1
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 SEPTEMBER 30, 1997
------------------
--- 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)
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 September 30, 1997.
Common Stock, $.01 par value ----------------30,443,321
Class B Common Stock, $.01 par value --------12,214,309
-----------------------------
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, 1997 and December 31, 1996
Condensed Consolidated Statement of Income 2
for the quarters ended September 30, 1997 and 1996 and
for the nine months ended September 30, 1997 and 1996
Condensed Consolidated Statement of Cash Flows 3
for the nine months ended September 30, 1997 and 1996
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 September 30, 1997 December 31, 1996
- -------------------------------------- ------------------ -----------------
Current assets:
Cash and cash equivalents $ 86,327 $ 73,647
Accounts receivable, net 31,181 25,001
Inventories 20,399 21,129
Other current assets 2,949 2,765
-------- --------
Total current assets 140,856 122,542
Property, plant and equipment, net 63,959 57,613
Notes receivable 9,056 3,795
Other assets 2,927 2,493
-------- --------
$216,798 $186,443
======== ========
Liabilities and Stockholders' Equity
- --------------------------------------
Current liabilities:
Accounts payable $ 7,300 $ 5,558
Accrued liabilities 10,418 8,433
-------- --------
Total current liabilities 17,718 13,991
Deferred income taxes 1,708 1,708
Stockholders' equity:
Preferred Stock -- --
Class B Common Stock 122 123
Common Stock 337 331
Additional paid-in capital 92,996 85,842
Retained earnings 144,308 124,839
Treasury stock, at cost (40,391) (40,391)
-------- --------
Total stockholders' equity 197,372 170,744
-------- --------
$216,798 $186,443
======== ========
Note: The balance sheet at December 31, 1996 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 Nine Months Ended
-------------------- ---------------------
September 30, September 30,
1997 1996 1997 1996
------- ------- -------- --------
Net revenues $41,400 $35,673 $119,057 $108,181
Costs and expenses:
Cost of revenue 19,967 16,353 57,146 49,755
Selling, general and administrative 7,398 6,800 22,328 19,807
Research and development 4,227 3,753 12,827 10,501
------- ------- -------- --------
31,592 26,906 92,301 80,063
------- ------- -------- --------
Income from operations 9,808 8,767 26,756 28,118
Other income 1,332 974 3,664 2,857
------- ------- -------- --------
Income before income taxes 11,140 9,741 30,420 30,975
Provision for income taxes 4,010 3,506 10,951 11,362
------- ------- -------- --------
Net income $ 7,130 $ 6,235 $ 19,469 $ 19,613
======= ======= ======== ========
Net income per common share $ 0.16 $ 0.15 $ 0.45 $ 0.46
======= ======= ======== ========
Weighted average number of common
shares and equivalents 43,438 42,785 42,877 42,451
======= ======= ======== ========
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, 1997 September 30, 1996
------------------ ------------------
Operating activities:
Net income $ 19,469 $ 19,613
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,272 6,186
(Gain) loss on disposal of equipment (8) 4
Change in current assets and liabilities, net (1,907) (5,248)
-------- --------
Net cash provided by operating activities 23,826 20,555
Investing activities:
Additions to property, plant and equipment (12,406) (10,898)
Proceeds from sale of equipment 17 16
Increase in notes receivable (5,261) (1,203)
Increase in other assets (655) (459)
-------- --------
Net cash used in investing activities (18,305) (12,544)
Financing activities:
Tax benefit relating to stock option plans 875 2,444
Proceeds from issuance of Common Stock 6,284 959
Acquisition of treasury stock -- (8,812)
-------- --------
Net cash provided by (used in) financing
activities 7,159 (5,409)
-------- --------
Net increase in cash and cash equivalents 12,680 2,602
Cash and cash equivalents at beginning of period 73,647 65,244
-------- --------
Cash and cash equivalents at end of period $ 86,327 $ 67,846
======== ========
See accompanying notes.
6
FORM 10-Q
PART I
ITEM 1
PAGE 4
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements.
In the opinion of management, all adjustments (consisting of only
normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three- and
nine- month periods ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1997. 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, 1996,
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
Net income per common share is based on the weighted average number of
shares of common shares and common share equivalents.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is effective for the
Company on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock
options will be excluded. There is not expected to be any material
change to either primary or fully diluted net income per share for the
quarters or the nine months ended September 30, 1997 and 1996 as a
result of the new method.
3. INVENTORIES
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, 1997 and December 31, 1996 (in thousands):
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
Raw materials .................... $13,925 $12,627
Work-in-process .................. 3,230 2,290
Finished goods ................... 3,244 6,212
Unbilled costs.................... -- --
------- -------
$20,399 $21,129
======= =======
7
FORM 10-Q
PART I
ITEM 2
PAGE 5
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(Continued)
4. MORTGAGE NOTE RECEIVABLE
In May 1997, the Company received a promissory note in the amount of
$7,500,000 from an unrelated third party in exchange for $5,000,000 in
cash plus the termination of an existing note in the amount of
$2,500,000. The note bears interest at 9% and is due in May 2002. The
note is secured by a mortgage on certain real estate and by the
assignment of certain leases and other contracts.
5. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income," and Statement No. 131, "Disclosures About
Segments of an Enterprise and Related Information." Statement No. 130
establishes standards for the reporting and display of comprehensive
income and its components. Statement No. 131 establishes standards for
the way that public companies report information about operating
segments in financial statements. This Statement supersedes Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise,"
but retains the requirements to report information about major
customers. Statements 130 and 131 are effective for the Company in
fiscal 1998. The Company does not believe that the adoption of these
Statements will have a material effect on the Company's financial
statements.
8
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, 1997
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, 1996. 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, 1997, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
Net revenues for the third quarter of 1997 were $41,400,000, an increase of
$5,727,000 (16.1%) as compared to $35,673,000 for the same period a year ago.
The increase in net revenues was primarily due to a net increase of unit
shipments of standard and custom products of approximately $7,400,000, offset by
reductions in license income and the sale of automated manufacturing line
equipment of approximately $900,000 and $800,000, respectively.
Gross margin increased $2,113,000 (10.9%) to $21,433,000 from $19,320,000, but
decreased as a percentage of net revenues from 54.2% to 51.8%. The primary
components of the fluctuations in gross margin dollars and percentage were
attributable to changes in the revenue mix.
Selling, general and administrative expenses were $7,398,000 for the period, an
increase of $598,000 (8.8%) over the same period in 1996. As a percentage of net
revenues, selling, general and administrative expenses decreased from 19.1% to
17.9%. The principal component of the $598,000 increase was $441,000 (17.4%) of
increased compensation expense due to growth in staffing levels of selling and
administrative personnel.
Research and development expenses increased $474,000 (12.6%) to $4,227,000 and
decreased as a percentage of net revenues from 10.5% to 10.2%. The principal
components of the $474,000 increase were $295,000 (13.7%) of increased
compensation expense due to growth in staffing levels of engineering personnel
and $88,000 (66.7%) of increased costs relating to the Vicor Integration
Architects ("VIAs").
Other income increased $358,000 (36.8%) from the same period a year ago, to
$1,332,000. 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. Interest income increased primarily due to an increase in cash
balances earning interest.
Income before income taxes was $11,140,000, an increase of $1,399,000 (14.4%)
compared to the same period in 1996. As a percentage of net revenues, income
before income taxes decreased from 27.3% to 26.9% primarily due to the gross
margin percentage decrease as discussed above.
Net income per share for the third quarter of 1997 was $.16, compared to $.15
for the third quarter of 1996, an increase of $.01 (6.7%).
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, 1997
(continued)
NINE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Net revenues for the first nine months of 1997 were $119,057,000, an increase of
$10,876,000 (10.1%) as compared to $108,181,000 for the same period a year ago.
The increase in net revenues was primarily due to a net increase of unit
shipments of standard and custom products of approximately $13,000,000, offset
by a reduction in license income of approximately $2,000,000.
Gross margin increased $3,485,000 (6.0%) to $61,911,000 from $58,426,000, but
decreased as a percentage of net revenues from 54.0% to 52.0%. The primary
components of the fluctuations in gross margin dollars and percentage were
attributable to changes in the revenue mix.
Selling, general and administrative expenses were $22,328,000 for the period, an
increase of $2,521,000 (12.7%) over the same period in 1996. As a percentage of
net revenues, selling, general and administrative expenses increased to 18.8%
compared to 18.3% in 1996. The principal components of the $2,521,000 increase
were $1,379,000 (18.8%) of increased compensation expense due to growth in
staffing levels of selling and administrative personnel; $415,000 (14.2%) of
increased sales commission expense; $315,000 (54.3%) of increased legal expenses
and $283,000 (12.0%) of increased advertising expense.
Research and development expenses increased $2,326,000 (22.2%) to $12,827,000
and increased as a percentage of net revenues to 10.8% from 9.7%. The principal
components of the $2,326,000 increase were $1,330,000 (22.3%) of compensation
expense due to growth in staffing levels of engineering personnel; $259,000
(84.4%) of increased VIA related expenses and $267,000 (29.9%) of increased
depreciation expense.
Other income increased $807,000 (28.2%) to $3,664,000. 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. Interest income increased primarily due
to an increase in cash balances earning interest.
Income before income taxes was $30,420,000, a decrease of $555,000 (1.8%)
compared to the same period in 1996. As a percentage of net revenues, income
before income taxes decreased from 28.6% to 25.6% primarily due to the increase
in operating expenses as a percentage of net revenues, and to the gross margin
percentage decrease as discussed above.
Net income per share for the first nine months of 1997 was $.45, compared to
$.46 for the first nine months of 1996, a decrease of $.01 (2.2%).
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997 the Company had $86,327,000 in cash and cash equivalents.
The ratio of current assets to current liabilities was 7.9:1 compared to 8.8:1
at December 31, 1996. Working capital increased $14,587,000, from $108,551,000
at December 31, 1996 to $123,138,000 at September 30, 1997. The primary factor
affecting the working capital increase was an increase in cash of $12,680,000
during the first nine months of 1997. The increase in cash was primarily
attributable to cash derived from operating activities of $23,826,000; the net
proceeds from the issuance of Common Stock upon the exercise of stock options,
and the related income tax benefit derived from such issuance, of $7,159,000.
The primary uses of cash for the first nine months of 1997 were for additions to
property and equipment of $12,406,000 and for increased notes receivable of
$5,261,000. See the discussion under "Notes to Condensed Consolidated Financial
Statements," Item 4--"Mortgage Note Receivable."
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, 1997
(continued)
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.
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. There were no repurchases in the nine months ended
September 30, 1997.
During 1997, the Company has begun to increase production of selected models of
its second-generation product families. Although shipments during 1997 have not
had a material impact on revenues, the Company believes that this is a
significant milestone towards the general availability of its second-generation
family of products. There can be no assurance that problems will not
substantially delay the ultimate general introduction of the complete product
line, require modification of product specifications, or prevent the 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 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, 1997, the Company had approximately $1,500,000 of capital
expenditure commitments.
The Company has begun the preliminary preparations for the construction of its
new corporate headquarters facility in Andover, Massachusetts. The Company is in
the process of finalizing the terms and conditions of the construction contracts
for the 77,000 square foot building.
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.
11
FORM 10-Q
PART II
ITEM 1-6
PAGE 9
VICOR CORPORATION
Part II - Other Information
September 30, 1997
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: November 5, 1997 By: /s/ Patrizio Vinciarelli
-------------------------
Patrizio Vinciarelli
President and Chairman
of the Board
Date: November 5, 1997 By: /s/ Mark A. Glazer
-------------------
Mark A. Glazer
Chief Financial Officer
5
1,000
US DOLLARS
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
1
86,327
0
31,181
0
20,399
140,856
111,662
47,703
216,798
17,718
0
0
0
459
196,913
216,798
119,057
119,057
57,146
57,146
0
0
0
30,420
10,951
19,469
0
0
0
19,469
.45
.45
