===================================================== SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 -------------------------- FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 ----------------------------------------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the transition period from ---------------------------------------- Commission File Number 0-18277 ------------------------------------------- VICOR CORPORATION (Exact name of registrant as specified in its charter) Delaware 04-2742817 (State of Incorporation) (IRS Employer Identification Number) 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 March 31, 2001. Common Stock, $.01 par value ----------------30,301,095 Class B Common Stock, $.01 par value --------11,993,348 ===================================================== VICOR CORPORATION INDEX TO FORM 10-Q Page ---- Part I - Financial Information: Item 1 - Financial Statements (Unaudited) Condensed Consolidated Balance Sheet at 1 March 31, 2001 and December 31, 2000 Condensed Consolidated Statement of Income 2 for the three months ended March 31, 2001 and 2000 Condensed Consolidated Statement of Cash Flows 3 for the three months ended March 31, 2001 and 2000 Notes to Condensed Consolidated Financial 4-5 Statements Item 2 - Management's Discussion and Analysis of 6-8 Financial Condition and Results of Operations Item 3 - Quantitative and Qualitative Disclosures About Market Risk 9 Part II - Other Information: Item 1 - Legal Proceedings 10 Item 2 - Changes in Securities 10 Item 3 - Defaults Upon Senior Securities 10 Item 4 - Submission of Matters to a Vote of 10 Security Holders Item 5 - Other Information 10 Item 6 - Exhibits and Reports on Form 8-K 10 Signature(s) 11 FORM 10-Q PART 1 ITEM 1 PAGE 1 ITEM 1 - FINANCIAL STATEMENTS Note: The balance sheet at December 31, 2000 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.
VICOR CORPORATION Condensed Consolidated Balance Sheet (In thousands) (Unaudited) ASSETS MARCH 31, 2001 DECEMBER 31, 2000 - -------------------------------------------- ---------------- ------------------ Current assets: Cash and cash equivalents $ 70,301 $ 62,916 Short term investments 5,649 5,600 Accounts receivable, net 35,040 48,094 Inventories, net 53,639 44,497 Other current assets 8,424 8,577 -------- -------- Total current assets 173,053 169,684 Property, plant and equipment, net 109,126 107,807 Notes receivable 9,163 9,066 Other assets 7,527 7,556 -------- -------- $298,869 $294,113 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 12,058 $ 9,515 Accrued compensation and benefits 4,925 4,372 Accrued liabilities 8,076 9,319 -------- -------- Total current liabilities 25,059 23,206 Deferred income taxes 7,986 7,986 Stockholders' equity: Preferred Stock - - Class B Common Stock 120 120 Common Stock 368 367 Additional paid-in capital 143,814 142,573 Retained earnings 221,978 219,899 Accumulated other comprehensive income (204) 214 Treasury stock, at cost (100,252) (100,252) -------- -------- Total stockholders' equity 265,824 262,921 -------- -------- $298,869 $294,113 ======== ======== FORM 10-Q PART I ITEM 1 PAGE 2 VICOR CORPORATION Condensed Consolidated Statement of Income (In thousands except per share data) (Unaudited) See accompanying notes.
THREE MONTHS ENDED ------------------------------------------------- MARCH 31, 2001 MARCH 31, 2000 -------------- -------------- Net revenues $ 55,019 $ 57,786 Costs and expenses: Cost of revenue 37,204 33,019 Selling, general and administrative 10,314 10,273 Research and development 5,453 5,271 -------- -------- 52,971 48,563 -------- -------- Income from operations 2,048 9,223 Other income 1,102 1,164 -------- -------- Income before income taxes 3,150 10,387 Provision for income taxes 1,071 3,271 -------- -------- Net income $ 2,079 $ 7,116 ======== ======== Net income per common share: Basic $ 0.05 $ 0.17 Diluted $ 0.05 $ 0.16 Shares used to compute net income per share: Basic 42,284 42,483 Diluted 42,846 43,341 FORM 10-Q PART I ITEM 1 PAGE 3 See accompanying notes.
VICOR CORPORATION Condensed Consolidated Statement of Cash Flows (In thousands) (Unaudited) THREE MONTHS ENDED ---------------------------------------------------------- MARCH 31, 2001 MARCH 31, 2000 -------------- -------------- Operating activities: Net income $ 2,079 $ 7,116 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,822 4,533 Loss on disposal of equipment 0 6 Tax benefit relating to stock option plans 377 1,211 Change in current assets and liabilities, net 5,558 639 ----------- ---------- Net cash provided by operating activities 12,836 13,505 Investing activities: Additions to property, plant and equipment (5,916) (4,549) (Increase) decrease in notes receivable (97) 4 (Increase) decrease in other assets (222) 436 ----------- ---------- Net cash used in investing activities (6,235) (4,109) Financing activities: Proceeds from issuance of Common Stock 865 2,879 Acquisitions of treasury stock 0 (4,509) ----------- ---------- Net cash provided by (used in) financing activities 865 (1,630) Effect of foreign exchange rates on cash (81) (16) ----------- ---------- Net increase in cash and cash equivalents 7,385 7,750 Cash and cash equivalents at beginning of period 62,916 69,109 ----------- ---------- Cash and cash equivalents at end of period $ 70,301 $ 76,859 ========== ========== FORM 10-Q PART I ITEM 1 PAGE 4 VICOR CORPORATION Notes to Condensed Consolidated Financial Statements March 31, 2001 (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, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. 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, 2000, contained in the Company's annual report filed on Form 10-K (File No. 0-18277) with the Securities and Exchange Commission. 2. NET INCOME PER SHARE The following table sets forth the computation of basic and diluted income per share for the three months ended March 31 (in thousands, except per share amounts): THREE MONTHS ENDED ------------------ March 31, 2001 2000 ------ ------ Numerator: Net income $ 2,079 $ 7,116 ======= ======= Denominator: Denominator for basic income per share-weighted average shares 42,284 42,483 Effect of dilutive securities: Employee stock options 562 858 ------- ------- Denominator for diluted income per share- adjusted weighted-average shares and assumed conversions 42,846 43,341 ======= ======= Basic income per share $ 0.05 $ 0.17 ======= ======= Diluted income per share $ 0.05 $ 0.16 ======= ======= FORM 10-Q PART I ITEM 1 PAGE 5 VICOR CORPORATION Notes to Condensed Consolidated Financial Statements March 31, 2001 (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, 2001 and December 31, 2000 (in thousands): 4. COMPREHENSIVE INCOME Total comprehensive income was $1,661,000 and $7,089,000 for the three months ended March 31, 2001 and 2000, respectively. Other comprehensive income consisted principally of adjustments for foreign currency translation losses in the amounts of $467,000 and $27,000 for the three months ended March 31, 2001 and 2000, respectively. 5. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, (FAS 133), "Accounting for Derivative Instruments and Hedging Activities," which required adoption in periods beginning after June 15, 1999. FAS 133 was subsequently amended by FAS 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," which made FAS 133 effective for fiscal years beginning after June 15, 2000. Accordingly, the Company adopted FAS 133 in the first quarter of 2001. The adoption of FAS 133 did not have a significant impact on the Company's financial position or the results of operations.
MARCH 31, 2001 DECEMBER 31, 2000 -------------- ----------------- Raw materials ........................... $ 40,541 $ 31,341 Work-in-process ......................... 5,115 6,513 Finished goods .......................... 7,983 6,643 -------- -------- $ 53,639 $ 44,497 ======== ======== FORM 10-Q PART I ITEM 2 PAGE 6 VICOR CORPORATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MARCH 31, 2001 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, 2000. Reference is made in particular to the discussions set forth below in this Report under "Management's Discussion and Analysis of Financial Condition and Results of Operations," and set forth in the Annual Report on Form 10-K under Item 1 -- "Business -- Second-Generation Automated Manufacturing Line," "--Competition," "--Patents," and "--Licensing," and "--Risk Factors," under Item 3 -- "Legal Proceedings," and under 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, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 Net revenues for the first quarter of 2001 were $55,019,000, a decrease of $2,767,000 (4.8%) as compared to $57,786,000 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 $1,530,000 and a decrease in license revenue of $1,237,000. The Company experienced a continued reduction in demand for its first-generation products, which began in the fourth quarter of 2000. 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 $6,952,000 (28.1%) from $24,767,000 to $17,815,000, and decreased as a percentage of net revenues from 42.9% to 32.4%. The primary component of the decrease in gross margin dollars and percentage was attributable to changes in the revenue mix resulting from the reduced demand for first-generation products. The Company continues to refine the design, processes, equipment and parts associated with second-generation products and is taking steps to increase the capacity of second-generation manufacturing. Until the Company achieves higher production volumes, higher yield levels and component cost reductions on second-generation products, gross margins will continue to be adversely affected. Selling, general and administrative expenses were $10,314,000 for the period, an increase of $41,000 (0.4%) over the same period in 2000. As a percentage of net revenues, selling, general and administrative expenses increased from 17.8% to 18.7%. The principal components of the $41,000 increase were $427,000 (12.5%) of increased compensation expense, $141,000 (20.8%) of increased advertising expense and $132,000 (30.1%) of increased costs associated with the operations of the Vicor Integrated Architects. The principal components offsetting the above increases were a decrease of $291,000 (49.0%) in legal expenses, $161,000 (10.6%) of decreased sales commission costs and a decrease of $158,000 (69.5%) of payroll tax expense associated with the exercise of stock options. The Company anticipates increased legal expenses in the second quarter of 2001 in connection with the trial of one of its patent infringement actions. FORM 10-Q PART I ITEM 2 PAGE 7 VICOR CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations March 31, 2001 (continued) Research and development expenses were $5,453,000 for the period, an increase of $182,000 (3.5%) over the same period in 2000. As a percentage of net revenues, research and development expenses increased from 9.1% to 9.9%. The principal components of the $182,000 increase were $306,000 (10.6%) of increased compensation expense and $160,000 (424.1%) of personnel related expenses, principally for employment recruiting, advertising and relocation expenses. The principal components offsetting the above increase were $154,000 (21.9%) of decreased project material costs, $92,000 (29.8%) of decreased research and development costs associated with the operations of Vicor Japan Company, Ltd. ("VJCL") and $65,000 (15.2%) of decreased depreciation expense. Other income decreased $62,000 (5.3%) from the same period a year ago to $1,102,000. Other income is primarily comprised of interest income derived from invested cash and cash equivalents, as well as a note receivable associated with the Company's real estate transaction. Other income decreased due to foreign currency transaction losses of approximately $203,000 offset primarily by an increase in interest income due to an increase in average interest rates. Income before income taxes was $3,150,000, a decrease of $7,237,000 (69.7%) compared to the same period in 2000. As a percentage of net revenues, income before income taxes decreased from 18.0% to 5.7% primarily due to the gross margin decrease as discussed above. The effective tax rate for the first quarter of 2001 was 34.0%, compared to 31.5% for the same period in 2000. The increase in the effective tax rate was due to a reduced amount of available tax credits in 2001. Net income per share (diluted) was $.05 for the first quarter of 2001, compared to $.16 for the first quarter of 2000, a decrease of $.11. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001 the Company had $70,301,000 in cash and cash equivalents. The ratio of current assets to current liabilities was 6.9:1 compared to 7.3:1 at December 31, 2000. Working capital increased $1,516,000, from $146,478,000 at December 31, 2000 to $147,994,000 at March 31, 2001. The primary factors contributing to the increase in working capital were an increase in cash of $7,385,000 and an increase in inventories of $9,375,000, offset by a decrease in accounts receivable of $12,854,000 and an increase in accounts payable and accrued expenses of $2,604,000. The primary uses of cash for the first three months of 2001 were for the acquisition of capital equipment. 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 taking steps to increase the capacity of second-generation manufacturing, which includes adding equipment and re-deploying personnel and equipment from first-generation production. In February 2001, management approved approximately $16 million in new capital expenditures to execute this plan, the majority of which is expected to be incurred in 2001. 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, 2001 (continued) 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, 2001. 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, 2001, the Company had approximately $4,000,000 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 material during the last three fiscal years. FORM 10-Q PART I ITEM 3 PAGE 9 VICOR CORPORATION March 31, 2001 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 fluctuations in foreign currency exchange rates. The Company's exposure to market risk for a change in interest rates relates primarily to the Company's cash and cash equivalents and short-term investments. 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 is not significant. 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. FORM 10-Q PART II ITEM 1-6 PAGE 10 VICOR CORPORATION Part II - Other Information March 31, 2001 ITEM 1 - LEGAL PROCEEDINGS As previously disclosed in the Company's Form 10-K for the fiscal year ended December 31, 2000, in June 1998 the Company and VLT Corporation (which has since merged with and into VLT, Inc.) filed a lawsuit in the United States District Court of Massachusetts alleging that Unitrode Corporation ("Unitrode") has infringed and is infringing U.S. Reissue Patent No. 36,098 (the "Reset Patent") entitled "Optimal Resetting of the Transformer's Core in Single Ended Forward Converters." The Reset Patent is a reissue of U.S. Patent No. 4,441,146, which issued on April 3, 1984. On January 24, 2001, the Court issued a summary judgment decision in which the Court concluded that the Reset Patent is not anticipated by certain prior art. The Court further concluded that the Reset Patent is not invalid for failure to disclose the best mode of practicing the invention, nor is it invalid for indefiniteness. Finally, the Court concluded that certain single-ended forward converters built by Unitrode, Siemens Corp., Lucent Technologies, Inc., Artesyn Technologies Inc., and Magnetek Inc. infringed the Reset Patent. The Court declined to rule on certain other matters relating to the Reset Patent, and a jury trial had been scheduled to begin on April 23, 2001. However, the jury trial was postponed and is now scheduled to begin on May 14, 2001. In addition to other litigation previously disclosed in the Company's Form 10-K for the fiscal year ended December 31, 2000, 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. 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 11 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 9, 2001 By: /s/ PATRIZIO VINCIARELLI ------------------------- Patrizio Vinciarelli President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) Date: May 9, 2001 By: /s/ MARK A. GLAZER ------------------- Mark A. Glazer Chief Financial Officer (Principal Financial Officer)