þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 04-2742817 | |
(State of Incorporation) | (I.R.S. Employer Identification No.) |
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Common Stock, $.01 par value | 29,852,158 | |
Class B Common Stock, $.01 par value | 11,785,052 |
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Part I Financial Information: |
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EX-31.1 SECTION 302 CERTIFICATION OF THE CEO | ||||||||
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO | ||||||||
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO | ||||||||
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO |
March 31, 2008 | December 31, 2007 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 34,093 | $ | 20,017 | ||||
Restricted cash and short-term investments |
1,024 | 952 | ||||||
Short-term investments |
5,750 | 57,490 | ||||||
Accounts receivable, less allowance of
$340 in 2008 and $398 in 2007 |
29,114 | 32,054 | ||||||
Inventories, net |
25,528 | 23,078 | ||||||
Deferred tax assets |
741 | 741 | ||||||
Other current assets |
3,358 | 2,629 | ||||||
Total current assets |
99,608 | 136,961 | ||||||
Long-term investments, net |
36,500 | | ||||||
Property, plant and equipment, net |
50,049 | 50,257 | ||||||
Other assets |
5,469 | 5,240 | ||||||
$ | 191,626 | $ | 192,458 | |||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 9,338 | $ | 10,062 | ||||
Accrued compensation and benefits |
5,609 | 6,003 | ||||||
Accrued expenses |
3,477 | 3,471 | ||||||
Accrual for litigation settlement |
240 | 240 | ||||||
Dividend payable |
6,245 | | ||||||
Income taxes payable |
591 | 278 | ||||||
Deferred revenue |
1,241 | 983 | ||||||
Total current liabilities |
26,741 | 21,037 | ||||||
Long-term income taxes payable |
1,372 | 1,344 | ||||||
Deferred income taxes |
1,725 | 1,597 | ||||||
Minority interests |
4,485 | 4,040 | ||||||
Stockholders equity: |
||||||||
Class B Common Stock |
118 | 118 | ||||||
Common Stock |
384 | 384 | ||||||
Additional paid-in capital |
159,637 | 159,332 | ||||||
Retained earnings |
120,638 | 126,263 | ||||||
Accumulated other comprehensive (loss) income |
(1,647 | ) | 170 | |||||
Treasury stock, at cost |
(121,827 | ) | (121,827 | ) | ||||
Total stockholders equity |
157,303 | 164,440 | ||||||
$ | 191,626 | $ | 192,458 | |||||
Three Months Ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
(as restated) | ||||||||
Net revenues |
$ | 53,469 | $ | 46,981 | ||||
Cost of revenues |
31,009 | 26,754 | ||||||
Gross margin |
22,460 | 20,227 | ||||||
Operating expenses: |
||||||||
Selling, general and administrative |
14,052 | 12,013 | ||||||
Research and development |
7,511 | 7,400 | ||||||
Total operating expenses |
21,563 | 19,413 | ||||||
Income from operations |
897 | 814 | ||||||
Other income (expense), net |
755 | 1,577 | ||||||
Income before income taxes |
1,652 | 2,391 | ||||||
Provision (benefit) for income taxes |
242 | (11 | ) | |||||
Loss from equity method investment (net of tax) |
790 | 81 | ||||||
Net income |
$ | 620 | $ | 2,321 | ||||
Net income per common share: |
||||||||
Basic |
$ | 0.01 | $ | 0.06 | ||||
Diluted |
$ | 0.01 | $ | 0.06 | ||||
Shares used to compute
net income per share: |
||||||||
Basic |
41,636 | 41,565 | ||||||
Diluted |
41,675 | 41,614 | ||||||
Cash dividends declared per share |
$ | 0.15 | $ | 0.15 |
Three Months Ended | ||||||||
March 31, 2008 | March 31, 2007 | |||||||
(as restated) | ||||||||
Operating activities: |
||||||||
Net income |
$ | 620 | $ | 2,321 | ||||
Adjustments to reconcile net income to net
cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
2,586 | 3,133 | ||||||
Loss from equity method investee (net of tax) |
790 | 81 | ||||||
Minority interest in net income of subsidiaries |
445 | 17 | ||||||
Stock compensation expense |
302 | 194 | ||||||
Amortization of bond premium |
| (218 | ) | |||||
Gain on disposal of equipment |
(13 | ) | (23 | ) | ||||
Change in current assets and liabilities, net |
(437 | ) | (39,316 | ) | ||||
Net cash provided by (used in) operating
activities |
4,293 | (33,811 | ) | |||||
Investing activities: |
||||||||
Purchases of investments |
(8,254 | ) | (38,629 | ) | ||||
Sales and maturities of investments |
21,493 | 77,460 | ||||||
Additions to property, plant and equipment |
(2,325 | ) | (2,118 | ) | ||||
Purchase of equity method investment |
(1,000 | ) | | |||||
Proceeds from sale of equipment |
13 | 23 | ||||||
Change in restricted cash |
(72 | ) | | |||||
Increase in other assets |
(36 | ) | (27 | ) | ||||
Net cash provided by investing activities |
9,819 | 36,709 | ||||||
Financing activities: |
||||||||
Proceeds from issuance of Common Stock |
3 | 18 | ||||||
Common Stock dividends paid |
| (6,235 | ) | |||||
Net cash provided by (used in) financing
activities |
3 | (6,217 | ) | |||||
Effect of foreign exchange rates on cash |
(39 | ) | (2 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
14,076 | (3,321 | ) | |||||
Cash and cash equivalents at beginning of period |
20,017 | 35,860 | ||||||
Cash and cash equivalents at end of period |
$ | 34,093 | $ | 32,539 | ||||
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. | ||
As described in Note 7, due to an additional investment in Great Wall Semiconductor Corporation (GWS) in May 2007, Vicor Corporation (the Company) changed its method of accounting for its investment in GWS from the cost method to the equity method of accounting. As a result, the financial statements for the three months ended March 31, 2007, have been retroactively restated to reflect the equity method of accounting, in accordance with Accounting Principles Board Opinion 18 (APB 18), The Equity Method of Accounting for Investments in Common Stock. | ||
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 months ended March 31, 2008, are not necessarily indicative of the results that may be expected for any other interim period or the year ending December 31, 2008. Operating results for the three months ended March 31, 2008, includes previously unidentified compensation-related accruals of $320,000 for certain of the Companys international subsidiaries and additional stock compensation expense of $90,000 identified and recorded in the first quarter of 2008. Management has concluded the impact of accounting for these previously unidentified accruals in the first quarter of 2008 is not material to the Companys first quarter results, the Companys estimated 2008 financial results, or prior period financial results. The balance sheet at December 31, 2007, 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, 2007, (File No. 0-18277) filed by the Company with the Securities and Exchange Commission. | ||
2. | Short-Term and Long-Term Investments | |
The Companys principal sources of liquidity are its existing balances of cash, cash equivalents and short-term investments, as well as cash generated from operations. Consistent with the Companys investment policy guidelines, the Company can and has historically invested its substantial cash balances in demand deposit accounts, money market funds meeting certain quality criteria, and highly-liquid auction rate securities meeting certain quality criteria. All of the Companys investments are subject to credit, liquidity, market, and interest rate risk. | ||
As of March 31, 2008, the Company held approximately $42.1 million in auction rate securities, consisting of debt obligations of municipal and corporate debt issuers. The interest rates for these debt securities are reset at auction at regular intervals ranging from seven to 90 days. The auction rate |
2. | Short-Term and Long-Term Investments (continued) | |
securities held by the Company have historically traded at par and are callable at par at the option of the issuer. At March 31, 2008, the majority of the auction rate securities held by the Company were AAA/Aaa rated by the major credit rating agencies, with most collateralized by student loans guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program. | ||
Until February 2008, the auction rate securities market was highly liquid. Starting the week of February 11, 2008, a substantial number of auctions failed, meaning that there was not enough demand to sell all of the securities that holders offered for sale. The consequences of a failed auction are (a) an investor must hold the specific security until the next scheduled auction (unless that investor chooses to sell the security to a third party outside of the auction process) and (b) the interest rate on the security generally resets to an interest rate set forth in the securitys indenture. The principal associated with these failed auctions will not be accessible to the Company until a successful auction occurs, a buyer is found outside of the auction process, the security is called, or the underlying securities have matured. As of March 31, 2008, the Company held auction rate securities that had experienced failed auctions totaling approximately $38.5 million at par value (the Failed Auction Securities), representing approximately 20% of total assets of the Company. | ||
Management is not aware of any reason to believe any of the underlying issuers of the Failed Auction Securities held by the Company are presently at risk of default. Through March 31, 2008, the Company has continued to receive interest payments on the Failed Auction Securities in accordance with their terms. Subsequent to March 31, 2008, four issues of auction rate securities, totaling $3.6 million, which were classified as short-term investments as of March 31, 2008, were called by the issuers, with the Company receiving par value for each. Management believes the Company ultimately should be able to liquidate all of its auction rate security investments without significant loss primarily due to the collateral securing the substantial majority of the underlying obligations. However, current conditions in the auction rate securities market have lead management to conclude the recovery period for the Failed Auction Securities exceeds 12 months. As a result, the Company has classified the Failed Auction Securities as long-term as of March 31, 2008. | ||
Based on the fair value measurements described in Note 3, the fair value of the Failed Auction Securities at March 31, 2008, was estimated by the Company to be approximately $36.5 million, compared with a par value of approximately $38.5 million. Management considers this $2.0 million difference to be temporary and has recorded this amount as an unrealized loss, net of taxes, in accumulated other comprehensive (loss) income on the consolidated balance sheet. In making this determination, management considered the financial condition and near-term prospects of the issuers, the magnitude of the losses compared to the investments cost, the length of time the investments have been in an unrealized loss position, the assumed low probability that the Company will be unable to collect all amounts due according to the contractual terms of the security, whether the security has been downgraded by a rating agency, and the Companys ability and intent to hold these investments until the anticipated recovery in market value occurs. If current market conditions deteriorate further, the Company may be required to record additional unrealized losses in other comprehensive income. If the |
2. | Short-Term and Long-Term Investments (continued) | |
credit rating of the security issuers deteriorates, or the anticipated recovery in the market values does not occur, the Company may be required to adjust the carrying value of these investments through impairment charges recorded in the consolidated statement of operations, and any such impairment adjustments may be material. | ||
Based on the Companys ability to access cash and other short-term investments and its expected operating cash flows, management does not anticipate the current lack of liquidity will affect the Companys ability to execute its current operating plan. | ||
3. | Fair Value Measurements | |
The Company purchases marketable securities that have been designated as available-for-sale in accordance with Statement of Financial Accounting Standards (SFAS) 115, Accounting for Certain Investments in Debt and Equity Securities. SFAS 115 addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. Consistent with SFAS 115, such available-for-sale securities are carried at fair value, with unrealized gains and losses reported in Accumulated other comprehensive income, a component of stockholders equity. At December 31, 2007, all marketable securities held by the Company were classified as short-term investments. | ||
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS 157, Fair Value Measurements, expanding upon SFAS 115 and providing guidance on how to measure assets and liabilities recorded at fair value. SFAS 157 does not expand the use of fair value to any new circumstances, but does require additional disclosures in both annual and quarterly reports. The Company adopted SFAS 157 and its related amendments for financial assets and liabilities effective as of January 1, 2008. In accordance with FASB Staff Position No. FAS 157-2 (FSP FAS 157-2), SFAS 157 will be effective for non-financial assets and liabilities in financial statements issued for fiscal years beginning after November 15, 2008. FSP FAS 157-2 will impact the disclosures related to the Companys investment in GWS and goodwill related to the operations of one of its subsidiaries, Vicor Japan Company, Ltd. | ||
SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. SFAS 157 establishes a three-level hierarchy for disclosure to show the extent and level of judgment used to estimate fair value measurements: |
Level 1 | Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date. |
3. | Fair Value Measurements (continued) |
Level 2 | Inputs used to measure fair value, other than quoted prices included in Level 1, are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument. | ||
Level 3 | Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize managements estimates of market participant assumptions. | ||
As of March 31, 2008, there was insufficient observable auction rate security market information available to determine the fair value of the Failed Auction Securities. As such, the Companys investments in Failed Auction Securities were deemed to require valuation using Level 3 inputs. Consistent with SFAS 157, management, after consulting with outside experts, valued the Failed Auction Securities using analyses and pricing models similar to those used by market participants (i.e., buyers, sellers, and the broker-dealers responsible for execution of the Dutch auction pricing mechanism by which each issues interest rate was set). Management utilized a probability weighted discounted cash flow (DCF) model to determine the estimated fair value of these securities as of March 31, 2008. The assumptions used in preparing the DCF model included estimates for the amount and timing of future interest, principal payments, and the rate of return required by investors to own these securities in the current environment, and the estimated timeframe during which successful auctions for these securities will occur. In making these assumptions, management considered relevant factors including: the formula applicable to each security which defines the interest rate paid to investors in the event of a failed auction; forward projections of the interest rate benchmarks specified in such formulas; the likely timing of principal repayments; the probability of full repayment considering the guarantees by the U.S. Department of Education of the underlying student loans, guarantees by other third parties, and additional credit enhancements provided through other means; and publicly available pricing data for recently issued student loan asset-backed securities which are not subject to auctions. The estimate of the rate of return required by investors to own these securities also considered the currently reduced liquidity for auction-rate securities. An increase or decrease in the liquidity risk premium (i.e., the discount rate) of 100 basis points as used in the model would decrease or increase, respectively, the fair value of the Failed Auction Securities by approximately $500,000. |
3. | Fair Value Measurements (continued) | |
Assets measured at fair value on a recurring basis, consistent with SFAS 157, include the following as of March 31, 2008 (in thousands): |
Fair Value Measurements at March 31, 2008 | ||||||||||||||||
Using | ||||||||||||||||
Significant | ||||||||||||||||
Quoted Prices | Other | Significant | ||||||||||||||
in Active | Observable | Unobservable | Total Fair | |||||||||||||
Markets | Inputs | Inputs | Value as of | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | March 31, 2008 | |||||||||||||
Cash Equivalents: |
||||||||||||||||
Money Market Funds |
$ | 23,486 | | | $ | 23,486 | ||||||||||
Auction Rate Securities: |
||||||||||||||||
Short term investments |
3,600 | | | 3,600 | ||||||||||||
Long term investments |
| | $ | 36,500 | 36,500 |
The following table summarizes the change in the fair values for those assets valued on a recurring basis utilizing Level 3 inputs for the three months ended March 31, 2008 (in thousands): |
Level 3 | ||||
Balance at the beginning of the period [1] |
$ | | ||
Transfers into Level 3 categorization: |
38,500 | |||
Unrealized loss included in other comprehensive (loss) income |
(2,000 | ) | ||
Balance at the end of the period |
$ | 36,500 | ||
[1] | The Company adopted SFAS 157 in January 2008 and, as such, had no beginning balance of such assets. |
All short-term and long-term investments measured at fair value are classified as available-for-sale securities, consistent with SFAS 115. Adjustments to fair value of these investments are recorded as an increase or decrease, net of taxes, in accumulated other comprehensive income except when losses are considered to be other-than-temporary, in which case the losses are recorded in other income (expense), net. | ||
Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for specified financial assets and liabilities on a contract-by-contract basis. The Company did not elect the fair value option as set forth by SFAS 159. |
4. | Stock-Based Compensation | |
The Company accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (FAS 123R). Stock compensation expense for the three months ended March 31 was as follows (in thousands): |
Three Months Ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
Cost of revenues |
$ | 15 | $ | 10 | ||||
Selling, general and administrative |
225 | 118 | ||||||
Research and development |
62 | 66 | ||||||
Total stock based compensation |
$ | 302 | $ | 194 | ||||
5. | 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, | ||||||||
2008 | 2007 | |||||||
(as restated) | ||||||||
Numerator: |
||||||||
Net income |
$ | 620 | $ | 2,321 | ||||
Denominator: |
||||||||
Denominator for basic income
per share-weighted average shares |
41,636 | 41,565 | ||||||
Effect of dilutive securities: |
||||||||
Employee stock options |
39 | 49 | ||||||
Denominator for diluted income per
share adjusted weighted-average
shares and assumed conversions |
41,675 | 41,614 | ||||||
Basic income per share |
$ | 0.01 | $ | 0.06 | ||||
Diluted income per share |
$ | 0.01 | $ | 0.06 | ||||
Options to purchase 789,129 and 1,409,678 shares of Common Stock were outstanding for the three months ended March 31, 2008, and 2007, 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. | ||
6. | Inventories | |
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 inventory reserves to be recorded, resulting in larger charges to cost of revenues. |
Inventories were as follows as of March 31, 2008 and December 31, 2007 (in thousands): |
March 31, 2008 | December 31, 2007 | |||||||
Raw materials |
$ | 25,386 | $ | 23,711 | ||||
Work-in-process |
3,248 | 2,656 | ||||||
Finished goods |
4,053 | 4,357 | ||||||
32,687 | 30,724 | |||||||
Inventory reserves |
(7,159 | ) | (7,646 | ) | ||||
Net balance |
$ | 25,528 | $ | 23,078 | ||||
7. | Investments | |
In May 2007, the Company invested $1,000,000 in non-voting convertible preferred stock of GWS. The Company made an additional $1,000,000 investment in February 2008, increasing its ownership in GWS to approximately 30%. The Companys total gross investment in GWS was $5,000,000 as of March 31, 2008, and $4,000,000 as of December 31, 2007. GWS designs, develops and manufactures high performance power semiconductors. A director of the Company is the founder, Chairman of the Board, President and Chief Executive Officer, as well as the majority voting shareholder, of GWS. The Company and GWS are parties to a cross-license agreement, and the Company purchases certain components from GWS. Purchases from GWS totaled approximately $873,000 for the quarter ended March 31, 2008. | ||
As previously disclosed, the Company, due to the additional investment in GWS in May 2007, changed its method of accounting for its investment in GWS from the cost method to the equity method of accounting. As a result, the Companys financial statements for the years ended December 31, 2003, 2004, 2005, and 2006 were restated to reflect the equity method of accounting, in accordance with APB 18. | ||
In accordance with APB 18, each investment in GWS has been accounted for as a step acquisition using the purchase method of accounting, in accordance with Statement of Financial Accounting Standards 141, Business Combinations (SFAS 141). The allocation of the purchase price included acquired intangible assets, including core and developed technology as well as in-process research and development (IPR&D). The excess of the purchase price over the fair value allocated to the net assets is goodwill. The core and developed technology is being amortized over three years. The amounts allocated to IPR&D were charged to expense in accordance with SFAS 141, which specifies that the amount assigned to the acquired intangible assets to be used in a particular research and development project that have no alternative future use shall be charged to expense at the acquisition date. The amounts included in other assets in the accompanying consolidated balance sheets related to the net GWS investment were $897,000 and $687,000 as of March 31, 2008 and December 31, 2007, respectively, as follows (in thousands): |
7. | Investments (continued) |
March 31, | December 31, | |||||||
2008 | 2007 | |||||||
Equity method goodwill |
$ | 770 | $ | 634 | ||||
Intangible
assets, net of amortization
|
127 | 53 | ||||||
$ | 897 | $ | 687 | |||||
Loss from equity method investment (net of tax) for the three months ended March 31 consists of the following (in thousands): |
2008 | 2007 | |||||||
(As restated) | ||||||||
Allocation of losses from equity method investment (net of tax) |
$ | 29 | $ | 22 | ||||
Amortization of intangible assets and other (net of tax) |
55 | 59 | ||||||
Other than temporary decline in investment |
706 | | ||||||
$ | 790 | $ | 81 | |||||
Net income for the three months ending March 31, 2007 was affected by the change in accounting principle from cost method to equity method of accounting for the investment in GWS. Net income as restated for the three months ending March 31, 2007 was $2,321,000, as compared to net income as previously reported of $2,402,000. Basic and diluted income per share as restated and as previously reported was $0.06, respectively. | ||
The Company periodically evaluates the investment in GWS to determine if there are any events or circumstances that are likely to have a significant adverse effect on the fair value of the investment, including the net book value of acquired intangible assets and goodwill. Examples of such impairment indicators include, but are not limited to: GWS actual results of operations, actual results of operations compared to forecast, working capital requirements, additional third-party equity investment, if any, and other considerations. If an impairment indicator is identified, the fair value of the investment is estimated and compared it to its carrying value. If the fair value of the investment is less than its carrying value, the investment is impaired and a determination is made as to whether the impairment is other-than- temporary. For other-than-temporary impairments, an impairment loss equal to the difference between an investments carrying value and its fair value is recognized. During the three months ending March 31, 2008, the investment was adjusted for a decline in value judged to be other than temporary of $706,000. Deterioration or changes in GWS business in the future could lead to such impairment adjustments in future periods and the impairment adjustments may be material. |
7. | Investments (continued) | |
Summary financial information for GWS is as follows (in thousands): |
As of | ||||||||
March 31, | December 31, | |||||||
2008 | 2007 | |||||||
(unaudited) | ||||||||
Current assets |
$ | 2,400 | $ | 2,322 | ||||
Noncurrent assets |
3,084 | 3,110 | ||||||
Total assets |
5,484 | 5,432 | ||||||
Current liabilities |
1,809 | 1,743 | ||||||
Noncurrent liabilities |
400 | 1,354 | ||||||
Minority interests |
3,663 | 3,614 | ||||||
Total stockholders equity (deficit) |
(387 | ) | (1,280 | ) |
Three
Months Ended March 31, |
||||||||
2008 | 2007 | |||||||
(unaudited) | ||||||||
Net revenue |
$ | 1,732 | $ | 382 | ||||
Gross margin |
494 | 134 | ||||||
Net income (loss) |
(111 | ) | (124 | ) |
8. | Product Warranties | |
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 three months ended March 31, 2008 and 2007 was as follows (in thousands): |
2008 | 2007 | |||||||
Balance at the beginning of the period |
$ | 679 | $ | 1,046 | ||||
Accruals for warranties for products sold in the period |
59 | 26 | ||||||
Fulfillment of warranty obligations |
(51 | ) | (36 | ) | ||||
Revisions of estimated obligations |
6 | (25 | ) | |||||
Balance at the end of the period |
$ | 693 | $ | 1,011 | ||||
The Company accounts for extended warranty provisions in accordance with FASB Technical Bulletin 90-1, Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts. | ||
9. | Income Taxes | |
In 2008, the tax provision is based on the estimated annual effective tax rate for 2008, which includes estimated federal, state and foreign income taxes on the Companys projected annual pre-tax income and 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 federal and foreign net operating loss carryforwards. The 2008 tax provision also includes discrete items, principally for increases in accrued interest for potential liabilities. In 2007, the tax provision is based on an estimated annual effective tax rate for 2007, which included estimated federal, state and foreign income taxes on the Companys projected annual pre-tax income, estimated federal and state income taxes for certain minority-owned subsidiaries that are not part of the Companys consolidated income tax returns, and increases in accrued interest for potential liabilities, offset by the expected utilization of foreign net operating loss carryforwards and the release of certain valuation allowances related to temporary book versus tax differences. The expense was offset by a discrete item representing refunds of interest received and recorded as a benefit during the first quarter of 2007 as final settlement related to the audit of the Companys federal tax returns for the tax years 1994 through 2002 by the Internal Revenue Service. |
10. | Comprehensive Income (Loss) | |
The following table sets forth the computation of comprehensive (loss) income for the three months ended March 31 (in thousands): |
Three Months Ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
(as restated) | ||||||||
Net income |
$ | 620 | $ | 2,321 | ||||
Foreign currency translation gain |
183 | 14 | ||||||
Unrealized (losses) gains (net of tax) on
available-for-sale securities |
(2,000 | ) | 6 | |||||
Comprehensive (loss) income |
$ | (1,197 | ) | $ | 2,341 | |||
As of March 31, 2008, the Company performed a valuation of its Failed Auction Securities (see Note 3.). Based on that valuation, the Company recorded a reduction in the aggregate value of these investments of $2,000,000, for which the Company believes represents a temporary decline in value. | ||
11. | Legal Proceedings | |
The Company and VLT, Inc. (VLT), a wholly owned subsidiary of the Company, have been pursuing patent infringement claims directly against Artesyn Technologies (Artesyn), Lucent Technologies and Tyco Electronics Power Systems, Inc. (Lucent / Tyco) 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 the second quarter of 2007, the Company entered into separate settlement agreements with Artesyn and Lucent/Tyco, under which the Company received payments of $1,770,000 in full settlement of the Companys infringement claims against Artesyn and Lucent/Tyco. The full amount of the payment, net of a $177,000 contingency fee accrued by the Company for its litigation counsel, was recorded in the second quarter of 2007. | ||
On February 22, 2007, the Company announced that it had reached an agreement in principle with Ericsson, Inc., to settle a lawsuit brought by Ericsson against the Company in California state court. Under the terms of the settlement agreement entered into on March 29, 2007, after a Court ordered mediation, the Company paid $50.0 million to Ericsson, of which $12.8 million was paid by the Companys insurance carriers. Accordingly, the Company recorded a net loss of $37.2 million from the litigation-related settlements in the fourth quarter of 2006. The Company is seeking further recoveries from its insurance carriers. The Companys decision to enter into the settlement followed an adverse ruling by the Court in January 2007 in connection with a settlement between Ericsson and co-defendants Exar Corporation (Exar) and Rohm Device USA, LLC (Rohm), two of the Companys component |
11. | Legal Proceedings (continued) |
suppliers prior to 2002. The Companys writ of mandate appeal of this ruling was denied in April, 2007. In September 2007, the Company filed a notice of appeal of the Courts decision upholding the Ericsson-Exar-Rohm settlement, which is pending. In December 2007, the Court awarded Exar and Rohm amounts for certain statutory and discovery costs associated with this ruling. Since this matter was outstanding as of June 30, 2007, the Company accrued $240,000 in the second quarter of 2007 as a result of the Courts decision. | ||
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. | ||
12. | Segment Information | |
The Company has organized its business segments according to its key product lines. The Brick Business Unit segment (BBU) designs, develops, manufactures and markets the Companys modular power converters and configurable products. The V*I Chip segment consists of V*I Chip Corporation, a wholly owned subsidiary which designs, develops, manufactures and markets the Companys Factorized Power Architecture products. The Picor segment consists of Picor Corporation, a majority-owned subsidiary of the Company, which designs, develops, manufactures and markets power management integrated circuits and related products for use in a variety of power system applications. Picor develops these products to be sold as part of the Companys products or to third parties for separate applications. | ||
The following table provides significant segment financial data as of and for the three months ended March 31, 2008 and 2007 (in thousands): |
BBU | V*I Chip | Picor | Corporate | Eliminations | Total | |||||||||||||||||||
2008: |
||||||||||||||||||||||||
Net revenues |
$ | 49,010 | $ | 4,315 | $ | 1,143 | $ | | $ | (999 | ) | $ | 53,469 | |||||||||||
Income (loss) from
operations |
7,577 | (6,141 | ) | (681 | ) | (148 | ) | 290 | 897 | |||||||||||||||
Total assets |
157,729 | 15,575 | 7,553 | 106,263 | (95,494 | ) | 191,626 | |||||||||||||||||
Depreciation and
amortization |
1,536 | 575 | 97 | 378 | | 2,586 | ||||||||||||||||||
2007: |
||||||||||||||||||||||||
Net revenues |
$ | 45,875 | $ | 971 | $ | 1,153 | $ | | $ | (1,018 | ) | $ | 46,981 | |||||||||||
Income (loss) from
operations |
7,538 | (5,868 | ) | (589 | ) | (390 | ) | 123 | 814 | |||||||||||||||
Total assets (as restated) |
123,825 | 9,232 | 7,346 | 108,980 | (56,769 | ) | 192,614 | |||||||||||||||||
Depreciation and
amortization |
1,950 | 486 | 116 | 581 | | 3,133 |
The elimination for total assets is principally related to inter-segment receivables due to the BBU segment for the funding of V*I Chip segment operations and for the purchase of equipment for both V*I Chip and Picor segments. |
13. | Dividends | |
On March 14, 2008, the Companys Board of Directors approved a cash dividend of $0.15 per share of the Companys stock. The total dividend of approximately $6,245,000 was paid on April 18, 2008 to shareholders of record at the close of business on April 2, 2008. | ||
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. | ||
14. | Impact of Recently Issued Accounting Standards | |
In December 2007, the FASB issued Statement of Financial Accounting Standards 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R changes accounting for acquisitions that close beginning in 2009. More transactions and events will qualify as business combinations and will be accounted for at fair value under the new standard. SFAS 141R promotes greater use of fair values in financial reporting. Some of the changes will introduce more volatility into earnings. SFAS 141R is effective for fiscal years beginning on or after December 15, 2008. The Company has not determined the impact, if any, SFAS 141R will have on its financial position or results of operations. | ||
In December 2007, the FASB issued Statement of Financial Accounting Standards 160, Noncontrolling Interests in Consolidated Financial Statements (SFAS 160), an amendment of ARB No. 51. SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. The Company has not determined the impact, if any, SFAS 160 will have on its financial position or results of operations. |
Increase | ||||||||||||
2008 | 2007 | (decrease) | ||||||||||
Interest income |
$ | 903 | $ | 1,518 | $ | (615 | ) | |||||
Foreign currency gains |
262 | 41 | 221 | |||||||||
Minority interest in net income of subsidiaries |
(445 | ) | (17 | ) | (428 | ) | ||||||
Other |
35 | 35 | | |||||||||
$ | 755 | $ | 1,577 | $ | (822 | ) | ||||||
FORM 10-Q PART I ITEMS 2-3 PAGE 24 |
FORM 10-Q PART I ITEM 4 PAGE 25 |
FORM 10-Q PART I ITEM 4 PAGE 26 |
| The Company has hired a new Chief Financial Officer with the appointment of James A. Simms, effective April 14, 2008. | ||
| The Company is in the process of performing an overall assessment of the staffing requirements for the accounting department to assist the Company in evaluating complex and judgmental accounting, tax and financial reporting issues. |
FORM 10-Q PART II ITEMS 1-1A PAGE 27 |
FORM 10-Q PART II ITEMS 2-5 PAGE 28 |
Maximum Number | ||||||||||||||||
(of Approximate | ||||||||||||||||
Total Number of | Dollar Value) of | |||||||||||||||
Shares (or Units) | Shares (or Units) | |||||||||||||||
Total Number | Purchased as Part | that May Yet Be | ||||||||||||||
of Shares (or | of Publicly | Purchased Under | ||||||||||||||
Units) | Average Price Paid | Announced Plans | the Plans or | |||||||||||||
Period | Purchased | per Share (or Unit) | or Programs | Programs | ||||||||||||
January 1 - 31, 2008 |
| | | $ | 8,541,000 | |||||||||||
February 1 - 29, 2008 |
| | | $ | 8,541,000 | |||||||||||
March 1 - 31, 2008 |
| | | $ | 8,541,000 | |||||||||||
Total |
| $ | | | $ | 8,541,000 | ||||||||||
FORM 10-Q PART II ITEM 6 PAGE 29 |
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 30 |
VICOR CORPORATION | ||||||
Date:
May 12, 2008
|
By: | /s/ Patrizio Vinciarelli
|
||||
President, Chief Executive Officer | ||||||
and Chairman of the Board | ||||||
(Principal Executive Officer) |
Date:
May 12, 2008
|
By: | /s/ James A. Simms
|
||||
Vice President, 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. |
/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. |
/s/ James A. Simms | ||||
James A. Simms | ||||
Vice President, 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
|
||
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/ James A. Simms
|
||
Vice President, Chief Financial Officer |