e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2007
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 0-18277
VICOR CORPORATION
(Exact name of registrant as
specified in its charter)
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Delaware
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04-2742817
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(State or other jurisdiction
of
incorporation or organization)
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(IRS employer
identification no.)
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25 Frontage Road, Andover,
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01810
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Massachusetts
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(Zip code)
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(Address of principal executive
offices)
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Registrants telephone number, including area code:
(978) 470-2900
Securities registered pursuant to Section 12(b) of the
Act:
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Common Stock, $.01 par Value
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The NASDAQ Stock Market, LLC
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(Title of Class)
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(Name of Each Exchange on Which
Registered
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller Reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $260,538,271
as of June 30, 2007.
On February 29, 2008, there were 29,851,286 shares of
Common Stock outstanding and 11,785,052 shares of
Class B Common Stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Companys definitive proxy statement (the
Definitive Proxy Statement) to be filed with the
Securities and Exchange Commission pursuant to
Regulation 14A and relating to the Companys 2008
annual meeting of stockholders are incorporated by reference
into Part III.
TABLE OF CONTENTS
PART I
This Annual Report on
Form 10-K
contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. The words believes, expects,
anticipates, intend,
estimate, plans, assumes,
may, will, would,
should, continue,
prospective, project, and other similar
expressions identify forward-looking statements. Forward-looking
statements also include statements regarding the derivation of a
substantial portion of the Companys sales in each quarter
from orders booked in the same quarter, the Companys plans
to invest in research and development and manufacturing
equipment, the Companys belief regarding market risk being
mitigated because of limited foreign exchange fluctuation
exposure, the Companys continued success depending in part
on its ability to attract and retain qualified personnel, the
Companys belief that cash generated from operations and
the total of its cash and cash equivalents and short-term
investments will be sufficient for the foreseeable future, the
Companys intention regarding protecting its rights under
its patents and the Companys expectation that no current
litigation or claims will have a material adverse impact on its
financial position or results of operations. These statements
are based upon the Companys current expectations and
estimates as to the prospective events and circumstances which
may or may not be within the Companys control and as to
which there can be no assurance. Actual results could differ
materially from those projected in the forward-looking
statements as a result of various factors, including our ability
to develop and market new products and technologies cost
effectively, to leverage design wins into increased product
sales, to continue to make progress with key customers and
prospects, to decrease manufacturing costs, to enter into
licensing agreements that amplify the market opportunity and
accelerate market penetration, to realize significant royalties
under license agreements, to achieve a sustainable increased
bookings rate over a longer period, to hire key personnel and to
continue to build our three business units, to successfully
enforce our intellectual property rights, to successfully defend
outstanding litigation, to successfully leverage the V*I
Chips in standard products to promote market acceptance of
Factorized Power, to develop or maintain an effective system of
internal controls, to obtain required financial information for
certain investments on a timely basis, and factors impacting the
Companys various end markets, the impact of write-downs in
the value of assets, the effects of equity accounting with
respect to certain affiliates, the failure of auction rate
securities to sell at their reset dates as well as those factors
described in the risk factors set forth in this Annual Report on
Form 10-K
under Part I, Item I
Business,
Competition, Patents,
and Licensing, under Part I,
Item 1A Risk Factors, under
Part I, Item 3 Legal
Proceedings, and under Part II,
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations.
The risk factors contained in this report may not be exhaustive.
Therefore, the information contained in this report should be
read together with other reports and documents that the Company
files with the Securities and Exchange Commission from time to
time, including
Forms 10-Q,
and 8-K,
which may supplement, modify, supersede or update those risk
factors. The Company does not undertake any obligation to update
any forward-looking statements as a result of future events or
developments.
The
Company
Vicor Corporation was incorporated in Delaware in 1981. Unless
the context indicates otherwise, the term Company or
Vicor mean Vicor Corporation and its consolidated
subsidiaries. The Company designs, develops, manufactures and
markets modular power components and complete power systems,
many of which use an innovative, high frequency electronic power
conversion technology called zero current and zero voltage
switching. In April 2003, the Company announced the
introduction of a new power system architecture based on an
array of proprietary power conversion technologies called
Factorized Power Architecture (FPA). The Company
believes FPA will provide power system designers with enhanced
performance at a lower cost than attained with conventional
Distributed Power Architecture (DPA). The
Companys principal product lines are covered by one or
more United States and foreign patents. Power systems, a central
element in any electronic system, convert power from a primary
power source (e.g., a wall outlet or battery source) into the
stable DC voltages that are required by most contemporary
electronic circuits.
1
In 1986, the Company formed Westcor Corporation
(Westcor). During 1990, Westcor was merged into the
Company and became a division. Westcor manufactures configurable
products at its location in Sunnyvale, California. In 1987, the
Company formed VLT Corporation as its licensing subsidiary.
During 2000, the Company reincorporated VLT Corporation in
California by merging it with and into VLT, Inc., a wholly owned
subsidiary of the Company. In 1990, the Company established a
Technical Support Center in Germany. In 1995, the Company
established Technical Support Centers in France, Italy, Hong
Kong, and England. Also in 1995, the Company established Vicor
Integration Architects (VIAs), most of which are
majority-owned subsidiaries. VIAs provide customers with local
design and manufacturing services for turnkey custom power
solutions. At December 31, 2007 there were six
(6) VIAs operating in the United States. In 1996, the
Company established Vicor B.V., a Netherlands company, which
serves as a European Distribution Center. In 1998, the Company
acquired the principal assets of the switching power supply
businesses owned by the Japan Tobacco, Inc. group and
established a direct presence in Japan through a new subsidiary
called Vicor Japan Company, Ltd. (VJCL). VJCL
markets and sells the Companys products and provides
customer support in Japan. In 2001, the Company established
Picor Corporation (Picor), a subsidiary which
designs, develops 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 Vicors products or to third parties for separate
applications. In 2007, the Company established V*I Chip
Corporation as a wholly-owned subsidiary of Vicor which designs,
develops, manufactures and markets the Companys FPA
products. The Companys Common Stock became publicly traded
on the NASDAQ National Market System in April 1990. All of the
above named entities are consolidated in the Companys
financial statements.
The Company maintains a website with the address
www.vicorpower.com. We make available free of charge through our
website our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K,
and amendments to these reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after we electronically file such
material with, or furnish such material to, the Securities and
Exchange Commission. The information contained on our website is
not a part of, or incorporated by reference into, this Annual
Report on
Form 10-K.
The
Products
Power systems are incorporated into virtually all electronic
products, such as computers and telecommunications equipment, to
convert electric power from a primary source, for example a wall
outlet or battery source, into the stable DC voltages required
by electronic circuits. Because power systems are arranged in a
myriad of application-specific configurations, the
Companys basic strategy is to exploit the density and
performance advantages of its technology by offering
comprehensive families of economical, component-level building
blocks which can be used to configure a power system specific to
a users needs. In addition to component-level power
converters, which serve as modular power system building blocks,
the Company also manufactures and sells complete configurable
power systems, accessory products, and custom power solutions.
The Company has organized its business segments according to its
key product lines. The Brick Business Unit segment
(BBU or Brick) designs, develops,
manufactures and markets the Companys modular power
converters and configurable products, and includes the
operations of the Companys Westcor division, VIAs and
VJCL. The V*I Chip segment consists of V*I Chip Corporation, a
wholly owned subsidiary which designs, develops, manufactures
and markets the Companys FPA products. The Picor segment
consists of Picor Corporation, a majority-owned subsidiary of
Vicor, 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 Vicors products or to third
parties for separate applications. The Companys principal
product lines include:
Brick
Products
Modular
Power Converters
The Company currently offers seven families of
component-level DC-DC
power converters: the VI-200, VI-J00, MI-200, MI-J00, Maxi, Mini
and Micro families. Designed to be mounted directly on a printed
circuit board assembly and soldered in place using contemporary
manufacturing processes, each family comprises a
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comprehensive set of products which are offered in a wide range
of input voltage, output voltage and power ratings. This allows
end users to select products appropriate to their individual
applications. The product families differ in maximum power
ratings, performance characteristics, package size and, in
certain cases, in target market.
Since 1998, the Company has introduced four input series of its
high power density,
component-level DC-DC
converters in three standard packages: the full size (Maxi), the
half size (Mini) and the quarter size (Micro), along with
military-commercial-off-the-shelf (MIL-COTS)
products. In 1998, the 48 Volt input series was introduced,
which was designed for the telecommunications market as well as
for distributed power systems. Output power levels from 50 to
500 Watts are covered by these products. In 1999, this was
followed by two additional series: a 300 Volt input for off-line
(rectified 115 or 230 Volt ac) and distributed power
applications, and a 375 Volt input specifically designed for use
in power factor corrected systems. This latter series increased
the power available to 600 Watts. In 2001, a 24 Volt input
series was added to the standard product line to address
additional telecommunications, industrial and defense market
opportunities. The Company has undergone a process of converting
these products to the new FasTrak platform that was completed in
the first quarter of 2006. The conversion to FasTrak has
resulted in lower unit costs, improved manufacturing yields,
improved field reliability and improved gross margins.
The Vicor Design Assistance Computer (VDAC), a core
component of the Vicor PowerBench tool suite, was introduced for
general use in 2000 and is a proprietary system, which enables
Vicors customers to specify on-line, and verify in real
time, the performance and attributes of its Maxi, Mini, Micro
and MIL-COTS DC-DC converters. Using patented technology, VDAC
enables the design of DC-DC converters with any output voltage
between 2 and 48 Volts and with any input voltage from 18 to 425
Volts, with an input voltage range of up to 2.1:1, available in
all of the Vicor established brick standards, full-, half- and
quarter-size. Output power is selectable over a continuous range
of 20 to 500 Watts per module and modules can be configured in
fault-tolerant arrays capable of delivering several kilowatts.
Configurable
Products
Utilizing its standard converters as core elements, the Company
has developed several product families, which provide complete
power solutions configured to a customers specific needs.
These products exploit the benefits of the component-level
approach to offer higher performance, higher power densities,
lower costs, greater flexibility and faster delivery than
traditional competitive offerings.
Most process control, information technology (IT)
and industrial electronic products operate directly off of AC
lines. Off-line power systems require front
end circuitry to convert AC line voltage into DC voltage
for the core converters. The Companys off-line AC-DC
products incorporate a set of modular front-end subassemblies to
offer a complete power solution from AC line input to highly
regulated DC output. The product selection includes a
low-profile modular design in various sizes and power levels,
and a choice of alternatives to conventional box
switchers, high power, off-line bulk supplies
in industry-standard packages. Voltage and power levels can be
either factory or field configurable.
Many telecommunications, defense and transportation electronic
products are powered from central DC sources (battery plants or
generators). The Companys DC-DC power system choices
include a low-profile modular design similar to the
corresponding AC-DC system and a rugged, compact assembly for
chassis-mounted, bulk power applications.
In February 2001, the Company introduced the VIPAC family of
power systems, a class of user defined, modular power solutions.
VIPAC is a type of integrated power system leveraging the latest
advances in Maxi, Mini, and Micro DC-DC converter technology and
modular front ends. VIPAC combines application specific front
end units, a choice of chassis styles and, in AC input versions,
remotely located
hold-up
capacitors to provide fast, flexible and highly reliable power
solutions for a wide range of demanding applications.
The web-based Vicor Computer Aided Design tool, also a component
of Vicor PowerBench, can be utilized by the customer to specify
and verify, in real time, that customers desired VIPAC
configuration. The
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Vicor PowerBench system enables the design of a custom
configured VIPAC product from all available combinations of
inputs, outputs, chassis and optional features.
Accessory
Power System Components
Accessory power system components, used with the Companys
component-level power converters, integrate other important
functions of the power system, facilitating the design of
complete power systems by interconnecting several modules. In
general, accessory products are used to condition the inputs and
outputs of the Companys modular power components.
VI-HAMs (Harmonic Attenuator Modules) are universal-AC-input,
power-factor-correcting front ends for use with compatible power
converters. VI-AIMs (AC Input Modules) provide input filtering,
transient protection and rectification of the AC line. VI-IAMs
(Input Attenuator Modules) provide the DC input filtering and
transient protection required in industrial and
telecommunications markets. VI-RAMs (Ripple Attenuator Modules)
condition converter module outputs for extremely low noise
systems. In 1998, the Company doubled the power capability of
its component-level AC front end, the VI-ARM (AC Rectifier
Module). This front end product is packaged in the same
Micro package and includes a microcontroller that
tracks the AC line to ensure correct operation for domestic or
international line voltages. In addition, two accessory products
for the 48 Volt input Maxi, Mini, and Micro family were
introduced in 1999: the FiltMod for input filtering and the
IAM48 for transient and spike protection. In 2000, the FARM and
FIAM were introduced. The FARM combines autoranging AC input
capability with filtering to simplify the design of AC-DC
systems. The FIAM combines filtering and transient suppression
for 48 volt input applications. In 2005, the High-Boost HAM was
introduced. This product can be combined with standard Maxi,
Mini and Micro DC-DC converters, greatly improving power density
and cost effectiveness in AC-DC designs.
Customer
Specific Products
Since its inception, the Company has accepted a certain amount
of custom power supply business. In most cases, the
customer was unable to obtain a conventional solution that could
achieve the desired level of performance in the available space.
By utilizing its component-level power products as core elements
in developing most of these products, the Company was able to
meet the customers needs with a reliable, high power
density, total solution. However, in keeping with the
Companys strategy of focusing on sales of standard
families of component-level power building blocks, custom
product sales have not been directly pursued. The Company has
traditionally pursued these custom opportunities through
Value-Added-Resellers (VARs) and a network of VIAs
(see Part I, Item 1
Business The Company). Most of the VIAs
are majority owned by the Company, while VARs are independent
businesses. Both VIAs and VARs are distributed geographically
and are in close proximity to many of their customers.
V*I Chip
Products
In April 2003, the Company announced the introduction of a new
power system architecture based on an array of proprietary power
conversion technologies called Factorized Power Architecture
(FPA). The Company believes FPA will provide power
system designers with enhanced performance at a lower cost than
attained with conventional DPA. Factorized Power maximizes the
competitiveness of a power system with a high degree of systems
flexibility, power density, conversion efficiency, transient
responsiveness, noise performance and reliability. FPA is
enabled by power conversion components called V*I Chips or
VICs. V*I Chips deliver up to 320 Watts of power in
a surface-mount (SMD) J-lead package occupying less
than 0.3 cubic-inch of space, with power densities up to 1,100
Watts per cubic-inch, which represents a seven to eight times
improvement over the Companys Maxi, Mini and Micro
products.
In May 2003, the Company introduced the first family of products
based on this new technology, 48 Volt to 12 Volt Bus Converter
Modules (BCM) for conventional Intermediate Bus
Architecture applications. In July 2003, the Company introduced
its first V*I
Chiptm
Voltage Transformation Module (VTM). VTMs are
designed to meet the demands of advanced Digital Signal
Processors (DSP), Field Programmable Gate Arrays
(FPGA), Application Specific Integrated Circuits
(ASIC), processor cores and microprocessor
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applications at the point of load (POL) while
providing isolation from input to output. They may be paralleled
to deliver hundreds of Amperes. In January 2004, the Company
announced the availability of the first members of its 48 Volt
Intermediate Bus Converter Modules (IBCs). Offered
in standard 1/4 brick format and operating from a
38-55 Volt
DC input, the IBC family consists of ten fixed ratio standard
models with nominal outputs from 3 to 48 Volt DC delivering up
to 100 Amperes or 600 Watts. Additional VTM and BCM products
were introduced throughout 2004.
In 2005, the Company completed the matrix of 48 Volt V*I Chips:
the 36-75
Volt input Pre-Regulator Module (PRM), which can
operate from the wide DC input voltages normally encountered in
telecommunications systems and the complete line of VTMs
compatible with this PRM. With these devices, 48 Volt FPA
systems can be implemented with regulated and isolated outputs
between 0.8-55 Volt DC. In addition, several VI Chip
specialty products were designed for and delivered to specific
customers for them to evaluate for use in potential applications
where VI Chips can enable significant market advantages.
High voltage (380 volts) BCM products were introduced to provide
power factor correction to
processor down conversion. MIL COTS rated
products for defense applications were qualified and released
for production in 2007.
Picor
Products
In 2002, the MicroRAM (µRAM) was introduced.
This product, designed by the Companys Picor subsidiary,
performs a function similar to the VI-RAM product in a smaller
package at a lower price. In 2003, Picor introduced two new
families of products, the QPO
(QuietPowertm
Output Ripple Attenuation SiP) and QPI
(QuietPowertm
12 Amp Active EMI Filter for DC-DC Converters). The QPO performs
a similar function to the µRAM in a smaller, lower cost
surface mount package. Different QPO models allow customers to
solve unique output noise problems. The QPI filters unwanted
Electro-Magnetic Interference (EMI) from the input
supply bus. The product is targeted at the telecom market and
the emerging Advanced Telecommunication Computing Architecture
(ATCA) segment. In 2004, Picor expanded its QPI
product offerings to include several new products targeted at 24
Volt industrial and military COTS voltage bus supplies. In 2005,
Picor introduced the QPI-8, the industrys first
System-in-a-Package
(SiP) device designed to integrate the total hot-swap function
with an active EMI filter. This integrated device enables live
insertion of plug-in cards and simultaneous EMI noise
suppression for DC-DC converter applications.
Sales and
Marketing
The Company sells its products through a network of 28
independent sales representative organizations in North and
South America and internationally, through 36 independent
distributors. Sales activities are managed by a staff of Area
Directors and Regional and National Account Sales Managers and
sales personnel based at the Companys world headquarters
in Andover, Massachusetts, its Westcor division in Sunnyvale,
California, a Technical Support Center in Lombard, Illinois, a
VIA location in Oceanside, California, in its Technical Support
Center subsidiaries in Munich, Germany; Camberley Surrey,
England; Milan, Italy; Paris, France; Hong Kong and in its
subsidiary in Tokyo, Japan.
Export sales, as a percentage of total net revenues, were
approximately 37% in 2007 and 2006, and 42%, in 2005,
respectively.
Because of the technical nature of the Companys product
lines, the Company engages a staff of Field Applications
Engineers to support the Companys sales activities. Field
Application Engineers provide direct technical sales support
worldwide to existing and potential customers by reviewing new
applications and technical matters with existing and potential
customers. Product Specialists (Product Line Engineers) located
in Andover , Massachusetts support field application engineers
assigned to all company locations. The Company generally
warrants its products for a period of two years.
The Company also sells directly to customers through Vicor
Express, an in-house distribution group. Through advertising and
periodic mailing of its catalogs, Vicor Express generally offers
customers rapid delivery on small quantities of many standard
products. The Company, through Vicor B.V., has Vicor Express
operations in Germany, France, Italy and England.
5
Customers
and Applications
The Companys customer base is comprised of large Original
Equipment Manufacturers (OEMs) and smaller, lower-volume users
that are broadly distributed across several major market areas.
Some examples of the diverse applications of the Companys
products are:
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Telecommunications:
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Military/Defense:
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Central Office Systems
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Secure Communications Equipment
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Fiber Optic Systems
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Unmanned Airborne/Remotely Piloted Vehicles
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Cellular Telecommunications
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Aircraft/Weapons Test Equipment
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Microwave Communications
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Ruggedized Computers
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ATM Switches
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Electronic Warfare Equipment
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Paging Equipment
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Reconnaissance/Targeting Systems
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Broadcast Equipment
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Global Positioning Systems
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Remote Telemetry Equipment
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Missile Defense Systems
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Cable Head End Equipment
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Radio/Telemetry Systems
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Power Amplifiers
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NBC Detection Equipment
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Industrial:
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Information Technology:
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Process Control Equipment
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RAID Systems
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Medical Equipment
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Parallel Processors
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Seismic Equipment
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Data Storage Systems
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Test Equipment
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Network Servers
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Transportation Systems
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Enterprise Servers
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Agricultural Equipment
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File Servers
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Material Handling Equipment
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Optical Switches
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Marine Products
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Commercial Avionics
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For the years ended December 31, 2007, 2006 and 2005, no
single customer accounted for more than 10% of net revenues.
Backlog
As of December 31, 2007, the Company had a backlog of
approximately $46.7 million compared to $36.4 million
at December 31, 2006. Backlog is comprised of orders for
products, which have a scheduled shipment date within the next
12 months. The Company believes that a substantial portion
of sales in each quarter is, and will continue to be, derived
from orders booked in the same quarter.
Research
and Development
As a basic element of its long-term strategy, the Company is
committed to the continued advancement of power conversion
technology and power component product development. The
Companys research and development efforts are focused in
four areas: continued enhancement of the Companys patented
technology; expansion of the Companys families of
component
level DC-DC
converter products; development of the new FPA products and
power management integrated circuits; and continued development
of configurable products based upon market opportunities. The
Company invested approximately $30.4 million,
$31.4 million and $29.5 million in research and
development in 2007, 2006 and 2005, respectively. Investment in
research and development represented 15.5%, 16.3% and 16.4% of
net revenues in 2007, 2006 and 2005, respectively. The Company
plans to continue to invest a significant percentage of revenues
into research and development.
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Manufacturing
The Companys principal manufacturing processes consist of
assembly of electronic components onto printed circuit boards,
automatic testing of components, wave, reflow and infrared
soldering of assembled components, encapsulation of converter
subassemblies, final environmental stress screening of certain
products and product test using automatic test equipment.
The Company continues to pursue a strategy based upon the phased
acquisition
and/or
fabrication, qualification and integration of automated
manufacturing equipment to reduce manufacturing costs, increase
product quality and reliability and enable rapid and effective
expansion of capacity, as needed. The Company plans to make
continuing investments in manufacturing equipment, particularly
for the Companys new FPA products (see Part I,
Item I The Products
Factorized Power Architecture) and replacement of aging
manufacturing equipment utilized by the Brick Business Unit.
Components used in the Companys products are purchased
from a variety of vendors. Most of the components are available
from multiple sources. In instances of single source items, the
Company maintains levels of inventories it considers to be
appropriate to enable it to meet delivery requirements of
customers. Incoming components, assemblies and other parts are
subjected to several levels of inspection procedures.
Compliance by the Company with applicable environmental laws has
not had a material effect on the financial condition or results
of operations of the Company.
Competition
The power conversion industry is highly competitive. Many power
supply manufacturers target markets similar to those of the
Company. Representative examples of these manufacturers are:
Lambda Electronics, a subsidiary of TDK Corporation; Lineage
Power (formerly Tyco Electronics Power Systems, now owned by the
Gores Group); Artesyn Technologies and Astec Power, subsidiaries
of Emerson Electric Co., Power-One, Inc., and Murata Power
Solutions, a subsidiary of Murata Manufacturing Co. Although
certain of the Companys competitors have significantly
greater financial and marketing resources and longer operating
histories than the Company, the Company believes that it has a
strong competitive position, particularly with customers who
need small, high density power system solutions requiring a
variety of input-output configurations. The Company bases its
competitive strategy on technical innovation, product
performance, service and technical support, and in offering a
broad product line. The principal methods of competition in the
markets in which the Companys products compete are price,
performance and the level of service and technical support
offered.
Patents
The Company believes that its patents afford advantages by
building fundamental and multilayered barriers to competitive
encroachment upon key features and performance benefits of its
principal product families. The Companys patents cover the
fundamental conversion topologies used to achieve the
performance attributes of its converter product lines; converter
array architectures which are the basis of the products
parallelability; product packaging design; product
construction; high frequency magnetic structures; and automated
equipment and methods for circuit and product assembly.
The Company has been issued 105 patents in the United States
(which expire between 2008 and 2025), and 2 in Far East (which
expire in 2008). The Company also has a number of patent
applications pending in the United States, Europe and the Far
East. The Company intends to vigorously protect its rights under
its patents. Although the Company believes that patents are an
effective way of protecting its technology, there can be no
assurances that the Companys patents will prove to be
enforceable (see, e.g., Part I, Item 3
Legal Proceedings). While some of the Companys
patents are deemed materially important to the Companys
operations, the Company believes that no one patent is essential
to the success of the Company.
Licensing
In addition to generating revenue from product sales, licensing
is an element of the Companys strategy for building
worldwide product and technology acceptance and market share. In
granting licenses, the
7
Company generally retains the right to use its patented
technologies, and manufacture and sell its products, in all
licensed geographic areas and fields of use. Licenses are
granted and administered through the Companys wholly-owned
subsidiary, VLT, Inc., which owns the Companys patents.
Revenues from licensing arrangements have not exceeded 10% of
the Companys consolidated revenues in any of the last
three fiscal years.
Employees
As of December 31, 2007, the Company employed approximately
1,036 full time and 78 part time people. The Company believes
that its continued success depends, in part, on its ability to
attract and retain qualified personnel. Although there is strong
demand for qualified technical personnel, the Company has not to
date experienced difficulty in attracting and retaining
sufficient engineering and technical personnel to meet its needs
(see Part I, Item IA Risk
Factors).
None of the Companys employees are subject to a collective
bargaining agreement.
This Annual Report on
Form 10-K
contains 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,
among other factors, the risk factors set forth below.
Our
future operating results are subject to
fluctuations.
Our future operating results may be materially affected by a
number of factors, including the level of orders and demand from
customers, the timing of new product announcements or
introductions by us or our competitors, the ability to achieve
and/or
maintain yield improvements and cost reductions particularly
with Maxi, Mini, Micro and FPA products, achieving increased
sales of FPA products, changes in the product mix, and changes
in economic conditions in the United States and international
markets. As a result of these and other factors, we cannot
assure you that we will not experience significant fluctuations
in future operating results on a quarterly or annual basis.
Our
future success depends upon our ability to develop and market
leading-edge, cost effective products.
The power supply industry and the industries in which many of
our customers operate are characterized by intense competition,
rapid technological change, product obsolescence and price
erosion for mature products, each of which could have an adverse
effect on our results of operations. If we fail to continue to
develop and commercialize leading-edge technologies and products
that are cost effective and maintain high standards of quality,
our competitive position and results of operations could be
materially adversely affected. Specifically, we may not be
successful in leveraging the V*I Chips in standard products to
promote market acceptance of Factorized Power.
Our
future operating results are dependent on the growth in our
customers businesses.
We manufacture modular power components and power systems that
are incorporated into our customers electronic products.
Our growth is therefore dependent on the growth in the sales of
our customers products as well as the development by our
customers of new products. If we fail to anticipate changes in
our customers businesses and their changing product needs,
our results of operations and financial position could be
negatively impacted.
If we
were unable to use our manufacturing facility in Andover,
Massachusetts, we would not be able to manufacture for an
extended period of time.
All modular power components, whether for direct sale to
customers or for sale to our subsidiaries for incorporation into
their respective products, are manufactured at our Andover,
Massachusetts production facility. Damage to this facility due
to fire, natural disaster, power loss or other events could
cause us to cease
8
manufacturing. Any prolonged inability to utilize all or a
significant portion of this facility could have a material
adverse effect on our results of operations.
We may
not be able to procure necessary key components for our
products, or we may purchase too much inventory or the wrong
inventory.
The power supply industry, and the electronics industry as a
whole, can be subject to business cycles. During periods of
growth, key components required to build our products may become
unavailable in the timeframe required for us to meet our
customers demands. Our inability to secure sufficient
components to build products for our customers could negatively
impact our sales and operating results. We may choose to
mitigate this risk by increasing the levels of inventory for
certain key components. Increased inventory levels can increase
the potential risk for excess and obsolescence should our
forecasts fail to materialize or if there are negative factors
impacting our customers end markets. If we purchase too
much inventory or the wrong inventory, we may have to record
additional inventory reserves or write-off the inventory, which
could have a material adverse effect on our gross margins and on
our results of operations.
Our
revenues may not increase enough to offset the expense of
additional capacity.
We have made significant additions to our manufacturing
equipment and capacity over the past several years, including
equipment for FPA products and the FasTrak platform. If overall
revenue levels do not increase enough to offset the increased
fixed costs, or significant revenues do not materialize for the
FPA products or if there is deterioration in our business, our
future operating results could be adversely affected. In
addition, asset values could be impaired if the additional
capacity is underutilized for an extended period of time
resulting in a material adverse effect on our financial position
and results of operations.
We
rely on third-party suppliers and subcontractors for components
and assemblies and, therefore, cannot control their availability
or quality.
We depend on third party suppliers and subcontractors to provide
components and assemblies used in our products, some of which
are sole-sourced. If suppliers or subcontractors cannot provide
their products or services on time or to our specifications, we
may not be able to meet the demand for our products and our
delivery times may be negatively affected. In addition, we
cannot directly control the quality of the products and services
provided by third parties. In order to grow, we may need to find
new or change existing suppliers and subcontractors. This could
cause disruptions in production, delays in the shipping of
product or increases in prices paid to third-parties.
We are
exposed to economic, political and other risks through our
foreign sales and distributors.
International sales have been and are expected to be a
significant component of total sales. Dependence on foreign
third parties for sales and distribution is subject to special
risks, such as foreign economic and political instability,
foreign currency controls and market fluctuations, trade
barriers and tariffs, foreign regulations and exchange rates.
Sudden or unexpected changes in the foregoing could have a
material adverse effect on our results of operations.
Our
ability to successfully implement our business strategy may be
limited if we do not retain our key personnel and attract and
retain skilled and experienced personnel.
Our success depends on our ability to retain the services of our
executive officers. The loss of one or more members of senior
management could materially adversely affect our business and
financial results. In particular, we are dependent on the
services of Dr. Patrizio Vinciarelli, our founder,
Chairman, President and Chief Executive Officer. The loss of the
services of Dr. Vinciarelli could have a material adverse
effect on our development of new products and on our results of
operations. In addition, we depend on highly skilled engineers
and other personnel with technical skills that are in high
demand and are difficult to replace. Our continued operations
and growth depend on our ability to attract and retain skilled
and experienced personnel
9
in a very competitive employment market. If we are unable to
attract and retain these employees, our ability to successfully
implement our business strategy may be harmed.
We may
be unable to adequately protect our proprietary rights, which
may limit our ability to compete effectively.
We operate in an industry in which the ability to compete
depends on the development or acquisition of proprietary
technologies which must be protected to preserve the exclusive
use of such technologies. We devote substantial resources to
establish and protect our patents and proprietary rights, and we
rely on patent and intellectual property law to protect such
rights. This protection, however, may not prevent competitors
from independently developing products similar or superior to
our products. We may be unable to protect or enforce current
patents, may rely on unpatented technology that competitors
could restrict, or may be unable to acquire patents in the
future, and this may have a material adverse affect on our
competitive position. In addition, the intellectual property
laws of foreign countries may not protect our rights to the same
extent as those of the United States. We have been and may need
to continue to defend or challenge patents. We have incurred and
expect to incur significant costs in and devote significant
resources to these efforts which, if unsuccessful, may have a
material adverse effect on our results of operations and
financial position.
We may
face intellectual property infringement claims that could be
costly to resolve.
We may in the future receive communications from third parties
asserting that our products or manufacturing processes infringe
on a third partys patent or other intellectual property
rights. In the event a third party makes a valid intellectual
property claim against us and a license is not available to us
on commercially reasonable terms, or at all, we could be forced
to either redesign or stop production of products incorporating
that technology, and our operating results could be materially
and adversely affected. In addition, litigation may be necessary
to defend us against claims of infringement, and this litigation
could be costly and divert the attention of key personnel. An
adverse outcome in these types of matters could have a material
adverse impact on the results of our operations and financial
condition.
We may
face legal claims and litigation that could be costly to
resolve.
We may in the future encounter legal action from customers,
vendors or others concerning product warranty or other claims.
We have ongoing litigation with several customers and vendors
over product warranty matters, which are fully described in
Part I, Item 3 Legal
Proceedings. Such litigation is costly and diverts the
attention of key personnel. An adverse outcome in these current
or future matters could have a material adverse impact on the
results of our operations and financial condition.
If we
fail to develop or maintain an effective system of internal
controls, we may not be able to accurately report our financial
results or prevent fraud or to ensure that information required
to be disclosed by the Company in the reports it files or
submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods
specified.
Our management determined that we did not maintain effective
internal control over financial reporting as of
December 31, 2007 and 2006 because a material weakness in
internal control over financial reporting existed. A material
weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that
a material misstatement of the annual or interim financial
statements will not be prevented or detected. Specifically, we
determined that our accounting department did not have
sufficient experienced personnel and resources with the
requisite technical skills to address complex and judgmental
accounting, tax and financial reporting matters within the
financial statement close process, including accounting for the
Companys related-party investment in Great Wall
Semiconductor Corporation, accounting for income taxes,
accounting for complex revenue transactions, and accounting for
judgmental accrued liabilities.
Our plans to improve the effectiveness of our internal controls
and processes are in process. We cannot assure you that the
measures we have taken to date or any future measures will
remediate the material
10
weaknesses reported by our management. Further, additional
deficiencies in our internal controls may be discovered in the
future. If we fail to achieve and maintain an effective system
of internal controls over financial reporting, we may be unable
to accurately report our financial results, prevent or detect
fraud, or provide timely and reliable financial information,
which could have a material adverse effect on our business,
results of operations or financial condition. In fact, the
Company did not file its June 30, 2007 and
September 30, 2007 quarterly reports on
Form 10-Q
within the time period specified under the Exchange Act. In
addition, in December 2007, the Companys former Chief
Financial Officer transitioned to the position of Vice President
of Treasury Services. The Companys Vice President, Chief
Accounting Officer has assumed the role of Interim Chief
Financial Officer. The Company is in the process of a search for
a new Chief Financial Officer. However, we cannot assure you if
or when a new Chief Financial Officer will be hired. Ineffective
internal controls could also cause investors to lose confidence
in our reported financial information, which would likely have a
negative effect on the trading price of our common stock.
If we
are unable to obtain required financial information for certain
investments on a timely basis, we may not be able to accurately
report our financial results in the reports we file or submit
under the Exchange Act, within the time periods
specified.
The Company is required to account for an investment under the
equity method of accounting. The Company has developed processes
and controls to ensure proper accounting and reporting for the
investment. We cannot assure you that those procedures,
processes and controls will be adequate to ensure that we obtain
the required information in order to properly account for this
investment under the equity method of accounting and allow us to
file our reports under the Exchange Act on a timely basis. The
lack of timely filing could prevent continued listing of the
Companys common stock on the Nasdaq Global Select Market
and could have a significant impact on the trading price of our
Common Stock.
The
failure of auction rate securities to sell at their reset dates
could impact the liquidity of the investment and could
negatively impact the carrying value of the
investment.
The Companys short-term investments consist mainly of
municipal and corporate debt securities in which a significant
portion are invested in auction rate securities, the significant
majority of which are student loan backed securities. Auction
rate securities are securities that are structured with
short-term interest rate reset dates of generally less than
ninety days but with longer contractual maturities that range,
for our holdings, from 13 to 39 years. At the end of each
reset period, investors can typically sell at auction or
continue to hold the securities at par. These securities are
subject to fluctuations in fair value depending on the supply
and demand at each auction. Through March 14, 2008,
auctions held for the Companys auction rate securities
with a total aggregate value of approximately $38.0 million
failed. As of March 14, 2008, the Company was holding a
total of approximately $43.0 million in auction rate
securities. While these debt securities are all highly-rated
investments, generally with AAA/Aaa ratings, continued failure
to sell at their reset dates could impact the liquidity of the
investment which in turn could negatively impact the liquidity
requirements of the Company. In addition, continued failure to
sell at their reset dates could also negatively impact the
carrying value of the investment which could lead to impairment
charges in future periods should a decline in the value of those
securities be other than temporary, which could have a material
adverse effect on our financial position and results of
operations.
|
|
ITEM 1B
|
UNRESOLVED
STAFF COMMENTS
|
The Company has not received written comments from the
Securities and Exchange Commission regarding its periodic or
current reports under the Securities Exchange Act of 1934, as
amended, that were received 180 days or more before
December 31, 2007 and remain unresolved. There are no
unresolved comments from the Securities and Exchange Commission
as of December 31, 2007.
11
The Companys corporate headquarters building, which the
Company owns and which is located in Andover, Massachusetts,
provides approximately 90,000 square feet of office space
for its sales, marketing, engineering and administration
personnel.
The Company also owns a building of approximately
230,000 square feet in Andover, Massachusetts, which houses
all Massachusetts manufacturing activities.
The Companys Westcor division owns and occupies a building
of approximately 31,000 square feet in Sunnyvale,
California.
|
|
ITEM 3
|
LEGAL
PROCEEDINGS
|
Vicor and VLT, Inc. (VLT), a wholly owned subsidiary
of the Company, had been pursuing Reset 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 Patent infringement claims against
Lucent/Tyco and Artesyn, and which settled the lawsuits that the
Company had filed against Lucent/Tyco in May 2000 and in April
2001, and the lawsuit that the Company had filed against Artesyn
in February 2001. The full amount of the payment, net of a
$177,000 contingency fee accrued by the Company for its
litigation counsel, has been included in (Gain) loss from
litigation-related settlements, net in the accompanying
condensed consolidated statement of operations.
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 the 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 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, which is included in
Accrual for litigation settlements in the condensed consolidated
balance sheet and in (Gain) loss from litigation-related
settlements, net in the condensed consolidated statement of
operations.
On August 18, 2005, the Company filed an action in The
Superior Court of the Commonwealth of Massachusetts, County of
Essex (the Massachusetts Court) against Concurrent
Computer Corporation (Concurrent) in response to a
demand made by Concurrent in connection with breach of contract
and breach of product warranty claims against the Company. On
August 1, 2007, the Company reached an agreement in
principle to settle the lawsuit with Concurrent for $2,350,000,
all of which would be paid by the Companys insurance
carriers. The settlement agreement was finalized effective
August 28, 2007, upon which the Company made the settlement
payment of $2,350,000 to Concurrent and in turn received payment
for that same amount from its insurance carriers. There was no
impact on the consolidated statement of operations for the year
ended December 31, 2007 as a result of the settlement.
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,
12
management does not expect any current litigation or claims to
have a material adverse impact on the Companys financial
position or results of operations.
|
|
ITEM 4
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
None.
PART II
|
|
ITEM 5
|
MARKET
FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
|
The Common Stock of the Company is listed on The Nasdaq Stock
Market under the trading symbol VICR. The
Class B Common Stock of the Company is not traded on any
market and is subject to restrictions on transfer under the
Companys Restated Certificate of Incorporation, as amended.
The following table sets forth the quarterly high and low sales
prices for the Common Stock as reported by The Nasdaq Stock
Market for the periods indicated:
|
|
|
|
|
|
|
|
|
2007
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
11.62
|
|
|
$
|
8.78
|
|
Second Quarter
|
|
|
13.54
|
|
|
|
9.06
|
|
Third Quarter
|
|
|
14.99
|
|
|
|
10.81
|
|
Fourth Quarter
|
|
|
15.60
|
|
|
|
12.05
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
20.50
|
|
|
$
|
15.09
|
|
Second Quarter
|
|
|
23.38
|
|
|
|
14.80
|
|
Third Quarter
|
|
|
16.70
|
|
|
|
9.54
|
|
Fourth Quarter
|
|
|
13.29
|
|
|
|
10.79
|
|
As of February 29, 2008, there were approximately 274
holders of record of the Companys Common Stock and
approximately 17 holders of record of the Companys
Class B Common Stock. These numbers do not reflect persons
or entities that hold their stock in nominee or street
name through various brokerage firms.
Dividend
Policy
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.
On February 4, 2006, the Companys Board of Directors
approved a cash dividend of $.12 per of the Companys
stock. The total dividend of approximately $5,030,000 was paid
on March 20, 2006 to shareholders of record at the close of
business on February 28, 2006.
On June 23, 2006, the Companys Board of Directors
approved a cash dividend of $.15 per share of the Companys
stock. The total dividend of approximately $6,313,000 was paid
on August 7, 2006 to shareholders of record at the close of
business on July 17, 2006.
On February 16, 2007 the Companys Board of Directors
approved a cash dividend of $.15 per share of the Companys
stock. The total dividend of approximately $6,235,000 was paid
on March 27, 2007 to shareholders of record at the close of
business on March 9, 2007.
On July 25, 2007, the Companys Board of Directors
approved a cash dividend of $.15 per share of the Companys
stock. The total dividend of approximately $6,242,000 was paid
on August 30, 2007 to shareholders of record at the close
of business on August 14, 2007.
13
During the second quarter of 2007, two subsidiaries paid a total
of $180,000 in dividends, of which $92,000 was paid to outside
shareholders.
On March 14, 2008, the Companys Board of Directors
approved a cash dividend of $.15 per share of the Companys
stock. The total dividend of approximately $6,245,000 will be
paid on April 18, 2008 to shareholders of record at the
close of business on April 2, 2008.
Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
|
Number (or
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Dollar Value) of
|
|
|
|
Total
|
|
|
|
|
|
Shares (or Units)
|
|
|
Shares (or Units)
|
|
|
|
Number
|
|
|
|
|
|
Purchased as Part
|
|
|
that May Yet be
|
|
|
|
of Shares
|
|
|
|
|
|
of Publicly
|
|
|
Purchased Under
|
|
|
|
(or Units)
|
|
|
Average Price Paid
|
|
|
Announced Plans
|
|
|
the Plans or
|
|
Period
|
|
Purchased
|
|
|
per Share (or Unit)
|
|
|
or Programs
|
|
|
Programs
|
|
|
October 1 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
8,541,000
|
|
November 1 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,541,000
|
|
December 1 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,541,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
8,541,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In November 2000, the Board of Directors of the Company
authorized the repurchase of up to $30,000,000 of the
Companys Common Stock.
14
Stockholder
Return Performance Graph
The graph set forth below presents the cumulative, five-year
stockholder return for each of the Corporations Common
Stock, the Standard & Poors 500 Index
(S&P 500 Index) and an index of peer group
companies selected by the Company (the Peer Group).
The Peer Group consists of the following ten
(10) publicly-traded companies in the specialty electronic
component industry: Analog Devices Incorporated; Intel
Corporation; Linear Technology Corporation; LSI Logic
Corporation; Xilinx Incorporated; Maxim Integrated Products,
Inc.; Semtech Corporation; Intersil Corporation; RF Micro
Devices, Inc. and Altera Corporation.
The graph assumes an investment of $100 on December 31,
2002 in each of the Companys Common Stock, the S&P
500 Index and the Peer Group, and assumes reinvestment of all
dividends. The peer group indices used in the graph are market
capitalization-weighted. The historical information set forth
below is not necessarily indicative of future performance.
Comparison
of Five Year Cumulative Return
Among Vicor Corporation, S&P 500 Index
and Peer Group Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
Vicor Corporation
|
|
|
$
|
100.00
|
|
|
|
$
|
138.32
|
|
|
|
$
|
158.93
|
|
|
|
$
|
191.67
|
|
|
|
$
|
136.45
|
|
|
|
$
|
196.83
|
|
S&P 500 Index
|
|
|
$
|
100.00
|
|
|
|
$
|
128.68
|
|
|
|
$
|
142.67
|
|
|
|
$
|
149.65
|
|
|
|
$
|
173.28
|
|
|
|
$
|
182.81
|
|
Peer Group Companies
|
|
|
$
|
100.00
|
|
|
|
$
|
196.12
|
|
|
|
$
|
149.03
|
|
|
|
$
|
154.87
|
|
|
|
$
|
132.97
|
|
|
|
$
|
161.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
ITEM 6
|
SELECTED
FINANCIAL DATA
|
The following selected consolidated financial data with respect
to the Companys statements of operations for the years
ended December 31, 2007, 2006 and 2005 and with respect to
the Companys balance sheets as of December 31, 2007
and 2006 are derived from the Companys consolidated
financial statements, which appear elsewhere in this report and
which have been audited by Ernst & Young LLP, the
Companys independent registered public accounting firm.
The following selected consolidated financial data with respect
to the Companys statements of operations for the years
ended December 31, 2005 and 2004 and with respect to the
Companys balance sheets as of December 31, 2005, 2004
and 2003 are derived from the Companys consolidated
financial statements, which are not included herein. As
described in Note 7. in the Notes to the Consolidated
Financial Statements, due to an additional investment in Great
Wall Semiconductor Corporation (GWS) in May 2007,
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 years ended
December 31, 2003, 2004, 2005 and 2006 have been
retroactively restated to reflect the equity method of
accounting, in accordance with Accounting Principles Board
Opinion No. 18, The Equity Method of Accounting for
Investments in Common Stock. The data should be read in
conjunction with the consolidated financial statements, related
notes and other financial information included herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Statement of Operations Data
|
|
2007
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
(In thousands except per share data)
|
|
|
Net revenues
|
|
$
|
195,827
|
|
|
$
|
192,047
|
|
|
$
|
179,351
|
|
|
$
|
171,580
|
|
|
$
|
151,421
|
|
Income (loss) from operations
|
|
|
1,071
|
|
|
|
(33,182
|
)
|
|
|
3,380
|
|
|
|
(4,035
|
)
|
|
|
(25,703
|
)
|
Net income (loss)
|
|
|
5,335
|
|
|
|
(29,059
|
)
|
|
|
3,493
|
|
|
|
(4,692
|
)
|
|
|
(19,996
|
)
|
Net income (loss) per share basic
|
|
|
.13
|
|
|
|
(.69
|
)
|
|
|
.08
|
|
|
|
(.11
|
)
|
|
|
(.48
|
)
|
Net income (loss) per share diluted
|
|
|
.13
|
|
|
|
(.69
|
)
|
|
|
.08
|
|
|
|
(.11
|
)
|
|
|
(.48
|
)
|
Weighted average shares basic
|
|
|
41,597
|
|
|
|
41,839
|
|
|
|
41,923
|
|
|
|
42,022
|
|
|
|
41,896
|
|
Weighted average shares diluted
|
|
|
41,687
|
|
|
|
41,839
|
|
|
|
42,089
|
|
|
|
42,022
|
|
|
|
41,896
|
|
Cash dividends per share
|
|
$
|
.30
|
|
|
$
|
.27
|
|
|
$
|
.12
|
|
|
$
|
.08
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Balance Sheet Data
|
|
2007
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
(In thousands)
|
|
|
Working capital
|
|
$
|
115,924
|
|
|
$
|
123,467
|
|
|
$
|
150,385
|
|
|
$
|
148,419
|
|
|
$
|
141,547
|
|
Total assets
|
|
|
192,458
|
|
|
|
247,461
|
|
|
|
243,902
|
|
|
|
243,452
|
|
|
|
251,003
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
28,018
|
|
|
|
77,289
|
|
|
|
28,965
|
|
|
|
24,259
|
|
|
|
24,806
|
|
Stockholders equity
|
|
|
164,440
|
|
|
|
170,172
|
|
|
|
214,937
|
|
|
|
219,193
|
|
|
|
226,197
|
|
|
|
ITEM 7
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Overview
Vicor Corporation designs, develops, manufactures and markets
modular power components and complete power systems based upon a
portfolio of patented technologies. The Company sells its
products primarily to the telecommunications, electronic data
processing, industrial control and military electronics markets,
through a network of 28 independent sales representative
organizations in North and South America and, internationally,
through 36 independent distributors. Export sales as a
percentage of total revenues were approximately 37% in 2007 and
2006 and 42% in 2005, respectively. The Company has organized
its business segments according to its key product lines. The
Brick Business Unit segment (BBU or
Brick) designs, develops, manufactures and markets
the Companys modular power converters and configurable
products, and includes the operations of the Companys
Westcor division, Vicor Integration Architects
(VIAs) and Vicor Japan
16
Company, Ltd. (VJCL). 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 (FPA) products. The
Picor segment consists of Picor Corporation, a majority-owned
subsidiary of Vicor, 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 Vicors
products or to third parties for separate applications.
For the year ended December 31, 2007 revenues increased to
$195,827,000 from $192,047,000 in 2006. The Company had income
before taxes of $5,459,000 in 2007 as compared to a loss before
taxes of $28,090,000 in 2006. The Company reported net income in
2007 of $5,335,000 as compared to a net loss of $29,059,000 in
2006, and a diluted income per share of $.13 in 2007 as compared
with diluted loss per share of $.69 in 2006. The net loss in
2006 was primarily due to a loss from a litigation-related
settlement described below.
The book to bill ratio for the third and fourth quarters of 2007
was 1.17:1 and 0.96:1, respectively. The book to bill ratio for
the year ended December 31, 2007 was 1.05:1 compared with
0.99:1 in 2006. In light of the fact that bookings and sales can
vary significantly from quarter to quarter, the Company does not
believe that this quarterly and annual change in the book to
bill ratio is indicative of a trend at this time. The Company
ended 2007 with approximately $46.7 million in backlog
compared to $36.4 million at the end of 2006.
The gross margin for 2007 decreased to 40.3% compared with 42.6%
in 2006. The primary components of the decrease in gross margin
dollars and percentage were due to product mix and an issue with
certain product returns and warranty expense.
As described in Note 7. in the Notes to the Consolidated
Financial Statements, 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 years ended December 31, 2006, 2005 and
2004 have been retroactively restated to reflect the equity
method of accounting, in accordance with APB 18. Loss from
equity method investment (net of tax) increased $818,000 to
$1,139,000 from $321,000 for 2006. This was principally due to
the equity method investment in GWS being adjusted for a decline
in value judged to be other than temporary of $620,000 in the
second quarter and due to higher equity method investment losses
allocated to the Company. Additionally, the Company made an
additional $1,000,000 investment in GWS in February 2008. The
Company expects that it will take an impairment charge of
approximately $700,000 in the first quarter of 2008 due to the
additional investment.
In 2007, depreciation and amortization was $11.6 million, a
decrease of approximately $2.5 million from 2006, and
capital additions were $9.9 million, an increase of
approximately $4.3 million from 2006. Due to assets which
either are now or will be fully depreciated in 2008, the Company
expects depreciation and amortization to be less in 2008 than
2007.
Inventories increased by approximately $1.1 million or 4.9%
to $23.1 million as compared with $22.0 million at the
end of 2006, primarily to meet the increased demand.
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.
17
The following table sets forth certain items of selected
consolidated financial information as a percentage of net
revenues for the periods indicated. This table and the
subsequent discussion should be read in conjunction with the
selected financial data and the Consolidated Financial
Statements and related footnotes of the Company contained
elsewhere in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Gross margin
|
|
|
40.3
|
%
|
|
|
42.6
|
%
|
|
|
39.8
|
%
|
Selling, general and administrative expenses
|
|
|
25.0
|
%
|
|
|
24.2
|
%
|
|
|
22.8
|
%
|
Research and development expenses
|
|
|
15.5
|
%
|
|
|
16.3
|
%
|
|
|
16.4
|
%
|
Income (loss) before income taxes (as restated)
|
|
|
2.8
|
%
|
|
|
(14.6
|
)%
|
|
|
2.7
|
%
|
Critical
Accounting Policies and Estimates
Managements Discussion and Analysis of Financial Condition
and Results of Operations discusses the Companys
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements
requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, management evaluates its
estimates and judgments, including those related to revenue
recognition, allowance for doubtful accounts, inventories,
investments, intangible assets, income taxes, impairment of
long-lived assets, contingencies and litigation. Management
bases its estimates and judgments on historical experience,
knowledge of current conditions and on various other factors
that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the
carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
Management believes the following accounting policies involve
its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
Allowance
for Doubtful Accounts
The Company maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers
to make required payments, based on assessments of
customers credit-risk profiles and payment histories. If
the financial condition of the Companys customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
Inventories
The Company employs a variety of methodologies to estimate
allowances for its inventory for estimated obsolescence or
unmarketable inventory, based upon its known backlog and
historical usage, and assumptions about future demand and market
conditions. For the Companys brick products produced at
the Andover location, its principal manufacturing location, the
model used is based upon a comparison of on-hand quantities to
projected demand, such that amounts on hand in excess of
three-year projected usage are fully reserved for inventories of
those products. Since V*I Chip products are at a relatively
early stage, a one-year projected usage assumption is used.
While we have used our best efforts and believe we have used the
best available information to estimate future demand, due to
uncertainty in the economy and our business and the inherent
difficulty in predicting future demand, it is possible that
actual demand for our products will differ from our estimates.
If actual future demand or market conditions are less favorable
than those projected by management, additional inventory
reserves for existing inventories may need to be recorded in
future periods.
Short-term
and long-term investments
The Companys short-term and long-term investments are
classified as
available-for-sale
securities and are recorded at fair value, with the unrealized
gains and losses, net of tax, reported in a separate component
of stockholders equity. The amortized cost of debt
securities is adjusted for amortization of premiums and
18
accretion of discounts to maturity. Such amortization, along
with interest and realized gains and losses, are included in
other income (expense), net. The Company has no trading
securities or
held-to-maturity
securities.
Through March 14, 2008, auctions held for the
Companys auction rate securities with a total aggregate
value of approximately $38.0 million failed. As of
March 14, 2008, the Company was holding a total of
approximately $43.0 million in auction rate securities, the
significant majority of which are student loan backed
securities. These municipal and corporate debt securities have
their interest rates reset at auction at regular intervals
ranging from seven to ninety days. Because of these short
term intervals between interest reset dates, the Company
monitors the auctions to ensure they are successful, which
provides evidence that the recorded values of these investments
approximate their fair values. As discussed above, auctions
related to substantially all our auction rate securities have
failed and if auctions continue to fail such that the securities
were deemed to be not liquid, the Company would need to seek
other alternatives to determine the fair value of these
securities, which may not be based on the quoted market
transaction. In addition, due to the Companys inability to
quickly liquidate these investments, the Company may reclassify
those investments with failed auctions as long-term assets in
its consolidated balance sheet.
Other
Investments
The accounting for investment transactions is reviewed for
compliance with Accounting Principles Board Opinion No. 18,
The Equity Method for Accounting for Investments in Common
Stock (APB 18) and/or FASB Interpretation No. 46
Revised (FIN 46R), Consolidation of Variable Interest
Entities. As discussed in Note 7. in the Notes to
Consolidated Financial Statements, the Company previously
accounted for the investment in Great Wall Semiconductor
Corporation (GWS) under APB 18 as a cost method
investment as management believed it did not have significant
influence over GWS. An additional investment in GWS in May 2007
resulted in the Company owning approximately 24% of GWS which
management believes, along with other qualitative factors
considered, gives the Company significant influence over GWS. As
a result of the additional investment, the Company is required
to account for the investment in GWS under the equity method of
accounting and to retroactively restate its previously issued
consolidated financial statements to reflect the equity method
of accounting, in accordance with APB 18.
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 we
identify an impairment indicator, we will estimate the fair
value of the investment and compare it to its carrying value. If
the fair value of the investment is less than its carrying
value, the investment is impaired and we make a determination as
to whether the impairment is other-than-temporary. For
other-than-temporary impairments, we recognize an impairment
loss equal to the difference between an investments
carrying value and its fair value. In the second quarter of
2007, the investment was adjusted for a decline in value judged
to be other than temporary of $620,000. 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. In fact, the Company made an
additional $1,000,000 investment in GWS in February 2008, which
will increase its ownership in GWS to approximately 30%, for
which the Company expects that it will take an impairment charge
of approximately $700,000 in the first quarter of 2008.
Long-Lived
Assets
Management evaluates the recoverability of the Companys
identifiable intangible assets, goodwill and other long-lived
assets in accordance with Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible
Assets (FAS 142) and Statement of Financial
Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets
(FAS 144), which generally requires that the recoverability
of these assets be assessed when events or circumstances
indicate a potential impairment. The Company periodically
assesses the remaining use of fixed assets based upon operating
results and cash flows
19
from operations. Equipment has been written-down as a result of
these assessments as necessary. Goodwill is tested for potential
impairment at least annually at the reporting unit level.
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),
which requires that stock-based compensation expense associated
with stock options and related awards be recognized in the
statement of income. Determining the amount of stock-based
compensation requires us to develop estimates to be used in
calculating the grant-date fair value of stock options. We
calculate the grant-date fair values using the Black-Scholes
valuation model. The use of this model requires us to make
estimates for the following assumptions: expected volatility,
expected term, risk-free interest rate, expected dividend yield
and forfeiture rate. Changes in any of these assumptions may
have an impact on the amount of stock-based compensation
recorded.
Product
Warranties
The Company generally warrants its products for a period of two
years. Vicor maintains allowances for estimated product returns
under warranty based upon a review of known or potential product
failures in the field and upon historical patterns of product
returns. If unforeseen product issues arise or product returns
increase above expected rates, additional allowances may be
required.
Income
Taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (FAS 109), which
requires that deferred tax assets and liabilities be recognized
using enacted rates for the effect of temporary differences
between the book and tax bases of recorded assets and
liabilities. FAS 109 also requires that deferred tax assets
be reduced by a valuation allowance if it is more likely than
not that some portion or all of the deferred tax assets will not
be realized. The Company has assessed the need for a valuation
allowance against these deferred tax assets and concluded that a
valuation allowance for a significant portion of the deferred
tax assets is warranted at December 31, 2007. In reaching
this conclusion, the Company evaluated all relevant criteria
including the existence of significant temporary differences
reversing in the carryforward period, primarily depreciation.
The valuation allowance against these deferred tax assets may
require adjustment in the future based on changes in the mix of
temporary differences, changes in tax laws, and operating
performance. In addition, the assessment of the valuation
allowance requires the Company to make estimates of future
taxable income and to estimate reversals of temporary
differences. Changes in the assumptions or other circumstances
may require additional valuation allowances if actual reversals
of temporary differences differ from those estimates.
The Company adopted FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), on January 1, 2007. FIN 48
clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in
accordance with FASB Statement No. 109, Accounting
for Income Taxes. FIN 48 prescribes a two-step
process to determine the amount of tax benefit to recognize.
First, the tax position must be evaluated to determine the
likelihood that it will be sustained upon examination by a tax
authority. If the tax position is deemed
more-likely-than-not to be sustained, the tax
position is then assessed to determine the amount of benefit to
recognize in the financial statements. The amount of the benefit
that may be recognized is the largest amount that has a greater
than 50 percent likelihood of being realized upon ultimate
settlement. If the tax position does not meet the
more-likely-than-not threshold then it is not
recognized in the financial statements. In accordance with
FIN 48, the Company accrues interest and penalties, if any,
related to unrecognized tax benefits as a component of income
tax expense. The Companys adoption of FIN 48 as of
January 1, 2007 did not have a material impact on the
Companys financial position or results of operations.
20
Contingencies
From time to time, we receive notices for product failure claims
or that our products or manufacturing processes may be
infringing the patent or intellectual property rights of others
or for other matters. We periodically assess each matter to
determine if a contingent liability should be recorded in
accordance with Statement of Financial Accounting Standards
No. 5, Accounting for Contingencies
(FAS 5). In making this assessment, we may, depending on
the nature of the matter, consult with external legal counsel
and technical experts. Based on the information we obtain,
combined with our judgment regarding all the facts and
circumstances of each matter, we determine whether it is
probable that a contingent loss may be incurred and whether the
amount of such loss can be reasonably estimated. Should a loss
be probable and reasonably estimable, we record a loss in
accordance with FAS 5. In determining the amount of the
loss, we consider advice received from experts in the specific
matter, current status of legal proceedings, if any, prior case
history and other factors. Should the judgments and estimates
made by us be incorrect, we may need to record additional
contingent losses that could materially adversely impact our
results of operations and financial position.
Year
Ended December 31, 2007 compared to Year Ended
December 31, 2006
Net revenues for fiscal 2007 were $195,827,000, an increase of
$3,780,000, or 2.0%, as compared to $192,047,000 for the same
period a year ago. The increase in net revenues from the prior
year resulted primarily from an increase in V*I Chip revenues of
$6,099,000 and Picor revenues of $340,000, partially offset by
decreases in Brick segment shipments of standard and custom
products of $2,657,000. Orders for fiscal year 2007 increased by
8.5% compared with 2006. Subject to continuing demand, the
Company expects modest growth in revenues in 2008. The
book-to-bill ratio for 2007 was 1.05:1 as compared to 0.99:1 for
2006.
Gross margin for fiscal 2007 decreased $2,827,000, or 3.5%, to
$79,009,000 from $81,836,000 in 2006 and decreased as a
percentage of net revenues to 40.3% from 42.6%. The primary
components of the decrease in gross margin dollars and
percentage were due to the product mix and an issue with certain
product returns and warranty expense. During the year ended
2007, the Company replaced certain products and established
reserves for future replacements of these products, which were
manufactured with a purchased component that exhibited an
unacceptable failure rate. As a result, gross margin in the year
ended December 31, 2007 were negatively impacted by
approximately $980,000 from a combination of product returns
which affected net revenues and charges to cost of revenues for
warranty costs. In addition, cost of revenues increased
approximately $713,000 due to the allocation of a portion of
Picor non-recurring engineering charges being charged to cost of
revenues in 2007 and not research and development.
Selling, general and administrative expenses were $48,919,000
for 2007, an increase of $2,482,000, or 5.3%, over the same
period in 2006. As a percentage of net revenues, selling,
general and administrative expenses increased to 25.0% from
24.2%. The principal components of the $2,482,000 increase were
$1,666,000, or 8.6.%, of increased compensation expense
primarily due to annual compensation adjustments in May 2007,
$689,000, or 60.1%, of increased audit and tax expenses,
$546,000, or 44.6%, of increased travel expenses, $271,000, or
5.8%, of increased commissions due to the increase in net
revenues and due to changes in the mix of revenues subject to
commissions, $193,000, or 57.3%, of increased outside services
and $130,000, or 6.1%, in increased legal fees due to the
litigation with Ericsson Wireless Communications, Inc., Exar
Corporation and Rohm Device USA, LLC, and Concurrent Computer
Corporation (Concurrent), which were partially
offset by a $718,000 reimbursement payment from its insurance
carriers received in the fourth quarter of 2007 in connection
with the Concurrent litigation (see Part II
Item 1 Legal Proceedings). The principal
components partially offsetting the above increases were
$424,000, or 10.5%, of decreased depreciation and amortization
costs, $295,000, or 10.6%, of decreased advertising costs,
$151,000, or 35.4%, in decreased employment recruiting expenses
and $115,000, or 9.2%, of decreased training expenses.
Research and development expenses decreased $1,009,000, or 3.2%,
to $30,372,000 in 2007 from $31,381,000 in 2006 and decreased as
a percentage of net revenues to 15.5% from 16.3%. The principal
components of the $1,009,000 decrease were $713,000, or 100%, of
decreased costs due to the allocation of a portion of Picor
non-recurring engineering charges being charged to cost of
revenues and not research and development, $425,000, or 16.8%,
of decreased costs associated with the VIAs, $155,000, or 8.7%,
of
21
decreased facility costs, $119,000, or 7.9%, of decreased
depreciation and amortization costs, and $64,000, or 26.6%, of
decreased travel expenses. The principal component partially
offsetting the above decreases was $529,000, or 2.7%, in
increased compensation expense primarily due to annual
compensation adjustments in May 2007. The decreased costs
associated with the VIAs was primarily due to $397,000 of
decreased sub-contract labor costs.
In the second quarter of 2007, the Company entered into separate
settlement agreements with Artesyn and Lucent/Tyco, under which,
the Company received total payments of $1,770,000 in full
settlement of the Companys Patent infringement claims
against Lucent/Tyco and Artesyn, and which settled the lawsuits
that the Company had filed against Lucent/Tyco in May 2000 and
in April 2001, and the lawsuit that the Company had filed
against Artesyn in February 2001. The full amount of the
payments, net of a $177,000 contingency fee accrued by the
Company for its litigation counsel, has been included in (Gain)
loss from litigation-related settlements, net in the
accompanying condensed consolidated statement of operations. In
December 2007, the Court awarded Exar and Rohm amounts for
certain statutory and discovery costs associated with this
ruling. The Company accrued $240,000 in the second quarter of
2007 as a result of the Courts decision, which is included
in (Gain) loss from litigation-related settlement, net in the
accompanying condensed consolidated statement of operations.
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 changes in the major components of other income (expense),
net were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
Increase
|
|
|
|
2007
|
|
|
(As restated)
|
|
|
(Decrease)
|
|
|
Interest income
|
|
$
|
4,484
|
|
|
$
|
5,389
|
|
|
$
|
(905
|
)
|
Minority interest in net income of subsidiaries
|
|
|
(539
|
)
|
|
|
(562
|
)
|
|
|
23
|
|
Foreign currency gains
|
|
|
186
|
|
|
|
139
|
|
|
|
47
|
|
Gain on disposal of equipment
|
|
|
129
|
|
|
|
67
|
|
|
|
62
|
|
Other
|
|
|
128
|
|
|
|
59
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,388
|
|
|
$
|
5,092
|
|
|
$
|
(704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in interest income is due to lower average balances
on the Companys cash equivalents and short-term
investments, principally due to the $37,200,000 net payment
to Ericsson made at the end of March 2007 (see Part II
Item 3-
Legal Proceedings). The increase in foreign currency gains is
due to favorable exchange rates in 2007 as compared to 2006. The
Companys exposure to market risk for fluctuations in
foreign currency exchange rates relates primarily to the
operations of Vicor Japan Co. Ltd. (VJCL) and
changes in the dollar/yen exchange rate. In addition, the
functional currency of the Companys subsidiaries in Europe
and Hong Kong is the U.S. dollar.
Income before income taxes was $5,459,000 in 2007 compared to a
loss before income taxes of $28,090,000 for 2006.
The benefit for income taxes totaled $(1,015,000) in 2007 as
compared to a provision of $648,000 in 2006. The Companys
effective tax rate was (18.6%) and 2.3% in 2007 and 2006,
respectively. In 2007, the tax provision includes estimated
federal, state and foreign income taxes on the Companys
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. During the second quarter
of 2007 and year ended December 31, 2007, the Company
reversed approximately $300,000 of previously unidentified
excess
22
tax reserves identified during the quarter. The impact on the
second quarter of 2007 and the year ended December 31,
2007, as well as on prior periods, was not material. The expense
was also offset by a discrete item of $169,000 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 tax years
1994 though 2002 by the Internal Revenue Service and the
reduction in the tax reserves discussed below. In 2006, the tax
provision 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, offset by the
expected utilization of remaining net operating loss
carryforwards and certain tax credit carryforwards. For the year
ended December 31, 2007 and 2006, the Company reduced its
tax reserves by $1,517,000 and $468,000, respectively, due to
closing tax periods in certain jurisdictions and other tax
reserves no longer considered necessary. The decreases in 2007
and 2006 were partially offset by increases in reserves during
the year of approximately $205,000 and $133,000, respectively.
Loss from equity method investment (net of tax) for fiscal year
2007 increased $818,000 to $1,139,000 from $321,000 for 2006.
This was principally due to the equity method investment in GWS
being adjusted for a decline in value judged to be other than
temporary of $620,000 in the second quarter and due to higher
equity method investment losses allocated to the Company. As
described in Note 7. in the Notes to the Consolidated
Financial Statements, 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 years ended December 31, 2006 and
December 31, 2005 have been retroactively restated to
reflect the equity method of accounting, in accordance with APB
18. The Company made an additional $1,000,000 investment in GWS
in February 2008. The Company expects that it will take an
impairment charge of approximately $700,000 in the first quarter
of 2008 due to the additional investment.
Basic and diluted loss per share was $0.13 for the year ended
December 31, 2007, compared to basic and diluted loss per
share of $0.69 for the year ended December 31, 2006.
Year
Ended December 31, 2006 compared to Year Ended
December 31, 2005
Net revenues for fiscal 2006 were $192,047,000, an increase of
$12,696,000, or 7.1%, as compared to $179,351,000 for the same
period a year ago. The increase in net revenues resulted
primarily from an increase in Brick segment shipments of
standard and custom products of $11,018,000, along with
increases in V*I Chip and Picor revenues of $1,376,000 and
$299,000, respectively. Orders for fiscal year 2006 increased by
4.6% compared with 2005. The book-to-bill ratio for 2006 was
0.99:1 as compared to 1.01:1 for 2005.
Gross margin for fiscal 2006 increased $10,429,000, or 14.6%, to
$81,836,000 from $71,407,000 in 2005 and increased as a
percentage of net revenues from 39.8% to 42.6%. The primary
components of the increase in gross margin dollars and
percentage were due to the increase in net revenues, an increase
in manufacturing efficiencies resulting in lower average unit
costs and significant inventory reserves recorded in 2005.
During the second quarter of 2005, the Company provided
additional reserves of approximately $1,600,000 for potential
obsolete inventory arising primarily from the European Union
RoHS initiative and the conversion of Maxi, Mini, Micro and
MIL-COTS product families to the FasTrak platform. In addition,
the Company identified other slow-moving and potential obsolete
inventory of approximately $1,200,000, of which $300,000 was
related to raw material inventory in support of pilot production
of V*I Chips.
Selling, general and administrative expenses were $46,437,000
for 2006, an increase of $5,626,000, or 13.8%, over the same
period in 2005. As a percentage of net revenues, selling,
general and administrative expenses increased to 24.2% from
22.8%. The principal components of the $5,626,000 increase were
$1,550,000, or 8.7%, of increased compensation primarily due to
annual compensation adjustments in May 2006 and increases in
headcount, $982,000 or 88.0% of increased legal fees due to
litigation with Ericsson Wireless Communications, Inc. (See
Part I, Item 3 Legal
Proceedings), $725,000, or 39.2%, of increased
depreciation and amortization expense principally due to the
accelerated amortization for and the write-off of certain patent
costs, $698,000, or 17.8%, increase in commissions due to the
increase in net revenues, $323,000, or 306.1%, increase in
employment advertising, recruiting and relocation expense,
$256,000, or
23
12.2%, in increased advertising expense, and a $216,000, or
177.3%, increase in outside services expense. The increase in
compensation expense also includes $385,000 of non-cash
stock-based compensation recorded under FAS 123(R). See
Note 3 to the consolidated financial statements for further
discussion.
Research and development expenses increased $1,915,000, or 6.5%,
to $31,381,000 in 2006 from $29,466,000 in 2005 but decreased as
a percentage of net revenues to 16.3% from 16.4%. The principal
components of the $1,915,000 increase were $1,676,000, or 9.4%,
of increased compensation expense primarily due to annual
compensation adjustments in May 2006 and increases in headcount,
$224,000, or 15.5%, of increased expenses related to the Vicor
Integration Architects (VIAs), $162,000, or 10.1%,
of increased facilities costs and $152,000, or 110.9%, in
increased industrial gas costs. These items were partially
offset by a decrease in production materials of $542,000, or
13.5%. The increase in compensation expense also includes
$281,000 of non-cash stock-based compensation recorded under
FAS 123(R). See Note 3 to the consolidated financial
statements for further discussion.
On February 22, 2007, the Company announced that it has
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,
reached on February 16, 2007 after a Court ordered
mediation, the Company agreed to pay $50.0 million to
Ericsson, of which $12.8 million will be paid by the
Companys insurance carriers. Accordingly, the Company
recorded a net loss of $37.2 million from
litigation-related settlement in the fourth quarter of 2006.
In the second quarter of 2005, the Company entered into a
settlement agreement with Lambda Americas, Inc., successor to
Lambda Electronics, Inc., under which the Company received a
payment of $2,500,000 in full settlement of the Companys
Reset Patent claims against Lambda and which settled the lawsuit
that the Company had filed against Lambda in June 2001. The full
amount of the payment, net of a $250,000 contingency fee paid by
the Company to its litigation counsel, has been included in gain
from litigation-related settlement, net in the accompanying
condensed consolidated statement of operations.
The changes in the major components of other income (expense),
net were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
Increase
|
|
|
|
(As restated)
|
|
|
2005
|
|
|
(Decrease)
|
|
|
Interest income
|
|
$
|
5,389
|
|
|
$
|
3,124
|
|
|
$
|
2,265
|
|
Minority interest in net income of subsidiaries
|
|
|
(562
|
)
|
|
|
(807
|
)
|
|
|
245
|
|
Foreign currency gains (losses)
|
|
|
139
|
|
|
|
(771
|
)
|
|
|
910
|
|
Gain (loss) on disposal of equipment
|
|
|
67
|
|
|
|
(41
|
)
|
|
|
108
|
|
Other
|
|
|
59
|
|
|
|
(5
|
)
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,092
|
|
|
$
|
1,500
|
|
|
$
|
3,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in interest income is due to higher interest rates
and higher average balances on the Companys cash
equivalents, short-term and long-term investments. The increase
in foreign currency gains is due to the favorable exchange rates
in 2006 as compared to 2005. The Companys exposure to
market risk for fluctuations in foreign currency exchange rates
relates primarily to the operations of Vicor Japan Co. Ltd.
(VJCL) and changes in the dollar/yen exchange rate.
In addition, the functional currency of the Companys
subsidiaries in Europe and Hong Kong is the U.S. dollar.
The decrease in minority interest in the net income of
subsidiaries was due to lower income at certain minority
interest entities.
Loss before income taxes was $28,090,000 in 2006 compared to
income before income taxes of $4,880,000 for 2005.
The provision for income taxes totaled $648,000 in 2006 as
compared to a provision of $964,000 in 2005. The Companys
effective tax rate was 2.3% and 19.8% for 2006 and 2005,
respectively. Tax provisions in 2006 and 2005 have been provided
for federal and state taxes for certain minority-owned
subsidiaries that are not part of the Companys
consolidated income tax returns, for the federal alternative
minimum tax and for estimated income taxes due in various state
and international taxing jurisdictions. In the third quarter of
2006 and 2005, the Company reduced its tax reserves by $468,000
and $770,000, respectively, due to closing tax periods in
certain jurisdictions and other tax reserves no longer
considered necessary. The decreases in 2006
24
and 2005 were partially offset by increases in reserves during
the year of approximately $133,000 and $412,000, respectively,
for potential liabilities.
Loss from equity method investment (net of tax) for fiscal year
2006 decreased $102,000 to $321,000 from $423,000 for 2005. This
was principally due lower equity method investment losses
allocated to the Company. As described in Note 7. in the
Notes to the Consolidated Financial Statements, 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 years ended December 31,
2006 and December 31, 2005 have been retroactively restated
to reflect the equity method of accounting, in accordance with
APB 18. The Company made an additional $1,000,000 investment in
GWS in February 2008. The Company expects that it will take an
impairment charge of approximately $700,000 in the first quarter
of 2008 due to the additional investment.
Basic and diluted loss per share was $0.69 for the year ended
December 31, 2006, compared to basic and diluted income per
share of $0.08 for the year ended December 31, 2005.
LIQUIDITY
AND CAPITAL RESOURCES
At December 31, 2007 the Company had $20,017,000 in
unrestricted cash and cash equivalents. The ratio of current
assets to current liabilities was 6.5:1 at December 31,
2007 compared to 2.9:1 at December 31, 2006. Working
capital decreased $7,543,000, from $123,467,000 at
December 31, 2006 to $115,924,000 at December 31,
2007. The primary factors affecting the working capital decrease
was a decrease in cash and cash equivalents and short-term
investments of $40,034,000, a decrease in insurance receivable
for a litigation payment of $12,800,000, and a decrease in
deferred tax assets of $2,961,000. The decreases were partially
offset by a decrease in total current liabilities of
$45,693,000, which was primarily due to the decrease in accrual
for litigation settlement of $50,000,000, an increase in
accounts receivable of $1,655,000 and an increase in inventories
of $1,077,000. The decrease in cash and cash equivalents and
short-term investments was principally due to a net payment of
$37,200,000 related to the Ericsson litigation settlement, which
had been accrued for as of December 31, 2006. The primary
source of cash for the year ended December 31, 2007 were
$24,656,000 in net sales of short-term investments and
$19,381,000 of net cash provided by operating activities (after
adjusting for the net payment for litigation settlement of
$37,200,000). The primary uses of cash for the twelve months
ended December 31, 2007 were $37,200,000, net, for the
litigation settlement, $12,569,000 for the payments of
dividends, $9,856,000 for the purchase of equipment and
$1,000,000 invested in GWS.
In November 2000, the Board of Directors of the Company
authorized the repurchase of up to $30,000,000 of the
Companys Common Stock (the November 2000
Plan). The November 2000 Plan authorizes the Company to
make such repurchases from time to time in the open market or
through privately negotiated transactions. The timing and
amounts of stock repurchases are at the discretion of management
based on its view of economic and financial market conditions.
The Company did not repurchase shares of Common Stock during the
year ended December 31, 2007. As of December 31, 2007,
the Company had approximately $8,541,000 remaining under the
plan.
On July 25, 2007, the Companys Board of Directors
approved a cash dividend of $.15 per share of the Companys
stock. The total dividend of approximately $6,242,000 was paid
on August 30, 2007 to shareholders of record at the close
of business on August 14, 2007. On February 16, 2007,
the Companys Board of Directors approved a cash dividend
of $.15 per share of the Companys stock. The total
dividend of approximately $6,235,000 was paid on March 27,
2007 to shareholders of record at the close of business on
March 9, 2007. On March 14, 2008, the Companys
Board of Directors approved a cash dividend of $.15 per share of
the Companys stock. The total dividend of approximately
$6,245,000 will be paid on April 18, 2008 to shareholders
of record at the close of business on April 2, 2008. The
Board of Directors anticipates reviewing its dividend policy on
a semi-annual basis.
During the second quarter of 2007, two subsidiaries paid a total
of $180,000 in dividends, of which $92,000 was paid to outside
shareholders.
25
The table below summarizes the Companys contractual
obligations as of December 31, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More Than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years 2 & 3
|
|
|
Years 4 & 5
|
|
|
5 Years
|
|
|
Operating lease obligations
|
|
$
|
3,861
|
|
|
$
|
1,398
|
|
|
$
|
1,453
|
|
|
$
|
239
|
|
|
$
|
771
|
|
Purchase obligations
|
|
|
2,248
|
|
|
|
291
|
|
|
|
600
|
|
|
|
624
|
|
|
|
733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,109
|
|
|
$
|
1,689
|
|
|
$
|
2,053
|
|
|
$
|
863
|
|
|
$
|
1,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the amounts shown in the table above,
approximately $511,000 of unrecognized tax benefits have been
recorded as liabilities in accordance with FIN 48, and we
are uncertain as to if or when such amounts may be settled.
Related to these unrecognized tax benefits, we have also
recorded a liability for potential interest and penalties of
approximately $833,000 at December 31, 2007.
The Companys primary liquidity needs are for making
continuing investments in manufacturing equipment, particularly
equipment for the Companys new FPA products and
replacement of aging manufacturing equipment utilized by the
Brick Business Unit. The Company believes that cash generated
from operations and the total of its cash and cash equivalents
and short-term investments will be sufficient to fund planned
operations and capital equipment purchases for the foreseeable
future. During the quarter ended June 30, 2007, the Company
made an additional investment of $1,000,000 in GWS and agreed to
a further investment of $1,000,000 if certain conditions were
met by November 2007. Those conditions were not met by November
2007. However, the Company did make the additional $1,000,000
investment in February 2008. The additional $1,000,000
investment was approved by the Audit Committee of the
Companys Board of Directors. Additionally, the Company had
approximately $2,047,000 of capital expenditure commitments,
principally for manufacturing equipment as of December 31,
2007.
Through March 14, 2008, auctions held the Companys
auction rate securities with a total aggregate value of
approximately $38.0 million failed. As of March 14,
2008, the Company was holding a total of approximately
$43.0 million in auction rate securities, the significant
majority of which are student loan backed securities. These
municipal and corporate debt securities have their interest
rates reset at auction at regular intervals ranging from seven
to ninety days. The funds associated with our auction rate
securities that fail auction may not be accessible until a
successful auction occurs, a buyer is found outside of the
auction process, the security is called, or the underlying
securities have matured. Based on our ability to access our cash
and other short-term investments and our expected operating cash
flows, we do not anticipate the current lack of liquidity will
affect our ability to execute our current operating plan.
The Company does not consider the impact of inflation and
changing prices on its business activities or fluctuations in
the exchange rates for foreign currency transactions to have
been material during the last three fiscal years.
|
|
ITEM 7A
|
QUALITATIVE
AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
|
The Company is exposed to a variety of market risks, including
changes in interest rates affecting the return on its cash and
cash equivalents and short-term investments and fluctuations in
foreign currency exchange rates.
As the Companys cash and cash equivalents consist
principally of money market securities, which are short-term in
nature, the Companys exposure to market risk on interest
rate fluctuations for these investments is not significant. The
Companys short-term investments consist mainly of
municipal and corporate debt securities, in which a significant
portion are invested in auction rate securities, the significant
majority of which are student loan backed securities. These
auction rate securities have interest rates reset at auction at
regular intervals. Through March 14, 2008, auctions held
for the Companys auction rate securities with a total
aggregate value of approximately $38.0 million failed. As
of March 14, 2008, the Company was holding a total of
approximately $43.0 million in auction rate securities.
While those debt securities are all highly rated investments,
generally with AAA/Aaa ratings, continued failure to sell at
their reset dates could negatively
26
impact the carrying value of the investment which could lead to
impairment charges in future periods, should a decline in the
value of these securities be other than temporary. The Company
does not believe there was any impairment to these investments
as of December 31, 2007. Our annual interest income would
change by approximately $600,000 in 2007 for each 100 basis
point increase or decrease in interest rates.
The Companys exposure to market risk for fluctuations in
foreign currency exchange rates relates primarily to the
operations of Vicor Japan Company, Ltd. (VJCL) and
changes in the dollar/yen exchange rate. In addition, the
functional currency of the Companys subsidiaries in Europe
and Hong Kong is the U.S. Dollar. Therefore, the Company
believes that market risk is mitigated since these operations
are not materially exposed to foreign exchange fluctuations.
Relative to foreign currency exposure against the yen existing
at December 31, 2007, a 10% unfavorable movement in the
dollar/yen exchange rate would increase foreign currency loss by
approximately $200,000.
27
|
|
ITEM 8
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX
FINANCIAL
STATEMENTS
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
29
|
|
Consolidated Balance Sheets as of December 31, 2007 and
2006 (as restated)
|
|
|
30
|
|
Consolidated Statements of Operations For the Years Ended
December 31, 2007, 2006 (as restated) and 2005 (as restated)
|
|
|
31
|
|
Consolidated Statements of Cash Flows For the Years Ended
December 31, 2007, 2006 (as restated) and 2005 (as restated)
|
|
|
32
|
|
Consolidated Statements of Stockholders Equity For the
Years Ended December 31, 2007, 2006 (as restated) and 2005
(as restated)
|
|
|
33
|
|
Notes to the Consolidated Financial Statements
|
|
|
34
|
|
Schedule (Refer to Item 15)
|
|
|
69
|
|
28
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Vicor Corporation
We have audited the accompanying consolidated balance sheets of
Vicor Corporation as of December 31, 2007 and 2006, and the
related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2007. Our audits
also included the financial statement schedule listed in the
Index at Item 15(a)(2). These financial statements and
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Vicor Corporation at
December 31, 2007 and 2006, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2007, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Notes 2 and 7 to the consolidated financial
statements, in 2007, the Company changed its method of
accounting for its related-party investment in Great Wall
Semiconductor Corporation. As discussed in Notes 2 and 12
to the consolidated financial statements, on January 1,
2007, the Company adopted the provisions of Financial Accounting
Standards Board Interpretation No. 48, Accounting for
Uncertainty in Income Taxes. As discussed in Notes 2
and 3 to the consolidated financial statements, on
January 1, 2006, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Vicor Corporations internal control over
financial reporting as of December 31, 2007, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 14, 2008
expressed an adverse opinion thereon.
Boston, Massachusetts
March 14, 2008
29
VICOR
CORPORATION
CONSOLIDATED
BALANCE SHEETS
December 31,
2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands,
|
|
|
|
except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
20,017
|
|
|
$
|
35,860
|
|
Restricted cash and short-term investments
|
|
|
952
|
|
|
|
1,045
|
|
Short-term investments
|
|
|
57,490
|
|
|
|
81,681
|
|
Accounts receivable, less allowance of $398 in 2007 and $583 in
2006
|
|
|
32,054
|
|
|
|
30,399
|
|
Insurance receivable for litigation settlements
|
|
|
|
|
|
|
12,800
|
|
Inventories, net
|
|
|
23,078
|
|
|
|
22,001
|
|
Deferred tax assets
|
|
|
741
|
|
|
|
3,702
|
|
Other current assets
|
|
|
2,629
|
|
|
|
2,709
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
136,961
|
|
|
|
190,197
|
|
Property, plant and equipment, net
|
|
|
50,257
|
|
|
|
51,573
|
|
Other assets
|
|
|
5,240
|
|
|
|
5,691
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
192,458
|
|
|
$
|
247,461
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
10,062
|
|
|
$
|
7,273
|
|
Accrued compensation and benefits
|
|
|
6,003
|
|
|
|
5,192
|
|
Accrued expenses
|
|
|
3,471
|
|
|
|
4,189
|
|
Accrual for litigation settlements
|
|
|
240
|
|
|
|
50,000
|
|
Income taxes payable
|
|
|
278
|
|
|
|
|
|
Deferred revenue
|
|
|
983
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
21,037
|
|
|
|
66,730
|
|
Long-term income taxes payable
|
|
|
1,344
|
|
|
|
2,577
|
|
Deferred income taxes
|
|
|
1,597
|
|
|
|
4,389
|
|
Minority interests
|
|
|
4,040
|
|
|
|
3,593
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred Stock, $.01 par value, 1,000,000 shares
authorized; no shares issued or outstanding in 2007 and 2006
|
|
|
|
|
|
|
|
|
Class B Common Stock: 10 votes per share, $.01 par
value, 14,000,000 shares authorized, 11,824,952 shares
issued and outstanding ( 11,854,952 shares issued and
outstanding in 2006)
|
|
|
118
|
|
|
|
119
|
|
Common Stock: 1 vote per share, $.01 par value,
62,000,000 shares authorized, 38,209,486 shares issued
and 29,811,088 shares outstanding (38,106,377 shares
issued and 29,707,979 shares outstanding in 2006)
|
|
|
384
|
|
|
|
382
|
|
Additional paid-in capital
|
|
|
159,332
|
|
|
|
158,021
|
|
Retained earnings
|
|
|
126,263
|
|
|
|
133,405
|
|
Accumulated other comprehensive income (loss)
|
|
|
170
|
|
|
|
72
|
|
Treasury stock at cost: 8,398,398 shares in 2007 and 2006
|
|
|
(121,827
|
)
|
|
|
(121,827
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
164,440
|
|
|
|
170,172
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
192,458
|
|
|
$
|
247,461
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
30
VICOR
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
Years
ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
|
(In thousands, except per share
|
|
|
|
amounts)
|
|
|
Net revenues
|
|
$
|
195,827
|
|
|
$
|
192,047
|
|
|
$
|
179,351
|
|
Cost of revenues
|
|
|
116,818
|
|
|
|
110,211
|
|
|
|
107,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
79,009
|
|
|
|
81,836
|
|
|
|
71,407
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
48,919
|
|
|
|
46,437
|
|
|
|
40,811
|
|
Research and development
|
|
|
30,372
|
|
|
|
31,381
|
|
|
|
29,466
|
|
(Gain) loss from litigation-related settlements, net
|
|
|
(1,353
|
)
|
|
|
37,200
|
|
|
|
(2,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
77,938
|
|
|
|
115,018
|
|
|
|
68,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
1,071
|
|
|
|
(33,182
|
)
|
|
|
3,380
|
|
Other income (expense), net
|
|
|
4,388
|
|
|
|
5,092
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
5,459
|
|
|
|
(28,090
|
)
|
|
|
4,880
|
|
(Benefit) provision for income taxes
|
|
|
(1,015
|
)
|
|
|
648
|
|
|
|
964
|
|
Loss from equity method investment (net of tax)
|
|
|
1,139
|
|
|
|
321
|
|
|
|
423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,335
|
|
|
$
|
(29,059
|
)
|
|
$
|
3,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.13
|
|
|
$
|
(.69
|
)
|
|
$
|
.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
.13
|
|
|
$
|
(.69
|
)
|
|
$
|
.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
41,597
|
|
|
|
41,839
|
|
|
|
41,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
41,687
|
|
|
|
41,839
|
|
|
|
42,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$
|
.30
|
|
|
$
|
.27
|
|
|
$
|
.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
31
VICOR
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,335
|
|
|
$
|
(29,059
|
)
|
|
$
|
3,493
|
|
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
11,619
|
|
|
|
14,158
|
|
|
|
17,082
|
|
Loss from equity method investment (net of tax)
|
|
|
1,139
|
|
|
|
321
|
|
|
|
423
|
|
Loss on litigation related settlement
|
|
|
|
|
|
|
37,200
|
|
|
|
|
|
Stock compensation expense
|
|
|
667
|
|
|
|
751
|
|
|
|
|
|
Minority interest in net income of subsidiaries
|
|
|
539
|
|
|
|
562
|
|
|
|
807
|
|
(Accretion) amortization of bond (discount) premium
|
|
|
(465
|
)
|
|
|
(167
|
)
|
|
|
573
|
|
Deferred income taxes
|
|
|
104
|
|
|
|
86
|
|
|
|
(133
|
)
|
(Gain) loss on disposal of equipment
|
|
|
(129
|
)
|
|
|
(67
|
)
|
|
|
41
|
|
Change in assets and liabilities, net
|
|
|
(36,628
|
)
|
|
|
(9,455
|
)
|
|
|
6,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used by) provided by operating activities
|
|
|
(17,819
|
)
|
|
|
14,330
|
|
|
|
29,271
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments
|
|
|
(138,642
|
)
|
|
|
(189,683
|
)
|
|
|
(116,114
|
)
|
Sales and maturities of investments
|
|
|
163,298
|
|
|
|
199,901
|
|
|
|
100,746
|
|
Additions to property, plant and equipment
|
|
|
(9,856
|
)
|
|
|
(5,603
|
)
|
|
|
(8,944
|
)
|
Proceeds from sale of equipment
|
|
|
129
|
|
|
|
88
|
|
|
|
|
|
Purchase of equity method investment
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
Increase in other assets
|
|
|
(120
|
)
|
|
|
(176
|
)
|
|
|
(573
|
)
|
Decrease (increase) in restricted cash and short term investments
|
|
|
93
|
|
|
|
(139
|
)
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
13,902
|
|
|
|
4,388
|
|
|
|
(24,675
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
645
|
|
|
|
5,577
|
|
|
|
3,578
|
|
Dividends paid
|
|
|
(12,569
|
)
|
|
|
(11,343
|
)
|
|
|
(5,025
|
)
|
Acquisitions of treasury stock
|
|
|
|
|
|
|
(10,835
|
)
|
|
|
(5,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(11,924
|
)
|
|
|
(16,601
|
)
|
|
|
(6,991
|
)
|
Effect of foreign exchange rates on cash
|
|
|
(2
|
)
|
|
|
40
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(15,843
|
)
|
|
|
2,157
|
|
|
|
(2,225
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
35,860
|
|
|
|
33,703
|
|
|
|
35,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
20,017
|
|
|
$
|
35,860
|
|
|
$
|
33,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
(1,546
|
)
|
|
$
|
(2,363
|
)
|
|
$
|
(4,941
|
)
|
Insurance receivable for litigation
|
|
|
12,800
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
|
(997
|
)
|
|
|
(4,854
|
)
|
|
|
8,913
|
|
Other current assets
|
|
|
83
|
|
|
|
395
|
|
|
|
(279
|
)
|
Accounts payable and accrued liabilities
|
|
|
2,840
|
|
|
|
303
|
|
|
|
3,545
|
|
Accrual for litigation settlement
|
|
|
(49,760
|
)
|
|
|
|
|
|
|
|
|
Income taxes payable
|
|
|
(955
|
)
|
|
|
(2,869
|
)
|
|
|
(90
|
)
|
Deferred revenue
|
|
|
907
|
|
|
|
(67
|
)
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(36,628
|
)
|
|
$
|
(9,455
|
)
|
|
$
|
6,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for income taxes, net of refunds
|
|
$
|
(380
|
)
|
|
$
|
3,590
|
|
|
$
|
1,085
|
|
See accompanying notes
32
VICOR
CORPORATION
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
Years
ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Class B
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid-In
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Stockholders
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
(as restated)
|
|
|
Income (Loss)
|
|
|
Stock
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 (as restated)
|
|
$
|
119
|
|
|
$
|
373
|
|
|
$
|
148,821
|
|
|
$
|
175,339
|
|
|
$
|
(11
|
)
|
|
$
|
(105,448
|
)
|
|
$
|
219,193
|
|
Sales of Common Stock
|
|
|
|
|
|
|
4
|
|
|
|
3,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,578
|
|
Conversion of Class B Common Stock to Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,544
|
)
|
|
|
(5,544
|
)
|
Common stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,025
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,025
|
)
|
Minority interest adjustment
|
|
|
|
|
|
|
|
|
|
|
(697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(697
|
)
|
Net income for 2005 (as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,493
|
|
|
|
|
|
|
|
|
|
|
|
3,493
|
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
33
|
|
Currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 (as restated)
|
|
|
119
|
|
|
|
377
|
|
|
|
151,698
|
|
|
|
173,807
|
|
|
|
(72
|
)
|
|
|
(110,992
|
)
|
|
|
214,937
|
|
Sales of Common Stock
|
|
|
|
|
|
|
5
|
|
|
|
5,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,577
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,835
|
)
|
|
|
(10,835
|
)
|
Common stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,343
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,343
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
751
|
|
Net loss for 2006 (as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,059
|
)
|
|
|
|
|
|
|
|
|
|
|
(29,059
|
)
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164
|
|
|
|
|
|
|
|
164
|
|
Currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss (as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 (as restated)
|
|
|
119
|
|
|
|
382
|
|
|
|
158,021
|
|
|
|
133,405
|
|
|
|
72
|
|
|
|
(121,827
|
)
|
|
|
170,172
|
|
Sales of Common Stock
|
|
|
|
|
|
|
1
|
|
|
|
644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
645
|
|
Conversion of Class B Common Stock to Common Stock
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,477
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,477
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667
|
|
Net income for 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,335
|
|
|
|
|
|
|
|
|
|
|
|
5,335
|
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
118
|
|
|
$
|
384
|
|
|
$
|
159,332
|
|
|
$
|
126,263
|
|
|
$
|
170
|
|
|
$
|
(121,827
|
)
|
|
$
|
164,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
33
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
DESCRIPTION
OF BUSINESS
|
Vicor Corporation (the Company or Vicor)
designs, develops, manufactures and markets modular power
converters, power system components, and power systems using a
patented, high frequency power conversion technology designated
zero current switching. The Company also licenses
certain rights to its technology in return for ongoing
royalties. The principal markets for the power converters and
systems are large Original Equipment Manufacturers and smaller,
lower volume users which are broadly distributed across several
major market areas.
|
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
|
Principles
of consolidation
The consolidated financial statements include the accounts of
the Company and its subsidiaries. All intercompany transactions
and balances have been eliminated upon consolidation. Certain of
the Companys Vicor Integration Architects
(VIAs) are not majority owned by the Company. These
entities are consolidated by the Company as management believes
that the Company has the ability to exercise control over their
activities and operations. During 2005, the Company increased
the minority interests balance by $697,000, with a corresponding
offset to additional paid-in capital, to adjust the balance to
reflect the minority interest ownership percentage in the net
equity of these subsidiaries.
Basis
of presentation
As described in Note 7., due to an additional investment in
Great Wall Semiconductor Corporation (GWS) in May
2007, 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 year
ended December 31, 2006 and December 31, 2005 have
been retroactively restated to reflect the equity method of
accounting, in accordance with Accounting Principles Board
Opinion No. 18, The Equity Method of Accounting for
Investments in Common Stock.
Revenue
recognition
Product revenue is recognized in the period when persuasive
evidence of an arrangement with a customer exists, the products
are shipped and title has transferred to the customer, the price
is fixed or determinable, and collection is considered probable.
License fees are recognized as earned. The Company recognizes
revenue on such arrangements only when the contract is signed,
the license term has begun, all obligations have been delivered
to the customer, and collection is probable. The Company
evaluates revenue arrangements with potential multi-element
deliverables in accordance with Emerging Issues Task Force
(EITF) Issue
No. 00-21
Revenue Arrangements with Multiple Deliverables
(EITF 00-21).
Foreign
currency translation
The financial statements of Vicor Japan Company, Ltd.
(VJCL), for which the functional currency is the
Japanese yen, have been translated into U.S. dollars in
accordance with FASB Statement No. 52, Foreign
Currency Translation. All balance sheet accounts have been
translated using the exchange rate in effect at the balance
sheet date. Income statement amounts have been translated at the
average exchange rates in effect during the year. The gains and
losses resulting from the changes in exchange rates from year to
year have been reported in other comprehensive income.
Transaction gains and losses, and translation gains (losses)
resulting from the remeasurement of foreign currency denominated
assets and liabilities of the Companys foreign
subsidiaries where the functional currency is the
U.S. dollar are included in other income (expense), net.
Foreign currency gains (losses), included in other income
(expense), net, were approximately $186,000, $139,000, and
($771,000) in 2007, 2006 and 2005, respectively.
34
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES (Continued)
|
Cash
and cash equivalents
Cash and cash equivalents include funds held in checking and
money market accounts with banks, certificates of deposit and
debt securities with maturities of less than three months when
purchased and money market securities. Cash and cash equivalents
are valued at cost which approximates market value. The
Companys money market securities, which are classified as
cash equivalents on the balance sheet, are purchased and
redeemed at par. The estimated fair value is equal to the cost
of the securities and due to the nature of the securities there
are no unrealized gains or losses at the balance sheet dates.
Restricted
cash and short-term investments
Restricted cash and short-term investments represent the amount
of cash and short-term investments required to be set aside as a
guarantee for certain foreign letters of credit. Restricted cash
and short-term investments of $1,045,000 as of December 31,
2006, and $906,000 as of December 31, 2005, respectively,
were reclassified to conform to the 2007 presentation.
Short-term
and long-term investments
The Companys short-term and long-term investments are
classified as
available-for-sale
securities and are recorded at fair value, with the unrealized
gains and losses, net of tax, reported in a separate component
of stockholders equity. The amortized cost of debt
securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization, along
with interest and realized gains and losses, are included in
other income (expense), net. The Company has no trading
securities or
held-to-maturity
securities.
Through March 14, 2008, auctions held for the
Companys auction rate securities with a total aggregate
value of approximately $38.0 million failed. As of
March 14, 2008, the Company was holding a total of
approximately $43.0 million in auction rate securities, the
significant majority of which are student loan backed
securities. These municipal and corporate debt securities have
their interest rates reset at auction at regular intervals
ranging from seven to ninety days. Because of these short
term intervals between interest reset dates, the Company
monitors the auctions to ensure they are successful, which
provides evidence that the recorded values of these investments
approximate their fair values. As discussed above, auctions
related to substantially all our auction rate securities have
failed and if auctions continue to fail such that the securities
were deemed to be not liquid, the Company would need to seek
other alternatives to determine the fair value of these
securities, which may not be based on the quoted market
transaction. In addition, due to the Companys inability to
quickly liquidate these investments, the Company may reclassify
those investments with failed auctions as long-term assets in
its consolidated balance sheet.
Allowance
for doubtful accounts
The Company maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers
to make required payments, based on assessments of
customers credit-risk profiles and payment histories. If
the financial condition of the Companys customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
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.
35
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES (Continued)
|
Concentrations
of credit risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of
cash and cash equivalents, short-term and long-term investments
and trade accounts receivable. The Company maintains cash and
cash equivalents and certain other financial instruments with
various high credit, quality financial institutions. The
Companys short-term and long-term investments consist of
highly rated (AAA/Aaa) municipal and corporate debt securities
in which a significant portion are invested in auction rate
securities. As of March 14, 2008, the Company was holding a
total of approximately $43.0 million in auction rate
securities, the significant majority of which are student loan
backed securities. Through March 14, 2008, auctions held
for the Companys auction rate securities with a total
aggregate value of approximately $38.0 million failed. The
funds associated with our auction rate securities that fail
auction may not be accessible until a successful auction occurs,
a buyer is found outside of the auction process, the security is
called, or the underlying securities have matured. If the credit
rating of the issuer of any auction rate security held by us
deteriorates, we may be required to adjust the carrying value of
the investment for an other than temporary decline in value
through an impairment charge. The Companys investment
policy, approved by the Board of Directors, limits the amount
the Company may invest in any issuer, thereby reducing credit
risk concentrations. Concentrations of credit risk with respect
to trade accounts receivable are limited due to the number of
entities comprising the Companys customer base. Credit
losses have consistently been within managements
expectations.
Goodwill
and intangible assets
The Company accounts for its goodwill and other intangible
assets in accordance with FASB Statement No. 142,
Goodwill and Other Intangible Assets (FAS 142),
which resulted in the elimination of goodwill amortization
beginning in fiscal 2002. The Company performs a test of
goodwill for potential impairment at least annually. Values
assigned to patents are amortized using the straight-line method
over periods ranging from three to twenty years.
Long-lived
assets
In accordance with FASB Statement No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets,
long-lived assets such as property, plant and equipment and
intangible assets, are included in impairment evaluations when
events or circumstances exist that indicate the carrying amount
of those assets may not be recoverable. If the impairment
evaluation indicates the affected asset is not recoverable, the
assets carrying value would be reduced to fair value. No
event has occurred that would suggest any impairment in the
value of long-lived assets recorded in the accompanying
consolidated financial statements.
Other
investments
The accounting for investment transactions is reviewed for
compliance with Accounting Principles Board Opinion No. 18,
The Equity Method for Accounting for Investments in Common
Stock (APB 18) and/or FASB Interpretation No. 46
Revised (FIN 46R), Consolidation of Variable Interest
Entities. As discussed in Note 7. the Company
previously accounted for the investment in Great Wall
Semiconductor Corporation (GWS) under APB 18 as a
cost method investment as management believed it did not have
significant influence over GWS. An additional investment in GWS
in May 2007 resulted in the Company owning approximately 24% of
GWS which management believes, along with other qualitative
factors considered, gives the Company significant influence over
GWS. As a result of the additional investment, the Company is
required to account for the investment in GWS under the equity
method of accounting and to retroactively restate its previously
issued consolidated financial statements to reflect the equity
method of accounting, in accordance with APB 18.
36
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES (Continued)
|
Advertising
expense
The cost of advertising is expensed as incurred. The Company
incurred $2,205,000, $2,473,000 and $1,913,000 in advertising
costs during 2007, 2006 and 2005, respectively.
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 consolidated
balance sheets.
Net
income (loss) per common share
Basic and diluted income (loss) per share are calculated in
accordance with FASB Statement No. 128, Earnings per
Share. The following table sets forth the computation of
basic and diluted income (loss) per share (in thousands,
except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(as restated)
|
|
|
(as restated)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,335
|
|
|
$
|
(29,059
|
)
|
|
$
|
3,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic income (loss) per share
weighted average shares
|
|
|
41,597
|
|
|
|
41,839
|
|
|
|
41,923
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
90
|
|
|
|
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted income (loss) per share
adjusted weighted-average shares
|
|
|
41,687
|
|
|
|
41,839
|
|
|
|
42,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
$
|
.13
|
|
|
$
|
(.69
|
)
|
|
$
|
.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share
|
|
$
|
.13
|
|
|
$
|
(.69
|
)
|
|
$
|
.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 968,575 and 1,213,679 shares of Common
Stock were outstanding in 2007 and 2005, respectively, 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. Options to purchase
1,643,629 shares of Common Stock in 2006, respectively,
were not included in the calculation of net loss per share as
the effect would have been antidilutive.
Income
taxes
The Company accounts for income taxes in accordance with FASB
Statement No. 109, Accounting for Income Taxes
(FAS 109). FAS 109 requires that deferred tax assets
and liabilities are determined based on the differences between
financial reporting and tax bases of assets and liabilities and
are measured using the enacted income tax rates and laws that
are expected to be in effect when the temporary differences are
expected to reverse. FAS 109 also requires that deferred
tax assets be reduced by a valuation allowance if it is more
likely than not that some portion or all of the deferred tax
assets will not be realized. Additionally,
37
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES (Continued)
|
deferred tax assets and liabilities are separated into current
and noncurrent amounts based on the classification of the
related assets and liabilities for financial reporting purposes
or the expected reversal.
The Company adopted FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), on January 1, 2007. FIN 48
clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in
accordance with FASB Statement No. 109, Accounting
for Income Taxes. FIN 48 prescribes a two-step
process to determine the amount of tax benefit to recognize.
First, the tax position must be evaluated to determine the
likelihood that it will be sustained upon examination by a tax
authority. If the tax position is deemed
more-likely-than-not to be sustained, the tax
position is then assessed to determine the amount of benefit to
recognize in the financial statements. The amount of the benefit
that may be recognized is the largest amount that has a greater
than 50 percent likelihood of being realized upon ultimate
settlement. If the tax position does not meet the
more-likely-than-not threshold then it is not
recognized in the financial statements. In accordance with
FIN 48, the Company accrues interest and penalties, if any,
related to unrecognized tax benefits as a component of income
tax expense. The Companys adoption of FIN 48 as of
January 1, 2007 did not have a material impact on the
Companys financial position or results of operations.
Stock-based
compensation
On January 1, 2006, the Company adopted FASB statement
No. 123 (revised 2004), Share-Based Payment
(FAS 123R), which is a revision of FAS No. 123,
Accounting for Stock-Based Compensation.
FAS 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and amends
SFAS No. 95, Statement of Cash Flows.
Generally, the approach in FAS 123(R) is similar to the
approach described in FAS 123. However, FAS 123(R)
requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the income
statement based on their fair values at the date of grant. Pro
forma disclosure is no longer an alternative.
The Company is using the modified prospective method as
permitted under FAS 123(R). Under this transition method,
compensation cost recognized in fiscal 2007 and 2006 includes:
(a) compensation cost for all share-based payments granted
prior to but not yet vested as of December 31, 2005, based
on the grant-date fair value estimated in accordance with the
provisions of FAS 123, and (b) compensation cost for
all share-based payments granted subsequent to December 31,
2005, based on the grant-date fair value estimated in accordance
with the provisions of FAS 123(R). In accordance with the
modified prospective method of adoption, Vicors results of
operations and financial position for prior periods have not
been restated.
Use of
estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Comprehensive
income
The Company reports comprehensive income in accordance with FASB
Statement No. 130, Reporting Comprehensive
Income (FAS 130). FAS 130 requires the foreign
currency translation adjustments related to VJCL and unrealized
gains (losses) on short-term and long-term investments to be
included in other comprehensive income, net of related income
tax effects.
38
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES (Continued)
|
Impact
of recently issued accounting standards
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements (FAS 157), which the Company must adopt
for the fiscal year ending December 31, 2008. FAS 157
defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value
measurements. FAS 157 applies under other accounting
pronouncements that require or permit fair value measurements,
the FASB having previously concluded in those accounting
pronouncements that fair value is the relevant measurement
attribute. Accordingly, this Statement does not require any new
fair value measurements. However, for some entities, the
application of this Statement will change current practice. The
Company has not determined the impact, if any, that FAS 157
will have on its financial position or results of operations.
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities
Including an amendment of FASB Statement No. 115
(FAS 159), which the Company must adopt for the fiscal year
ending December 31, 2008. FAS 159 permits entities to
choose to measure many financial instruments and certain other
items at fair value that are not currently required to be
measured at fair value. The Company has not determined the
impact, if any, that FAS 159 will have on its financial
position or results of operations.
In December 2007, the FASB issued statement of Financial
Accounting Standards No. 141 (revised 2007), Business
Combinations (FAS 141R). FAS 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.
FAS 141R promotes greater use of fair values in financial
reporting. Some of the changes will introduce more volatility
into earnings. FAS 141R is effective for fiscal years
beginning on or after December 15, 2008. The Company has
not determined the impact, if any, that FAS 141R will have
on its financial position or results of operations.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160, Noncontrolling
Interests in Consolidated Financial Statements
(FAS 160), an amendment of ARB No. 51. FAS 160
will change the accounting and reporting for minority interests
which will be recharacterized as noncontrolling interests and
classified as a component of equity. FAS 160 is effective
for fiscal years beginning on or after December 15, 2008.
FAS 160 requires retroactive adoption of the presentation
and disclosure requirements for existing minority interests. The
Company has not determined the impact, if any, that FAS 160
will have on its financial position or results of operations.
|
|
3.
|
STOCK-BASED
COMPENSATION AND EMPLOYEE BENEFIT PLANS
|
On January 1, 2006 the Company adopted FASB statement
No. 123 (revised 2004), Share-Based Payment
(FAS 123R), which is a revision of FAS No. 123,
Accounting for Stock-Based Compensation.
FAS 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and amends
SFAS No. 95, Statement of Cash Flows.
Generally, the approach in FAS 123(R) is similar to the
approach described in FAS 123. However, FAS 123(R)
requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the income
statement based on their fair values at the date of grant. Pro
forma disclosure is no longer an alternative.
The Company is using the modified prospective method as
permitted under FAS 123(R). Under this transition method,
compensation cost recognized in fiscal 2007 and 2006 includes:
(a) compensation cost for all share-based payments granted
prior to but not yet vested as of December 31, 2005, based
on the grant-date fair value estimated in accordance with the
provisions of FAS 123, and (b) compensation cost for
all share-based payments granted subsequent to December 31,
2005, based on the grant-date fair value estimated in
39
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
3.
|
STOCK-BASED
COMPENSATION AND EMPLOYEE BENEFIT PLANS (Continued)
|
accordance with the provisions of FAS 123(R). In accordance
with the modified prospective method of adoption, Vicors
results of operations and financial position for prior periods
have not been restated.
Prior to the adoption of FAS 123(R), the Company used the
intrinsic value method in accounting for its employee stock
options in accordance with Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees (APB 25) and related Interpretations, as
permitted under FASB Statement No. 123, Accounting
for Stock-Based Compensation (FAS 123) and FASB
Statement No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure
(FAS 148). Under APB 25, because the exercise price of the
Companys employee stock options equals the market price of
the underlying stock on the date of grant, no compensation
expense is recognized.
Vicor currently grants stock options under the following equity
compensation plans that are shareholder-approved:
Amended and Restated 2000 Stock Option and Incentive Plan
(the 2000 Plan) Under the 2000 Plan,
the Board of Directors or the Compensation Committee may grant
stock incentive awards based on the Companys Common Stock,
including stock options, stock appreciation rights, restricted
stock, performance shares, unrestricted stock, deferred stock
and dividend equivalent rights. Awards may be granted to
employees and other key persons, including non-employee
directors. Discretionary awards of stock options to non-employee
directors shall be in lieu of any automatic grant of stock
options under the Companys 1993 Stock Option Plan (the
1993 Plan) and the Companys 1998 Stock Option
and Incentive Plan (the 1998 Plan). Incentive stock
options may be granted to employees at a price at least equal to
the fair market value per share of the Common Stock on the date
of grant, and non-qualified options may be granted to
non-employee directors at a price at least equal to 85% of the
fair market value of the Common Stock on the date of grant. A
total of 4,000,000 shares of Common Stock have been
reserved for issuance under the 2000 Plan. The period of time
during which an option may be exercised and the vesting periods
are determined by the Compensation Committee. The term of each
option may not exceed ten years from the date of grant.
1998 Stock Option and Incentive Plan (the 1998
Plan) The 1998 Plan permitted the grant of
share options to its employees and other key persons, including
non-employee directors for up to 2 million shares of common
stock. As a result of the approval of the 2000 Plan, no further
grants were made under the 1998 Plan.
1993 Stock Option Plan (the 1993
Plan) The 1993 Plan permitted the grant of
share options to its employees and non-employee directors for up
to 4,000,000 shares of common stock. As a result of the approval
of the 2000 Plan, no further grants were made under the 1993
Plan.
Picor Corporation (Picor), a privately held majority
owned subsidiary of Vicor, currently grants stock options under
the following equity compensation plan that has been approved by
its Board of Directors:
2001 Stock Option and Incentive Plan, as amended (the
2001 Picor Plan) The 2001 Picor Plan
permits the grant of share options to its employees and other
key persons, including non-employee directors and full or
part-time officers, for up to 10,000,000 shares of common stock.
40
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
3.
|
STOCK-BASED
COMPENSATION AND EMPLOYEE BENEFIT PLANS (Continued)
|
V*I Chip Corporation (V*I Chip), a privately held
wholly owned subsidiary of Vicor, currently grants stock options
under the following equity compensation plan that has been
approved by its Board of Directors:
2007 Stock Option and Incentive Plan, as amended (the
2007 V*I Chip Plan) The 2007 V*I
Chip Plan permits the grant of share options to its employees
and other key persons, including non-employee directors and full
or part-time officers, for up to 12,000,000 shares of common
stock.
All option awards are granted at an exercise price equal to or
greater than the market price for Vicor at the date of the
grant, and are granted at a price equal to or greater than the
estimated fair value for both Picor and V*I Chip at the date of
grant. Options vest over various periods of up to five years and
may be exercised for up to ten years from the date of grant,
which is the maximum contractual term. The Company uses the
graded attribution method to recognize expense for all
stock-based awards in accordance with FAS 123(R).
Stock compensation expense for the years ended December 31,
2007 and 2006 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Cost of revenues
|
|
$
|
47
|
|
|
$
|
85
|
|
Selling, general and administrative
|
|
|
368
|
|
|
|
385
|
|
Research and development
|
|
|
252
|
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
Total stock based compensation
|
|
$
|
667
|
|
|
$
|
751
|
|
|
|
|
|
|
|
|
|
|
Had expense been recognized using the fair value method
described in FAS 123, using the Black-Scholes option
pricing model, the following pro forma results of operations
would have been reported (in thousands except for per share
information):
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
Net income, as restated
|
|
$
|
3,493
|
|
Total stock-based employee compensation expense determined under
fair-value based methods for all awards, net of related tax
effects
|
|
|
(845
|
)
|
|
|
|
|
|
Pro forma net income
|
|
$
|
2,648
|
|
|
|
|
|
|
Net income per share, as restated:
|
|
|
|
|
Basic
|
|
$
|
.08
|
|
Diluted
|
|
$
|
.08
|
|
Pro forma net income per share:
|
|
|
|
|
Basic
|
|
$
|
.06
|
|
Diluted
|
|
$
|
.06
|
|
The fair value for the options was estimated at the date of
grant using a Black-Scholes option pricing model under all
methods with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Vicor:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Risk-free interest rate
|
|
|
4.7
|
%
|
|
|
4.7
|
%
|
|
|
3.9
|
%
|
Expected dividend yield
|
|
|
1.84
|
%
|
|
|
1.50
|
%
|
|
|
.38
|
%
|
Expected volatility
|
|
|
.49
|
|
|
|
.53
|
|
|
|
.59
|
|
Expected lives
|
|
|
3.8 years
|
|
|
|
3.8 years
|
|
|
|
4.0 years
|
|
41
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
3.
|
STOCK-BASED
COMPENSATION AND EMPLOYEE BENEFIT PLANS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Picor:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Risk-free interest rate
|
|
|
4.7
|
%
|
|
|
5.1
|
%
|
|
|
4.4
|
%
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
.43
|
|
|
|
.48
|
|
|
|
.43
|
|
Expected lives
|
|
|
6.5 years
|
|
|
|
6.5 years
|
|
|
|
6.5 years
|
|
|
|
|
|
|
V*I Chip:
|
|
2007
|
|
|
Risk-free interest rate
|
|
|
4.6
|
%
|
Expected dividend yield
|
|
|
|
|
Expected volatility
|
|
|
.65
|
|
Expected lives
|
|
|
6.5 years
|
|
Risk-free
interest rate:
Vicor The Company uses the yield on
zero-coupon U.S. Treasury Strip securities for a period
that is commensurate with the expected term assumption for each
vesting period.
Picor The Company uses the yield to maturity
of a ten-year treasury bond, since all of Picors options
expire ten years after they are granted.
V*I Chip The Company uses the yield to
maturity of a ten-year treasury bond, since all of V*I
Chips options expire ten years after they are granted.
Expected
dividend yield:
Vicor The Company determines the expected
dividend yield by annualizing the most recent prior cash
dividends declared by the Companys Board of Directors and
dividing that result by the closing stock price on the date of
that dividend declaration. Dividends are not paid on options.
Picor Picor has not and does not expect to
declare and pay dividends in the foreseeable future. Therefore,
the expected dividend yield is not applicable.
V*I Chip V*I Chip has not and does not expect
to declare and pay dividends in the foreseeable future.
Therefore, the expected dividend yield is not applicable.
Expected
volatility:
Vicor Under FAS 123, Vicor used
historical volatility to estimate the grant-date fair value of
the options. Under FAS 123(R), Vicor has elected to
continue to use historical volatility, using the expected term
for the period over which to calculate the volatility (see
below). The Company does not expect its future volatility to
differ from its historical volatility. The computation of the
Companys volatility is based on a simple average
calculation of monthly volatilities over the expected term.
Picor As Picor is a nonpublic entity,
historical volatility information is not available. As permitted
under FAS 123(R), an industry sector index of approximately
5 publicly traded fabless semiconductor firms was developed for
calculating historical volatility for Picor. Historical prices
for each of the companies in the index based on the market price
of the shares on each day of trading over the expected term were
used to determine the historical volatility.
V*I Chip As V*I Chip is a nonpublic entity,
historical volatility information is not available. As permitted
under FAS 123(R), an industry sector index of approximately
5 publicly traded fabless
42
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
3.
|
STOCK-BASED
COMPENSATION AND EMPLOYEE BENEFIT PLANS (Continued)
|
semiconductor firms was developed for calculating historical
volatility for V*I Chip. Historical prices for each of the
companies in the index based on the market price of the shares
on each day of trading over the expected term were used to
determine the historical volatility.
Expected
term:
Vicor The Company uses historical employee
exercise and option expiration data to estimate the expected
term assumption for the Black-Scholes grant-date valuation. The
Company believes that this historical data is currently the best
estimate of the expected term of options, and that generally all
groups of our employees exhibit similar exercise behavior.
Picor Due to the lack of historical
information, the simplified method prescribed by the
Securities and Exchange Commissions Staff Accounting
Bulletin No. 110 was used to determine the expected
term.
V*I Chip Due to the lack of historical
information, the simplified method prescribed by the
Securities and Exchange Commissions Staff Accounting
Bulletin No. 110 was used to determine the expected
term.
Forfeiture
rate
The amount of stock-based compensation recognized during a
period is based on the value of the portion of the awards that
are ultimately expected to vest. FAS 123(R) requires
forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. The term
forfeitures is distinct from
cancellations or expirations and
represents only the unvested portion of the surrendered option.
Vicor The Company currently expects that for
Vicor options, based on an analysis of its historical
forfeitures, that approximately 80% of its options will actually
vest, and therefore has applied an annual forfeiture rate of
7.25% to all unvested options as of December 31, 2007. For
2006, the Company expected 84% of its options would actually
vest and applied an annual forfeiture rate of 5.75%. This
analysis will be re-evaluated quarterly and the forfeiture rate
will be adjusted as necessary. Ultimately, the actual expense
recognized over the vesting period will only be for those shares
that vest.
Picor The Company currently expects that for
Picor options, based on an analysis of its historical
forfeitures, that approximately 89% of its options will actually
vest, and therefore has applied an annual forfeiture rate of
3.75% to all unvested options as of December 31, 2007.
Since the compensation expense for year ended December 31,
2006 was immaterial, the Company did not apply an estimated
forfeiture rate to the compensation expense. This analysis will
be re-evaluated quarterly and the forfeiture rate will be
adjusted as necessary. Ultimately, the actual expense recognized
over the vesting period will only be for those shares that vest.
43
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
3.
|
STOCK-BASED
COMPENSATION AND EMPLOYEE BENEFIT PLANS (Continued)
|
V*I Chip Since the compensation expense for
year ended December 31, 2007 was immaterial, the Company
did not apply an estimated forfeiture rate to the compensation
expense.
Vicor
Stock Options
A summary of the activity under Vicors stock option plans
as of December 31, 2007 and changes during the year then
ended, is presented below (in thousands except for share and
weighted-average data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Life in
|
|
|
Intrinsic
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
Years
|
|
|
Value
|
|
|
Outstanding at December 31, 2004
|
|
|
3,035,350
|
|
|
$
|
18.04
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
78,160
|
|
|
$
|
14.04
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(475,964
|
)
|
|
$
|
23.78
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(377,298
|
)
|
|
$
|
9.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
2,260,248
|
|
|
$
|
18.14
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
117,860
|
|
|
$
|
17.95
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(298,635
|
)
|
|
$
|
25.84
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(435,844
|
)
|
|
$
|
12.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
1,643,629
|
|
|
$
|
18.14
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
48,530
|
|
|
$
|
12.06
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(371,349
|
)
|
|
$
|
18.99
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(73,109
|
)
|
|
$
|
8.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
1,247,701
|
|
|
$
|
18.20
|
|
|
|
2.66
|
|
|
$
|
2,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
1,086,471
|
|
|
$
|
18.71
|
|
|
|
2.16
|
|
|
$
|
2,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2007(1)
|
|
|
1,230,412
|
|
|
$
|
18.24
|
|
|
|
2.59
|
|
|
$
|
2,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In addition to the vested options, the Company expects a portion
of the unvested options to vest at some point in the future.
Options expected to vest is calculated by applying an estimated
forfeiture rate to the unvested options. |
As of December 31, 2006 and 2005 the Company had shares
exercisable of 1,418,885 and 1,918,674 respectively, for which
the weighted average exercise prices were $18.63 and $19.30,
respectively.
During the years ended December 31, 2007, 2006 and 2005
under all plans, the total intrinsic value of Vicor options
exercised (i.e. the difference between the market price at
exercise and the price paid by the employee to exercise the
options) was $292,000, $3,051,000 and $2,027,000, respectively.
The total amount of cash received by the Company from exercise
of options exercised in 2007 was $645,000. The total grant-date
fair value of stock options that vested during the years ended
December 31, 2007, 2006 and 2005 was approximately
$634,000, $1,421,000, and $3,036,000, respectively.
As of December 31, 2007, there was $554,000 of total
unrecognized compensation cost related to unvested share-based
awards for Vicor. That cost is expected to be recognized over a
weighted-average period of 1.57 years for all Vicor awards.
The expense will be recognized as follows: $311,000 in 2008,
$154,000 in 2009, $69,000 in 2010, $18,000 in 2011, and $2,000
in 2012.
44
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
3.
|
STOCK-BASED
COMPENSATION AND EMPLOYEE BENEFIT PLANS (Continued)
|
The weighted-average fair value of Vicor options granted was
$4.37, $6.54 and $7.02 in 2007, 2006 and 2005, respectively. The
weighted-average contractual life for Vicor options outstanding
as of December 31, 2007 is 2.7 years.
Picor
Stock Options
Under the 2001 Picor Plan, the Board of Directors of Picor
Corporation (Picor) may grant stock incentive awards
based on the Picor Common Stock, including stock options,
restricted stock or unrestricted stock. Awards may be granted to
employees and other key persons, including non-employee
directors and full or part-time officers. Incentive stock
options may be granted to employees at a price at least equal to
the fair market value per share of the Picor Common Stock, based
on judgments made by the Company, on the date of grant. A total
of 10,000,000 shares of Picor Common Stock have been
reserved for issuance under the 2001 Picor Plan. The period of
time during which an option may be exercised and the vesting
periods are determined by the Picor Board of Directors. The term
of each option may not exceed ten years from the date of grant.
A summary of the activity under the 2001 Picor Plan as of
December 31, 2007 and changes during the year then ended,
is presented below (in thousands except for share and
weighted-average data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Options
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Outstanding
|
|
|
Exercise Price
|
|
|
Life in Years
|
|
|
Value
|
|
|
Outstanding at December 31, 2004
|
|
|
3,290,000
|
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
212,000
|
|
|
$
|
0.75
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(60,000
|
)
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
3,442,000
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,040,500
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(147,960
|
)
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(30,000
|
)
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
4,304,540
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
114,000
|
|
|
$
|
0.74
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(40,000
|
)
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
4,378,540
|
|
|
$
|
0.56
|
|
|
|
5.98
|
|
|
$
|
1,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
2,918,412
|
|
|
$
|
0.45
|
|
|
|
5.16
|
|
|
$
|
1,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2007(1)
|
|
|
4,297,575
|
|
|
$
|
0.55
|
|
|
|
5.94
|
|
|
$
|
1,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In addition to the vested options, Picor expects a portion of
the unvested options to vest at some point in the future.
Options expected to vest is calculated by applying an estimated
forfeiture rate to the unvested options. |
As of December 31, 2006 and 2005 Picor had shares
exercisable of 2,269,704 and 1,683,280, respectively, for which
the weighted average exercise prices were $0.39 and $0.36,
respectively.
45
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
3.
|
STOCK-BASED
COMPENSATION AND EMPLOYEE BENEFIT PLANS (Continued)
|
For year end December 31, 2007 Picor did not have any
options exercised. During the year ended December 31, 2006,
the total intrinsic value of Picor options exercised (i.e. the
difference between the market price at exercise and the price
paid by the employee to exercise the options) was $19,000 (none
in 2005 and 2004). The total amount of cash received by the
Company from exercise of options exercised in 2006 was $7,000.
The total grant-date fair value of stock options that vested
during the years ended December 31, 2007, 2006 and 2005 was
approximately $37,000, $111,000 and $101,000 respectively.
As of December 31, 2007, there was $381,000 of total
unrecognized compensation cost related to unvested share-based
awards for Picor. That cost is expected to be recognized over a
weighted-average period of 1.58 years for all Picor awards.
The expense will be recognized as follows: $152,000 in 2008,
$99,000 in 2009, $86,000 in 2010, $43,000 in 2011, and $1,000 in
2012.
The weighted-average fair value of Picor options granted was
$.37, $.37 and $.32 in 2007, 2006 and 2005, respectively. The
weighted-average contractual life for Picor options outstanding
as of December 31, 2007 is 6 years.
V*I
Chip Stock Options
Under the 2007 V* I Chip Plan, the Board of Directors of V*I
Chip Corporation (V*I Chip) may grant stock
incentive awards based on the V*I Chip Common Stock, including
stock options, restricted stock or unrestricted stock. Awards
may be granted to employees and other key persons, including
non-employee directors and full or part-time officers. Incentive
stock options may be granted to employees at a price at least
equal to the fair market value per share of the V*I Chip Common
Stock, based on judgments made by the Company, on the date of
grant. A total of 12,000,000 shares of V*I Chip Common
Stock have been reserved for issuance under the 2007 V*I Chip
Plan. The period of time during which an option may be exercised
and the vesting periods are determined by the V*I Chip Board of
Directors. The term of each option may not exceed ten years from
the date of grant.
A summary of the activity under the 2007 V*I Chip Plan as of
December 31, 2007 and changes during the year then ended,
is presented below (in thousands except for share and
weighted-average data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Options
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Outstanding
|
|
|
Exercise Price
|
|
|
Life in Years
|
|
|
Value
|
|
|
Outstanding at December 31, 2006
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
6,655,000
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(65,000
|
)
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
6,590,000
|
|
|
$
|
1.00
|
|
|
|
9.42
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2007(1)
|
|
|
6,590,000
|
|
|
|
1.00
|
|
|
|
9.42
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In addition to the vested options, V*I Chip expects a portion of
the unvested options to vest at some point in the future.
Options expected to vest is calculated by applying an estimated
forfeiture rate to the unvested options. |
46
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
3.
|
STOCK-BASED
COMPENSATION AND EMPLOYEE BENEFIT PLANS (Continued)
|
As of December 31, 2007, there was $586,000 of total
unrecognized compensation cost related to unvested share-based
awards for V*I Chip. That cost is expected to be recognized over
a weighted-average period of 2.4 years for all V*Chip
awards. The expense will be recognized as follows: $134,000 in
2008, $133,000 in 2009, $132,000 in 2010, $132,000 in 2011, and
$55,000 in 2012.
The weighted-average fair value of V*I Chip options granted were
$.10 for 2007. The weighted-average contractual life for V*I
Chip options outstanding as of December 31, 2007 is
9 years.
401(k)
Plan
The Company sponsors a savings plan available to all domestic
employees, which qualifies under Section 401(k) of the
Internal Revenue Code. Employees may contribute to the plan from
1% to 20% of their pre-tax salary subject to statutory
limitations. The Company matches employee contributions to the
plan at a rate of 50% up to the first 3% of an employees
compensation. The Companys matching contributions
currently vest at a rate of 20% per year based upon years of
service. The Companys contribution to the plan was
approximately $694,000, $684,000 and $622,000 in 2007, 2006 and
2005 respectively.
Stock
Bonus Plan
Under the Companys 1985 Stock Bonus Plan, as amended,
shares of Common Stock may be awarded to employees from time to
time as determined by the Board of Directors. At
December 31, 2006, 109,964 shares were available for
further award. All shares awarded to employees under this plan
have vested. No further awards are contemplated under this plan
at the present time.
|
|
4.
|
SHORT-TERM
AND LONG-TERM INVESTMENTS
|
The following is a summary of available-for-sale securities (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
19,150
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19,150
|
|
Obligations of states and political subdivisions
|
|
|
36,000
|
|
|
|
|
|
|
|
|
|
|
|
36,000
|
|
Certificates of deposit
|
|
|
2,340
|
|
|
|
|
|
|
|
|
|
|
|
2,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
57,490
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
57,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities (as restated)
|
|
$
|
25,933
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
|
$
|
25,926
|
|
Obligations of states and political subdivisions
|
|
|
54,425
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
54,423
|
|
Certificates of deposit
|
|
|
1,332
|
|
|
|
|
|
|
|
|
|
|
|
1,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
81,690
|
|
|
$
|
|
|
|
$
|
(9
|
)
|
|
$
|
81,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
4.
|
SHORT-TERM
AND LONG-TERM INVESTMENTS (Continued)
|
The amortized cost and estimated fair value of debt securities
at December 31, 2007, by contractual maturities, are shown
below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Due in one year or less
|
|
$
|
2,340
|
|
|
$
|
2,340
|
|
Due in ten to twenty years
|
|
|
7,075
|
|
|
|
7,075
|
|
Due in twenty to forty years
|
|
|
48,075
|
|
|
|
48,075
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
57,490
|
|
|
$
|
57,490
|
|
|
|
|
|
|
|
|
|
|
Through March 14, 2008, auctions held for the
Companys auction rate securities with a total aggregate
value of approximately $38.0 million failed. As of
March 14, 2008, the Company was holding a total of
approximately $43.0 million in auction rate securities, the
significant majority of which are student loan backed
securities. These municipal and corporate debt securities have
their interest rates reset at auction at regular intervals
ranging from seven to ninety days. Because of these short
term intervals between interest reset dates, the Company
monitors the auctions to ensure they are successful, which
provides evidence that the recorded values of these investments
approximate their fair values. As discussed above, auctions
related to substantially all our auction rate securities have
failed and if auctions continue to fail such that the securities
were deemed to be not liquid, the Company would need to seek
other alternatives to determine the fair value of these
securities, which may not be based on the quoted market
transaction. In addition, due to the Companys inability to
quickly liquidate these investments, the Company may reclassify
those investments with failed auctions as long-term assets in
its consolidated balance sheet.
Inventories were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Raw materials
|
|
$
|
23,711
|
|
|
$
|
23,805
|
|
Work-in-process
|
|
|
2,656
|
|
|
|
2,319
|
|
Finished goods
|
|
|
4,357
|
|
|
|
4,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,724
|
|
|
|
30,364
|
|
Inventory reserves
|
|
|
(7,646
|
)
|
|
|
(8,363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,078
|
|
|
$
|
22,001
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
PROPERTY,
PLANT AND EQUIPMENT
|
Property, plant and equipment are stated at cost and are
depreciated and amortized over a period of 3 to 31.5 years
generally under the straight-line method for financial reporting
purposes and accelerated methods for income tax purposes.
48
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
6.
|
PROPERTY,
PLANT AND EQUIPMENT (Continued)
|
Property, plant and equipment were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Land
|
|
$
|
2,089
|
|
|
$
|
2,089
|
|
Buildings and improvements
|
|
|
40,868
|
|
|
|
40,691
|
|
Machinery and equipment
|
|
|
180,216
|
|
|
|
174,570
|
|
Furniture and fixtures
|
|
|
5,922
|
|
|
|
5,571
|
|
Construction-in-progress
|
|
|
1,084
|
|
|
|
391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230,179
|
|
|
|
223,312
|
|
Less accumulated depreciation and amortization
|
|
|
179,922
|
|
|
|
171,739
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,257
|
|
|
$
|
51,573
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2007,
2006 and 2005 was approximately $11,172,000, $13,123,000, and
$16,790,000 respectively. At December 31, 2007, the Company
had approximately $2,047,000 of capital expenditure commitments.
In August 2003, the Board of Directors approved the investment
by the Company of $1,000,000 in non-voting preferred stock of
Great Wall Semiconductor Corporation (GWS). In March
and August 2004, the Audit Committee of the Board of Directors
approved additional investments by the Company of $1,000,000
each for a total 2004 investment of $2,000,000 in non-voting
preferred stock of GWS. In May 2007, the Audit Committee of the
Board of Directors approved an additional investment of
$1,000,000 in non-voting convertible preferred stock of Great
Wall Semiconductor Corporation (GWS) and agreed to
an additional investment of $1,000,000 if certain conditions
were met by November 2007. Those conditions were not met by
November 2007. However, the Company did make the additional
$1,000,000 investment in February 2008, which will increase its
ownership in GWS to approximately 30%. The additional $1,000,000
investment was approved by the Audit Committee of the
Companys Board of Directors. The Company expects that it
will take an impairment charge of approximately $700,000 in the
first quarter of 2008. The Companys total gross investment
in GWS was $4,000,000 as of December 31, 2007 and
$3,000,000 as of December 31, 2006. GWS designs, develops
and manufactures high performance power semiconductors. A
director of Vicor is the founder, President, Chairman of the
Board, Chief Executive Officer and the majority voting
shareholder of GWS. In addition to the investment, the Company
and GWS have entered into a cross-license agreement and the
Company purchases certain components from GWS. Purchases from
GWS were approximately $1,260,000, $387,000, and $384,000 in
2007, 2006 and 2005, respectively. Revenue under the
cross-license agreement was not significant in 2007, 2006 and
2005.
The Company considered the requirements of FASB Interpretation
No. 46 (revised December 2003 Consolidation of
Variable Interest Entities (FIN 46R), in accounting
for the additional investment in GWS, and determined that GWS is
a variable interest entity. However, the Company concluded that
it is not the primary beneficiary. As a result, the Company is
accounting for the investment under the equity method of
accounting in accordance with Accounting Principles Board
Opinion No. 18, The Equity Method for Accounting for
Investments in Common Stock (APB 18). The Company has also
considered FIN No. 35, Criteria for Applying the
Equity Method of Accounting for Investments in Common
Stock (FIN 35) and
EITF 02-14,
Whether an Investor Should Apply the Equity Method of
Accounting to Investments Other Than Common Stock
(EITF 02-14).
The additional investment made in May 2007 resulted in the
Company owning approximately 24% of GWS which management
believes, along with other qualitative factors considered, gives
49
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
7.
|
INVESTMENTS
(Continued)
|
the Company significant influence over GWS. In addition, the
Company has an option to purchase an additional 1.5% of GWS for
$81,000 in connection with technical consulting services. The
Company also believes that its investment in GWS represents
in-substance common stock. As a result, the additional
investment requires the Company to account for the investment in
GWS under the equity method of accounting and to retroactively
restate its previously issued consolidated financial statements.
Previously, the Company accounted for the investment as a cost
method investment as management believed it did not have
significant influence over GWS. At December 31, 2006 and
2005, the Company owned approximately 17.5% and 18.6%,
respectively, of GWS.
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 No. 141, Business Combinations
(FAS 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 FAS 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 $687,000 and $826,000 as of
December 31, 2007 and 2006, respectively, as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Equity method goodwill
|
|
$
|
634
|
|
|
$
|
775
|
|
|
|
|
|
Intangible assets, net of amortization
|
|
|
53
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
687
|
|
|
$
|
826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The negative net equity of GWS was approximately ($1,280,000) at
December 31, 2007 and ($1,008,000) at December 31,
2006.
Loss from equity method investment (net of tax) for the years
ended December 31 consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(as restated)
|
|
|
(as restated)
|
|
|
Allocation of losses from equity method investment (net of tax)
|
|
$
|
306
|
|
|
$
|
84
|
|
|
$
|
165
|
|
Amortization of intangible assets and other (net of tax)
|
|
|
213
|
|
|
|
237
|
|
|
|
258
|
|
Other than temporary decline in investment
|
|
|
620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,139
|
|
|
$
|
321
|
|
|
$
|
423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
7.
|
INVESTMENTS
(Continued)
|
The following financial statement line items for fiscal years
2004, 2005 and 2006 were affected by the change in accounting
principle from cost method to equity method of accounting for
the investment in GWS (in thousands except for per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
As
|
|
|
As Previously
|
|
|
|
Restated
|
|
|
Reported
|
|
|
As of December 31, 2006:
|
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
5,691
|
|
|
$
|
6,865
|
|
Total assets
|
|
|
247,461
|
|
|
|
248,107
|
|
Retained earnings
|
|
|
133,405
|
|
|
|
134,579
|
|
Total stockholders equity
|
|
|
170,172
|
|
|
|
171,346
|
|
As of December 31, 2005:
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
$
|
173,807
|
|
|
$
|
175,660
|
|
Total stockholders equity
|
|
|
214,937
|
|
|
|
216,790
|
|
As of December 31, 2004:
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
$
|
175,339
|
|
|
$
|
176,769
|
|
Total stockholders equity
|
|
|
219,193
|
|
|
|
220,623
|
|
Year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
$
|
5,092
|
|
|
$
|
4,092
|
|
Loss from equity method investment, net
|
|
|
321
|
|
|
$
|
|
|
Net loss
|
|
|
(29,059
|
)
|
|
|
(29,738
|
)
|
Net loss per share basic
|
|
|
(0.69
|
)
|
|
|
(0.71
|
)
|
Net loss per share diluted
|
|
|
(0.69
|
)
|
|
|
(0.71
|
)
|
Year ended December 31, 2005:
|
|
|
|
|
|
|
|
|
Loss from equity method investment, net
|
|
$
|
423
|
|
|
$
|
|
|
Net Income
|
|
|
3,493
|
|
|
|
3,916
|
|
Net income per share basic
|
|
|
0.08
|
|
|
|
0.09
|
|
Net income per share diluted
|
|
|
0.08
|
|
|
|
0.09
|
|
As a result of the accounting change, retained earnings as of
January 1, 2006 decreased by $1,853,000 from $175,660,000
to $173,807,000 due to the expensing of IPR&D of $908,000,
the allocation of equity method investment losses of $454,000
and amortization expense for the acquired intangible assets and
other of $491,000. This represents the retroactive application
of the equity method of accounting for the period from August
2003, the date of the Companys initial investment in GWS,
through December 31, 2005.
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 we
identify an impairment indicator, we will estimate the fair
value of the investment and compare it to its carrying value. If
the fair value of the investment is less than its carrying
value, the investment is impaired and we make a determination as
to whether the impairment is other-than-temporary. For
other-than-temporary impairments, we recognize an impairment
loss equal to the difference between an investments
carrying value and its fair value. During the year ended
December 31, 2007, the investment was adjusted for a
decline in value judged to be other than temporary of $620,000.
Deterioration or changes in GWS business in
51
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
7.
|
INVESTMENTS
(Continued)
|
the future could lead to such impairment adjustments in future
periods and the impairment adjustments may be material.
Summary financial information for GWS is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
As of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
2,322
|
|
|
$
|
1,157
|
|
|
|
|
|
Noncurrent assets
|
|
|
3,110
|
|
|
|
3,074
|
|
|
|
|
|
Total assets
|
|
|
5,432
|
|
|
|
4,231
|
|
|
|
|
|
Current liabilities
|
|
|
1,743
|
|
|
|
495
|
|
|
|
|
|
Noncurrent liabilities
|
|
|
1,354
|
|
|
|
1,096
|
|
|
|
|
|
Minority interests
|
|
|
3,614
|
|
|
|
3,648
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(1,280
|
)
|
|
|
(1,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
3,368
|
|
|
|
2,292
|
|
|
$
|
2,423
|
|
Gross margin
|
|
|
646
|
|
|
|
818
|
|
|
|
461
|
|
Net loss
|
|
|
1,280
|
|
|
|
441
|
|
|
|
882
|
|
The financial statements of GWS have not been audited by Ernst
& Young LLP.
|
|
8.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
The Company accounts for goodwill and other intangible assets
under Statement of Financial Accounting Standards No. 142
Goodwill and Other Intangible Assets (FAS 142).
Under FAS 142, goodwill and indefinite lived intangible
assets are not amortized but are tested for impairment at least
annually at the reporting unit level. The Company reassessed the
carrying value of its goodwill of approximately $2,000,000
related to the operations of one of its subsidiaries, VJCL,
during the fourth quarter of fiscal 2007 as required by the
provisions of FAS 142, and determined that there was no
impairment to the carrying value. Additionally, the Company has
$634,000 and $775,000 of equity method goodwill related to its
investment in GWS as of December 31, 2007 and 2006,
respectively, as discussed in Note 7 .
Patent costs, which are included in other assets in the
accompanying balance sheets, were as follows, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Patent costs
|
|
$
|
3,491
|
|
|
$
|
4,042
|
|
Less accumulated amortization
|
|
|
1,432
|
|
|
|
1,630
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,059
|
|
|
$
|
2,412
|
|
|
|
|
|
|
|
|
|
|
In 2007 and 2006, the Company wrote off patent costs associated
with abandoned patents with net book values of approximately
$245,000 and $785,000, respectively, which was charged to
amortization expense.
52
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Amortization expense was approximately $447,000, $1,036,000 and
$292,000 in 2007, 2006 and 2005, respectively. The estimated
amortization expense for the next five years is as follows (in
thousands):
|
|
|
|
|
Year
|
|
|
|
|
2008
|
|
$
|
217
|
|
2009
|
|
|
216
|
|
2010
|
|
|
214
|
|
2011
|
|
|
207
|
|
2012
|
|
|
195
|
|
Product warranty activity for the years ended December 31,
2007, 2006 and 2005 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance at the beginning of the period
|
|
$
|
1,046
|
|
|
$
|
755
|
|
|
$
|
1,042
|
|
Accruals for warranties for products sold in the period
|
|
|
735
|
|
|
|
714
|
|
|
|
173
|
|
Fulfillment of warranty obligations
|
|
|
(704
|
)
|
|
|
(185
|
)
|
|
|
(180
|
)
|
Revisions of estimated obligations
|
|
|
(398
|
)
|
|
|
(238
|
)
|
|
|
(280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
679
|
|
|
$
|
1,046
|
|
|
$
|
755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In November 2000, the Board of Directors of the Company
authorized the repurchase of up to $30,000,000 of the
Companys Common Stock (the November 2000
Plan). The plan authorizes the Company to make 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. In 2006 and 2005, the Company spent $10,835,000 and
$5,544,000, respectively, in the repurchase of 825,700 and
452,200 shares, respectively, of its Common Stock under the
November 2000 Plan (none in 2007). At December 31, 2007,
the Company had approximately $8,541,000 remaining under the
plan.
Common
Stock
Each share of Common Stock entitles the holder thereof to one
vote on all matters submitted to the stockholders.
Each share of Class B Common Stock entitles the holder
thereof to ten votes on all such matters.
Shares of Class B Common Stock are not transferable by a
stockholder except to or among the stockholders spouse,
certain of the stockholders relatives, and certain other
defined transferees. Class B Common Stock is not listed or
traded on any exchange or in any market. Class B Common
Stock is convertible at the option of the holder thereof at any
time and without cost to the stockholder into shares of Common
Stock on a one-for-one basis.
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.
53
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
10.
|
STOCKHOLDERS
EQUITY (Continued)
|
On June 24, 2005, the Companys Board of Directors
approved an annual cash dividend for 2005 of $.12 per share of
the Companys stock. The total dividend of approximately
$5,025,000 was paid on August 31, 2005 to shareholders of
record at the close of business on August 11, 2005.
On February 4, 2006, the Companys Board of Directors
approved a cash dividend of $.12 per share of the Companys
stock. The total dividend of approximately $5,030,000 was paid
on March 20, 2006 to shareholders of record at the close of
business on February 28, 2006.
On June 23, 2006, the Companys Board of Directors
approved a cash dividend of $.15 per share of the Companys
stock. The total dividend of approximately $6,313,000 was paid
on August 7, 2006 to shareholders of record at the close of
business on July 17, 2006.
On February 16, 2007 the Companys Board of Directors
approved a cash dividend of $.15 per share of the Companys
stock. The dividend of approximately $6,235,000 was paid on
March 27, 2007 to shareholders of record at the close of
business on March 9, 2007.
On July 25, 2007, the Companys Board of Directors
approved a cash dividend of $.15 per share of the Companys
stock. The total dividend of approximately $6,242,000 was paid
on August 30, 2007 to shareholders of record at the close
of business on August 14, 2007.
During the second quarter of 2007, two subsidiaries paid a total
of $180,000 in dividends, of which $92,000 was paid to outside
shareholders.
On March 14, 2008, the Companys Board of Directors
approved a cash dividend of $.15 per share of the Companys
stock. The total dividend of approximately $6,245,000 will be
paid on April 18, 2008 to shareholders of record at the
close of business on April 2, 2008.
During 2007 a total of 73,109 shares of Common Stock were
issued upon the exercise of stock options, and
30,000 shares of Class B Common Stock were converted
into Common Stock.
At December 31, 2007, there were 17,187,290 shares of
Vicor Common Stock reserved for issuance under Vicor stock
options and upon conversion of Class B Common Stock.
|
|
|
11. OTHER
INCOME (EXPENSE), NET
|
The major components of the other income (expense), net were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(as restated)
|
|
|
|
|
|
Interest income
|
|
$
|
4,484
|
|
|
$
|
5,389
|
|
|
$
|
3,124
|
|
Minority interest in net income of subsidiaries
|
|
|
(539
|
)
|
|
|
(562
|
)
|
|
|
(807
|
)
|
Foreign currency gains (losses)
|
|
|
186
|
|
|
|
139
|
|
|
|
(771
|
)
|
Gain (loss) on disposal of equipment
|
|
|
129
|
|
|
|
67
|
|
|
|
(41
|
)
|
Other
|
|
|
128
|
|
|
|
59
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,388
|
|
|
$
|
5,092
|
|
|
$
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred tax liabilities and assets are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
13,830
|
|
|
$
|
2,452
|
|
Research and development tax credit carryforwards
|
|
|
6,662
|
|
|
|
5,231
|
|
Inventory reserves
|
|
|
3,068
|
|
|
|
3,385
|
|
Vacation accrual
|
|
|
1,280
|
|
|
|
1,163
|
|
Investment tax credit carryforwards
|
|
|
1,027
|
|
|
|
892
|
|
Investment basis differences
|
|
|
824
|
|
|
|
1,236
|
|
Stock-based compensation
|
|
|
472
|
|
|
|
509
|
|
Alternative minimum tax credit carryforward
|
|
|
412
|
|
|
|
359
|
|
Warranty reserve
|
|
|
227
|
|
|
|
352
|
|
Bad debt reserves
|
|
|
159
|
|
|
|
233
|
|
Accrual for litigation settlement, net
|
|
|
0
|
|
|
|
15,319
|
|
Other
|
|
|
85
|
|
|
|
817
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
28,046
|
|
|
|
31,948
|
|
Less: Valuation allowance for deferred tax assets
|
|
|
(24,158
|
)
|
|
|
(26,565
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
3,888
|
|
|
|
5,383
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(3,091
|
)
|
|
|
(4,381
|
)
|
Patent amortization
|
|
|
(797
|
)
|
|
|
(993
|
)
|
Other
|
|
|
(856
|
)
|
|
|
(696
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(4,744
|
)
|
|
|
(6,070
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(856
|
)
|
|
$
|
(687
|
)
|
|
|
|
|
|
|
|
|
|
The Company has assessed the need for a valuation allowance
against its deferred tax assets and concluded that a valuation
allowance for a significant portion of the deferred tax assets
is warranted at December 31, 2007 and 2006. In reaching
this conclusion, the Company evaluated all relevant criteria
including the existence of temporary differences reversing in
the carryforward period, primarily depreciation. The valuation
allowance against these deferred tax assets may require
adjustment in the future based on changes in the mix of
temporary differences, changes in tax laws, and operating
performance.
For financial reporting purposes, income (loss) before income
taxes includes the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(as restated)
|
|
|
Domestic
|
|
$
|
4,497
|
|
|
$
|
(29,023
|
)
|
|
$
|
5,073
|
|
Foreign
|
|
|
962
|
|
|
|
933
|
|
|
|
(193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,459
|
|
|
$
|
(28,090
|
)
|
|
$
|
4,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
12.
|
INCOME
TAXES (Continued)
|
Significant components of the provision (benefit) for income
taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(220
|
)
|
|
$
|
377
|
|
|
$
|
942
|
|
Foreign
|
|
|
191
|
|
|
|
105
|
|
|
|
75
|
|
State
|
|
|
(1,090
|
)
|
|
|
80
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,119
|
)
|
|
|
562
|
|
|
|
1,097
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
104
|
|
|
|
86
|
|
|
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,015
|
)
|
|
$
|
648
|
|
|
$
|
964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation of the federal statutory rate to the
effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statutory federal tax rate
|
|
|
35.0
|
%
|
|
|
(35.0
|
)%
|
|
|
35.0
|
%
|
State income taxes, net of federal income tax benefit
|
|
|
7.4
|
|
|
|
(3.4
|
)
|
|
|
2.5
|
|
Reduction in tax reserves
|
|
|
(31.0
|
)
|
|
|
(0.5
|
)
|
|
|
(7.3
|
)
|
Meals and entertainment expense
|
|
|
4.1
|
|
|
|
0.6
|
|
|
|
2.9
|
|
Foreign income taxes
|
|
|
2.1
|
|
|
|
0.4
|
|
|
|
2.3
|
|
Tax credits
|
|
|
(1.2
|
)
|
|
|
(3.4
|
)
|
|
|
|
|
ETI benefit
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
(11.5
|
)
|
Alternative minimum tax
|
|
|
|
|
|
|
|
|
|
|
5.5
|
|
Other
|
|
|
|
|
|
|
1.3
|
|
|
|
0.1
|
|
Decrease (increase) in valuation allowance
|
|
|
(35.0
|
)
|
|
|
43.5
|
|
|
|
(9.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18.6
|
)%
|
|
|
2.3
|
%
|
|
|
19.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2007, the tax provision includes estimated federal, state and
foreign income taxes on the Companys 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. During the second quarter
of 2007 and year ended December 31, 2007, the Company
reversed approximately $300,000 of previously unidentified
excess tax reserves identified during the quarter. The impact on
the second quarter of 2007 and year ended December 31,
2007, as well as on prior periods, was not material. The expense
was also partially offset by a discrete item of $169,000
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 tax years 1994 though 2002 by the Internal Revenue Service
and the reduction in tax reserves discussed below. In 2006 and
2005, the tax provision 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, offset by the
expected utilization of remaining net operating loss
carryforwards and certain tax credit carryforwards and the
reduction in tax reserves discussed below. During 2007, 2006 and
2005, the Company reduced its tax reserves by $1,517,000,
$468,000 and $770,000 respectively, due to closing tax periods
in certain jurisdictions and other tax reserves no longer
considered necessary. The decreases in 2007, 2006 and 2005 were
partially offset by
56
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
12.
|
INCOME
TAXES (Continued)
|
increases in reserves during the year of approximately $205,000,
$133,000 and $412,000, respectively, for potential liabilities.
As a result of the difference in treatment of excess stock
option deductions available for income tax return and financial
statement reporting purposes, the Company has approximately
$3,700,000 of stock option related net operating loss,
$1,000,000 of federal research and development tax credit, and
$400,000 of federal alternative minimum tax credit carryforwards
that may be offset against future taxable income. It is
anticipated that when these tax attributes are realized on an
income tax return in the future, the related benefit will be
recorded against additional paid in capital. The net operating
loss carryforwards expire beginning in 2008 for state purposes
and in 2023 for federal purposes. The research and development
tax credit carryforwards expire beginning in 2015 for state
purposes and in 2023 for federal purposes.
The Company adopted FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), on January 1, 2007. FIN 48
clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in
accordance with FASB Statement No. 109, Accounting
for Income Taxes. FIN 48 prescribes a two-step
process to determine the amount of tax benefit to recognize.
First, the tax position must be evaluated to determine the
likelihood that it will be sustained upon examination by a tax
authority. If the tax position is deemed
more-likely-than-not to be sustained, the tax
position is then assessed to determine the amount of benefit to
recognize in the financial statements. The amount of the benefit
that may be recognized is the largest amount that has a greater
than 50 percent likelihood of being realized upon ultimate
settlement. If the tax position does not meet the
more-likely-than-not threshold then it is not
recognized in the financial statements. The Companys
adoption of FIN 48 as of January 1, 2007 did not have
a material impact on the Companys financial position or
results of operations.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
2,515
|
|
Additions based on tax positions related to the current year
|
|
|
60
|
|
Additions for tax positions of prior years
|
|
|
54
|
|
Reductions for tax positions of prior years
|
|
|
(103
|
)
|
Lapse of statute
|
|
|
(1,442
|
)
|
Settlements
|
|
|
0
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
1,084
|
|
|
|
|
|
|
The Company has reviewed the tax positions taken, or to be
taken, in its tax returns for all tax years currently open to
examination by a taxing authority in accordance with the
recognition and measurement standards of FIN 48. The total
amount of unrecognized tax benefits, that is the aggregate tax
effect of differences between tax return positions and the
benefits recognized in the Companys financial statements,
at December 31, 2007 of $1,344,000 including accrued
interest, if recognized, may decrease the Companys income
tax provision and effective tax rate. Included in the balance of
unrecognized tax benefits at December 31, 2007 is
approximately $1,000,000, including interest, related to tax
positions for which it is reasonably possible that the total
amounts could significantly change during the next twelve
months, principally due to the closing of tax years in certain
jurisdictions. The Company recognizes accrued interest and
penalties, if any, related to unrecognized tax benefits as a
component of income tax expense. As of December 31, 2007,
the Company has accrued approximately $833,000 for the potential
payment of interest and recorded approximately $165,000 of
income tax expense for interest, net of related tax benefits,
for the year ended December 31, 2007.
57
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
12.
|
INCOME
TAXES (Continued)
|
The Company files income tax returns in the United States and
various foreign tax jurisdictions. These tax returns are
generally open to examination by the relevant tax authorities
from three to seven years from the date they are filed. The tax
filings relating to the Companys federal and state taxes
are currently open to examination for tax years 2004 through
2006 and 1998 through 2006, respectively. In December 2007, the
Company received notice from the State of Minnesota that its
Minnesota corporation franchise tax returns for tax years 1998
through 2001 had been selected for review. In February 2008, the
Company received notice from the State of Texas that its Texas
corporation franchise tax reports for tax years 2004 through
2006 had been selected for audit. There are no other income tax
examinations currently in process.
The Company recently underwent an audit of its federal tax
returns for tax periods 1994 through 2002 by the Internal
Revenue Service (IRS). The conclusions reached by
the IRS based on their audit were agreed to by the Joint
Committee on Taxation of the U.S. Department of the
Treasury. During the second quarter of 2006, the Company
remitted payments to the IRS in settlement of the assessments,
including interest. The amounts paid were not materially
different from the amounts previously accrued by the Company.
|
|
13.
|
COMMITMENTS
AND CONTINGENCIES
|
The Company leases certain of its office, warehousing and
manufacturing space. The future minimum rental commitments under
noncancelable operating leases with remaining terms in excess of
one year are as follows (in thousands):
|
|
|
|
|
Year
|
|
|
|
|
2008
|
|
$
|
1,398
|
|
2009
|
|
|
970
|
|
2010
|
|
|
483
|
|
2011
|
|
|
239
|
|
2012 and thereafter
|
|
|
771
|
|
Rent expense was approximately $1,525,000, $1,471,000 and
$1,420,000 in 2007, 2006 and 2005, respectively. The Company
also pays executory costs such as taxes, maintenance and
insurance.
In addition to the amounts shown in the table above,
approximately $511,000 of unrecognized tax benefits have been
recorded as liabilities in accordance with FIN 48, and we
are uncertain as to if or when such amounts may be settled.
Related to these unrecognized tax benefits, we have also
recorded a liability for potential interest and penalties of
approximately $833,000 at December 31, 2007.
In addition, the Company has a contract with a third-party to
supply nitrogen for its manufacturing and research and
development activities. Under the contract, the Company is
obligated to pay a minimum of $286,000 annually, subject to
semi-annual price adjustments, through March 2015.
Vicor and VLT, Inc. (VLT), a wholly owned subsidiary
of the Company, had been pursuing Reset 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 Patent infringement claims against
Lucent/Tyco and Artesyn, and which settled the lawsuits that the
Company had filed against Lucent/Tyco in May 2000 and in April
2001, and the lawsuit that the Company had filed against Artesyn
in February 2001. The full amount of the payment, net of a
$177,000 contingency fee accrued by the Company for its
58
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
13.
|
COMMITMENTS
AND CONTINGENCIES (Continued)
|
litigation counsel, has been included in (Gain) loss from
litigation-related settlements, net in the accompanying
condensed consolidated statement of operations.
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 the 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 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, which is included in
Accrual for litigation settlements in the condensed consolidated
balance sheet and in (Gain) loss from litigation-related
settlements, net in the condensed consolidated statement of
operations.
On August 18, 2005, the Company filed an action in The
Superior Court of the Commonwealth of Massachusetts, County of
Essex (the Massachusetts Court) against Concurrent
Computer Corporation (Concurrent) in response to a
demand made by Concurrent in connection with breach of contract
and breach of product warranty claims against the Company. On
August 1, 2007, the Company reached an agreement in
principle to settle the lawsuit with Concurrent for $2,350,000,
all of which would be paid by the Companys insurance
carriers. The settlement agreement was finalized effective
August 28, 2007, upon which the Company made the settlement
payment of $2,350,000 to Concurrent and in turn received payment
for that same amount from its insurance carriers. There was no
impact on the consolidated statement of operations for the year
ended December 31, 2007 as a result of the settlement.
In the second quarter of 2005, the Company entered into a
settlement agreement with Lambda Americas, Inc., successor to
Lambda Electronics, Inc., under which the Company received a
payment of $2,500,000 in full settlement of the Companys
Reset Patent claims against Lambda and which settled the lawsuit
that the Company had filed against Lambda in June 2001. The full
amount of the payment, net of a $250,000 contingency fee paid by
the Company to its litigation counsel, has been included in
(Gain) loss from litigation-related settlements, net in the
accompanying consolidated statements of operations.
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.
Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related
Information (FAS 131), establishes standards for
reporting information regarding operating segments in annual
financial statements and requires selected information of those
segments to be presented in interim financial reports issued to
stockholders. Operating segments are identified as components of
an enterprise about which separate discrete financial
information is available for evaluation by the chief operating
decision-maker, or decision-making group, in making decisions on
how to allocate resources and assess performance.
59
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
14.
|
SEGMENT
INFORMATION (Continued)
|
The Companys accounting policies and method of
presentation for segments is consistent with that used
throughout the consolidated financial statements. Prior to 2007,
the Company operated as one business segment.
Upon the incorporation of V*I Chip Corporation as a wholly-owned
subsidiary of Vicor in April 2007, the Company has organized its
business segments according to its key product lines. The Brick
Business Unit segment (BBU or Brick)
designs, develops, manufactures and markets the Companys
modular power converters and configurable products, and includes
the operations of the Companys Westcor division, Vicor
Integration Architects (VIAs) and Vicor Japan
Company, Ltd. (VJCL). 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 (FPA) products. The
Picor segment consists of Picor Corporation, a majority-owned
subsidiary of Vicor, 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 Vicors
products or to third parties for separate applications.
The segments follow the same accounting policies as described in
the Summary of Significant Accounting Policies described in
Note 2 of the Notes to Consolidated Financial Statements.
The effects of all intersegment
and/or
intercompany transactions are eliminated in the consolidated
financial statements.
The Companys chief operating decision maker evaluates
performance and allocates resources based on segment revenues
and segment operating income (loss). The operating income (loss)
for each segment includes selling, general and administrative
and research and development expenses directly attributable to
the segment. Certain of the Companys indirect overhead
costs, which include corporate selling, general and
administrative expenses, are allocated among the segments based
upon an estimate of costs associated with each segment. Assets
allocated to each segment are based upon specific identification
of such assets, which include accounts receivable, inventories,
fixed assets and certain other assets. Corporate assets include
cash, cash equivalents, short-term investments, land and
buildings associated with operations in Massachusetts, deferred
tax assets and other assets.
The following table provides significant segment financial data
for the years ended December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brick
|
|
|
V*I Chip
|
|
|
Picor
|
|
|
Corporate
|
|
|
Eliminations
|
|
|
Total
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
185,828
|
|
|
$
|
9,142
|
|
|
$
|
4,908
|
|
|
$
|
|
|
|
$
|
(4,051
|
)
|
|
$
|
195,827
|
|
Income (loss) from operations
|
|
|
25,642
|
|
|
|
(23,484
|
)
|
|
|
(2,571
|
)
|
|
|
883
|
|
|
|
601
|
|
|
|
1,071
|
|
Total assets
|
|
|
149,030
|
|
|
|
13,738
|
|
|
|
7,280
|
|
|
|
107,420
|
|
|
|
(85,010
|
)
|
|
|
192,458
|
|
Depreciation and amortization
|
|
|
7,408
|
|
|
|
2,097
|
|
|
|
407
|
|
|
|
1,707
|
|
|
|
|
|
|
|
11,619
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
188,482
|
|
|
$
|
3,000
|
|
|
$
|
4,878
|
|
|
$
|
2
|
|
|
$
|
(4,315
|
)
|
|
$
|
192,047
|
|
Income (loss) from operations
|
|
|
(7,014
|
)
|
|
|
(24,588
|
)
|
|
|
(1,027
|
)
|
|
|
(1,345
|
)
|
|
|
792
|
|
|
|
(33,182
|
)
|
Total assets (as restated)
|
|
|
129,959
|
|
|
|
8,438
|
|
|
|
7,431
|
|
|
|
151,823
|
|
|
|
(50,190
|
)
|
|
|
247,461
|
|
Depreciation and amortization
|
|
|
9,624
|
|
|
|
1,914
|
|
|
|
327
|
|
|
|
2,293
|
|
|
|
|
|
|
|
14,158
|
|
The elimination for net revenues is principally related to
inter-segment
revenues of Picor from Brick and V*I Chip. The elimination
for total assets is principally related to inter-segment
receivables due to the Brick
60
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
14.
|
SEGMENT
INFORMATION (Continued)
|
segment for the funding of V*I Chip segment operations and for
the purchase of equipment by both V*I Chip and Picor segments.
Segment financial data was not available for the year ended
December 31, 2005.
During 2007, 2006 and 2005, no customer accounted for more than
10% of net revenues. Export sales, as a percentage of total net
revenues, were approximately 37% in 2007 and 2006, and 42%, in
2005, respectively. Export sales and receipts are recorded and
received in U.S. dollars.
61
VICOR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
15.
|
QUARTERLY
RESULTS OF OPERATIONS (Unaudited)
|
The following table sets forth certain unaudited quarterly
financial data (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Total
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
46,981
|
|
|
$
|
47,206
|
|
|
$
|
47,693
|
|
|
$
|
53,947
|
|
|
$
|
195,827
|
|
Gross profit
|
|
|
20,227
|
|
|
|
19,599
|
|
|
|
17,904
|
|
|
|
21,279
|
|
|
|
79,009
|
|
Net income (as restated)
|
|
|
2,321
|
|
|
|
974
|
|
|
|
543
|
|
|
|
1,497
|
|
|
|
5,335
|
|
Net income (as previously reported)
|
|
|
2,402
|
|
|
|
974
|
|
|
|
543
|
|
|
|
1,497
|
|
|
|
5,335
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
.06
|
|
|
|
.02
|
|
|
|
.01
|
|
|
|
.04
|
|
|
|
.13
|
|
Basic and diluted (as previously reported)
|
|
|
.06
|
|
|
|
.02
|
|
|
|
.01
|
|
|
|
.04
|
|
|
|
.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Total
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
47,872
|
|
|
$
|
49,210
|
|
|
$
|
46,932
|
|
|
$
|
48,033
|
|
|
$
|
192,047
|
|
Gross profit
|
|
|
21,102
|
|
|
|
21,109
|
|
|
|
19,951
|
|
|
|
19,674
|
|
|
|
81,836
|
|
Net income (loss) (as restated)
|
|
|
2,996
|
|
|
|
2,782
|
|
|
|
2,392
|
|
|
|
(37,229
|
)
|
|
|
(29,059
|
)
|
Net income (loss) (as previously reported)
|
|
|
3,076
|
|
|
|
2,874
|
|
|
|
2,462
|
|
|
|
(38,150
|
)
|
|
|
(29,738
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (as restated)
|
|
|
.07
|
|
|
|
.07
|
|
|
|
.06
|
|
|
|
(.90
|
)
|
|
|
(.69
|
)
|
Basic and diluted (as previously reported)
|
|
|
.07
|
|
|
|
.07
|
|
|
|
.06
|
|
|
|
(.92
|
)
|
|
|
(.71
|
)
|
In the fourth quarter of 2007, the Company received a $718,000
reimbursement payment from its insurance carriers in connection
with litigation with Concurrent Computer Corporation (see
Part 1
Item 3-
Legal Proceedings), which reduced legal expense in the quarter.
On February 22, 2007, the Company announced that it has
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,
reached on February 16, 2007 after a Court ordered
mediation, the Company agreed to pay $50.0 million to
Ericsson, of which $12.8 million will be paid by the
Companys insurance carriers. Accordingly, the Company
recorded a net loss of $37.2 million from
litigation-related settlement in the fourth quarter of 2006.
62
|
|
ITEM 9
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A
|
CONTROLS
AND PROCEDURES
|
Attached as exhibits to this
Form 10-K
are certifications of Vicors Chief Executive Officer
(CEO) and Interim Chief Financial Officer
(Interim CFO), which are required in accordance with
Rule 13a-14
of the Exchange Act of 1934, as amended (the Exchange
Act). This Controls and Procedures section
includes information concerning the controls and controls
evaluation referred to in the certifications.
|
|
(a)
|
Evaluation
of disclosure controls and procedures.
|
As required by
Rule 13a-15
under the Exchange Act, the Companys management conducted
an evaluation with the participation of the Companys CEO
and Interim CFO, regarding the effectiveness of the
Companys disclosure controls and procedures, as of the end
of the last fiscal year. In designing and evaluating the
Companys disclosure controls and procedures, the Company
and its management recognize that any controls and procedures,
no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control
objectives, and management necessarily was required to apply its
judgment in evaluating and implementing possible controls and
procedures. Based upon that evaluation, our management,
including our CEO and Interim CFO, has concluded that our
disclosure controls and procedures were not effective to ensure
that information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules
and forms because of the material weakness described in item
(b) below. A material weakness is a control deficiency, or
combination of control deficiencies, that results in more than a
remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected.
We intend to continue to review and document our disclosure
controls and procedures, including our internal controls and
procedures for financial reporting, and we may from time to time
make changes to the disclosure controls and procedures to
enhance their effectiveness and to ensure that our systems
evolve with our business.
|
|
(b)
|
Management
Report on Internal Control Over Financial Reporting
|
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting
includes those policies and procedures that (i) pertain to
the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or
disposition of the Companys assets that could have a
material effect on the financial statements.
Management assessed our internal control over financial
reporting as of December 31, 2007, the end of our fiscal
year. Management based its assessment on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Managements assessment included
evaluation of such elements as the design and operating
effectiveness of key financial reporting controls, process
documentation, accounting policies, and our overall control
environment.
As of December 31, 2007, the Companys accounting
department did not have sufficient experienced personnel and
resources with the requisite technical skills to address complex
and judgmental accounting, tax and financial reporting matters
as part of its financial statement close process.
As a result, the Companys financial statement close
process was not effective as of December 31, 2007 as it
relates to evaluating and accounting for complex and judgmental
accounting, tax and financial reporting matters, including
accounting for the Companys related-party investment in
Great Wall Semiconductor
63
Corporation, accounting for income taxes, accounting for complex
revenue transactions, and accounting for judgmental accrued
liabilities. Management views these matters as a material
weakness as of December 31, 2007 as this control deficiency
could have resulted in a material misstatement of our interim or
annual consolidated financial statements that would not have
been prevented or detected in a timely manner.
Because of the material weakness discussed above, management has
concluded that the Company did not maintain effective control
over financial reporting as of December 31, 2007, based on
the criteria in the Internal Control Integrated
Framework issued by COSO.
Our independent registered public accounting firm,
Ernst & Young LLP, assessed the effectiveness of the
Companys internal control over financial reporting.
Ernst & Young has issued an attestation report which
is included at Item 9A(e) of this
Form 10-K.
|
|
(c)
|
Inherent
Limitations on Effectiveness of Controls
|
The Companys management, including the CEO and Interim
CFO, does not expect that our Disclosure Controls or our
internal control over financial reporting will prevent or detect
all errors and all fraud. A control system, no matter how well
designed and operated, can provide only reasonable, not
absolute, assurance that the control systems objectives
will be met. The design of a control system must reflect the
fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further,
because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty
and that breakdowns can occur because of simple error or
mistake. Controls can also be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of
controls is based in part on certain assumptions about the
likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions. Projections of any evaluation of
controls effectiveness to future periods are subject to risks.
Over time, controls may become inadequate because of changes in
conditions or deterioration in the degree of compliance with
policies or procedures.
|
|
(d)
|
Change in
Internal Control Over Financial Reporting
|
Other than the items noted below, there was no change in the
Companys internal control over financial reporting that
occurred during the fiscal quarter ended December 31, 2007
that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over
financial reporting.
Our remediation efforts related to the material weakness which
existed as of December 31, 2006 and noted in
Item 9A(b) of the 2006 Annual Report on
Form 10-K
filed on March 15, 2007 were not complete, though certain
objectives under the Companys remediation plan were
accomplished in 2007. This included the addition of two
individuals to the accounting staff. One individual began
working with the Company in June 2007 and the second individual,
a new Vice President, Corporate Controller, began working with
the Company at the end of August 2007. In a separate
development, though, in December 2007 the Company announced that
Mark A. Glazer, Chief Financial Officer, Treasurer, and
Secretary transitioned to the position of Vice President of
Treasury Services. Richard J. Nagel, Jr., Vice President,
Chief Accounting Officer assumed the role of Interim Chief
Financial Officer. The Company is in the process of a search for
a new Chief Financial Officer, which it expects will take
several months to complete.
We have implemented or intend to implement during fiscal 2008,
the following measures to remediate the material weakness in
internal control over financial reporting noted in
Item 9A(b) above:
|
|
|
|
|
Complete the process of hiring a new Chief Financial Officer.
|
|
|
|
Perform an overall assessment of the staffing requirements for
the accounting department and add resources to our corporate
accounting function to assist in evaluating complex and
judgmental accounting, tax and financial reporting issues.
|
As of March 17, 2008, our remediation efforts related to
the material weakness which existed as of December 31, 2007
were not complete. Our efforts to remediate the material
weakness will continue during fiscal 2008.
64
|
|
(e)
|
Report of
Independent Registered Public Accounting Firm
|
The Board of Directors and Stockholders
Vicor Corporation
We have audited Vicor Corporations internal control over
financial reporting as of December 31, 2007, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Vicor
Corporations management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying Management
Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed 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. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of
deficiencies in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of the companys annual or interim financial
statements will not be prevented or detected on a timely basis.
The following material weakness has been identified and included
in managements assessment. As of December 31, 2007,
the Companys accounting department did not have sufficient
experienced personnel and resources with the requisite technical
skills to address complex and judgmental accounting, tax and
financial reporting matters as part of its financial statement
close process. As a result, the Companys financial
statement close process was not effective as of
December 31, 2007 as it relates to evaluating and
accounting for complex and judgmental accounting, tax and
financial reporting matters, including accounting for the
Companys related-party investment in Great Wall
Semiconductor Corporation, accounting for income taxes,
accounting for complex revenue transactions and accounting for
judgmental accrued liabilities. This material weakness was
considered in determining the nature, timing, and extent of
audit tests applied in our audit of the 2007 consolidated
financial statements, and this report does not affect our report
dated March 14, 2008 on those consolidated financial
statements.
In our opinion, because of the effect of the material weakness
described above on the achievement of the objectives of the
control criteria, Vicor Corporation has not maintained effective
internal control over financial reporting as of
December 31, 2007, based on the COSO criteria.
Boston, Massachusetts
March 14, 2008
65
|
|
ITEM 9B
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
Incorporated by reference from the Companys Definitive
Proxy Statement for its 2008 annual meeting of stockholders.
|
|
ITEM 11
|
EXECUTIVE
COMPENSATION
|
Incorporated by reference from the Companys Definitive
Proxy Statement for its 2008 annual meeting of stockholders.
|
|
ITEM 12
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Incorporated by reference from the Companys Definitive
Proxy Statement for its 2008 annual meeting of stockholders.
|
|
ITEM 13
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Incorporated by reference from the Companys Definitive
Proxy Statement for its 2008 annual meeting of stockholders.
|
|
ITEM 14
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
Incorporated by reference from the Companys Definitive
Proxy Statement for its 2008 annual meeting of stockholders.
PART IV
|
|
ITEM 15
|
EXHIBITS AND
FINANCIAL STATEMENTS
|
(a) (1) Financial Statements
See index in Item 8
(a) (2) Schedules
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable, and therefore have been omitted.
66
(b) Exhibits
|
|
|
|
|
Exhibits
|
|
Description of Document
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation, dated
February 28, 1990(1)
|
|
3
|
.2
|
|
Certificate of Ownership and Merger Merging
Westcor Corporation, a Delaware Corporation, into Vicor
Corporation, a Delaware Corporation, dated December 3,
1990(1)
|
|
3
|
.3
|
|
Certificate of Amendment of Restated
Certificate of Incorporation, dated May 10, 1991(1)
|
|
3
|
.4
|
|
Certificate of Amendment of Restated
Certificate of Incorporation, dated June 23, 1992(1)
|
|
3
|
.5
|
|
Bylaws, as amended(9)
|
|
4
|
.1
|
|
Specimen Common Stock Certificate(2)
|
|
10
|
.1
|
|
1984 Stock Option Plan of the Company, as
amended(2)
|
|
10
|
.2
|
|
1993 Stock Option Plan(3)
|
|
10
|
.3
|
|
1998 Stock Option and Incentive Plan(4)
|
|
10
|
.4
|
|
Amended and Restated 2000 Stock Option and
Incentive Plan(5)
|
|
10
|
.5
|
|
Form of Non-Qualified Stock Option under the
Vicor Corporation Amended and Restated 2000 Stock Option and
Incentive Plan(6)
|
|
10
|
.6
|
|
Sales Incentive Plan(7)
|
|
10
|
.7
|
|
Picor Corporation 2001 Stock Option and
Incentive Plan(8)
|
|
10
|
.8
|
|
Form of Non-Qualified Stock Option under the
Picor Corporation 2001 Stock Option and Incentive Plan(8)
|
|
|
|
|
|
|
10
|
.9
|
|
V*I Chip Corporation Amended 2007 Stock Option
and Incentive Plan(11)
|
|
10
|
.10
|
|
Form of Non-Qualified Stock Option Agreement
under the V*I Chip Corporation Amended 2007 Stock Option and
Incentive Plan(10)
|
|
10
|
.11
|
|
Form of Incentive Stock Option Agreement under
the V*I Chip Corporation Amended 2007 Stock Option and Incentive
Plan(11)
|
|
10
|
.12
|
|
Form of Stock Restriction Agreement under the
V*I Chip Corporation Amended 2007 Stock Option and Incentive
Plan(11)
|
|
21
|
.1
|
|
Subsidiaries of the Company(12)
|
|
23
|
.1
|
|
Consent of Independent Registered Public
Accounting Firm(12)
|
|
31
|
.1
|
|
Certification of Chief Executive Officer
pursuant to
Rule 13a-14(a)
of the Securities Exchange Act of 1934(12)
|
|
31
|
.2
|
|
Certification of Chief Financial Officer
pursuant to
Rule 13a-14(a)
of the Securities Exchange Act of 1934(12)
|
|
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(12)
|
|
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(12)
|
|
|
|
(1) |
|
Filed as an exhibit to the Companys Annual Report on
Form 10-K
filed on March 29, 2001 and incorporated herein by
reference. |
|
(2) |
|
Filed as an exhibit to the Companys Registration Statement
on Form 10, as amended, under the Securities Exchange Act
of 1934 (File
No. 0-18277),
and incorporated herein by reference. |
|
(3) |
|
Filed as an exhibit to the Companys Registration Statement
on
Form S-8,
as amended, under the Securities Act of 1933
(No. 33-65154),
and incorporated herein by reference. |
|
(4) |
|
Filed as an exhibit to the Companys Registration Statement
on
Form S-8,
as amended, under the Securities Act of 1933
(No. 333-61177),
and incorporated herein by reference. |
|
(5) |
|
Filed as an exhibit to the Companys Proxy Statement for
use in connection with its 2002 Annual Meeting of Stockholders,
which was filed on April 29, 2002, and incorporated herein
by reference. |
67
|
|
|
(6) |
|
Filed as an exhibit to the Companys Quarterly Report on
Form 10-Q
filed on November 4, 2004 and incorporated herein by
reference. |
|
(7) |
|
Filed as an exhibit to the Companys Annual Report on
Form 10-K
filed on March 16, 2005 and incorporated herein by
reference. |
|
(8) |
|
Filed as an exhibit to the Companys Annual Report on
Form 10-K
filed on March 14, 2006 and incorporated herein by
reference. |
|
(9) |
|
Filed as an exhibit to the Companys Quarterly Report on
Form 10-Q
filed on November 8, 2006 and incorporated herein by
reference. |
|
(10) |
|
Filed as an exhibit to the Companys Current Report on
Form 8-K,
dated June 6, 2007 and incorporated herein by reference. |
|
(11) |
|
Filed as an exhibit to the Companys Current Report and
Form 8-K,
dated March 6, 2008 incorporated herein by reference. |
|
(12) |
|
Filed herewith. |
68
VICOR
CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Credit) Charge
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
to Costs and
|
|
|
Other Charges,
|
|
|
Balance at
|
|
Description
|
|
Beginning of Period
|
|
|
Expenses
|
|
|
Deductions(1)
|
|
|
End of Period
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
583,000
|
|
|
$
|
246,000
|
|
|
$
|
(431,000
|
)
|
|
$
|
398,000
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
635,000
|
|
|
$
|
96,000
|
|
|
$
|
(148,000
|
)
|
|
$
|
583,000
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
468,000
|
|
|
$
|
195,000
|
|
|
$
|
(28,000
|
)
|
|
$
|
635,000
|
|
|
|
|
(1) |
|
Reflects uncollectible accounts written off, net of recoveries. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Credit) Charge
|
|
|
Other
|
|
|
|
|
|
|
Balance at
|
|
|
to Costs and
|
|
|
Charges,
|
|
|
Balance at
|
|
Description
|
|
Beginning of Period
|
|
|
Expenses
|
|
|
Deductions(2)
|
|
|
End of Period
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory reserves
|
|
$
|
8,363,000
|
|
|
$
|
1,075,000
|
|
|
$
|
(1,792,000
|
)
|
|
$
|
7,646,000
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory reserves
|
|
$
|
10,691,000
|
|
|
$
|
702,000
|
|
|
$
|
(3,030,000
|
)
|
|
$
|
8,363,000
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory reserves
|
|
$
|
7,844,000
|
|
|
$
|
4,777,000
|
|
|
$
|
(1,930,000
|
)
|
|
$
|
10,691,000
|
|
|
|
|
(2) |
|
Reflects amounts associated with inventory that have been
discarded or sold. |
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
|
|
|
|
By:
|
/s/ Richard
J. Nagel, Jr.
|
Richard J. Nagel, Jr.
Interim Chief Financial Officer
Vice President, Chief Accounting Officer
Dated: March 17, 2008
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Patrizio
Vinciarelli
Patrizio
Vinciarelli
|
|
President, Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Richard
J. Nagel, Jr.
Richard
J. Nagel, Jr.
|
|
Interim Chief Financial Officer Vice President, Chief Accounting
Officer (Principal Financial Officer and Principal Accounting
Officer)
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Estia
J. Eichten
Estia
J. Eichten
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ David
T. Riddiford
David
T. Riddiford
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Barry
Kelleher
Barry
Kelleher
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Samuel
Anderson
Samuel
Anderson
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Claudio
Tuozzolo
Claudio
Tuozzolo
|
|
Director
|
|
March 17, 2008
|
70
exv21w1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
|
|
|
|
|
State or Jurisdiction |
Name |
|
of Incorporation |
Picor Corporation |
|
Delaware, USA |
V*I Chip Corporation |
|
Delaware, USA |
VLT, Inc. |
|
California, USA |
Vicor GmbH |
|
Germany |
VICR Securities Corporation |
|
Massachusetts, USA |
Vicor France SARL |
|
France |
Vicor Italy SRL |
|
Italy |
Vicor Hong
Kong Ltd. |
|
Hong Kong |
Vicor U.K. Ltd. |
|
United Kingdom |
Vicor B.V. |
|
Netherlands |
Vicor Japan Company, Ltd. |
|
Japan |
Vicor Development Corporation |
|
Delaware, USA |
Aegis Power
Systems, Inc. |
|
Delaware, USA |
Mission
Power Systems, Inc. |
|
Delaware, USA |
Northwest
Power Integration, Inc. |
|
Delaware, USA |
Converpower Corporation |
|
Delaware, USA |
Freedom
Power Systems, Inc. |
|
Delaware, USA |
exv23w1
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements:
|
(1) |
|
Registration Statement (Form S-8, No. 33-46656) pertaining to the 1984 Stock Option
Plan of Vicor Corporation, |
|
|
(2) |
|
Registration Statement (Form S-8, No. 33-65154) pertaining to the 1993 Stock Option
Plan of Vicor Corporation, |
|
|
(3) |
|
Registration Statement (Form S-8, No. 333-61177) pertaining to the 1998 Stock Option
and Incentive Plan of Vicor Corporation, |
|
|
(4) |
|
Registration Statement (Form S-8, No. 333-44790) pertaining to the 2000 Stock Option
and Incentive Plan of Vicor Corporation, and |
|
|
(5) |
|
Registration Statement (Form S-8, No. 333-99423) pertaining to the Amended and
Restated 2000 Stock Option and Incentive Plan of Vicor Corporation; |
of our report dated March 14, 2008, with respect to the consolidated financial statements and
schedule of Vicor Corporation and our report dated March 14, 2008, with respect to the
effectiveness of internal control over financial reporting of Vicor Corporation included in this
Annual Report (Form 10-K) of Vicor Corporation for the year ended December 31, 2007.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 14, 2008
exv31w1
Exhibit 31.1
CHIEF
EXECUTIVE OFFICER CERTIFICATION
I, Patrizio Vinciarelli, certify that:
1. I have reviewed this annual report on
Form 10-K
of Vicor Corporation;
2. Based on my knowledge, this annual 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 officers 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 we 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 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.
Patrizio Vinciarelli
Chief Executive Officer
Dated: March 17, 2008
exv31w2
Exhibit 31.2
CHIEF
FINANCIAL OFFICER CERTIFICATION
I, Richard J. Nagel, Jr., certify that:
1. I have reviewed this annual report on
Form 10-K
of Vicor Corporation;
2. Based on my knowledge, this annual 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 officers 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 we 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 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/ Richard
J. Nagel, Jr.
Richard J. Nagel, Jr.
Interim Chief Financial Officer
Vice President, Chief Accounting Officer
Dated: March 17, 2008
exv32w1
Exhibit 32.1
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Vicor Corporation (the
Company) on
Form 10-K
for the period ending December 31, 2007 as filed with the
Securities and Exchange Commission on the date hereof (the
Report), I, Patrizio Vinciarelli, Chief
Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(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.
Patrizio Vinciarelli
President, Chairman of the Board and
Chief Executive Officer
March 17, 2008
A signed original of this written statement required by
Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.
exv32w2
Exhibit 32.2
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Vicor Corporation (the
Company) on
Form 10-K
for the period ending December 31, 2007 as filed with the
Securities and Exchange Commission on the date hereof (the
Report), I, Richard J. Nagel, Jr., Interim
Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(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/ Richard
J. Nagel, Jr.
Richard J. Nagel, Jr.
Interim Chief Financial Officer
Vice President, Chief Accounting Officer
March 17, 2008
A signed original of this written statement required by
Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.