1
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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
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EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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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)
23 Frontage Road, Andover, Massachusetts 01810
(Address of registrant's principal executive office)
(508) 470-2900
(Registrant's telephone number)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of September 30, 1996.
Common Stock, $.01 par value ----------------29,781,829
Class B Common Stock, $.01 par value ------12,274,809
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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
September 30, 1996 and December 31, 1995
Condensed Consolidated Statement of Income for the three-month 2
and nine-month periods ended September 30, 1996 and 1995
Condensed Consolidated Statement of Cash Flows 3
for the nine months ended September 30, 1996 and 1995
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 I
ITEM 1
PAGE 1
VICOR CORPORATION
Condensed Consolidated Balance Sheet
(In thousands)
(Unaudited)
Assets September 30, 1996 December 31, 1995
------ ------------------ -----------------
Current assets:
Cash and cash equivalents $ 67,846 $ 65,244
Accounts receivable, net 24,623 26,171
Inventories 21,454 16,685
Other current assets 2,956 3,015
-------- --------
Total current assets 116,879 111,115
Property, plant and equipment, net 56,318 51,516
Notes receivable 3,703 2,500
Other assets 2,216 1,866
-------- --------
$179,116 $166,997
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 6,685 $ 7,647
Accrued liabilities 6,445 7,568
-------- --------
Total current liabilities 13,130 15,215
Deferred income taxes 1,726 1,726
Commitments and contingencies - -
Stockholders' equity:
Preferred Stock - -
Class B Common Stock 123 123
Common Stock 328 324
Additional paid-in capital 81,192 77,793
Retained earnings 118,813 99,200
Treasury stock, at cost (36,196) (27,384)
-------- --------
Total stockholders' equity 164,260 150,056
-------- --------
$179,116 $166,997
======== ========
Note: The balance sheet at December 31, 1995 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 amounts)
(Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Net revenues $35,673 $37,307 $108,181 $106,218
Costs and expenses:
Cost of sales 16,353 17,651 49,755 49,566
Selling, general and administrative 6,800 5,507 19,807 15,671
Research and development 3,753 2,953 10,501 8,441
------- ------- -------- --------
26,906 26,111 80,063 73,678
------- ------- -------- --------
Income from operations 8,767 11,196 28,118 32,540
Other income 974 1,117 2,857 3,030
------- ------- -------- --------
Income before income taxes 9,741 12,313 30,975 35,570
Provision for income taxes 3,506 4,679 11,362 13,517
------- ------- -------- --------
Net income $ 6,235 $ 7,634 $ 19,613 $ 22,053
======= ======= ======== ========
Net income per share $ 0.15 $ 0.18 $ 0.46 $ 0.51
======= ======= ======== ========
Weighted average number of common
shares and equivalents 42,785 43,547 42,451 43,026
======= ======= ======== ========
See accompanying notes.
5
FORM 10-Q
PART I
ITEM 1
PAGE 3
VICOR CORPORATION
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
--------------------------------------
September 30, 1996 September 30, 1995
------------------ ------------------
Operating activities:
Net income $ 19,613 $ 22,053
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,186 6,151
(Gain) loss on disposal of equipment 4 (20)
Change in current assets and
liabilities, net (5,248) (9,014)
-------- --------
Total adjustments 942 (2,883)
-------- --------
Net cash provided by
operating activities 20,555 19,170
Investing activities:
Additions to property, plant and equipment (10,898) (11,296)
Proceeds from sale of equipment 16 33
Decrease (increase) in notes receivable (1,203) 1,473
(Increase) in other assets (459) (253)
-------- --------
Net cash used in investing activities (12,544) (10,043)
Financing activities:
Payments on long-term debt -- (77)
Income tax benefit from stock option activity 2,444 3,576
Proceeds from issuance of Common Stock 959 8,514
Acquisition of treasury stock (8,812) --
-------- --------
Net cash provided by (used in) financing
activities (5,409) 12,013
-------- --------
Net increase in cash and cash equivalents 2,602 21,140
Cash and cash equivalents at beginning of period 65,244 43,201
-------- --------
Cash and cash equivalents at end of period $ 67,846 $ 64,341
======== ========
See accompanying notes.
6
FORM 10-Q
PART I
ITEM 1
PAGE 4
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 1996
(Unaudited)
1. Basis of Presentation
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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, 1996 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996. 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, 1995, contained in the Company's annual report filed on
Form 10-K (File #0-18277) with the Securities and Exchange Commission.
2. Net Income per Share
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Net income per common share is based on the weighted average number of
shares of common shares and common share equivalents.
3. Inventories
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Inventories are valued at the lower of cost (determined using the first-in,
first-out method) or market. Costs associated with the long-term contract
for the sale of automated manufacturing line equipment are included in
inventories reduced by amounts identified with revenues recognized under
the contract. Inventories were as follows as of September 30, 1996 and
December 31, 1995 (in thousands):
September 30, 1996 December 31, 1995
------------------ -----------------
Raw materials ......................... $12,045 $10,396
Work-in-process ....................... 3,247 2,754
Finished goods ........................ 6,161 3,421
Unbilled costs......................... 1 114
------- -------
$21,454 $16,685
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FORM 10-Q
PART I
ITEM 2
PAGE 5
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
(continued)
4. Adoption of New Accounting Pronouncements
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The Company has adopted Statement of Financial Accounting Standards No. 121
("SFAS 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, which requires impairment losses to be
recorded on the long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. SFAS
121 also addresses the accounting for long-lived assets that are expected
to be disposed of. The adoption of SFAS 121 has no impact on the financial
position or results of operations of the Company as no indicators of
impairment currently exist.
The Company has adopted the disclosure provisions of Financial Accounting
Standards No. 123 ("SFAS 123"), Accounting and Disclosure of Stock-Based
Compensation. The Company will continue to account for its stock-based
compensation arrangements under the provisions of APB 25, Accounting for
Stock Issued to Employees.
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FORM 10-Q
PART I
ITEM 2
PAGE 6
VICOR CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 30, 1996
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, 1995. 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 -- Next-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 September 30, 1996, compared to three months ended September
- - -------------------------------------------------------------------------------
30, 1995
- - --------
Net revenues for the third quarter of 1996 were $35,673,000, a decrease of
$1,634,000 (4.4%) as compared to $37,307,000 for the same period a year ago.
$859,000 (53%) of this decrease in net revenues was due to a reduction of
revenue recognized under the Company's long-term contract for the sale of
automated manufacturing line equipment. The balance of the decrease was
primarily due to lower unit shipments of standard products.
Gross margin decreased $336,000 (1.7%) from $19,656,000 to $19,320,000, but
increased as a percentage of net revenues to 54.2% from 52.7%, primarily due to
a higher average selling price per standard unit and to changes in the revenue
mix.
Selling, general and administrative expenses were $6,800,000 for the period, an
increase of $1,293,000 (23.5%) over the same period in 1995. As a percentage of
net revenues, selling, general and administrative expenses increased to 19.1%
compared to 14.8% in 1995. The principal components of the $1,293,000 increase
were $392,000 (18.3%) of increased compensation expense due to growth in
staffing levels of selling and administrative personnel; $329,000 (183.7%) of
other international sales office expenses; and $138,000 (212.7%) of increased
legal expenses.
Research and development expenses increased $800,000 (27.1%) to $3,753,000 and
increased as a percentage of net revenues to 10.5% from 7.9%. The principal
components of the $800,000 increase were $491,000 (29.5%) of increased
compensation expense due to growth in staffing levels of engineering personnel;
$132,000 (100.0%) of Vicor Integration Architects (VIAs) related expense, and
increased project materials costs of $106,000 (19.2%). The Company continues
work on its next-generation products. The Company does not expect revenues or
earnings from this new product family to be material over the next several
quarters. See also the discussion under "Liquidity and Capital Resources."
Other income decreased $143,000 (12.8%) from the same period a year ago, to
$974,000. Other income is primarily comprised of interest income derived from
cash and cash equivalents, short-term investments, and notes receivable
associated with the Company's real estate transactions in Andover,
Massachusetts. This decrease is primarily due to a reduction in interest income
earned on lower average balances from an escrow account maintained in connection
with the Company's long-term contract for the sale of automated manufacturing
line equipment and from an overall decrease in market interest rates during the
quarter, as compared with the same period a year ago.
Income before income taxes was $9,741,000, a decrease of $2,572,000 (20.9%)
compared to the same period in 1995. As a percentage of net revenues, income
before income taxes decreased from 33.0% to 27.3% primarily due
9
FORM 10-Q
PART I
ITEM 2
PAGE 7
VICOR CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 30, 1996
(continued)
to the increase in operating expenses related to the Company's continued
investments in international expansion and research and development.
Net income per share for the third quarter of 1996 was $.15, compared to $.18
for the third quarter of 1995, a decrease of $.03 (16.7%).
Nine months ended September 30, 1996, compared to nine months ended September
- - -----------------------------------------------------------------------------
30, 1995
- - --------
Net revenues for the first nine months of 1996 were $108,181,000, an increase of
$1,963,000 (1.8%) as compared to $106,218,000 for the same period a year ago.
The increase in net revenues was primarily due to an increase of unit shipments
of standard products.
Gross margin increased $1,774,000 (3.1%) to $58,426,000 from $56,652,000, and
increased as a percentage of net revenues to 54.0% from 53.3%. The increase in
gross margin resulted primarily from changes in the revenue mix.
Selling, general and administrative expenses were $19,807,000 for the period, an
increase of $4,136,000 (26.4%) over the same period in 1995. As a percentage of
net revenues, selling, general and administrative expenses increased to 18.3%
compared to 14.8% in 1995. The principal components of the $4,136,000 increase
were $1,204,000 (19.7%) of compensation expense due to growth in staffing levels
of selling and administrative personnel, primarily in the international sales
offices; $793,000 (209.8%) of other international sales office expenses;
$693,000 (130.9%) of VIA related expense; and $353,000 (154.6%) of increased
legal expenses.
Research and development expenses increased $2,060,000 (24.4%) to $10,501,000
and increased as a percentage of net revenues to 9.7% from 7.9%. The principal
components of the $2,060,000 increase were $1,169,000 (24.4%) of compensation
expense due to growth in staffing levels of engineering personnel; VIA related
research and development costs of $312,000 (100.0%); and increased project
material costs of $275,000 (18.0%).
Other income decreased $173,000 (5.7%) to $2,857,000. Other income is primarily
comprised of interest income derived from cash and cash equivalents, short-term
investments, and notes receivable associated with the Company's real estate
transactions in Andover, Massachusetts. This decrease is primarily due to a
reduction in interest income earned on lower average balances from an escrow
account maintained in connection with the Company's long-term contract for the
sale of automated manufacturing line equipment and from an overall decrease in
market interest rates during the nine months ended September 30, 1996, as
compared with the same period a year ago.
Income before income taxes was $30,975,000, a decrease of $4,595,000 (12.9%)
compared to the same period in 1995. As a percentage of net revenues, income
before income taxes decreased from 33.5% to 28.6% primarily due to the increase
in operating expenses related to the Company's continued investment in
international expansion, VIA related expenses, and research and development.
Net income per share for the first nine months of 1996 was $.46, compared to
$.51 for the first nine months of 1995, a decrease of $.05 (9.8%).
Liquidity and Capital Resources
- - -------------------------------
At September 30, 1996 the Company had $67,846,000 in cash and cash equivalents.
The ratio of current assets to current liabilities was 8.9:1 compared to 7.3:1
at December 31, 1995. Working capital increased $7,849,000, from $95,900,000 at
December 31, 1995 to $103,749,000 at September 30, 1996. The primary factors
affecting the
10
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, 1996
(continued)
working capital increase were an increase in inventory of $4,769,000 and an
increase in cash of $2,602,000 during the first nine months of 1996. The
increase in cash was primarily attributable to cash derived from operating
activities of $20,555,000; the net proceeds for the issuance of Common Stock
from the exercise of stock options, and the related income tax benefit derived
from such issuance, of $3,403,000. The primary uses of cash for the first nine
months of 1996 were for additions to property and equipment of $10,898,000, and
for the acquisition of treasury stock of $8,812,000.
The Company plans to make continuing investments in manufacturing equipment,
much of which is built internally. The internal construction of manufacturing
machinery is a practice which the Company expects to follow over the next
several years. All machinery and equipment, whether purchased externally or
built internally, are depreciated or amortized over five years after being
placed into service.
In 1995, the Company had announced that it had started prototype production on a
new automated manufacturing line designed to manufacture next-generation
products.
On June 27, 1996, the Company announced that it intends to begin introducing
selected models of its next-generation 700, 800 and 900 Series product families
for sale on September 3, 1996 and that it is planning a general introduction of
the three product families in the fall of 1996. The Company also announced
certain expected technical characteristics of the models to be introduced and
described an interactive computer-aided design tool that the Company is creating
to assist customers. In September 1996, advertisements were placed in various
electronics magazines, announcing the introduction of a 600 watt module from the
Company's next-generation 900 Series product family. While management believes
that the new manufacturing line and the introduction of selected models of its
next-generation product families are important milestones, there can be no
assurance that problems will not substantially delay the ultimate introduction
of the products, require modification of product specifications or prevent
attainment of the anticipated capacity of the new manufacturing line.
Significant revenues are not expected to occur for several quarters from the
sale of this product or from the sale of any other product in the Company's
next-generation product line.
In February, 1996, the Board of Directors of the Company authorized the
repurchase of the Company's Common Stock up to an aggregate amount of
approximately $19,500,000, including amounts remaining under a prior
authorization. The plan authorized 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
is at the discretion of management based on its view of economic and financial
market conditions. The Company spent $8,812,000 in the repurchase of its Common
Stock in the quarter ended March 31, 1996. There were no repurchases in the
quarters ended June 30 and September 30, 1996.
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
September 30, 1996, the Company had approximately $700,000 of capital
expenditure commitments.
The Company does not consider the impact of inflation on its business activities
to have been significant to date.
11
FORM 10-Q
PART II
ITEM 1-6
PAGE 9
VICOR CORPORATION
Part II - Other Information
September 30, 1996
Item 1 - Legal Proceedings
- - --------------------------
On October 17, 1996, the Company filed a complaint in Munich District
Court, Federal Republic of Germany, citing Nemic-Lambda of Japan and
Lambda Electronics GmbH for infringement of Vicor's German "reset"
patent. Vicor seeks injunctive relief and damages. Having recently
completed a detailed examination of products sold by Lambda in
Germany, and being confronted with an unresolved case of infringement,
Vicor has taken this first step in enforcing its reset patent rights.
The Company is involved in other 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. Reports on Form 8-K - none.
12
FORM 10-Q
PART II
PAGE 10
SIGNATURES
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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 5, 1996 By: /s/ Patrizio Vinciarelli
-------------------------
Patrizio Vinciarelli
President and Chairman
of the Board
Date: November 5, 1996 By: /s/ Mark A. Glazer
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Mark A. Glazer
Vice President of Finance
and Administration
5
0000751978
VICOR CORPORATION
1,000
9-MOS
DEC-31-1996
JAN-01-1996
SEP-30-1996
67,846
0
24,623
0
21,454
116,879
96,078
39,760
179,116
13,130
0
451
0
0
163,809
179,116
108,181
108,181
49,755
49,755
0
0
0
30,975
11,362
19,613
0
0
0
19,613
.46
.46
