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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 March 31, 2002
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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)
25 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 March 31, 2002.
Common Stock, $.01 par value ----------------30,476,430
Class B Common Stock, $.01 par value -------11,930,848
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VICOR CORPORATION
INDEX TO FORM 10-Q
Page
----
Part I - Financial Information:
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at 1
March 31, 2002 and December 31, 2001
Condensed Consolidated Statements of Operations 2
for the three months ended March 31, 2002 and 2001
Condensed Consolidated Statements of Cash Flows 3
for the three months ended March 31, 2002 and 2001
Notes to Condensed Consolidated Financial 4-6
Statements
Item 2 - Management's Discussion and Analysis of 7-9
Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 10
Part II - Other Information:
Item 1 - Legal Proceedings 11
Item 2 - Changes in Securities 12
Item 3 - Defaults Upon Senior Securities 12
Item 4 - Submission of Matters to a Vote of 12
Security Holders
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signature(s) 13
FORM 10-Q
PART I
ITEM 1
PAGE 1
Item 1 - Financial Statements
- -----------------------------
VICOR CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
Assets March 31, 2002 December 31, 2001
- ------------------------------------------------- -------------- -----------------
Current assets:
Cash and cash equivalents $ 58,060 $ 57,481
Short-term investments 30,482 28,808
Accounts receivable, net 23,860 23,224
Note receivable 7,500 7,500
Inventories, net 36,837 40,748
Deferred tax assets 8,850 8,850
Other current assets 2,573 1,889
--------- ---------
Total current assets 168,162 168,500
Property, plant and equipment, net 107,987 110,846
Notes receivable from related parties 2,186 2,167
Other assets 7,126 8,109
--------- ---------
$ 285,461 $ 289,622
========= =========
Liabilities and Stockholders' Equity
- -------------------------------------------------
Current liabilities:
Accounts payable $ 5,006 $ 3,087
Accrued compensation and benefits 3,967 3,492
Accrued liabilities 8,050 8,762
--------- ---------
Total current liabilities 17,023 15,341
Deferred income taxes 9,005 9,444
Stockholders' equity:
Preferred Stock - -
Class B Common Stock 119 119
Common Stock 370 369
Additional paid-in capital 145,540 145,359
Retained earnings 214,409 219,340
Accumulated other comprehensive income (615) 40
Treasury stock, at cost (100,390) (100,390)
--------- ---------
Total stockholders' equity 259,433 264,837
--------- ---------
$ 285,461 $ 289,622
========= =========
Note: The balance sheet at December 31, 2001 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.
FORM 10-Q
PART I
ITEM 1
PAGE 2
VICOR CORPORATION
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended
-------------------------------------------------------------
March 31, 2002 March 31, 2001
-------------- --------------
Net revenues:
Product $ 34,080 $ 53,656
License 540 1,363
-------- --------
34,620 55,019
Costs and expenses:
Cost of revenue 26,458 37,204
Selling, general and administrative 10,253 10,314
Research and development 5,107 5,453
-------- --------
41,818 52,971
-------- --------
Income (loss) from operations (7,198) 2,048
Other income (expense), net (567) 1,102
-------- --------
Income (loss) before income taxes (7,765) 3,150
Benefit (provision) for income taxes 2,834 (1,071)
-------- --------
Net income (loss) $ (4,931) $ 2,079
======== ========
Net income (loss) per common share:
Basic $ (0.12) $ 0.05
Diluted $ (0.12) $ 0.05
Shares used to compute net income (loss) per share:
Basic 42,405 42,284
Diluted 42,405 42,846
See accompanying notes.
FORM 10-Q
PART I
ITEM 1
PAGE 3
VICOR CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
--------------------------------------------------------------
March 31, 2002 March 31, 2001
-------------- --------------
Operating activities:
Net income (loss) $ (4,931) $ 2,079
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 5,312 4,822
Loss on disposal of equipment 1,159 -
Unrealized loss on foreign currency 49 -
Tax benefit relating to stock option plans 57 377
Change in current assets and
liabilities, net 4,249 5,558
-------- --------
Net cash provided by operating activities 5,895 12,836
Investing activities:
Purchases of short-term investments (7,295) -
Sales of short-term investments 5,500 -
Additions to property, plant and equipment (3,508) (5,916)
Increase in notes receivable (19) (97)
Increase in other assets (133) (222)
-------- --------
Net cash used in investing activities (5,455) (6,235)
Financing activities:
Proceeds from issuance of Common Stock 125 865
-------- --------
Net cash provided by financing activities 125 865
Effect of foreign exchange rates on cash 14 (81)
-------- --------
Net increase in cash and cash equivalents 579 7,385
Cash and cash equivalents at beginning of period 57,481 62,916
-------- --------
Cash and cash equivalents at end of period $ 58,060 $ 70,301
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See accompanying notes.
FORM 10-Q
PART I
ITEM 1
PAGE 4
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2002
(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 months
ended March 31, 2002 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2002. 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, 2001, 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 (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
income (loss) per share for the three months ended March 31 (in
thousands, except per share amounts):
Three Months Ended
------------------
March 31,
2002 2001
---- ----
Numerator:
Net income (loss) $(4,931) $ 2,079
======= =======
Denominator:
Denominator for basic income (loss)
per share-weighted average shares 42,405 42,284
Effect of dilutive securities:
Employee stock options - 562
------- -------
Denominator for diluted income (loss) per
share-adjusted weighted-average shares
and assumed conversions 42,405 42,846
======= =======
Basic income (loss) per share $ (0.12) $ 0.05
======= =======
Diluted income (loss) per share $ (0.12) $ 0.05
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FORM 10-Q
PART I
ITEM 1
PAGE 5
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2002
(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 March 31, 2002 and December 31, 2001 (in thousands):
March 31, 2002 December 31, 2001
-------------- -----------------
Raw materials................... $ 28,795 $ 31,979
Work-in-process................. 3,264 3,758
Finished goods.................. 4,778 5,011
-------- --------
$ 36,837 $ 40,748
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4. COMPREHENSIVE INCOME
Total comprehensive income (loss) was ($5,586,000) and $1,661,000 for
the three months ended March 31, 2002 and March 31, 2001, respectively.
Other comprehensive income consisted principally of adjustments for
foreign currency translation losses in the amounts of ($7,000) and
($467,000) and unrealized gains (losses) on available for sale
securities in the amount of ($648,000) and $49,000 for the three months
ended March 31, 2002 and March 31, 2001, respectively.
5. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142 (FAS 142) "Goodwill
and Other Intangible Assets." Under FAS 142, goodwill and indefinite
lived intangible assets will no longer be amortized but will be tested
for impairment at least annually at the reporting unit level. The
Company adopted FAS 142 in the first quarter of 2002, which resulted in
the elimination of goodwill amortization beginning in fiscal 2002. The
Company is currently in the process of evaluating the impact FAS 142
will have on the carrying value of goodwill and the related impact on
the financial position and results of operations. Adjustments for
impairment, if any, will be recorded in the second quarter of 2002.
The following table sets forth a reconciliation of reported net income
(loss) to adjusted net income (loss) (in thousands):
Three Months Ended
------------------
March 31,
2002 2001
---- ----
Reported net income (loss) $(4,931) $ 2,079
Add back: goodwill amortization - 49
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Adjusted net income (loss) $(4,931) $ 2,128
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FORM 10-Q
PART I
ITEM 1
PAGE 6
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2002
(Continued)
5. Impact of Recently Issued Accounting Standards (Continued)
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In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 143 (FAS 143) "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It also applies to
legal obligations associated with retirement of long-lived assets that
result from the acquisition, construction, development and/or the
normal operation of a long-lived asset except for certain obligations
of lessees. The Company is required to adopt FAS 143 in the first
quarter of 2003 and does not expect it will have a material effect on
the Company's financial position or results of operations.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 (FAS 144) "Accounting for the Impairment or Disposal
of Long-Lived Assets." FAS 144 supersedes FAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" and provides a single accounting model for long-lived
assets to be disposed of. The Company adopted FAS 144 in the first
quarter of 2002. The adoption of FAS 144 did not have a significant
impact on the Company's financial statements.
FORM 10-Q
PART I
ITEM 2
PAGE 7
VICOR CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 2002
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. The words "believes," "expects,"
"anticipates," "intend," "estimate," "plan," "assumes," and other similar
expressions identify forward-looking statements. 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, 2001. 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 Part I, Item 1 -- "Business --
Second-Generation Automated Manufacturing Line," "--Competition," "--Patents,"
"--Licensing," and "--Risk Factors," under Part I, Item 3 -- "Legal
Proceedings," and under Part II, Item 7 -- "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The risk factors contained in
the Annual Report on Form 10-K may not be exhaustive. Therefore, the information
contained in that Form 10-K should be read together with other reports and
documents that the Company files with the Securities and Exchange Commission
from time to time, including Forms 10-Q, 8-K and 10-K, which may supplement,
modify, supersede or update those risk factors.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
Net revenues for the first quarter of 2002 were $34,620,000, a decrease of
$20,399,000 (37.1%) as compared to $55,019,000 for the same period a year ago.
The decrease in net revenues resulted primarily from a decrease in unit
shipments of standard and custom products of approximately $19,576,000 and a
decrease in license revenue of $823,000. The Company experienced continued
reduction in demand for its first-generation products which began in the fourth
quarter of 2000 and second-generation products which began in the second half of
2001. The decrease in licensing revenue was principally due to the recognition
of the final amounts under the license agreement with Reltec Corporation during
the first quarter of 2001.
Gross margin decreased $9,653,000 (54.2%) to $8,162,000 from $17,815,000, and
decreased as a percentage of net revenues from 32.4% to 23.6%. The primary
components of the decreases in gross margin dollars and the corresponding
decrease in percentage were the decrease in net revenues and changes in the
revenue mix. The Company continues to refine the design, processes, equipment
and parts associated with second-generation products. Until the Company achieves
higher production volumes, higher yield levels and attains component cost
reductions on second-generation products, gross margins will continue to be
adversely affected.
FORM 10-Q
PART I
ITEM 2
PAGE 8
VICOR CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
March 31, 2002
(Continued)
Selling, general and administrative expenses were $10,253,000 for the period, a
decrease of $61,000 (0.6%) over the same period in 2001. As a percentage of net
revenues, selling, general and administrative expenses increased to 29.6% from
18.7%. The principal components of the $61,000 decrease were $382,000 (28.0%) in
decreased sales commission costs, $290,000 (35.4%) in decreased advertising
expenses, $149,000 (26.2%) in decreased costs associated with the operations of
the Vicor Integrated Architects and $123,000 (38.3%) in decreased transportation
expenses. The principal component offsetting the above decreases was $1,097,000
(362.4%) of increased legal expense related to the Company's patent infringement
actions (see Part II, Item 1 - "Legal Proceedings").
Research and development expenses decreased $346,000 (6.3%) to $5,107,000 and
increased as a percentage of net revenues to 14.8% from 9.9%. The principal
components of the $346,000 decrease were $217,000 (100.0%) of decreased research
and development expense associated with the operations of Vicor Japan Co., Ltd.
("VJCL") due to a realignment of their activities to applications engineering
beginning in the second quarter of 2001, which is included in selling, general
and administrative expenses and $141,000 (71.0%) of decreased personnel related
expenses, principally for employment recruiting, advertising and relocation
expenses.
Other income (expense), net decreased $1,669,000 (151.5%) from the same period a
year ago to $(567,000). Other income (expense) is primarily comprised of
interest income derived from invested cash and cash equivalents and short-term
investments, as well as a note receivable associated with the Company's real
estate transaction. The decrease in other income (expense), net was due to the
write-down of obsolete equipment of $1,159,000 and lower interest income due to
a decrease in average interest rates.
Income (loss) before income taxes was $(7,765,000), a decrease of $10,915,000
(346.5%) compared to income before taxes of $3,150,000 for the same period in
2001.
The effective tax rate for the first quarter of 2002 was (36.5%), compared to
34.0% for the same period in 2001.
Diluted loss per share was $(0.12) for the first quarter of 2002, compared to
diluted income per share of $0.05 for the first quarter of 2001.
FORM 10-Q
PART I
ITEM 2
PAGE 9
VICOR CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
March 31, 2002
(Continued)
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002 the Company had $58,060,000 in cash and cash equivalents. The
ratio of current assets to current liabilities was 9.9:1 at March 31, 2002
compared to 11.0:1 at December 31, 2001. Working capital decreased $2,020,000,
from $153,159,000 at December 31, 2001 to $151,139,000 at March 31, 2002. The
primary factors affecting the working capital decrease were a decrease in
inventory of $3,911,000 and an increase in current liabilities of $1,682,000
offset by increases in short-term investments of $1,674,000 and accounts
receivable and other current assets of $1,320,000. The primary source of cash
was $5,895,000 from operating activities. The primary uses of cash for the three
months ended March 31, 2002 were for additions to property and equipment of
$3,508,000 and net purchases of short-term investments of $1,795,000.
The Company's primary liquidity needs are for making continuing investments in
manufacturing equipment, much of which is built internally, particularly for the
Company's second-generation products. 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 is in the process of completing an upgrade to second-generation
products, internally designated as FastTrack, which the Company anticipates will
help to increase production capacity and reduce costs. In February 2001,
management approved approximately $16,000,000 in new capital expenditures to
execute this plan. The Company currently estimates that it will spend
approximately $12,000,000 under this plan. Through March 31, 2002, the Company
has spent approximately $10,100,000 under this plan, with the remainder expected
to be spent in 2002.
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 November 2000 Plan authorizes 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 are at the discretion of management based on its view of economic
and financial market conditions. There were no stock repurchases during the
three months ended March 31, 2002.
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 March 31, 2002, the Company had approximately $700,000 of
capital expenditure commitments.
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.
FORM 10-Q
PART I
ITEM 3
PAGE 10
VICOR CORPORATION
March 31, 2002
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a variety of market risks, including changes in
interest rates affecting the return on its cash and cash equivalents and
short-term investments, changes in the equity price of the Company's investment
in Scipher, plc a U.K. company, and fluctuations in foreign currency exchange
rates.
As the Company's cash and cash equivalents consist principally of money market
securities, which are short-term in nature, the Company's exposure to market
risk on interest rate fluctuations for these investments is not significant. The
Company's short-term investments consist mainly of corporate and government debt
securities, a major portion of which have maturities of less than one year.
These debt securities are all highly rated investments, in which a significant
portion have interest rates reset at auction at regular intervals. As a result,
the Company believes there is minimal market risk to these investments. The
Company's exposure to market risk for fluctuations in foreign currency exchange
rates relates primarily to the operations of VJCL. The Company believes that
this market risk is currently not material due to the relatively small size of
VJCL's operations.
The equity price risk for the Company's investment in Scipher, plc may be
material as the market price of the stock has experienced significant
fluctuations over the past several months. At April 30, 2002, the fair value of
the investment was $1,065,000, which represents an unrealized loss of
approximately $1,387,000 ($818,000 net of income taxes).
FORM 10-Q
PART II
ITEM 1-6
PAGE 11
VICOR CORPORATION
Part II - Other Information
March 31, 2002
ITEM 1 - LEGAL PROCEEDINGS
As previously disclosed, Vicor and VLT, Inc., a wholly owned subsidiary of the
Company, ("VLT") are continuing to pursue Reset Patent infringement claims
directly against Artesyn Technologies, Lambda Electronics, Lucent Technologies
and Power-One in the United States District Court in Boston, Massachusetts. The
lawsuit against Lucent was filed in May 2000 and the lawsuits against the other
defendants were filed in February and March 2001. On April 6, 2001, Vicor and
VLT moved to add Tyco Electronics Power Systems, Inc. as a defendant in the
Lucent proceeding. Tyco Electronics Power Systems, Inc. is the entity which now
operates the former power component business of Lucent. Vicor and VLT are
seeking monetary damages in these suits. On June 29, 2001, Vicor filed a motion
with the Court seeking an attachment of certain of Lucent's property in
Massachusetts. On January 17, 2002, the Court issued an order granting Vicor an
attachment of certain of Lucent's property in an amount of $20 million, unless
Lucent posted a bond for this amount. In granting its order, the Court found
that (1) Vicor had a reasonable likelihood of succeeding in its claim of patent
infringement against Lucent and (2) $20 million represented a conservative
estimate of actual damages that Vicor is likely to prove at trial. On February
15, 2002, Lucent posted a bond in connection with the court order. There can be
no assurance that Vicor will ultimately prevail in this litigation or, if it
prevails, as to the amount of damages that would be awarded.
The Company is in the process of enforcing its rights against other third
parties that it believes are infringing the Company's intellectual property.
In addition, the Company is involved in certain other 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.
FORM 10-Q
PART II
ITEM 1-6
PAGE 12
VICOR CORPORATION
Part II - Other Information
March 31, 2002
(Continued)
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
Not applicable.
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.
FORM 10-Q
PART II
PAGE 13
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: May 8, 2002 By: /s/ Patrizio Vinciarelli
-------------------------
Patrizio Vinciarelli
President, Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
Date: May 8, 2002 By: /s/ Mark A. Glazer
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Mark A. Glazer
Chief Financial Officer
(Principal Financial Officer)