þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
|
June 30, 2006 | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from |
||||
Commission File Number |
0-18277 | |||
Delaware | 04-2742817 | |||||
(State of Incorporation) | (I.R.S. Employer Identification No.) |
Common Stock, $.01 par value ------------------ | 30,131,441 | |||||
Class B Common Stock, $.01 par value -------- | 11,854,952 |
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EX-31.1 Section 302 Certification of C.E.O. | ||||||||
EX-31.2 Section 302 Certification of C.F.O. | ||||||||
EX-32.1 Section 906 Certification of C.E.O. | ||||||||
EX-32.2 Section 906 Certification of C.F.O. |
FORM 10-Q |
PART 1 | ||
ITEM 1 |
Item 1 Financial Statements
|
PAGE 1 |
Assets | June 30, 2006 | December 31, 2005 | |||||||
Current assets: |
|||||||||
Cash and cash equivalents |
$ | 30,348 | $ | 34,024 | |||||
Short-term investments |
95,214 | 88,692 | |||||||
Accounts receivable, less allowance of $603
in 2006 and $635 in 2005 |
30,288 | 28,072 | |||||||
Inventories, net |
19,924 | 17,168 | |||||||
Deferred tax assets |
2,673 | 2,673 | |||||||
Other current assets |
2,945 | 2,518 | |||||||
Total current assets |
181,392 | 173,147 | |||||||
Long-term investments |
0 | 3,348 | |||||||
Property, plant and equipment, net |
55,207 | 59,114 | |||||||
Other assets |
8,416 | 10,146 | |||||||
$ | 245,015 | $ | 245,755 | ||||||
Liabilities and Stockholders Equity |
|||||||||
Current liabilities: |
|||||||||
Accounts payable |
$ | 8,372 | $ | 8,741 | |||||
Accrued compensation and benefits |
5,719 | 4,583 | |||||||
Accrued expenses |
3,131 | 3,016 | |||||||
Dividend payable |
6,310 | 0 | |||||||
Income taxes payable |
2,293 | 6,279 | |||||||
Deferred revenue |
148 | 143 | |||||||
Total current liabilities |
25,973 | 22,762 | |||||||
Deferred income taxes |
3,258 | 3,172 | |||||||
Minority interests |
3,335 | 3,031 | |||||||
Stockholders equity: |
|||||||||
Preferred Stock |
| | |||||||
Class B Common Stock |
119 | 119 | |||||||
Common Stock |
381 | 377 | |||||||
Additional paid-in capital |
157,502 | 151,698 | |||||||
Retained earnings |
170,270 | 175,660 | |||||||
Accumulated other comprehensive income(loss) |
53 | (72 | ) | ||||||
Treasury stock, at cost |
(115,876 | ) | (110,992 | ) | |||||
Total stockholders equity |
212,449 | 216,790 | |||||||
$ | 245,015 | $ | 245,755 | ||||||
FORM 10-Q | ||
PART I | ||
ITEM 1 | ||
PAGE 2 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Net revenues |
$ | 49,210 | $ | 44,579 | $ | 97,082 | $ | 87,759 | ||||||||
Cost of revenues |
28,101 | 29,000 | 54,871 | 55,135 | ||||||||||||
Gross margin |
21,109 | 15,579 | 42,211 | 32,624 | ||||||||||||
Operating expenses: |
||||||||||||||||
Selling, general and administrative |
11,657 | 10,137 | 22,571 | 20,241 | ||||||||||||
Research and development |
8,028 | 7,380 | 15,570 | 14,476 | ||||||||||||
Gain from litigation-related
settlement, net |
0 | (2,250 | ) | 0 | (2,250 | ) | ||||||||||
Total operating expenses |
19,685 | 15,267 | 38,141 | 32,467 | ||||||||||||
Income from operations |
1,424 | 312 | 4,070 | 157 | ||||||||||||
Other income (expense), net |
1,409 | 183 | 2,469 | 677 | ||||||||||||
Income before income taxes |
2,833 | 495 | 6,539 | 834 | ||||||||||||
(Benefit) provision for income taxes |
(41 | ) | 406 | 589 | 706 | |||||||||||
Net income |
$ | 2,874 | $ | 89 | $ | 5,950 | $ | 128 | ||||||||
Net income per common share: |
||||||||||||||||
Basic |
$ | 0.07 | $ | 0.00 | $ | 0.14 | $ | 0.00 | ||||||||
Diluted |
$ | 0.07 | $ | 0.00 | $ | 0.14 | $ | 0.00 | ||||||||
Shares used to compute
net income per share: |
||||||||||||||||
Basic |
42,144 | 41,795 | 42,046 | 41,888 | ||||||||||||
Diluted |
42,482 | 41,938 | 42,433 | 42,027 | ||||||||||||
Cash dividends per share |
$ | 0.15 | $ | 0.12 | $ | 0.27 | $ | 0.12 |
FORM 10-Q | ||
PART I | ||
ITEM 1 | ||
PAGE 3 |
Six Months Ended | ||||||||
June 30, 2006 | June 30, 2005 | |||||||
Operating activities: |
||||||||
Net income |
$ | 5,950 | $ | 128 | ||||
Adjustments to reconcile net income to net
cash provided by operating activities: |
||||||||
Depreciation and amortization |
7,337 | 8,652 | ||||||
Stock compensation expense |
350 | | ||||||
Minority interest in net income of subsidiaries |
304 | 321 | ||||||
Amortization of bond premium |
90 | 332 | ||||||
(Gain) loss on disposal of equipment |
(35 | ) | 12 | |||||
Change in current assets and liabilities, net |
(7,013 | ) | 2,309 | |||||
Net cash provided by operating activities |
6,983 | 11,754 | ||||||
Investing activities: |
||||||||
Purchases of short-term investments |
(48,454 | ) | (27,851 | ) | ||||
Sales and maturities of short-term and long-term
investments |
45,357 | 40,581 | ||||||
Additions to property, plant and equipment |
(2,979 | ) | (2,613 | ) | ||||
Increase in other assets |
(105 | ) | (432 | ) | ||||
Net cash (used in) provided by investing
activities |
(6,181 | ) | 9,685 | |||||
Financing activities: |
||||||||
Proceeds from issuance of Common Stock |
5,458 | 884 | ||||||
Common Stock dividends paid |
(5,030 | ) | | |||||
Acquisitions of treasury stock |
(4,884 | ) | (3,277 | ) | ||||
Net cash used in financing activities |
(4,456 | ) | (2,393 | ) | ||||
Effect of foreign exchange rates on cash |
(22 | ) | 100 | |||||
Net (decrease) increase in cash and cash equivalents |
(3,676 | ) | 19,146 | |||||
Cash and cash equivalents at beginning of period |
34,024 | 36,277 | ||||||
Cash and cash equivalents at end of period |
$ | 30,348 | $ | 55,423 | ||||
FORM 10-Q | ||
PART I | ||
ITEM 1 | ||
PAGE 4 |
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 normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2006 are not necessarily indicative of the results that may be expected for any other interim period or the year ending December 31, 2006. The balance sheet at December 31, 2005 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. For further information, refer to the consolidated financial statements and notes thereto contained in the Companys annual report on Form 10-K for the year ended December 31, 2005 (File No. 0-18277) filed by Vicor Corporation (the Company or Vicor) with the Securities and Exchange Commission. |
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (FAS 123R), which is a revision of FAS No. 123, Accounting for Stock-Based Compensation. FAS 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in FAS 123(R) is similar to the approach described in FAS 123. However, FAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values at the date of grant. Pro forma disclosure is no longer an alternative. | ||
The Company is using the modified prospective method as permitted under FAS 123(R). Under this transition method, compensation cost recognized in the first six months of fiscal 2006 includes: (a) compensation cost for all share-based payments granted prior to but not yet vested as of December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of FAS 123, and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of FAS 123(R). In accordance with the modified prospective method of adoption, Vicors results of operations and financial position for prior periods have not been restated. |
FORM 10-Q | ||
PART I | ||
ITEM 1 | ||
PAGE 5 |
Vicor currently grants stock options under the following equity compensation plans that are shareholder-approved: | ||
Amended and Restated 2000 Stock Option and Incentive Plan (the 2000 Plan) The 2000 Plan permits the grant of share options to its employees and other key persons, including non-employee directors, for up to 4 million shares of common stock. | ||
1998 Stock Option and Incentive Plan (the 1998 Plan) The 1998 Plan permits the grant of share options to its employees and other key persons, including non-employee directors for up to 2 million shares of common stock. | ||
1993 Stock Option Plan (the 1993 Plan) - The 1993 Plan permits the grant of share options to its employees and non-employee directors for up to 4 million shares of common stock. | ||
Picor Corporation (Picor), a privately held majority owned subsidiary of Vicor, currently grants stock options under the following equity compensation plan that has been approved by its Board of Directors: | ||
2001 Stock Option and Incentive Plan, as amended (the 2001 Picor Plan) The 2001 Picor Plan, permits the grant of share options to its employees and other key persons, including non-employee directors and full or part-time officers, for up to 10 million shares of common stock. | ||
All option awards are granted at an exercise price equal to or greater than the market price for Vicor at the date of the grant, and are granted at the fair market value for Picor at the date of grant. Options vest at various periods of up to five years and may be exercised for up to ten years from the date of grant, which is the maximum contractual term. | ||
As a result of adopting the FAS 123(R), the Company recorded $172,000 of non-cash stock-based compensation expense for the three months ended June 30, 2006 and $350,000 for the six months ended June 30, 2006. The stock-based compensation included $19,000 in cost of revenues, $93,000 in selling, general and administrative expense and $60,000 in research and development expense for the three months ended June 30, 2006 and $49,000, $179,000, and $122,000, respectively, for the six months ended June 30, 2006. The compensation expense did not have a material impact on basic or diluted net income per share. |
FORM 10-Q | ||
PART I | ||
ITEM 1 | ||
PAGE 6 |
Three Months | Six Months | |||||||||||
Ended | Ended | |||||||||||
June 30, 2005 | June 30, 2005 | |||||||||||
Net income as reported |
$ | 89 | $ | 128 | ||||||||
Stock-based employee compensation cost,
net of related tax effects |
(221 | ) | (477 | ) | ||||||||
Pro forma net loss |
$ | (132 | ) | $ | (349 | ) | ||||||
Net income per share, as reported: |
||||||||||||
Basic |
$ | 0.00 | $ | 0.00 | ||||||||
Diluted |
$ | 0.00 | $ | 0.00 | ||||||||
Pro forma net loss per share: |
||||||||||||
Basic |
$ | (0.00 | ) | $ | (0.01 | ) | ||||||
Diluted |
$ | (0.00 | ) | $ | (0.01 | ) |
The above table includes compensation expense for Picor options of $26,000 and $50,000 for the three and six months ended June 30, 2005. The three and six months ended June 30, 2005 expenses has been revised to include this Picor amount. The fair value of Picor common stock was estimated by obtaining an independent valuation of Picor. | ||
The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
Vicor | Picor | Vicor | Picor | |||||||||||||||||||||||||||||
2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |||||||||||||||||||||||||
Risk-free interest rate |
4.8 | % | 3.8 | % | 4.5 | % | 4.4 | % | 4.6 | % | 3.8 | % | 4.5 | % | 4.4 | % | ||||||||||||||||
Expected dividend yield |
1.6 | % | .12 | % | | | 1.6 | % | .08 | % | | | ||||||||||||||||||||
Expected volatility |
.52 | .65 | .43 | .43 | .54 | .65 | .43 | .43 | ||||||||||||||||||||||||
Expected term (years) |
3.2 | 3.3 | 6.5 | 6.5 | 3.7 | 3.8 | 6.5 | 6.5 |
Risk-free interest rate: | ||
Vicor - The Company uses the yield on zero-coupon U.S. Treasury Strip securities for a period that is commensurate with the expected term assumption for each vesting period. |
FORM 10-Q | ||
PART I | ||
ITEM 1 | ||
PAGE 7 |
Picor - The Company uses the yield to maturity of a ten-year treasury bond, since all of Picors options expire ten years after they are granted. | ||
Expected dividend yield: Vicor - The Company determines the expected dividend yield by annualizing the most recent prior cash dividends declared by the Companys Board of Directors and dividing that result by the closing stock price on the date of that dividend declaration. Because the Company historically has not paid regular periodic dividends and has not committed to do so in the future, the Company annualizes the most recent prior cash dividends based on its expectations at the time regarding the frequency of dividends to be declared over the next twelve months. Dividends are not paid on options. |
||
Picor - Picor has not and does not expect to declare and pay dividends in the foreseeable future. Therefore, the expected dividend yield is not applicable. | ||
Expected volatility: Vicor - Under FAS 123, Vicor used historical volatility to estimate the grant-date fair value of the options. Under FAS 123(R), Vicor has elected to continue to use historical volatility, using the expected term for the period over which to calculate the volatility (see below). The Company does not expect its future volatility to differ from its historical volatility. The computation of the Companys volatility is based on a simple average calculation of monthly volatilities over the expected term. |
||
Picor As Picor is a nonpublic entity, historical volatility information is not available. As permitted under FAS 123(R), an industry sector index of approximately 40 publicly traded fabless semiconductor firms was developed for calculating historical volatility for Picor. Historical prices for each of the companies in the index based on the market price of the shares on each day of trading over the expected term were used to determine the historical volatility. | ||
Expected term: Vicor - The Company uses historical employee exercise and option expiration data to estimate the expected term assumption for the Black-Scholes grant-date valuation. The Company believes that this historical data is currently the best estimate of the expected term of options, and that generally all groups of our employees exhibit similar exercise behavior. |
||
Picor Due to the lack of historical information, the simplified method prescribed by the Securities and Exchange Commissions Staff Accounting Bulletin No. 107 was used to determine the expected term. |
FORM 10-Q | ||
PART I | ||
ITEM 1 | ||
PAGE 8 |
Weighted- | ||||||||||||||||
Weighted- | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Options | Exercise | Contractual | Intrinsic | |||||||||||||
Outstanding | Price | Life in Years | Value | |||||||||||||
Outstanding at March 31, 2006 |
2,056,956 | $ | 18.39 | |||||||||||||
Granted |
41,510 | $ | 18.21 | |||||||||||||
Forfeited and expired |
(105,543 | ) | $ | 20.35 | ||||||||||||
Exercised |
(225,931 | ) | $ | 13.18 | ||||||||||||
Outstanding at June 30, 2006 |
1,766,992 | $ | 18.94 | 3.23 | $ | 3,875 | ||||||||||
Exercisable at June 30, 2006 |
1,517,343 | $ | 19.60 | 2.74 | $ | 3,180 | ||||||||||
Vested or expected to vest at June 30, 2006 (1) |
1,729,493 | $ | 19.00 | 3.15 | $ | 3,802 | ||||||||||
(1) | In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. Options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options. |
FORM 10-Q | ||
PART I | ||
ITEM 1 | ||
PAGE 9 |
Weighted- | ||||||||
Average | ||||||||
Options | Exercise | |||||||
Outstanding | Price | |||||||
Outstanding at December 31, 2005 |
2,260,248 | $ | 18.14 | |||||
Granted |
96,860 | $ | 19.08 | |||||
Forfeited and expired |
(170,218 | ) | $ | 23.01 | ||||
Exercised |
(419,898 | ) | $ | 12.99 | ||||
Outstanding at June 30, 2006 |
1,766,992 | $ | 18.94 | |||||
During the three and six months ended June 30, 2006, under all plans, the total intrinsic value of Vicor options exercised (i.e. the difference between the market price at exercise and the price paid by the employee to exercise the options) was $1,719,000 and $2,966,000, respectively and the total amount of cash received from exercise of these options was $2,977,000 and $5,451,000, respectively. The total grant-date fair value of stock options that vested during the three and six months ended June 30, 2006 was approximately $529,000 and $1,111,000, respectively. | ||
As of June 30, 2006, there was $1,009,000 of total unrecognized compensation cost related to unvested share-based awards for Vicor. That cost is expected to be recognized over a weighted-average period of 1.73 years for all Vicor awards. |
FORM 10-Q | ||
PART I | ||
ITEM 1 | ||
PAGE 10 |
A summary of the activity under Picors stock option plan as of June 30, 2006 and changes during the three and six month periods then ended, is presented below (in thousands except for share and weighted-average data): |
Weighted- | ||||||||||||||||
Weighted- | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Options | Exercise | Contractual | Intrinsic | |||||||||||||
Outstanding | Price | Life in Years | Value | |||||||||||||
Outstanding at March 31, 2006 |
3,332,640 | $ | 0.46 | |||||||||||||
Granted |
783,500 | $ | 0.84 | |||||||||||||
Forfeited and expired |
(29,000 | ) | $ | 0.38 | ||||||||||||
Exercised |
(30,000 | ) | $ | 0.25 | ||||||||||||
Outstanding at June 30, 2006 |
4,057,140 | $ | 0.53 | 7.25 | $ | 1,407 | ||||||||||
Exercisable at June 30, 2006 |
1,897,944 | $ | 0.38 | 6.28 | $ | 948 | ||||||||||
Vested or expected to vest at June 30, 2006 |
4,057,140 | $ | 0.53 | 7.25 | $ | 1,407 | ||||||||||
Weighted- | ||||||||
Average | ||||||||
Options | Exercise | |||||||
Outstanding | Price | |||||||
Outstanding at December 31, 2005 |
3,442,000 | $ | 0.45 | |||||
Granted |
783,500 | $ | 0.84 | |||||
Forfeited and expired |
(138,360 | ) | $ | 0.33 | ||||
Exercised |
(30,000 | ) | $ | 0.25 | ||||
Outstanding at June 30, 2006 |
4,057,140 | $ | 0.53 | |||||
During the three and six months ended June 30, 2006, under all plans, the total intrinsic value of Picor options exercised (i.e. the difference between the market price at exercise and the price paid by the employee to exercise the options) was $19,000 and $19,000, respectively and the total amount of cash received from exercise of these options was $7,000 and $7,000, respectively. The total grant-date fair value of stock options that vested during the three and six months ended June 30, 2006 was approximately $20,000 and $79,000, respectively. | ||
As of June 30, 2006, there was $512,000 of total unrecognized compensation cost related to unvested share-based awards for Picor. That cost is expected to be recognized over a weighted-average period of 1.87 years for all Picor awards. |
FORM 10-Q | ||
PART I | ||
ITEM 1 | ||
PAGE 11 |
The following table sets forth the computation of basic and diluted income per share for the three and six months ended June 30 (in thousands, except per share amounts): |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30 | June 30 | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Numerator: |
||||||||||||||||
Net income |
$ | 2,874 | $ | 89 | $ | 5,950 | $ | 128 | ||||||||
Denominator: |
||||||||||||||||
Denominator for basic income
per share-weighted average shares |
42,144 | 41,795 | 42,046 | 41,888 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Employee stock options |
338 | 143 | 387 | 139 | ||||||||||||
Denominator for diluted income per share
adjusted weighted-average
shares and assumed conversions |
42,482 | 41,938 | 42,433 | 42,027 | ||||||||||||
Basic income per share |
$ | 0.07 | $ | 0.00 | $ | 0.14 | $ | 0.00 | ||||||||
Diluted income per share |
$ | 0.07 | $ | 0.00 | $ | 0.14 | $ | 0.00 | ||||||||
Options to purchase 661,952 and 1,717,766 shares of Common Stock were outstanding for the three months ended June 30, 2006 and 2005, respectively, and options to purchase 661,952 and 1,735,310 shares of Common Stock were outstanding for the six months ended June 30, 2006 and 2005, respectively, but were not included in the computation of diluted income per share because the options exercise prices were greater than the average market price of the Common Stock and, therefore, the effect would have been antidilutive. |
Inventories are valued at the lower of cost (determined using the first-in, first-out method) or market. The Company provides reserves for inventories estimated to be excess, obsolete or unmarketable. The Companys estimation process for such reserves is based upon its known backlog, projected future demand and expected market conditions. If the Companys estimated demand and or market expectation were to change or if product sales were to decline, the Companys estimation process may cause larger |
FORM 10-Q | ||
PART I | ||
ITEM 1 | ||
PAGE 12 |
inventory reserves to be recorded, resulting in larger charges to cost of revenues. Inventories were as follows as of June 30, 2006 and December 31, 2005 (in thousands): |
June 30, 2006 | December 31, 2005 | |||||||||||
Raw materials |
$ | 24,173 | $ | 21,519 | ||||||||
Work-in-process |
3,086 | 2,502 | ||||||||||
Finished goods |
3,514 | 3,838 | ||||||||||
30,773 | 27,859 | |||||||||||
Inventory reserves |
(10,849 | ) | (10,691 | ) | ||||||||
Net balance |
$ | 19,924 | $ | 17,168 | ||||||||
The Company generally offers a two-year warranty for all of its products. The Company provides for the estimated cost of product warranties at the time product revenue is recognized. Factors that affect the Companys warranty reserves include the number of units sold, historical and anticipated rates of warranty returns and the cost per return. The Company periodically assesses the adequacy of the warranty reserves and adjusts the amounts as necessary. Warranty obligations are included in accrued expenses in the accompanying condensed consolidated balance sheets. | ||
Product warranty activity for the six months ended June 30, 2006 and 2005 were as follows (in thousands): |
2006 | 2005 | |||||||
Balance at the beginning of the period |
$ | 755 | $ | 1,042 | ||||
Accruals for warranties for products sold in the period |
101 | 94 | ||||||
Fulfillment of warranty obligations |
(77 | ) | (118 | ) | ||||
Revisions of estimated obligations |
(143 | ) | (200 | ) | ||||
Balance at the end of the period |
$ | 636 | $ | 818 | ||||
In 2006, the tax provision is based on an estimated effective tax rate for 2006, which includes federal, state and foreign income taxes on the Companys projected annual pretax income, estimated federal and state income taxes for certain minority-owned subsidiaries that are not part of the Companys consolidated income tax returns, offset by the expected utilization of remaining net operating loss carryforwards and certain tax credit carryforwards. During the second quarter of 2006, the estimated tax rate was reduced from 17% to 9%, which resulted in a net tax benefit for the second quarter of 2006. The principal reason for the change in the rate was a reduction in the expected pre-tax income for 2006. In 2005, the tax provision included estimated income taxes for federal and state taxes for certain minority-owned subsidiaries that are not part of the Companys consolidated income tax returns, for the |
FORM 10-Q | ||
PART I | ||
ITEM 1 | ||
PAGE 13 |
Federal alternative minimum tax and for estimated income taxes due in various state and international taxing jurisdictions. The Company operates in numerous taxing jurisdictions and is, therefore, subject to a variety of income and related taxes. The Company has provided for potential tax liabilities due in various jurisdictions which it judges to be probable and reasonably estimable in accordance with Statement of Financial Accounting Standards No. 5 Accounting for Contingencies. Judgment is required in determining the income tax expense and related tax liabilities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. The Company believes it has reasonably estimated its accrued taxes for all jurisdictions for all open tax periods. The Company periodically assesses the adequacy of its tax and related accruals on a quarterly basis and adjusts appropriately as events warrant and open tax periods close. It is possible that the final tax outcome of these matters will be different from managements estimate reflected in the income tax provisions and accrued taxes. Such differences could have a material impact on the Companys income tax provision and operating results in the period in which such determination is made. | ||
The Company recently underwent an audit of its federal tax returns for tax periods 1994 through 2002 by the Internal Revenue Service (IRS). The conclusions reached by the IRS based on their audit have been agreed to by the Joint Committee on Taxation of the U.S. Department of the Treasury. During the second quarter of 2006, the Company remitted payments to the IRS in settlement of the assessments, including interest, for these tax periods. The amounts paid were not materially different from the amounts previously estimated and recorded by the Company. |
The following table sets forth the computation of comprehensive income (loss) for the three and six months ended June 30 (in thousands): |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Net income |
$ | 2,874 | $ | 89 | $ | 5,950 | $ | 128 | ||||||||
Foreign currency translation gain (loss) |
34 | (28 | ) | 26 | (69 | ) | ||||||||||
Unrealized gains (losses) on available
for sale securities |
52 | 75 | 99 | (17 | ) | |||||||||||
Comprehensive income |
$ | 2,960 | $ | 136 | $ | 6,075 | $ | 42 | ||||||||
Vicor and VLT, Inc. (VLT), a wholly owned subsidiary of the Company, are pursuing Reset Patent infringement claims directly against Artesyn Technologies, Lucent Technologies and Tyco Electronics |
FORM 10-Q | ||
PART I | ||
ITEM 1 | ||
PAGE 14 |
Power Systems, Inc. in the United States District Court in Boston, Massachusetts. The lawsuit against Lucent was filed in May 2000 and in April 2001, the Company added Tyco Electronics as a defendant in that lawsuit. The lawsuit against Artesyn was filed in February 2001. In January 2003, the District Court issued a pre-trial decision in each of these patent infringement lawsuits relating to claim construction of the Reset Patent. The District Courts decisions rejected assertions that the Reset Patent claims are invalid for indefiniteness; and affirmed Vicors interpretation of several terms used in the Reset Patent claims. However, the District Court adopted interpretations of certain terms of the Reset Patent claims that are contrary to Vicors position. On May 24, 2004, the United States Court of Appeals for the Federal Circuit affirmed the decisions issued in January 2003 by the District Court. Vicor believes that the District Courts decisions, and the affirmation of these decisions by the Federal Circuit, strengthens its position regarding validity of the patent, but reduces the cumulative amount of infringing power supplies and the corresponding amount of potential damages. The Federal Circuit has referred the proceedings back to the District Court for trials on validity of the Reset Patent and infringement and damages by Lucent, Tyco and Artesyn. | ||
In the second quarter of 2005, the Company entered into a settlement agreement with Lambda Americas, Inc., successor to Lambda Electronics, Inc., under which the Company received a payment of $2,500,000, net of a $250,000 contingency fee paid by the Company to its litigation counsel, in full settlement of the Companys Reset Patent claims against Lambda and which settled the lawsuit that the Company had filed against Lambda in June 2001. The District Court has not yet set dates for the remaining trials. 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. | ||
In May 2004, Ericsson Wireless Communications, Inc. v. Vicor Corporation was filed in Superior Court of the State of California, County of San Diego. The plaintiff has brought an action against the Company claiming unspecified damages for failure of out-of warranty products previously purchased by it from the Company. In November 2004, Ericsson filed a First Amended Complaint adding claims against Exar Corporation, a former vendor of the Company. The Company filed cross-claims against Exar, and third-party claims against Rohm Device USA, LLC and Rohm Co., Ltd., the original manufacturer(s) of the component which Exar sold to the Company. The Company has denied the claims made against it and intends to vigorously defend the claims made against it. | ||
On March 4, 2005, Exar filed a declaratory judgment action against Vicor in the Superior Court of the State of California, County of Santa Clara, in which Exar seeks a declaration by the Court that Exar is not obligated to reimburse or indemnify Vicor for any claims brought against Vicor for alleged damages incurred as a result of the use of Exar components in Vicor products. The Company has brought cross-claims against Exar, and third-party claims against Rohm Device USA, LLC and Rohm Co., Ltd., for declaratory judgment. This matter has been consolidated with the above Ericsson matter in the Superior Court of the State of California, County of San Diego. The Company intends to vigorously assert its cross-claims against Exar. |
FORM 10-Q | ||
PART I | ||
ITEM 1 | ||
PAGE 15 |
On August 18, 2005, the Company filed an action in The Superior Court of the Commonwealth of Massachusetts, County of Essex (the Court) against Concurrent Computer Corporation (Concurrent) in response to a demand made by Concurrent in connection with breach of contract and breach of product warranty claims against the Company. On September 22, 2005, Concurrent filed a Demand For Arbitration with The American Arbitration Association. Concurrent is seeking $1,500,000 in replacement costs, plus incidental, consequential and any other damages to be determined. On March 8, 2006 the Court allowed Concurrents motion to compel arbitration. The Company has denied the claims made against it and intends to vigorously defend the claims made against it. | ||
In addition, the Company is involved in certain other litigation and claims incidental to the conduct of its business. While the outcome of lawsuits and claims against the Company cannot be predicted with certainty, management does not expect any current litigation or claims to have a material adverse impact on the Companys financial position or results of operations. |
In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 151, Inventory Costs, an amendment of Accounting Research Bulletin (ARB) No. 43, Chapter 4 (FAS 151). FAS 151 amends the guidance in ARB No 43, Chapter 4, Inventory Pricing to clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) should be recognized as current-period charges. In addition, FAS 151 requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. The provisions of FAS 151 are effective for inventory costs incurred starting January 1, 2006. The adoption of FAS 151 did not have a significant impact on the Companys financial position or results of operations. | ||
In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections (FAS 154). This statement establishes new standards on accounting for changes in accounting principles. Pursuant to FAS 154, all such changes must be accounted for by retrospective application to the financial statements of prior periods unless it is impracticable to do so. FAS 154 replaces APB Opinion No. 20 and SFAS No. 3, though it carries forward the guidance in those pronouncements with respect to accounting for changes in estimates, changes in the reporting entity and the correction of errors. The provisions of FAS 154 are effective for accounting changes and corrections of errors incurred starting January 1, 2006. The adoption of FAS 154 did not have a significant impact on the Companys financial position or results of operations. | ||
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (FIN48), an interpretation of FAS 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance |
FORM 10-Q | ||
PART I | ||
ITEM 1 | ||
PAGE 16 |
on derecognition, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN48 are effective starting January 1, 2007. The Company has not yet evaluated the impact, if any, that FIN48 will have on the Companys financial position or results of operations. |
On February 4, 2006, the Companys Board of Directors approved a cash dividend of $.12 per share of the Companys stock. The total dividend of approximately $5,030,000 was paid on March 20, 2006 to shareholders of record at the close of business on February 28, 2006. On June 23, 2006, the Companys Board of Directors approved a cash dividend of $.15 per share of the Companys stock. The total dividend of approximately $6,310,000 will be paid on August 7, 2006 to shareholders of record at the close of business on July 17, 2006. | ||
Dividends are declared at the discretion of the Companys Board of Directors and depend on actual cash from operations, the Companys financial condition and capital requirements and any other factors the Companys Board of Directors may consider relevant. The Board of Directors anticipates reviewing its dividend policy on a semi-annual basis. |
FORM 10-Q | ||
PART I | ||
ITEM 2 | ||
PAGE 17 |
FORM 10-Q | ||
PART I | ||
ITEM 2 | ||
PAGE 18 |
FORM 10-Q | ||
PART I | ||
ITEM 2 | ||
PAGE 19 |
Increase | ||||||||||||
2006 | 2005 | (decrease) | ||||||||||
Interest income |
$ | 1,346 | $ | 683 | $ | 663 | ||||||
Foreign currency gains (losses) |
158 | (254 | ) | 412 | ||||||||
Minority interest in net income of
subsidiaries |
(151 | ) | (231 | ) | 80 | |||||||
Other |
56 | (15 | ) | 71 | ||||||||
$ | 1,409 | $ | 183 | $ | 1,226 | |||||||
FORM 10-Q | ||
PART I | ||
ITEM 2 | ||
PAGE 20 |
FORM 10-Q | ||
PART I | ||
ITEM 2 | ||
PAGE 21 |
Increase | ||||||||||||
2006 | 2005 | (decrease) | ||||||||||
Interest income |
$ | 2,489 | $ | 1,325 | $ | 1,164 | ||||||
Minority interest in net income of
subsidiaries |
(304 | ) | (321 | ) | 17 | |||||||
Foreign currency gains (losses) |
211 | (434 | ) | 645 | ||||||||
Other |
73 | 107 | (34 | ) | ||||||||
$ | 2,469 | $ | 677 | $ | 1,792 | |||||||
FORM 10-Q | ||
PART I | ||
ITEM 2 | ||
PAGE 22 |
FORM 10-Q | ||
PART I | ||
ITEMS 3 - 4 | ||
PAGE 23 |
FORM 10-Q | ||
PART I | ||
ITEM 4 | ||
PAGE 24 |
FORM 10-Q | ||
PART II | ||
ITEMS 1 - 3 | ||
PAGE 25 |
Not applicable. |
There have been no material changes in the risk factors described in Item 1A (Risk Factors) of the Companys Annual Report on Form 10-K for the year ended December 31, 2005. |
Maximum Number | ||||||||||||||||
(or Approximate | ||||||||||||||||
Total Number of | Dollar Value) of | |||||||||||||||
Shares (or Units) | Shares (or Units) | |||||||||||||||
Purchased as Part | that May Yet Be | |||||||||||||||
Total Number of | of Publicly | Purchased Under | ||||||||||||||
Shares (or Units) | Average Price Paid | Announced Plans | the Plans or | |||||||||||||
Period | Purchased | per Share (or Unit) | or Programs | Programs | ||||||||||||
April 1 30, 2006 |
| | | $ | 17,378,000 | |||||||||||
May 1 31, 2006 |
56,800 | $ | 19.39 | 56,800 | $ | 16,277,000 | ||||||||||
June 1 30, 2006 |
111,400 | $ | 16.02 | 111,400 | $ | 14,492,000 | ||||||||||
Total |
168,200 | $ | 17.16 | 168,200 | $ | 14,492,000 | ||||||||||
Not applicable. |
FORM 10-Q | ||
PART II | ||
ITEMS 4 - 5 | ||
PAGE 26 |
The 2006 Annual Meeting of Stockholders of the Company was held on June 22, 2006. Under the Companys charter, each share of the Companys Common Stock entitles the holder thereof to one vote per share, and each share of the Companys Class B Common Stock entitles the holder thereof to ten votes per share. | ||
The only matter submitted to a vote of security holders at the 2006 Annual Meeting of Stockholders was the election of directors to the Board of Directors of the Company. 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 |
135,169,832 | 4,109,817 | ||||||
Estia J. Eichten |
136,215,012 | 3,064,637 | ||||||
Barry Kelleher |
135,154,737 | 4,124,912 | ||||||
Jay M. Prager |
135,197,226 | 4,082,423 | ||||||
David T. Riddiford |
137,747,714 | 1,531,935 | ||||||
M. Michael Ansour |
137,749,418 | 1,530,231 | ||||||
Samuel Anderson |
135,689,712 | 3,589,937 | ||||||
Joseph W. Kelly |
137,773,478 | 1,506,171 |
There were 0 broker non-votes and 0 abstentions on this proposal. |
Not applicable. |
FORM 10-Q | ||
PART II | ||
ITEM 6 | ||
PAGE 27 |
Exhibit Number | Description | |
31.1
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 | |
31.2
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 | |
32.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
FORM 10-Q | ||
PART II | ||
PAGE 28 |
VICOR CORPORATION | ||||||
Date: August 7, 2006
|
By: | /s/ Patrizio Vinciarelli | ||||
President, Chief Executive Officer
and Chairman of the Board (Principal Executive Officer) |
||||||
Date: August 7, 2006
|
By: | /s/ Mark A. Glazer | ||||
Chief Financial Officer (Principal Financial Officer) |
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 report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this 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 report; | ||
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; | ||
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: August 7, 2006
|
/s/ Patrizio Vinciarelli | |
Patrizio Vinciarelli | ||
Chief Executive Officer |
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 report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this 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 report; | ||
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; | ||
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: August 7, 2006
|
/s/ Mark A. Glazer | |
Mark A. Glazer | ||
Chief Financial Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | ||
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Patrizio Vinciarelli |
||
Patrizio Vinciarelli |
||
President, Chairman of the Board and |
||
Chief Executive Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | ||
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Mark A. Glazer |
||
Mark A. Glazer
|
||
Chief Financial Officer |
||
August 7, 2006 |