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VICOR CORP - Quarter Report: 2005 June (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                                                                                                                              
Commission File Number 0-18277
VICOR CORPORATION
(Exact name of registrant as specified in its charter)
     
Delaware
(State of Incorporation)
  04-2742817
(IRS Employer Identification Number)
25 Frontage Road, Andover, Massachusetts 01810
(Address of registrant’s principal executive office)
(978) 470-2900
(Registrant’s telephone number)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of June 30, 2005.
         
Common Stock, $.01 par value
    29,966,100  
Class B Common Stock, $.01 par value
    11,866,952  
 
 

 


VICOR CORPORATION
INDEX TO FORM 10-Q
         
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    23  
 EX-31.1 SECTION 302 CERTIFICATION OF CEO
 EX-31.2 SECTION 302 CERTIFICATION OF CFO
 EX-32.1 SECTION 906 CERTIFICATION OF CEO
 EX-32.2 SECTION 906 CERTIFICATION OF CFO

 


Table of Contents

FORM 10-Q
PART 1        
ITEM 1        
PAGE 1        
Item 1 — Financial Statements
VICOR CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
                 
    June 30, 2005   December 31, 2004
Assets
               
 
               
Current assets:
               
 
               
Cash and cash equivalents
  $ 55,423     $ 36,277  
Short-term investments
    64,282       77,371  
Accounts receivable, net
    26,285       23,359  
Inventories, net
    20,763       26,229  
Deferred tax assets
    2,497       2,497  
Other current assets
    3,112       2,245  
 
               
Total current assets
    172,362       167,978  
 
               
Property, plant and equipment, net
    61,129       67,001  
Other assets
    10,136       9,903  
 
               
 
  $ 243,627     $ 244,882  
 
               
Liabilities and Stockholders’ Equity
               
 
               
Current liabilities:
               
 
               
Accounts payable
  $ 6,723     $ 5,806  
Accrued compensation and benefits
    4,577       4,265  
Accrued expenses
    2,462       2,815  
Dividend payable
    5,020        
Income taxes payable
    6,323       6,367  
Deferred revenue
    309       306  
 
               
Total current liabilities
    25,414       19,559  
 
               
Deferred income taxes
    3,113       3,173  
Minority interests
    1,848       1,527  
 
               
Stockholders’ equity:
               
 
               
Preferred Stock
           
Class B Common Stock
    119       119  
Common Stock
    374       373  
Additional paid-in capital
    149,704       148,821  
Retained earnings
    171,877       176,769  
Accumulated other comprehensive loss
    (97 )     (11 )
Treasury stock, at cost
    (108,725 )     (105,448 )
 
               
Total stockholders’ equity
    213,252       220,623  
 
               
 
  $ 243,627     $ 244,882  
 
               
See accompanying notes.

 


Table of Contents

FORM 10-Q
PART I        
ITEM 1        
PAGE 2        
VICOR CORPORATION
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
Net revenues:
                               
Product
  $ 44,579     $ 45,374     $ 87,759     $ 87,520  
License
                      375  
 
                               
 
    44,579       45,374       87,759       87,895  
Cost of revenues
    29,000       27,994       55,135       55,515  
 
                               
Gross margin
    15,579       17,380       32,624       32,380  
 
                               
Operating expenses:
                               
Selling, general and administrative
    10,137       10,607       20,241       20,785  
Research and development
    7,380       6,505       14,476       12,448  
Gain from litigation-related settlement, net
    (2,250 )           (2,250 )      
 
                               
Total operating expenses
    15,267       17,112       32,467       33,233  
 
                               
 
                               
Income (loss) from operations
    312       268       157       (853 )
 
                               
Other income (expense), net
    183       94       677       309  
 
                               
 
                               
Income (loss) before income taxes
    495       362       834       (544 )
 
                               
Provision for income taxes
    406       301       706       585  
 
                               
 
                               
Net income (loss)
  $ 89     $ 61     $ 128     $ (1,129 )
 
                               
 
                               
Net income (loss) per common share:
                               
Basic
  $ 0.00     $ 0.00     $ 0.00     $ (0.03 )
Diluted
  $ 0.00     $ 0.00     $ 0.00     $ (0.03 )
 
                               
Shares used to compute net income (loss) per share:
                               
Basic
    41,795       42,049       41,888       41,983  
Diluted
    41,938       42,344       42,027       41,983  
See accompanying notes.

 


Table of Contents

FORM 10-Q
PART I        
ITEM 1        
PAGE 3        
VICOR CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
                 
    Six Months Ended
    June 30, 2005   June 30, 2004
Operating activities:
               
Net income (loss)
  $ 128     $ (1,129 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Depreciation and amortization
    8,652       10,648  
Amortization of bond premium
    332       538  
Minority interest in net income of subsidiaries
    321       396  
Other than temporary decline in investment
          27  
Loss on disposal of equipment
    12       5  
Change in current assets and liabilities, net
    2,309       521  
 
               
 
               
Net cash provided by operating activities
    11,754       11,006  
 
               
Investing activities:
               
Purchases of short-term investments
    (27,851 )     (45,265 )
Sales and maturities of short-term investments
    40,581       36,419  
Additions to property, plant and equipment
    (2,613 )     (2,244 )
Increase in other assets
    (432 )     (1,188 )
 
               
 
               
Net cash provided by (used in) investing activities
    9,685       (12,278 )
 
               
Financing activities:
               
Proceeds from issuance of Common Stock
    884       2,065  
Acquisitions of treasury stock
    (3,277 )      
 
               
 
               
Net cash (used in) provided by financing activities
    (2,393 )     2,065  
 
               
Effect of foreign exchange rates on cash
    100       11  
 
               
 
               
Net increase in cash and cash equivalents
    19,146       804  
 
               
Cash and cash equivalents at beginning of period
    36,277       41,723  
 
               
Cash and cash equivalents at end of period
  $ 55,423     $ 42,527  
 
               
See accompanying notes.

 


Table of Contents

FORM 10-Q
PART I        
ITEM 1        
PAGE 4        
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
June 30, 2005
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2005 are not necessarily indicative of the results that may be expected for any other interim period or the year ending December 31, 2005. The balance sheet at December 31, 2004 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s audited financial statements for the year ended December 31, 2004, contained in the Company’s annual report filed on Form 10-K (File No. 0-18277) with the Securities and Exchange Commission.

 


Table of Contents

FORM 10-Q
PART I        
ITEM 1        
PAGE 5        
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2005
(Unaudited)
2. 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. For purposes of pro forma disclosures, the estimated fair value of the options is amortized over the options’ vesting period. Had expense been recognized using the fair value method described in FAS 123, using the Black-Scholes option pricing model, the following pro forma results of operations would have been reported (in thousands except for per share information):
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
Net income (loss) as reported
  $ 89     $ 61     $ 128     $ (1,129 )
Stock-based employee compensation cost, net of related tax effects
    (195 )     (403 )     (427 )     (894 )
 
                               
Pro forma net loss
  $ (106 )   $ (342 )   $ (299 )   $ (2,023 )
 
                               
 
                               
Net income (loss) per share, as reported:
                               
Basic
  $ 0.00     $ 0.00     $ 0.00     $ (0.03 )
Diluted
  $ 0.00     $ 0.00     $ 0.00     $ (0.03 )
 
                               
Pro forma net loss per share:
                               
Basic
  $ (0.00 )   $ (0.01 )   $ (0.01 )   $ (0.05 )
Diluted
  $ (0.00 )   $ (0.01 )   $ (0.01 )   $ (0.05 )

 


Table of Contents

FORM 10-Q
PART I        
ITEM 1        
PAGE 6        
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2005
(Unaudited)
2. Stock-Based Compensation (Continued)
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:
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
Risk-free interest rate
    3.8 %     3.5 %     3.8 %     3.3 %
Expected dividend
    .12             .08        
Expected volatility
    .65       .68       .65       .68  
Expected lives
  3.3 years   3.5 years   3.8 years   3.8 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.

 


Table of Contents

FORM 10-Q
PART I        
ITEM 1        
PAGE 7        
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2005
(Unaudited)
3. Net Income (Loss) per Share
The following table sets forth the computation of basic and diluted income (loss) per share for the three and six months ended June 30 (in thousands, except per share amounts):
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
Numerator:
                               
Net income (loss)
  $ 89     $ 61     $ 128     $ (1,129 )
 
                               
 
                               
Denominator:
                               
Denominator for basic income (loss) per share-weighted average shares
    41,795       42,049       41,888       41,983  
 
                               
Effect of dilutive securities:
                               
Employee stock options
    143       295       139        
 
                               
 
                               
Denominator for diluted income (loss) per share — adjusted weighted-average shares and assumed conversions
    41,938       42,344       42,027       41,983  
 
                               
 
                               
Basic income (loss) per share
  $ 0.00     $ 0.00     $ 0.00     $ (0.03 )
 
                               
 
                               
Diluted income (loss) per share
  $ 0.00     $ 0.00     $ 0.00     $ (0.03 )
 
                               
The effect of outstanding stock options has been excluded from the calculation of diluted income (loss) per share for the six months ended June 30, 2004, as the effect would be anti-dilutive.
4. 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. If sales for the Company’s products were to decline, the Company’s estimation process may cause larger inventory reserves to be recorded, resulting in larger charges to cost of revenues. Inventories were as follows as of June 30, 2005 and December 31, 2004 (in thousands):
                 
    June 30, 2005   December 31, 2004
Raw materials
  $ 24,697     $ 27,212  
Work-in-process
    2,393       2,568  
Finished goods
    4,224       4,293  
 
               
 
    31,314       34,073  
Inventory reserves
    (10,551 )     (7,844 )
 
               
Net balance
  $ 20,763     $ 26,229  
 
               

 


Table of Contents

FORM 10-Q
PART I        
ITEM 1        
PAGE 8        
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2005
(Unaudited)
4. Inventories (Continued)
During the second quarter of 2005, the Company provided additional reserves of approximately $1,600,000 for potential obsolete inventory arising primarily from the European Union Restriction of Hazardous Substances (“RoHS”) initiative and the conversion of second-generation products to the FasTrak platform. In addition, the Company identified other slow-moving and potential obsolete inventory of approximately $1,200,000, of which $300,000 related to raw material inventories in support of pilot production of V • I Chips.
5. 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 condensed consolidated balance sheets.
Product warranty activity for the six months ended June 30, 2005 was as follows (in thousands):
         
Balance as of December 31, 2004
  $ 1,042  
Accruals for warranties for products sold in the period
    94  
Fulfillment of warranty obligations
    (118 )
Revisions of estimated obligations
    (200 )
 
       
Balance as of June 30, 2005
  $ 818  
 
       
6. Income Taxes
Tax provisions in 2005 and 2004 have been provided for estimated income taxes due in various state and international taxing jurisdictions for which losses incurred by the Company cannot be offset, for federal and state taxes for certain minority-owned subsidiaries that are not part of the Company’s consolidated income tax returns, and for the Federal alternative minimum tax.
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 “Accounting for Contingencies.” 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 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

 


Table of Contents

FORM 10-Q
PART I        
ITEM 1        
PAGE 9        
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2005
(Unaudited)
6. Income Taxes (Continued)
could have a material impact on the Company’s income tax provision and operating results in the period in which such determination is made.
7. Comprehensive Income (Loss)
The following table sets forth the computation of comprehensive income (loss) for the three and six months ended June 30 (in thousands):
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
Net income (loss)
  $ 89     $ 61     $ 128     $ (1,129 )
 
                               
Foreign currency translation loss
    (28 )     (50 )     (69 )     (11 )
 
                               
Unrealized gains (losses) on available for sale securities
    75       (351 )     (17 )     (269 )
 
                               
 
                               
Comprehensive income (loss)
  $ 136     $ (340 )   $ 42     $ (1,409 )
 
                               
8. Legal Proceedings
Vicor and VLT, Inc. (“VLT”), a wholly owned subsidiary of the Company, are pursuing Reset Patent infringement claims directly against Artesyn Technologies, Lucent Technologies and Tyco Electronics Power Systems, Inc. in the United States District Court in Boston, Massachusetts. The lawsuit against Lucent was filed in May 2000 and in April 2001, the Company added Tyco Electronics as a defendant in that lawsuit. The lawsuit against Artesyn was filed in February 2001. In January 2003, the District Court issued a pre-trial decision in each of these patent infringement lawsuits relating to claim construction of the Reset Patent. The District Court’s decisions rejected assertions that the Reset Patent claims are invalid for indefiniteness; and affirmed Vicor’s interpretation of several terms used in the Reset Patent claims. However, the District Court adopted interpretations of certain terms of the Reset Patent claims that are contrary to Vicor’s position. On May 24, 2004, the United States Court of Appeals for the Federal Circuit affirmed the decisions issued in January 2003 by the District Court. Vicor believes that the District Court’s decisions, and the affirmation of these decisions by the Federal Circuit, strengthens its position regarding validity of the patent, but reduces the cumulative amount of infringing power supplies and the corresponding amount of potential damages. The Federal Circuit has referred the proceedings back to the District Court for trials on validity of the Reset Patent and infringement and damages by Lucent, Tyco and Artesyn.
In the second quarter of 2005, the Company entered into a settlement agreement with Lambda Americas, Inc., successor to Lambda Electronics, Inc., under which the Company received a payment of $2,500,000 in full settlement of the Company’s Reset Patent claims against Lambda and which settled the lawsuit

 


Table of Contents

FORM 10-Q
PART I        
ITEM 1        
PAGE 10      
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2005
(Unaudited)
8. Legal Proceedings (Continued)
that the Company had filed against Lambda in June 2001. The full amount of the payment, net of a $250,000 contingency fee paid by the Company to its litigation counsel, has been included in gain from litigation-related settlement, net in the accompanying condensed consolidated statement of operations. The District Court has not yet set dates for the remaining trials. 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 May 2004, Ericsson Wireless Communications, Inc. v. Vicor Corporation was filed in Superior Court of the State of California, County of San Diego. The plaintiff has brought an action against the Company claiming unspecified damages for failure of out-of warranty products previously purchased by it from the Company. In November 2004, Ericsson filed a First Amended Complaint adding claims against Exar Corporation, a former vendor of the Company. The Company denies the claims made against it, and intends to defend the action vigorously.
On March 4, 2005, Exar filed a declaratory judgment action against Vicor in the Superior Court of the State of California, County of Santa Clara, in which Exar seeks a declaration by the Court that Exar is not obligated to reimburse or indemnify Vicor for any claims brought against Vicor for alleged damages incurred as a result of the use of Exar components in Vicor products. Vicor intends to vigorously defend the declaratory judgment action.
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.
9. Impact of Recently Issued Accounting Standards
In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151, “Inventory Costs, an amendment of Accounting Research Bulletin (ARB) No. 43, Chapter 4” (“FAS 151”). FAS 151 amends the guidance in ARB No 43, Chapter 4, “Inventory Pricing” to clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) should be recognized as current-period charges. In addition, FAS 151 requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. The provisions of FAS 151 are effective for fiscal years beginning after June 15, 2005. The Company is currently evaluating the provisions of FAS 151 and does not believe that its adoption will have a material impact on the Company’s financial position or results of operations.
In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (FAS 123R), which is a revision of FAS No. 123, “Accounting for Stock-Based Compensation”. FAS 123(R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to

 


Table of Contents

FORM 10-Q
PART I        
ITEM 1        
PAGE 11      
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2005
(Unaudited)
9. Impact of Recently Issued Accounting Standards (Continued)
Employees”, and amends SFAS No. 95, “Statement of Cash Flows”. Generally, the approach in FAS 123(R) is similar to the approach described in FAS 123. However, FAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values at the date of grant. Pro forma disclosure is no longer an alternative.
FAS 123(R) permits public companies to adopt its requirements using one of two methods. A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of FAS 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of FAS 123 for all awards granted to employees prior to the effective date of FAS 123(R) that remain unvested on the effective date. A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under FAS 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. The Company has yet to determine which method to use in adopting FAS 123(R).
As permitted by FAS 123, the Company currently accounts for share-based payments to employees using APB Opinion No. 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of FAS 123(R)’s fair value method will have a significant impact on the Company’s results of operations, although it will have no impact on the Company’s overall financial position. The Company is evaluating FAS 123(R) and has not yet determined the amount of stock option expense which will be incurred in future periods.
FAS 123(R) must be adopted in fiscal periods beginning after June 15, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. On April 14, 2005, the Securities and Exchange Commission amended the compliance dates for FAS 123(R). The Company will be required to adopt FAS 123(R) on January 1, 2006, the commencement of its first quarter of fiscal 2006.
10. Reclassification
Certain amounts in the 2004 financial statements were reclassified to conform to the 2005 presentation.
11. Dividend
On June 24, 2005, the Company’s Board of Directors approved an annual cash dividend for 2005 of $.12 per share of the Company’s stock. The dividend is payable on August 31, 2005 to shareholders of record at the close of business on August 11, 2005.
Dividends are declared at the discretion of the Company’s Board of Directors and depend on actual cash from operations, the Company’s financial condition and capital requirements and any other factors the Company’s Board of Directors may consider relevant.

 


Table of Contents

FORM 10-Q
PART I        
ITEM 2        
PAGE 12      
VICOR CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
June 30, 2005
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
Except for historical information contained herein, some matters discussed in this report constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “believes,” “expects,” “anticipates,” “intend,” “estimate,” “plans,” “assumes,” “may,” “will,” “would,” “should,” “continue,” “prospective,” “project,” and other similar expressions identify forward-looking statements. These statements are based upon the Company’s current expectations and estimates as to the prospective events and circumstances which may or may not be within the Company’s control and as to which there can be no assurance. Actual results could differ materially from those projected in the forward-looking statements as a result of various factors, including our ability to develop and market new products and technologies cost effectively, to leverage design wins into increased product sales, to decrease manufacturing costs, to enter into licensing agreements that amplify the market opportunity and accelerate market penetration, to realize significant royalties under the license agreements, to achieve a sustainable increased bookings rate over a longer period, to hire key personnel and build our business units, and to successfully leverage the V • I Chips in standard products to promote market acceptance of Factorized Power, factors impacting the Company’s various end markets, including Consumer Electronics, Communications, Information Technology and Automotive, as well as those factors described in the risk factors set forth in this report and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. Reference is made in particular to the discussions set forth below in this report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and set forth in the 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 the Annual Report on Form 10-K may not be exhaustive. Therefore, the information contained in that Form 10-K 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, 8-K and 10-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.
Critical Accounting Policies and Estimates
Please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 for a complete summary of the critical accounting policies and estimates.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or market. The Company employs a variety of methodologies to determine the amount of inventory reserve. Historically, the Company estimated reserves for its inventory at all significant locations based upon its known backlog and historical usage, and assumptions about future demand and market conditions. In the second quarter of 2005, the Company revised its method for estimating inventory reserves at the Andover location, its principal manufacturing location. The revised model is based upon a comparison of on-hand quantities to projected demand, without reference to historical usage, such

 


Table of Contents

FORM 10-Q
PART I        
ITEM 2        
PAGE 13      
VICOR CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
June 30, 2005
(Continued)
that amounts on-hand in excess of three-year projected usage are fully reserved. 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.
Results of Operations
Three months ended June 30, 2005 compared to three months ended June 30, 2004
Net revenues for the second quarter of 2005 were $44,579,000, a decrease of $795,000, or 1.8%, as compared to $45,374,000 for the same period a year ago, and an increase of 3.2% on a sequential basis from the first quarter of 2005. The decrease in net revenues from the prior year resulted from a decrease in unit shipments of standard and custom products. The book-to-bill ratio for the second quarter of 2005 was 0.99:1 as compared to 0.97:1 for the second quarter of 2004 and 1.09:1 in the first quarter of 2005.
Gross margin for the second quarter of 2005 decreased $1,801,000, or 10.4%, to $15,579,000 from $17,380,000 for the second quarter of 2004, and decreased to 34.9% from 38.3% as a percentage of net revenues. The primary components of the decrease in gross margin dollars and percentage were due to the decrease in net revenues and by an increase in inventory reserves. During the second quarter of 2005, the Company provided additional reserves of approximately $1,600,000 for potential obsolete inventory arising primarily from the European Union Restriction of Hazardous Substances (“RoHS”) initiative and the conversion of second-generation products to the FasTrak platform. In addition, the Company identified other slow-moving and potential obsolete inventory of approximately $1,200,000, of which $300,000 related to raw material inventories in support of pilot production of V • I Chips. These decreases were partially offset by increased manufacturing efficiencies resulting in lower average unit costs.
Selling, general and administrative expenses were $10,137,000 for the period, a decrease of $470,000, or 4.4%, from the same period in 2004. As a percentage of net revenues, selling, general and administrative expenses decreased to 22.7% from 23.4%. The principal components of the $470,000 decrease were $665,000, or 88.9%, of decreased legal fees and $196,000, or 17.3%, of decreased commission payments due to the reduction of product revenues discussed above. The overall decrease in legal expense was primarily due to litigation with Exar Corporation that was settled in July 2004. The principal components partially offsetting the above decreases were $156,000, or 30.2%, in increased advertising expenses, $149,000, or 10.7%, in increased costs associated with Vicor Japan Company, Ltd. (“VJCL”) and the Vicor Integration Architects (“VIAs”), and $54,000, or 1.2%, in increased compensation expense.

 


Table of Contents

FORM 10-Q
PART I        
ITEM 2        
PAGE 14      
VICOR CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
June 30, 2005
(Continued)
Research and development expenses increased $875,000, or 13.5%, to $7,380,000, and increased as a percentage of net revenues to 16.6% from 14.3%. The principal components of the $875,000 increase were $602,000, or 15.7%, in increased compensation expense, $74,000, or 7.7%, in increased project material costs, $68,000, or 19.6%, in increased facilities costs and $59,000, or 160.5%, in increased outside services. The increases in compensation expense, project materials and outside services were principally due to the development efforts associated with the Company’s new Factorized Power Architecture (“FPA”) products. The Company has a long-term commitment to investing in new product design and development in order to maintain and improve its competitive position.
In the second quarter of 2005, the Company entered into a settlement agreement with Lambda Americas, Inc., successor to Lambda Electronics, Inc., under which the Company received a payment of $2,500,000 in full settlement of the Company’s Reset Patent claims against Lambda and which settled the lawsuit that the Company had filed against Lambda in June 2001. The full amount of the payment, net of a $250,000 contingency fee paid by the Company to its litigation counsel, has been included in gain from litigation-related settlement, net in the accompanying condensed consolidated statement of operations.
The major changes in the components of the other income (expense), net were as follows (in thousands):
                         
                    Increase
    2005   2004   (decrease)
Interest income
  $ 683     $ 385     $ 298  
Foreign currency losses
    (254 )     (52 )     (202 )
Minority interest in net income of subsidiaries
    (231 )     (209 )     (22 )
Other than temporary decline in Scipher plc investment
          (27 )     27  
Other
    (15 )     (3 )     (12 )
 
                       
 
 
  $ 183     $ 94     $ 89  
 
                       
The increase in interest income is due to higher interest rates and higher average balances on the Company’s cash equivalents and short-term investments. The increase in foreign currency losses is due to the unfavorable exchange rates in 2005 as compared to 2004.
Income before income taxes was $495,000 for the second quarter of 2005 compared to $362,000 for the same period in 2004.
Tax provisions in 2005 and 2004 have been provided for estimated income taxes due in various state and international taxing jurisdictions for which losses incurred by the Company cannot be offset, for federal and state

 


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FORM 10-Q
PART I        
ITEM 2        
PAGE 15      
VICOR CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
June 30, 2005
(Continued)
taxes for certain minority-owned subsidiaries that are not part of the Company’s consolidated income tax returns, and for the Federal alternative minimum tax.
Diluted income per share was $0.00 for the second quarter of 2005 compared to $0.00 for the second quarter of 2004.
Six months ended June 30, 2005 compared to six months ended June 30, 2004
Net revenues for the first six months of 2005 were $87,759,000, a decrease of $136,000, or 0.2%, as compared to $87,895,000 for the same period a year ago. The decrease in net revenues resulted primarily from a decrease in license revenues of $375,000 due to the receipt of the final royalty payment from Nagano Japan Radio Company, Ltd. (“NJRC”) in January 2004, partially offset by an increase in unit shipments of standard and custom products of $239,000. Orders during the first six months of 2005 increased by 15.9% compared with the second half of 2004. The book-to-bill ratio was 1.04:1 for the first six months of 2005 compared to 1.05:1 for the same period a year ago, and 0.94:1 for the second half of 2004.
Gross margin for the first six months of 2005 increased $244,000, or 0.8%, to $32,624,000 from $32,380,000, and increased to 37.2% from 36.8% as a percentage of net revenues. The primary component of the increase in gross margin dollars and percentage was due to increased manufacturing efficiencies resulting in lower average unit costs. These increases were partially offset by an increase in inventory reserve expense of approximately $2,700,000 compared with the first six months of 2004. During the second quarter of 2005, the Company provided reserves of approximately $1,600,000 for potential obsolete inventory arising primarily from the European Union Restriction of Hazardous Substances (“RoHS”) initiative and the conversion of second-generation products to the FasTrak platform. In addition, the Company identified other slow-moving and potential obsolete inventory of approximately $1,200,000, of which $300,000 related to raw material inventories in support of pilot production of V • I Chips.
Selling, general and administrative expenses were $20,241,000 for the period, a decrease of $544,000, or 2.6%, over the same period in 2004. As a percentage of net revenues, selling, general and administrative expenses decreased to 23.1% from 23.6%. The principal components of the $544,000 decrease were $1,027,000, or 71.9%, of decreased legal fees and $264,000, or 21.4%, of decreased depreciation expense, due to certain computer hardware and software becoming fully depreciated in 2004. The overall decrease in legal expense was primarily due to litigation with Exar Corporation that was settled in July 2004. The principal components partially offsetting the above decreases were $225,000, or 22.5%, in increased advertising expenses, $213,000, or 2.4%, in increased compensation expense, $196,000, or 7.0%, in increased costs associated with VJCL and the VIAs and $132,000, or 26.5%, in increased audit and tax fees due to the requirements of complying with the Sarbanes-Oxley Act of 2002.
Research and development expenses increased $2,028,000, or 16.3%, to $14,476,000 and increased as a percentage of net revenues to 16.5% from 14.2%. The principal components of the $2,028,000 increase were $1,191,000, or 15.7%, of increased compensation expense, principally due to increased headcount, $465,000, or 30.1%, of increased project material costs, $93,000, or 82.8%, in increased supplies and $72,000, or 10.1%, of

 


Table of Contents

FORM 10-Q
PART I        
ITEM 2        
PAGE 16      
VICOR CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
June 30, 2005
(Continued)
increased facilities costs. The increases in compensation expense, project material costs and supplies were principally due to the development efforts associated with the Company’s new FPA products.
In the second quarter of 2005, the Company entered into a settlement agreement with Lambda Americas, Inc., successor to Lambda Electronics, Inc., under which the Company received a payment of $2,500,000 in full settlement of the Company’s Reset Patent claims against Lambda and which settled the lawsuit that the Company had filed against Lambda in June 2001. The full amount of the payment, net of a $250,000 contingency fee paid by the Company to its litigation counsel, has been included in gain from litigation-related settlement, net in the accompanying condensed consolidated statement of operations.
The major changes in the components of the other income (expense), net were as follows (in thousands):
                         
                    Increase
    2005   2004   (decrease)
Interest income
  $ 1,325     $ 764     $ 561  
Minority interest in net income of subsidiaries
    (321 )     (396 )     75  
Foreign currency gains (losses)
    (434 )     (55 )     (379 )
Other than temporary decline in Scipher plc investment
          (27 )     27  
Other
    107       23       84  
 
                       
 
 
  $ 677     $ 309     $ 368  
 
                       
The increase in interest income is due to higher interest rates and higher average balances on the Company’s cash equivalents and short-term investments. The increase in foreign currency losses is due to the unfavorable exchange rates in 2005 as compared to 2004.
Income before income taxes was $834,000 compared to a loss before income taxes of $544,000 for the same period in 2004.
Tax provisions in 2005 and 2004 have been provided for estimated income taxes due in various state and international taxing jurisdictions for which losses incurred by the Company cannot be offset, for federal and state taxes for certain minority-owned subsidiaries that are not part of the Company’s consolidated income tax returns, and for the Federal alternative minimum tax.
Diluted income per share was $0.00 for the first six months of 2005, compared to diluted loss per share of $(0.03) for the first six months of 2004.

 


Table of Contents

FORM 10-Q
PART I        
ITEM 3        
PAGE 17      
VICOR CORPORATION
June 30, 2005
Liquidity and Capital Resources
At June 30, 2005 the Company had $55,423,000 in cash and cash equivalents. The ratio of current assets to current liabilities was 6.8:1 at June 30, 2005 compared to 8.6:1 at December 31, 2004. Working capital decreased $1,471,000, from $148,419,000 at December 31, 2004 to $146,948,000 at June 30, 2005. The primary factors affecting the working capital decrease were a decrease in short-term investments of $13,089,000, a decrease in inventory of $5,466,000 and an increase in dividend payable of $5,020,000. These decreases were partially offset by an increase in cash and cash equivalents of $19,146,000 and in accounts receivable of $2,926,000. The primary sources of cash for the six months ended June 30, 2005 were $11,754,000 from operating activities and $12,730,000 of net sales of short-term investments. The primary uses of cash for the six months ended June 30, 2005 were for the acquisition of equipment of approximately $2,613,000 and treasury stock of $3,277,000.
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. The Company expects capital spending to increase in 2005 as compared to 2004. In April 2005, management authorized the purchase of approximately $4,000,000 of FPA equipment during the remainder of the year.
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 $3,277,000 for the repurchase of 312,700 shares of Common Stock during the six months ended June 30, 2005. As of June 30, 2005, the Company had approximately $21,643,000 remaining under the plan.
On June 24, 2005, the Company’s Board of Directors approved an annual cash dividend for 2005 of $.12 per share of the Company’s stock, which will approximate $5,020,000. The dividend is payable on August 31, 2005 to shareholders of record at the close of business on August 11, 2005.
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 June 30, 2005, the Company had approximately $2,114,000 of capital expenditure commitments.
The Company does not consider the impact of inflation and changing prices on its business activities or fluctuations in the exchange rates for foreign currency transactions to have been significant during the last three fiscal years.
Item 3 — Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to a variety of market risks, including changes in interest rates affecting the return on its cash and cash equivalents and short-term investments and fluctuations in foreign currency exchange rates.

 


Table of Contents

FORM 10-Q
PART I        
ITEM 4        
PAGE 18      
VICOR CORPORATION
June 30, 2005
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.
The Company’s exposure to market risk for fluctuations in foreign currency exchange rates relates primarily to the operations of Vicor Japan Company, Ltd. (“VJCL”) and changes in the dollar/yen exchange rate. The Company believes that this market risk is currently not material due to the relatively small size of VJCL’s operations. In addition, the functional currency of the Company’s subsidiaries in Europe and Hong Kong is the U.S. Dollar. Therefore, the Company believes that market risk is mitigated since these operations are not exposed to foreign exchange fluctuations.
Item 4 — Controls and Procedures
(a) 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 quarter. 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.
The Company’s management, including the CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events,

 


Table of Contents

FORM 10-Q
PART I        
ITEM 4        
PAGE 19      
VICOR CORPORATION
June 30, 2005
and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
(b) Changes in internal control over financial reporting.
There were no changes in the Company’s internal control over financial reporting identified in connection with the Company’s evaluation of internal control over financial reporting that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 


Table of Contents

FORM 10-Q
PART II       
ITEM 1        
PAGE 20      
VICOR CORPORATION
Part II — Other Information
June 30, 2005
Item 1 — Legal Proceedings
As previously disclosed in the Company’s Form 10-K for the year ended December 31, 2004, Vicor and VLT, Inc. (“VLT”), a wholly owned subsidiary of the Company, are pursuing Reset Patent infringement claims directly against Artesyn Technologies, Lucent Technologies and Tyco Electronics Power Systems, Inc. in the United States District Court in Boston, Massachusetts. The lawsuit against Lucent was filed in May 2000 and in April 2001, the Company added Tyco Electronics as a defendant in that lawsuit. The lawsuit against Artesyn was filed in February 2001. In January 2003, the District Court issued a pre-trial decision in each of these patent infringement lawsuits relating to claim construction of the Reset Patent. The District Court’s decisions rejected assertions that the Reset Patent claims are invalid for indefiniteness; and affirmed Vicor’s interpretation of several terms used in the Reset Patent claims. However, the District Court adopted interpretations of certain terms of the Reset Patent claims that are contrary to Vicor’s position. On May 24, 2004, the United States Court of Appeals for the Federal Circuit affirmed the decisions issued in January 2003 by the District Court. Vicor believes that the District Court’s decisions, and the affirmation of these decisions by the Federal Circuit, strengthens its position regarding validity of the patent, but reduces the cumulative amount of infringing power supplies and the corresponding amount of potential damages. The Federal Circuit has referred the proceedings back to the District Court for trials on validity of the Reset Patent and infringement and damages by Lucent, Tyco and Artesyn.
In the second quarter of 2005, the Company entered into a settlement agreement with Lambda Americas, Inc., successor to Lambda Electronics, Inc., under which the Company received a payment of $2,500,000 in full settlement of the Company’s Reset Patent claims against Lambda and which settled the lawsuit that the Company had filed against Lambda in June 2001. The full amount of the payment, net of a $250,000 contingency fee paid by the Company to its litigation counsel, has been included in gain from litigation-related settlement, net in the accompanying condensed consolidated statement of operations. The District Court has not yet set dates for the remaining trials. 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.

 


Table of Contents

FORM 10-Q  
PART II         
ITEMS 2 — 4
PAGE 21        
VICOR CORPORATION
Part II — Other Information
June 30, 2005
(Continued)
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds
                                 
                            Maximum Number
                            (or Approximate
                    Total Number of   Dollar Value) of
                    Shares (or Units)   Shares (or Units)
                    Purchased as Part   that May Yet Be
    Total Number of           of Publicly   Purchased Under
    Shares (or Units)   Average Price Paid   Announced Plans   the Plans or
Period   Purchased   per Share (or Unit)   or Programs   Programs
April 1 — 30, 2005
    134,300     $ 10.24       134,300     $ 21,643,000  
May 1 — 31, 2005
                    $ 21,643,000  
June 1 — 30, 2005
                    $ 21,643,000  
 
                               
Total
    134,300     $ 10.24       134,300     $ 21,643,000  
 
                               
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.
Item 3 — Defaults Upon Senior Securities
Not applicable.
Item 4 — Submission of Matters to a Vote of Security Holders
The 2005 Annual Meeting of Stockholders of the Company was held on June 23, 2005. Under the Company’s charter, each share of the Company’s Common Stock entitles the holder thereof to one vote per share, and each share of the Company’s Class B Common Stock entitles the holder thereof to ten votes per share.
All nominees of the Board of Directors of the Company were re-elected for a one year term. Votes were cast in the election of the directors as follows:
                 
Nominee   Votes For   Votes Withheld
Patrizio Vinciarelli
    139,683,468       5,991,896  
Estia J. Eichten
    143,522,054       2,153,310  
Barry Kelleher
    139,622,678       6,052,686  
Jay M. Prager
    139,613,278       6,062,086  
David T. Riddiford
    144,703,927       971,437  
M. Michael Ansour
    144,694,045       981,319  
Samuel Anderson
    139,692,276       5,983,088  
There were 0 broker non-votes and 0 abstentions on this proposal.

 


Table of Contents

FORM 10-Q   
PART II         
ITEMS 5 — 6
PAGE 22        
VICOR CORPORATION
Part II — Other Information
June 30, 2005
(Continued)
Item 5 — Other Information
Not applicable.
Item 6 — Exhibits
     
Exhibit Number   Description
31.1
  Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
 
   
31.2
  Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
 
   
32.1
  Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
   
32.2
  Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 


Table of Contents

FORM 10-Q
PART II       
PAGE 23      
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  VICOR CORPORATION
 
 
Date: August 9, 2005  By:   /s/ Patrizio Vinciarelli    
    Patrizio Vinciarelli   
    President, Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer) 
 
 
     
Date: August 9, 2005  By:   /s/ Mark A. Glazer    
    Mark A. Glazer   
    Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)