes.
5
FORM 10-Q
PART 1
ITEM 1
PAGE 3
VICOR CORPORATION
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
-----------------------------------------
June 30, 1997 June 30, 1996
------------- -------------
Operating activities:
Net income $ 12,339 $ 13,378
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,253 4,082
(Gain) loss on disposal of equipment (8) 3
Change in current assets and
liabilities, net (1,702) (5,830)
-------- --------
Net cash provided by operating activities 14,882 11,633
Investing activities:
Additions to property, plant and equipment (8,406) (6,445)
Proceeds from sale of equipment 9 16
Increase in notes receivable (5,215) (1,162)
Increase in other assets (382) (236)
-------- --------
Net cash used in investing activities (13,994) (7,827)
Financing activities:
Tax benefit relating to stock option plans 530 850
Proceeds from issuance of Common Stock 5,778 479
Acquisition of treasury stock - (8,812)
-------- --------
Net cash provided by (used in) financing
activities 6,308 (7,483)
-------- --------
Net increase (decrease) in cash and cash equivalents 7,196 (3,677)
Cash and cash equivalents at beginning of period 73,647 65,244
-------- --------
Cash and cash equivalents at end of period $ 80,843 $ 61,567
======== ========
See accompanying notes.
6
FORM 10-Q
PART 1
ITEM 1
PAGE 4
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
June 30, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements.
In the opinion of management, all adjustments (consisting of only
normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three- and
six-month periods ended June 30, 1997 are not necessarily indicative
of the results that may be expected for the year ended December 31,
1997. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's audited
financial statements for the year ended December 31, 1996, contained in
the Company's annual report filed on Form 10-K (File #0-18277) with the
Securities and Exchange Commission.
2. NET INCOME PER SHARE
Net income per common share is based on the weighted average number of
shares of common shares and common share equivalents.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is effective for the
Company on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock
options will be excluded. There is not expected to be any material
change to either primary or fully diluted net income per share for the
quarters or the six months ended June 30, 1997 and 1996 as a result of
the new method.
3. INVENTORIES
Inventories are valued at the lower of cost (determined using the
first-in, first-out method) or market. Costs associated with the
long-term contract for the sale of automated manufacturing line
equipment are included in inventories reduced by amounts identified
with revenues recognized under the contract. Inventories were as
follows as of June 30, 1997 and December 31, 1996 (in thousands):
June 30, 1997 December 31, 1996
------------- -----------------
Raw materials ................. $12,682 $12,627
Work-in-process ............... 3,179 2,290
Finished goods ................ 3,915 6,212
Unbilled costs ................ 1 -
------- -------
$19,777 $21,129
======= =======
7
FORM 10-Q
PART I
ITEM 2
PAGE 5
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
June 30, 1997
(Continued)
4. MORTGAGE NOTE RECEIVABLE
In May 1997, the Company received a promissory note in the amount of
$7,500,000 from an unrelated third party in exchange for $5,000,000 in
cash plus the termination of an existing note in the amount of
$2,500,000. The note bears interest at 9% and is due in May 2002. The
note is secured by a mortgage on certain real estate and by the
assignment of certain leases and other contracts.
5. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income," and Statement No. 131, "Disclosures About
Segments of an Enterprise and Related Information." Statement No. 130
establishes standards for the reporting and display of comprehensive
income and its components. Statement No. 131 establishes standards for
the way that public companies report information about operating
segments in financial statements. This Statement supersedes Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise,"
but retains the requirements to report information about major
customers. Statements 130 and 131 are effective for the Company in
fiscal 1998. The Company does not believe that the adoption of these
Statements will have a material effect on the Company's financial
statements.
8
FORM 10-Q
PART I
ITEM 2
PAGE 6
VICOR CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
June 30, 1997
Except for historical information contained herein, some matters discussed in
this report constitute forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Actual results could differ materially from
those projected in the forward-looking statements as a result of the risk
factors set forth in this report and in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996. Reference is made in particular to the
discussions set forth below in this Report under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and set forth in the
Annual Report on Form 10-K under Item 1 -- "Business -- Next-Generation
Automated Manufacturing Line," "--Competition," "--Patents," and "--Licensing,"
and under Item 7 -- "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Results of Operations
- ---------------------
Three months ended June 30, 1997, compared to three months ended June 30, 1996
- ------------------------------------------------------------------------------
Net revenues for the second quarter of 1997 were $39,718,000, an increase of
$3,016,000 (8.2%) as compared to $36,702,000 for the same period a year ago. The
increase in net revenues was primarily due to an increase of unit shipments of
standard and custom products of approximately $4,400,000, offset by a reduction
in license income of approximately $1,100,000.
Gross margin increased $569,000 (2.9%) to $20,416,000 from $19,847,000, but
decreased as a percentage of net revenues from 54.1% to 51.4%. The primary
components of the increase in gross margin were changes in the revenue mix.
Selling, general and administrative expenses were $7,483,000 for the period, an
increase of $711,000 (10.5%) over the same period in 1996. As a percentage of
net revenues, selling, general and administrative expenses increased to 18.8%
compared to 18.5% in 1996. The principal components of the $711,000 increase
were $470,000 (19.3%) of increased compensation expense due to growth in
staffing levels of selling and administrative personnel; $142,000 (125.1%) of
increased legal expenses; $84,000 (10.0%) of increased advertising expenses; and
$84,000 (8.0%) of increased sales commission expense.
Research and development expenses increased $915,000 (27.7%) to $4,221,000 and
increased as a percentage of net revenues to 10.6% from 9.0%. The principal
components of the $915,000 increase were $484,000 (25.0%) of increased
compensation expense due to growth in staffing levels of engineering personnel
and $148,000 (30.7%) of increased project material costs. The Company continues
work on its next-generation products. The Company does not expect revenues or
earnings from this new product family to be material over the next several
quarters. See also the discussion under "Liquidity and Capital Resources."
Other income increased $337,000 (37.7%) from the same period a year ago, to
$1,230,000. Other income is primarily comprised of interest income derived from
cash and cash equivalents, short-term investments, and notes receivable
associated with the Company's real estate transactions in Andover,
Massachusetts. Interest income increased primarily due to an increase in cash
balances earning interest.
Income before income taxes was $9,942,000, a decrease of $720,000 (6.8%)
compared to the same period in 1996. As a percentage of net revenues, income
before income taxes decreased from 29.1% to 25.0% primarily due to the increase
in operating expenses as discussed above.
Net income per share for the second quarter of 1997 was $.15, compared to $.16
for the second quarter of 1996, a decrease of $.01 (6.3%).
9
FORM 10-Q
PART I
ITEM 2
PAGE 7
VICOR CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
June 30, 1997
(continued)
Six months ended June 30, 1997, compared to six months ended June 30, 1996
- --------------------------------------------------------------------------
Net revenues for the first six months of 1997 were $77,657,000, an increase of
$5,149,000 (7.1%) as compared to $72,508,000 for the same period a year ago. The
increase in net revenues was primarily due to an increase of unit shipments of
standard and custom products of approximately $5,800,000, offset by a reduction
in license income of approximately $1,100,000.
Gross margin increased $1,372,000 (3.5%) to $40,478,000 from $39,106,000, but
decreased as a percentage of net revenues from 53.9% to 52.1%. The primary
components of the increase in gross margin were changes in the revenue mix.
Selling, general and administrative expenses were $14,930,000 for the period, an
increase of $1,923,000 (14.8%) over the same period in 1996. As a percentage of
net revenues, selling, general and administrative expenses increased to 19.2%
compared to 17.9% in 1996. The principal components of the $1,923,000 increase
were $1,064,000 (22.8%) of compensation expense due to growth in staffing levels
of selling and administrative personnel; $401,000 (27.0%) of increased
advertising expenses; $184,000 (48.6%) of increased legal expenses; and $139,000
(6.8%) of increased sales commission expense.
Research and development expenses increased $1,852,000 (27.4%) to $8,600,000 and
increased as a percentage of net revenues to 11.1% from 9.3%. The principal
components of the $1,852,000 increase were $1,036,000 (27.2%) of compensation
expense due to growth in staffing levels of engineering personnel and $264,000
(22.7%) of increased project material costs.
Other income increased $449,000 (23.8%) to $2,332,000. Other income is primarily
comprised of interest income derived from cash and cash equivalents, short-term
investments, and notes receivable associated with the Company's real estate
transactions in Andover, Massachusetts. Interest income increased primarily due
to an increase in cash balances earning interest.
Income before income taxes was $19,280,000, a decrease of $1,954,000 (9.2%)
compared to the same period in 1996. As a percentage of net revenues, income
before income taxes decreased from 29.3% to 24.8% primarily due to the increase
in operating expenses as discussed above.
Net income per share for the first six months of 1997 was $.29, compared to $.32
for the first six months of 1996, a decrease of $.03 (9.4%).
Liquidity and Capital Resources
- -------------------------------
At June 30, 1997 the Company had $80,843,000 in cash and cash equivalents. The
ratio of current assets to current liabilities was 8.2:1 compared to 8.8:1 at
December 31, 1996. Working capital increased $8,898,000, from $108,551,000 at
December 31, 1996 to $117,449,000 at June 30, 1997. The primary factor affecting
the working capital increase was an increase in cash of $7,196,000 during the
first six months of 1997. The increase in cash was primarily attributable to
cash derived from operating activities of $14,882,000; the net proceeds from the
issuance of Common Stock upon the exercise of stock options, and the related
income tax benefit derived from such issuance, of $6,308,000. The primary uses
of cash for the first six months of 1997 were for additions to property and
equipment of $8,406,000 and for increased notes receivable of $5,215,000. See
the discussion under "Notes to Condensed Consolidated Financial Statements,"
Item 4--"Mortgage Note Receivable."
10
FORM 10-Q
PART I
ITEM 2
PAGE 8
VICOR CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
June 30, 1997
(continued)
The Company plans to make continuing investments in manufacturing equipment,
much of which is built internally. The internal construction of manufacturing
machinery is a practice which the Company expects to follow over the next
several years.
In 1995, the Company announced that it had started prototype production on a new
automated manufacturing line specifically designed to manufacture
next-generation products. In the fourth quarter of 1996, the Company began
introducing selected models of its next-generation product families. While
management believes that the initiation of limited production on the new
manufacturing line and the introduction of selected models of its
next-generation product families are important milestones, there can be no
assurance that problems will not substantially delay the ultimate general
introduction of the complete product line, require modification of product
specifications, or prevent attainment of the anticipated capacity of the new
manufacturing line. Significant revenues from the sale of any products in the
Company's next-generation product line are not expected to occur for several
quarters.
In February, 1996, the Board of Directors of the Company authorized the
repurchase of the Company's Common Stock up to an aggregate amount of
approximately $19,500,000, including amounts remaining under a prior
authorization. The plan authorized the Company to make such 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 in the six months ended June 30,
1997.
The Company has an unused line of credit with a bank under which the Company may
borrow up to $4,000,000 on a revolving credit basis. The Company believes that
cash generated from operations and the total of its cash and cash equivalents,
together with other sources of liquidity, will be sufficient to fund planned
operations and capital equipment purchases for the foreseeable future. At June
30, 1997, the Company had approximately $700,000 of capital expenditure
commitments.
The Company does not consider the impact of inflation on its business activities
to have been significant to date.
11
FORM 10-Q
PART II
ITEM 1-6
PAGE 9
VICOR CORPORATION
Part II - Other Information
June 30, 1997
Item 1 - Legal Proceedings
- --------------------------
The Company is involved in certain litigation incidental to the conduct
of its business. While the outcome of lawsuits against the Company
cannot be predicted with certainty, management does not expect any
current litigation to have a material adverse impact on the Company.
Item 2 - Changes in Securities
- ------------------------------
Not applicable.
Item 3 - Defaults Upon Senior Securities
- ----------------------------------------
Not applicable.
Item 4 - Submission of Matters to a Vote of Security-Holders
- ------------------------------------------------------------
The Annual Meeting of Stockholders of the Company was held on June 26,
1997. All nominees of the Board of Directors of the Company were
re-elected for a one year term. Votes were cast in the election of the
directors as follows:
Nominee Votes for Votes Withheld
------- --------- --------------
Patrizio Vinciarelli 136,973,794 392,623
Richard E. Beede 136,971,594 394,823
Estia J. Eichten 136,972,594 393,823
Jay M. Prager 136,971,594 394,823
David T. Riddiford 136,972,994 393,423
M. Michael Ansour 136,973,094 393,323
Item 5 - Other Information
- --------------------------
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
a. Exhibit 10.1 - $7,500,000 Promissory Note to Vicor Corporation from
Andover Park Realty Trust dated May 29, 1997
Exhibit 10.2 - Loan Agreement between Vicor Corporation and Andover
Park Realty Trust dated May 29, 1997
Exhibit 10.3 - Mortgage and Security Agreement to Vicor Corporation
from Andover Park Realty Trust dated May 29, 1997
b. Reports on Form 8-K - none.
12
FORM 10-Q
PART II
PAGE 10
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VICOR CORPORATION
Date: August 8, 1997 By: /s/ Patrizio Vinciarelli
------------------------------
Patrizio Vinciarelli
President and Chairman
of the Board
Date: August 8, 1997 By: /s/ Mark A. Glazer
------------------------------
Mark A. Glazer
Vice President of Finance
and Administration