1
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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, 1998
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
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VICOR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2742817
(State of Incorporation) (IRS Employer Identification Number)
23 Frontage Road, Andover, Massachusetts 01810
(Address of registrant's principal executive office)
(978) 470-2900
(Registrant's telephone number)
----------------------------
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, 1998.
Common Stock, $.01 par value ----------------30,756,463
Class B Common Stock, $.01 par value ------12,169,309
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2
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, 1998 and December 31, 1997
Condensed Consolidated Statement of Income 2
for the three months ended March 31, 1998 and 1997
Condensed Consolidated Statement of Cash Flows 3
for the three months ended March 31, 1998 and 1997
Notes to Condensed Consolidated Financial 4-5
Statements
Item 2 - Management's Discussion and Analysis of 6-8
Financial Condition and Results of Operations
Part II - Other Information:
Item 1 - Legal Proceedings 9
Item 2 - Changes in Securities 9
Item 3 - Defaults Upon Senior Securities 9
Item 4 - Submission of Matters to a Vote of 9
Security Holders
Item 5 - Other Information 9
Item 6 - Exhibits and Reports on Form 8-K 9
Signature(s) 10
3
FORM 10-Q
PART 1
ITEM 1
PAGE 1
VICOR CORPORATION
Condensed Consolidated Balance Sheet
(In thousands)
(Unaudited)
Assets March 31, 1998 December 31, 1997
------ -------------- -----------------
Current assets:
Cash and cash equivalents $ 85,177 $ 84,859
Accounts receivable, net 34,786 35,258
Inventories, net 26,893 23,448
Other current assets 4,019 3,269
--------- ---------
Total current assets 150,875 146,834
Property, plant and equipment, net 75,507 69,802
Notes receivable 9,089 9,097
Other assets 5,277 3,110
--------- ---------
$ 240,748 $ 228,843
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 13,203 $ 8,542
Accrued liabilities 10,515 10,025
--------- ---------
Total current liabilities 23,718 18,567
Deferred income taxes 1,852 1,852
Stockholders' equity:
Preferred Stock -- --
Class B Common Stock 122 122
Common Stock 340 340
Additional paid-in capital 99,319 97,980
Retained earnings 156,471 151,056
Treasury stock, at cost (41,074) (41,074)
--------- ---------
Total stockholders' equity 215,178 208,424
--------- ---------
$ 240,748 $ 228,843
========= =========
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
4
FORM 10-Q
PART I
ITEM 1
PAGE 2
VICOR CORPORATION
Condensed Consolidated Statement of Income
(In thousands except per share data)
(Unaudited)
Three Months Ended
------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
Net revenues $43,192 $37,939
Costs and expenses:
Cost of revenue 22,445 17,877
Selling, general and administrative 8,317 7,447
Research and development 5,516 4,379
------- -------
36,278 29,703
------- -------
Income from operations 6,914 8,236
Other income 1,412 1,102
------- -------
Income before income taxes 8,326 9,338
Provision for income taxes 2,911 3,362
------- -------
Net income $ 5,415 $ 5,976
======= =======
Net income per common share:
Basic $ 0.13 $ 0.14
Diluted $ 0.12 $ 0.14
Shares outstanding:
Basic 42,896 42,365
Diluted 43,697 42,917
See accompanying notes.
5
FORM 10-Q
PART I
ITEM 1
PAGE 3
VICOR CORPORATION
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
---------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
Operating activities:
Net income $ 5,415 $ 5,976
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,063 2,170
(Gain) loss on disposal of equipment 3 (1)
Change in current assets and
liabilities, net 1,428 (1,301)
-------- --------
Net cash provided by operating activities 8,909 6,844
Investing activities:
Additions to property, plant and equipment (7,689) (4,000)
Proceeds from sale of equipment 14 --
Decrease (increase) in notes receivable 8 (144)
Increase in other assets (2,263) (88)
-------- --------
Net cash used in investing activities (9,930) (4,232)
Financing activities:
Tax benefit relating to stock option plans 322 269
Proceeds from issuance of Common Stock 1,017 5,569
Acquisitions of treasury stock -- --
-------- --------
Net cash provided by financing
activities 1,339 5,838
-------- --------
Net increase in cash and cash equivalents 318 8,450
Cash and cash equivalents at beginning of period 84,859 73,647
-------- --------
Cash and cash equivalents at end of period $ 85,177 $ 82,097
======== ========
See accompanying notes.
6
FORM 10-Q
PART I
ITEM 1
PAGE 4
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 1998
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and pursuant to the rules
and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (consisting of only
normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three month
period ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. For
further information, refer to the consolidated financial statements
and notes thereto included in the Company's audited financial
statements for the year ended December 31, 1997, contained in the
Company's annual report filed on Form 10-K (File No. 0-18277) with the
Securities and Exchange Commission.
2. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted
income per share for the three months ended March 31 (in thousands,
except per share amounts):
1998 1997
---- ----
Numerator:
Net Income $ 5,415 $ 5,976
======= =======
Denominator:
Denominator for basic income
per share-weighted average shares 42,896 42,365
Effect of dilutive securities:
Employee stock options 801 552
------- -------
Denominator for diluted income per share-
adjusted weighted-average shares and
assumed conversions 43,697 42,917
======= =======
Basic income per share $ .13 $ .14
======= =======
Diluted income per share $ .12 $ .14
======= =======
7
FORM 10-Q
PART I
ITEM 2
PAGE 5
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 1998
(Continued)
3. INVENTORIES
Inventories are valued at the lower of cost (determined using the
first-in, first-out method) or market. Inventories were as follows as
of March 31, 1998 and December 31, 1997 (in thousands):
March 31, 1998 December 31, 1997
-------------- -----------------
Raw materials .................................... $18,226 $16,715
Work-in-process .................................. 4,575 3,774
Finished goods ................................... 4,092 2,959
------- -------
$26,893 $23,448
======= =======
8
FORM 10-Q
PART I
ITEM 2
PAGE 6
VICOR CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
March 31, 1998
Except for historical information contained herein, some matters discussed in
this report constitute forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Actual results could differ materially from
those projected in the forward-looking statements as a result of the risk
factors set forth in this report and in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997. Reference is made in particular to the
discussions set forth below in this Report under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and set forth in the
Annual Report on Form 10-K under Item 1 -- "Business -- Second-Generation
Automated Manufacturing Line," "--Competition," "--Patents," and "--Licensing,"
and under Item 7 -- "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998, COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net revenues for the first quarter of 1998 were $43,192,000, an increase of
$5,253,000 (13.8%) as compared to $37,939,000 for the same period a year ago.
The growth in net revenues resulted primarily from a net increase of unit
shipments of standard and custom products of approximately $8,151,000, offset by
reductions in license income and the sale of automated manufacturing line
equipment of approximately $1,100,000 and $1,800,000, respectively.
Gross margin increased $685,000 (3.4%) to $20,747,000 from $20,062,000, but
decreased as a percentage of net revenues from 52.9% to 48.0%. The primary
components of the fluctuations in gross margin dollars and percentage were
attributable to changes in the revenue mix. The decrease in the gross margin as
a percentage of net revenues was also due to higher provisions for inventory
reserves and material scrap as compared to the first quarter of 1997. The gross
margins for the remainder of 1998 may be negatively impacted by the commencement
of depreciation on the second-generation product line in the second quarter of
1998 (see "Other," below).
Selling, general and administrative expenses were $8,317,000 for the period, an
increase of $870,000 (11.7%) over the same period in 1997. As a percentage of
net revenues, selling, general and administrative expenses decreased from 19.6%
to 19.3%. The principal components of the $870,000 increase were $479,000
(100.0%) of increased costs for training and consulting fees for the
implementation of the new Enterprise Resource Planning system; $330,000 (11.7%)
of increased compensation expense due to growth in staffing levels of selling
and administrative personnel; $246,000 (23.7%) of increased sales commission
expense, offset by a reduction in advertising costs of $228,000 (23.4%).
Research and development expenses increased $1,137,000 (26.0%) to $5,516,000 and
increased as a percentage of net revenues to 12.8% from 11.5%. The principal
components of the $1,137,000 increase were $637,000 (26.3%) of increased
compensation expense due to growth in staffing levels of engineering personnel
and $416,000 (52.3%) of increased project materials costs, which included a
provision of approximately $300,000 for potentially obsolete materials.
Other income increased $310,000 (28.1%) from the same period a year ago, to
$1,412,000. Other income is primarily comprised of interest income derived from
invested cash and cash equivalents, as well as notes receivable associated with
the Company's real estate transactions. Interest income increased primarily due
to an increase in these balances.
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FORM 10-Q
PART I
ITEM 2
PAGE 7
VICOR CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
March 31, 1998
(continued)
Income before income taxes was $8,326,000, a decrease of $1,012,000 (10.8%)
compared to the same period in 1997. As a percentage of net revenues, income
before income taxes decreased from 24.6% to 19.3% primarily due to the gross
margin percentage decrease and the increase in research and development expenses
discussed above.
The effective tax rate for the first quarter of 1998 was 35%, compared to 36%
for the same period in 1997.
Net income per share (diluted) for the first quarter of 1998 was $.12, compared
to $.14 for the first quarter of 1997, a decrease of $.02 (14.3%).
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998 the Company had $85,177,000 in cash and cash equivalents. The
ratio of current assets to current liabilities was 6.4:1 compared to 7.9:1 at
December 31, 1997. Working capital decreased $1,110,000, from $128,267,000 at
December 31, 1997 to $127,157,000 at March 31, 1998. The primary factor
affecting the working capital decrease was an increase in accounts payable of
$4,661,000, offset by an increase in inventories of $3,445,000, during the first
three months of 1998. The primary use of cash for the first three months of 1998
was for additions to property and equipment of $7,689,000.
The Company plans to make continuing investments in manufacturing equipment,
much of which is built internally. The internal construction of manufacturing
machinery, in order to provide for additional manufacturing capacity, is a
practice which the Company expects to continue over the next several years.
The Company has an unused line of credit with a bank under which the Company may
borrow up to $4,000,000 on a revolving credit basis. The Company believes that
cash generated from operations and the total of its cash and cash equivalents,
together with other sources of liquidity, will be sufficient to fund planned
operations and capital equipment purchases for the foreseeable future. At March
31, 1998, the Company had approximately $14,000,000 of capital expenditure
commitments, including approximately $13,000,000 related to the construction of
new and expanded facilities.
The Company does not consider the impact of inflation on its business activities
or fluctuations in the exchange rates for foreign currency transactions to have
been significant to date.
OTHER
In 1995, the Company started prototype production on a new automated
manufacturing line specifically designed to manufacture second-generation
products. In the fourth quarter of 1996, the Company began introducing selected
models of its second-generation product families which had been produced on this
line. During 1997, the Company shipped a limited number of second-generation
products, while continuing to make modifications to the designs, processes,
equipment and parts associated with second-generation products. While management
believes that the initiation of limited production on the new manufacturing line
and the introduction of selected models of its second-generation product
families are important milestones, there can be no assurance that problems will
not substantially delay the ultimate general introduction of the complete
product line, require continued modification of product specifications, or
prevent attainment of the anticipated capacity of the new manufacturing line.
Significant revenues from the sale of any products in the Company's
second-generation product line are not expected to occur for several quarters.
The Company plans to begin depreciation on a significant portion, approximately
$32.5 million, of this product line in the second quarter of 1998. Approximately
$2.5 million of this line will be depreciated on a straight-line basis over a
period of five years, and approximately $30 million will be depreciated on a
straight-line basis over a period of eight years.
10
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, 1998
(continued)
Consequently, this depreciation and other fixed and variable costs associated
with the ramp-up of production are not expected to be fully absorbed until
higher production volumes and higher yield levels are achieved. As a result,
gross margins during 1998 may be negatively impacted until higher production
volumes and higher yield levels are attained.
IMPACT OF THE YEAR 2000
The Company is proceeding with its plans to address the Year 2000 Issue. To
date, the Company has incurred approximately $2.1 million ($596,000 expensed and
$1.5 million capitalized), of which approximately $560,000 was incurred in the
first quarter of 1998 ($479,000 expensed and $81,000 capitalized).
11
FORM 10-Q
PART II
ITEM 1-6
PAGE 9
VICOR CORPORATION
Part II - Other Information
March 31, 1998
ITEM 1 - LEGAL PROCEEDINGS
The Company is involved in certain litigation incidental to the
conduct of its business. While the outcome of lawsuits against the
Company cannot be predicted with certainty, management does not expect
any current litigation to have a material adverse impact on the
Company.
ITEM 2 - CHANGES IN SECURITIES
Not applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
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.
12
FORM 10-Q
PART II
PAGE 10
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 12, 1998 By: /s/ Patrizio Vinciarelli
------------------------
Patrizio Vinciarelli
President and Chairman
of the Board
Date: May 12, 1998 By: /s/ Mark A. Glazer
------------------------
Mark A. Glazer
Chief Financial Officer
5
1,000
U.S. DOLLARS
3-MOS
DEC-31-1998
JAN-01-1998
MAR-31-1998
1
85,177
0
34,786
0
26,893
150,875
126,898
51,391
240,748
23,718
0
0
0
462
214,716
240,748
43,192
43,192
22,445
22,445
0
0
0
8,326
2,911
5,415
0
0
0
5,415
.13
.12
5
1,000
U.S. DOLLARS
3-MOS
DEC-31-1997
JAN-01-1997
MAR-31-1997
1
82,097
0
28,125
0
19,869
132,920
103,400
43,891
198,884
14,618
0
0
0
458
182,100
198,884
37,939
37,939
17,877
17,877
0
0
0
9,338
3,362
5,976
0
0
0
5,976
.14
.14
