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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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, 1998
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from
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Commission File Number 0-18277
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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)
(978) 470-2900
(Registrant's telephone number)
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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, 1998.
Common Stock, $.01 par value ----------------29,953,633
Class B Common Stock, $.01 par value --------12,160,321
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2
VICOR CORPORATION
INDEX TO FORM 10-Q
Page
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Part I - Financial Information:
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet at 1
June 30, 1998 and December 31, 1997
Condensed Consolidated Statement of Income 2
for the quarters ended June 30, 1998 and 1997 and
for the six months ended June 30, 1998 and 1997
Condensed Consolidated Statement of Cash Flows 3
for the six months ended June 30, 1998 and 1997
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)
June 30, 1998 December 31, 1997
------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 70,916 $ 84,859
Accounts receivable, net 29,390 35,258
Inventories, net 29,664 23,448
Other current assets 3,878 3,269
--------- ---------
Total current assets 133,848 146,834
Property, plant and equipment, net 82,743 69,802
Notes receivable 9,118 9,097
Other assets 5,773 3,110
--------- ---------
$ 231,482 $ 228,843
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,411 $ 8,542
Accrued liabilities 12,668 10,025
--------- ---------
Total current liabilities 23,079 18,567
Deferred income taxes 1,852 1,852
Stockholders' equity:
Preferred Stock -- --
Class B Common Stock 122 122
Common Stock 340 340
Additional paid-in capital 100,074 97,980
Retained earnings 160,626 151,056
Treasury stock, at cost (54,611) (41,074)
--------- ---------
Total stockholders' equity 206,551 208,424
--------- ---------
$ 231,482 $ 228,843
========= =========
Note: The balance sheet at December 31, 1997 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.
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FORM 10-Q
PART I
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,
1998 1997 1998 1997
------- ------- ------- -------
Net revenues $41,718 $39,718 $84,910 $77,657
Costs and expenses:
Cost of revenue 22,878 19,302 45,323 37,179
Selling, general and administrative 8,576 7,483 16,893 14,930
Research and development 5,178 4,221 10,694 8,600
------- ------- ------- -------
36,632 31,006 72,910 60,709
------- ------- ------- -------
Income from operations 5,086 8,712 12,000 16,948
Other income 1,310 1,230 2,722 2,332
------- ------- ------- -------
Income before income taxes 6,396 9,942 14,722 19,280
Provision for income taxes 2,241 3,579 5,152 6,941
------- ------- ------- -------
Net income $ 4,155 $ 6,363 $ 9,570 $12,339
======= ======= ======= =======
Net income per common share:
Basic $ 0.10 $ 0.15 $ 0.22 $ 0.29
Diluted $ 0.10 $ 0.15 $ 0.22 $ 0.29
Shares outstanding:
Basic 42,547 42,570 42,721 42,468
Diluted 43,019 43,258 43,358 43,088
See accompanying notes.
5
FORM 10-Q
PART I
ITEM 1
PAGE 3
VICOR CORPORATION
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
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June 30, 1998 June 30, 1997
------------- -------------
Operating activities:
Net income $ 9,570 $ 12,339
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,219 4,253
Gain on disposal of equipment (24) (8)
Change in current assets and liabilities, net 3,555 (1,702)
-------- --------
Net cash provided by operating activities 18,320 14,882
Investing activities:
Additions to property, plant and equipment (17,966) (8,406)
Proceeds from sale of equipment 41 9
Increase in notes receivable (21) (5,215)
Increase in other assets (2,874) (382)
-------- --------
Net cash used in investing activities (20,820) (13,994)
Financing activities:
Tax benefit relating to stock option plans 611 530
Proceeds from issuance of Common Stock 1,483 5,778
Acquisitions of treasury stock (13,537) --
-------- --------
Net cash (used in) provided by financing
activities (11,443) 6,308
-------- --------
Net (decrease) increase in cash and cash equivalents (13,943) 7,196
Cash and cash equivalents at beginning of period 84,859 73,647
-------- --------
Cash and cash equivalents at end of period $ 70,916 $ 80,843
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See accompanying notes.
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FORM 10-Q
PART I
ITEM 1
PAGE 4
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
June 30, 1998
(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- months periods ended June 30, 1998 are not necessarily indicative
of the results that may be expected for the year ended December 31,
1998. 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, 1997, contained
in the Company's annual report filed on Form 10-K (File No. 0-18277)
with the Securities and Exchange Commission.
2. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted
income per share for the three and six months months ended June 30 (in
thousands, except per share amounts):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
------- ------- ------- -------
Numerator:
Net Income $ 4,155 $ 6,363 $ 9,570 $12,339
======= ======= ======= =======
Denominator:
Denominator for basic income
per share-weighted average shares 42,547 42,570 42,721 42,468
Effect of dilutive securities:
Employee stock options 472 688 637 620
------- ------- ------- -------
Denominator for diluted income per share-
adjusted weighted-average shares and
assumed conversions 43,019 43,258 43,358 43,088
======= ======= ======= =======
Basic income per share $ 0.10 $ 0.15 $ 0.22 $ 0.29
======= ======= ======= =======
Diluted income per share $ 0.10 $ 0.15 $ 0.22 $ 0.29
======= ======= ======= =======
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FORM 10-Q
PART I
ITEM 2
PAGE 5
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
June 30, 1998
(Continued)
3. INVENTORIES
Inventories are valued at the lower of cost (determined using the
first-in, first-out method) or market. Inventories were as follows as
of June 30, 1998 and December 31, 1997 (in thousands):
June 30, 1998 December 31, 1997
------------- -----------------
Raw materials ........................ $19,932 $16,715
Work-in-process ...................... 4,749 3,774
Finished goods ....................... 4,983 2,959
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$29,664 $23,448
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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, 1998
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, 1997. 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 -- Second-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, 1998, COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Net revenues for the second quarter of 1998 were $41,718,000, an increase of
$2,000,000 (5.0%) as compared to $39,718,000 for the same period a year ago. The
growth in net revenues resulted primarily from a net increase of unit shipments
of standard and custom products of approximately $3,400,000, offset by a
reduction in the sale of automated manufacturing line equipment of approximately
$1,400,000.
Gross margin decreased $1,576,000 (7.7%) to $18,840,000 from $20,416,000, and
decreased as a percentage of net revenues from 51.4% to 45.2%. The primary
components of the decrease in gross margin dollars and percentage were
attributable to commencement of depreciation on the second-generation automated
production line in the second quarter of 1998 of approximately $1,100,000, and
to changes in the revenue mix. The gross margins for the remainder of 1998 may
be negatively impacted by the depreciation of the second-generation automated
production line until higher production volumes and higher yield levels are
attained. The Company is continuing to introduce selected models of its
second-generation product families and increase production on the new
manufacturing line; however, there can be no assurance that product development
issues will not substantially delay the ultimate general introduction of the
complete product line, require continued modification of product specifications,
or prevent attainment of the anticipated capacity of the new manufacturing line.
Significant revenues from the sale of any product in the Company's
second-generation product line are not expected to occur for several quarters.
Selling, general and administrative expenses were $8,576,000 for the period, an
increase of $1,093,000 (14.6%) over the same period in 1997. As a percentage of
net revenues, selling, general and administrative expenses increased to 20.6%
from 18.8%. The principal components of the $1,093,000 increase were $498,000
(17.1%) of increased compensation expense due to growth in staffing levels of
selling and administrative personnel; $261,000 (428.4%) of increased costs for
training and consulting fees for the implementation of the new Enterprise
Resource Planning system, and $233,000 (25.1%) of increased advertising costs.
Research and development expenses increased $957,000 (22.7%) to $5,178,000 and
increased as a percentage of net revenues to 12.4% from 10.6%. The principal
component of the $957,000 increase was $898,000 (37.1%) of increased
compensation expense due to growth in staffing levels of engineering personnel,
primarily related to the research and development of the second-generation
product line.
Other income increased $80,000 (6.5%) from the same period a year ago, to
$1,310,000. Other income is primarily comprised of interest income derived from
invested cash and cash equivalents, as well as notes receivable associated with
the Company's real estate transactions. Interest income increased primarily due
to an increase in these balances.
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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, 1998
(continued)
Income before income taxes was $6,396,000, a decrease of $3,546,000 (35.7%)
compared to the same period in 1997. As a percentage of net revenues, income
before income taxes decreased from 25.0% to 15.3% primarily due to the gross
margin decrease and the increase in operating expenses as discussed above.
The effective tax rate for the second quarter of 1998 was 35%, compared to 36%
for the same period in 1997.
Net income per share (diluted) was $.10 for the second quarter of 1998, compared
to $.15 for the second quarter of 1997, a decrease of $.05 (33.3%).
SIX MONTHS ENDED JUNE 30, 1998, COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net revenues for the first six months of 1998 were $84,910,000, an increase of
$7,253,000 (9.3%) as compared to $77,657,000 for the same period a year ago. The
growth in net revenues resulted primarily from a net increase of unit shipments
of standard and custom products of approximately $11,500,000, offset by
reductions in license income and the sale of automated manufacturing line
equipment of approximately $1,000,000 and $3,300,000, respectively.
Gross margin decreased $891,000 (2.2%) to $39,587,000 from $40,478,000, and
decreased as a percentage of net revenues from 52.1% to 46.6%. The primary
components of the decrease in gross margin dollars and percentage were
attributable to commencement of depreciation on the second-generation automated
production line in the second quarter of 1998 of approximately $1,100,000, and
to changes in the revenue mix. As discussed above, the gross margins for the
remainder of 1998 may be negatively impacted by the depreciation of the
second-generation automated production line until higher production volumes and
higher yield levels are attained.
Selling, general and administrative expenses were $16,893,000 for the period, an
increase of $1,963,000 (13.1%) over the same period in 1997. As a percentage of
net revenues, selling, general and administrative expenses increased to 19.9%
from 19.2%. The principal components of the $1,963,000 increase were $710,000
(945.4%) of increased costs for training and consulting fees for the
implementation of the new Enterprise Resource Planning system; $652,000 (11.6%)
of increased compensation expense due to growth in staffing levels of selling
and administrative personnel; $360,000 (16.5%) of increased sales commission
expense, and an increase in the Company's VIA subsidiaries' selling, general and
administrative expenses of $146,000 (18.1%).
Research and development expenses increased $2,094,000 (24.3%) to $10,694,000
and increased as a percentage of net revenues to 12.6% from 11.1%. The increase
was primarily related to the research and development of the second-generation
product line. The principal components of the $2,094,000 increase were
$1,543,000 (31.9%) of increased compensation expense due to growth in staffing
levels of engineering personnel; $270,000 (16.7%) of increased project material
costs and $159,000 (20.9%) of increased depreciation expense.
Other income increased $390,000 (16.7%) from the same period a year ago, to
$2,722,000. Other income is primarily comprised of interest income derived from
invested cash and cash equivalents, as well as notes receivable associated with
the Company's real estate transactions. Interest income increased primarily due
to an increase in these balances.
Income before income taxes was $14,722,000, a decrease of $4,558,000 (23.6%)
compared to the same period in 1997. As a percentage of net revenues, income
before income taxes decreased from 24.8.% to 17.3% primarily due to the gross
margin decrease and the increase in operating expenses as discussed above.
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, 1998
(continued)
The effective tax rate for the six months ended June 30, 1998 was 35%, compared
to 36% for the same period in 1997.
Net income per share (diluted) was $.22 for the six months ended June 30, 1998,
compared to $.29 for the same period in 1997, a decrease of $.07 (24.1%).
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998 the Company had $70,916,000 in cash and cash equivalents. The
ratio of current assets to current liabilities was 5.8:1 compared to 7.9:1 at
December 31, 1997. Working capital decreased $17,498,000, from $128,267,000 at
December 31, 1997 to $110,769,000 at June 30, 1998. The primary factors
affecting the working capital decrease were a decrease in cash of $13,943,000,
and a decrease in accounts receivable of $5,868,000. The primary uses of cash
for the first six months of 1998 were for additions to property and equipment of
$17,966,000 and the acquisition of treasury stock of $13,537,000, offset by cash
provided by operating activities of $18,320,000.
In June 1998, the Company announced that it had agreed to acquire the principal
assets of the switching power supply businesses owned by the Japan Tobacco, Inc.
group ("JT"), and that it would establish a direct presence in Japan through a
new company called Vicor Japan Company, Ltd. ("VJCL"). JT began purchasing
automated manufacturing equipment from the Company in 1993, when it founded a
company to manufacture licensed products in Japan. JT became Vicor's sole
licensee in Japan in 1995, when it acquired a license to manufacture, market and
sell products. Under the terms of the final agreement, Vicor and VJCL acquired
all of the automated manufacturing equipment used for the manufacture of first
and second generation modular converter products, existing raw material and
finished goods inventories, customer lists and certain intellectual property.
The transaction will be accounted for as of July 1, 1998. The Company
anticipates making working capital investments in VJCL during the next several
quarters in order to establish VJCL's operations, and there can be no assurance
that revenues generated from VJCL's operations during these periods will be
sufficient to fully offset such investments.
The Company plans to make continuing investments in manufacturing equipment,
much of which is built internally. The internal construction of manufacturing
machinery, in order to provide for additional manufacturing capacity, is a
practice which the Company expects to continue over the next several years.
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, 1998, the Company had approximately $29,000,000 of capital expenditure
commitments, including approximately $11,000,000 related to the construction of
new and expanded facilities.
The Company does not consider the impact of inflation and changing prices on its
business activities or fluctuations in the exchange rates for foreign currency
transactions to have been significant during the last three fiscal years.
IMPACT OF THE YEAR 2000
The Company is proceeding with its plans to address the Year 2000 Issue.
Inception to date, the Company has incurred approximately $2.5 million ($917,000
expensed and $1.6 million capitalized, primarily for software and hardware for
the new Enterprise Resource System), of which approximately $378,000 was
incurred in the second quarter of 1998 ($321,000 expensed and $57,000
capitalized).
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FORM 10-Q
PART II
ITEM 1-6
PAGE 9
VICOR CORPORATION
Part II - Other Information
June 30, 1998
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 25,
1998. 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 145,301,078 230,872
Richard E. Beede 145,286,079 245,871
Estia J. Eichten 145,286,226 245,724
Jay M. Prager 145,286,181 245,769
David T. Riddiford 145,301,513 230,437
M. Michael Ansour 145,300,913 231,037
A proposal to approve and ratify the Company's 1998 Stock Option and
Incentive Plan was approved by the Company's stockholders. Votes were
cast for the proposal as follows:
Votes for Votes Against Abstained
--------- ------------- ---------
134,953,599 4,176,103 132,292
There were 6,269,956 broker non-votes on this proposal.
ITEM 5 - OTHER INFORMATION
Not applicable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - none
b. Reports on Form 8-K - none.
12
FORM 10-Q
PART II
PAGE 10
SIGNATURES
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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 10, 1998 By: /s/ Patrizio Vinciarelli
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Patrizio Vinciarelli
President and Chairman
of the Board
Date: August 10, 1998 By: /s/ Mark A. Glazer
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Mark A. Glazer
Chief Financial Officer