SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(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, 1999
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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
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
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(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
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(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 $459,434,544 as of February 29, 2000.
On February 29, 2000, there were 30,472,553 shares of Common Stock outstanding
and 12,011,348 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 2000 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. You can identify
forward-looking statements by our use of the words "believe," "expect,"
"anticipate," " intend," " estimate," "plan," "assume" and other similar
expressions in the Form 10-K that predict or indicate future events or trends
that do not relate to historical matters. 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,"
"- Licensing," and "- Risk Factors," 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 (FSC). 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, 1999 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's Common Stock 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. Because 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.
<PAGE>
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.
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. In 1999, this was followed by two additional families:
a 300 Volt input for off-line (rectified 115 or 230 Volt ac) and distributed
power applications, and a 375 Volt input specifically designed for use in power
factor corrected systems. This latter family increased the power available to
600 Watts.
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. In addition, two
accessory products for the 48 Volt input second-generation family were
introduced in 1999: the FiltMod for input filtering and the IAM48 for transient
and spike protection.
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
<PAGE>
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
established 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.
SALES AND MARKETING
The Company sells its products through a network of 34 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
30%, 29%, and 31%, in 1999, 1998, and 1997, respectively. The decrease in export
sales during 1999 and 1998 as compared to 1997 was 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 Field Applications Engineers to support the Company's sales
activities. Field Applications Engineers provide direct technical sales support
worldwide to review new applications and technical matters with existing and
potential customers. There are Field Application Engineers assigned to all
Company locations and are supported by product specialists (Product Line
Engineers) located In Andover. 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 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
<PAGE>
For the years ended December 31, 1999, 1998 and 1997, no single customer
accounted for more than 10% of net revenues.
BACKLOG
As of December 31, 1999, the Company had a backlog of approximately $58.7
million compared to $37.0 million at December 31, 1998. 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 $19.9 million, $20.7 million,
and $17.7 million, in research and development in 1999, 1998 and 1997,
respectively. Investment in research and development represented 10.5%, 12.5%,
and 10.9%, of net revenues in 1999, 1998 and 1997. The Company plans to continue
to invest a significant percentage of revenues into research and development.
MANUFACTURING
The Company's principal manufacturing processes consist of assembly of
electronic components onto printed circuit boards, automatic testing of
components, wave, reflow and infrared soldering of assembled components,
encapsulation of converter subassemblies, final "burn-in" of certain products
and product test using automatic test equipment.
The Company continues to pursue 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. In 1999, the Company completed an expansion of this
building (see Item 2 - Properties) and relocated certain manufacturing
operations from a leased facility to this building. 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 of single source items, 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, which included the introduction of
the 300 and 375 Volt families of products, increased during 1999 approximately
four-fold over 1998. Both first and second-generation products are sold to
similar customers. The Company continues to refine the designs, processes,
equipment and parts associated with second-generation products. 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 of the line commenced during the second
half of 1998.
<PAGE>
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. Additional
equipment of approximately $6.4 million was placed into service during 1999.
While production rates in the second half of 1999 were sufficient to absorb this
depreciation and other fixed and variable costs associated with the ramp-up of
production of second-generation products, gross margins on second-generation
products currently are significantly lower than those of first-generation
products. Gross margins during 2000 will continue to be negatively impacted
until higher production volumes, higher yield levels and component cost
reductions are attained.
COMPETITION
Many power supply manufacturers target markets similar to those of the
Company. Representative examples are: Lambda Electronics, a subsidiary of
Invensys, plc; Lucent Technologies; Artesyn Technologies (formerly Computer
Products, Inc. and Zytec Corporation); Astec America, a subsidiary of Emerson
Electronic Company; 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.
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 believes
in vigorously protecting its rights under its patents (see "Item 3 - Legal
Proceedings," below). The Reset Patent has been asserted in an infringement
lawsuit brought by the Company against Unitrode Corporation.
The Company has been issued sixty patents in the United States (which
expire between 2001 and 2017), seventeen in Europe (which expire between 2002
and 2015 and which comprise a total of fifty-one issued patents in twelve
countries), and nineteen in Japan (which expire between 2002 and 2015). 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 July 6, 1999 and on September 10, 1999, the Company announced that it
had entered into license agreements with Nortel Networks Corporation ("Nortel")
and Astec Advanced Power Susystems Ltd. ("Astec"), respectively, under which
Nortel and Astec 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.
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 from JT under the license agreement was
recognized 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.
EMPLOYEES
As of December 31, 1999, the Company employed approximately 1,427 full time
and 241 part time people. The Company believes that its continued success
depends, in part, on its ability to attract and retain qualified personnel.
Although there is strong demand for qualified technical personnel, the Company
has not to date experienced difficulty in attracting and retaining sufficient
engineering and technical personnel to meet its needs (See "Risk Factors -
Dependence on Key Personnel," below).
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.
RISK FACTORS
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Actual results
could differ materially from those projected in the forward-looking statements
as a result of, among other factors, the risk factors set forth below.
Need for Technological Developments
The power supply industry and the industries in which many of our customers
operate are characterized by intense competition, rapid technological change,
product obsolescence and price erosion for mature products, each of which could
adversely affect the Company's results of operations. The failure of the Company
to continue to develop and commercialize leading-edge technologies and products
that are cost effective and maintain high standards of quality, could have a
material adverse affect on the Company's competitive position and results of
operations.
Dependence on Customers' Business Prospects
The Company manufactures modular power components and power systems that
are incorporated into its customers' electronic products. The Company's growth
is therefore dependent on the continued growth in the sales of its customers'
products as well as the development by its customers of new products. The
failure of the Company to anticipate changes in our customers' businesses and
their changing product needs could negatively impact our financial position.
<PAGE>
Need to Provide Additional Manufacturing Capacity
In order to meet anticipated future growth, the Company will need to
increase manufacturing capacity through the installation of additional equipment
and additional automated manufacturing lines. This will increase fixed costs
which could impact the Company's gross margins and profitability. In addition,
the process of installing equipment, new lines and other capacity measures could
cause disruptions in production or delays in the shipping of products.
Dependence on Third Party Suppliers and Subcontractors
The Company depends on third party suppliers and subcontractors to provide
components and assemblies used in our products. If suppliers or subcontractors
cannot provide their products or services, the Company may not be able to meet
the demand for its products or it may negatively affect delivery times. In
addition, the Company cannot directly control the quality of the products and
services provided by third parties. In order to grow, the Company may need to
find new or change existing suppliers and subcontractors. This could cause
disruptions in production, delays in the shipping of product or increases in
prices paid to third-parties.
Foreign Sales and Distribution
International sales have been and are expected to be a significant
component of total sales. Dependence on foreign third parties for sales and
distribution is subject to special concerns, such as: foreign economic and
political instability, foreign currency controls and market fluctuations, trade
barriers and tariffs, foreign regulations and exchange rates.
Dependence on Key Personnel
The Company's success depends on our ability to retain the services of its
executive officers. The loss of one or more members of senior management could
adversely affect the Company's business and financial results. In particular,
the Company is dependent on the services of Dr. Patrizio Vinciarelli, its
Chairman, President and Chief Executive Officer. The loss of the services of Dr.
Vinciarelli could have a material adverse effect on the Company's development of
new products and on its results of operations. In addition, the Company depends
on highly skilled engineers and other personnel with technical skills that are
in high demand and are difficult to replace. The Company's continued operations
and growth depends on its ability to attract and retain highly qualified
employees in a very competitive employment market.
Patents and Proprietary Rights
The Company operates in an industry in which the ability to compete depends
on the development or acquisition of proprietary technologies which must be
protected to preserve the exclusive use of such technologies. The Company
devotes substantial resources to establish and protect our patents and
proprietary rights, and relies on patent and intellectual property law to
protect such rights. Such protection, though, may not prevent competitors from
independently developing products similar or superior to the Company's products.
The Company may be unable to protect or enforce current patents, may rely on
unpatented technology that competitors could restrict or may be unable to
acquire patents in the future. In addition, the intellectual property laws of
foreign countries may not protect the Company's rights to the same extent as
those of the United States. In the event the Company may need to defend or
challenge patents, it may entail significant costs and resources which could
have a material adverse effect on its results of operations.
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.
<PAGE>
The Company's lease on its prior corporate headquarters building expired on
October 31, 1999. The manufacturing equipment held in this building was 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 1999, the Company completed construction of a
94,000 square foot expansion of this building, which consolidates all
Massachusetts manufacturing activities into one facility.
The Company's Westcor division owns and occupies a building of
approximately 31,000 square feet in Sunnyvale, California.
ITEM 3 - LEGAL PROCEEDINGS
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:
1998 High Low
- ---- ---- ---
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
1999
- ----
First Quarter 13 7/16 8 13/16
Second Quarter 21 5/8 11 3/4
Third Quarter 23 3/4 18
Fourth Quarter 45 1/4 21 3/8
As of February 29, 2000, there were approximately 420 holders of record of
the Company's Common Stock and approximately 26 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.
<PAGE>
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.
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, 1999, 1998 and
1997 and with respect to the Company's balance sheets as of December 31, 1999
and 1998 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, 1996 and 1995 and with respect to the Company's balance sheets as of
December 31, 1997, 1996 and 1995 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
- ---------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenues $189,887 $164,634 $162,243 $144,983 $144,022
Income from operations 24,427 18,365 35,950 36,532 42,632
Net income 19,088 15,835 26,217 25,639 29,498
Net income per share -diluted .45 .37 .60 .60 .68
Weighted average shares-diluted 42,412 42,785 43,344 42,764 43,295
</TABLE>
<TABLE>
<CAPTION>
At December 31
--------------
(in thousands)
Balance Sheet Data 1999 1998 1997 1996 1995
- ------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $123,017 $ 84,594 $128,267 $108,551 $ 95,900
Total assets 268,905 249,551 228,843 186,443 166,997
Total liabilities 24,372 40,292 20,419 15,699 16,941
Stockholders' equity 244,533 209,259 208,424 170,744 150,056
</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
----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
Gross margin 42.8% 44.9% 51.8%
Selling, general and administrative expenses 19.4% 21.2% 18.7%
Research and development expenses 10.5% 12.5% 10.9%
Income before income taxes 14.7% 14.1% 25.2%
</TABLE>
<PAGE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998:
Net revenues for fiscal 1999 were $189,887,000, an increase of $25,253,000
(15.3%) as compared to $164,634,000 for fiscal 1998. The growth in revenues
resulted primarily from a net increase in unit shipments of standard and custom
products of approximately $14,750,000 and an increase in license revenue of
approximately $10,500,000. The increase in license revenue was primarily due to
non-recurring payments from licensees for past use of Vicor's intellectual
property.
Gross margin increased $7,235,000 (9.8%) from $73,949,000 to $81,184,000,
and decreased as a percentage of net revenues from 44.9% to 42.8%. The primary
components of the increase in gross margin dollars were an increase in net
revenues and changes in the revenue mix. The primary components of the decrease
in gross margin percentage were an increase in depreciation on the
second-generation automated production line of approximately $1,647,000 in 1999,
changes in the revenue mix and a non-recurring charge of $700,000 in the first
quarter of 1999 for exit costs in connection with the relocation of certain
manufacturing operations from a leased facility to the Company's owned
manufacturing facility at Federal Street in Andover, Massachusetts. These items
were offset by the increase in net revenues.
Selling, general, and administrative expenses were $36,831,000 for the
year, an increase of $1,897,000 (5.4%) over fiscal 1998. As a percentage of net
revenues, selling, general and administrative expenses decreased from 21.2% to
19.4%. The principal components of the $1,897,000 increase were $2,290,000
(176.6%) of increased selling, general and administrative expenses incurred by
Vicor Japan Company Ltd. ("VJCL"), which began operations in July 1998, $894,000
of payroll tax expense associated with the exercise of stock options, $710,000
(38.1%) of increased depreciation and amortization expense and $460,000 (43.6%)
of increased facility costs. The principle components offsetting the above
increase were $1,382,000 (35.1%) of decreased advertising costs and $978,000
(47.2%) of decreased legal expenses. The decrease in advertising costs were due
to a reduction in the use of printed materials and to lower international
advertising expense. Legal expense, in the third quarter of 1998, included
approximately $700,000 of legal costs incurred in connection with intellectual
property litigation.
Research and development expenses decreased $724,000 (3.5%) to $19,926,000,
and decreased as a percentage of net revenues to 10.5% from 12.5%. The principal
components of the $724,000 decrease were $2,404,000 (19.1%) of decreased
compensation expense in the research and development departments due to these
departments transitioning from research and development to manufacturing cost
centers. These cost centers are charged to cost of sales and are primarily
related to the second-generation automated production line. The principle
components offsetting the above decrease were $895,000 (32.6%) of increased
project material costs; $574,000 (106.4%) of increased research and development
costs associated with VJCL and $299,000 (47.5%) of increased research and
development costs associated with the operations of the Vicor Integrated
Architects ("VIAs"). 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 $1,483,000 (30.1%) to $3,439,000. Other income is
primarily comprised of interest income which was derived from invested cash and
cash equivalents, as well as a note receivable associated with the Company's
real estate transaction. Interest income decreased primarily due to a decrease
in the average rates from 1998 to 1999.
Income before income taxes was $27,866,000, an increase of $4,579,000
(19.7%) compared to 1998. As a percentage of net revenues, income before income
taxes increased from 14.1% in 1998 to 14.7% in 1999.
The provision for income taxes totaled $8,778,000 in 1999 compared to
$7,452,000 in 1998. The Company's overall tax rate was 31.5% and 32.0% for 1999
and 1998, respectively. The decrease in the effective tax rate was due to the
impact of tax credits in 1999.
Net income in 1999 increased by $3,253,000 to $19,088,000. Diluted earnings
per share were $.45 in 1999 compared to $.37 in 1998.
<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
components of the fluctuations in gross margin dollars and percentage were
depreciation on the second-generation production line of approximately
$3,370,000 in 1998 and to changes in the revenue mix.
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.
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 a note receivable associated with the Company's
real estate transaction. 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.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had $69,109,000 in cash and cash
equivalents. Working capital increased $38,423,000 during the year ended
December 31, 1999. This increase was due primarily to an increase in cash and
cash equivalents of $10,212,000, an increase in accounts receivable and
inventories of $7,545,000 and a decrease in amounts due for assets acquired and
income taxes payable of $20,601,000.
Cash used in investing activities during fiscal 1999 was $15,693,000, a
decrease of $26,075,000 (62.4%) compared to fiscal 1998. This decrease was
primarily due to a decrease in net additions to property and equipment of
$21,565,000 and a reduced increase in other assets of $2,298,000. Cash provided
by financing activities was $15,646,000 compared to cash used in financing
activities of $15,349,000 in 1998, a net change of $30,995,000. This change is
primarily attributed to a net decrease in the acquisition cost of treasury stock
of $9,061,000 in 1999, and an increase 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 $21,934,000.
<PAGE>
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
1999, the Company spent $8,564,000 for the repurchase of its Common Stock.
In February 2000, the Board of Directors of the Company authorized the
repurchase of the Company's Common Stock up to an additional aggregate amount of
approximately $30,000,000, under similar terms as noted above under the previous
repurchase program.
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, 1999, the
Company had approximately $1,700,000 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.
OTHER
Shipments of second-generation products, which included the introduction of
the 300 and 375 Volt families of products, increased during 1999 approximately
four-fold over 1998. Both first and second-generation products are sold to
similar customers. The Company continues to refine the designs, processes,
equipment and parts associated with second-generation products. 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 of the line 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.
Additional equipment of approximately $6.4 million was placed into service
during 1999. While production rates in the second half of 1999 were sufficient
to absorb this depreciation and other fixed and variable costs associated with
the ramp-up of production of second-generation products, gross margins on
second-generation products currently are significantly lower than those of
current generation products. Gross margins during 2000 will continue to be
negatively impacted until higher production volumes, higher yield levels and
component cost reductions are attained.
IMPACT OF THE YEAR 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
However, there can be no assurance that the Company's operations have not been,
or will not be, affected by Year 2000 issues in a manner that has not become
apparent or that may arise in the future. Accordingly, the Company will continue
to monitor its mission critical computer applications and those of its suppliers
and vendors throughout the Year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
<PAGE>
ITEM 7(a) QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to a variety of market risks, including changes in
interest rates affecting the return on its cash and cash equivalents and
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.
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 material due to the relative size of VJCL's
operations.
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Income For the Years Ended December 31, 1999, 1998
and 1997
Consolidated Statements of Cash Flows For the Years Ended December 31, 1999,
1998 and 1997
Consolidated Statements of Stockholders' Equity For the Years Ended December 31,
1999, 1998 and 1997
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, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Vicor Corporation at December 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. 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, 2000
<PAGE>
VICOR CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
(in thousands, except share data)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 69,109 $ 58,897
Accounts receivable, less allowance of $853 in 1999 and
$955 in 1998 32,465 28,245
Inventories, net 33,360 29,470
Other current assets 6,940 5,071
--------- --------
Total current assets 141,874 121,683
Property, plant and equipment, net 109,079 111,074
Notes receivable 8,698 9,091
Other assets 9,254 7,703
---------- ---------
$ 268,905 $ 249,551
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Amounts due for assets acquired $ -- $ 16,000
Accounts payable 10,317 9,919
Accrued compensation and benefits 3,553 2,010
Accrued expenses 4,429 4,001
Income taxes payable 558 5,159
------- -------
Total current liabilities 18,857 37,089
Deferred income taxes 5,515 3,203
Commitments and contingencies - -
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized; 360,001 issued and none outstanding in 1999 and 1998 - -
Class B Common Stock: 10 votes per share, $.01 par value, 14,000,000
shares authorized, 12,067,007 issued and outstanding
(12,103,309 in 1998) 121 121
Common Stock: 1 vote per share, $.01 par value, 62,000,000 shares
authorized, 35,597,623 shares issued and 30,369,965 outstanding
(34,222,474 issued and 29,613,180 outstanding in 1998) 356 342
Additional paid-in capital 124,451 100,255
Retained earnings 185,979 166,891
Accumulated other comprehensive income 889 349
Treasury stock at cost: 5,227,658 shares (4,609,294 shares in 1998) (67,263) (58,699)
-------- ---------
Total stockholders' equity 244,533 209,259
-------- ---------
$ 268,905 $ 249,551
========= =========
</TABLE>
See accompanying notes
<PAGE>
VICOR CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net revenues $189,887 $164,634 $162,243
Costs and expenses:
Cost of revenue 108,703 90,685 78,234
Selling, general and administrative 36,831 34,934 30,327
Research and development 19,926 20,650 17,732
-------- -------- -------
165,460 146,269 126,293
------- ------- -------
Income from operations 24,427 18,365 35,950
Other income 3,439 4,922 5,014
------- ------- -------
Income before income taxes 27,866 23,287 40,964
Provision for income taxes 8,778 7,452 14,747
------- ------- -------
Net income $ 19,088 $ 15,835 $ 26,217
======== ======== ========
Net income per common share:
Basic $ .46 $ .37 $ .62
======== ======== ========
Diluted $ .45 $ .37 $ .60
======== ======== ========
Shares used to compute net income per share:
Basic 41,568 42,292 42,595
======== ======== ========
Diluted 42,412 42,785 43,344
======== ======== ========
</TABLE>
See accompanying notes
<PAGE>
VICOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Operating activities:
Net income $ 19,088 $ 15,835 $ 26,217
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,782 11,607 8,289
(Gain) loss on disposal of equipment 110 (23) (10)
Deferred income taxes 890 303 (201)
Change in current assets and liabilities, net (25,745) 3,084 (8,159)
------- ------- -------
Net cash provided by operating activities 10,125 30,806 26,136
Investing activities:
Additions to property, plant and equipment (14,827) (36,392) (20,177)
Proceeds from sale of equipment 17 42 20
Acquisition of business -- (1,850) -
Increase in other assets (1,276) (3,574) (928)
------ ------ -------
Net cash used in investing activities (15,693) (41,768) (26,387)
Financing activities:
Tax benefit relating to stock option plans 6,148 718 2,950
Proceeds from exercise of stock options 18,062 1,558 9,196
Acquisitions of treasury stock (8,564) (17,625) (683)
------ ------- -------
Net cash provided by (used in)
financing activities 15,646 (15,349) 11,463
Effect of foreign exchange rates on cash 134 349 --
------ ------- ------
Net increase (decrease) in cash and cash equivalents 10,212 (25,962) 11,212
Cash and cash equivalents at beginning of year 58,897 84,859 73,647
------ ------ ------
Cash and cash equivalents at end of year $ 69,109 $ 58,897 $ 84,859
======== ======== ========
</TABLE>
Continued on following page
<PAGE>
VICOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Change in current assets and liabilities:
Accounts receivable $ (3,950) $ 7,013 $(10,257)
Inventories (3,595) (4,447) (2,319)
Other current assets (374) (754) (159)
Accounts payable and other accrued items (13,225) 1,243 3,566
Income taxes payable (4,601) 49 1,516
Deferred revenue -- (20) (506)
--------- -------- ---------
$(25,745) $ 3,084 $ (8,159)
======== ======= ========
Supplemental disclosures:
Cash paid during the year for income taxes, $ 5,777 $ 5,568 $ 9,520
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, 1999, 1998 and 1997
(in thousands)
<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, 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
Sales of Common Stock 14 18,048 18,062
Conversion of Class B Common
Stock to Common Stock -
Income tax benefit from
transactions involving stock options 6,148 6,148
Purchase of treasury stock (8,564) (8,564)
Net income for 1999 19,088 19,088
Currency translation adjustments 540 540
-------
Comprehensive income 19,628
------
---- ---- ------- -------- ----- -------- --------
Balance at December 31, 1999 $121 $356 $124,451 $185,979 $889 $(67,263) $244,533
==== ==== ======== ======== ==== ======== ========
</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 and 1997.
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 and debt securities 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, 1999, the Company has approximately $58
million of available-for-sale securities ($54 million as of December 31, 1998).
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.
<PAGE>
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
INTANGIBLE ASSETS
Intangible assets, which are included in the other assets in the
accompanying balance sheets, 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 $929,000, $536,000
and $301,000 in 1999, 1998 and 1997, respectively. Accumulated amortization was
$1,924,000 at December 31, 1999 and $1,030,000 at December 31, 1998.
Long-lived assets, such as these intangible assets, are included in
impairment evaluations when events or circumstances exist that indicate the
carrying amount of those assets may not be recoverable. If the impairment
evaluation indicates the affected asset is not recoverable, the asset's carrying
value would be reduced to fair value. No event has occurred that would impair
the value of long-lived assets recorded in the accompanying consolidated
financial statements.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
$2,189,000, $3,197,000, and $3,372,000 in advertising costs during 1999, 1998
and 1997, 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
The Company reports comprehensive income in accordance with FASB Statement
No. 130, "Reporting Comprehensive Income." 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 June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, (FAS 133), "Accounting for Derivative
Instruments and Hedging Activities", which required adoption in periods
beginning after June 15, 1999. FAS 133 was subsequently amended by Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133" and will now be effective for fiscal years beginning after June 15, 2000,
with earlier adoption permitted. The Company will adopt FAS 133 on a cumulative
basis during fiscal 2001, as required. The Company is currently evaluating the
effect of adopting FAS 133 and has not determined the impact of FAS 133 on its
financial statements. In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin 101, (SAB 101), "Revenue Recognition in
Financial Statements." SAB 101 summarizes the application of generally accepted
accounting principles to revenue recognition in financial statements. The
Company does not expect SAB 101 to have a material effect on its financial
position or results of operations.
<PAGE>
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 paid 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 $3.2 million, including final purchase accounting adjustments
recorded during 1999, 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.
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
-----------
1999 1998
---- ----
Raw materials $22,924 $19,084
Work-in-process 4,957 4,334
Finished goods 5,479 6,052
------- -------
$33,360 $29,470
======= =======
<PAGE>
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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):
<TABLE>
<CAPTION>
December 31
-----------
1999 1998
---- ----
<S> <C> <C>
Land $ 2,089 $ 2,089
Buildings and improvements 36,321 24,370
Machinery and equipment 122,749 107,329
Furniture and fixtures 4,708 4,725
Leasehold improvements 2,418 3,151
Construction-in-progress 7,625 19,053
Building construction-in-progress - 10,616
-------- -------
175,910 171,333
Less accumulated depreciation and amortization 66,831 60,259
-------- --------
$109,079 $111,074
======== ========
</TABLE>
At December 31, 1999, the Company had approximately $1,700,000 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 $1,525,393 from the Company
pursuant to a series of unsecured term notes, of which $356,000 plus interest of
$294,000 was paid during 1999. The notes have terms of five years and are due at
various dates through June 2004. 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, 1999, the notes
and interest receivable balance was approximately $1,302,000 ($1,724,000 as of
December 31, 1998) and the applicable interest rate at December 31, 1999 was
7.50% (6.75% at December 31, 1998).
6. FINANCING ARRANGEMENTS
The Company had an unused line of credit with a bank under which the
Company could 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%. This line of credit was terminated in January
2000.
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 1999, the Company spent $8,564,000 in the repurchase of
its Common Stock.
<PAGE>
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. STOCKHOLDERS' EQUITY (Continued)
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
the option of the holder thereof at any time and without cost to the shareholder
into shares of Common Stock on a share-for-share basis.
During 1999, a total of 1,338,847 shares of Common Stock were issued upon
the exercise of stock options, and 36,302 shares of Class B Common Stock were
converted into 36,302 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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net income $19,088 $15,835 $26,217
======= ======= =======
Denominator:
Denominator for basic income per share -
weighted average shares 41,568 42,292 42,595
Effect of dilutive securities:
Employee stock options 844 493 749
------ ----- -----
Denominator for diluted income per share -
adjusted weighted-average shares and
assumed conversions 42,412 42,785 43,344
====== ====== ======
Basic income per share $ .46 $ .37 $ .62
======= ======= =======
Diluted income per share $ .45 $ .37 $ .60
======= ======= =======
</TABLE>
There were no options to purchase shares of Common Stock outstanding during
1999 that were not included in the computation of diluted income per share.
During 1998 and 1997, 663,587 and 20,615 shares of Common Stock, respectively,
were outstanding but were not included in the computation of diluted income per
share because the options' exercise prices were greater than the average market
price of the Common Stock and, therefore, the effect would have been
antidilutive.
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
<PAGE>
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. EMPLOYEE BENEFIT PLANS (Continued)
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, 1999, 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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year 2,624,657 2,197,852 2,022,005
Granted 1,865,943 841,934 1,106,302
Forfeited and expired (376,874) (221,297) (197,448)
Exercised (1,338,847) (193,832) (733,007)
---------- -------- --------
Outstanding at end of year 2,774,879 2,624,657 2,197,852
========= ========= =========
Exercisable at end of year 1,204,361 1,650,164 1,336,125
========= ========= =========
Weighted - average exercise price:
Outstanding at beginning of year $15.30 $11.15 $ 8.97
Granted $12.40 $25.72 $16.92
Forfeited and expired $16.95 $21.05 $15.49
Exercised $13.49 $ 8.10 $12.55
Outstanding at end of year $14.00 $15.30 $11.15
Exercisable at end of year $11.53 $12.33 $ 7.60
Weighted - average fair value of
options granted during the year $ 4.97 $ 13.71 $ 6.74
Price range per share of outstanding options $1.00-31.56 $ .84-31.13 $.84-30.19
=========== =========== ===========
Price range per share of options granted $9.13-31.56 $8.06-28.50 $13.38-30.19
=========== =========== ============
Price range per share of options exercised $ .84-31.13 $8.00-29.56 $ 1.00-24.38
=========== =========== ============
Available for grant at end of year 976,639 2,468,312 1,088,996
======= ========= =========
</TABLE>
The weighted - average contractual life for options outstanding as of December
31, 1999 is 6.60 years.
The following table summarizes information about stock options outstanding
as of December 31, 1999:
<TABLE>
<CAPTION>
Range of Exercise Prices
------------------------
$1.00-$11.13 $11.25-$12.06 $12.25-$28.25 $28.44-$31.56
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Options Outstanding:
- --------------------
Number Outstanding 678,174 1,018,402 1,047,345 30,958
Weighted-Average Remaining
Contractual Life 3.32 8.49 6.82 8.48
Weighted-Average
Exercise Price $4.97 $12.05 $21.27 $29.85
Options Exercisable:
- --------------------
Number Exercisable 586,871 186,645 422,627 8,218
Weighted-Average
Exercise Price $4.16 $12.00 $21.20 $29.95
</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 described in
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 1999, 1998 and 1997, respectively: risk-free
interest rates of 5.4%, 5.3% and 6.1%; dividend yields of zero; volatility
factor of the expected market price of the Company's common stock of .55, .55
and .52; and a weighted-average expected life of the option of 3.3, 3.4 and 3.3
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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pro forma net income $15,811 $12,964 $23,947
Pro forma net income per share:
Basic $ .38 $ .31 $ .56
Diluted $ .38 $ .30 $ .55
</TABLE>
The effects on 1999, 1998 and 1997 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 five, four and three
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, 1999, 109,964 shares were available for further
award. All shares awarded to employees under this plan have vested. No further
awards are contemplated under this plan at 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
-----------
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Inventory reserves $ 1,762 $ 1,418
Investment tax credit carry forward 1,450 500
Vacation 840 665
Bad debt 351 393
Other 406 411
------ ------
Total deferred tax assets (current) 4,809 3,387
Deferred tax liabilities:
Depreciation (3,878) (1,819)
Patent amortization (1,637) (1,384)
------ ------
Total deferred tax liabilities (noncurrent) (5,515) (3,203)
------ ------
Net deferred tax assets (liabilities) $ (706) $ 184
======= =======
</TABLE>
Significant components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal:
Current $ 7,073 $ 6,573 $ 12,877
Deferred (prepaid) 890 303 (201)
------ ------ ------
7,963 6,876 12,676
State:
Current 815 576 2,071
-------- -------- --------
$ 8,778 $ 7,452 $ 14,747
======== ======== ========
</TABLE>
The reconciliation of the federal statutory rate to the effective income
tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit 1.9 1.6 3.3
Tax credits (3.6) (4.7) (0.8)
Foreign Sales Corporation benefit (0.6) (1.1) (1.5)
Other (1.2) 1.2 -
---- ---- ----
31.5% 32.0% 36.0%
===== ===== =====
</TABLE>
The investment tax credit carry forwards expire through 2002.
<PAGE>
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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):
Year
- ----
2000 $731
2001 387
2002 264
2003 73
2004 20
Rent expense was approximately $1,146,000, $1,534,000, and $1,383,000 in
1999, 1998 and 1997, 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 1999, 1998 and 1997,
no customer constituted more than 10% of net revenues. Export sales, as a
percentage of total revenue, were approximately 30%, 29%, and 31% in 1999, 1998
and 1997, 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 made 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 into the year 2001.
<PAGE>
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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>
1999: Net revenues $41,964 $44,808 $ 49,373 $53,742 $189,887
Gross profit 18,688 18,801 21,371 22,324 81,184
Net income 3,665 4,168 5,558 5,697 19,088
Net income per share:
Basic .09 .10 .13 .14 .46
Diluted .09 .10 .13 .13 .45
</TABLE>
<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>
<PAGE>
PART III
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Company's Definitive Proxy Statement for
its 2000 annual meeting of stockholders.
ITEM 11 - EXECUTIVE COMPENSATION
Incorporated by reference from the Company's Definitive Proxy Statement for
its 2000 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 2000 annual meeting of stockholders.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Company's Definitive Proxy Statement for
its 2000 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.
(a) (3) EXHIBITS
Exhibits Description of Document
3.1 o Restated Certificate of Incorporation(1)
3.2 o Bylaws, as amended(1)
4.1 o Specimen Common Stock Certificate(1)
10.1 o 1984 Stock Option Plan of the Company, as amended(1)
10.2 o Military/Aerospace License Agreement dated as of March 1,
1985, by and between the Company and Kollmorgen Corporation(1)
10.3 o Western Europe License Agreement dated as of March 1, 1985, by
and between the Company and Kollmorgen Corporation(1)
10.4 o Switching Power Supply Patents and Know-How Agreement dated as
of December 2, 1986, by and between the Company and Reliance
Electric Company(1)
<PAGE>
ITEM 14 - FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS, AND REPORTS ON FORM
8-K (continued)
10.5 o Switching Power Supply Patent and Information Agreement
dated as of June 29, 1988, by and between VLT Corporation and
Integran, Inc.(1)
10.6 o Vicor Corporation Employee Stock Bonus Plan(1)
10.7 o Vicor Corporation 401(k) Plan(1)
10.8 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(2)
10.9 o $1,500,000 Promissory Note (Lot 3) to Vicor Corporation from
Andover Park Realty Trust dated September 14, 1992(3)
10.10 o $1,500,000 Promissory Note (Lot 2) to Vicor Corporation from
Andover Park Realty Trust dated September 14, 1992(3)
10.11 o $1,000,000 Promissory Note (Lot 6A) to Vicor Corporation from
Andover Park Realty Trust dated September 14, 1992(3)
10.12 o Mortgage and Security Agreement (Lot 6A) to Vicor Corporation
from Andover Park Realty Trust dated September 14, 1992(3)
10.13 o 1993 Stock Option Plan(4)
10.14 o $7,500,000 Promissory Note to Vicor Corporation from Andover
Park Realty Trust dated May 29, 1997(5)
10.15 o Loan Agreement between Vicor Corporation and Andover Park
Realty Trust dated May 29, 1997(5)
10.16 o Mortgage and Security Agreement to Vicor Corporation from
Andover Park Realty Trust dated May 29, 1997(5)
10.17 o 1998 Stock Option and Incentive Plan(6)
21.1 o Subsidiaries of the Company(7)
23.1 o Consent of Independent Auditors(7)
27.1 o Financial Data Schedule for 1999(7)
(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.
(2) 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.
(3) Filed as an exhibit to the Company's Current Report on Form
8-K dated September 14, 1992 and incorporated herein by
reference.
(4) 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.
(5) Filed as an exhibit to the Company's Form 10-Q dated June 30,
1997 and incorporated herein by reference.
(6) 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.
(7) Filed herewith
(b) REPORTS ON FORM 8-K
None
<PAGE>
VICOR CORPORATION
SCHEDULE II
Valuation and Qualifying Accounts
Years ended December 31, 1999, 1998 and 1997
<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>
1999
Allowance for doubtful
accounts $955,000 $28,000 ($130,000) $853,000
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
</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 28, 2000 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 28, 2000
- ----------------------- of the Board (Principal
Patrizio Vinciarelli Executive Officer)
/s/Mark A. Glazer Chief Financial Officer March 28, 2000
- ----------------- (Principal Financial Officer)
Mark A. Glazer
/s/Estia J. Eichten Director March 28, 2000
- -------------------
Estia J. Eichten
/s/David T. Riddiford Director March 28, 2000
- ---------------------
David T. Riddiford
/s/Jay M. Prager Director March 28, 2000
- ----------------
Jay M. Prager
/s/Barry Kelleher Director March 28, 2000
- -----------------
Barry Kelleher
/s/M. Michael Ansour Director March 28, 2000
- --------------------
M. Michael Ansour
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>
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, 2000, 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, 1999.
/s/Ernst & Young LLP
Boston, Massachusetts
March 23, 2000
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 69,109
<SECURITIES> 0
<RECEIVABLES> 32,465
<ALLOWANCES> 0
<INVENTORY> 33,360
<CURRENT-ASSETS> 141,874
<PP&E> 175,910
<DEPRECIATION> 66,831
<TOTAL-ASSETS> 268,905
<CURRENT-LIABILITIES> 18,857
<BONDS> 0
0
0
<COMMON> 477
<OTHER-SE> 244,056
<TOTAL-LIABILITY-AND-EQUITY> 268,905
<SALES> 189,887
<TOTAL-REVENUES> 189,887
<CGS> 108,703
<TOTAL-COSTS> 108,703
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 27,866
<INCOME-TAX> 8,778
<INCOME-CONTINUING> 19,088
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,088
<EPS-BASIC> .46
<EPS-DILUTED> .45
</TABLE>
