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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 September 30, 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)
---------------------------------------------
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 September 30, 2002.
Common Stock, $.01 par value ----------------30,442,857
Class B Common Stock, $.01 par value --------11,882,100
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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
September 30, 2002 and December 31, 2001
Condensed Consolidated Statements of Operations 2
for the three and nine months ended September 30, 2002 and 2001
Condensed Consolidated Statements of Cash Flows 3
for the nine months ended September 30, 2002 and 2001
Notes to Condensed Consolidated Financial 4-6
Statements
Item 2 - Management's Discussion and Analysis of 7-11
Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 12
Item 4 - Controls and Procedures 12
Part II - Other Information:
Item 1 - Legal Proceedings 13
Item 2 - Changes in Securities 14
Item 3 - Defaults Upon Senior Securities 14
Item 4 - Submission of Matters to a Vote of 14
Security Holders
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 14
Signature(s) 15
FORM 10-Q
PART 1
ITEM 1
Item 1 - Financial Statements PAGE 1
- -----------------------------
VICOR CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
Assets September 30, 2002 December 31, 2001
- ------------------------------------------------------- ------------------ -----------------
Current assets:
Cash and cash equivalents $ 70,113 $ 57,481
Short-term investments 28,107 28,808
Accounts receivable, net 25,332 23,224
Note receivable - 7,500
Inventories, net 32,080 40,748
Deferred tax assets 8,850 8,850
Other current assets 2,175 1,889
--------- ---------
Total current assets 166,657 168,500
Property, plant and equipment, net 102,447 110,846
Notes receivable from related parties 2,326 2,167
Other assets 6,922 8,109
--------- ---------
$ 278,352 $ 289,622
========= =========
Liabilities and Stockholders' Equity
- -------------------------------------------------------
Current liabilities:
Accounts payable $ 6,995 $ 3,087
Accrued compensation and benefits 4,185 3,492
Accrued and other current liabilities 5,721 8,762
--------- ---------
Total current liabilities 16,901 15,341
Deferred income taxes 9,296 9,444
Stockholders' equity:
Preferred Stock - -
Class B Common Stock 119 119
Common Stock 371 369
Additional paid-in capital 145,657 145,359
Retained earnings 206,932 219,340
Accumulated other comprehensive income 44 40
Treasury stock, at cost (100,968) (100,390)
--------- ---------
Total stockholders' equity 252,155 264,837
--------- ---------
$ 278,352 $ 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 Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Net revenues:
Product $ 39,095 $ 50,849 $109,785 $153,844
License 408 750 1,169 3,034
-------- -------- -------- --------
39,503 51,599 110,954 156,878
Costs and expenses:
Costs of revenue 29,380 35,614 83,986 108,863
Selling, general and administrative 9,646 11,111 31,033 32,767
Research and development 5,089 4,741 15,324 15,526
-------- -------- -------- --------
44,115 51,466 130,343 157,156
-------- -------- -------- --------
Income (loss) from operations (4,612) 133 (19,389) (278)
Other income (expense), net 478 42 (152) 2,062
-------- -------- -------- --------
Income (loss) before income taxes (4,134) 175 (19,541) 1,784
Benefit (provision) for income taxes 1,509 (53) 7,133 (536)
-------- -------- -------- --------
Net income (loss) $ (2,625) $ 122 $(12,408) $ 1,248
======== ======== ========= ========
Net income (loss) per common share:
Basic $ (0.06) $ 0.00 $ (0.29) $ 0.03
Diluted $ (0.06) $ 0.00 $ (0.29) $ 0.03
Shares used to compute
net income (loss) per share:
Basic 42,328 42,369 42,383 42,328
Diluted 42,328 42,648 42,383 42,727
See accompanying notes.
FORM 10-Q
PART I
ITEM 1
PAGE 3
VICOR CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
-----------------------------------------------------------
September 30, 2002 September 30, 2001
------------------ ------------------
Operating activities:
Net income (loss) $(12,408) $ 1,248
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 16,007 14,655
Loss on disposal of equipment 1,157 355
Other than temporary decline in investment 1,078 -
Unrealized gain on foreign currency (35) -
Loss on sale of investment 5 -
Tax benefit relating to stock option exercises 76 714
Change in current assets and
liabilities, net 8,028 9,058
-------- --------
Net cash provided by operating activities 13,908 26,030
Investing activities:
Sales and maturities of short-term investments 35,221 -
Purchases of short-term investments (34,487) (8,200)
Additions to property, plant and equipment (8,453) (18,265)
Proceeds from sale of equipment - 7
Decrease (increase) in notes receivable 7,341 (192)
Decrease (increase) in other assets (474) 48
-------- --------
Net cash used in investing activities (852) (26,602)
Financing activities:
Proceeds from sale of Common Stock 224 1,371
Acquisition of treasury stock (578) -
-------- --------
Net cash provided by (used in)
financing activities (354) 1,371
Effect of foreign exchange rates on cash (70) 194
-------- --------
Net increase in cash and cash equivalents 12,632 993
Cash and cash equivalents at beginning of period 57,481 62,916
-------- --------
Cash and cash equivalents at end of period $ 70,113 $ 63,909
======== ========
See accompanying notes.
FORM 10-Q
PART I
ITEM 1
PAGE 4
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 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- and
nine-month periods ended September 30, 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 and nine months ended September
30 (in thousands, except per share amounts):
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Numerator:
Net income (loss) $ (2,625) $ 122 $(12,408) $ 1,248
======== ======= ======== =======
Denominator:
Denominator for basic income (loss)
per share-weighted average shares 42,328 42,369 42,383 42,328
Effect of dilutive securities:
Employee stock options - 279 - 399
-------- ------- -------- -------
Denominator for diluted income (loss) per
share - adjusted weighted-average shares
and assumed conversions 42,328 42,648 42,383 42,727
======== ======= ======== =======
Basic income (loss) per share $ (0.06) $ 0.00 $ (0.29) $ 0.03
======== ======= ======== =======
Diluted income (loss) per share $ (0.06) $ 0.00 $ (0.29) $ 0.03
======== ======= ======== =======
FORM 10-Q
PART I
ITEM 2
PAGE 5
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 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 September 30, 2002 and December 31, 2001 (in thousands):
September 30, 2002 December 31, 2001
------------------ -----------------
Raw materials.................... $ 23,430 $ 31,979
Work-in-process.................. 2,662 3,758
Finished goods................... 5,988 5,011
-------- --------
$ 32,080 $ 40,748
======== ========
4. COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) was ($2,693,000) and ($12,404,000)
for the three and nine months ended September 30, 2002, respectively,
and $417,000 and $1,372,000 for the three and nine months ended
September 30, 2001, respectively. Other comprehensive income (loss)
consisted principally of adjustments for foreign currency translation
gains (losses) in the amounts of ($19,000) and $84,000 and unrealized
(losses) on available for sale securities in the amounts of ($49,000)
and ($80,000) for the three and nine months ended September 30, 2002,
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. In the quarter ended June 30, 2002 as provided for in FAS
142, the Company performed the first of the required tests under FAS
142 with respect to its goodwill of approximately $2,000,000 related
to the operations of one of its subsidiaries, Vicor Japan Company,
Ltd. ("VJCL"), and has determined that there is no impairment to the
carrying value of this goodwill. The Company has no other goodwill or
acquired intangible assets on the balance sheet at September 30, 2002.
The Company will reassess the carrying value of its goodwill during
the fourth quarter of fiscal 2002 or when there are indicators of
impairment, as required by the provisions of FAS 142.
FORM 10-Q
PART I
ITEM 2
PAGE 6
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2002
(Continued)
5. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
The following table sets forth a reconciliation of reported net income
(loss) to adjusted net income (loss) (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Reported net income (loss) $(2,625) $ 122 $(12,408) $1,248
Add back: goodwill amortization - 75 - 224
------- ------ -------- ------
Adjusted net income (loss) $(2,625) $ 197 $(12,408) $1,472
======= ====== ======== ======
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 material
impact on the Company's financial position or results of operations.
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
SEPTEMBER 30, 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 SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2001
Net revenues for the third quarter of 2002 were $39,503,000, a decrease of
$12,096,000 (23.4%) as compared to $51,599,000 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 $11,754,000 and a
decrease in license revenue of $342,000. Management believes that the decrease
in unit shipments and net revenues is primarily due to continued over-capacity
in the major electronic markets, particularly in the communications markets. As
a result, demand for the Company's products suffered in 2001 and the first nine
months of 2002. While the Company has experienced an increase in orders in the
first nine months of 2002 as compared with the second half of 2001, orders are
still significantly less than that of fiscal year 2000 and the first half of
2001. There can be no assurance that these increases experienced thus far in
2002 will continue. The book-to-bill ratio was 1.01 for the third quarter of
2002 compared to .64 for the same period a year ago.
Gross margin for the third quarter of 2002 decreased $5,862,000 (36.7%) to
$10,123,000 from $15,985,000, and decreased as a percentage of net revenues from
31.0% to 25.6%. The primary components of the decreases in gross margin dollars
and percentage were the decrease in net revenues and changes in the revenue mix,
in particular a decrease in license revenue, partially offset by higher
provisions for inventory reserves for potential excess raw materials taken in
the third quarter of 2001 of approximately $800,000. The higher provisions in
2001 were considered necessary due to higher levels of inventory at a time when
the demand for the Company's products was declining. The Company continues to
refine the design, processes, equipment and parts associated with
second-generation products. Unless and until the Company achieves higher
production volumes for both its first- and second-generation products and
attains higher yield levels and 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
September 30, 2002
(continued)
Selling, general and administrative expenses were $9,646,000 for the period, a
decrease of $1,465,000 (13.2%) over the same period in 2001. As a percentage of
net revenues, selling, general and administrative expenses increased to 24.4%
from 21.5% primarily due to the reduction in net revenues. The principal
components of the $1,465,000 decrease were $747,000 (78.6%) of decreased legal
costs, $408,000 (27.9%) of decreased sales commission costs due to decreased
product sales, $111,000 (91.3%) of decreased personnel expenses, principally for
employment, recruiting, advertising and relocation costs and $85,000 (16.1%) of
decreased costs associated with the operations of the Vicor Integrated
Architects ("VIAs"). During the third quarter, the Company and its primary legal
counsel for the Company's patent infringement actions (see Part II, Item 1 -
"Legal Proceedings") reached an agreement on legal fees providing for a
reduction in the fees to be paid by the Company from January 1, 2002 until final
resolution of these actions, in exchange for ten percent of any amounts received
by the Company upon resolution of each action. As a result of this agreement,
the Company recorded a non-recurring reduction in legal expense of approximately
$1,092,000 for legal fees incurred prior to the third quarter. In addition, the
Company realized approximately $400,000 in reduced legal expense during the
third quarter. The principal component offsetting the above decreases was
$369,000 (9.6%) in increased compensation expense. The increase in compensation
expense was partially due to the completion in the first quarter of 2002 of the
internally developed software project of the Company's new Enterprise Resource
Planning System. In accordance with Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use," certain
costs associated with this project were capitalized and capitalization ceased
upon completion.
Research and development expenses increased $348,000 (7.3%) to $5,089,000, and
increased as a percentage of net revenues to 12.9% from 9.2% due to the
reduction in net revenues. The principal components of the $348,000 increase
were $381,000 (13.7%) of increased compensation expense and $232,000 (314.1%) of
increased development costs associated with the automation and test engineering
groups, as less of these departments' costs were capitalized for the internal
construction of manufacturing and test equipment in 2002 as compared to
2001.This was offset by $224,000 (38.8%) of decreased project materials costs.
Approximately $267,000 of the net increase in compensation expense was due to
the Company's continued investment in its Picor subsidiary. Picor Corporation
("Picor") is a subsidiary established by the Company in 2001 which designs,
develops and markets Power Management Integrated Circuits and related products
for use in a variety of power system applications. Picor will be developing
these products to be sold as part of Vicor's products or to third parties for
separate applications. The Company has a long-term commitment to investing in
new product design and development in order to maintain and improve its
competitive position.
Under the Company's previously announced cost reduction plan, the Company
continues to require a reduced work schedule for direct factory employees, as
required by production demands, and mandatory use of certain accrued personal
time by all other employees. The need for this plan is reviewed by senior
management on a periodic basis.
Other income (expense), net increased $436,000 from the same period a year ago
to $478,000. Other income 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 (which was
repaid
FORM 10-Q
PART I
ITEM 2
PAGE 9
VICOR CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 30, 2002
(continued)
in May 2002) and foreign currency transaction gains or losses. Other income
(expense), net increased $600,000 due to the write-down of an investment judged
to be other than temporary and obsolete equipment of $360,000 in the third
quarter of 2001. There were no such write-downs in the third quarter of 2002.
The increase was partially offset by a decrease in interest income of
approximately $401,000 due to a decrease in average interest rates and foreign
currency transaction losses of $113,000.
The loss before income taxes was $4,134,000, an increase of $4,309,000 compared
to the income before taxes of $175,000 for the same period in 2001.
The effective tax rate for the third quarter of 2002 was 36.5%, compared to
30.3% for the same period in 2001. The Company continued to record income tax
benefit on its losses for the three months ended September 30, 2002 as such
benefit is able to be carried back to periods when the Company was profitable.
Diluted loss per share was ($.06) for the third quarter of 2002, compared to
diluted income per share of $.00 for the third quarter of 2001.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2001
Net revenues for the first nine months of 2002 were $110,954,000, a decrease of
$45,924,000 (29.3%) as compared to $156,878,000 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 $44,059,000 and a
decrease in license revenue of $1,865,000. The decrease in licensing revenue was
primarily due to recognition of the final amounts under the license agreement
with Reltec Corporation during the first quarter of 2001. The book-to-bill ratio
was 1.01 for the first nine months of 2002 compared to .84 for the same period a
year ago.
Gross margin for the first nine months of 2002 decreased $21,047,000 (43.8%) to
$26,968,000 from $48,015,000 and decreased as a percentage of net revenues from
30.6% to 24.3%. The primary components of the decreases in gross margin dollars
and percentage were due to the decrease in net revenues and changes in the
revenue mix, in particular a decrease in license revenue, and an increase in
depreciation on the second-generation automated production line, including
equipment for FasTrak, of approximately $1,100,000 in 2002. These were partially
offset by higher provisions for inventory reserves for potential excess raw
materials in the first nine months of 2001 of approximately $2,700,000. The
higher provisions in 2001 were considered necessary due to higher levels of
inventory at a time when the demand for the Company's products was declining.
Selling, general and administrative expenses were $31,033,000 for the period, a
decrease of $1,734,000 (5.3%) over the same period in 2001. As a percentage of
net revenues, selling, general and administrative expenses increased to 28.0%
from 20.9% primarily due to the reduction in net revenues. The principal
components of the $1,734,000 decrease were $1,152,000 (27.8%) of decreased sales
commission costs due to decreased product sales, $476,000 (18.6%) of decreased
advertising costs, $261,000 (16.3%) of decreased costs associated with the
operations of the VIAs and $233,000 (10.2%) of decreased costs associated with
the operations of Vicor Japan
FORM 10-Q
PART I
ITEM 2
PAGE 10
VICOR CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 30, 2002
(continued)
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. These were offset by a $602,000
(22.5%) increase in legal costs. The overall increase in legal expense was
mitigated by the reduction in legal fees due to the Company's agreement with its
primary legal counsel described above.
Research and development expenses decreased $202,000 (1.3%) to $15,324,000, but
increased as a percentage of net revenues to 13.8% from 9.9% due to the
reduction in net revenues. The principal components of the $202,000 decrease
were $547,000 (31.8%) of decreased project material costs, $287,000 (70.3%) of
decreased personnel expenses, principally for employment recruiting, advertising
and relocation expenses and $217,000 (100.0%) of decreased engineering costs
associated with VJCL. These were offset by $709,000 (277.6%) of increased
development costs associated with the automation and test engineering groups, as
less of these departments' costs were capitalized for the internal construction
of manufacturing and test equipment in 2002 as compared to 2001, $142,000
(13.5%) of increased depreciation expense and $45,000 (.5%) of increased
compensation expense. Approximately $1,419,000 of the net increase in
compensation expense was due to increases in the headcount in certain
engineering groups, particularly at the Company's Picor subsidiary. This
increase was partially offset by $1,316,000 of decreased compensation expense
due to certain manufacturing engineering groups being transferred to operations
in the third quarter of 2001 where they are included in cost of sales.
Other income (expense), net decreased $2,214,000 (107.4%) from the same period a
year ago, to ($152,000). Other income 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
(which was repaid in May 2002) and foreign currency transaction gains or losses.
The decrease in other income (expense), net was due to increased write-downs of
obsolete equipment of $820,000 and of an investment judged to be other than
temporary of $478,000 in 2002 as compared to 2001, and a decrease in interest
income of approximately $1,358,000 due to a decrease in average interest rates.
These decreases were partially offset by an increase in foreign currency
transaction gains of $519,000.
Income (loss) before income taxes was $(19,541,000), a decrease of $21,325,000
compared to the same period in 2001.
The effective tax rate for the nine months ended September 30, 2002 was 36.5%,
compared to 30.0% for the same period in 2001. The Company continued to record
income tax benefit on its losses for the nine months ended September 30, 2002 as
such benefit is able to be carried back to periods when the Company was
profitable.
Diluted loss per share was $(0.29) for the nine months ended September 30, 2002,
compared to diluted income per share of $.03 for the same period in 2001.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2002 the Company had $70,113,000 in cash and cash equivalents.
The ratio of current assets to current liabilities was 9.9:1 at September 30,
2002 compared to 11.0:1 at December 31, 2001. Working capital decreased
$3,403,000 from $153,159,000 at December 31, 2001 to $149,756,000 at September
30, 2002. The
FORM 10-Q
PART I
ITEM 2
PAGE 11
VICOR CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 30, 2002
(continued)
primary factors affecting the working capital decrease were a decrease in a note
receivable of $7,500,000 and a decrease in inventories of $8,668,000, offset by
an increase in cash of $12,632,000. The primary sources of cash for the nine
months ended September 30, 2002 were $13,908,000 from operating activities and a
net decrease in notes receivable of $7,341,000. The primary use of cash for the
nine months ended September 30, 2002 was for additions to property and equipment
of $8,453,000.
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 its second-generation
production capacity, internally designated as FasTrak, 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 September 30, 2002, the
Company has spent approximately $11,600,000 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. For the nine months ended September 30, 2002,
the Company has spent approximately $578,000 for the repurchase of shares of its
Common Stock. Subsequent to September 30, 2002, the Company has spent
approximately $830,000 for the repurchase of shares of Common Stock.
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 September 30, 2002, the Company had approximately
$240,000 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 3-4
PAGE 12
VICOR CORPORATION
September 30, 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 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 October 31, 2002, the fair value
of the investment was $642,000 which represents an unrealized loss of
approximately $805,000 ($475,000 net of income taxes).
The Company's exposure to market risk for fluctuations in foreign currency
exchange rates relates primarily to the operations of VJCL, and changes in the
dollar/yen exchange rate. The Company believes that this market risk is
currently not material due to the relatively small size of VJCL's operations.
ITEM 4 - CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
As required by new Rule 13a-15 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), within the ninety day period prior to the date of
this report, the Company conducted an evaluation under the supervision and with
the participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, regarding the effectiveness of
the design and operation of the Company's disclosure controls and procedures.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
the reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. In connection with the new rules, we may
from time to time make changes to the disclosure controls and procedures to
enhance their effectiveness and to ensure that our systems evolve with our
business.
(b) Change in internal controls
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these internal controls subsequent to
the date the Company carried out its evaluation.
FORM 10-Q
PART II
ITEM 1-6
PAGE 13
VICOR CORPORATION
Part II - Other Information
September 30, 2002
ITEM 1 - LEGAL PROCEEDINGS
On September 13, 2002 Exar Corporation ("Exar"), a vendor for the Company, filed
a complaint against Vicor Corporation in the Superior Court of the State of
California. The complaint alleges that Vicor breached the terms of certain
purchase orders that Vicor placed with Exar. Exar is seeking breach-of-contract
damages in connection with this suit. On October 30, 2002, the Company filed an
answer, including multiple affirmative defenses, to the complaint and also filed
a cross-complaint alleging promissory estoppel against Exar. Vicor seeks
compensatory damages in its cross-complaint. Management does not expect that the
ultimate resolution of the California lawsuit, including Exar's complaint and
Vicor's cross-complaint will have a material adverse impact on the Company's
financial position.
As previously disclosed in Vicor's Form 10-K for the fiscal year ended December
31, 2001 and Form 10-Q's for the fiscal quarters ended June 30, 2002 and March
31, 2002, respectively, Vicor and VLT, Inc. ("VLT"), a wholly owned subsidiary
of the Company, are pursuing Reset Patent infringement claims directly against
Artesyn Technologies, Lambda Electronics, Lucent Technologies, Tyco Electronics
Power Systems, Inc. and Power-One in the United States District Court in Boston,
Massachusetts. There can be no assurance that Vicor and VLT will ultimately
prevail with respect to any of these claims or, if they prevail, as to the
amount of damages that would be awarded.
The Company is also 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 against the Company to have a material adverse impact on the Company.
FORM 10-Q
PART II
ITEM 1-6
PAGE 14
VICOR CORPORATION
Part II - Other Information
September 30, 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
Exhibit Number Description
99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
b. Reports on Form 8-K
On August 13, 2002, a Form 8-K was furnished by the Company pursuant to
Item 9, disclosing the fact that the Chief Executive Officer and Chief
Financial Officer of the Company had made the certifications required
by Section 906 of the Sarbanes-Oxley Act of 2002 with respect to the
Company's Form 10-Q for the quarter ended June 30, 2002.
FORM 10-Q
PART II
PAGE 15
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: November 12, 2002 By: /s/ Patrizio Vinciarelli
-------------------------
Patrizio Vinciarelli
President, Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
Date: November 12, 2002 By: /s/ Mark A. Glazer
-------------------
Mark A. Glazer
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATIONS
I, PATRIZIO VINCIARELLI, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Vicor Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 12, 2002 /s/ Patrizio Vinciarelli
----------------- ------------------------
Patrizio Vinciarelli
Chief Executive Officer
CERTIFICATIONS
I, MARK A. GLAZER, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Vicor Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 12, 2002 /s/ Mark A. Glazer
----------------- -----------------------
Mark A. Glazer
Chief Financial Officer