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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 2003
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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
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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 identification no.)
incorporation or organization)
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
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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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). YES [X] NO [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $189,971,367 as of June 30, 2003.
On February 27, 2004, there were 30,048,204 shares of Common Stock outstanding
and 11,868,100 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 2004 annual meeting of stockholders
are incorporated by reference into Part III.
PART I
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The words "may,"
"will," "would," "should," "plans," "expects," "anticipates," "believes," "is
designed to," "continue," "estimate," "project," "intend," "assumes,"
"prospective" and other similar expressions identify forward-looking statements.
These statements are based upon the Company's current expectations and estimates
as to prospective events and circumstances which may or may not be within the
Company's control and as to which there can be no assurances. Actual results
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth in this report. Reference is made in
particular to the discussions set forth in this Annual Report on Form 10-K under
Part I, Item 1 - "Business - Second-Generation Automated Manufacturing Line," "-
Competition," "- Patents," "- Licensing," and "- Risk Factors," under Part I,
Item 3 - "Legal Proceedings," and under Part II, Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
risk factors contained in this report may not be exhaustive. Therefore, the
information contained in this report should be read together with other reports
and documents that the Company files with the Securities and Exchange Commission
from time to time, including Forms 10-Q and 8-K, which may supplement, modify,
supersede or update those risk factors. The Company does not undertake any
obligation to update any forward-looking statements as a result of future events
or developments.
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, many of which use
an innovative, high frequency electronic power conversion technology called
"zero current and zero voltage switching." The Company's principal product lines
are covered by one or more United States and foreign patents. Power systems, a
central element in any electronic system, convert power from a primary power
source (e.g., a wall outlet or battery source) into the stable DC voltages that
are required by most contemporary electronic circuits.
In 1987, the Company formed VLT Corporation as its licensing subsidiary.
During 2000, the Company reincorporated VLT Corporation in California by merging
it with and into VLT, Inc., a wholly owned subsidiary of the Company. In 1990,
the Company established a Technical Support Center in Germany 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"), most of which are
majority-owned subsidiaries. VIAs provide customers with local design and
manufacturing services for turnkey custom power solutions. At December 31, 2003
there were six (6) VIAs operating in the United States. In 1996, the Company
established Vicor B.V., a Netherlands company, which serves as a European
Distribution Center. In 1998, the Company acquired the principal assets of the
switching power supply businesses owned by the Japan Tobacco, Inc. group and
established a direct presence in Japan through a new subsidiary called Vicor
Japan Company, Ltd. ("VJCL"). VJCL markets and sells the Company's products and
provides customer support in Japan. In 2001, the Company established a new
subsidiary, Picor Corporation ("Picor"), which designs, develops and markets
Power Management Integrated Circuits and related products for use in a variety
of power system applications. Picor develops these products to be sold as part
of Vicor's products or to third parties for separate applications. The Company's
Common Stock became publicly traded on the NASDAQ National Market System in
April 1990. All of the above named entities are consolidated in the Company's
financial statements.
The Company maintains a website with the address www.vicorpower.com. We
make available free of charge through our website our Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and
amendments to these reports, as soon as reasonably practicable after we
electronically file such material with, or furnish such material to, the
Securities and Exchange Commission. The information contained on our website is
not a part of, or incorporated by reference into, this Annual Report on Form
10-K.
1
THE PRODUCTS
Power systems are incorporated into virtually all electronic products, such
as computers and telecommunications equipment, to convert electric power from a
primary source, for example a wall outlet or battery source, into the stable DC
voltages required by electronic circuits. Because power systems are 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 operates in one industry segment: the development,
manufacture and sale of power conversion components and systems. The Company's
principal product lines include:
Modular Power Converters
The Company currently offers four first-generation families of
component-level DC-DC power converters: the VI-200, VI-J00, MI-200, and MI-J00
families. Designed to be mounted directly on a printed circuit board assembly
and soldered in place using contemporary manufacturing processes, each family
comprises a comprehensive set of products which are offered in a wide range of
input voltage, output voltage and power ratings. This allows end users to select
products appropriate to their individual applications. The product families
differ in maximum power ratings, performance characteristics, package size and,
in certain cases, in target market.
Since 1998, the Company has introduced four families of its
second-generation of high power density, component-level DC-DC converters. In
1998, the 48 Volt input family was introduced, which was designed for the
telecommunications market as well as for distributed power systems. The products
consist of 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 quarter size (Micro). Output power levels from 50 to 500
Watt are covered by these second-generation products. 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 Watt. In 2001, a 24 Volt input family was added to
the standard second-generation product line to address additional
telecommunications, industrial and defense market opportunities.
The Vicor Design Assistance Computer ("VDAC") was introduced for general
use in 2000 and is a proprietary system which enables Vicor's customers to
specify on-line, and verify in real time, the performance and attributes of
second-generation DC-DC converters. Using patented technology, VDAC enables the
design of second-generation DC-DC converters with any output voltage between 2
and 48 Volt and with any input voltage from 18 to 425 Volt, with an input
voltage range of up to 2.1:1. All of the Vicor established brick standards,
full-, half- and quarter-size, are available. Output power is selectable over a
continuous range of 20 to 500 Watt per module and modules can be configured in
fault-tolerant arrays capable of delivering several kilowatts.
Configurable Products
Utilizing its standard converters as core elements, the Company has
developed several product families which provide complete power solutions
configured to a 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 process control, information technology ("IT") and industrial
electronic products operate directly off of AC lines. "Off-line" power systems
require "front end" circuitry to convert AC line voltage into DC voltage for the
core converters. The 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 can be either
factory or field configurable.
2
Many telecommunications, defense and transportation 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.
In February 2001, the Company introduced the VIPAC family of power systems,
a new class of user defined, modular power solutions. VIPAC is a new type of
integrated power system leveraging the latest advances in second-generation
DC-DC converter technology and modular front ends. VIPAC combines application
specific front end units, a choice of chassis styles and, in AC input versions,
remotely located hold-up capacitors to provide fast, flexible and highly
reliable power solutions for a wide range of demanding applications.
The web-based Vicor Computer Aided Design ("VCAD"), similar in concept to
VDAC, can be utilized by the customer to specify and verify, in real time, that
customer's desired VIPAC configuration. The VCAD system enables the design of a
custom configured VIPAC product from all available combinations of inputs,
outputs, chassis and optional features.
Factorized Power Architecture
On April 29, 2003, the Company announced the introduction of a new power
system architecture based on an array of proprietary power conversion
technologies called Factorized Power Architecture ("FPA"). The Company believes
FPA will provide power system designers with enhanced performance at a lower
cost than attained with conventional Distributed Power Architecture ("DPA").
Factorized Power maximizes the competitiveness of a power system with a high
degree of systems flexibility, power density, conversion efficiency, transient
responsiveness, noise performance and reliability. FPA is enabled by power
conversion components called V-I Chips or VICs. V-I Chips deliver up to 300 Watt
of power in a surface-mount ("SMD") ball-grid array ("BGA") package occupying
less than 0.25 cubic-inch of space, with power densities up to 1,170 Watt per
cubic-inch, which represents a seven to eight times improvement over the
Company's second-generation products.
In May 2003, the Company introduced the first family of products based on
this new technology, 48 Volt to 12 Volt Bus Converter Modules ("BCM") for
conventional Intermediate Bus Architecture applications. In July 2003, the
Company introduced its first V-I Chip(TM) Voltage Transformation Module ("VTM").
VTMs are designed to meet the demands of advanced Digital Signal Processors
("DSP"), Field Programmable Gate Arrays ("FPGA"), Application Specific
Integrated Circuits ("ASIC"), processor cores and microprocessor applications at
the point of load ("POL") while providing isolation from input to output. They
may be paralleled to deliver hundreds of Amperes. In January 2004, the Company
announced the availability of the first members of its 48 Volt Intermediate Bus
Converter Modules ("IBCs"). Offered in standard 1/4 brick format and operating
from a 38-55 Volt dc input, the IBC family consists of ten fixed ratio standard
models with nominal outputs from 3 to 48 Volt dc delivering up to 100 Amperes or
600 Watt. Small quantities of these products are currently available as the
Company continues to develop its manufacturing capacity and channels. The
Company expects to introduce additional Factorized Power products during 2004.
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
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second-generation family were introduced in 1999: the FiltMod for input
filtering and the IAM48 for transient and spike protection.
In 2002, the MicroRAM (uRAM) was introduced. This product, designed by the
Company's Picor subsidiary, performs a function similar to the VI-RAM product in
a smaller package at a lower price. In 2003, Picor introduced two new families
of products, the QPO (QuietPower(TM) - Output Ripple Attenuation SiP) and QPI
(QuietPower(TM) - 12 Amp Active EMI Filter for DC-DC Converters). The QPO
performs a similar function to the uRAM in a smaller, lower cost surface mount
package. Different QPO models allow customers to solve unique output noise
problems. The QPI filters unwanted Electro-Magnetic Interference ("EMI") from
the input supply bus. The product is targeted at the telecom market and the
emerging Advanced Telecommunication Computing Architecture ("ATCA") segment.
Customer Specific Products
Since its inception, the Company has accepted a certain amount of "custom"
power supply business. In most cases, the customer was unable to obtain a
conventional solution that could achieve the desired level of performance in the
available space. By utilizing its component-level power products as core
elements in developing most of these products, the Company was able to meet the
customer's needs with a reliable, high power density, total solution. However,
in keeping with the Company's strategy of focusing on sales of standard families
of component-level power building blocks, custom product sales have not been
directly pursued. The Company has traditionally pursued these custom
opportunities through Value-Added-Resellers ("VARs") and a network of VIAs (see
Part I, Item 1 - "Business - The Company"). Most of the VIAs are majority owned
by the Company, while VARs are independent businesses. Both VIAs and VARs are
distributed geographically and are in close proximity to many of their
customers.
SALES AND MARKETING
The Company sells its products through a network of 29 independent sales
representative organizations in North and South America; internationally, 52
independent distributors are utilized. Sales activities are managed by a staff
of Regional and Strategic 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, in VIA
locations in Oceanside, California and Cedar Park, Texas, 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
38%, 34% and 36%, in 2003, 2002 and 2001, respectively.
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 they are supported by product specialists (Product Line
Engineers) located in Andover. The Company generally warrants its products for a
period of two years.
The Company also sells directly to customers through Vicor Express, an
in-house distribution group. Through advertising and periodic mailing of its
catalogs, Vicor Express generally offers customers rapid delivery on small
quantities of many standard products. The Company, through Vicor B.V., has
expanded its Vicor Express operation to include locations in Germany, France,
Italy and England.
4
CUSTOMERS AND APPLICATIONS
The Company's customer base is comprised of large Original Equipment
Manufacturers (OEMs) and smaller, lower-volume users that are broadly
distributed across several major market areas. Some examples of the diverse
applications of the Company's products are:
Telecommunications: Military / Defense:
Central Office Systems Secure Communications Equipment
Fiber Optic Systems Unmanned Airborne / Remotely Piloted Vehicles
Cellular Telecommunications Aircraft/Weapons Test Equipment
Microwave Communications Ruggedized Computers
ATM Switches Electronic Warfare Equipment
Paging Equipment Reconnaissance/Targeting Systems
Broadcast Equipment Global Positioning Systems
Remote Telemetry Equipment Missile Defense Systems
Cable Head End Equipment Radio / Telemetry Systems
Power Amplifiers NBC Detection Equipment
Industrial: Information Technology:
Process Control Equipment RAID Systems
Medical Equipment Parallel Processors
Seismic Equipment Data Storage Systems
Test Equipment Network Servers
Transportation Systems Enterprise Servers
Agricultural Equipment File Servers
Material Handling Equipment Optical Switches
Marine Products
Commercial Avionics
For the years ended December 31, 2003, 2002 and 2001, no single customer
accounted for more than 10% of net revenues.
BACKLOG
As of December 31, 2003, the Company had a backlog of approximately $37.0
million compared to $31.9 million at December 31, 2002. Backlog is comprised of
orders for products which have a scheduled shipment date within the next 12
months. The Company believes that a substantial portion of sales in each quarter
is, and will continue to be, derived from orders booked in the same quarter.
RESEARCH AND DEVELOPMENT
As a basic element of its long-term strategy, the Company is committed to
the continued advancement of power conversion technology and power component
product development. The Company's research and development efforts are focused
in four areas: continued enhancement of the Company's patented technology;
expansion of the Company's families of component level DC-DC converter products;
development of the new FPA products and power management integrated circuits;
and continued development of configurable products based upon market
opportunities. The Company invested approximately $23.4 million, $20.5 million
and $20.2 million in research and development in 2003, 2002 and 2001,
respectively. Investment in research and development represented 15.5%, 13.4%
and 10.3% of net revenues in 2003, 2002 and 2001, respectively. 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 environmental stress screening
of certain products and product test using automatic test equipment.
5
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, as needed.
The strategy is based upon the phased acquisition and/or fabrication,
qualification and integration of automated manufacturing equipment. The Company
plans to make continuing investments in manufacturing equipment, particularly
for the Company's new FPA products (see Part I, Item I - "The Products -
Factorized Power Architecture").
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 levels of inventories it
considers to be appropriate to enable it to meet delivery requirements of
customers. Incoming components, assemblies and other parts are subjected to
several levels of inspection procedures.
Compliance by the Company with applicable environmental laws has not had a
material effect on the financial condition or operations of the Company.
SECOND-GENERATION AUTOMATED MANUFACTURING LINE
Revenues of second-generation products increased by 6% in 2003 over 2002,
unit production decreased 4%, and orders increased 13%. Both first- and
second-generation products are sold to similar customers. Gross margins on
second-generation products continue to be significantly lower than those of
first-generation products. The Company completed an upgrade to its
second-generation production equipment, internally designated as FasTrak, which
the Company anticipates will help to increase production capacity and reduce
costs. Approximately $900,000 of equipment was placed into service related to
the FasTrak program in 2003 ($3.3 million in 2002). It will take several
quarters before these steps will be fully implemented and their effects
realized. Gross margins during 2004 will continue to be negatively impacted
unless and until the Company is able to achieve higher production volumes and
attains higher yield levels and component cost reductions on second-generation
products. The Company continues to actively work towards improving yields and
reducing the cost of components on second-generation products. There can be no
assurance that such volumes, yields or cost reductions can be attained.
COMPETITION
The power conversion industry is highly competitive. Many power supply
manufacturers target markets similar to those of the Company. Representative
examples of these manufacturers are: Lambda Electronics, a subsidiary of
Invensys, plc; the former Power Systems business unit of Lucent Technologies,
now a subsidiary of Tyco International, Ltd.; Artesyn Technologies; Astec Power,
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. The Company bases its competitive strategy on technical
innovation, product performance, service and technical support, and in offering
a broad product line. The principal methods of competition in the markets in
which the Company's products compete are price, performance and the level of
service and technical support offered.
PATENTS
The Company believes that its patents afford 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
6
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" technology. The Company believes that its
rights under the Reset Patent and the Reissue Patent have been infringed. The
Company believes in vigorously protecting its rights under its patents (see Part
I, Item 3 - "Legal Proceedings").
The Company has been issued 84 patents in the United States (which expire
between 2004 and 2021), 31 in Europe (which expire between 2004 and 2015), and
25 in Japan (which expire between 2004 and 2016). 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., Part I, Item 3 - "Legal Proceedings"). 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 generally retains the right to use its
patented technologies, and manufacture and sell its products, in all licensed
geographic areas and fields of use. Licenses are granted and administered
through the Company's wholly-owned subsidiary, VLT, Inc., 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.
On March 28, 2001, the Company announced that its wholly-owned
subsidiaries, Vicor Hong Kong Ltd. ("VHK") and VLT, Inc. ("VLT"), had entered
into cooperative agreements with Nagano Japan Radio Company, Ltd. ("NJRC"). On
March 18, 2003, NJRC gave VHK and VLT notice of termination of the agreements,
effective September 18, 2003. In January 2004, the Company received a final
royalty payment from NJRC.
On October 20, 2003, the Company announced that it entered into a
non-exclusive license with Celestica Corporation to manufacture and sell the V-I
Chip Product Family. V-I Chips are the building blocks of the new FPA products
that Vicor announced in April 2003.
EMPLOYEES
As of December 31, 2003, the Company employed approximately 1,190 full time
and 80 part time people. The Company believes that its continued success
depends, in part, on its ability to attract and retain qualified personnel.
Although there is strong demand for qualified technical personnel, the Company
has not to date experienced difficulty in attracting and retaining sufficient
engineering and technical personnel to meet its needs (see Part I, Item I -
"Risk Factors").
None of the Company's employees are subject to a collective bargaining
agreement.
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.
OUR FUTURE SUCCESS DEPENDS UPON OUR ABILITY TO DEVELOP AND MARKET LEADING-EDGE,
COST EFFECTIVE PRODUCTS.
The power supply industry and the industries in which many of our customers
operate are characterized by intense competition, rapid technological change,
product obsolescence and price erosion for mature products, each of which could
have an adverse effect on 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
7
and results of operations. Specifically, the Company may not be successful in
leveraging the newly introduced V-I Chips in standard products to promote market
acceptance of Factorized Power.
OUR FUTURE OPERATING RESULTS ARE DEPENDENT ON THE GROWTH IN OUR CUSTOMERS'
BUSINESSES.
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 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.
OUR CONVERSION OF SECOND-GENERATION PRODUCTS TO THE FASTRAK PLATFORM MAY NOT
PROGRESS AS PLANNED.
The Company continues the process of converting second-generation products
to a new FasTrak platform. This involved the installation of new automated
manufacturing equipment, which has been completed, and the qualification of all
products converted over to the new platform, which is still in process. The
Company believes that this conversion will ultimately result in lower unit costs
and improved manufacturing yields. There can be no assurance that the
qualification of products will be completed as scheduled or that the expected
results of the conversion of second-generation products to the FasTrak platform
will be achieved. In addition, the process of conversion could result in excess
supplies of raw materials that are no longer needed for the converted products.
Additional inventory reserves could be required for potentially slow moving or
obsolete inventory which could negatively impact the Company's future operating
results. Also, once the conversion is completed, certain second-generation
automated manufacturing equipment may have little or no future use. This may
result in the impairment of any remaining net book value of those assets. During
the first quarter of 2003, the useful lives of certain equipment in connection
with the conversion were shortened, which resulted in higher depreciation
expense on this equipment in 2003.
OUR REVENUES MAY NOT INCREASE ENOUGH TO OFFSET THE EXPENSE OF ADDITIONAL
CAPACITY.
The Company has made significant additions to its manufacturing equipment
and capacity over the past several years, including equipment for the new
FasTrak platform. This has resulted in a significant increase in fixed costs and
overall operating expenses. If revenue levels do not increase enough to offset
the increased fixed costs, the Company's future operating results could be
adversely affected. In addition, asset values could be impaired if the
additional capacity is underutilized for an extended period of time.
WE RELY ON THIRD-PARTY SUPPLIERS AND SUBCONTRACTORS FOR COMPONENTS AND
ASSEMBLIES AND, THEREFORE, CANNOT CONTROL THEIR AVAILABILITY OR QUALITY.
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 on time or to our specifications, 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.
WE ARE EXPOSED TO ECONOMIC, POLITICAL AND OTHER RISKS THROUGH OUR FOREIGN SALES
AND DISTRIBUTORS.
International sales have been and are expected to be a significant
component of total sales. Dependence on foreign third parties for sales and
distribution is subject to special risks, such as foreign economic and political
instability, foreign currency controls and market fluctuations, trade barriers
and tariffs, foreign regulations and exchange rates. Sudden or unexpected
changes in the foregoing could have a material adverse effect on the Company's
results of operations.
8
OUR ABILITY TO SUCCESSFULLY IMPLEMENT OUR BUSINESS STRATEGY MAY BE LIMITED IF WE
DO NOT RETAIN OUR KEY PERSONNEL.
The Company's success depends on our ability to retain the services of our
executive officers. The loss of one or more members of senior management could
materially adversely affect the Company's business and financial results. In
particular, the Company is dependent on the services of Dr. Patrizio
Vinciarelli, its founder, 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.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS, WHICH MAY LIMIT
OUR ABILITY TO COMPETE EFFECTIVELY.
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 the Company relies on patent and intellectual property
law to protect such rights. This protection, however, may not prevent
competitors from independently developing products similar or superior to 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, and this may have a material
adverse affect on the Company's competitive position. 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. The Company has been
and may need to continue to defend or challenge patents. The Company has
incurred and expects to incur significant costs in and devote significant
resources to these efforts which, if unsuccessful, may have a material adverse
effect on its results of operations and financial position.
OUR REVENUES AND OPERATING RESULTS HAVE BEEN NEGATIVELY IMPACTED BY THE GENERAL
BUSINESS SLOWDOWN, AND OUR OUTLOOK GOING FORWARD REMAINS HIGHLY UNCERTAIN.
The Company is exposed to general economic conditions which could have a
material adverse impact on its business, operating results and financial
condition. As a result of the continued general economic slowdown in the major
electronics markets, particularly in the communications markets, the Company's
net revenues in 2003 remained consistent as compared to 2002, which is
significantly less than revenues in 2001 and 2000. In response to the decline in
revenues and demand, which resulted in excess production capacity, the Company
initiated a cost reduction plan in the fourth quarter of 2001, which continued
through 2003, to mitigate the negative effect of these trends (see Part II, Item
7 - "Cost Reduction Plan"). The Company does not currently expect any
significant improvement in general economic conditions in 2004, and there can be
no assurance that we will be successful in managing our expenses in light of
customer demand.
ITEM 2 - PROPERTIES
The Company's corporate headquarters building, which the Company owns and
which is located in Andover, Massachusetts, provides approximately 90,000 square
feet of office space for its sales, marketing, engineering and administration
personnel.
The Company also owns a building of approximately 230,000 square feet in
Andover, Massachusetts, which houses all Massachusetts manufacturing activities.
The Company's Westcor division owns and occupies a building of
approximately 31,000 square feet in Sunnyvale, California.
9
ITEM 3 - LEGAL PROCEEDINGS
On September 13, 2002, Exar Corporation ("Exar"), a vendor for the Company,
filed a complaint against the Company in the Superior Court of the State of
California, County of Alameda (the "Superior Court"). The complaint as amended
in November 2003, alleges fraud, breach of contract and breach of implied
covenant of good faith and fair dealing in connection with the alleged purchase,
under a "last time buy" arrangement, by the Company of certain quantities of
integrated circuits manufactured and contained on silicon wafers from Exar. Exar
alleges compensatory damages of approximately $2.2 million and also seeks
punitive damages and attorney's fees. The Company filed an answer denying the
substantive allegations of Exar's complaint and several cross-complaints. The
Company alleges compensatory damages of almost $3.5 million and also seeks
punitive damages. The Company may be entitled to reciprocal attorney's fees
under California law.
In October 2003, Exar served a motion for summary adjudication on all
counts of the Company's cross-complaints, which was scheduled for hearing on
February 19, 2004. Vicor filed an opposition to Exar's motion for summary
adjudication, and its own cross-motion for summary adjudication on its
cross-claim for fraud against Exar which is scheduled for hearing on April 22,
2004. On February 10, 2004 Exar withdrew its motion for summary adjudication as
to Vicor's fraud claim, indicating it will seek to refile a motion for summary
adjudication as to Vicor's alleged fraud claim, at a later date. Exar
subsequently filed a renewed motion for summary adjudication as to the Company's
alleged fraud claim which is scheduled for a hearing on May 12, 2004. The
Company is seeking to strike this motion as procedurally improper, and plans to
file an opposition to this renewed motion for summary adjudication should it not
be stricken on motion. The remaining aspects of Exar's current motion for
summary adjudication have been rescheduled for a hearing on March 16, 2004. The
case is presently scheduled for trial on June 11, 2004. Management of the
Company does not expect that the ultimate resolution of the lawsuit, including
Exar's complaint and Vicor's cross-complaints will have a material adverse
impact on the Company's financial position or results of operations.
Vicor and VLT, Inc. ("VLT"), a wholly owned subsidiary of the Company, are
pursuing Reset Patent infringement claims directly against Artesyn Technologies,
Lambda Electronics, Lucent Technologies, Tyco Electronics Power Systems, Inc.
and Power-One. Proceedings in the United States District Court in Boston,
Massachusetts are currently stayed while the parties appeal various issues
concerning the District Court's interpretations of certain patent claim terms to
the Court of Appeals for the Federal Circuit. There can be no assurance that
Vicor and VLT will ultimately prevail with respect to any of these claims or, if
they prevail, as to the amount of damages that would be awarded.
In addition, the Company is involved in certain other 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's financial
position or results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
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, as amended.
The following table sets forth the quarterly high and low sales prices for
the Common Stock as reported by NASDAQ for the periods indicated:
2002 High Low
- ---- ---- ---
First Quarter $18.72 $11.53
Second Quarter 17.11 6.25
Third Quarter 9.80 5.59
Fourth Quarter 9.78 5.81
2003 High Low
- ---- ---- ---
First Quarter $ 8.93 $ 5.55
Second Quarter 10.40 5.50
Third Quarter 12.64 8.58
Fourth Quarter 12.43 9.50
As of February 27, 2004, there were approximately 356 holders of record of
the Company's Common Stock and approximately 21 holders of record of the
Company's Class B Common Stock. These numbers do not reflect persons or entities
that hold their stock in nominee or "street name" through various brokerage
firms.
DIVIDEND POLICY
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.
11
ITEM 6 - SELECTED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's statements of operations for the years ended December 31, 2003, 2002
and 2001 and with respect to the Company's balance sheets as of December 31,
2003 and 2002 are derived from the Company's consolidated financial statements,
which appear elsewhere in this report and which have been audited by Ernst &
Young LLP, the Company's independent auditors. The following selected
consolidated financial data with respect to the Company's statements of income
for the years ended December 31, 2000 and 1999 and with respect to the Company's
balance sheets as of December 31, 2001, 2000 and 1999 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.
Year Ended December 31,
-----------------------
(in thousands except per share data)
Statement of Operations Data 2003 2002 2001 2000 1999
- ---------------------------- ---- ---- ---- ---- ----
Net revenues $151,421 $152,591 $195,910 $257,583 $189,887
Income (loss) from operations (25,703) (24,502) (5,017) 46,010 24,427
Net income (loss) (19,535) (15,942) (559) 33,920 19,088
Net income (loss) per share-basic (.47) (.38) (.01) .80 .46
Net income (loss) per share-diluted (.47) (.38) (.01) .78 .45
Weighted average shares-basic 41,896 42,337 42,342 42,276 41,568
Weighted average shares-diluted 41,896 42,337 42,342 43,265 42,412
At December 31,
---------------
(in thousands)
Balance Sheet Data 2003 2002 2001 2000 1999
- ------------------ ---- ---- ---- ---- ----
Working capital $140,547 $152,679 $153,159 $146,478 $123,017
Total assets 251,464 278,445 289,622 294,113 268,905
Long-term debt - - - - -
Total liabilities 24,806 30,412 24,785 31,192 24,372
Stockholders' equity 226,658 248,033 264,837 262,921 244,533
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Vicor Corporation designs, develops, manufactures and markets modular power
components and complete power systems based upon a portfolio of patented
technologies. The Company sells it products primarily to the telecommunications,
electronic data processing, industrial control and military electronics markets,
through a network of 29 independent sales representative organizations in North
and South America and, internationally, through 52 independent distributors.
Export sales as a percentage of total revenues were approximately 38%, 34% and
36% in 2003, 2002 and 2001, respectively. The Company operates in one industry
segment.
For the year ended December 31, 2003 revenues decreased to $151,421,000
from $152,591,000 for the same period of 2002. The Company had a loss before
taxes of $24,891,000 in 2003 compared with a loss before taxes of $25,106,000 in
2002. The Company reported a net loss in 2003 of $19,535,000 compared with a net
loss of $15,942,000 in 2002, and a diluted loss per share of $.47 in 2003
compared with a diluted loss per share of $.38 in 2002.
The book to bill ratio for the fourth quarter was 1.09:1 as compared with
1.05:1 in the third quarter of 2003. The book to bill for the year ended
December 31, 2003 was 1.03:1 compared with 0.98:1 for 2002. In light of the
12
fact that bookings and sales can vary significantly from quarter to quarter, the
Company does not believe that this increase in the book to bill ratio is
indicative of a trend at this time. The Company ended 2003 with approximately
$37.0 million in backlog compared to $31.9 million at the end of 2002.
The gross margin for 2003 improved to 25.8% compared with 24.8% in 2002.
The gross margins improved toward the end of the year due to higher levels of
shipments and cost reductions associated with the end of the general furlough
program during the fourth quarter of 2003 (see Part II, Item 7 - "Cost Reduction
Plan"). Despite some improvement, gross margins on second-generation products
continue to be significantly lower than those of first-generation products. The
Company needs to achieve higher production volumes and attain higher yield
levels, primarily on second-generation products, before significant improvements
in the overall gross margin will be realized.
For 2003, depreciation and amortization was $22.4 million, an increase of
approximately $500,000 from 2002, and capital additions were $5.8 million, a
decrease of approximately $5.0 million from 2002. While the Company expects
capital spending to be higher in 2004 than 2003, it will be less than in 2002
and 2001. As a result of this, and due to assets which either are now or will be
fully depreciated in 2004, the Company expects depreciation and amortization to
be less in 2004 than 2003.
Inventories decreased by approximately $8.2 million to $22.1 million as
compared with $30.3 million at the end of 2002, due to a focused effort by the
Company to reduce inventory levels through the reduction of purchases and usage
of components.
Significant attention across many functional areas of the Company has been
focused on the design, development, introduction and production of the new FPA
products (see Part I, Item I - "The Products - Factorized Power Architecture").
The Company introduced the first families of these products in 2003. The Company
does not expect to generate significant revenues from FPA products in 2004.
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.
Year ended December 31,
-----------------------
2003 2002 2001
------ ------ ------
Net revenues 100.0% 100.0% 100.0%
Gross margin 25.8% 24.8% 29.9%
Selling, general and administrative expenses 27.3% 27.4% 22.1%
Research and development expenses 15.5% 13.4% 10.3%
Loss before income taxes (16.4)% (16.5)% (0.5)%
13
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, management evaluates its estimates and
judgements, including those related to revenue recognition, allowance for
doubtful accounts, inventories, investments, intangible assets, income taxes,
impairment of long-lived assets, and contingencies and litigation. Management
bases its estimates and judgements on historical experience, knowledge of
current conditions and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgements about the carrying value of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. Management believes the
following accounting policies involve its more significant judgements and
estimates used in the preparation of its consolidated financial statements.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Vicor maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments, based
on assessments of customers' credit-risk profiles and payment histories. If the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required.
INVENTORIES
The Company estimates allowances for its inventory for estimated
obsolescence or unmarketable inventory based upon its known backlog and
historical usage, and assumptions about future demand and market conditions.
While we have used our best efforts and believe we have used the best available
information to estimate future demand, due to uncertainty in the economy and our
business and the inherent difficulty in predicting future demand, it is possible
that actual demand for our products will differ from our estimates. If actual
future demand or market conditions are less favorable than those projected by
management, additional inventory reserves for existing inventories may need to
be recorded in future periods.
LONG-LIVED ASSETS
Management evaluates the recoverability of the Company's identifiable
intangible assets, goodwill and other long-lived assets in accordance with
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (FAS 144), which generally requires
that the recoverability of these assets be assessed when events or circumstances
indicate a potential impairment. The Company periodically assesses the remaining
use of fixed assets based upon operating results and cash flows from operations.
Equipment has been written-down as a result of these assessments as necessary. A
further decline in the Company's business could lead to such impairment
adjustments in future periods.
WARRANTY
The Company generally warrants its products for a period of two years.
Vicor maintains allowances for estimated product returns under warranty based
upon a review of known or potential product failures in the field and upon
historical patterns of product returns. If unforeseen product issues arise or
product returns increase above expected rates, additional allowances may be
required.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109),
which requires that deferred tax assets and liabilities be recognized using
enacted rates for the effect of temporary differences between the book and tax
bases of recorded assets and liabilities. FAS 109 also requires that deferred
tax assets be reduced by a valuation allowance if it is more likely than not
that some portion or all of the deferred tax asset will not be realized. The
Company has assessed the need for a valuation allowance against these deferred
tax assets and concluded that a valuation allowance for a portion of the
deferred tax assets related to the net operating loss and tax credit
carryforwards is warranted at December 31, 2003. In reaching this conclusion,
the Company evaluated all relevant criteria including the existence of
significant temporary differences reversing in the carryforward period,
primarily depreciation. The valuation allowance against these deferred tax
assets may require adjustment in the future based on changes in the mix of
temporary differences, changes in tax laws, and operating performance.
14
In addition, the assessment of the valuation allowance requires the Company to
make estimates of future taxable income and to estimate reversals of temporary
differences. Changes in the assumptions or other circumstances may require
additional valuation allowances if actual reversals of temporary differences
differ from those estimates.
The Company operates in numerous taxing jurisdictions and is, therefore,
subject to a variety of income and related taxes. The Company has provided for
potential tax liabilities due in various jurisdictions which it judges to be
probable and reasonably estimable in accordance with Statement of Financial
Accounting Standards No. 5. Judgment is required in determining the income tax
expense and related tax liabilities. In the ordinary course of business, there
are transactions and calculations where the ultimate tax outcome is uncertain.
The Company believes it has reasonably estimated its accrued taxes for all
jurisdictions for all open tax periods. The Company periodically assesses the
adequacy of its tax and related accruals on a quarterly basis and adjusts
appropriately as events warrant and open tax periods close. It is possible that
the final tax outcome of these matters will be different from management's
estimate reflected in the income tax provisions and accrued taxes. Such
differences could have a material impact on the Company's income tax provision
and operating results in the period in which such determination is made.
YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
Net revenues for fiscal 2003 were $151,421,000 a decrease of $1,170,000
(0.8%) as compared to $152,591,000 for the same period a year ago. The decrease
in net revenues resulted primarily from a decrease in unit shipments of standard
and custom products of approximately $290,000 and a decrease in license revenue
of $880,000. While orders for fiscal year 2003 increased 5.1% over 2002, they
are still significantly less than that of 2000 and the first half of 2001 and
the revenue outlook going forward continues to remain uncertain. Both first- and
second-generation products are sold to similar customers. The decrease in
license revenue was due to the termination of agreements with Nagano Japan Radio
Company, Ltd. ("NJRC") on March 18, 2003, effective September 18, 2003, and the
expiration of a patent which provided the basis for royalties from other
licensees. The Company did receive a final royalty payment from NJRC in January
2004. Going forward, license revenues will be less than prior periods unless and
until the Company enters into new license agreements. The book-to-bill ratio for
2003 was 1.03 compared to 0.98 for 2002.
Gross margin for fiscal 2003 increased $1,193,000 (3.2%) to $39,012,000
from $37,819,000 and increased as a percentage of net revenues from 24.8% to
25.8%. These increases were principally due to a higher proportion of revenues
from the VIAs in 2003 compared to 2002, whose products typically have higher
gross margins.
Selling, general and administrative expenses were $41,270,000 for the
period, a decrease of $568,000 (1.4%) over the same period in 2002. As a
percentage of net revenues, selling, general and administrative expenses
decreased slightly to 27.3% from 27.4%. The principal components of the $568,000
decrease were $2,325,000 (59.5%) of decreased legal fees and $365,000 (9.1%) in
decreased sales commission costs. This decrease was offset by $1,034,000 (6.4%)
of increased compensation expense, $486,000 (23.8%) of increased costs
associated with the operations of the VIAs, a $370,000 (97.2%) increase in audit
and tax fees, and $239,000 (88.7%) of increased expenses associated with
international operations. The increase in compensation expense was due to
compensation expense increases at certain international subsidiaries and the
Company's Westcor division, and to the completion in the first quarter of 2002
of the internally developed software project of the Company's new Enterprise
Resource Planning System. In accordance with Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," certain costs associated with the project were capitalized, and
capitalization ceased upon completion. The decrease in legal expense was
primarily due to significantly lower activity on the Company's patent
infringement actions (see Part II, Item 1 - "Legal Proceedings") than in 2002.
Research and development expenses increased $2,962,000 (14.5%) to
$23,445,000 and increased as a percentage of net revenues to 15.5% from 13.4%.
The principal components of the $2,962,000 increase were $2,114,000 (77.2%) of
increased development costs associated with the automation, test and mechanical
engineering groups, as less of these departments' efforts were associated with
internally constructed manufacturing and test equipment in 2003 as compared to
2002, and $578,000 (34.2%) of increased project material costs. The increase in
project materials was principally due to development efforts associated with the
Company's new Factorized Power Architecture ("FPA") products. These were offset
by $171,000 (1.5%) of decreased compensation expense. There was a net reduction
in compensation expense of $1,053,000 in various engineering departments due to
certain personnel being transferred to operations, where they are
15
included in cost of revenues, and to some general attrition. This was partially
offset by an $882,000 increase at the Company's Picor subsidiary due to
increases in headcount.
Other income (expense), net increased $1,416,000 (234.4%) from the same
period a year ago, to $812,000. Other income is primarily comprised of interest
income derived from invested cash and cash equivalents and short-term
investments, as well as a note receivable associated with the Company's real
estate transaction which was repaid in May 2002, and foreign currency gains or
losses.
The changes in the major components of other income (expense), net were as
follows (in thousands):
Increase
2003 2002 (decrease)
------- ------- ---------
Interest income $ 1,514 $ 2,360 $ (846)
Foreign currency gains 607 526 81
Minority interest in net income of
subsidiaries (512) (169) (343)
Other than temporary decline in
Scipher plc, investment (470) (1,985) 1,515
Loss on disposal of equipment (356) (1,446) 1,090
Other 29 110 (81)
------- ------- -------
$ 812 $ (604) $ 1,416
======= ======= =======
Interest income decreased due to a decrease in average interest rates and
the repayment of the note receivable in May 2002.
Loss before income taxes was $24,891,000 compared to a loss before income
taxes of $25,106,000 for the same period in 2002.
The benefit for income taxes totaled $5,356,000 in 2003 and $9,164,000 in
2002. The Company's overall tax rate was (21.5%) and (36.5%) for 2003 and 2002,
respectively. During the fourth quarter of 2003, the Company revised its
estimate of the effective tax rate for the year and recorded a tax benefit for a
portion of the net operating losses generated in 2003 and, accordingly, revised
its estimated effective tax rate applicable to 2003 to an estimated tax benefit
of 21.5%. This estimated tax benefit of $5,356,000 was a non-recurring non-cash
item representing an increase in the benefit previously estimated by the Company
based on the changes in the deductible and taxable temporary differences for
2003. The effect of the change in the estimated effective tax rate on net income
was approximately $5,107,000. The corresponding effect on the net income per
share was $.12 for the quarter and for the year ended December 31, 2003. During
2002, the Company recorded a tax benefit of 36.5% reducing pre-tax losses due to
a five-year carryback provision allowed by a temporary change in the tax laws.
The Company will continue to assess its effective tax rate and the need for
valuation allowances against its deferred tax assets. The Company operates in
various state and international taxing jurisdictions and is subject to a variety
of income and related taxes.
Basic and diluted loss per share was $(0.47) for the twelve months ended
December 31, 2003, compared to basic and diluted loss per share of $(0.38) for
the twelve months ended December 31, 2002.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001:
Net revenues for fiscal 2002 were $152,591,000, a decrease of $43,319,000
(22.1%) as compared to $195,910,000 for fiscal 2001. The decline in net revenues
resulted primarily from a net decrease in unit shipments of standard and custom
products of approximately $41,201,000 and a decrease in license revenue of
approximately $2,118,000. Management believes that the decrease in unit
shipments and net revenues is primarily due to continued over-capacity in the
major electronics markets, particularly in the communications markets. As a
result, demand for the Company's products suffered in 2002 and 2001. While the
Company
16
experienced an increase in orders in the first nine months of 2002 as compared
with the second half of 2001, orders declined in the fourth quarter of 2002. The
decrease in license revenue was primarily due to the recognition of the final
amounts under the license agreement with Reltec Corporation during the first
quarter of 2001. The book-to-bill ratio was 0.98 for 2002 compared to 0.81 for
2001.
Gross margin decreased $20,670,000 (35.3%) in 2002 from $58,489,000 to
$37,819,000, and decreased as a percentage of net revenues from 29.9% to 24.8%.
The primary component of the decrease in gross margin dollars and gross margin
percentage was the decrease in net revenues and changes in the revenue mix, in
particular a decrease in license revenue. In addition, there was $1,462,000 of
increased compensation expense due to certain manufacturing engineering groups
being transferred in the third quarter of 2001 to operations, where they are
included in cost of sales, from research and development, and an increase in
depreciation on the second-generation automated production line, including
equipment for FasTrak, of approximately $1,315,000 in 2002. The Company expects
to review the remaining useful lives of certain equipment in connection with the
conversion of second-generation products to the FasTrak platform, and may
shorten the useful lives of such equipment, as necessary going forward. This
would result in higher depreciation expense on this equipment in 2003 and 2004.
These items were partially offset by higher provisions for inventory reserves
for potential excess raw materials during 2001 of approximately $2,725,000. The
higher provisions in 2001 were considered necessary due to higher levels of
inventory at a time when demand for the Company's products was declining.
Selling, general, and administrative expenses were $41,838,000 for the
year, a decrease of $1,474,000 (3.4%) from fiscal 2001. As a percentage of net
revenues, selling, general and administrative expenses increased from 22.1% to
27.4% primarily due to the reduction in net revenues. The principal components
of the $1,474,000 decrease were $975,000 (19.4%) in decreased sales commission
costs, $279,000 (81.3%) of decreased personnel related expenses, principally for
employment recruiting, advertising and relocation expenses, $265,000 (12.4%) in
decreased costs associated with the operations of the VIAs, $258,000 (8.5%) in
decreased costs associated with the operations of Vicor Japan Co., Ltd. ("VJCL")
and a decrease of $204,000 due to not holding a North American sales meeting in
2002. The VIAs and VJCL have reduced headcount and expenses in response to the
decline in their respective businesses. These decreases were offset by a
$763,000 (4.9%) increase in compensation expense and $170,000 (4.6%) of
increased legal costs. The increase in compensation expense was partially due to
the completion in the first quarter of 2002 of the internally developed software
project of the Company's new Enterprise Resource Planning System. In accordance
with Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," certain costs associated with the
project were capitalized, and capitalization ceased upon completion. During the
third quarter of 2002, the Company and its primary legal counsel for the
Company's infringement actions (see Part I, Item 3 - "Legal Proceedings")
reached an agreement on legal fees providing for a reduction in the fees to be
paid by the Company from January 1, 2002 until final resolution of each action.
As a result of this agreement, the Company recorded a non-recurring reduction in
legal expense of approximately $1,092,000 in the third quarter of 2002 for legal
fees incurred prior to the third quarter. In addition, the Company realized
approximately $659,000 in reduced legal expense during the third and fourth
quarters of 2002 based on the agreement.
Research and development expenses increased $289,000 (1.4%) to $20,483,000
and increased as a percentage of net revenues to 13.4% from 10.3% due to the
reduction in net revenues. The principal components of the $289,000 increase
were $930,000 (274.8%) of increased development costs associated with the
automation and test engineering groups, as less of these departments' efforts
were associated with internally constructed manufacturing and test equipment in
2002 as compared to 2001, and $323,000 (2.7%) of increased compensation expense.
Approximately $1,785,000 of the net increase in compensation expense was due to
increases in the headcount in certain engineering groups, of which $1,060,000
was at the Company's Picor subsidiary. This increase was partially offset by
$1,462,000 of decreased compensation expense due to certain manufacturing
engineering groups being transferred to operations in the third quarter of 2001
where they are included in cost of revenues. This was also offset by $730,000
(32.8%) in decreased project material costs and $317,000 (68.0%) in decreased
personnel related expenses, principally related to employment recruiting,
advertising and relocation expenses.
Other income (expense), net decreased $4,726,000 (114.7%) to $(604,000).
Other income (expense), net is primarily comprised of interest income derived
from invested cash and cash equivalents and short-term investments, as well as a
note receivable associated with the Company's real estate transaction which was
repaid in May 2002, and foreign currency transaction gains or losses.
17
The changes in the major components of other income (expense), net were as
follows (in thousands):
Increase
2002 2001 (decrease)
------- ------- ---------
Interest income $ 2,360 $ 3,887 $(1,527)
Other than temporary decline in
Scipher plc investment (1,985) (600) (1,385)
Loss on disposal of equipment (1,446) (360) (1,086)
Foreign currency gains (losses) 526 (233) 759
Minority interest in net income of
subsidiaries (169) (105) (64)
Gain on sale of investment -- 1,452 (1,452)
Other 110 81 29
------- ------- -------
$ (604) $ 4,122 $(4,726)
======= ======= =======
Interest income decreased due to a decrease in average interest rates and
the repayment of the note receivable in May 2002.
Loss before income taxes was $25,106,000, a decrease of $24,211,000
compared to a loss before income taxes of $895,000 in 2001.
The benefit for income taxes totaled $9,164,000 in 2002, while the benefit
for income taxes totaled $336,000 in 2001. The Company's overall tax rate was
(36.5%) and (37.5%) for 2002 and 2001, respectively. The Company was able to
record the tax benefit in 2002 due to a five-year carryback provision allowed by
a temporary change in the tax laws.
The Company reported a net loss in 2002 of $15,942,000, as compared with a
net loss in 2001 of $559,000. Basic and diluted loss per share was $(.38) in
2002 and $(.01) in 2001.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2003 the Company had $41,723,000 in cash and cash
equivalents. The ratio of current assets to current liabilities was 7.9:1 at
December 31, 2003 compared to 8.5:1 at December 31, 2002. Working capital
decreased $12,132,000, from $152,679,000 at December 31, 2002 to $140,547,000 at
December 31, 2003. The primary factors affecting the working capital decrease
were a decrease in cash and cash equivalents of $8,147,000, a decrease in
inventory of $8,245,000, a decrease in refundable income taxes of $8,846,000 and
a decrease in deferred tax assets of $4,578,000. These decreases were offset by
an increase in short-term investments of $16,017,000 and an increase in other
current assets of $1,702,000. The primary source of cash for the twelve months
ended December 31, 2003 was $19,432,000 from operating activities. The primary
uses of cash for the twelve months ended December 31, 2003 were for the net
purchases of short-term investments of $16,960,000, the acquisition of equipment
of $5,797,000 and the acquisition of treasury stock of $2,562,000.
At December 31, 2003, the Company reclassified certain auction rate
securities from cash and cash equivalents to short-term investments for the
18
year ended December 31, 2003 and for all prior periods. As December 31, 2003 and
2002, the Company held approximately $26,500,000 and $22,250,000, respectively,
of these auction rate securities, which were reclassified.
The Company's primary liquidity needs are for making continuing investments
in manufacturing equipment, much of which is built internally, particularly
equipment for the Company's new FPA products. The internal construction of
manufacturing machinery, in order to provide for additional manufacturing
capacity, is a practice which the Company expects to continue in the future.
While the Company expects capital spending to be higher in 2004 than 2003, it
will be less than the spending in 2002 and 2001. The Company's automation, test
and mechanical engineering groups, which build the manufacturing equipment
internally, have spent more time in development and support and maintenance
activities in 2003, the costs of which are expensed.
In November 2000, the Board of Directors of the Company authorized the
repurchase of up to $30,000,000 of the Company's Common Stock (the "November
2000 Plan"). The November 2000 Plan authorizes the Company to make such
repurchases from time to time in the open market or through privately negotiated
transactions. The timing and amounts of stock repurchases are at the discretion
of management based on its view of economic and financial market conditions. The
Company spent approximately $2,562,000 for the repurchase of 453,400 shares of
Common Stock during the twelve months ended December 31, 2003. As of December
31, 2003, the Company had approximately $26,000,000 remaining under the plan.
The table below summarizes the Company's contractual obligations as of
December 31, 2003 (in thousands):
Payments due by period
---------------------------------------------------------
Less than 1 More than 5
Contractual Obligations Total year 1 - 3 years 3 - 5 years years
- ----------------------- ----- ----------- ----------- ----------- -----------
Operating leases $4,049 $ 1,553 $2,282 $ 214 $ -
Purchase obligations 4,713 1,754 807 807 1,345
------- ------- ------ ------ ------
Total $8,762 $ 3,307 $3,089 $1,021 $1,345
====== ======= ====== ====== ======
The Company believes that cash generated from operations and the total of
its cash and cash equivalents, together with other sources of liquidity, will be
sufficient to fund planned operations and capital equipment purchases for the
foreseeable future. At December 31, 2003, the Company had approximately $240,000
of capital expenditure commitments, principally for manufacturing equipment.
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.
COST REDUCTION PLAN
In October 2001, the Company announced a cost reduction plan. Under this
plan, the Company required a reduced work schedule for direct factory employees
as required by production demands, and mandatory use of certain accrued personal
time by all other employees. The Company had previously announced that in
consideration of an excess in factory capacity that has persisted, the potential
for further improvements in productivity and the prospective lower labor content
of its V-I Chips, the Company would end the general furlough program for all of
its hourly factory workers effective October 10, 2003. During the third quarter
of 2003, approximately 270 hourly factory workers were notified that the Company
would not continue to employ them. Those employees that were unable to obtain
other employment would be provided with health benefits until the end of 2003.
As a result, in accordance with FAS 146, the Company provided $300,000 in
separation costs in cost of revenues in the third quarter of 2003. Mandatory use
of certain accrued personal time by all other employees was in effect until the
end of 2003 under the cost reduction plan, but was eliminated for the first
quarter of 2004. The need for this plan is reviewed by senior management on a
periodic basis.
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
short-term investments, changes in the equity price of the Company's investment
in Scipher plc, a U.K. company, and fluctuations in foreign currency exchange
rates.
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 for these investments is not
significant. The Company's short-term investments consist mainly of corporate
debt securities. These debt securities are all highly- rated investments, in
which a significant portion have interest rates reset at auction at regular
intervals. As a result, the Company believes there is minimal market risk to
these investments.
19
The equity price risk for the Company's investment in Scipher plc is not
material, as the balance of this investment at December 31, 2003 was $70,000.
The market price of the stock has experienced significant fluctuations over the
past several years. During 2003, the Company recognized a loss of $470,000
resulting from declines in the value of this investment judged to be other than
temporary (see Note 5 to the financial statements).
The Company's exposure to market risk for fluctuations in foreign currency
exchange rates relates primarily to the operations of VJCL and changes in the
dollar/yen exchange rate. The Company believes that this market risk is
currently not material due to the relatively small size of VJCL's operations.
20
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 2003 and 2002
Consolidated Statements of Operations For the Years Ended December 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows For the Years Ended December 31, 2003, 2002 and 2001
Consolidated Statements of Stockholders' Equity For the Years Ended December 31, 2003, 2002 and 2001
Notes to the Consolidated Financial Statements
SCHEDULE (Refer to Item 15)
21
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, 2003 and 2002, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2003. Our audits also included the
financial statement schedule listed in the Index at Item 15(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, 2003 and 2002, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2003, 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.
As discussed in Note 6 to the consolidated financial statements, in 2002
the Company changed its method of accounting for goodwill and other intangible
assets in accordance with the adoption of Statement of Financial Accounting
Standards No. 142.
/s/Ernst & Young LLP
Boston, Massachusetts
February 6, 2004
22
VICOR CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002
2003 2002
--------- ---------
(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents $ 41,723 $ 49,870
Short-term investments 67,046 51,029
Accounts receivable, less allowance of $807 in 2003 and 22,493 22,469
$648 in 2002
Refundable income taxes -- 8,846
Inventories, net 22,080 30,325
Deferred tax assets 3,548 8,126
Other current assets 4,101 2,399
--------- ---------
Total current assets 160,991 173,064
Property, plant and equipment, net 82,366 98,738
Other assets 8,107 6,643
--------- ---------
$ 251,464 $ 278,445
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,078 $ 5,724
Accrued compensation and benefits 3,541 3,379
Accrued expenses 5,203 4,158
Income taxes payable 6,465 6,521
Deferred revenue 157 603
--------- ---------
Total current liabilities 20,444 20,385
Deferred income taxes 4,362 10,027
Commitments and contingencies -- --
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000,000 shares authorized;
360,001 issued and none outstanding in 2003 and 2002 -- --
Class B Common Stock: 10 votes per share, $.01 par value,
14,000,000 shares authorized, 11,868,100, issued and
outstanding (11,880,100 in 2002) 119 119
Common Stock: 1 vote per share, $.01 par value, 62,000,000 shares
authorized, 37,037,000 shares issued and 30,027,802 outstanding
(36,876,378 issued and 30,320,580 outstanding in 2002) 371 369
Additional paid-in capital 146,479 145,706
Retained earnings 183,863 203,398
Accumulated other comprehensive income 186 239
Treasury stock at cost: 7,009,198 shares (6,555,798 shares in 2002) (104,360) (101,798)
--------- ---------
Total stockholders' equity 226,658 248,033
--------- ---------
$ 251,464 $ 278,445
========= =========
See accompanying notes
23
VICOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2003, 2002 and 2001
2003 2002 2001
--------- --------- ---------
(in thousands, except per share amounts)
Net revenues $ 151,421 $ 152,591 $ 195,910
Cost of revenues 112,409 114,772 137,421
--------- --------- ---------
Gross margin 39,012 37,819 58,489
Operating expenses:
Selling, general and administrative 41,270 41,838 43,312
Research and development 23,445 20,483 20,194
--------- --------- ---------
Total operating expenses 64,715 62,321 63,506
--------- --------- ---------
Loss from operations (25,703) (24,502) (5,017)
Other income (expense), net 812 (604) 4,122
--------- --------- ---------
Loss before income taxes (24,891) (25,106) (895)
Benefit for income taxes (5,356) (9,164) (336)
--------- --------- ---------
Net loss ($ 19,535) ($ 15,942) ($ 559)
========= ========= =========
Net loss per common share:
Basic ($ .47) ($ .38) ($ .01)
========= ========= =========
Diluted ($ .47) ($ .38) ($ .01)
========= ========= =========
Shares used to compute net loss per share:
Basic 41,896 42,337 42,342
========= ========= =========
Diluted 41,896 42,337 42,342
========= ========= =========
See accompanying notes
24
VICOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2003, 2002 and 2001
2003 2002 2001
-------- -------- --------
(in thousands)
Operating activities:
Net loss $(19,535) $(15,942) $ (559)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 22,397 21,887 19,984
Deferred income taxes (1,051) 1,167 (902)
Amortization of bond premium 800 376 --
Other than temporary decline in investment 470 1,985 600
Loss on disposal of equipment 356 1,446 360
(Gain) loss on sale of investments 100 5 (1,452)
Unrealized gain on foreign currency -- (26) --
Proceeds from sale (distribution) of investment shares 273 (191) --
Tax benefit relating to stock option plans -- 96 1,272
Change in current assets and liabilities, net 15,622 7,026 20,464
-------- -------- --------
Net cash provided by operating activities 19,432 17,829 39,767
Investing activities:
Purchase of short-term investments (48,941) (41,816) (23,064)
Sales and maturities of short-term investments 31,981 36,802 3,500
Additions to property, plant and equipment (5,797) (10,770) (22,386)
Decrease (increase) in notes receivable -- 9,636 (601)
Proceeds from sale of equipment -- -- 10
Increase in other assets (2,839) (566) (797)
-------- -------- --------
Net cash used in investing activities (25,596) (6,714) (43,338)
Financing activities:
Proceeds from exercise of stock options 775 251 1,515
Acquisitions of treasury stock (2,562) (1,408) (138)
-------- -------- --------
Net cash provided by (used in)
financing activities (1,787) (1,157) 1,377
Effect of foreign exchange rates on cash (196) (69) 259
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (8,147) 9,889 (1,935)
Cash and cash equivalents at beginning of year 49,870 39,981 41,916
-------- -------- --------
Cash and cash equivalents at end of year $ 41,723 $ 49,870 $ 39,981
======== ======== ========
Continued on following page
25
VICOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 2003, 2002 and 2001
2003 2002 2001
-------- -------- --------
(in thousands)
Change in current assets and liabilities:
Accounts receivable $ 103 $ 887 $ 24,609
Inventories, net 8,364 10,559 3,508
Other current assets 7,144 (9,343) 128
Accounts payable and other accrued items 513 2,233 (7,971)
Income taxes payable (56) 2,904 (627)
Deferred revenue (446) (214) 817
-------- -------- --------
$ 15,622 $ 7,026 $ 20,464
======== ======== ========
Supplemental disclosures:
Cash received during the year for income tax
refunds, net of taxes paid $(12,020) $ (4,733) $ (937)
See accompanying notes
26
VICOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 2003, 2002 and 2001
(in thousands)
ACCUMULATED
CLASS B ADDITIONAL OTHER TOTAL
COMMON COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS INCOME STOCK EQUITY
------- ------ ---------- --------- ------------- ---------- -------------
Balance at December 31, 2000 $120 $367 $142,573 $219,899 $214 $(100,252) $262,921
Sales of Common Stock 1 1,514 1,515
Conversion of Class B Common
Stock to Common Stock (1) 1 -
Income tax benefit from
transactions involving stock
options 1,272 1,272
Purchase of treasury stock (138) (138)
Net loss for 2001 (559) (559)
Unrealized gain on investments 55 55
Currency translation adjustments (229) (229)
--------
Comprehensive loss (733)
---- ---- -------- -------- ----- --------- --------
Balance at December 31, 2001 119 369 145,359 219,340 40 (100,390) 264,837
Sales of Common Stock 251 251
Conversion of Class B Common
Stock to Common Stock -
Income tax benefit from
transactions involving stock
options 96 96
Purchase of treasury stock (1,408) (1,408)
Net loss for 2002 (15,942) (15,942)
Unrealized gain on investments 82 82
Currency translation adjustments 117 117
--------
CComprehensive loss (15,743)
---- ---- -------- -------- ----- --------- --------
Balance at December 31, 2002 119 369 145,706 203,398 239 (101,798) 248,033
Sales of Common Stock 2 773 775
Conversion of Class B Common
Stock to Common Stock -
Purchase of treasury stock (2,562) (2,562)
Net loss for 2003 (19,535) (19,535)
Unrealized loss on investments (96) (96)
Currency translation adjustments 43 43
--------
CComprehensive loss (19,588)
---- ---- -------- -------- ----- --------- --------
Balance at December 31, 2003 $119 $371 $146,479 $183,863 $ 186 $(104,360) $226,658
==== ==== ======== ======== ===== ========= ========
See accompanying notes
27
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. Certain of the Company's Vicor Integration
Architects ("VIAs") are not majority owned by the Company. These entities are
consolidated by the Company as the Company has the ability to exercise control
over their activities and operations.
REVENUE RECOGNITION
Product revenue is recognized in the period when persuasive evidence of an
arrangement with a customer exists, the products are shipped and title has
transferred to the customer, the price is fixed and determinable, and collection
is considered probable. License fees are recognized ratably over the period of
exclusivity or as additional royalty payments would have been required, if
greater, or over the term of the agreement. The Company recognizes revenue on
such arrangements only when the contract is signed, the license term has begun,
all obligations have been delivered to the customer, and collection is probable.
FOREIGN CURRENCY TRANSLATION
The financial statements of Vicor Japan Company, Ltd. ("VJCL"), for which
the functional currency is the Japanese yen, have been translated into U.S.
dollars in accordance with FASB Statement No. 52, "Foreign Currency
Translation." All balance sheet accounts have been translated using the exchange
rate in effect at the balance sheet date. Income statement amounts have been
translated at the average exchange rates in effect during the year. The gains
and losses resulting from the changes in exchange rates from year to year have
been reported in other comprehensive income. Transaction gains and losses
including the remeasurement of foreign currency denominated assets and
liabilities are included in income, including the Company's foreign subsidiaries
where the functional currency is the U.S. dollar. Foreign currency transaction
gains (losses), included in other income (expense), net, were approximately
$607,000, $526,000 and ($233,000) in 2003, 2002 and 2001, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include funds held in checking and money market
accounts with banks, certificates of deposit and debt securities with maturities
of less than three months when purchased and money market securities. Cash and
cash equivalents are valued at cost which approximates market value. The
Company's money market securities, which are classified as cash equivalents on
the balance sheet, are purchased and redeemed at par. The estimated fair value
is equal to the cost of the securities and due to the nature of the securities
there are no unrealized gains or losses at the balance sheet dates.
SHORT-TERM INVESTMENTS
The Company's short-term investments are classified as available-for-sale
securities and are recorded at fair value, with the unrealized gains and losses,
net of tax, reported in a separate component of stockholders' equity. The
amortized cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization, along with interest and
realized gains and losses, are included in other income (expense), net. The
Company considers these investments, which represent funds for current
operations, to be an integral part of its cash management activities. The
Company has no trading securities or held-to-maturity securities.
28
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments, based
on assessments of customers' credit-risk profiles and payment histories. If the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required.
INVENTORIES
Inventories are valued at the lower of cost (determined using the first-in,
first-out method) or market. The Company provides reserves for inventories
estimated to be excess, obsolete or unmarketable. The Company's estimation
process for such reserves is based upon its known backlog, projected future
demand and expected market conditions. As sales for the Company's products
decline, such as occurred during 2003, 2002 and 2001, the Company's estimation
process may cause larger inventory reserves to be recorded, resulting in larger
charges to cost of revenues.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments and trade accounts receivable. The Company maintains cash
and cash equivalents and certain other financial instruments with various high
credit, quality financial institutions. The Company's short-term investments
consist of highly rated corporate debt securities. The Company's investment
policy, approved by the Board of Directors, limits the amount the Company may
invest in any one type of investment, thereby reducing credit risk
concentrations. Concentrations of credit risk with respect to trade accounts
receivable are limited due to the number of entities comprising the Company's
customer base. Credit losses have consistently been within management's
expectations.
INTANGIBLE ASSETS
The Company accounts for its goodwill and other intangible assets in
accordance with FASB Statement No. 142, "Goodwill and Other Intangible Assets"
(FAS 142), which resulted in the elimination of goodwill amortization beginning
in fiscal 2002. Values assigned to patents are amortized using the straight-line
method over periods ranging from five to twenty years.
LONG-LIVED ASSETS
In accordance with FASB Statement No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets " (FAS 144), long-lived assets such as
property, plant and equipment and intangible assets, are included in impairment
evaluations when events or circumstances exist that indicate the carrying amount
of those assets may not be recoverable. If the impairment evaluation indicates
the affected asset is not recoverable, the asset's carrying value would be
reduced to fair value. No event has occurred that would suggest any impairment
in the value of long-lived assets recorded in the accompanying consolidated
financial statements.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
$2,535,000, $2,864,000 and $3,010,000 in advertising costs during 2003, 2002 and
2001, respectively.
NET INCOME (LOSS) PER COMMON SHARE
Basic and diluted income (loss) per share are calculated in accordance with
FASB Statement No. 128, "Earnings per Share."
INCOME TAXES
The Company accounts for income taxes in accordance with FASB Statement No.
109, "Accounting for Income Taxes" (FAS 109). FAS 109 requires that deferred tax
assets and liabilities are determined based on the differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted income tax rates and laws that are expected to be in effect when the
temporary differences are expected to reverse. FAS 109 also requires that
deferred tax assets be reduced by a valuation allowance if it is
29
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
more likely than not that some portion or all of the deferred tax assets will
not be realized. Additionally, deferred tax assets and liabilities are separated
into current and noncurrent amounts based on the classification of the related
assets and liabilities for financial reporting purposes or the expected
reversal.
STOCK-BASED COMPENSATION
The Company uses the intrinsic value method in accounting for its employee
stock options in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations,
as permitted under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (FAS 123) and FASB Statement No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" (FAS 148). Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma information regarding net income (loss) and net income (loss) per
share is required by FAS 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
FAS 123. 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 2003, 2002 and 2001, respectively: risk-free interest rates of
2.6%, 3.6% and 4.4%; dividend yields of zero; volatility factor of the expected
market price of the Company's common stock of .68, .67 and .66; and a
weighted-average expected life of the option of 4.0, 4.5 and 4.5 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 subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics 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
values 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 following
table sets forth a reconciliation of reported net loss to pro forma net loss (in
thousands except for earnings per share information):
2003 2002 2001
-------- -------- --------
Net loss, as reported $(19,535) $(15,942) $ (559)
Stock-based employee compensation cost,
net of related tax effects (2,875) (5,657) (7,511)
-------- -------- --------
Pro forma net loss $(22,410) $(21,599) $ (8,070)
======== ======== ========
Net loss per share, as reported:
Basic $(.47) $(.38) $(.01)
Diluted $(.47) $(.38) $(.01)
Pro forma net loss per share:
Basic $(.53) $(.51) $(.19)
Diluted $(.53) $(.51) $(.19)
The effects of applying FAS 123 on pro forma disclosures are not likely to
be representative of the effects on pro forma disclosures in future years.
30
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
COMPREHENSIVE INCOME
The Company reports comprehensive income in accordance with FASB Statement
No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 requires the
foreign currency translation adjustments related to VJCL and unrealized gains
(losses) on short-term investments to be included in other comprehensive income,
net of related income tax effects.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," (FIN 46) and in December 2003 issued a revised FIN
46 (FIN 46R) which addresses when a company should include in its financial
statements the assets, liabilities and activities of another entity. FIN 46
requires consolidation of a variable interest entity if the reporting entity is
subject to a majority of the risk of loss from the variable interest entity's
activities or is entitled to receive a majority of the variable interest
entity's residual returns or both. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January 31, 2003,
and to all other existing structures commonly referred to as special-purpose
entities. The consolidation requirements will apply to variable interest
entities created prior to January 31, 2003, other than special-purpose entities,
in the first quarter of 2004. The adoption of FIN 46 did not have and the
application of the revised FIN 46R is not expected to have a significant impact
on the Company's financial position or results of operations.
In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150 "Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity" (FAS 150). The statement establishes standards for
how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some cases), whereas many of those instruments were previously
classified as equity. FAS 150 is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. The adoption of FAS
150 did not have a significant impact on the Company's financial position or
results of operations.
In December 2003, the SEC published Staff Accounting Bulletin No. 104,
"Revenue Recognition" (SAB 104). SAB 104 updates the SEC staff's prior guidance
provided in SAB No. 101 "Revenue Recognition", which removes material no longer
considered necessary and conforms the interpretive material retained with
current authoritative accounting and auditing guidance and SEC rules and
regulations, including Emerging Issues Task Force ("EITF") Issue No. 00-21
"Revenue Arrangements with Multiple Deliverables," (EITF 00-21 - see below). The
adoption of SAB 104 did not have a significant impact on the Company's financial
position or results of operations.
In November 2002, the EITF reached consensus on EITF 00-21, which is
effective for revenue arrangements entered into for fiscal periods beginning
after June 15, 2003. In some instances, EITF 00-21 may require deliverables in a
multi-element transaction to be accounted for separately, whereas previously
those deliverables might have been accounted for as a single unit of accounting.
The adoption of EITF 00-21 did not have a significant impact on the Company's
financial position or results of operations.
RECLASSIFICATION
At December 31, 2003, the Company reclassified certain auction rate
securities from cash and cash equivalents to short-term investments for the
year ended December 31, 2003 and for all prior periods. At December 31, 2003 and
2002, the Company held approximately $26,500,000 and $22,250,000, respectively,
of these auction rate securities, which were reclassified.
31
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SHORT-TERM INVESTMENTS
The following is a summary of available-for-sale securities (in thousands):
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
-------- ---------- ----------- ---------
DECEMBER 31, 2003
U. S. corporate securities $ 40,476 $ 136 $ (66) $ 40,546
Obligations of states and political
subdivisions 18,000 -- -- 18,000
Other debt securities 8,500 -- -- 8,500
-------- -------- -------- --------
$ 66,976 $ 136 $ (66) $ 67,046
======== ======== ======== ========
DECEMBER 31, 2002
U. S. corporate securities $ 28,547 $ 234 $ (2) $ 28,779
Obligations of states and political
subdivisions 15,850 -- -- 15,850
Other debt securities 6,400 -- -- 6,400
-------- -------- -------- --------
$ 50,797 $ 234 $ (2) $ 51,029
======== ======== ======== ========
The amortized cost and estimated fair value of debt securities at December
31, 2003, by contractual maturities, are shown below (in thousands):
Estimated
Cost Fair Value
------- ----------
Due in one year or less $ 2,468 $ 2,466
Due in one year to two years 9,688 9,689
Due after two years 54,820 54,891
------- -------
$66,976 $67,046
======= =======
At December 31, 2003, the Company held available-for-sale securities with
an aggregate fair value of approximately $17,402,000 that have been in a
continuous unrealized loss position for less than six months, with aggregate
gross unrealized losses of approximately $66,000. The Company believes that the
impairment to those investments are not other-than-temporary at this time as
these corporate debt securities are all highly rated investments which have been
subject to routine market changes that have not been significant to date.
3. INVENTORIES
Inventories were as follows (in thousands):
December 31,
2003 2002
-------- --------
Raw materials $ 23,232 $ 29,309
Work-in-process 2,108 2,992
Finished goods 4,791 5,586
-------- --------
30,131 37,887
Inventory reserves (8,051) (7,562)
-------- --------
Net Balance $ 22,080 $ 30,325
======== ========
32
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):
December 31,
2003 2002
-------- --------
Land $ 2,089 $ 2,089
Buildings and improvements 40,302 40,081
Machinery and equipment 172,311 171,314
Furniture and fixtures 5,354 5,329
Construction-in-progress 81 2,720
-------- --------
220,137 221,533
Less accumulated depreciation and amortization 137,771 122,795
-------- --------
$ 82,366 $ 98,738
======== ========
During 2003, the Company had write-downs of approximately $356,000
($1,446,000 in 2002) for certain equipment no longer in use, representing the
remaining net book value of the equipment. The amounts were included in other
income (expense), net in the accompanying consolidated statements of operations.
At December 31, 2003, the Company had approximately $240,000 of capital
expenditure commitments.
5. INVESTMENTS
In August 2003, the Board of Directors approved the investment by the
Company of $1,000,000 in non-voting preferred stock of Great Wall Semiconductor
Corporation ("GWS"). A director of Vicor is founder, president and a shareholder
of GWS. GWS is majority owned and controlled by an unrelated company. In
addition to the investment, the Company and GWS have entered into a
cross-license agreement and the Company purchases certain components from GWS.
These purchases have not been significant in 2003.
The Company considered the requirements of FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN46), in accounting for the
investment in GWS, and determined that GWS is not a variable interest entity. As
a result, the Company has accounted for the investment under Accounting
Principles Board Opinion No. 18, "The Equity Method for Accounting for
Investments in Common Stock" (APB 18), as a cost method investment since it does
not have significant influence over GWS. The investment in GWS is included in
other assets in the accompanying consolidated balance sheets. The Company will
periodically evaluate whether any indicators of impairment surrounding the GWS
investment are present and, if so, consider whether any adjustments to the
carrying value of the investments in GWS should be taken.
In December 2001, the Company sold shares in a privately held company which
it had accounted for on the cost method, receiving 1,117,465 shares of Scipher
plc, a U.K. company. The sale resulted in a realized gain of $1,452,000. At
December 31, 2003, the investment is valued at $70,000 ($540,000 at December 31,
2002) and is included in other assets in the accompanying balance sheets. The
investment is carried at fair value, which is based on quoted market prices.
Adjustments to the fair value of the investment due to fluctuations in the share
price including fluctuations in foreign currency are reported in a separate
component of stockholders' equity. Any declines judged to be other than
temporary and any realized gains (losses) from the sale of the investment will
be reported in other income (expense), net. The Company has assessed that a
decline in fair value is judged to be other than temporary when the market value
is significantly less than the recorded basis for two successive quarters.
During 2003, the investment was adjusted for declines judged to be other than
temporary totaling $470,000.
33
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. GOODWILL AND OTHER INTANGIBLE ASSETS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" (FAS 142). Under FAS 142, goodwill and indefinite lived
intangible assets are no longer amortized but are tested for impairment at least
annually at the reporting unit level. The Company adopted FAS 142 in the first
quarter of 2002, which resulted in the elimination of goodwill amortization
beginning in fiscal 2002. The Company reassessed the carrying value of its
goodwill of approximately $2,000,000 related to the operations of one of its
subsidiaries, VJCL, during the fourth quarter of fiscal 2003 as required by the
provisions of FAS 142, and determined that there was no impairment to the
carrying value. The Company has no other goodwill or acquired intangible assets
on the balance sheet at December 31, 2003 and 2002.
The following table sets forth a reconciliation of reported net loss to
adjusted net loss (in thousands):
2003 2002 2001
-------- -------- --------
Reported net loss $(19,535) $(15,942) $ (559)
Add back: goodwill amortization, net
of income tax effect -- -- 186
-------- -------- --------
Adjusted net loss $(19,535) $(15,942) $ (373)
======== ======== ========
Adjusted net loss per
common share - diluted $ (.47) $ (.38) $ (.01)
======== ======== ========
Patent costs, which are included in other assets in the accompanying
balance sheets, were as follows, (in thousands):
December 31,
2003 2002
---- ----
Patent costs $4,988 $5,049
Less accumulated amortization 1,993 1,713
------ ------
$2,995 $3,336
====== ======
Amortization expense was approximately $585,000, $455,000 and $1,007,000 in
2003, 2002 and 2001, respectively. The estimated amortization expense for the
next five years is as follows (in thousands):
Year
----
2004 $ 316
2005 309
2006 286
2007 265
2008 255
34
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. PRODUCT WARRANTIES
The Company generally offers a two-year warranty for all of its products.
The Company provides for the estimated cost of product warranties at the time
product revenue is recognized. Factors that affect the Company's warranty
reserves include the number of units sold, historical and anticipated rates of
warranty returns and the cost per return. The Company periodically assesses the
adequacy of the warranty reserves and adjusts the amounts as necessary. Warranty
obligations are included in accrued expenses in the accompanying consolidated
balance sheets.
Product warranty activity for the twelve months ended December 31, 2003 was as
follows (in thousands):
Balance as of December 31, 2002 $1,379
Accruals for warranties for products sold in the period 609
Fulfillment of warranty obligations and revisions of
estimated obligations (720)
------
Balance as of December 31, 2003 $1,268
======
8. STOCKHOLDERS' EQUITY
In November 2000, the Board of Directors of the Company authorized the
repurchase of up to $30,000,000 of the Company's Common Stock (the "November
2000 Plan"). The plan authorizes the Company to make repurchases from time to
time in the open market or through privately negotiated transactions. The timing
of this program and the amount of the stock that may be repurchased is at the
discretion of management based on its view of economic and financial market
conditions. In 2003, the Company spent $2,562,000 in the repurchase of 453,400
shares of its Common Stock under the November 2000 Plan. At December 31, 2003,
the Company had approximately $26,000,000 remaining under the plan.
Common Stock
Each share of Common Stock entitles the holder thereof to one vote on all
matters submitted to the stockholders. Each share of Class B Common Stock
entitles the holder thereof to ten votes on all such matters.
Shares of Class B Common Stock are not transferable by a stockholder except
to or among the stockholder's spouse, certain of the 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 stockholder
into shares of Common Stock on a one-for-one basis.
During 2003, a total of 148,622 shares of Common Stock were issued upon the
exercise of stock options, and 12,000 shares of Class B Common Stock were
converted into 12,000 shares of Common Stock.
35
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. OTHER INCOME (EXPENSE), NET
The major components of the other income (expense), net were as follows (in
thousands):
2003 2002 2001
------- ------- -------
Interest income $ 1,514 $ 2,360 $ 3,887
Foreign currency gains (losses) 607 526 (233)
Minority interest in net income of
subsidiaries (512) (169) (105)
Other than temporary decline in
Scipher plc investment (470) (1,985) (600)
Loss on disposal of equipment (356) (1,446) (360)
Gain on sale of investment -- -- 1,452
Other 29 110 81
------- ------- -------
$ 812 $ (604) $ 4,122
======= ======= =======
10. LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss
per share (in thousands, except per share amounts):
2003 2002 2001
---------- ---------- ----------
Numerator:
Net loss $ (19,535) $ (15,942) $ (559)
========== ========== ==========
Denominator:
Denominator for basic loss per share - weighted average shares
41,896 42,337 42,342
Effect of dilutive securities:
Employee stock options -- -- --
---------- ---------- ----------
Denominator for diluted loss per share -
adjusted weighted -average shares and assumed conversions 41,896 42,337 42,342
========== ========== ==========
Basic loss per share $ (.47) $ (.38) $ (.01)
========== ========== ==========
Diluted loss per share $ (.47) $ (.38) $ (.01)
========== ========== ==========
Options to purchase shares of Common Stock in 2003, 2002 and 2001 were not
included in the calculation of net loss per share as the effect would have been
antidilutive.
36
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. EMPLOYEE BENEFIT PLANS
Stock Options
Under the Company's Amended and Restated 2000 Stock Option and Incentive
Plan (the "2000 Plan"), the Board of Directors or the Compensation Committee may
grant 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.
Discretionary awards of stock options to non-employee directors shall be in lieu
of any automatic grant of stock options under the Company's 1993 Stock Option
Plan (the "1993 Plan") and the Company's 1998 Stock Option and Incentive Plan
(the "1998 Plan"). Incentive stock options may be granted to employees at a
price at least equal to the fair market value per share of the Common Stock on
the date of grant, and non-qualified options may be granted to non-employee
directors at a price at least equal to 85% of the fair market value of the
Common Stock on the date of grant. A total of 4,000,000 shares of Common Stock
have been reserved for issuance under the 2000 Plan. The period of time during
which an option may be exercised and the vesting periods are determined by the
Compensation Committee. The term of each option may not exceed ten years from
the date of grant.
Under the 1998 Plan, the Board of Directors or the Compensation Committee
may grant 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 were 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.
Under 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. A total of 4,000,000 shares of Common Stock were
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 and approval of the 1993 Plan, the Board
of Directors terminated the granting of options under the 1984 Plan.
37
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
Activity as to stock options is as follows:
2003 2002 2001
------------ ------------ -------------
Outstanding at beginning of year 4,552,749 3,774,920 2,931,206
Granted 112,620 1,053,377 1,266,655
Forfeited and expired (707,144) (234,474) (251,389)
Exercised (148,622) (41,074) (171,552)
------------ ------------ -------------
Outstanding at end of year 3,809,603 4,552,749 3,774,920
============ ============ =============
Exercisable at end of year 2,653,481 2,345,760 1,551,560
============ ============ =============
Weighted - average exercise price:
Outstanding at beginning of year $18.84 $21.37 $21.53
Granted $ 8.93 $ 9.70 $19.81
Forfeited and expired $23.29 $20.81 $23.94
Exercised $ 5.21 $ 6.08 $ 9.00
Outstanding at end of year $18.28 $18.84 $21.37
Exercisable at end of year $19.31 $20.93 $20.92
Weighted - average fair value of options granted during the year $4.62 $4.68 $9.91
Price range per share of outstanding options $ 5.98-54.50 $ 1.83-54.50 $ 1.83-54.50
============ ============ =============
Price range per share of options granted $ 5.98-11.59 $ 6.01-16.46 $ 12.46-35.75
============ ============ =============
Price range per share of options exercised $ 1.83-11.00 $ 1.83-16.37 $ 1.25-31.13
============ ============ =============
Available for grant at end of year 2,683,793 2,096,541 920,516
============ ============ =============
The weighted - average contractual life for options outstanding as of December
31, 2003 is 3.89 years.
38
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table summarizes information about stock options outstanding as of
December 31, 2003:
Range of Exercise Prices
------------------------
$5.98-$12.06 $12.25-$16.43 $16.46-$28.25 $28.44-$54.50
------------ ------------- ------------- -------------
Options Outstanding:
- --------------------
Number Outstanding 1,261,619 1,003,283 986,239 558,462
Weighted-Average Remaining Contractual Life 4.65 3.16 4.17 3.00
Weighted-Average Exercise Price $9.36 $15.01 $21.20 $39.16
Options Exercisable:
- --------------------
Number Exercisable 778,834 685,834 796,110 392,703
Weighted-Average Exercise Price $10.63 $15.14 $21.72 $38.94
401(k) Plan
The Company sponsors a savings plan available to all domestic employees,
which qualifies under Section 401(k) of the Internal Revenue Code. Employees may
contribute to the plan from 1% to 20% of their pre-tax salary subject to
statutory limitations. The Company matches employee contributions to the plan at
a rate of 50% up to the first 3% of an employee's compensation. The Company's
matching contributions currently vest at a rate of 20% per year based upon years
of service. The Company's contribution to the plan was approximately $640,000,
$629,000 and $662,000 in 2003, 2002 and 2001, respectively.
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, 2003, 109,964 shares were available for further
award. All shares awarded to employees under this plan have vested. No further
awards are contemplated under this plan at the present time.
39
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. 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):
December 31,
2003 2002
-------- --------
Deferred tax assets:
Net operating loss carryforwards $ 8,656 $ --
Inventory reserves 3,235 3,093
Investment tax credit carryforward 1,509 1,250
Research and development tax credit carryforward 1,477 1,137
Vacation 700 766
Scipher investment basis difference 795 601
Warranty reserve 459 467
Bad debt 332 267
Other 71 545
-------- --------
Total deferred tax assets 17,234 8,126
Less: Valuation allowance for deferred tax assets (4,199) --
-------- --------
Net deferred tax assets 13,035 8,126
Deferred tax liabilities:
Depreciation (12,795) (8,737)
Patent amortization (1,233) (1,373)
Other 179 83
-------- --------
Total deferred tax liabilities (13,849) (10,027)
-------- --------
Net deferred tax liabilities $ (814) $ (1,901)
======== ========
The Company has assessed the need for a valuation allowance against its
deferred tax assets and concluded that a valuation allowance for a portion of
the deferred tax assets related to the net operating loss carryforwards is
warranted at December 31, 2003. In reaching this conclusion, the Company
evaluated all relevant criteria including the existence of temporary differences
reversing in the carryforward period, primarily depreciation. A valuation
allowance was not warranted at December 31, 2002 primarily due to the existence
of temporary differences reversing in the carryforward period, primarily
depreciation, and the ability to carryback net operating losses at December 31,
2002. The valuation allowance against these deferred tax assets may require
adjustment in the future based on changes in the mix of temporary differences,
changes in tax laws, and operating performance.
In 2002, the Company estimated the temporary differences associated with
depreciation and inventory reserves. In the preparation and completion of the
Company's 2002 tax returns, certain of these items differed as to the timing of
the deduction. Accordingly, approximately $4,500,000 related to these temporary
differences were reclassified in 2003 from income taxes payable to deferred
income taxes.
For financial reporting purposes, loss before income taxes includes the
following components (in thousands):
2003 2002 2001
-------- -------- --------
Domestic $(24,357) $(24,403) $ (100)
Foreign (534) (703) (795)
-------- -------- --------
$(24,891) $(25,106) $ (895)
======== ======== ========
40
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. INCOME TAXES (CONTINUED)
Significant components of the provision (benefit) for income taxes are as
follows (in thousands):
2003 2002 2001
-------- -------- --------
Current:
Federal $ 248 $(10,331) $ 638
Foreign -- -- --
State -- -- (72)
-------- -------- --------
248 (10,331) 566
Deferred:
Federal (5,604) 1,167 (902)
-------- -------- --------
$ (5,356) $ (9,164) $ (336)
======== ======== ========
The reconciliation of the federal statutory rate to the effective income
tax rate is as follows:
2003 2002 2001
------ ------ ------
Statutory federal tax rate (35.0)% (35.0)% (35.0)%
State income taxes, net of federal income tax benefit (3.5) 0.1 (5.2)
Meals and entertainment expense 0.6 0.5 14.1
Foreign Sales Corporation / ETI benefit (1.5) (1.7) (9.8)
Other 1.0 (0.4) (1.6)
Increase in valuation allowance 16.9 -- --
------ ----- ------
(21.5)% (36.5)% (37.5)%
====== ===== ======
During the fourth quarter of 2003, the Company revised its estimate of the
effective tax rate for the year and recorded a tax benefit for a portion of the
net operating losses generated in 2003. Such benefit was provided as it is more
likely than not that a portion of deferred tax assets related to the net
operating losses will be realized. In reaching this conclusion, the Company
evaluated all relevant criteria including the existence of temporary differences
reversing in the carryforward period, primarily depreciation. As a result, the
effective tax rate was revised to an estimated tax benefit of 21.5% and,
accordingly, an income tax benefit was recorded in the fourth quarter of 2003 of
approximately $5,107,000.
The research and development tax credit carryforwards expire beginning in
2015. The investment tax credit carryforwards expired in the beginning of 2004.
The federal and state net operating losses of $20,800,000 expire beginning in
2023 and 2008, respectively, of which the Company has benefited approximately
$13,000,000.
The Company operates in numerous taxing jurisdictions and is, therefore,
subject to a variety of income and related taxes. The Company has provided for
potential tax liabilities due in various jurisdictions which it judges to be
probable and reasonably estimable in accordance with Statement of Financial
Accounting Standards No. 5. Judgment is required in determining the income tax
expense and related tax liabilities. In the ordinary course of business, there
are transactions and calculations where the ultimate tax outcome is uncertain.
The Company believes it has reasonably estimated its accrued taxes for all
jurisdictions for all open tax periods. The Company periodically assesses the
adequacy of its tax and related accruals on a quarterly basis and adjusts
appropriately as events warrant and open tax periods close. It is possible that
the final tax outcome of these matters will be different from management's
estimate reflected in the income tax provisions and accrued taxes. Such
differences could have a material impact on the Company's income tax provision
and operating results in the period in which such determination is made.
41
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. 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
- ----
2004 $ 1,553
2005 1,279
2006 724
2007 279
2008 214
Rent expense was approximately $1,279,000, $1,166,000 and $1,065,000 in
2003, 2002 and 2001, respectively. The Company also pays executory costs such as
taxes, maintenance and insurance.
The Company has a contract with a third-party to supply nitrogen for its
manufacturing and research and development activities. Under the contract, the
Company is obligated to pay a minimum of $269,000 annually, subject to
semi-annual price adjustments, through 2015. In addition, the Company has a
contract with a third-party to supply certain semi-conductor wafers that require
a minimum order quantity in 2004 of approximately $1,500,000.
On September 13, 2002, Exar Corporation ("Exar"), a vendor for the Company,
filed a complaint against the Company in the Superior Court of the State of
California, County of Alameda (the "Superior Court"). The complaint as amended
in November 2003, alleges fraud, breach of contract and breach of implied
covenant of good faith and fair dealing in connection with the alleged purchase,
under a "last time buy" arrangement, by the Company of certain quantities of
integrated circuits manufactured and contained on silicon wafers from Exar. Exar
alleges compensatory damages of approximately $2.2 million, it also seeks
punitive damages and attorney's fees. The Company filed an answer denying the
substantive allegations of Exar's complaint and several cross-complaints. The
Company alleges compensatory damages of almost $3.5 million and also seeks
punitive damages. The Company may be entitled to reciprocal attorney's fees
under California law. In October 2003, Exar served a motion for summary
adjudication on all counts of the Company's cross-complaints, which was
scheduled for hearing on February 19, 2004. Vicor filed an Opposition to Exar's
Motion for Summary Adjudication, and its own Cross-Motion for Summary
Adjudication on its Cross-Claim for Fraud against Exar which is scheduled for
hearing on April 22, 2004. On February 10, 2004 Exar withdrew its Motion for
Summary Adjudication as to Vicor's fraud claim, indicating it will seek to
refile a Motion for Summary Adjudication as to Vicor's alleged fraud claim, at a
later date. Exar subsequently filed a renewed motion for summary adjudication as
to the Company's alleged fraud claim which is scheduled for a hearing on May 12,
2004. The Company is seeking to strike this motion as procedurally improper, and
plans to file an opposition to this renewed motion for summary adjudication
should it not be stricken on motion. The remaining aspects of Exar's current
Motion for Summary Adjudication have been rescheduled for a hearing on March 16,
2004. The case is presently scheduled for trial on June 11, 2004. Management of
the Company does not expect that the ultimate resolution of the lawsuit,
including Exar's complaint and Vicor's cross-complaints will have a material
adverse impact on the Company's financial position or results of operations.
The Company is involved in certain other 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's financial
position.
42
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. SEGMENT INFORMATION
The Company operates in one industry segment: the development, manufacture
and sale of power conversion components and systems. During 2003, 2002 and 2001,
no customer accounted for more than 10% of net revenues. Export sales, as a
percentage of total net revenues, were approximately 38%, 34% and 36% in 2003,
2002 and 2001, 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.
15. 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 was obligated to
make know-how and technical support available to Reltec under the license and
received and recognized income from the escrow fund through the first quarter of
2001.
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth certain unaudited quarterly financial data
(in thousands, except per share amounts):
First Second Third Fourth Total
------- ------- ------- ------- --------
2003: Net revenues $37,740 $38,693 $35,877 $39,111 $151,421
Gross profit 8,907 10,537 8,587 10,981 39,012
Net income (loss) (6,629) (5,958) (7,120) 172 (19,535)
Net income (loss) per
share:
Basic (.16) (.14) (.17) .00 (.47)
Diluted (.16) (.14) (.17) .00 (.47)
First Second Third Fourth Total
------- ------- ------- ------- --------
2002: Net revenues $34,620 $36,831 $39,503 $41,637 $152,591
Gross profit 8,162 8,683 10,123 10,851 37,819
Net loss (4,931) (4,852) (2,625) (3,534) (15,942)
Net loss per share:
Basic (.12) (.11) (.06) (.08) (.38)
Diluted (.12) (.11) (.06) (.08) (.38)
The Company revised its estimate of the effective tax rate for the year in
the fourth quarter of 2003, which resulted in an adjustment to the income tax
benefit of $5,107,000. This tax benefit was a non-recurring non-cash item
representing an increase in the benefit previously estimated by the Company
based on the changes in the deductible and taxable temporary differences in 2003
(see note 12).
43
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A - CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Company's management conducted an evaluation
with the participation of the Company's Chief Executive Officer and Chief
Financial Officer, regarding the effectiveness of the Company's disclosure
controls and procedures, as of the end of the last fiscal year. In designing and
evaluating the Company's disclosure controls and procedures, the Company and its
management recognize that any controls and procedures, no matter how well
designed and operated, can provide only a reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating and implementing possible controls and procedures. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that they believe the Company's disclosure controls and procedures are
reasonably effective to ensure that information required to be disclosed by the
Company in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. We intend to continue to
review and document our disclosure controls and procedures, including our
internal controls and procedures for financial reporting, and we may from time
to time make changes to the disclosure controls and procedures to enhance their
effectiveness and to ensure that our systems evolve with our business.
(b) Change in internal controls
There were no changes in the Company's internal control over financial
reporting identified in connection with the Company's evaluation of its
disclosure controls and procedures that occurred during the Company's last
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Company's Definitive Proxy Statement for
its 2004 annual meeting of stockholders.
ITEM 11 - EXECUTIVE COMPENSATION
Incorporated by reference from the Company's Definitive Proxy Statement for
its 2004 annual meeting of stockholders.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Incorporated by reference from the Company's Definitive Proxy Statement for
its 2004 annual meeting of stockholders.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Company's Definitive Proxy Statement for
its 2004 annual meeting of stockholders.
44
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated by reference from the Company's Definitive Proxy Statement for
its 2004 annual meeting of stockholders.
PART IV
ITEM 15 - 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.
(b) REPORTS ON FORM 8-K
The Company furnished a Current Report on Form 8-K on October 20, 2003
(Items 7, 9 and 12).
(c) EXHIBITS
Exhibits Description of Document
3.1 o Restated Certificate of Incorporation, dated February 28, 1990 (1)
3.2 o Certificate of Ownership and Merger Merging Westcor Corporation, a Delaware Corporation, into Vicor
Corporation, a Delaware Corporation, dated December 3, 1990 (1)
3.3 o Certificate of Amendment of Restated Certificate of Incorporation, dated May 10, 1991 (1)
3.4 o Certificate of Amendment of Restated Certificate of Incorporation, dated June 23, 1992 (1)
3.5 o Bylaws, as amended (1)
4.1 o Specimen Common Stock Certificate (2)
10.1 o 1984 Stock Option Plan of the Company, as amended (2)
10.2 o 1993 Stock Option Plan (3)
10.3 o 1998 Stock Option and Incentive Plan (4)
10.4 o Amended and Restated 2000 Stock Option and Incentive Plan (5)
21.1 o Subsidiaries of the Company (6)
23.1 o Consent of Independent Auditors (6)
31.1 o Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act
of 1934 (6)
31.2 o Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act
of 1934 (6)
32.1 o Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (6)
32.2 o Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (6)
(1) Filed as an exhibit to the Company's Annual Report on Form 10-K
filed on March 29, 2001 and incorporated herein by reference.
(2) 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.
(3) 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.
(4) 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.
(5) Filed as an exhibit to the Company's Proxy Statement for use in
connection with its 2002 Annual Meeting of Stockholders, which
was filed on April 29, 2002, and incorporated herein by
reference.
(6) Filed herewith.
45
VICOR CORPORATION
SCHEDULE II
Valuation and Qualifying Accounts
Years ended December 31, 2003, 2002 and 2001
Balance at (Credit) Charge
Beginning of to Costs and Other Charges, Balance at End
Description Period Expenses Deductions (1) Of Period
- ----------- ------------- -------------- -------------- ---------------
2003
ALLOWANCE FOR DOUBTFUL ACCOUNTS $648,000 $161,000 ($2,000) $807,000
2002
Allowance for doubtful accounts $1,460,000 $218,000 ($1,030,000) $648,000
2001
Allowance for doubtful accounts $1,196,000 $544,000 ($280,000) $1,460,000
- -----------------------------------
(1) Reflects uncollectible accounts written off, net of recoveries.
Balance at (Credit) Charge
Beginning of to Costs and Other Charges, Balance at End
Description Period Expenses Deductions (2) Of Period
- ----------- ------------- --------------- -------------- ---------------
2003
INVENTORY RESERVES $7,562,000 $1,966,000 ($1,477,000) $8,051,000
2002
Inventory reserves $8,870,000 $1,192,000 ($2,500,000) $7,562,000
2001
Inventory reserves $5,442,000 $4,362,000 ($934,000) $8,870,000
- -----------------------------------
(2) Reflects amounts associated with inventory that have been discarded or sold.
46
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 9, 2004 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
- -----------------------------------
Patrizio Vinciarelli President, Chief Executive Officer and March 9, 2004
Chairman of the Board (Principal
Executive Officer)
/s/Mark A. Glazer
- -----------------------------------
Mark A. Glazer Chief Financial Officer (Principal March 9, 2004
Financial Officer)
/s/Estia J. Eichten
- -----------------------------------
Estia J. Eichten Director March 9, 2004
/s/David T. Riddiford
- -----------------------------------
David T. Riddiford Director March 9, 2004
/s/Jay M. Prager
- -----------------------------------
Jay M. Prager Director March 9, 2004
/s/Barry Kelleher
- -----------------------------------
Barry Kelleher Director March 9, 2004
/s/M. Michael Ansour
- -----------------------------------
M. Michael Ansour Director March 9, 2004
/s/Samuel Anderson
- -----------------------------------
Samuel Anderson Director March 9, 2004
47