<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
----------------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to____________
Commission file number 0-18277
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VICOR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 04-2742817
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(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
25 FRONTAGE ROAD, ANDOVER, MASSACHUSETTS 01810
----------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (978) 470-2900
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate 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 registrant's 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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $213,813,099 as of February 26, 1999.
On February 26, 1999, there were 29,441,608 shares of Common Stock outstanding
and 12,103,309 shares of Class B Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement (the "Definitive Proxy
Statement") to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A and relating to the Company's 1999 annual meeting of stockholders
are incorporated by reference into Part III.
<PAGE>
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. 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 in this report.
Reference is made in particular to the discussions set forth under Item 1
"Business - Second-Generation Automated Manufacturing Line," "- Competition,"
"Patents," and "- Licensing," and under Item 7 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
ITEM 1 - BUSINESS
THE COMPANY
Vicor Corporation was incorporated in Delaware in 1981. Unless the context
indicates otherwise, the term "Company" means Vicor Corporation and its
consolidated subsidiaries. The Company designs, develops, manufactures and
markets modular power components and complete power systems using an innovative,
patented, high frequency electronic power conversion technology called "zero
current switching." Power systems, a central element in any electronic system,
convert power from a primary power source (e.g., a wall outlet) into the stable
DC voltages that are required by most contemporary electronic circuits.
In 1987, the Company formed VLT Corporation as its licensing subsidiary. In
1990, the Company established a Technical Support Center in Germany and a
foreign sales corporation. 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), which are majority owned
subsidiaries. VIAs provide customers with local design and manufacturing
services for turnkey custom power solutions. At December 31, 1998 there were
five (5) 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 Company's products and provides
customer support in Japan. The Company became publicly traded on the NASDAQ
National Market System in April 1990.
PRODUCTS
Power systems are incorporated into virtually all electronic products, such
as computers and telecommunication equipment, to convert electric power from a
primary source, for example a wall outlet, into the stable DC voltages required
by electronic circuits. Since power systems are configured in a myriad of
application-specific configurations, the Company's 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 applied by users to easily configure a power system specific to their 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's principal product lines include:
Modular Power Converters
The Company currently offers four first generation families of
component-level DC-DC power converters: the VI-200, VI-J00, MI-200, and MI-J00
families. Designed to be mounted directly on a printed circuit board assembly
and soldered in place using contemporary manufacturing processes, each family
comprises a 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 the case of the "MI" families, in target
market (the MI families are designed specifically to meet many of the
performance and environmental requirements of the military/defense markets).
<PAGE>
In 1998, the Company introduced the first complete family of its second
generation of high power density, component-level DC-DC converters. This family
operates from 48 Volts input and is designed for the telecommunications market
as well as distributed power systems. It consists of twenty-six modules with the
most popular output voltages in all three of the Company's second generation
standard packages: the full size (Maxi), the half size (Mini) and the new
quarter size (Micro). Output power levels from 50 to 500 Watts are covered by
this offering.
Configurable Products
Utilizing its standard converters as core elements, the Company has
developed several product families which provide complete power solutions
configured to a customer's 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 electronic and data processing ("EDP") 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 Company's 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 are either factory or field
configurable.
Many telecommunications, defense and industrial electronic products are
powered from central DC sources (battery plants or generators). The Company's
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.
Accessory Power System Components
Accessory power system components, used with the Company's 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 Company's 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 new 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.
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 which 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
customer's needs with a reliable, high power density, total solution. However,
in keeping with the Company's 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"). The Company has also put
in place a network of Vicor Integration Architects ("VIAs") (see "The Company,"
above in Item 1 - "Business"). 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.
<PAGE>
SALES AND MARKETING
The Company sells its products through a network of 33 independent sales
representative organizations in North and South America; internationally, 38
independent distributors are utilized. Sales activities are managed by a staff
of Regional and Industry Sales Managers and sales personnel based at the
Company's world headquarters in Andover, Massachusetts, its Westcor division in
Sunnyvale, California, a Technical Support Center in Lombard, Illinois, and in
its Technical Support Center subsidiaries in Munich, Germany; Camberley Surrey,
England; Milan, Italy; Paris, France; Hong Kong and Tokyo, Japan.
Export sales, as a percentage of total net revenues, were approximately
29%, 31%, and 30%, in 1998, 1997, and 1996, respectively. The decrease in export
sales during 1998 as compared to 1997 and 1996 is primarily due to a decrease in
revenue earned from the sale of automated manufacturing line equipment.
Because of the technical nature of the Company's product lines, the Company
engages a staff of Customer Applications Engineers to support the Company's
sales activities. Customer Applications Engineers provide direct technical sales
support worldwide to review new applications and technical matters with existing
and potential customers. In 1995, the Company significantly expanded its staff
of Customer Applications Engineers by opening Technical Support Centers in
Italy, France, United Kingdom and Hong Kong, complementing its existing
Technical Support Center in Germany. The Company generally warrants its standard
products for a period of two years.
The Company also sells directly to customers through Vicor Express, an
in-house distribution group. Through space 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
expanded its Vicor Express operation to include locations in Germany, France and
Italy.
CUSTOMERS AND APPLICATIONS
The Company's customer base is comprised of large Original Equipment
Manufacturers (OEMs) and smaller, lower volume users which are broadly
distributed across several major market areas. Some examples of the diverse
applications of the Company's products are:
Telecommunications: EDP:
Central Office Systems Workstations
Fiber Optic Systems Supercomputers
Cellular Telecommunications Data Storage Systems
Microwave Communications ATM Switches
Voice Processing Multiplexers Networking Equipment
Paging Equipment LAN/WAN Systems
Broadcast Equipment File Servers
RAID Systems
Measurement and Control: Military:
Process Control Equipment Communications
Medical Equipment Airborne Radar and Displays
Seismic Equipment Aircraft/Weapons Test Equipment
Test Equipment Ruggedized Computers
Transportation Systems Electro-Optical Systems
Agricultural Equipment IR Reconnaissance/Targeting Systems
Marine Products
For the years ended December 31, 1998, 1997 and 1996, no single customer
accounted for more than 10% of net revenues.
<PAGE>
BACKLOG
As of December 31, 1998, the Company had a backlog of approximately $37
million compared to $48 million at December 31, 1997. Backlog is comprised of
orders for products which have a scheduled shipment date within the next twelve
months. The Company maintains most standard converter products in inventory and
manufactures other standard, modified standard and custom products pursuant to
firm orders from customers. The Company believes that due to its increased
production capacity and its ability to respond quickly to customers'
requirements, 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 Company's research and development efforts are focused
in three areas: continued enhancement of the Company's patented technology;
expansion of the Company's families of component level DC-DC converter products;
and continued development of configurable products based upon market
opportunities. The Company invested approximately $20.7 million, $17.7 million,
and $14.3 million, in research and development in 1998, 1997 and 1996,
respectively. Investment in research and development represented 12.5%, 10.9%,
and 9.9%, of net revenues in 1998, 1997 and 1996. The Company plans to continue
to invest a significant percentage of revenues into research and development.
MANUFACTURING
The Company's principal manufacturing processes are 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 "burn-in" of certain products and product test
using automatic test equipment.
The Company continues to execute on its strategy to minimize manual
assembly processes, reduce manufacturing costs, increase product quality and
reliability and ensure its ability to rapidly and effectively expand capacity.
The strategy is based upon the phased acquisition and/or fabrication,
qualification and integration of automated manufacturing equipment. In
accordance with this strategy, the Company purchased a building in December
1994, with approximately 136,000 square feet. The Company is in the process of
expanding this building by approximately 70% (see Item 2 - Properties). The
Company continues the process of installing its automated manufacturing lines in
these premises (see "Second-Generation Automated Manufacturing Line," below),
including automated manufacturing lines acquired from Japan Tobacco, Inc. (see
"Licensing,") below).
Components used in the Company's products are purchased from a variety of
vendors. Most of the components are available from multiple sources. In
instances in which single source items do exist, the Company maintains what it
considers to be appropriate levels of inventories. 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
any material effect on the financial condition or operations of the Company.
SECOND-GENERATION AUTOMATED MANUFACTURING LINE
Shipments of second-generation products continued to increase during 1998
which included the introduction of a new 48 Volt family of products. Both first
and second generation products are sold to similar customers. The Company still
continues to make modifications to the designs, processes, equipment and parts
associated with second-generation products. While management believes that
significant progress has been made, there can be no assurance that problems will
not substantially delay the ultimate general introduction of the complete
product line, require continued modification of product specifications, or
prevent attainment of the anticipated capacity of the second-generation
manufacturing line. Significant revenues from the sale of any products in the
Company's second-generation product line are not expected to occur for several
quarters. The Company began depreciation on a significant portion of the
second-generation automated manufacturing line, approximately $32.5 million, in
the second quarter of 1998. Depreciation on another $1.6 million commenced
during the second half of 1998. Approximately $3.3 million of this line will be
depreciated on a straight-line basis over a period of five years, and
approximately $30.8 million will be depreciated on a straight-line basis over a
period of eight years. Consequently, this depreciation and other fixed and
variable costs associated with the ramp-up of production of second-generation
products are not expected to be fully absorbed until higher production volumes
and higher yield levels are achieved. As a result, gross margins during 1999
will continue to be negatively impacted until higher production volumes and
higher yield levels are attained.
<PAGE>
COMPETITION
Many power supply manufacturers target markets similar to those of the
Company. Representative examples are: Lambda Electronics, a subsidiary of Siebe,
plc; Lucent Technologies; Artesyn Technologies (formerly Computer Products, Inc.
and Zytec Corporation); Astec America; Power-One, Inc.; and C&D Technologies,
Inc., Power Electronics Division. Although certain of the Company's 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.
PATENTS
The Company believes that its patents afford significant advantages by
erecting fundamental and multilayered barriers to competitive encroachment upon
key features and performance benefits of its principal product families. The
Company's 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
believes in vigorously protecting its rights under its patents (see "Item 3
Legal Proceedings," below).
On February 16, 1999, the United States Patent and Trademark Office issued
U.S. patent RE36,098 (the "Reissue Patent") as a reissue of U.S. Patent
4,441,146 (the "Reset Patent"). The Reissue Patent includes original claims 1
through 5 of the Reset Patent plus 38 additional new claims. The claims in the
Reissue Patent cover non-coincident active clamp technology in a broadly defined
class of single-ended forward converters and enable design of power converters
which are smaller and more energy efficient than conventional power supplies.
The claims cover, but are not limited to, so-called "zero-voltage switching"
("ZVS") technology. The Company believes that its rights under the Reset Patent
and the Reissue Patent have been and are being infringed.
The Company has been issued forty-nine patents in the United States (which
expire between 2001 and 2017), fourteen in Europe (which expire between 2002 and
2017 and which comprise a total of fifty-one issued patents in twelve
countries), and nineteen in Japan (which expire between 2002 and 2017). The
Company also has a number of patent applications pending in the United States,
Europe and the Far East. Although the Company believes that patents are an
effective way of protecting its technology, there can be no assurances that the
Company's patents will prove to be enforceable (see, e.g., "Legal Proceedings",
below). While some of the Company's patents are deemed materially important to
the Company's operations, the Company believes that no one patent is essential
to the success of the Company.
LICENSING
In addition to generating revenue, licensing is an element of the Company's
strategy for building worldwide product and technology acceptance and market
share. In granting licenses, the Company 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
Company's wholly owned subsidiary, VLT Corporation, which owns the Company's
patents.
Revenues from licensing arrangements have not exceeded 10% of the Company's
consolidated revenues in any of the last three fiscal years.
<PAGE>
On June 4, 1998, the Company entered into an agreement to acquire all of
the principal assets and the power supply business of JT Electronics Corporation
and JT PowerCraft, in Japan. Both companies were subsidiaries of Japan Tobacco,
Inc. ("JT"), the Company's licensee in Japan at the time. Under the terms of the
agreement, JT continued to provide certain services in Japan, including the
manufacture of products, through the end of 1998, at which time its license
terminated. The final royalty revenue to be recognized from JT under the license
agreement will be in the first quarter of 1999. The Company founded VJCL (see
"Item 1- "Business") to operate in the Japanese market and is applying the
acquired assets to service and expand its power supply business in Japan.
On March 4, 1998 and on April 20, 1998, the Company announced that it had
entered into license agreements with NEC Corporation ("NEC") and Nagano Japan
Radio Co., Ltd. ("NJRC"), respectively, under which NEC and NJRC acquired
non-exclusive rights to use the Company's patented "reset" technology in their
power conversion products. Reset technology (which has also become known in the
power conversion industry as "active clamp" technology) enables design of
"zero-voltage switching" power converters which are smaller and more energy
efficient than conventional power supplies.
EMPLOYEES
As of December 31, 1998, the Company employed approximately 1,129 full time
and 187 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.
None of the Company's employees is subject to a collective bargaining
agreement. The Company has not experienced any work stoppages and believes that
its employee relations are good.
ITEM 2 - PROPERTIES
During 1998, the Company completed construction of a new corporate
headquarters building on a site adjacent to its prior headquarters building in
Andover, Massachusetts. The building provides approximately 90,000 square feet
of office space for its sales, marketing, engineering and administration
personnel.
The Company holds a lease on its prior corporate headquarters building
which expires in the fourth quarter of 1999. This building currently holds some
manufacturing equipment, which will be moved to the Company's manufacturing
facility in Andover, Massachusetts, prior to the lease termination.
The Company also owns a building of approximately 136,000 square feet, in
Andover, Massachusetts. During 1998, the Company continued construction of a
94,000 square foot expansion of this building, which will provide additional
capacity for manufacturing. Completion of the expansion is expected in the first
quarter of 1999.
The Company's Westcor division owns and occupies a building of
approximately 31,000 square feet, in Sunnyvale, California.
ITEM 3 - LEGAL PROCEEDINGS
On October 17, 1996, the Company filed a complaint in Munich District
Court, Federal Republic of Germany, citing Nemic-Lambda of Japan and Lambda
Electronics GmbH for infringement of Vicor's German "reset" patent. On September
30, 1998, the German Patent Court held a hearing in which the Patent Court
identified a 1981 publication, which had not been considered in the original
prosecution of the patent application by the European Patent Office during the
early 1980s, as the "closest prior art." In view of the publication, the Patent
Court characterized the German Reset Patent as lacking invention and declared
all of the claims of the German Reset Patent null and void.
<PAGE>
On February 1, 1999, the Company announced that it had concluded an
arrangement under which Vicor and Reltec Corporation entered into a license
agreement and agreed to settle all pending litigation and disputes relating to
Reltec's past use of certain Vicor intellectual property. In consideration for
the license under the Company's reset patents, and the separate settlement of
the litigation, Reltec made a one-time payment of $22.5 million into an escrow
account. Vicor is obligated to make know-how and technical support available to
Reltec under the license and will receive and recognize income from the escrow
fund into the year 2001.
The Company is involved in certain litigation incidental to the conduct of
its business. While the outcome of lawsuits against the Company cannot be
predicted with certainty, management does not expect any current litigation to
have a material adverse impact on the Company (see "Licensing," above).
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is listed on the National Market System of
the National Association of Securities Dealers Automated Quotation ("NASDAQ")
System and is traded in the over-the-counter market under the NASDAQ 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 Company's Restated Certificate
of Incorporation. The following table sets forth the quarterly high and low
sales prices for the Common Stock as reported by NASDAQ for the periods
indicated:
1997 High Low
- ---- ---- ---
First Quarter 19 13 1/8
Second Quarter 23 3/8 13 1/8
Third Quarter 30 1/8 21
Fourth Quarter 36 1/4 24 1/8
1998
- ----
First Quarter 29 3/4 22
Second Quarter 28 5/8 12 15/16
Third Quarter 16 1/2 7 13/16
Fourth Quarter 11 7/8 5 9/16
As of February 26, 1999, there were approximately 530 holders of record of
the Company's Common Stock and approximately 30 holders of record of the
Company's Class B Common Stock. These numbers do not reflect persons or entities
who hold their stock in nominee or "street name" through various brokerage
firms.
DIVIDEND POLICY
The Company has not paid cash dividends on its common equity and it is the
Company's present intention to retain earnings to finance the expansion of the
Company's business.
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's statements of income for the years ended December 31, 1998, 1997 and
1996 and with respect to the Company's balance sheets as of December 31, 1998
and 1997 are derived from the Company's consolidated financial statements, which
appear elsewhere in this report and which have been audited by Ernst & Young
LLP, independent auditors. The following selected consolidated financial data
with respect to the Company's statements of income for the years ended December
31, 1995 and 1994 and with respect to the Company's balance sheets as of
December 31, 1996, 1995 and 1994 are derived from the Company's audited
consolidated financial statements, which are not included herein. The data
should be read in conjunction with the consolidated financial statements,
related notes and other financial information included herein.
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
(in thousands except per share data)
Income Statement Data 1998 1997 1996 1995 1994
- --------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Revenues $164,634 $162,243 $144,983 $144,022 $115,444
Income from operations 18,365 35,950 36,532 42,632 33,340
Net income 15,835 26,217 25,639 29,498 22,135
Net income per share -diluted .37 .60 .60 .68 .52
Weighted average shares-diluted 42,785 43,344 42,764 43,295 42,963
</TABLE>
At December 31
--------------
(in thousands)
<TABLE>
<CAPTION>
Balance Sheet Data 1998 1997 1996 1995 1994
- ------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $ 84,594 $128,267 $108,551 $ 95,900 $ 65,015
Total assets 249,551 228,843 186,443 166,997 126,492
Total liabilities 40,292 20,419 15,699 16,941 13,014
Stockholders' equity 209,259 208,424 170,744 150,056 113,478
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 of the Company
contained elsewhere in this report.
<TABLE>
<CAPTION>
Year ended December 31
----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
Gross margin 44.9% 51.8% 53.9%
Selling, general and administrative expenses 21.2% 18.7% 18.8%
Research and development expenses 12.5% 10.9% 9.9%
Income before income taxes 14.1% 25.2% 27.9%
</TABLE>
<PAGE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997:
Net revenues for fiscal 1998 were $164,634,000, an increase of $2,391,000
(1.5%) as compared to $162,243,000 for fiscal 1997. The growth in revenues
resulted primarily from a net increase in unit shipments of standard and custom
products of approximately $8,760,000, offset by reductions in the sale of
automated manufacturing line equipment and license income of approximately
$5,285,000 and $1,085,000, respectively.
Gross margin decreased $10,060,000 (12.0%) from $84,009,000 to $73,949,000,
and decreased as a percentage of net revenues from 51.8% to 44.9%. The primary
component of the fluctuations in gross margin dollars and percentage were
attributable to depreciation on the second generation production line of
approximately $3,370,000 in 1998, and to changes in the revenue mix. Gross
margins in 1999 will continue to be negatively impacted by the depreciation of
the second generation automated production line until higher production volumes
and higher yield levels are attained.
Selling, general, and administrative expenses were $34,934,000 for the
year, an increase of $4,607,000 (15.2%) over fiscal 1997. As a percentage of net
revenues, selling, general and administrative expenses increased to 21.2% from
18.7%. The principal components of the $4,607,000 increase were $1,481,000
(12.6%) of compensation expense due to annual pay increases and growth in
staffing levels of sales and administrative personnel; $934,000 (140.2%) of
increased costs for training and consulting fees for the implementation of the
Enterprise Resource Planning system; $900,000 (76.8%) of increased legal
expenses; $260,000 (16.1%) of increased selling, general and administrative
expenses in the Company's Vicor Integration Architect subsidiaries, and $210,000
(5.6%) of increased advertising costs.
Research and development expenses increased $2,918,000 (16.5%) to
$20,650,000, and increased as a percentage of net revenues to 12.5% from 10.9%.
The principal components of the $2,918,000 increase were $2,312,000 (21.6%) of
compensation expense due to annual pay increases and growth in staffing levels
of engineering personnel, primarily related to the research and development of
the second generation product line, and $539,000 (100.0%) of research and
development costs associated with VJCL, which was established in July of 1998.
The Company has a long-term commitment to reinvesting its profits in new product
design and development in order to maintain and improve its competitive
position.
Other income decreased $92,000 (1.8%) to $4,922,000. Other income is
primarily comprised of interest income which was derived from invested cash and
cash equivalents, as well as notes receivable associated with the Company's real
estate transactions. Interest income decreased primarily due to a decrease in
cash and cash equivalents balances.
Income before income taxes was $23,287,000, a decrease of $17,677,000
(43.2%) compared to 1997. As a percentage of net revenues, income before income
taxes decreased from 25.2% in 1997 to 14.1% in 1998.
The provision for income taxes totaled $7,452,000 in 1998 compared to
$14,747,000 in 1997. The Company's overall tax rate was 32.0% and 36.0% for 1998
and 1997, respectively. The decrease in the effective tax rate was due to the
impact of expected tax credits in 1998 on a lower level of income before income
taxes.
Net income in 1998 decreased by $10,382,000 to $15,835,000. Diluted
earnings per share were $.37 in 1998 compared to $.60 in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996:
Net revenues for fiscal 1997 were $162,243,000, an increase of $17,260,000
(11.9%) as compared to $144,983,000 for fiscal 1996. The growth in revenues
resulted primarily from a net increase in unit shipments of standard and custom
products of approximately $22,800,000, offset by reductions in license income
and the sale of automated manufacturing line equipment of approximately
$3,200,000 and $2,300,000, respectively.
Gross margin increased $5,904,000 (7.6%) from $78,105,000 to $84,009,000,
but decreased as a percentage of net revenues from 53.9% to 51.8%. The primary
component of the fluctuations in gross margin dollars and percentage was changes
in the revenue mix.
Selling, general, and administrative expenses were $30,327,000 for the
year, an increase of $3,095,000 (11.4%) over fiscal 1996. As a percentage of net
revenues, selling, general and administrative expenses decreased from 18.8% to
18.7%. The principal components of the $3,095,000 increase were $1,795,000
(17.9%) of compensation expense due to growth in staffing levels of sales and
administrative personnel, increased sales commission expense of $758,000 (19.4%)
and increased legal expenses of $354,000 (43.3%).
Research and development expenses increased $3,391,000 (23.6%) to
$17,732,000, and increased as a percentage of net revenues to 10.9% from 9.9%.
The principal components of the $3,391,000 increase were $2,068,000 (25.6%) of
compensation expense due to growth in staffing levels of engineering personnel,
an increase in project materials of $366,000 (13.0%), $334,000 (26.7%) of
increased depreciation expense, and an increase in the Company's VIA
subsidiaries' research and development expenses of $266,000 (60.4%).
<PAGE>
Other income increased $1,154,000 (29.9%) to $5,014,000. Other income is
primarily comprised of interest income which was derived from invested cash and
cash equivalents, as well as notes receivable associated with the Company's real
estate transactions. Interest income increased primarily due to an increase in
these balances.
Income before income taxes was $40,964,000, an increase of $572,000 (1.4%)
compared to 1996. As a percentage of net revenues, income before income taxes
decreased from 27.9% in 1996 to 25.2% in 1997.
The provision for income taxes totaled $14,747,000 in 1997 compared to
$14,753,000 in 1996. The Company's overall tax rate was 36.0% and 36.5% for 1997
and 1996, respectively.
Net income in 1997 increased by $578,000 to $26,217,000. Diluted earnings
per share were $.60 in 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had $58,897,000 in cash and cash
equivalents. Working capital decreased $43,673,000 during the year ended
December 31, 1998. This decrease was due primarily to a decrease in cash and
cash equivalents of $25,962,000 and an increase in amounts due for assets
acquired and accounts payable of $17,377,000.
Cash used in investing activities during fiscal 1998 was $41,768,000, an
increase of $15,381,000 (58.3%) compared to fiscal 1997. This increase was
primarily due to net additions to property and equipment of $36,392,000 and an
increase in other assets of $3,574,000. Cash used in financing activities was
$15,000,000 compared to cash provided by financing activities of $11,463,000 in
1997, a net change of $26,463,000. This change is primarily attributed to a net
increase in the acquisition cost of treasury stock of $16,942,000 in 1998, and a
decrease in the net proceeds from the issuance of Common Stock upon the exercise
of stock options, and the related income tax benefit derived from such issuance,
of $9,870,000.
The Company plans to continue its investments in manufacturing equipment,
much of which is built internally. The internal construction of manufacturing
machinery, in order to provide for additional manufacturing capacity, is a
practice which the Company expects to follow for the foreseeable future.
In November 1997, the Board of Directors of the Company authorized the
repurchase of the Company's Common Stock up to an aggregate amount of
$30,000,000, including amounts remaining under a prior authorization. The plan
authorizes the Company to make such repurchases from time to time in the open
market or through privately negotiated transactions. The timing of this program
and the amount of the stock that may be repurchased is at the discretion of
management based on its view of economic and financial market conditions. In
1998, the Company spent $17,625,000 for the repurchase of its Common Stock.
The Company has an unused line of credit with a bank under which the
Company may borrow up to $4,000,000 on a revolving credit basis. The Company
believes that cash generated from operations and its cash and cash equivalents
will be sufficient to fund planned operations and capital equipment purchases
for the foreseeable future. At December 31, 1998, the Company had approximately
$3,100,000 of capital expenditure commitments.
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.
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
fluctuations in foreign currency exchange rates. The Company's exposure to
market risk for a change in interest rates relates primarily to the Company's
cash and cash equivalents.
<PAGE>
As the Company's cash and cash equivalents consist principally of money
market securities, which are short-term in nature, the Company's exposure to
market risk on interest rate fluctuations is not significant. The Company's
exposure to market risk for fluctuations in foreign currency exchange rates
relates primarily to the operations of VJCL. The Company believes that this
market risk is currently not significant due to the relative size of VJCL's
operations.
OTHER
Shipments of second-generation products continued to increase during 1998
which included the introduction of a new 48 volt family of products. Both first
and second generation products are sold to similar customers. The Company still
continues to make modifications to the designs, processes, equipment and parts
associated with second-generation products. While management believes that
significant progress has been made, there can be no assurance that problems will
not substantially delay the ultimate general introduction of the complete
product line, require continued modification of product specifications, or
prevent attainment of the anticipated capacity of the second-generation
manufacturing line. Significant revenues from the sale of any products in the
Company's second-generation product line are not expected to occur for several
quarters. The Company began depreciation on a significant portion of the
second-generation automated manufacturing line, approximately $32.5 million, in
the second quarter of 1998. Depreciation on another $1.6 million commenced
during the second half of 1998. Approximately $3.3 million of this line will be
depreciated on a straight-line basis over a period of five years, and
approximately $30.8 million will be depreciated on a straight-line basis over a
period of eight years. Consequently, this depreciation and other fixed and
variable costs associated with the ramp-up of production of second-generation
products are not expected to be fully absorbed until higher production volumes
and higher yield levels are achieved. As a result, gross margins during 1999
will continue to be negatively impacted until higher production volumes and
higher yield levels are attained.
YEAR 2000 READINESS DISCLOSURE
The statements in the following section include "Year 2000 readiness
disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act of 1998.
Vicor has formed an internal Year 2000 compliance team to evaluate its
internal facilities, engineering and manufacturing processes, and business
information systems with respect to Year 2000 compliance. The evaluation has
included both Information Technology ("IT") systems and non-IT systems, and the
products and systems of the Company's significant suppliers. The Company has
initiated formal communications with all of its significant suppliers and large
customers to determine the extent to which the Company is vulnerable to those
third parties' failures to remediate their Year 2000 issues. The Company does
not believe that it has any exposure to contingencies related to the Year 2000
Issue for the products it has sold.
The compliance team is using the following phased approach to Year 2000
readiness: internal inventory, vendor questionnaires, assessment, planning
(which involves establishing timetables and cost estimates), remediation and
testing. The internal inventories for both IT and non-IT systems have been
completed. Vendor questionnaires for IT and non-IT systems have been circulated
and responses have been received and reviewed. For both IT and non-IT systems,
there are approximately 10 critical vendors from which responses either have not
been received or have not indicated compliance. The compliance team and the
purchasing department are following up on the non-replies. Both the assessment
phase and the planning phase are 90% complete for the IT systems and 50%
complete for non-IT systems. Both assessment and planning phases are expected to
be completed by the end of the first quarter of 1999. The remediation and
testing phases will commence and are expected to be completed by the end of the
first quarter of 1999 for IT systems. The remediation phase for non-IT systems
is expected to be completed in the second quarter of 1999, with testing to run
into the third quarter of 1999.
Vicor's current primary business information system is known to be
non-compliant and a vendor has been selected to assist the Company in bringing
this system into compliance by the first quarter of 1999. The cost of this
upgrade will not be material. In addition, the Company is proceeding with the
phased installation of a new Enterprise Resource Planning (ERP) system which
will replace the upgraded, Year 2000 compliant primary business information
system. The installation of the Year 2000 compliant ERP system should not be
necessary for the Company to achieve Year 2000 compliance with respect to its
business information system and such ERP system will not be fully installed by
December 31, 1999. Phases of this installation have been delayed due to other
Year 2000 compliance efforts.
<PAGE>
The total external cost of the Year 2000 project is estimated to be $6.0
million, of which a significant portion is for the new ERP system. Internal
costs are not considered to be incremental, and are therefore not included in
the amount. Of the total project cost, approximately $2.2 million will be
capitalized for the purchase of new software and hardware enhancements, and the
balance of $3.8 million will be expensed as incurred through 2001, which is not
expected to have a material effect on the results of operations. Through
December 31, 1998, the Company has incurred approximately $2.7 million ($1
million expensed and $1.7 million capitalized), of which approximately $110,000
was incurred in the fourth quarter of 1998 ($25,000 expensed and $85,000
capitalized).
The Company presently believes that the Year 2000 issue will not pose
significant operational problems. However, the future compliance with Year 2000
processing within Vicor is dependent on certain key personnel, and on vendors'
equipment and internal systems. Therefore, unresolved Year 2000 issues remain a
possibility. As a result, Year 2000 issues could have a significant impact on
the Company's operations and its financial results if modifications cannot be
completed on a timely basis, unforeseen needs or problems arise, or if systems
operated by third parties (including municipalities and utilities) are not Year
2000 compliant. The Company currently believes that its most reasonably likely
worst case Year 2000 scenario would relate to failures with external
infrastructures such as utilities, telecommunications and transportation
systems, over which the Company has limited control. The Company has not
analyzed the potential consequences to the results of operations, liquidity and
financial condition, of such a scenario. At present, the Company has not
developed contingency plans but intends to determine whether to develop such
plans early in fiscal 1999.
The estimates and conclusions set forth herein regarding Year 2000
compliance contain forward-looking statements and are based on management's
estimates of future events and information provided by third parties. There can
be no assurance that such estimates and information will prove to be accurate.
Risks to completing the Year 2000 project include the availability of resources,
the Company's ability to discover and correct potential Year 2000 problems and
the ability of suppliers and other third parties to bring their systems into
Year 2000 compliance.
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1998 and 1997
Consolidated Statements of Income For the Years Ended December 31, 1998,
1997 and 1996
Consolidated Statements of Cash Flows For the Years Ended December 31, 1998,
1997 and 1996
Consolidated Statements of Stockholders' Equity For the Years Ended December 31,
1998, 1997 and 1996
Notes to the Consolidated Financial Statements
Schedule (Refer to Item 14)
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
VICOR CORPORATION
We have audited the accompanying consolidated balance sheets of Vicor
Corporation as of December 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1998. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's 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 generally accepted auditing
standards. 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, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with 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.
/s/Ernst & Young LLP
Boston, Massachusetts
January 26, 1999,
except for Note 13,
as to which the date
is February 1, 1999
<PAGE>
VICOR CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
(in thousands, except share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 58,897 $ 84,859
Accounts receivable, less allowance of $955 in 1998 and
$971 in 1997 28,245 35,258
Inventories, net 29,470 23,448
Other current assets 5,071 3,269
------- -------
Total current assets 121,683 146,834
Property, plant and equipment, net 111,074 69,802
Notes receivable 9,091 9,097
Other assets 7,703 3,110
--------- ---------
$ 249,551 $ 228,843
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Amounts due for assets acquired $ 16,000 $ -
Accounts payable 9,919 8,542
Accrued compensation and benefits 2,010 2,154
Accrued expenses 4,001 2,741
Income taxes payable 5,159 5,110
Deferred revenue - 20
------- -------
Total current liabilities 37,089 18,567
Deferred income taxes 3,203 1,852
Commitments and contingencies - -
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized; 360,001 issued and none outstanding in 1998 and 1997 - -
Class B Common Stock: 10 votes per share, $.01 par value, 14,000,000
shares authorized, 12,103,309 issued and outstanding
(12,173,809 in 1997) 121 122
Common Stock: 1 vote per share, $.01 par value, 62,000,000 shares
authorized, 34,222,474 shares issued and 29,613,180 outstanding
(33,958,142 issued and 30,674,748 outstanding in 1997) 342 340
Additional paid-in capital 100,255 97,980
Retained earnings 166,891 151,056
Accumulated other comprehensive income 349 -
Treasury stock at cost: 4,609,294 shares (3,283,394 shares in 1997) (58,699) (41,074)
-------- --------
Total stockholders' equity 209,259 208,424
--------- ---------
$ 249,551 $ 228,843
========= =========
</TABLE>
See accompanying notes
<PAGE>
VICOR CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net revenues $164,634 $162,243 $144,983
Costs and expenses:
Cost of revenue 90,685 78,234 66,878
Selling, general and administrative 34,934 30,327 27,232
Research and development 20,650 17,732 14,341
------- ------- -------
146,269 126,293 108,451
------- ------- -------
Income from operations 18,365 35,950 36,532
Other income 4,922 5,014 3,860
------- ------- -------
Income before income taxes 23,287 40,964 40,392
Provision for income taxes 7,452 14,747 14,753
----- ------ ------
Net income $ 15,835 $ 26,217 $ 25,639
======== ======== ========
Net income per common share:
Basic $ .37 $ .62 $ .61
======== ======== ========
Diluted $ .37 $ .60 $ .60
======== ======== ========
Shares used to compute net income per share:
Basic 42,292 42,595 41,947
======== ======== ========
Diluted 42,785 43,344 42,764
======== ======== ========
</TABLE>
See accompanying notes
<PAGE>
VICOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Operating activities:
Net income $ 15,835 $ 26,217 $ 25,639
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,607 8,289 8,338
(Gain) loss on disposal of equipment (23) (10) 4
Deferred income taxes 303 (201) (28)
Change in current assets and liabilities, net 3,084 (8,159) (4,238)
----- ------ ------
Net cash provided by operating activities 30,806 26,136 29,715
Investing activities:
Additions to property, plant and equipment (36,392) (20,177) (14,295)
Proceeds from sale of equipment 42 20 16
Acquisition of business (1,850) - -
Increase in other assets (3,574) (928) (787)
Decrease (increase) in notes receivable 6 (5,302) (1,295)
------ ------- ------
Net cash used in investing activities (41,768) (26,387) (16,361)
Financing activities:
Tax benefit relating to stock option plans 718 2,950 2,844
Proceeds from issuance of Common Stock 1,558 9,196 5,212
Other 349 - -
Acquisitions of treasury stock (17,625) (683) (13,007)
------- ------ -------
Net cash provided by (used in)
financing activities (15,000) 11,463 (4,951)
-------- -------- -------
Net (decrease) increase in cash and cash equivalents (25,962) 11,212 8,403
Cash and cash equivalents at beginning of year 84,859 73,647 65,244
--------- -------- ---------
Cash and cash equivalents at end of year $ 58,897 $ 84,859 $ 73,647
======== ======== =========
</TABLE>
Continued on following page
<PAGE>
VICOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Change in current assets and liabilities:
Accounts receivable $ 7,013 $(10,257) $ 1,170
Inventories (4,447) (2,319) (4,444)
Other current assets (754) (159) 260
Accounts payable and other accrued items 1,243 3,566 (1,378)
Income taxes payable 49 1,516 (122)
Deferred revenue (20) (506) 276
---------- --------- --------
$ 3,084 $ (8,159) $ (4,238)
========= ========= ========
Supplemental disclosures:
Cash paid during the year for income taxes, $ 5,568 $ 9,520 $ 10,911
net of refunds
Liabilities incurred related to acquisition $ 16,000 $ - $ -
</TABLE>
See accompanying notes
<PAGE>
VICOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1998, 1997 and 1996
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Accumulated
Class B Additional Other Total
Common Common Paid-in Retained Comprehensive Treasury Stockholders'
Stock Stock Capital Earnings Income Stock Equity
----- ----- ------- -------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $123 $324 $77,793 $99,200 $- $(27,384) $150,056
Sales of Common Stock 7 5,205 5,212
Conversion of Class B Common
Stock to Common Stock -
Income tax benefit from
transactions involving stock options 2,844 2,844
Purchase of treasury stock (13,007) (13,007)
Net income for 1996 25,639 25,639
--------- --------- --------- --------- --------- ---------- ---------
Balance at December 31, 1996 123 331 85,842 124,839 (40,391) 170,744
Sales of Common Stock 8 9,188 9,196
Conversion of Class B Common
Stock to Common Stock (1) 1 -
Income tax benefit from
transactions involving stock options 2,950 2,950
Purchase of treasury stock (683) (683)
Net income for 1997 26,217 26,217
--------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1997 122 340 97,980 151,056 (41,074) 208,424
Sales of Common Stock 1 1,557 1,558
Conversion of Class B Common
Stock to Common Stock (1) 1 -
Income tax benefit from
transactions involving stock options 718 718
Purchase of treasury stock (17,625) (17,625)
Net income for 1998 15,835 15,835
Currency translation adjustments 349 349
---------
Comprehensive income 16,184
--------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1998 $121 $342 $100,255 $166,891 $349 $(58,699) $209,259
========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes
<PAGE>
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Vicor Corporation (the "Company") 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.
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.
REVENUE RECOGNITION
Revenue is recognized generally when a product is shipped. License fees are
recognized ratably over the period of exclusivity or as additional royalty
payments would have been required, if greater, or over the period in which the
Company provides services. Revenue from the long-term contract entered into in
1993 for the sale of automated manufacturing line equipment was recognized under
the percentage of completion accounting method through the first quarter of
1998. Revenues recognized from this contract were less than 10% of net revenues
in 1998, 1997 and 1996.
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. The effect on the statements of
income of transaction gains and losses is insignificant for all years presented.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include funds held in checking and money market
accounts with banks and certificates of deposit with maturities of less than
three months when purchased. Cash and cash equivalents are valued at cost which
approximates market value. The Company's short-term investments, which are
classified as cash equivalents on the balance sheet, consist principally of
money market securities which 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.
As of December 31, 1998, the Company has approximately $54 million of
available-for-sale securities ($81 million as of December 31, 1997). The Company
has no trading securities or held-to-maturity securities.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalent
investments and trade accounts receivable. The Company maintains cash and cash
equivalents and certain other financial instruments with various financial
institutions. Concentrations of credit risk with respect to trade accounts
receivable are limited due to the large number of entities comprising the
Company's customer base. Credit losses have consistently been within
management's expectations and have not been material.
INTANGIBLE ASSETS
Intangible assets consist primarily of values assigned to patents and to
the excess of cost over the assigned value of net assets acquired. Intangible
assets are amortized using the straight-line method over periods ranging from
five to fifteen years. Amortization expense was approximately $536,000, $301,000
and $143,000 in 1998,1997 and 1996, respectively. Accumulated amortization was
$1,030,000 at December 31, 1998 and $664,000 at December 31, 1997.
<PAGE>
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
$3,197,000, $3,372,000, and $2,207,000 in advertising costs during 1998, 1997
and 1996, respectively.
NET INCOME PER COMMON SHARE
Basic and diluted income per share are calculated in accordance with FASB
Statement No. 128, "Earnings per Share." All income per share amounts for all
periods have been presented, and where appropriate, restated to conform to the
Statement No. 128 requirements.
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
As of January 1, 1998, the Company adopted FASB Statement No. 130,
"Reporting Comprehensive Income." Statement No. 130 establishes new rules for
the reporting and display of comprehensive income and its components; however,
the adoption of this Statement had no impact on the Company's net income or
stockholders' equity. Statement No. 130 requires the foreign currency
translation adjustments related to VJCL to be included in other comprehensive
income.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-up
Activities." SOP 98-5 requires the costs of start-up activities to be expensed
as incurred, and is effective for fiscal years beginning after December 15,
1998. The Company does not believe that the adoption of this Statement will have
a material effect on the Company's financial statements.
2. ACQUISITION
Effective July 1, 1998, the Company and its wholly-owned subsidiary VJCL,
acquired the principal assets of the switching power supply businesses owned by
the Japan Tobacco, Inc. Group ("JT"). The assets acquired included automated
manufacturing equipment, existing raw material and finished goods inventories,
customer lists and certain intellectual property. VJCL also assumed certain
warranty obligations for products manufactured by JT prior to the acquisition
date and for a six month transition period ending December 31, 1998. The
acquisition was accounted for by the purchase method. The total value of
consideration given and liabilities assumed aggregated $19.1 million. In
addition to cash payments for inventories, the Company has agreed to pay for the
automated equipment in three equal installments of $5.3 million, through
December 31, 1999. The total cost of the purchase in excess of the net assets
acquired of approximately $1.5 million is being amortized over ten years. The
following unaudited pro forma financial information for the years ended December
31, 1998 and 1997 assumes the acquisition occurred as of January 1, 1998 and
1997, respectively (in thousands, except per share amounts):
1998 1997
---- ----
Net revenues $173,421 $179,816
Net income $ 14,216 $ 22,980
Net income per share-diluted $0.33 $0.53
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisition been completed as
of January 1, 1998 and 1997, respectively, nor are they necessarily indicative
of future operating results.
<PAGE>
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVENTORIES
Inventories are valued at the lower of cost (determined using the first-in,
first-out method) or market. Inventories were as follows (in thousands):
December 31
-----------
1998 1997
---- ----
Raw materials $19,084 $16,715
Work-in-process 4,334 3,774
Finished goods 6,052 2,959
------- -------
$29,470 $23,448
======= =======
4. 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. Property, plant and equipment were as follows (in thousands):
December 31
-----------
1998 1997
---- ----
Land $ 2,089 $ 2,089
Buildings and improvements 24,370 11,644
Machinery and equipment 107,329 58,563
Furniture and fixtures 4,725 3,720
Leasehold improvements 3,151 2,335
Building construction-in-progress 10,616 3,160
Construction-in-progress 19,053 37,841
------- -------
171,333 119,352
Less accumulated depreciation and amortization 60,259 49,550
-------- --------
$111,074 $ 69,802
======== ========
At December 31, 1998, the Company had approximately $3,100,000 of capital
expenditure commitments.
5. NOTES RECEIVABLE
In May 1997, the Company received a promissory note in the amount of
$7,500,000 from an unrelated third party in exchange for $5,000,000 in cash plus
the termination of an existing note in the amount of $2,500,000. The note bears
interest at 9% and is due in May 2002. The note is secured by a mortgage on
certain real estate and by the assignment of certain leases and other contracts.
The Company's President has borrowed a total of $1,425,393 from the Company
pursuant to a series of unsecured term notes. The notes have terms of five years
and are due at various dates through August 2002. The notes bear interest at the
higher of the Company's prime borrowing rate less 1%, or the applicable federal
rate under the Internal Revenue Code of 1986, as amended. As of December 31,
1998, the notes and interest receivable balance was approximately $1,724,000
($1,601,000 as of December 31, 1997) and the applicable interest rate at
December 31, 1998 was 6.75% (7.50% at December 31, 1997).
Two Vice-Presidents of the Company have borrowed a total of $111,000 from
the Company pursuant to term notes. One note for $35,000 was repaid in 1998. The
remaining notes are unsecured and bear interest at the Company's prime borrowing
rate less 1%. As of December 31, 1998, the notes and interest receivable balance
was approximately $39,000 ($87,000 as of December 31, 1997). The applicable
interest rate at December 31, 1998 was 6.75% (7.50% at December 31, 1997).
<PAGE>
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FINANCING ARRANGEMENTS
The Company has an unused line of credit with a bank under which the
Company may borrow up to $4,000,000 on a revolving credit basis. Borrowings
under this line would bear interest at the Company's option of an interest rate
equal to the Lender's base rate, 30 day LIBOR + 1.75% or the 30 day Banker's
Acceptance (BA) rate + 2.25%.
7. STOCKHOLDERS' EQUITY
In November 1997, the Board of Directors of the Company authorized the
repurchase of the Company's Common Stock up to an aggregate amount of
approximately $30,000,000, including amounts remaining under a prior
authorization. The plan authorizes the Company to make such repurchases from
time to time in the open market or through privately negotiated transactions.
The timing of this program and the amount of the stock that may be repurchased
is at the discretion of management based on its view of economic and financial
market conditions. In 1998, the Company spent $17,625,000 in the repurchase of
its Common Stock.
Common Stock
Each share of Common Stock entitles the holder thereof to one vote on all
matters submitted to the shareholders. 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 stockholders except
to or among such stockholder's spouse, certain of such stockholder's 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
all times and without cost to the shareholder into shares of Common Stock on a
share-for-share basis.
During 1998, a total of 193,832 shares of Common Stock were issued upon the
exercise of stock options, and 70,500 shares of Class B Common Stock were
converted into 70,500 shares of Common Stock.
8. INCOME PER SHARE
The following table sets forth the computation of basic and diluted income
per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net income $15,835 $26,217 $25,639
======= ======= =======
Denominator:
Denominator for basic income per share -
weighted average shares 42,292 42,595 41,947
Effect of dilutive securities:
Employee stock options 493 749 817
----- ----- ------
Denominator for diluted income per share -
adjusted weighted-average shares and
assumed conversions 42,785 43,344 42,764
====== ====== ======
Basic income per share $ .37 $ .62 $ .61
======= ======= =======
Diluted income per share $ .37 $ .60 $ .60
======= ======= =======
</TABLE>
Options to purchase 663,587 shares of Common Stock were outstanding during
1998 (20,615 in 1997 and 23,976 in 1996), 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 be antidilutive.
<PAGE>
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. EMPLOYEE BENEFIT PLANS
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Under the Company's 1998 Stock Option and Incentive Plan (the "1998 Plan"),
the Board of Directors or the Compensation Committee may grant certain stock
incentive awards based on the Company's 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. 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 2,000,000 shares of Common Stock have been reserved for
issuance under the 1998 Plan. The period of time during which an option may be
exercised and the vesting periods will be determined by the Compensation
Committee. The term of each option may not exceed ten years from the date of
grant. As of December 31, 1998, no stock incentive awards were granted under the
1998 Plan.
Under the 1993 Stock Option Plan (the "1993 Plan"), the Board of Directors
or the Compensation Committee may grant stock options to employees and
non-employee directors to purchase shares of Common Stock at a price at least
equal to the fair market value per share of the outstanding Common Stock at the
time the option is granted. Both incentive stock options intended to qualify
under Section 422 of the Internal Revenue Code and non-qualified stock options
have been authorized to be granted. Incentive stock options may be granted to
employees, including employees who are directors of the Company, and
non-qualified options may be granted to non-employee directors. Both employee
directors and non-employee directors automatically receive stock options upon
election or re-election as a director. A total of 4,000,000 shares of Common
Stock have been reserved for issuance under the 1993 Plan. Stock options are
typically granted with vesting periods and become exercisable over various
periods of time, ranging from six months to five years from the date of grant,
and expire over various periods of time, ranging from one to ten years from the
date of grant.
Under the Company's 1984 Stock Option Plan, as amended (the "1984 Plan"),
the Board of Directors or the Compensation Committee granted stock options to
employees to purchase shares of Common Stock at a price at least equal to the
fair market value per share of the outstanding Common Stock at the time the
option was granted. Stock options under the 1984 Plan were typically granted
with vesting periods and became exercisable over various periods of time,
ranging from six months to five years from the date of grant, and expire over
various periods of time, ranging from one to thirteen years from the date of
grant. In connection with the adoption of the 1993 Plan, the Board of Directors
terminated the granting of options under the 1984 Plan upon approval of the 1993
Plan, discussed above.
<PAGE>
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. EMPLOYEE BENEFIT PLANS (Continued)
Activity as to stock options is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year 2,197,852 2,022,005 2,354,480
Granted 841,934 1,106,302 943,426
Forfeited and expired (221,297) (197,448) (587,125)
Exercised (193,832) (733,007) (688,776)
-------- -------- --------
Outstanding at end of year 2,624,657 2,197,852 2,022,005
========= ========= =========
Exercisable at end of year 1,650,164 1,336,125 1,552,672
========= ========= =========
Weighted - average exercise price:
Outstanding at beginning of year $11.15 $ 8.97 $ 8.01
Granted $25.72 $16.92 $14.97
Forfeited and expired $21.05 $15.49 $16.73
Exercised $ 8.10 $12.55 $ 7.56
Outstanding at end of year $15.29 $11.15 $ 8.97
Exercisable at end of year $12.33 $ 7.60 $ 7.24
Weighted - average fair value of
options granted during the year $ 13.71 $ 6.74 $ 4.38
Price range per share of outstanding options $ .84-31.13 $ .84-30.19 $ .84-24.50
=========== ============ ============
Price range per share of options granted $8.06-28.50 $13.38-30.19 $14.38-24.50
=========== ============ ============
Price range per share of options exercised $8.00-29.56 $ 1.00-24.38 $ .15-19.56
=========== ============ ============
Available for grant at end of year 2,468,312 1,088,996 2,002,247
=========== ============ ============
</TABLE>
The weighted - average contractual life for options outstanding as of December
31, 1998 is 5.53 years.
The following table summarizes information about stock options outstanding as of
December 31, 1998:
<TABLE>
<CAPTION>
Range of Exercise Prices
------------------------
$.84-$3.16 $3.38-$11.13 $11.25-$18.13 $18.38-$31.13
---------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Options Outstanding:
- --------------------
Number Outstanding 501,488 458,452 883,902 780,815
Weighted-Average Remaining
Contractual Life 2.53 5.51 6.38 6.49
Weighted-Average
Exercise Price $1.63 $8.35 $16.03 $27.32
Options Exercisable:
- --------------------
Number Exercisable 501,488 350,129 444,297 354,250
Weighted-Average
Exercise Price $1.63 $7.75 $15.95 $27.46
</TABLE>
<PAGE>
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. EMPLOYEE BENEFIT PLANS (Continued)
Pro forma information regarding net income and earnings per share is
required by Statement No. 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 1997 and 1996, respectively: risk-free interest rates of
5.3%, 6.1% and 5.4%; dividend yields of zero; volatility factor of the expected
market price of the Company's common stock of .55, .52 and .54; and a
weighted-average expected life of the option of 3.4, 3.3 and 1.7 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Pro forma net income $12,964 $23,947 $23,658
Pro forma net income per share:
Basic $ .31 $ .56 $ .56
Diluted $ .30 $ .55 $ .55
</TABLE>
The effects on 1998, 1997 and 1996 pro forma net income and net income per
share of expensing the fair value of stock options issued are not necessarily
representative of the effects on reporting the pro forma results of operations
for future years as the periods presented include only four, three and two
years, respectively, of option grants under the Company's plans.
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 does not make contributions to this plan.
Stock Bonus Plan
Under the Company's 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, 1998, 109,964 shares were available for further
award. All shares awarded to employees under this plan have vested in full. No
further awards are contemplated under this plan at present.
<PAGE>
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. INCOME TAXES
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 Company's deferred tax liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Inventory reserves $ 1,418 $ 1,058
Vacation 665 544
Investment tax credit carryforward 500 -
Bad debt 393 400
Other 411 337
------ -----
Total deferred tax assets (current) 3,387 2,339
Deferred tax liabilities:
Depreciation (1,819) (682)
Patent amortization (1,384) (1,170)
------ ------
Total deferred tax liabilities (noncurrent) (3,203) (1,852)
------ ------
Net deferred tax assets $ 184 $ 487
======= =======
</TABLE>
Significant components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal:
Current $ 6,573 $ 12,877 $ 12,662
Deferred (prepaid) 303 (201) (28)
------- ------- -------
6,876 12,676 12,634
State:
Current 576 2,071 2,119
-------- -------- ---------
$ 7,452 $ 14,747 $ 14,753
======== ======== =========
</TABLE>
The reconciliation of the federal statutory rate to the effective income
tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit 1.6 3.3 3.5
Tax credits (4.7) (0.8) (0.6)
Foreign Sales Corporation benefit (1.1) (1.5) (1.4)
Other 1.2 - -
----- ----- -----
32.0% 36.0% 36.5%
====== ===== =====
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its office, warehousing and manufacturing
space, as well as certain equipment. The future minimum rental commitments under
noncancelable operating leases with remaining terms in excess of one year are as
follows (in thousands):
<PAGE>
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
11. COMMITMENTS AND CONTINGENCIES (Continued)
Year
----
1999 $1,516
2000 614
2001 210
2002 146
2003 79
Rent expense was approximately $1,534,000, $1,383,000, and $1,329,000 in
1998, 1997 and 1996, respectively. The Company also pays executory costs such as
taxes, maintenance and insurance.
The Company is involved in certain litigation incidental to the conduct of
its business. While the outcome of lawsuits against the Company cannot be
predicted with certainty, management does not expect any current litigation to
have a material adverse effect on the Company.
12. SEGMENT INFORMATION
The Company operates in one industry segment: the development, manufacture
and sale of power conversion components and systems. During 1998, 1997 and 1996,
no customer constituted more than 10% of net revenues. Export sales, as a
percentage of total revenue, were approximately 29%, 31%, and 30% in 1998, 1997
and 1996, respectively. Export sales and receipts are recorded and received in
U.S. dollars. Foreign exchange fluctuations have not been material to the
Company's operating results during the last three years.
13. LICENSE AGREEMENT AND LITIGATION SETTLEMENT
On February 1, 1999, the Company and Reltec Corporation ("Reltec") entered
into a license agreement under which Reltec acquired a non-exclusive, worldwide
license to use Vicor's patented "reset" technology. Concurrently, the Company
and Reltec agreed to settle all pending litigation and disputes relating to
Reltec's past use of certain Vicor intellectual property. In consideration for
the license and the separate settlement of the litigation, Reltec will make a
one-time payment of $22.5 million into an escrow fund. Vicor is obligated to
make know-how and technical support available to Reltec under the license and
will receive and recognize income from the escrow fund through the year 2001.
14. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following table sets forth certain unaudited quarterly financial data
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth Total
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
1998: Net revenues $43,192 $41,718 $39,318 $40,406 $164,634
Gross profit 20,747 18,840 17,233 17,129 73,949
Net income 5,415 4,155 3,042 3,223 15,835
Net income per share:
Basic .13 .10 .07 .08 .37
Diluted .12 .10 .07 .08 .37
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth Total
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
1997: Net revenues $37,939 $39,718 $41,400 $43,186 $162,243
Gross profit 20,062 20,416 21,433 22,098 84,009
Net income 5,976 6,363 7,130 6,748 26,217
Net income per share:
Basic .14 .15 .17 .16 .62
Diluted .14 .15 .16 .15 .60
</TABLE>
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Company's Definitive Proxy Statement for
its 1999 annual meeting of stockholders.
ITEM 11 - EXECUTIVE COMPENSATION
Incorporated by reference from the Company's Definitive Proxy Statement for
its 1999 annual meeting of stockholders.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Company's Definitive Proxy Statement for
its 1999 annual meeting of stockholders.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Company's Definitive Proxy Statement for
its 1999 annual meeting of stockholders.
ITEM 14 - FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS, AND REPORTS ON FORM 8-K
(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.
<PAGE>
ITEM 14 - FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS, AND REPORTS ON FORM 8-K
(continued)
(a) (3) EXHIBITS
Exhibits Description of Document
3.1 o Restated Certificate of Incorporation*
3.2 o Bylaws, as amended*
4.1 o Specimen Common Stock Certificate*
10.1 o 1984 Stock Option Plan of the Company, as amended*
10.2 o Lease dated December 30, 1989, by and between the Company and
David J. Carlberg and Paul Bruk, Jr., as Trustees of Frontage
Road Realty Trust, relating to the corporate offices and
manufacturing facilities at 23 Frontage Road, as amended*
10.3 o Military/Aerospace License Agreement dated as of March 1,1985,
by and between the Company and Kollmorgen Corporation*
10.4 o Western Europe License Agreement dated as of March 1, 1985,
by and between the Company and Kollmorgen Corporation*
10.5 o Switching Power Supply Patents and Know-How Agreement dated
as of December 2, 1986, by and between the Company and
Reliance Electric Company*
10.6 o Switching Power Supply Patent and Information Agreement
dated as of June 29, 1988, by and between VLT Corporation and
Integran, Inc.*
10.7 o Vicor Corporation Employee Stock Bonus Plan*
10.8 o Vicor Corporation 401(k) Plan*
10.9 o Amendment to Switching Power Supply Patents and Know-How
Agreement dated as of May 17, 1990, by and among the Company,
VLT Corporation and Reliance Comm/Tec Corporation**
10.10 o $1,500,000 Promissory Note (Lot 3) to Vicor Corporation from
Andover Park Realty Trust dated September 14, 1992***
10.11 o $1,500,000 Promissory Note (Lot 2) to Vicor Corporation from
Andover Park Realty Trust dated September 14, 1992***
10.12 o $1,000,000 Promissory Note (Lot 6A) to Vicor Corporation from
Andover Park Realty Trust dated September 14, 1992***
10.13 o Mortgage and Security Agreement (Lot 6A) to Vicor Corporation
from Andover Park Realty Trust dated September 14, 1992***
10.14 o 1993 Stock Option Plan****
10.15 o $7,500,000 Promissory Note to Vicor Corporation from Andover
Park Realty Trust dated May 29,1997*****
10.16 o Loan Agreement between Vicor Corporation and Andover Park
Realty Trust dated May 29, 1997*****
10.17 o Mortgage and Security Agreement to Vicor Corporation from
Andover Park Realty Trust dated May 29, 1997*****
10.18 o 1998 Stock Option and Incentive Plan******
21.1 o Subsidiaries of the Company (1)
23.1 o Consent of Independent Auditors (1)
27.1 o Financial Data Schedule for 1998 (1)
* Filed as an exhibit to the Company's Registration Statement on
Form 10, as amended, under the Securities Exchange Act of 1934
(File No. 0-18277), and incorporated herein by reference.
** Filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1990 and
incorporated herein by reference.
*** Filed as an exhibit to the Company's Current Report on Form
8-K dated September 14, 1992 and incorporated herein by
reference.
**** Filed as an exhibit to the Company's Registration Statement
on Form S-8, as amended, under the Securities Act of 1933
(No. 33-65154), and incorporated herein by reference.
***** Filed as an exhibit to the Company's Form 10-Q dated June 30,
1997 and incorporated herein by reference.
****** Filed as an exhibit to the Company's Registration Statement
on Form S-8, as amended, under the Securities Act of 1933
(No. 333-61177), and incorporated herein by reference.
(1) Filed herewith
(b) REPORTS ON FORM 8-K
None
<PAGE>
VICOR CORPORATION
SCHEDULE II
Valuation and Qualifying Accounts
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
(Credit)
Balance at Charge to Other Balance at
Beginning Costs and Changes End
Of Period Expenses Deductions (1) Of Period
--------- -------- -------------- ---------
<S> <C> <C> <C> <C>
1998
Allowance for doubtful
accounts $971,000 $ 11,000 ($27,000) $955,000
1997
Allowance for doubtful
accounts $879,000 $ 5,000 $ 87,000 $971,000
1996
Allowance for doubtful
accounts $786,000 $ 10,000 $ 83,000 $879,000
</TABLE>
(1) Reflects uncollectible accounts written off, net of recoveries.
<PAGE>
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.
Dated: March 24, 1999 Vicor Corporation
By: /s/Mark A. Glazer
-----------------------
Mark A. Glazer
Chief Financial Officer
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 President and Chairman March 24, 1999
- ------------------------ of the Board (Principal
Patrizio Vinciarelli Executive Officer)
/s/Mark A. Glazer Chief Financial Officer March 24, 1999
- ------------------------
Mark A. Glazer
/s/Estia J. Eichten Director March 24, 1999
- ------------------------
Estia J. Eichten
/s/David T. Riddiford Director March 24, 1999
- ------------------------
David T. Riddiford
/s/Jay M. Prager Director March 24, 1999
- ------------------------
Jay M. Prager
/s/M. Michael Ansour Director March 24, 1999
- -----------------------
M. Michael Ansour
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Name State or jurisdiction of incorporation
- ---- --------------------------------------
<S> <C>
VLT Corporation Texas, USA
Vicor GmbH Germany
Vicor International Inc. U.S. Virgin Islands
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 Solutions, Inc. Delaware, USA
Northwest Power Integrations, Inc. Delaware, USA
Converpower Corporation Delaware, USA
Freedom Power Systems, Inc. Delaware, USA
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8, No. 33-37491) pertaining to the Vicor Corporation 1984 Stock Option Plan,
the Registration Statement (Form S-8, No. 33-65154) pertaining to the Vicor
Corporation 1993 Stock Option Plan and in the Registration Statement (Form S-8,
No. 333-61177) pertaining to the 1998 Stock Option and Incentive Plan of our
report dated January 26, 1999, except for Note 13, as to which the date is
February 1, 1999, with respect to the consolidated financial statements and
schedule of Vicor Corporation included in the Annual Report (Form 10-K) for the
year ended December 31, 1998.
/s/Ernst & Young LLP
Boston, Massachusetts
March 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000751978
<NAME> VICOR CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 58,897
<SECURITIES> 0
<RECEIVABLES> 28,245
<ALLOWANCES> 0
<INVENTORY> 29,470
<CURRENT-ASSETS> 121,683
<PP&E> 171,333
<DEPRECIATION> 60,259
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0
0
<COMMON> 463
<OTHER-SE> 208,796
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<SALES> 164,634
<TOTAL-REVENUES> 164,634
<CGS> 90,685
<TOTAL-COSTS> 90,685
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<INCOME-TAX> 7,452
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<NET-INCOME> 15,835
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
