##### Table of Contents



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 March 31, 2008
 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
  Delaware
    
    04-2742817(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
 
   þ o
  Large accelerated filer
o
    
    Accelerated filer
þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Common Stock, $.01 par value
    
    29,852,158Class B Common Stock, $.01 par value
    
    11,785,052




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##### 



PagePart I  Financial Information:Item 1 - Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at
March 31, 2008 and December 31, 2007
    
    
    1Condensed Consolidated Statements of Operations for the
three months ended March 31, 2008 and 2007 (as restated)
    
    
    2Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2008 and 2007 (as restated)
    
    
    3Notes to Condensed Consolidated Financial Statements (as restated)
    
    
    4Item 2 - Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    18Item 3 - Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4 - Controls and Procedures
    
    
    25Part II  Other Information:Item 1 - Legal Proceedings
    
    
    27Item 1A  Risk Factors
    
    
    27Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3 - Defaults Upon Senior Securities
    
    
    28Item 4 - Submission of Matters to a Vote of Security Holders
    
    
    28Item 5 - Other Information
    
    
    28Item 6  Exhibits
    
    
    29Signature(s)
    
    
    30EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO




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Item 1  Financial Statements
  
    March 31, 2008
    
    
    December 31, 2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    34,093
    
    
    $
    20,017Restricted cash and short-term investments
    
    
    1,024
    
    
    
    952Short-term investments
    
    
    5,750
    
    
    
    57,490Accounts receivable, less allowance of
$340 in 2008 and $398 in 2007
    
    
    29,114
    
    
    
    32,054Inventories, net
    
    
    25,528
    
    
    
    23,078Deferred tax assets
    
    
    741
    
    
    
    741Other current assets
    
    
    3,358
    
    
    
    2,629Total current assets
    
    
    99,608
    
    
    
    136,961Long-term investments, net
    
    
    36,500
    
    
    
    Property, plant and equipment, net
    
    
    50,049
    
    
    
    50,257Other assets
    
    
    5,469
    
    
    
    5,240$
    191,626
    
    
    $
    192,458Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    9,338
    
    
    $
    10,062Accrued compensation and benefits
    
    
    5,609
    
    
    
    6,003Accrued expenses
    
    
    3,477
    
    
    
    3,471Accrual for litigation settlement
    
    
    240
    
    
    
    240Dividend payable
    
    
    6,245
    
    
    
    Income taxes payable
    
    
    591
    
    
    
    278Deferred revenue
    
    
    1,241
    
    
    
    983Total current liabilities
    
    
    26,741
    
    
    
    21,037Long-term income taxes payable
    
    
    1,372
    
    
    
    1,344Deferred income taxes
    
    
    1,725
    
    
    
    1,597Minority interests
    
    
    4,485
    
    
    
    4,040Stockholders equity:Class B Common Stock
    
    
    118
    
    
    
    118Common Stock
    
    
    384
    
    
    
    384Additional paid-in capital
    
    
    159,637
    
    
    
    159,332Retained earnings
    
    
    120,638
    
    
    
    126,263Accumulated other comprehensive (loss) income
    
    
    (1,647
    )
    
    
    170Treasury stock, at cost
    
    
    (121,827
    )
    
    
    (121,827
    )Total stockholders equity
    
    
    157,303
    
    
    
    164,440$
    191,626
    
    
    $
    192,458




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Three Months EndedMarch 31,2008
    
    
    2007(as restated)Net revenues
    
    $
    53,469
    
    
    $
    46,981Cost of revenues
    
    
    31,009
    
    
    
    26,754Gross margin
    
    
    22,460
    
    
    
    20,227Operating expenses:Selling, general and administrative
    
    
    14,052
    
    
    
    12,013Research and development
    
    
    7,511
    
    
    
    7,400Total operating expenses
    
    
    21,563
    
    
    
    19,413Income from operations
    
    
    897
    
    
    
    814Other income (expense), net
    
    
    755
    
    
    
    1,577Income before income taxes
    
    
    1,652
    
    
    
    2,391Provision (benefit) for income taxes
    
    
    242
    
    
    
    (11
    )Loss from equity method investment (net of tax)
    
    
    790
    
    
    
    81Net income
    
    $
    620
    
    
    $
    2,321Net income per common share:Basic
    
    $
    0.01
    
    
    $
    0.06Diluted
    
    $
    0.01
    
    
    $
    0.06Shares used to compute
net income per share:Basic
    
    
    41,636
    
    
    
    41,565Diluted
    
    
    41,675
    
    
    
    41,614Cash dividends declared per share
    
    $
    0.15
    
    
    $
    0.15




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Three Months EndedMarch 31, 2008
    
    
    March 31, 2007(as restated)Operating activities:Net income
    
    $
    620
    
    
    $
    2,321Adjustments to reconcile net income to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    2,586
    
    
    
    3,133Loss from equity method investee (net of tax)
    
    
    790
    
    
    
    81Minority interest in net income of subsidiaries
    
    
    445
    
    
    
    17Stock compensation expense
    
    
    302
    
    
    
    194Amortization of bond premium
    
    
    
    
    
    
    (218
    )Gain on disposal of equipment
    
    
    (13
    )
    
    
    (23
    )Change in current assets and liabilities, net
    
    
    (437
    )
    
    
    (39,316
    )Net cash provided by (used in) operating
activities
    
    
    4,293
    
    
    
    (33,811
    )Investing activities:Purchases of investments
    
    
    (8,254
    )
    
    
    (38,629
    )Sales and maturities of investments
    
    
    21,493
    
    
    
    77,460Additions to property, plant and equipment
    
    
    (2,325
    )
    
    
    (2,118
    )Purchase of equity method investment
    
    
    (1,000
    )
    
    
    Proceeds from sale of equipment
    
    
    13
    
    
    
    23Change in restricted cash
    
    
    (72
    )
    
    
    Increase in other assets
    
    
    (36
    )
    
    
    (27
    )Net cash provided by investing activities
    
    
    9,819
    
    
    
    36,709Financing activities:Proceeds from issuance of Common Stock
    
    
    3
    
    
    
    18Common Stock dividends paid
    
    
    
    
    
    
    (6,235
    )Net cash provided by (used in) financing
activities
    
    
    3
    
    
    
    (6,217
    )Effect of foreign exchange rates on cash
    
    
    (39
    )
    
    
    (2
    )Net increase (decrease) in cash and cash equivalents
    
    
    14,076
    
    
    
    (3,321
    )Cash and cash equivalents at beginning of period
    
    
    20,017
    
    
    
    35,860Cash and cash equivalents at end of period
    
    $
    34,093
    
    
    $
    32,539




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1.
    
    Basis of PresentationThe 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.As described in Note 7, due to an additional investment in Great Wall Semiconductor
Corporation (GWS) in May 2007, Vicor Corporation (the Company) changed its method of
accounting for its investment in GWS from the cost method to the equity method of
accounting. As a result, the financial statements for the three months ended March 31,
2007, have been retroactively restated to reflect the equity method of accounting, in
accordance with Accounting Principles Board Opinion 18 (APB 18), The Equity Method of
Accounting for Investments in Common Stock.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 months ended March 31, 2008, are not necessarily indicative of the results that may be
expected for any other interim period or the year ending December 31, 2008. Operating
results for the three months ended March 31, 2008, includes previously unidentified
compensation-related accruals of $320,000 for certain of the Companys international
subsidiaries and additional stock compensation expense of $90,000 identified and recorded in
the first quarter of 2008. Management has concluded the impact of accounting for these
previously unidentified accruals in the first quarter of 2008 is not
material to the Companys first quarter results, the Companys estimated
2008 financial results, or prior period financial results. The balance sheet at
December 31, 2007, 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 contained in the Companys Annual
Report on Form 10-K for the year ended December 31, 2007, (File No. 0-18277) filed by the
Company with the Securities and Exchange Commission.2.
    
    Short-Term and Long-Term InvestmentsThe Companys principal sources of liquidity are its existing balances of cash, cash
equivalents and short-term investments, as well as cash generated from operations.
Consistent with the Companys investment policy guidelines, the Company can and has
historically invested its substantial cash balances in demand deposit accounts, money market
funds meeting certain quality criteria, and highly-liquid auction rate securities meeting
certain quality criteria. All of the Companys investments are subject to credit,
liquidity, market, and interest rate risk.As of March 31, 2008, the Company held approximately $42.1 million in auction rate
securities, consisting of debt obligations of municipal and corporate debt issuers. The
interest rates for these debt securities are reset at auction at regular intervals ranging
from seven to 90 days. The auction rate




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2.
    
    Short-Term and Long-Term Investments (continued)securities held by the Company have historically traded at par and are callable at par at
the option of the issuer. At March 31, 2008, the majority of the auction rate securities
held by the Company were AAA/Aaa rated by the major credit rating agencies, with most collateralized by student loans
guaranteed by the U.S. Department of Education under the Federal Family Education Loan
Program.Until February 2008, the auction rate securities market was highly liquid. Starting the
week of February 11, 2008, a substantial number of auctions failed, meaning that there was
not enough demand to sell all of the securities that holders offered for sale. The
consequences of a failed auction are (a) an investor must hold the specific security until
the next scheduled auction (unless that investor chooses to sell the security to a third
party outside of the auction process) and (b) the interest rate on the security generally
resets to an interest rate set forth in the securitys indenture. The principal associated
with these failed auctions will not be accessible to the Company until a successful auction
occurs, a buyer is found outside of the auction process, the security is called, or the
underlying securities have matured. As of March 31, 2008, the Company held auction rate
securities that had experienced failed auctions totaling approximately $38.5 million at par
value (the Failed Auction Securities), representing approximately 20% of total assets of
the Company.Management is not aware of any reason to believe any of the underlying issuers of the Failed
Auction Securities held by the Company are presently at risk of default. Through March 31,
2008, the Company has continued to receive interest payments on the Failed Auction
Securities in accordance with their terms. Subsequent to March 31, 2008, four issues of
auction rate securities, totaling $3.6 million, which were classified as short-term
investments as of March 31, 2008, were called by the issuers, with the Company receiving par
value for each. Management believes the Company ultimately should be able to liquidate all
of its auction rate security investments without significant loss primarily due to the
collateral securing the substantial majority of the underlying obligations. However,
current conditions in the auction rate securities market have lead management to conclude
the recovery period for the Failed Auction Securities exceeds 12 months. As a result, the
Company has classified the Failed Auction Securities as long-term as of March 31, 2008.Based on the fair value measurements described in Note 3, the fair value of the Failed
Auction Securities at March 31, 2008, was estimated by the Company to be approximately $36.5
million, compared with a par value of approximately $38.5 million. Management considers
this $2.0 million difference to be temporary and has recorded this amount as an unrealized
loss, net of taxes, in accumulated other comprehensive (loss) income on the consolidated
balance sheet. In making this determination, management considered the financial condition
and near-term prospects of the issuers, the magnitude of the losses compared to the
investments cost, the length of time the investments have been in an unrealized loss
position, the assumed low probability that the Company will be unable to collect all amounts
due according to the contractual terms of the security, whether the security has been
downgraded by a rating agency, and the Companys ability and intent to hold these
investments until the anticipated recovery in market value occurs. If current market
conditions deteriorate further, the Company may be required to record additional unrealized
losses in other comprehensive income. If the




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2.
    
    Short-Term and Long-Term Investments (continued)credit rating of the security issuers deteriorates, or the anticipated recovery in the
market values does not occur, the Company may be required to adjust the carrying value of
these investments through impairment charges recorded in the consolidated statement of
operations, and any such impairment adjustments may be material.Based on the Companys ability to access cash and other short-term investments and its
expected operating cash flows, management does not anticipate the current lack of liquidity
will affect the Companys ability to execute its current operating plan.3.
    
    Fair Value MeasurementsThe Company purchases marketable securities that have been designated as
available-for-sale in accordance with Statement of Financial Accounting Standards (SFAS)
115, Accounting for Certain Investments in Debt and Equity Securities. SFAS 115 addresses
the determination as to when an investment is considered impaired, whether that impairment
is other than temporary, and the measurement of an impairment loss. Consistent with SFAS
115, such available-for-sale securities are carried at fair value, with unrealized gains and
losses reported in Accumulated other comprehensive income, a component of stockholders
equity. At December 31, 2007, all marketable securities held by the Company were classified
as short-term investments.In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS 157, Fair
Value Measurements, expanding upon SFAS 115 and providing guidance on how to measure assets
and liabilities recorded at fair value.  SFAS 157 does not expand the use of fair value to
any new circumstances, but does require additional disclosures in both annual and quarterly
reports.  The Company adopted SFAS 157 and its related amendments for financial assets and
liabilities effective as of January 1, 2008. In accordance with FASB Staff Position No. FAS
157-2 (FSP FAS 157-2), SFAS 157 will be effective for non-financial assets and liabilities
in financial statements issued for fiscal years beginning after November 15, 2008. FSP FAS
157-2 will impact the disclosures related to the Companys investment in GWS and goodwill
related to the operations of one of its subsidiaries, Vicor Japan Company, Ltd.SFAS 157 defines fair value as the price that would be received to sell an asset or paid to
transfer a liability (i.e., an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants on the
measurement date. As such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would use in pricing an asset or
liability. SFAS 157 establishes a three-level hierarchy for disclosure to show the extent
and level of judgment used to estimate fair value measurements:
 Level 1
    
    Inputs used to measure fair value are unadjusted quoted prices that are
available in active markets for the identical assets or liabilities as of the reporting
date.




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3.
    
    Fair Value Measurements (continued)
 Level 2
    
    Inputs used to measure fair value, other than quoted prices included in
Level 1, are either directly or indirectly observable as of the reporting date through
correlation with market data, including quoted prices for similar assets and
liabilities in active markets and quoted prices in markets that are not active.  Level
2 also includes assets and liabilities that are valued using models or other pricing
methodologies that do not require significant judgment
since the input assumptions used in the models, such as interest rates and
volatility factors, are corroborated by readily observable data from actively
quoted markets for substantially the full term of the financial instrument.Level 3
    
    Inputs used to measure fair value are unobservable inputs that are supported
by little or no market activity and reflect the use of significant management
judgment.  These values are generally determined using pricing models for which the
assumptions utilize managements estimates of market participant assumptions.
 As of March 31, 2008, there was insufficient observable auction rate security market
information available to determine the fair value of the Failed Auction Securities. As
such, the Companys investments in Failed Auction Securities were deemed to require
valuation using Level 3 inputs.  Consistent with SFAS 157, management, after consulting with
outside experts, valued the Failed Auction Securities using analyses and pricing models
similar to those used by market participants (i.e., buyers, sellers, and the broker-dealers
responsible for execution of the Dutch auction pricing mechanism by which each issues
interest rate was set). Management utilized a probability weighted discounted cash flow
(DCF) model to determine the estimated fair value of these securities as of March 31, 2008. 
The assumptions used in preparing the DCF model included estimates for the amount and timing
of future interest, principal payments, and the rate of return required by investors to own
these securities in the current environment, and the estimated timeframe during which
successful auctions for these securities will occur.  In making these assumptions,
management considered relevant factors including: the formula applicable to each security
which defines the interest rate paid to investors in the event of a failed auction; forward
projections of the interest rate benchmarks specified in such formulas; the likely timing of
principal repayments; the probability of full repayment considering the guarantees by the
U.S. Department of Education of the underlying student loans, guarantees by other third
parties, and additional credit enhancements provided through other means; and publicly
available pricing data for recently issued student loan asset-backed securities which are
not subject to auctions. The estimate of the rate of return required by investors to own
these securities also considered the currently reduced liquidity for auction-rate
securities. An increase or decrease in the liquidity risk premium (i.e., the discount rate)
of 100 basis points as used in the model would decrease or increase, respectively, the fair
value of the Failed Auction Securities by approximately $500,000.




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3.
    
    Fair Value Measurements (continued)Assets measured at fair value on a recurring basis, consistent with SFAS 157, include the
following as of March 31, 2008 (in thousands):
 Fair Value Measurements at March 31, 2008UsingSignificantQuoted Prices
    
    Other
    
    Significantin Active
    
    Observable
    
    Unobservable
    
    Total FairMarkets
    
    Inputs
    
    Inputs
    
    Value as of(Level 1)
    
    (Level 2)
    
    (Level 3)
    
    March 31, 2008Cash Equivalents:Money Market Funds
    
    $
    23,486
    
    
    
    
    
    
    
    
    
    
    $
    23,486Auction Rate Securities:Short term investments
    
    
    3,600
    
    
    
    
    
    
    
    
    
    
    
    3,600Long term investments
    
    
    
    
    
    
    
    
    
    $
    36,500
    
    
    
    36,500
 The following table summarizes the change in the fair values for those assets valued on a
recurring basis utilizing Level 3 inputs for the three months ended March 31, 2008 (in
thousands):
 Level 3Balance at the beginning of the period [1]
    
    $
    Transfers into Level 3 categorization:
    
    
    38,500Unrealized loss included in other comprehensive (loss) income
    
    
    (2,000
    )Balance at the end of the period
    
    $
    36,500
 
 [1]
    
    The Company adopted SFAS 157 in January 2008 and, as such, had no beginning balance of such assets. All short-term and long-term investments measured at fair value are classified as
available-for-sale securities, consistent with SFAS 115. Adjustments to fair value of these
investments are recorded as an increase or decrease, net of taxes, in accumulated other
comprehensive income except when losses are considered to be other-than-temporary, in which
case the losses are recorded in other income (expense), net.Effective January 1, 2008, the Company adopted Statement of Financial Accounting
Standards 159, The Fair Value Option for Financial Assets and Financial Liabilities.
SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and
subsequent measurement for specified financial assets and liabilities on a
contract-by-contract basis. The Company did not elect the fair value option as set forth by
SFAS 159.




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4.
    
    Stock-Based CompensationThe Company accounts for stock-based compensation in accordance with Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment (FAS 123R). Stock
compensation expense for the three months ended March 31 was as follows (in thousands):
 Three Months EndedMarch 31,2008
    
    
    2007Cost of revenues
    
    $
    15
    
    
    $
    10Selling, general and administrative
    
    
    225
    
    
    
    118Research and development
    
    
    62
    
    
    
    66Total stock based compensation
    
    $
    302
    
    
    $
    194




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5.
    
    Net Income per ShareThe following table sets forth the computation of basic and diluted income per share for
the three months ended March 31 (in thousands, except per share amounts):
 Three Months EndedMarch 31,2008
    
    
    2007(as restated)Numerator:Net income
    
    $
    620
    
    
    $
    2,321Denominator:Denominator for basic income
per share-weighted average shares
    
    
    41,636
    
    
    
    41,565Effect of dilutive securities:Employee stock options
    
    
    39
    
    
    
    49Denominator for diluted income per
share  adjusted weighted-average
shares and assumed conversions
    
    
    41,675
    
    
    
    41,614Basic income per share
    
    $
    0.01
    
    
    $
    0.06Diluted income per share
    
    $
    0.01
    
    
    $
    0.06
 Options to purchase 789,129 and 1,409,678 shares of Common Stock were outstanding for the
three months ended March 31, 2008, and 2007, but were not included in the computation of
diluted income per share because the options exercise prices were greater than the average
market price of the Common Stock and, therefore, the effect would have been antidilutive.6.
    
    InventoriesInventories 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 the
Companys estimated demand and / or market
expectation were to change or if product sales were to decline, the Companys estimation
process may cause larger inventory reserves to be recorded, resulting in larger charges to
cost of revenues.




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Inventories were as follows as of March 31, 2008 and December 31, 2007 (in thousands):
 March 31, 2008
    
    
    December 31, 2007Raw materials
    
    $
    25,386
    
    
    $
    23,711Work-in-process
    
    
    3,248
    
    
    
    2,656Finished goods
    
    
    4,053
    
    
    
    4,35732,687
    
    
    
    30,724Inventory reserves
    
    
    (7,159
    )
    
    
    (7,646
    )Net balance
    
    $
    25,528
    
    
    $
    23,078
 7.
    
    InvestmentsIn May 2007, the Company invested $1,000,000 in non-voting convertible preferred stock of
GWS. The Company made an additional $1,000,000 investment in February 2008, increasing its
ownership in GWS to approximately 30%. The Companys total gross investment in GWS was
$5,000,000 as of March 31, 2008, and $4,000,000 as of December 31, 2007. GWS designs,
develops and manufactures high performance power semiconductors. A director of the Company
is the founder, Chairman of the Board, President and Chief Executive Officer, as well as
the majority voting shareholder, of GWS. The Company and GWS are parties to a
cross-license agreement, and the Company purchases certain components from GWS. Purchases
from GWS totaled approximately $873,000 for the quarter ended March 31, 2008.As previously disclosed, the Company, due to the additional investment in GWS in May 2007,
changed its method of accounting for its investment in GWS from the cost method to the
equity method of accounting. As a result, the Companys financial statements for the years
ended December 31, 2003, 2004, 2005, and 2006 were restated to reflect the equity method of
accounting, in accordance with APB 18.In accordance with APB 18, each investment in GWS has been accounted for as a step
acquisition using the purchase method of accounting, in accordance with Statement of
Financial Accounting Standards 141, Business Combinations (SFAS 141). The allocation of
the purchase price included acquired intangible assets, including core and developed
technology as well as in-process research and development (IPR&D). The excess of the
purchase price over the fair value allocated to the net assets is goodwill. The core and
developed technology is being amortized over three years. The amounts allocated to IPR&D
were charged to expense in accordance with SFAS 141, which specifies that the amount
assigned to the acquired intangible assets to be used in a particular research and
development project that have no alternative future use shall be charged to expense at the
acquisition date. The amounts included in other assets in the accompanying consolidated
balance sheets related to the net GWS investment were $897,000 and $687,000 as of March 31,
2008 and December 31, 2007, respectively, as follows (in thousands):




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7.
    
    Investments (continued)
 March 31,
    
    
    December 31,2008
    
    
    2007Equity method goodwill
    
    $
    770
    
    
    $
    634Intangible
assets, net of amortization
    
    
    127
    
    
    
    53$
    897
    
    
    $
    687
 Loss from equity method investment (net of tax) for the three months ended March 31 consists
of the following (in thousands):
 2008
    
    
    2007(As restated)Allocation of losses from equity method investment (net of tax)
    
    $
    29
    
    
    $
    22Amortization of intangible assets and other (net of tax)
    
    
    55
    
    
    
    59Other than temporary decline in investment
    
    
    706
    
    
    
    $
    790
    
    
    $
    81
 Net income for the three months ending March 31, 2007 was affected by the change in
accounting principle from cost method to equity method of accounting for the investment in
GWS. Net income as restated for the three months ending March 31, 2007 was $2,321,000, as
compared to net income as previously reported of $2,402,000. Basic and diluted income per
share as restated and as previously reported was $0.06, respectively.The Company periodically evaluates the investment in GWS to determine if there are any events
or circumstances that are likely to have a significant adverse effect on the fair value of the
investment, including the net book value of acquired intangible assets and goodwill. Examples of
such impairment indicators include, but are not limited to: GWS actual results of operations,
actual results of operations compared to forecast, working capital requirements, additional
third-party equity investment, if any, and other considerations. If an impairment indicator is
identified, the fair value of the investment is estimated and compared it to its carrying value.
If the fair value of the investment is less than its carrying value, the investment is impaired and
a determination is made as to whether the impairment is other-than- temporary. For
other-than-temporary impairments, an impairment loss equal to the difference between an
investments carrying value and its fair value is recognized. During the three months ending
March 31, 2008, the investment was adjusted for a decline in value judged to be other than
temporary of $706,000. Deterioration or changes in GWS business in the future could lead to such impairment
adjustments in future periods and the impairment adjustments may be material.




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7.
    
    Investments (continued)Summary financial information for GWS is as follows (in thousands):
 As ofMarch 31,
    
    December 31,2008
    
    2007(unaudited)Current assets
    
    $
    2,400
    
    
    $
    2,322Noncurrent assets
    
    
    3,084
    
    
    
    3,110Total assets
    
    
    5,484
    
    
    
    5,432Current liabilities
    
    
    1,809
    
    
    
    1,743Noncurrent liabilities
    
    
    400
    
    
    
    1,354Minority interests
    
    
    3,663
    
    
    
    3,614Total stockholders equity (deficit)
    
    
    (387
    )
    
    
    (1,280
    )
 Three
Months Ended March 31,2008
    
    2007(unaudited)Net revenue
    
    $
    1,732
    
    
    $
    382Gross margin
    
    
    494
    
    
    
    134Net income (loss)
    
    
    (111
    )
    
    
    (124
    )
 8.
    
    Product WarrantiesThe 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.




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##### Table of Contents



Product Warranties (continued)
 Product warranty activity for the three months ended March 31, 2008 and 2007 was as follows
(in thousands):
 2008
    
    
    2007Balance at the beginning of the period
    
    $
    679
    
    
    $
    1,046Accruals for warranties for products sold in the period
    
    
    59
    
    
    
    26Fulfillment of warranty obligations
    
    
    (51
    )
    
    
    (36
    )Revisions of estimated obligations
    
    
    6
    
    
    
    (25
    )Balance at the end of the period
    
    $
    693
    
    
    $
    1,011
 The Company accounts for extended warranty provisions in accordance with FASB Technical
Bulletin 90-1, Accounting for Separately Priced Extended Warranty and Product Maintenance
Contracts.9.
    
    Income TaxesIn 2008, the tax provision is based on the estimated annual effective tax rate for 2008,
which includes estimated federal, state and foreign income taxes on the Companys projected
annual pre-tax income and estimated federal and state income taxes for certain
minority-owned subsidiaries that are not part of the Companys consolidated income tax
returns, offset by the expected utilization of federal and foreign net operating loss
carryforwards. The 2008 tax provision also includes discrete items, principally for
increases in accrued interest for potential liabilities. In 2007, the tax provision is
based on an estimated annual effective tax rate for 2007, which included estimated federal,
state and foreign income taxes on the Companys projected annual pre-tax income, estimated
federal and state income taxes for certain minority-owned subsidiaries that are not part of
the Companys consolidated income tax returns, and increases in accrued interest for
potential liabilities, offset by the expected utilization of foreign net operating loss
carryforwards and the release of certain valuation allowances related to temporary book
versus tax differences. The expense was offset by a discrete item representing refunds of
interest received and recorded as a benefit during the first quarter of 2007 as final
settlement related to the audit of the Companys federal tax returns for the tax years 1994
through 2002 by the Internal Revenue Service.




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10.
    
    Comprehensive Income (Loss)The following table sets forth the computation of comprehensive (loss) income for the three
months ended March 31 (in thousands):
 Three Months EndedMarch 31,2008
    
    
    2007(as restated)Net income
    
    $
    620
    
    
    $
    2,321Foreign currency translation gain
    
    
    183
    
    
    
    14Unrealized (losses) gains (net of tax) on
available-for-sale securities
    
    
    (2,000
    )
    
    
    6Comprehensive (loss) income
    
    $
    (1,197
    )
    
    $
    2,341
 As of March 31, 2008, the Company performed a valuation of its Failed Auction Securities
(see Note 3.). Based on that valuation, the Company recorded a reduction in the aggregate
value of these investments of $2,000,000, for which the Company believes represents a
temporary decline in value.11.
    
    Legal ProceedingsThe Company and VLT, Inc. (VLT), a wholly owned subsidiary of the Company, have been
pursuing patent infringement claims directly against Artesyn Technologies (Artesyn),
Lucent Technologies and Tyco Electronics  Power Systems, Inc. (Lucent / Tyco) in the
United States District Court in Boston, Massachusetts. The lawsuit against Lucent was
filed in May 2000 and, in April 2001, the Company added Tyco Electronics as a defendant in
that lawsuit. The lawsuit against Artesyn was filed in February 2001. In the second
quarter of 2007, the Company entered into separate settlement agreements with Artesyn and
Lucent/Tyco, under which the Company received payments of $1,770,000 in full settlement of
the Companys infringement claims against Artesyn and Lucent/Tyco. The full amount of the
payment, net of a $177,000 contingency fee accrued by the Company for its litigation
counsel, was recorded in the second quarter of 2007.On February 22, 2007, the Company announced that it had reached an agreement in principle
with Ericsson, Inc., to settle a lawsuit brought by Ericsson against the Company in
California state court. Under the terms of the settlement agreement entered into on March
29, 2007, after a Court ordered mediation, the Company paid $50.0 million to Ericsson, of
which $12.8 million was paid by the Companys insurance carriers. Accordingly, the Company
recorded a net loss of $37.2 million from the litigation-related settlements in the fourth
quarter of 2006. The Company is seeking further recoveries from its insurance carriers.
The Companys decision to enter into the settlement followed an adverse ruling by the Court
in January 2007 in connection with a settlement between Ericsson and co-defendants Exar
Corporation (Exar) and Rohm Device USA, LLC (Rohm), two of the Companys component




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11.
    
    Legal Proceedings (continued)
 suppliers prior to 2002. The Companys writ of mandate appeal of this ruling was denied in
April, 2007. In September 2007, the Company filed a notice of appeal of the Courts
decision upholding the Ericsson-Exar-Rohm settlement, which is pending. In December 2007,
the Court awarded Exar and Rohm amounts for certain statutory and discovery costs
associated with this ruling. Since this matter
was outstanding as of June 30, 2007, the Company accrued $240,000 in the second quarter of
2007 as a result of the Courts decision.In addition, the Company is involved in certain other litigation and claims incidental to
the conduct of its business. While the outcome of lawsuits and claims against the Company
cannot be predicted with certainty, management does not expect any current litigation or
claims to have a material adverse impact on the Companys financial position or results of
operations.12.
    
    Segment InformationThe Company has organized its business segments according to its key product lines. The
Brick Business Unit segment (BBU) designs, develops, manufactures and markets the
Companys modular power converters and configurable products. The V*I Chip segment
consists of V*I Chip Corporation, a wholly owned subsidiary which designs, develops,
manufactures and markets the Companys Factorized Power Architecture products. The Picor
segment consists of Picor Corporation, a majority-owned subsidiary of the Company, which
designs, develops, manufactures and markets power management integrated circuits and
related products for use in a variety of power system applications. Picor develops these
products to be sold as part of the Companys products or to third parties for separate
applications.The following table provides significant segment financial data as of and for the three
months ended March 31, 2008 and 2007 (in thousands):
 BBU
    
    V*I Chip
    
    Picor
    
    Corporate
    
    Eliminations
    
    Total2008:Net revenues
    
    $
    49,010
    
    
    $
    4,315
    
    
    $
    1,143
    
    
    $
    
    
    
    $
    (999
    )
    
    $
    53,469Income (loss) from
operations
    
    
    7,577
    
    
    
    (6,141
    )
    
    
    (681
    )
    
    
    (148
    )
    
    
    290
    
    
    
    897Total assets
    
    
    157,729
    
    
    
    15,575
    
    
    
    7,553
    
    
    
    106,263
    
    
    
    (95,494
    )
    
    
    191,626Depreciation and
amortization
    
    
    1,536
    
    
    
    575
    
    
    
    97
    
    
    
    378
    
    
    
    
    
    
    
    2,5862007:Net revenues
    
    $
    45,875
    
    
    $
    971
    
    
    $
    1,153
    
    
    $
    
    
    
    $
    (1,018
    )
    
    $
    46,981Income (loss) from
operations
    
    
    7,538
    
    
    
    (5,868
    )
    
    
    (589
    )
    
    
    (390
    )
    
    
    123
    
    
    
    814Total assets (as restated)
    
    
    123,825
    
    
    
    9,232
    
    
    
    7,346
    
    
    
    108,980
    
    
    
    (56,769
    )
    
    
    192,614Depreciation and
amortization
    
    
    1,950
    
    
    
    486
    
    
    
    116
    
    
    
    581
    
    
    
    
    
    
    
    3,133
 The elimination for total assets is principally related to inter-segment receivables due to
the BBU segment for the funding of V*I Chip segment operations and for the purchase of
equipment for both V*I Chip and Picor segments.




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##### Table of Contents



13.
    
    DividendsOn March 14, 2008, the Companys Board of Directors approved a cash dividend of $0.15 per
share of the Companys stock. The total dividend of approximately $6,245,000 was paid on
April 18, 2008 to shareholders of record at the close of business on April 2, 2008.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. The Board of
Directors anticipates reviewing its dividend policy on a semi-annual basis.14.
    
    Impact of Recently Issued Accounting StandardsIn December 2007, the FASB issued Statement of Financial Accounting Standards 141 (revised
2007), Business Combinations (SFAS 141R). SFAS 141R changes accounting for acquisitions
that close beginning in 2009. More transactions and events will qualify as business
combinations and will be accounted for at fair value under the new standard. SFAS 141R
promotes greater use of fair values in financial reporting. Some of the changes will
introduce more volatility into earnings. SFAS 141R is effective for fiscal years beginning
on or after December 15, 2008. The Company has not determined the impact, if any, SFAS 141R
will have on its financial position or results of operations.In December 2007, the FASB issued Statement of Financial Accounting Standards 160,
Noncontrolling Interests in Consolidated Financial Statements (SFAS 160), an amendment of
ARB No. 51. SFAS 160 will change the accounting and reporting for minority interests,
which will be recharacterized as noncontrolling interests and classified as a component of
equity. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008.
SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for
existing minority interests. The Company has not determined the impact, if any, SFAS 160
will have on its financial position or results of operations.




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##### Table of Contents



Item 2  Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Critical Accounting Policies and Estimates
  Fair Value Measurements
 Fair Value
Measurements




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##### Table of Contents



Results of Operations
 Three months ended March 31, 2008, compared to three months ended March 31, 2007




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##### Table of Contents



Increase2008
    
    
    2007
    
    
    (decrease)Interest income
    
    $
    903
    
    
    $
    1,518
    
    
    $
    (615
    )Foreign currency gains
    
    
    262
    
    
    
    41
    
    
    
    221Minority interest in net income of subsidiaries
    
    
    (445
    )
    
    
    (17
    )
    
    
    (428
    )Other
    
    
    35
    
    
    
    35
    
    
    
    $
    755
    
    
    $
    1,577
    
    
    $
    (822
    )




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##### Table of Contents



Liquidity and Capital Resources




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##### Table of Contents



FORM 10-Q
PART I
ITEMS 2-3
PAGE 24
     
 Item 3  Quantitative and Qualitative Disclosures About Market Risk




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FORM 10-Q
PART I
ITEM 4
PAGE 25
   
 Item 4  Controls and Procedures




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FORM 10-Q
PART I
ITEM 4
PAGE 26
        
    
    The Company has hired a new Chief Financial Officer with the
appointment of James A. Simms, effective April 14, 2008.
    
    The Company is in the process of performing an overall assessment of
the staffing requirements for the accounting department to assist the
Company in evaluating complex and judgmental accounting, tax and
financial reporting issues.




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##### Table of Contents



FORM 10-Q
PART II
ITEMS 1-1A
PAGE 27
  
   
 Item 1  Legal Proceedings
    
 Item 1A  Risk Factors




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FORM 10-Q
PART II
ITEMS 2-5
PAGE 28
 
 
 Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Purchases of Equity Securities
 Maximum Number(of ApproximateTotal Number of
    
    
    Dollar Value) ofShares (or Units)
    
    
    Shares (or Units)Total Number
    
    
    
    
    
    
    Purchased as Part
    
    
    that May Yet Beof Shares (or
    
    
    
    
    
    
    of Publicly
    
    
    Purchased UnderUnits)
    
    
    Average Price Paid
    
    
    Announced Plans
    
    
    the Plans orPeriod
    
    Purchased
    
    
    per Share (or Unit)
    
    
    or Programs
    
    
    ProgramsJanuary 1 - 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,541,000February 1 - 29, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,541,000March 1 - 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,541,000Total
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    8,541,000
  
 Item 3  Defaults Upon Senior Securities
  
 Item 4  Submission of Matters to a Vote of Security Holders
  
 Item 5  Other Information




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FORM 10-Q
PART II
ITEM 6
PAGE 29
 
 
 Item 6  Exhibits
 Exhibit Number
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 193431.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 193432.1
    
    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 200232.2
    
    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




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FORM 10-Q
PART II
PAGE 30
 
 SIGNATURES
  VICOR CORPORATIONDate:
May 12, 2008
    
    By:
    
    /s/ Patrizio Vinciarelli

Patrizio VinciarelliPresident, Chief Executive Officerand Chairman of the Board(Principal Executive Officer)
 Date:
May 12, 2008
    
    By:
    
    /s/ James A. Simms

James A. SimmsVice President, Chief Financial Officer(Principal Financial Officer)