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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal year ended December 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________________ to ____________________
Commission File number 1-12432
AMERICAN POWER CONVERSION CORPORATION
(Exact name of Registrant as specified in its charter)
MASSACHUSETTS 04-2722013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
132 FAIRGROUNDS ROAD, WEST KINGSTON, RHODE ISLAND 02892
(Address of Principal Executive Offices)
401-789-5735
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12 (b) of the Act:
Common Stock, $.01 par value
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (229.405 of this chapter)
is not contained herein, and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K [ X ]
The aggregate market value of the voting stock held by non-
affiliates of the Registrant on March 19, 1996 was approximately
$698,775,000 based on the price of the last reported sale as
reported by the Nasdaq Stock Market on March 19, 1996. The
number of shares outstanding of the Registrant's Common Stock on
March 19, 1996 was 93,297,172.
Documents Incorporated by Reference
Portions of the Registrant's definitive Proxy Statement in
connection with the Annual Meeting of the Shareholders to be
held on June 13, 1996 are incorporated by reference in Part III
hereof.
= Exhibit Index on Sequentially Numbered Page 33 =
1
Part I
Item 1. Description of Business
The Company
American Power Conversion Corporation and its subsidiaries (the
"Company") designs, develops, manufactures, and markets a line
of uninterruptible power supply products ("UPS"), electrical
surge protection devices ("Surge"), power conditioning products
and associated software and accessories for use with personal
computers, engineering work stations, file servers,
communications and internetworking equipment, and a variety of
other sensitive electronic devices which rely on electric
utility power. The variation or interruption of power to
sensitive parts of a computer system may damage or destroy
important data or the computer's set of operating instructions.
The Company's UPS products provide protection from disturbances
in the smooth flow of power while utility power is available and
provide automatic, virtually instantaneous backup power in the
event of a loss of utility power. The backup power lasts for a
sufficient period of time (from 5 minutes to several hours) to
enable the user to continue computer operations or conduct an
orderly shutdown of the protected equipment and preserve data.
The Company's surge and power management devices provide
protection from electrical power surges and noise in the flow of
utility power.
The Company markets its products to business users around the
world through a variety of distribution channels, including
computer distributors and dealers, mass merchandisers, catalog
merchandisers, and private label accounts. The Company believes
that the proprietary design of its products, its strict quality
control systems and its automated production equipment enable it
to provide customers with high-performance, cost-effective
products and are primarily responsible for its high rate of
growth.
The Company was incorporated under the laws of the Commonwealth
of Massachusetts on March 11, 1981. The Company's executive
offices are located at 132 Fairgrounds Rd., West Kingston, RI
02892 and its telephone number is (401) 789-5735.
Market Overview
The UPS industry's growth is the result of the rapid
proliferation of microprocessor-based equipment and related
systems in the corporate marketplace as well as in small
business and home environments. Microcomputers have become an
integral part of the overall business strategy of many
organizations and are now the workstation of choice in most
office environments as well as in many technical and
manufacturing settings. Businesses continue to change their
computer configurations from mainframe and remote terminals to
linked microcomputers in local area networks ("LANs").
Microcomputers have become increasingly important and it has
become necessary to ensure that data stored in, and operating
instructions for, microcomputers are protected from fluctuations
in utility power. Businesses are also becoming aware of the
need to protect devices such as hubs, routers, bridges and other
"smart" devices that manage and interconnect networks. In
addition to the demand that traditional server-based networks
create for UPSs, the growth opportunities from the proliferation
of peer-to-peer networks (where intelligence is distributed
among all the devices in a network rather than a single server)
and wide-area networks (such as the Internet) will further
stimulate UPS demand.
The Company believes that the increasing awareness of the costs
associated with poor power quality has increased demand for
power protection products. Complete failures ("blackouts"),
surges ("spikes") or sags ("brownouts") in the electrical power
supplied by a utility can cause computers and related electronic
systems to malfunction, resulting in costly downtime, damaged or
lost data files and damaged hardware. A UPS protects against
these power disturbances by providing continuous power
automatically and virtually instantaneously after the electric
power supply is interrupted, as well as line filtering and
protection against surges or sags while the electric utility is
operating. An uninterruptible power source can draw on the
energy stored in its internal battery to provide continuous,
surge-free, computer power. Power quality in many international
regions often results in varied levels of distortions and, as a
result, these areas provide the Company with significant
opportunities for its products.
The Company has also targeted recent promotional efforts at the
Small Office, Home Office (SOHO) market which it has identified
as a significant growth opportunity for the future. A recent
study representing high end technical home users indicated that
greater than 50% of the respondents plan to buy UPSs in the next
twelve months. The study also indicates an increasing number of
these respondents are purchasing UPSs rather than surge
protection devices. The Company has also targeted industries
that are becoming more dependent on electronic systems, such as
the telecommunication industry, as a potential market growth
opportunity. The Company believes that the overall penetration
of the PC market by UPS products remains less than 10%.
2
Products
The Company's strategy has been to design and manufacture
products which incorporate high-performance and quality at
competitive prices. In addition, certain products are designed
to be aesthetically pleasing and appropriate for use in an
office environment. The products are engineered and extensively
tested for compatibility with many common microcomputers and
small minicomputers.
Each of the Company's UPS products contains the following
elements necessary to perform its function:
- Surge suppressors and noise filters for protection from
surges in utility power;
- A rechargeable battery to provide backup power;
- An inverter to convert battery power to usable AC current;
- A battery charger;
- An automatic high-speed switch to transfer to backup power
on loss of utility power; and
- Sensors, control circuits and indicators to properly
sequence operation and provide status information to the user.
Each of the Company's Power Conditioning products contains the
following elements necessary to perform its function:
- A multi-level tap changing autotransformer that rapidly
adjusts output voltage to compensate for line voltage fluctuations;
- Surge suppressors and noise filters for protection from
surges in utility power; and
- Sensors, control circuits and indicators to properly
sequence operation and provide status information to the user.
Each of the Company's Surge protection products contains the
following elements necessary to perform its function:
- Surge suppressors and noise filters for protection from
surges in utility power; and
- Sensors, control circuits and indicators to provide status
information to the user.
The Company currently manufactures approximately 130 standard
domestic and international UPS models designed for different
applications. The principal differences among the products are
the amount of power which can be supplied during an outage, the
length of time for which battery power can be supplied ("the
hold time"), the level of intelligent network interfacing
capability and the number of brownout and overvoltage correction
features. The Company's present line of UPS products ranges
from 200 volt-amps (suitable for a small footprint desktop
microcomputer) to 5,000 volt-amps (suitable for a minicomputer
or file server cluster). The products can also support work
groups utilizing either a LAN or a multi-user system consisting
of a host computer and linked terminals. List prices to end-
users for products ranging from 200 volt-amps to 2,200 volt-amps
range from $119 to $2,229. List prices to end-users for
products ranging from 3,000 volt-amps to 5,000 volt-amps range
from $2,649 to $6,770. In addition to its UPS products designed
for the office environment, the Company manufactures rack mount
UPS products designed for use in back office and manufacturing
operations. The Company offers two sizes of Line-R power
conditioning products that have list prices to end-users of $179
and $299. The SurgeArrest, PowerManager and ProtectNet
products consist of 44 models with the principal difference
among the models being the level of protection available and
feature sets. List prices to end-users range from $15 to $135.
The Company also develops a family of software products under
the PowerChute(R) plus name which provides its users with
unattended shutdown capabilities, UPS power management and
diagnostic features. List prices to end-users for software
products range from $69 to $399.
During 1995, the Company introduced 155 new products, including
a major transition of its flagship product line, the Smart-
UPS(R), from its five year old design to a new third generation
product feature set, including automatic voltage regulation and
adjustment, an user-replaceable battery replacement system and
an internal accessory option slot. The Company also introduced
its Back-UPS(R) Pro product, which was the first UPS product to
be "plug & play" compatible with Windows 95, and the Smart-UPS
v/s products, a line of UPS products for departmental server
applications. Software product introductions included the
Company's first advanced UPS/Power Managment software package
tailored specifically for the IBM AS/400 environment.
3
Service Programs
The Company provides service programs to its customers for in-
warranty and out-of-warranty UPS products. The Company's
standard practice is to grant a two-year limited warranty
covering its UPS products. The Company offers its customers the
opportunity to extend the basic warranty period, at an
additional charge, up to five years (an additional three years).
In-warranty service programs allow customers to return their
original unit for repair and, if found defective, the Company
will replace the original unit with a factory reconditioned unit
or, if requested, repair the original unit and return it to the
customer. The extended warranty can be purchased anytime during
the standard warranty period. Customers who purchase the three-
year extension will enjoy warranty coverage for a total of five
full years from the original UPS purchase date. For a fixed fee
(varying by model), the Company will replace an out-of-warranty
UPS unit with a factory reconditioned unit.
The Company has a Lifetime Equipment Protection policy (U.S. and
Canada only) which provides up to $25,000 for repair or
replacement of customers' hardware should a surge or lightning
strike pass through a Company unit. The policy applies to all
units manufactured after January 1, 1992. Other restrictions
also apply. The Company's customers can also register the
ProtectNet line of data line surge suppressors for a unique
"Double-Up" Supplemental Equipment Protection Policy, under
which the total recoverable limit under the Lifetime Equipment
Protection policy is doubled, up to $50,000.
The Company's products have experienced satisfactory field
operating results, and warranty costs incurred to date have not
had a significant impact on the Company's consolidated results
of operations.
Distribution Channels
The Company markets its products through a domestic and
international network of computer distributors, computer
dealers, mass merchandisers and catalog merchandisers. The
Company also sells directly to some large value added resellers,
which typically integrate the Company's products into
specialized microcomputer systems and then market turnkey
systems to selected vertical markets. The Company also sells
certain selected products directly to manufacturers for
incorporation into products manufactured or packaged by them.
In 1995, the Company sold products to more than 2,000 customers.
The Company's largest customer, Ingram Micro Corporation,
accounted for approximately 9%, 11%, and 11% of the Company's
net sales in 1995, 1994, and 1993, respectively. In 1995, sales
to the Company's domestic distributors, value added resellers
and private label customers accounted for approximately 55%, 7%,
and 5%, respectively, of the Company's net sales. In 1995,
sales outside of North America constituted approximately 36% of
the Company's net sales.
The Company believes that its extensive distribution network is
an important factor in achieving significant penetration into
the markets it serves. The Company has developed a strong
relationship with its dealers and distributors by providing high
quality products and support services, including product and
sales training, cooperative advertising, and promotions and
product literature.
Sales and Marketing
The Company's sales and marketing organization is responsible
for four activities: sales, marketing, customer service and
technical support. The Company's sales staff is responsible for
relationships with existing distributors and dealers and
developing new distribution channels, particularly in geographic
areas into which the Company is expanding. The sales group
conducts ongoing training and support for dealers and
distributors. In order to improve the efficiency and
effectiveness of the sales organization, the Company recently re-
organized its sales force to provide a much closer focus on the
customer by creating customer units dedicated to specific
customer groups and charged with providing their customers with
product and service solutions to the power management needs.
Sales personnel typically have an engineering background.
The Company's marketing activities include market research,
product planning, trade shows, sales and pricing strategies,
advertising, and product sales literature. The Company also
utilizes direct marketing efforts, including direct mailings,
advertising in computer trade publications and exhibiting at
major computer trade shows, both domestically and
internationally. Customer service is responsible for all
technical marketing inquiries and customer support. The Company
has developed a number of programs and techniques to support the
Company's distribution channels. These include a technical
assistance "hot line" and formal product demonstrations.
4
Manufacturing, Quality Control and Supply
The Company's manufacturing operations are located in the United
States (Rhode Island and Florida) and Ireland.
The Company believes that its long-term success depends on,
among other things, its ability to control its costs. The
Company utilizes state of the art automated manufacturing
techniques and extensive quality control in order to minimize
costs and maximize product reliability. In addition, the design
of products and the commonality of parts allows for efficient
circuit board component insertion, wave soldering, and in-
process testing. Quality control procedures are performed at
the component, sub-assembly, and finished product levels. To
insure the highest level of quality and product reliability, the
Company has implemented 100% product testing at seven discrete
levels in its manufacturing process. Product design and
efficient manufacturing techniques have enabled the Company to
keep its direct and indirect manufacturing labor costs
(including incentive bonuses), as a percentage of net sales,
below that of similar manufacturing companies in the electronics
industry.
In September 1993, the National Quality Assurance granted the
Company its ISO 9000 quality seal. The Company's systems have
been audited to the stringent ISO 9002 level.
The Company generally purchases devices and components from more
than one source where alternative sources are available;
however, it does use sole source suppliers for certain
components. The Company believes that alternative components
for these sole source items could be incorporated into the
Company's products, if necessary. While the Company has been
able to obtain adequate supplies of its components from sole
source suppliers, the future unavailability of components from
these suppliers could disrupt production and delivery of
products until an alternative source is identified.
Product Development
The Company's research and development staff includes engineers
and support persons who develop new products and provide
engineering support for existing products. The Company's
research and development efforts are also aimed at reducing
cost and total cycle time and improving product and component
quality. Most of these employees are located in a newly
acquired facility in Billerica, Massachusetts and devote their
efforts to research and development. Employees devoted to the
improvement and development of software products are located in
the West Kingston, Rhode Island facility. The Company believes
that the technical expertise of its research and development
staff is very important to its growth as technological change
is rapid in the UPS field.
During 1994, the Company expanded its Smart-UPS and Back-UPS
families of products. The Back-UPS Pro series of products
provide enhanced Back-UPS power protection for advanced
workstations. The Smart-UPS v/s products are designed to
provide power protection for small business and departmental
local-area networks. In addition, the Company developed new
Smart-UPS products in the 700, 1000, 1400, 2200 and 3000 volt-
amp category. The Company also introduced data line surge
protection with its ProtectNet product line. Software
development achievements resulted in the introduction of new
and enhanced versions of the Company's software applications by
adding to the number of operating systems with which the
Company's software applications are compatible.
The Company's design center includes a UPS test facility with a
custom-made AC power fault simulator. This test facility is
used to evaluate and extensively test new designs and to
provide comparative data on competitive products.
During the years ended December 31, 1995, 1994, and 1993,
expenditures for the Company's research and development were
$13,193,037, $9,742,553 and $7,143,942, respectively. The
Company expects its research and development expenditures will
remain at substantially the same level as a percentage of sales
for the foreseeable future.
Intellectual Property
The Company protects certain proprietary rights in its products
as well as certain proprietary technology developments by
seeking patent protection. The loss of such rights concerning
these developments would not have a material adverse effect on
the Company's business. With respect to protection of those
areas of its technology for which patent protection has not been
sought, the Company relies on the complexity of its technology,
trade secrecy law, and employee confidentiality agreements.
The Company has numerous trademarks registered in the United
States and in several foreign countries. The Company also has
trademark applications pending domestically and internationally.
5
The Company believes that its trademarks are valuable intangible
assets but also believes that the loss of any one trademark
would not have a material adverse effect on its operations.
Competition
The Company believes that it is one of the three global
companies providing a full range of UPS products and services
worldwide. The Company also competes with a number of other
companies which offer UPS products similar to the Company's
products. Some of these competitors have greater financial and
other resources than the Company. Furthermore, other well-
established companies which manufacture and market UPS products
for the mainframe and large minicomputer markets, and do not
presently compete directly with the Company, could develop
products competitive with those of the Company. The Company
competes in the sale of its products on the basis of several
factors, including product performance and quality, marketing
and access to distribution channels, customer service, product
design, and price.
Because the Company's manufacturing process is highly automated,
direct and indirect manufacturing labor costs (including
incentive bonuses), as a percentage of net sales, have remained
below that of similar manufacturing companies in the electronics
industry.
International Operations
The Company plans to continue to expand its international
marketing efforts and manufacturing operations. With a full
line of internationally-positioned products already available,
the Company continues to staff personnel to serve the
geographical markets of interest. The Company presently
utilizes third party warehouses in Australia, Japan, Canada,
Singapore and the Netherlands for distribution into its
international markets. The Company's primary manufacturing
operation outside of the United States is located in Galway,
Ireland. American Power Conversion Europe, S.A.R.L., American
Power Conversion Corporation's subsidiary located in France,
provides sales and marketing support to customers in Europe, the
Middle East, the former Soviet Union and Africa and its revenues
are in the form of commissions from the U.S. parent and Galway
operations. The Company's consolidated financial statements
include the accounts of all of its wholly-owned subsidiaries.
On January 31, 1994, American Power Conversion Corporation
formally established operations in Galway, Ireland through its
subsidiary, American Power Conversion Corporation (A.P.C.) B.V.
The facility is providing manufacturing and technical support to
better serve the Company's markets in Europe, the Middle East,
Africa and Russia.
The Company executed an agreement with the Industrial
Development Authority of Ireland ("IDA") under which the Company
will receive grant monies equal to 40% of the costs incurred for
machinery, equipment and building improvements for the Galway
facility. The maximum amount attainable under the agreement is
approximately $13.1 million. The grant monies would be
repayable, in whole or in part, should (1) the Company fail to
meet certain employment goals established under the agreement
which are to be achieved over a five year implementation period
and/or (2) the Company discontinues operations in Ireland prior
to the termination of the agreement. The agreement terminates
eight years from the date of the last claim made by the Company
for grant monies. The total cumulative amount of capital grant
claims submitted through December 31, 1995 was approximately
$8.9 million. The total cumulative amount of capital grants
received through December 31, 1995 amounted to approximately
$5.5 million. Under a separate agreement with the IDA, the
Company will also receive up to $3,000 per new employee hired
for the direct reimbursement of training costs. The total
cumulative amount of training grant claims submitted through
December 31, 1995 was approximately $2.0 million. The total
cumulative amount of training grants received through December
31, 1995 amounted to approximately $400,000.
The Company continues to investigate potential sites for
manufacturing expansion in international regions. On November
2, 1995, the Company announced that it will begin further
negotiations with the IDA for financial incentives in connection
with the possible future expansion of the Company's
manufacturing operations to additional sites within Ireland.
Financial Information About Foreign and Domestic Operations and
Export Sales
The information required under this section is included in note
10 of Notes to Consolidated Financial Statements in Item 8 of
this Report and is incorporated herein by reference.
Employees
As of December 31, 1995, the Company had approximately 2,340
full-time employees worldwide, approximately 1,700 of whom are
located in the United States and Canada. The Company also
6
engages other personnel on a part-time basis. On February 29,
1996, in an effort to strengthen its competitive position for
the long term, the Company reduced its workforce by 174 full-
time manufacturing employees in Rhode Island and 10 full-time
employees in Florida. The Company considers its relations with
employees to be good.
Executive Officers of the Company
Executive officers of the Company are elected annually and hold
office until the next Annual Meeting of the Board of Directors
and until their successors are duly elected and qualified. As
of March 19, 1996, the executive officers of the Company were as
follows:
Name Age Positions
Rodger B. 46 Chairman of the Board of Directors,
Dowdell, Jr. President, and Chief Executive
Officer
Neil E. 41 Vice President of Engineering and
Rasmussen Director
Edward W. 42 Vice President of Operations and
Machala Treasurer
Donald M. Muir 39 Chief Financial Officer
Emanuel E. 59 Vice President, Clerk and Director
Landsman
Darrell 36 Vice President of Sales
Lucente
John DiPippo 30 Vice President of Marketing
David P. Vieau 45 Vice President of Worldwide Business
Development
Rodger B. Dowdell, Jr. joined the Company in August 1985 and has
been the President and a Director since that time. From January
to August 1985, Mr. Dowdell worked for the Company as a
consultant, developing a marketing and production strategy for
UPS products. From 1978 to December of 1984 he was President of
Independent Energy, Inc., a manufacturer of electronic
temperature controls.
Neil E. Rasmussen has been Vice President and a Director of the
Company since its inception. From 1979 to 1981, Mr. Rasmussen
worked in the Energy System Engineering Group at Massachusetts
Institute of Technology's Lincoln Laboratory.
Edward W. Machala joined the Company in January 1989 as Vice
President of Operations. From January 1985 to January 1989, Mr.
Machala was Director of Manufacturing and Engineering Technology
for GTECH, a manufacturer of electronic lottery and gaming
terminals, where he was responsible for manufacturing and
engineering functions. Mr. Machala was responsible for the
design, development and implementation for manufacturing systems
at the GTECH Technical Facility and the development of off-site
facilities.
Donald M. Muir joined the Company in July 1995 as Chief
Financial Officer. From July 1993 to July 1995, Mr. Muir was
the Treasurer of Stratus Computer, Inc. where he was responsible
for managing investor relations, treasury services, corporate
taxation and risk management. Prior to his appointment as
Treasurer at Stratus Computer, Inc., Mr. Muir held the position
of Director of Finance and Administration from January 1991 to
July 1993 and Controller, Worldwide Sales and Service from
December 1988 to January 1991.
Emanuel E. Landsman has been Vice President, Clerk, and a
Director of the Company since its inception. From 1966 to 1981,
Dr. Landsman worked at Massachusetts Institute of Technology's
Lincoln Laboratory, where he was in the Space Communications
Group from 1966 to 1977 and the Energy System Engineering Group
from 1977 to 1981.
Darrell Lucente was appointed Vice President of Sales on May 1,
1995 after serving as Director of World Wide Channel Management
from January 1995 through April 1995. Mr. Lucente joined the
Company in 1989 as Northwest U.S. Regional Sales Manager, a
position he held until 1991 when he was appointed Managing
Director of APC Europe, S.A.R.L, the Company's European sales
and marketing subsidiary located in Paris, France. He held that
position until January 1995.
7
John DiPippo became Vice President of Marketing on June 5, 1995.
From August 1993 to June 1995, Mr. DiPippo served as a Business
Unit Leader of the Company's Digital Media group where he was
responsible for the Company's entry into emerging markets formed
by the convergence of computer and communications technology.
Mr. DiPippo was the Business Unit Leader of the Consumer
Products group from January 1992 to August 1993 and served as
Channel Manager for Retail, Catalog and Mail Order customers
from January 1991 to January 1992. Mr. DiPippo joined the
Company in 1989.
David P. Vieau assumed the position of Vice President of
Worldwide Business Development in October 1995 after completing
a short sabbatical. Mr. Vieau served as Vice President of
Marketing from October 1991 to June 1995. From July 1988 to
August 1991, he was President of Poly-Flex Circuits, Inc., a
division of Cookson America.
Item 2. Properties
The Company's U.S manufacturing and primary distribution center
is located at 132 Fairgrounds Road in West Kingston, Rhode
Island. Of the approximate 166,000 square feet of space in West
Kingston, Rhode Island, 86,000 square feet is being used for
manufacturing, 50,000 square feet for sales, marketing and
administration, and 30,000 square feet for storage of raw
materials and finished goods.
The Company also leases six facilities in Rhode Island located
in East Greenwich, North Kingstown, Warwick, West Warwick, East
Providence and Cranston, as well as two facilities in Fort
Myers, Florida. The following information pertains to each
location:
Location Use Square Feet
East Greenwich Warehouse and Offices 71,600
North Kingstown Warehouse 94,600
Warwick Warehouse 69,800
West Warwick Warehouse 200,000
Cranston Warehouse and Manufacturing 75,200
East Providence Warehouse and Manufacturing 115,800
Fort Myers Warehouse and Manufacturing 66,000
Fort Myers Warehouse 85,000
In April 1995, the Company purchased a 41,000 square foot
building in Billerica, Massachusetts to accomodate its growing
research and development operations. The building was purchased
for approximately $1.2 million and was renovated to meet the
facility requirements of these operations. The purchase price
was financed from available operating cash.
The Company's Ireland manufacturing facility is located in
Ballybrit Industrial Estate, Galway, Ireland. The facility
consists of approximately 280,000 square feet, of which 130,000
square feet are being used for manufacturing, 20,000 square feet
for sales and administration, and 130,000 square feet for
storage of raw materials and finished goods. The Company also
leases a warehouse facility in Limerick, Ireland for storage of
raw materials.
American Power Conversion Europe is located in a suburb of Paris
in leased office space consisting of approximately 3,500 square
feet. The Company also leases office space in several foreign
countries for local sales personnel.
The Company believes the facilities (owned and leased) are
suitable for its requirements currently and for the foreseeable
future; however, the Company continues to investigate potential
sites for manufacturing expansion in international regions.
8
Item 3. Legal Proceedings
As initially reported in Report on Form 10-Q for the quarter
ended June 30, 1995, several purported class action lawsuits
were filed in the United States District Court for the District
of Rhode Island in which the Company was named as a defendant,
along with certain of its officers. The lawsuits relate to
disclosures made by the Company in its public filings and press
releases and assert violations of federal securities laws. The
plaintiffs seek unspecified damages, interest, costs and fees.
In mid-February 1996, a derivative lawsuit was filed by two
shareholders on behalf and for the benefit of the Company
against certain present and former officers and/or directors of
the Company in the Superior Court of Suffolk County,
Massachusetts. The Company was also named as a nominal
defendant. The derivative action plaintiffs allege that the
individual defendants in that case traded in the stock of the
Company allegedly in breach of their fiduciary duty to the
Company. It is possible that other claims may be made against
the Company in these actions or that related allegations could
be made that could give rise to other consequences. The Company
intends to defend these lawsuits vigorously and any similar
lawsuits that may be filed; however, the ultimate outcome of
these matters cannot yet be determined.
No provision for any liability that may result from the actions
has been recognized in the consolidated financial statements
included in Item 8.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
9
Part II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters
The Company's Common Stock is traded over-the-counter on the
Nasdaq Stock Market and Pacific Stock Exchange under the symbol
APCC. The following table sets forth the range of high and low
bid quotations per share of Common Stock for the years 1995 and
1994.
1995 1994
High Low High Low
First $20 1/2 $15 1/4 $30 1/2 $20 3/4
Quarter
Second 25 7/8 14 3/8 27 3/4 14 1/2
Quarter
Third 25 1/4 12 1/8 21 3/4 15
Quarter
Fourth 13 7/8 9 1/8 20 3/4 15
Quarter
On March 19, 1996, the closing sale price for the Company's
Common Stock was $9 15/16 per share. As of March 19, 1996, there
were approximately 3,738 holders of record of the Company's
Common Stock. No cash dividends have been paid and it is
anticipated that none will be declared in the foreseeable
future. The Company currently intends to retain any earnings to
finance the growth and development of the Company's business.
Any future dividends will be at the discretion of the Board of
Directors and will depend upon, among other things, the
financial condition, capital requirements, earnings and
liquidity of the Company.
Item 6. Selected Financial Data
All amounts are in dollars except for outstanding shares.
Dollars are in thousands except for earnings per share.
10
Item 6. Selected Financial Data
1995 1994 1993 1992 1991
Net Sales $515,262 $378,295 $250,298 $157,462 $93,623
Cost of Goods Sold 284,500 189,954 122,009 78,260 48,047
Gross Profit 230,762 188,341 128,289 79,202 45,576
Costs & Expenses 127,057 82,692 53,392 36,372 21,419
Operating Income 103,705 105,649 74,897 42,830 24,157
Other Income 860 3,701 977 243 30
Earnings Before
Income Taxes 104,565 109,350 75,874 43,073 24,187
Income Taxes 35,029 38,075 27,316 15,291 8,619
Net Income 69,536 71,275 48,558 27,782 15,568
Earnings Per Share 0.74 0.77 0.53 0.31 0.17
Weighted Average
Shares Outstanding 93,866,880 92,912,824 91,588,148 91,544,654 90,869,424
Total Assets 346,588 265,163 158,971 98,454 58,173
Long Term Debt - - - - -
The Company did not declare any cash dividends for the five year
period presented. Earnings per share and share data reflect
stock splits effected in each of the fiscal years from 1991
through 1993.
11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of operations
The following table sets forth the Company's net sales, cost of
goods sold, selling, general and administrative expenses,
research and development expenses, operating income, other
income (expenses), earnings before income taxes and net income,
expressed as a percentage of net sales, for the years ended
December 31, 1995, 1994 and 1993.
1995 1994 1993
Net sales 100.0 100.0 100.0
Cost of goods sold 55.2 50.2 48.7
Gross profit 44.8 49.8 51.3
Selling, general &
administrative expenses 22.1 19.3 18.5
Research & development 2.6 2.6 2.9
Operating income 20.1 27.9 29.9
Interest income 0.3 0.6 0.4
Interest expense (0.1) - -
Other income(expense),net - 0.4 -
Earnings before taxes 20.3 28.9 30.3
Net income 13.5 18.8 19.4
Revenues
Net sales in fiscal year 1995 increased by 36.2% to $515,262,424
from $378,295,263 in fiscal year 1994 which reflected a 51.1%
increase from $250,298,455 in fiscal year 1993. The increases
from 1993 to 1995 are attributable to continued strong end-user
demand for the Company's products across fast-growing core
markets, including computer networking, internetworking
equipment and point-of-sale devices, combined with what the
Company believes is the increasing awareness by computer users
of the consequences of data loss and hardware damage which can
be caused by power problems, particularly in international
markets. In addition, sales of new products and increased
efforts by, and the addition of members to, the Company's sales
staff have contributed to increased sales volumes. Sales
attributable to new products totaled approximately 13%, 3% and
4% of 1995, 1994 and 1993 net sales, respectively.
Export and foreign sales to unaffiliated customers, primarily in
Europe, Canada, South America and the Far East in fiscal year
1995 were $204,511,326 or 39.7% of net sales compared to
$134,306,525 or 35.5% of net sales in fiscal year 1994 and
$82,741,740 or 33.1% of net sales in fiscal year 1993.
Cost of Goods Sold
Cost of goods sold was $284,500,473 or 55.2% of net sales in
fiscal year 1995 compared to $189,953,731 or 50.2% in fiscal
year 1994 and $122,009,079 or 48.7% in fiscal year 1993. The
gross margin erosion from 1994 to 1995 was primarily
attributable to several factors, including but not limited to: a
shift in product sales mix, product transition issues, rising
material component costs, including higher costing one-time
programmable microprocessors used during the early phase of new
product introductions before converting to lower costing masked
versions, and the continued costs associated with the ramp-up of
two new plants. During 1995, the product sales mix shifted
toward lower-end products as the Company actively pursued
growing opportunities in markets for the Company's lower margin
Back-UPS(R) and Surge products and, to a lesser degree, a mix
12
shift within the Smart-UPS(R) product family toward the lower
margin Smart-UPS v/s, a product targeted at price-sensitive
departmental LAN customers. Also during 1995, the Company's
Smart-UPS family underwent a major product transition as the
Company introduced a new third generation Smart-UPS product line
replacing the existing second generation, which has been in
place for the past five years. There were several product
transition impacts to gross margins: increased inventory
reserves, reduced average selling prices of the older second
generation products and the costs associated with lower
production yields on the new products. The total inventory
reserves at December 31, 1995 were $6.5 million compared to $1.1
million at December 31, 1994. The increased inventory reserves
have been provided primarily to cover the potential loss
exposure that may result from excess inventories as the demand
for second generation products diminishes. Second generation
Smart-UPS represented approximately 10% of total inventories at
December 31, 1995. The Company's reserve estimate methodology
involves quantifying the total inventory position having
potential loss exposure reduced by an amount reasonably
forecasted to be sold and adjusting its interim reserve
provisioning to cover the net loss exposure. The decline in
average sales prices of second generation products was driven
primarily by price discounting and sales promotions used to
accelerate the transition to the third generation products.
The decline from 1993 to 1994 was attributable to start-up costs
and production inefficiencies relating to the newly-established
manufacturing operations in Galway, Ireland, additional freight
and duty costs associated with the transportation of component
materials to the Galway facility, as well as the promotional
bundling of selected products at special reduced prices.
Operating Expenses
Selling, General and Administrative expenses were 22.1% of net
sales in 1995 compared to 19.3% of net sales in 1994 and 18.5%
of net sales in 1993. The increase in SG&A expenses as a
percentage of net sales for 1995 and 1994 is primarily
attributable to the hiring of additional personnel, particularly
in the sales and marketing areas, and increased advertising and
promotional efforts, both domestically and internationally. The
allowance for bad debts increased from 4.7% of accounts
receivable at December 31, 1994 to 8.9% at December 31, 1995 as
a result of additional bad debt provisioning charged to
operating expenses. The Company has experienced and continues
to experience very strong collection performance from its
accounts receivable with outstanding balances over 60 days
outstanding representing 5.8% and 8.4% of total receivables at
December 31, 1995 and 1994, respectively. Write-offs of
uncollectible accounts represent less than 1% of total
receivable balances. A majority of international customer
balances are covered by receivables insurance. The increase in
bad debt reserves was primarily attributable to increased
international sales, particularly in regions not covered by the
Company's receivables insurance (i.e. the former Soviet Union).
Research and development expenditures for 1995, 1994 and 1993
were $13,193,037, $9,742,553 and $7,143,942, respectively. The
increased research and development spending primarily reflects
increased numbers of software and hardware engineers and costs
associated with new product development and engineering support.
Although the aggregate dollars of research and development
expenses have increased from 1993 to 1995 as a result of
continued product and process development, the decrease from
1993 to 1994 as a percentage of sales is attributable to certain
fixed research and development expenses spread over a higher
revenue base.
Other Income (Expenses)
The decrease in interest income from 1994 to 1995 was
attributable to a significant reduction in funds available for
investment, particularly during the first nine months of 1995.
The increase from 1993 to 1994 was primarily due to the
continued diversification of a portion of the Company's invested
funds into low risk, government-backed securities coupled with
the upward trend of short-term investment rates. Interest
expense during 1995 was the result of short-term borrowings
during the second and third quarters of 1995 which were fully
repaid during the fourth quarter. Other income in 1994 was due
primarily to the $1.6 million settlement of an insurance claim
for the inventory losses resulting from a 1993 fire at the
Company's third-party warehouse in The Netherlands.
The Company's effective income tax rates were 33.5%, 34.8% and
36.0% in 1995, 1994 and 1993, respectively. The decrease from
1993 to 1995 is the result of tax savings derived from an
increasing portion of taxable earnings being generated from the
Company's operations in Ireland, a jurisdiction which currently
has a lower income tax rate for manufacturing companies than the
present U.S. statutory income tax rate.
13
Effects of Inflation
Management believes that inflation has not had a material effect
on the Company's operations.
Liquidity and Financial Resources
Working capital at December 31, 1995 was $226,457,935 compared
to $160,612,284 at December 31, 1994. The Company has been able
to increase its working capital position as the result of
continued strong operating results and despite financing the
capital investment of the expansion of its operations,
particularly in Ireland (see below).
Inventory turnover decreased from 2.7 turns for 1994 to 2.4 for
1995. Inventory levels had been increased in order to support
the growth in the Company's sales volume, as well as to maintain
the necessary carrying levels of raw materials, in-process
assemblies and finished stock as a result of major new products
introduced during the past five quarters, in particular, the
Smart-UPS product transition discussed above. The transistion
continued throughout 1995 as a result of continued demand for
the second generation Smart-UPS products which required
continued production and materials procurement for these
products. During the last three quarters of 1995, inventory
levels as a percentage of quarterly sales have declined from
128% in the second quarter to 108% and 104% in the third and
fourth quarters, respectively.
The Company anticipates its cash requirements for the
foreseeable future will be satisfied by cash flow from
operations, existing cash, and, if needed, short-term borrowings
or the sale of additional common stock. At December 31, 1995,
the Company had available for future borrowings $50 million
under an unsecured line of credit agreement at a floating
interest rate equal to the bank's cost of funds rate plus 0.625%
and an additional $15 million under an unsecured line of credit
agreement with a second bank at a floating interest rate equal
to the bank's base rate. No borrowings were outstanding under
these facilities at December 31, 1995 and 1994. Additionally,
the Company has no significant financial commitments outstanding
other than those required in the normal course of business.
During 1995 and 1994, the Company's capital expenditures, net of
capital grants, amounted to approximately $24.0 million and
$35.9 million, respectively, consisting primarily of
manufacturing equipment, building improvements, office equipment
and purchased software applications. The nature and level of
capital spending was made to improve manufacturing capabilities
in the United States, establish and improve manufacturing
capabilities in Galway, Ireland and to support the increased
selling, marketing and administrative efforts necessitated by
the Company's significant growth. Net capital expenditures were
financed from available operating cash. The Company had no
material capital commitments at December 31, 1995.
On January 31, 1994, American Power Conversion Corporation
formally established operations in Galway, Ireland through its
subsidiary, American Power Conversion Corporation (A.P.C.) B.V.
The facility is providing manufacturing and technical support to
better service the Company's markets in Europe, the Middle East,
Africa and Russia. The Company executed an agreement with the
Industrial Development Authority of Ireland ("IDA") under which
the Company will receive grant monies equal to 40% of the costs
incurred for machinery, equipment and building improvements for
the Galway facility. The maximum amount attainable under the
agreement is approximately $13.1 million. The grant monies
would be repayable, in whole or in part, should (1) the Company
fail to meet certain employment goals established under the
agreement which are to be achieved over a five year
implementation period and/or (2) the Company discontinues
operations in Ireland prior to the termination of the agreement.
The agreement terminates eight years from the date of the last
claim made by the Company for grant monies. The total
cumulative amount of capital grant claims submitted through
December 31, 1995 was approximately $8.9 million. The total
cumulative amount of capital grants received through December
31, 1995 amounted to approximately $5.5 million.
Under a separate agreement with the IDA, the Company will also
receive up to $3,000 per new employee hired for the direct
reimbursement of training costs. The total cumulative amount of
training grant claims submitted through December 31, 1995 was
approximately $2.0 million. The total cumulative amount of
training grants received through December 31, 1995 amounted to
approximately $400,000.
Capital expenditures, net of capital grants, for the Galway
facility amounted to approximately $6.5 million and $9.8 million
during 1995 and 1994, respectively, and were financed from
operations. Capital expenditures subsequent to 1995 will be
primarily related to manufacturing capacity requirements based
on future operational needs and market growth. In addition to
the grant monies provided by the Irish government, the remaining
capital expenditures will be financed with cash generated from
operations and, if needed, short-term borrowings or the sale of
additional common stock.
14
The Company continues to investigate potential sites for
manufacturing expansion in international regions. On November
2, 1995, the Company announced that it will begin further
negotiations with the IDA for financial incentives in connection
with the possible future expansion of the Company's
manufacturing operations to additional sites within Ireland.
The Company is presently pursuing the establishment of a
manufacturing operation in the Philippines. If established,
capital expenditures for the Philippines expansion are estimated
to be $5.0 million for 1996 and will be financed from operating
cash and, if needed, short-term borrowings.
Management believes that current internal cash flows, together
with cash and short-term investments, and the available credit
facilities are sufficient to support anticipated capital
spending and other working capital requirements for 1996.
Foreign Currency Activity
During the fourth quarter of 1994, the Company began invoicing
its customers in Great Britain, France and Germany in their
respective local currencies. Realized and unrealized
transaction gains or losses are included in the results of
operations and are measured based upon the effect of changes in
exchange rates on the actual or expected amount of functional
currency cash flows. Transaction gains and losses were not
material to the results of operations in 1995 and 1994.
At the end of 1995, the Company's unhedged foreign currency
accounts receivable, by currency, were as follows:
British Pounds - 1,836,000 (approx. US$2,869,000)
French Francs - 12,873,000 (approx. US$2,575,000)
German Marks - 3,895,000 (approx. US$2,686,000)
Total gross accounts receivable at December 31, 1995 was
$78,119,105. The Company also had non-trade receivables of
3,105,000 Irish Pounds (approximately US$4,969,000), as well as
Irish Pound denominated liabilities of 3,904,000 (approximately
US$6,347,000).
The Company continually reviews its foreign exchange exposure
and considers various risk management techniques including the
netting of foreign currency receipts and disbursements, rate
protection agreements with customers/vendors and derivatives
arrangements, including foreign exchange contracts. The Company
presently does not utilize rate protection agreements or
derivatives arrangements.
The Company's rationale for not hedging its currency risk
exposure through derivatives arrangements is based on the
assessment that the net foreign currency position was not
material to the financial condition or results of operations of
the Company at December 31, 1995 and, to a lesser degree, an
assessment that the risk of loss from exchange rate fluctuations
was not material based upon available forecasts of short-term
exchange rate movements for the currencies noted above.
Legal Proceedings
The Company is involved in certain legal proceedings as
described in Part I, Item 3 of this Report.
No provision for any liability that may result from the actions
has been recognized in the consolidated financial statements
included in Item 8 of this Report.
15
Recently Issued Accounting Standards
The Financial Accounting Standards Board recently issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed of." This statement
requires long-lived assets to be evaluated for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company
will adopt SFAS No. 121 in fiscal 1996 and does not expect its
provisions to have a material effect on the Company's
consolidated financial condition or results of operations.
The Financial Accounting Standards Board also recently issued
SFAS No. 123, "Accounting for Stock-Based Compensation." This
statement introduces a fair-value based method of accounting for
stock-based compensation. It encourages, but does not require,
companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments based on the new
fair value accounting rules. However, if the Company chooses
not to recognize compensation expense in accordance with the
provisions of this statement, pro forma disclosures of income
and earnings per share, as if the statement had been adopted,
are required in the notes to consolidated financial statements.
The Company will adopt the disclosure provisions of SFAS No. 123
in 1996.
Factors That May Affect Future Performance
This document contains forward-looking statements based on
current expectations that involve a number of risks and
uncertainties. The factors that could cause actual results to
differ materially include the following: general economic
conditions and growth rates in the power protection industry and
related industries, including but not limited to the PC, server
and networking industries; competitive factors and pricing
pressures; changes in product mix; changes in the seasonality of
demand patterns; the timely development and acceptance of new
products; inventory risks due to shifts in market demand;
component constraints and shortages; and ramp-up and expansion
of manufacturing capacity.
16
ITEM 8. Financial Statements and Supplementary Data
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
Current assets:
Cash and cash equivalents $39,039,735 29,072,717
Short-term investments (Note 2) - 12,407,729
Accounts receivable, less allowance
for doubtful accounts of $6,920,000
in 1995, $2,979,000 in 1994 (Note 3) 71,199,105 60,538,872
Inventories (Note 4) 147,541,053 92,415,545
Prepaid expenses and other current assets 9,277,986 8,919,733
Recoverable income taxes - 1,801,217
Deferred income taxes (Note 6) 11,323,000 5,710,000
Total current assets 278,380,879 210,865,813
Property, plant and equipment:
Land, buildings and improvements 15,973,746 11,320,618
Machinery and equipment 51,353,043 40,522,512
Purchased software 4,160,439 3,302,513
Office equipment, furniture and
fixtures 17,860,365 11,417,622
89,347,593 66,563,265
Less accumulated depreciation and
amortization 22,144,085 13,108,988
Net property, plant and equipment 67,203,508 53,454,277
Other assets 1,003,452 842,948
Total assets $346,587,839 265,163,038
See accompanying notes to consolidated financial statements.
17
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
1995 1994
Current liabilities:
Accounts payable $26,406,283 33,557,687
Accrued expenses 5,790,421 2,933,164
Accrued compensation 6,472,255 6,214,705
Accrued sales and marketing programs 6,780,595 3,939,939
Accrued retirement contributions 4,677,639 3,608,034
Income taxes payable 1,795,751 -
Total current liabilities 51,922,944 50,253,529
Deferred tax liability (Note 6) 4,899,000 2,982,000
Total liabilities 56,821,944 53,235,529
Shareholders' equity (Notes 7, 8,
and 9):
Common stock, $.01 par value;
authorized 200,000,000
shares in 1995 and 1994; issued
and outstanding 93,270,933 in 1995,
92,451,801 in 1994 932,709 924,518
Additional paid-in capital 37,122,872 29,326,171
Unrealized holding losses on short-
term investments (Note 2) - (497,000)
Retained earnings 251,710,314 182,173,820
Total shareholders' equity 289,765,895 211,927,509
COMMITMENTS AND CONTINGENCIES (Notes
11, 12, 14 and 15)
OTHER INFORMATION (Notes 5 and 13)
Total liabilities and
shareholders' equity $346,587,839 265,163,038
See accompanying notes to consolidated financial statements.
18
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Net sales (Note 10) $515,262,424 $378,295,263 $250,298,455
Cost of goods sold 284,500,473 189,953,731 122,009,079
Gross profit 230,761,951 188,341,532 128,289,376
Costs and expenses:
Selling, general and
administrative expenses 113,863,642 72,950,019 46,247,802
Research and development 13,193,037 9,742,553 7,143,942
127,056,679 82,692,572 53,391,744
Operating income 103,705,272 105,648,960 74,897,632
Other income (deductions):
Interest income 1,303,966 2,099,842 939,084
Interest expense (317,253) - -
Other, net (126,491) 1,601,242 37,920
Earnings before income taxes 104,565,494 109,350,044 75,874,636
Income taxes (Note 6) 35,029,000 38,075,073 27,316,000
Net income $69,536,494 $71,274,971 $48,558,636
Earnings per share (Note 1) $0.74 $0.77 $0.53
Weighted average common
stock and common stock
equivalents outstanding 93,866,880 92,912,824 91,328,017
See accompanying notes to consolidated financial statements.
19
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1995, 1994 and 1993
$.01 Par, Additional Unrealized Total
Common Paid-in Holding Retained Shareholder
Stock Capital Losses Earnings Equity
Balances at December
31, 1992 $439,250 13,179,180 - 62,340,213 75,958,643
Exercises of stock
options 6,026 973,294 979,320
Shares issued to
Employee Stock
Ownership Plan 754 2,105,212 2,105,966
Balances before two-for-
one stock split 446,030 16,257,686 - 62,340,213 79,043,929
Two-for-one stock split 446,030 (446,030)
Exercises of stock
options 16,410 1,699,766 1,716,176
Tax effect of exercises
of stock options 2,129,000 2,129,000
Shares issued to
Employee Stock
Ownership Plan 220 456,236 456,456
Net income 48,558,636 48,558,636
Balances at December
31, 1993 908,690 20,096,658 - 110,898,849 131,904,197
Exercises of stock
options 14,018 2,778,110 2,792,128
Tax effect of exercises
of stock options 2,514,000 2,514,000
Shares issued to
Employee Stock
Ownership Plan 1,810 3,937,403 3,939,213
Changes in unrealized
holding losses (497,000) (497,000)
Net income 71,274,971 71,274,971
Balances at December
31, 1994 924,518 29,326,171 (497,000) 182,173,820 211,927,509
Exercises of stock
options 4,846 1,999,430 2,004,276
Tax effect of exercises
of stock options 300,000 300,000
Shares issued to
Employee Stock
Ownership Plan 3,345 5,497,271 5,500,616
Changes in unrealized
holding losses 497,000 497,000
Net income 69,536,494 69,536,494
Balances at December
31, 1995 $932,709 37,122,872 - 251,710,314 289,765,895
See accompanying notes to consolidated financial statements.
20
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Cash flows from operating
activities:
Net income $69,536,494 $71,274,971 $48,558,636
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 10,101,882 6,105,146 2,988,105
Provision for doubtful
accounts 4,626,500 2,283,000 821,335
Deferred income taxes (3,696,000) 148,000 (662,000)
Changes in operating
assets and liabilities:
Increase in accounts
receivable (15,286,733)(29,723,062)(13,950,609)
Increase in inventories (55,125,508)(43,343,681)(10,905,427)
Increase in prepaid
expenses and other
current assets (358,253) (8,121,380) (437,248)
Increase in other assets (160,504) (794,777) (30,021)
Increase (decrease) in
accounts payable (7,151,404) 25,355,860 1,273,577
Increase (decrease) in
accrued expenses 2,857,257 1,567,300 (107,677)
Increase (decrease) in
accrued compensation 257,550 (1,235,757) 3,118,347
Increase in accrued sales
and marketing programs 2,840,656 213,696 213,044
Increase in accrued
retirement contributions 1,069,605 1,428,130 837,118
Increase (decrease) in
income taxes payable 3,896,968 (1,759,845) 734,437
Net cash provided by
operating activities 13,408,510 23,397,601 32,451,617
Cash flows from investing
activities:
Purchases of short-term
investments (802,800)(12,693,722)(18,500,735)
Sales and maturities of
short-term investments,
net of gains and losses 13,707,529 9,439,838 8,849,890
Proceeds from sale of
equipment 143,230 - -
Capital expenditures, net
of capital grants (23,994,343)(35,903,813)(10,941,414)
Net cash used in investing
activities (10,946,384)(39,157,697)(20,592,259)
(Continued on following page.)
21
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Cash flows from financing
activities:
Proceeds from issuances of
common stock $7,504,892 $6,731,341 $5,257,918
Net cash provided by
financing activities 7,504,892 6,731,341 5,257,918
Net increase (decrease) in
cash and cash 9,967,018 (9,028,755) 17,117,276
Cash and cash equivalents
at beginning of year 29,072,717 38,101,472 20,984,196
Cash and cash equivalents
at end of year $39,039,735 $29,072,717 $38,101,472
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 317,253 $ - $ -
Income taxes (net of
tax refunds) $34,828,032 $39,686,918 $27,243,563
NON-CASH TRANSACTIONS: In 1995, 1994 and 1993, the tax effect of
the exercise of stock options resulted in increases to
additional paid-in capital and reductions to income taxes
payable of $300,000, $2,514,000 and $2,129,000, respectively.
During 1995 and 1994, unrealized holding losses on short-term
investments resulted in increases (decreases) to shareholders'
equity and to short-term investments of $497,000 and ($497,000),
respectively.
See accompanying notes to consolidated financial statements.
22
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1995, 1994 and 1993
1. Summary of Significant Accounting Policies
Nature of business - American Power Conversion Corporation and
its subsidiaries (the "Company") designs, develops,
manufactures, and markets a line of uninterruptible power supply
products ("UPS"), electrical surge protection devices ("Surge"),
power conditioning products and associated software and
accessories for use with personal computers, engineering work
stations, file servers, communications and internetworking
equipment, and a variety of other sensitive electronic devices
which rely on electric utility power. The Company's principal
markets are in North America, Europe and the Asia Pacific
region.
Principles of consolidation - The consolidated financial
statements include the accounts of American Power Conversion
Corporation and all of its majority-owned subsidiaries. All
intercompany accounts and transactions are eliminated in
consolidation.
Inventories - Inventories are stated at the lower of cost or
market; cost being determined using the first-in, first-out
(FIFO) method.
Property, plant and equipment - Property, plant and equipment
are stated at cost. Depreciation is provided by using straight-
line and accelerated methods over their useful lives as follows:
Land improvements 15 years
Buildings and improvements 40 years
Machinery and equipment 5 - 10 years
Purchased software 3 years
Office equipment, furniture and fixtures 3 - 10 years
Research and development - Expenditures for research and
development are expensed in the year incurred.
Warranties - The Company presently offers a limited two-year
warranty. The provision for potential liabilities resulting
from warranty claims is provided at the time of sale. The
provision is computed based upon historical data and current
estimates. During 1992, the Company began offering its
customers the opportunity to extend the basic warranty period up
to five years (an additional three years) under a separately
priced program. Recognition of the revenue associated with the
extended warranty program commences on the date the extended
warranty becomes effective and is recognized on a straight-line
basis over the extended warranty period. In addition, the
Company has the Lifetime Equipment Protection policy which
provides up to $25,000 for repair or replacement of a customers'
hardware should a surge or lightning strike pass through a
Company unit. The policy applies to all units manufactured
after January 1, 1992. Other restrictions also apply. The
Company's ProtectNet line of data line surge suppressors feature
a unique "Double-Up" Supplemental Equipment Protection Policy,
under which the total recoverable limit under the Lifetime
Equipment Protection policy is doubled, up to $50,000 (U.S. and
Canada only). The Company has experienced satisfactory field
operating results, and warranty costs incurred to date have not
had a significant impact on the Company's results of operations.
Income taxes - Income taxes are accounted for under the asset
and liability method of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. Under the asset
and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the
effect
23
1. Summary of Significant Accounting Policies, Continued
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
Deferred income taxes have not been provided for the retained
earnings (approximately $12 million) of the Company's foreign
subsidiaries because the Company plans to reinvest all such
earnings for future expansion.
Cash and cash equivalents - Cash and cash equivalents consists
of funds on deposit, money market savings accounts and, at
December 31, 1994, short-term investments with original
maturities less than three months. At December 31, 1994,
$868,600 was invested in government securities with maturities
less than three months.
Short-term investments - Short-term investments (consisting
primarily of government and government agency debt securities
with fixed rates of interest) are carried at fair value and have
original maturities greater than three months. The cost of
short-term investments sold is determined using the specific
identification method.
The Company adopted Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity
Securities as of January 1, 1994 and classified its short-term
investments as "available-for-sale". The Statement requires,
among other things, that securities available for sale be
reported at fair value, with any unrealized gains and losses
excluded from earnings and reported as a separate component of
shareholders' equity, net of tax, until realized. The effect of
adopting this pronouncement was immaterial.
Earnings per share - Earnings per share is computed by dividing
net income by the weighted average number of shares of common
stock and common stock equivalents outstanding during the period
after consideration of the stock splits detailed in Note 8.
Under the treasury stock method, the unexercised options are
assumed to be exercised at the beginning of the period or at
issuance, if later. The assumed proceeds are then used to
purchase common stock at the average market price during the
period. Common stock equivalents whose inclusion would have the
effect of increasing earnings per share (i.e., antidilutive) are
excluded from the computation. Primary and fully diluted
earnings per share are equivalent for all years presented.
Advertising Costs - Advertising costs are reported in selling,
general, and administrative expenses in the accompanying
consolidated statements of income and include costs of
advertising, advertising production, trade shows and other
activities designed to enhance demand for the Company's
products. Advertising costs were $23,096,000 in 1995,
$12,829,000 in 1994, and $9,152,000 in 1993. There are no
capitalized advertising costs in the accompanying consolidated
balance sheet.
Use of Estimates- The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results may
differ from those estimates.
2. Short-term Investments
Short-term investments consist primarily of U.S. and State
government and government agency debt securities with fixed
rates of interest and have original maturities greater than
three months. Contractual maturities of short-term investments
as of December 31, 1994 are set forth below and are shown at
fair value. Short-term investments are designated as available
for sale and may be sold prior to the contractual maturity.
Amortized Fair
Cost Value
Due in less than 1 year $3,354,278 $3,337,227
After 1 but within 5 years 1,648,768 1,612,192
After 5 but within 10 years 7,901,683 7,458,310
$12,904,729 $12,407,729
24
2. Short-term Investments, Continued
Proceeds from sales and maturities of short-term investments
available for sale during 1995 and 1994 were $13,707,529 and
$9,439,838, respectively. Gross gains and losses in 1995 of
$94,374 and ($181,479), respectively, were realized on these
sales. Gross gains and losses in 1994 were $17,172 and
($17,175), respectively. Gross unrealized holding gains
(losses) of $497,000 and ($497,000) were charged to
shareholders' equity during 1995 and 1994, respectively.
3. Accounts Receivable
Accounts receivable are generally not concentrated in any
geographic region or industry. Collateral is usually not
required except for certain international transactions for which
the Company requires letters of credit to secure payment. The
Company estimates an allowance for doubtful accounts based on
the credit worthiness of its customers as well as general
economic conditions. Consequently, an adverse change in those
factors could effect the Company's estimate of its bad debts.
4. Inventories
Inventories consist of the following:
1995 1994
Raw materials $ 62,495,212 $40,786,937
Work in process 28,499,516 21,804,067
Finished goods 56,546,325 29,824,541
$ 147,541,053 $92,415,545
5. Revolving Credit Agreements
The Company maintains a credit facility with a bank in the form
of a $15,000,000 unsecured line of credit, due and payable on
demand, with no commitment fee required on the unused portion.
The line of credit bears interest at the bank's prime rate and
expires upon written notice given by either party. The Company
also maintains an additional $50,000,000 unsecured line of
credit facility with another bank, with no commitment fee
required, that expires upon written notice given by either
party. This facility bears interest at the bank's cost of funds
rate plus 0.625 percent. There were no amounts outstanding
under these facilities at December 31, 1995 and 1994.
6. Income Taxes
On August 10, 1993, the Revenue Reconciliation Act of 1993 was
signed into law. The Act provided for an increase in the top
marginal U.S. corporate tax rate from 34% to 35% for taxable
income in excess of $10 million. The deferred tax benefit
resulting from the remeasurement of deferred tax assets and
liabilities was immaterial. The retroactive cumulative
adjustment necessary to effect the higher corporate tax rate was
recorded in the third quarter of 1993.
Total federal, state and foreign income tax expense (benefit)
from continuing operations for the years ended December 31,
1995, 1994 and 1993 consists of the following:
Current Deferred Total
1995:
Federal $33,122,000 ($2,993,000) $30,129,000
State 4,300,000 (500,000) 3,800,000
Foreign 1,303,000 (203,000) 1,100,000
$38,725,000 ($3,696,000) $35,029,000
1994:
Federal $31,997,073 $66,000 $32,063,073
State 4,850,000 12,000 4,862,000
Foreign 1,080,000 70,000 1,150,000
$37,927,073 $148,000 $38,075,073
25
6. Income Taxes, Continued
1993:
Federal $23,754,000 ($612,000) $23,142,000
State 3,904,000 (50,000) 3,854,000
Foreign 320,000 - 320,000
$27,978,000 ($662,000) $27,316,000
Income tax expense attributable to continuing operations
amounted to $35,029,000 in 1995, $38,075,073 in 1994 and
$27,316,000 in 1993 (effective rates of 33.5%, 34.8% and 36.0%,
respectively). The actual expense for 1995, 1994 and 1993
differs from the "expected" tax expense (computed by applying
the statutory U.S. federal corporate tax rate of 35% to earnings
before income taxes) as follows:
1995 1994 1993
Computed "expected" tax expense $36,597,923 $38,272,515 $26,556,122
State income taxes, net of
federal income tax benefit 2,470,000 3,160,300 2,505,100
Foreign earnings taxed at rates
lower than U.S. (2,880,000) (750,000) -
Foreign sales corporation (1,331,932) (1,807,606) (1,597,760)
Research and development credit (38,069) (106,991) (330,940)
Other 211,078 (693,145) 183,478
$35,029,000 $38,075,073 $27,316,000
The domestic and foreign components of earnings before income
taxes were $70,523,432 and $34,042,062, respectively, for 1995
and $101,372,543 and $7,977,501, respectively, for 1994. Total
income tax expense for the years ended December 31, 1995, 1994
and 1993 was allocated as follows:
1995 1994 1993
Income from continuing
operations $35,029,000 $38,075,073 $27,316,000
Shareholders' equity, for
compensation expense for tax
purposes in excess of
financial statement purposes (300,000) (2,514,000) (2,129,000)
$34,729,000 $35,561,073 $25,187,000
26
6. Income Taxes, Continued
At December 31, 1995 and 1994, deferred income tax assets and
liabilities result from temporary differences in the recognition
of income and expense for tax and financial reporting purposes.
The sources and tax effects of these temporary differences are
presented below:
1995 1994
Deferred tax liabilities:
Excess of tax over financial
statement depreciation $4,659,000 $2,982,000
Other 240,000 -
Total deferred tax liabilities 4,899,000 2,982,000
Deferred tax assets:
Allowance for doubtful accounts 1,705,000 927,800
Additional costs inventoried for
tax purposes 975,000 692,300
Intercompany inventory profits 2,035,000 918,000
Allowances for sales and marketing
programs 2,247,000 1,693,100
Inventory obsolescence reserve 2,145,000 390,000
Accrual for compensation and
compensated absences 712,000 462,000
Reserve for warranty costs 320,000 314,000
Deferred revenue 443,000 285,400
Deferred gain on intercompany sale
of equipment 741,000 -
Other - 27,400
Total gross deferred tax assets 11,323,000 5,710,000
less: valuation allowance - -
Net deferred tax assets 11,323,000 5,710,000
Net deferred income taxes $6,424,000 $2,728,000
In assessing the realizability of deferred tax assets, the
Company considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Due to the fact that the Company has sufficient taxable income
in the federal carryback period and anticipates sufficient
future taxable income over the periods which the deferred tax
assets are deductible, the ultimate realization of deferred tax
assets for federal and state tax purposes appears more likely
than not. The U.S. federal taxable income for 1994, 1993 and
1992 was approximately $85.1 million, $58.9 million and $37.6
million, respectively.
7. Stock Option Plan
The Company has a Stock Option Plan (the Plan), pursuant to
which 10,800,000 shares of common stock have been reserved for
issuance upon the exercise of options. Options granted under
the Plan may be either (i) options intended to constitute
incentive stock options ("ISOs") under the Internal Revenue Code
of 1986 (the "Code") or (ii) nonqualified options. Incentive
stock options may be granted under the Plan to employees or
officers of the Company. Nonqualified options may be granted to
consultants, directors (whether or not they are employees),
employees or officers of the Company.
27
7. Stock Option Plan, Continued
ISOs granted under the Plan may not be granted at a price less
than the fair market value of the common stock on the date of
grant (or 110% of fair market value in the case of employees or
officers holding 10% or more of the voting stock of the
Company).
The aggregate fair market value of shares, for which ISOs
granted to any employee are exercisable for the first time by
such employee during any calendar year (under all stock option
plans of the Company and any related corporation), may not
exceed $100,000. Nonqualified options granted under the Plan
may not be granted at a price less than the lesser of (i) the
book value per share of common stock as of the end of the fiscal
year of the Company immediately preceding the date of such
grant, or (ii) 50% of the fair market value of the common stock
on the date of grant. Options granted under the Plan will
expire not more than ten years from the date of grant (five
years in the case of ISOs granted to ten percent shareholders).
Options granted terminate within a specified period of time
following termination of an optionee's employment or position as
a director or consultant with the Company.
On February 25, 1993, the Board of Directors adopted the 1993
Non-employee Director Stock Option Plan ("the 1993 Director
Plan"). Options granted under this plan are non-qualified stock
options and may be granted to each person who was a member of
the Company's Board of Directors on February 25, 1993 and who
was not an employee or officer of the Company. The 1993 Director
Plan authorized the grant of options for up to 40,000 shares of
common stock. As of February 25, 1993, two Directors were
entitled to participate in the 1993 Director Plan with each
receiving a grant of options for 20,000 shares at an exercise
price of $12 per share (i.e. the market price on the date of
grant).
A summary of transactions under the Plans are as follows:
Number Option Shares
of shares prices reserved
Outstanding at December
31, 1992 5,615,564 $.22 to 12.19 8,104,620
Adoption of 1993 Director
Plan 40,000
Granted 600,800 12.00 to 20.88
Exercised (2,845,704) .22 to 9.88 (2,845,704)
Terminated (77,156) .49 to 20.88
Outstanding at December
31, 1993 3,293,504 $.49 to 20.88 5,298,916
Granted 485,750 16.88 to 22.63
Exercised (1,401,829) .49 to 9.88 (1,401,829)
Terminated (119,050) 1.55 to 22.63
Outstanding at December
31, 1994 2,258,375 $1.30 to 22.63 3,897,087
Granted 1,114,413 9.38 to 19.63
Exercised (484,665) 1.30 to 20.88 (484,665)
Terminated (941,470) 2.44 to 22.63
Outstanding at December
31, 1995 1,946,653 $2.44 to 22.63 3,412,422
Options exercisable at December 31, 1995 were 919,293. The
outstanding options expire at various dates through 2005.
8. Common Stock
On August 5, 1993, the Board of Directors approved a two-for-one
stock split, effected in the form of a stock dividend, payable
on September 24, 1993 to holders of record of common stock at
the close of business on August 20, 1993. Accordingly, December
31, 1993 balances reflect the effect of the split with an
increase in common stock and a reduction to additional paid-in
capital of $446,030.
Stock options and per share data for 1993 have been
retroactively adjusted to reflect the split discussed above.
28
9. Retirement Benefits
On December 31, 1987, the Company adopted a noncontributory
Employee Stock Ownership Plan (ESOP) covering substantially all
North American employees. Contributions to the ESOP are based
on a percentage of eligible compensation and are determined by
the Company's Board of Directors at its discretion, subject to
the limitation established by the Internal Revenue Code (IRC).
The ESOP holds 4,513,787 shares of common stock at December 31,
1995. Substantially all contributed shares have been allocated
to participant accounts. ESOP contributions amounted to
approximately $5,501,000, in 1995, $3,939,000 in 1994 and
$2,562,000 in 1993.
The retirement expense for 1995, 1994 and 1993 amounted to
approximately $6,570,000, $5,367,000 and $3,406,000,
respectively.
10. Segment and Sales Information
The Company operates primarily in one industry segment which
includes the manufacturing and selling of UPS products primarily
to wholesalers in the computer industry. The Company closely
monitors the credit worthiness of its customers, adjusting
credit policies and limits as deemed necessary.
No single customer comprised 10% or more of the Company's net
sales in 1995. Sales to one customer, Ingram Micro Corporation,
accounted for approximately 11% of the Company's net sales in
both 1994 and 1993.
The Company's primary manufacturing operation outside of the
United States is located in Galway, Ireland as explained in Note
15. American Power Conversion Europe, S.A.R.L., American Power
Conversion Corporation's subsidiary located in France, provides
sales and technical support to customers in Europe, the Middle
East, the former Soviet Union and Africa and its revenues are in
the form of commissions from the U.S. parent and Galway
operations. These foreign operations have been combined into
one category. Intercompany transactions have been eliminated.
Information about the Company's operations in different
geographic locations for 1995 and 1994 follows:
1995 1994
Revenues from unaffiliated
customers:
United States $310,751,098 $243,988,738
Foreign 115,092,696 28,115,344
Export sales from United
States 89,418,630 106,191,181
$515,262,424 $378,295,263
Operating profit:
United States $69,848,090 $97,720,548
Foreign 33,857,182 7,928,412
$103,705,272 $105,648,960
Identifiable assets:
United States $241,891,097 $200,805,335
Foreign 104,696,742 64,357,703
$346,587,839 $265,163,038
Capital expenditures:
United States $21,554,156 $25,416,577
Foreign 2,440,187 10,487,236
$23,994,343 $35,903,813
Depreciation and amortization:
United States $8,401,171 $5,544,032
Foreign 1,700,711 561,114
$10,101,882 $6,105,146
29
10. Segment and Sales Information, Continued
Thirty-eight and fourteen percent of export sales from the
United States during 1995 and 1994, respectively, were to
unaffiliated customers in the Asia Pacific region. Twenty-three
and fifty percent of export sales from the United States during
1994 were to unaffiliated customers in European, African and
Middle Eastern countries. During 1995 and 1994, approximately
81% of foreign sales to unaffiliated customers were also to
European, African and Middle Eastern customers, with the
remaining foreign sales to unaffiliated customers in the former
Soviet Union. All of the Company's foreign operating profits
and identifiable assets were located in Europe.
Export sales to unaffiliated customers, primarily in Europe,
Canada, South America and the Far East, represented
approximately 33% of total net sales in 1993. Sixty-two per
cent of the Company's total export sales were to European,
African and Middle Eastern customers. For 1993, the Company's
operating profits on export sales were substantially equivalent
to the operating profits on domestic sales. Identifiable assets
in foreign areas, primarily Europe, were not material at
December 31, 1993.
11. Employment Agreement
The Company has entered into an employment agreement with its
President. The agreement is automatically renewed annually
unless either party notifies the other 60 days prior to the
renewal date. Pursuant to the agreement, the Company pays the
President an annual salary and a bonus which are based on the
salaries and bonuses paid to chief executive officers of
electronics companies having approximately the same revenues as
the Company. The President is obligated under the agreement not
to compete with the Company while he is employed by the Company
and for a period of one year thereafter. Upon termination of
the employment agreement for any reason other than voluntarily
by the President, the Company will pay him severance in an
amount equal to one year's base salary, or, if such termination
is without cause, the base salary for the remainder of the
current year's term plus an additional year.
12. Litigation
During August 1995, several purported class action lawsuits were
filed in the United States District Court for the District of
Rhode Island in which the Company was named as a defendant,
along with certain of its officers. The lawsuits relate to
disclosures made by the Company in its public filings and press
releases and assert violations of federal securities laws. The
plaintiffs seek unspecified damages, interest, costs and fees.
In mid-February 1996, a derivative lawsuit was filed by two
shareholders on behalf and for the benefit of the Company
against certain present and former officers and/or directors of
the Company in the Superior Court of Suffolk County,
Massachusetts. The Company was also named as a nominal
defendant. The derivative action plaintiffs allege that the
individual defendants in that case traded in the stock of the
Company allegedly in breach of their fiduciary duty to the
Company. It is possible that other claims may be made against
the Company in these actions or that related allegations could
be made that could give rise to other consequences. The Company
intends to defend these lawsuits vigorously and any similar
lawsuits that may be filed; however, the ultimate outcome of
these matters cannot yet be determined. No provision for any
liability that may result from the actions has been recognized
in the accompanying consolidated financial statements.
The Company is also involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not
have a material adverse effect on the Company's consolidated
financial position or results of operations or liquidity.
13. Fair Value of Financial Instruments
The carrying amount of cash, cash equivalents, accounts
receivable, accounts payable and accrued liabilities
approximates their fair value because of the short duration of
these instruments.
The fair value of short-term investments are based on quoted
market prices at the reporting date for those or similar
securities.
14. Commitments
The Company has several noncancelable operating leases,
primarily for warehousing and office space expiring at various
dates through 2003. These leases contain renewal options for
periods ranging from one to three years and
30
14. Commitments, Continued
require the Company to pay its proportionate share of utilities,
taxes and insurance. Rent expense under these leases was
$1,930,000 for 1995 and was not material to the Company's
results of operations for 1994 and 1993.
Future minimum lease payments under these leases are: 1996 -
$2,220,000; 1997 - $1,500,000; 1998 - $1,150,000; 1999 -
$940,000; and 2000 - $870,000 and $1,030,000 thereafter.
15. Contingencies
On January 31, 1994, American Power Conversion Corporation
formally established operations in Galway, Ireland through its
subsidiary, American Power Conversion Corporation (A.P.C.) B.V.
The facility is providing manufacturing and technical support to
better service the Company's markets in Europe, the Middle East,
Africa and Russia.
The Company executed an agreement with the Industrial
Development Authority of Ireland ("IDA") under which the Company
will receive grant monies equal to 40% of the costs incurred for
machinery, equipment and building improvements for the Galway
facility. The maximum amount attainable under the agreement is
approximately $13.1 million. The grant monies would be
repayable, in whole or in part, should (1) the Company fail to
meet certain employment goals established under the agreement
which are to be achieved over a five year implementation period
and/or (2) the Company discontinues operations in Ireland prior
to the termination of the agreement. The agreement terminates
eight years from the date of the last claim made by the Company
for grant monies. The total cumulative amount of capital grant
claims submitted through December 31, 1995 was approximately
$8.9 million. The total cumulative amount of capital grants
received through December 31, 1995 amounted to approximately
$5.5 million. Under a separate agreement with the IDA, the
Company will also receive up to $3,000 per new employee hired
for the direct reimbursement of training costs. The total
cumulative amount of training grant claims submitted through
December 31, 1995 was approximately $2.0 million. The total
cumulative amount of training grants received through December
31, 1995 amounted to approximately $400,000.
In addition, the Company executed agreements on January 31, 1994
with an unrelated company to acquire the 280,000 square foot
manufacturing and distribution facility presently occupied. The
Company acquired the facility for one (1) Irish Pound
(equivalent to approximately $1.50). As additional
consideration for the facility, the Company assumed a contingent
liability of approximately $5.2 million as part of the Company's
agreement with the IDA. The contingent liability is canceled
upon successful completion of the terms of the agreement.
16. Quarterly Financial Data (Unaudited)
The following is a summary of quarterly results of operations:
Q1 Q2 Q3 Q4
1995:
Net Sales $109,203,576 122,550,777 141,993,350 141,514,721
Gross Profit 52,590,803 57,466,424 59,243,809 61,460,915
Net Income 18,269,813 17,380,546 17,129,440 16,756,695
Earnings Per Share .20 .19 .18 .18
Weighted Average
Shares Outstanding 93,336,733 93,642,721 93,765,475 93,711,946
1994:
Net Sales $74,620,259 86,359,265 103,804,346 113,511,393
Gross Profit 38,267,118 44,589,030 53,100,170 52,385,214
Net Income 13,563,956 15,594,854 19,190,259 22,925,902
Earnings Per Share .15 .17 .21 .25
Weighted Average
Shares Outstanding 93,243,567 93,210,315 93,233,464 93,310,359
All amounts are in dollars except shares outstanding. Year end
adjustments for changes in estimates relating to inventories,
taxes, selling, marketing and administrative expenses made in
the fourth quarter of 1994 had the effect of increasing net
income for the quarter by approximately $4 million ($0.04 per
share).
31
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
Part III
Item 10. Directors of the Registrant
Information with respect to Directors may be found under the
caption "Occupations of Directors" appearing in the Company's
definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on June 13, 1996. Such information is
incorporated herein by reference.
Item 11. Executive Compensation
The information set forth under the caption "Executive
Compensation" appearing in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held
June 13, 1996 is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information set forth under the caption, "Management and
Principal Holders of Voting Securities" appearing in the
Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held June 13, 1996 is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
The information set forth under the captions, "Certain
Relationships and Related Transactions" appearing in the
Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held June 13, 1996 is incorporated herein by
reference.
32
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
(a) Documents filed as part of Form 10-K
1. Consolidated Financial Statements
The consolidated financial statements of the Company have been
included in Item 8 of this report .
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Income for each of the three years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Shareholders' Equity for each of the
three years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedules
Schedule Number Description Page No.
II Valuation and Qualifying Accounts and Reserves 38
Schedules other than those listed above have been omitted since
they are either not required or the information required is
included in the consolidated financial statements or the notes
thereto.
KPMG Peat Marwick LLP's Reports with respect to the above
listed consolidated financial statements and consolidated
financial statement schedules are included herein on pages 35
and 36.
3. Exhibit Index
Exhibit Number Description
3.01**** Articles of Organization of the Registrant, as
amended. (3.01)
3.02** By-Laws of the Registrant, as amended. (3.02)
10.01* 1987 Stock Option Plan of the Registrant.
(10.01) (X)
10.02* Form of Incentive Stock Option Agreement under
the Registrant's 1987 Stock Option Plan (10.02)
(X)
10.03* Form of the Non-Qualified Stock Option Agreement
under the Registrant's 1987 Stock Option Plan.
(10.03) (X)
10.04* The Registrant's Employee Stock Ownership Plan
Trust Agreement dated December 30, 1987. (10.04)
(X)
10.05** The Registrant's Employee Stock Ownership Plan
dated December 30, 1987, as amended and
restated. (10.05) (X)
10.06* Employment Agreement dated June 16, 1986 between
the Company and Rodger B. Dowdell, Jr. (10.07)
(X)
10.7** Unsecured line of credit agreement dated June
29, 1991 between the Registrant and Rhode Island
Hospital Trust National Bank (10.19)
10.8** Unsecured line of credit agreement dated
December 30, 1991 between the Registrant and
Fleet National Bank (10.20)
10.9*** Amendment dated December 30, 1992 to Unsecured
line of credit agreement between the Registrant
and Fleet National Bank (10.13)
10.10*** Grant agreement dated February 16, 1994 between
the Registrant and Industrial Development
Authority of Ireland (10.14)
10.11*** Contract for Sale dated January 31, 1994 between
the Registrant and Digital Equipment
International (10.15)
10.12*** Management Agreement dated January 31, 1994
between the Registrant and Digital Equipment
International (10.17)
33
10.13*** Licence Agreement dated January 31, 1994 between
the Registrant (Grantor) and Digital Equipment
International (Licencee) (10.18)
10.14*** Grant of Options Agreement dated January 31,
1994 between the Registrant and Digital
Equipment International (10.19)
10.15*** Memorandum Agreement dated January 31, 1994
between the Registrant and Digital Equipment
International (10.20)
10.16*** 1993 Non-Employee Director Stock Option Plan
(10.22) (X)
10.17***** Letter Agreement dated June 22, 1995 to amend
loan agreement dated December 30, 1991 by and
between Registrant and Fleet National Bank
(10.1)
10.18****** Letter Agreement dated October 11, 1995 to amend
loan agreement dated December 30, 1991 by and
between Registrant and Fleet National Bank
(10.1)
10.19 Purchase and Sale Contract dated April 12, 1995
between the Registrant and Trustees of Normac-
Billerica Associates III u/d/t dated October
11, 1979
11 Computation of Earnings per Share.
21 Subsidiaries of Registrant
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
* Previously filed as exhibits to the Company's
Registration Statement on Form S-18 dated July, 1988 (File
No. 33-22707-B).
** Previously filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1991 and incorporated herein by reference (File No. 0-
17126). The number given in parenthesis indicates the
corresponding exhibit in such Form 10-K.
*** Previously filed as an exhibit (Exhibit No. 22) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by
reference (File No. 1-12432). The number given in
parenthesis indicates the corresponding exhibit in such
Form 10-K.
**** Previously filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference (File No. 1-
12432). The number given in parenthesis indicates the
corresponding exhibit in such Form 10-K.
***** Previously filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1995 and incorporated herein by reference (File
No. 1-12432). The number given in parenthesis indicates
the corresponding exhibit in such Form 10-Q.
****** Previously filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1995 and incorporated herein by reference
(File No. 1-12432). The number given in parenthesis
indicates the corresponding exhibit in such Form 10-Q.
(X) Indicates a management contract or any compensatory
plan, contract or arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant
during the quarter ended December 31, 1995.
34
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
American Power Conversion Corporation:
We have audited the accompanying consolidated balance sheets of
American Power Conversion Corporation and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated
statements of income, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
financial position of American Power Conversion Corporation and
subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Providence, Rhode Island
February 14, 1996
35
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
American Power Conversion Corporation:
Under date of February 14, 1996, we reported on the consolidated
balance sheets of American Power Conversion Corporation and
subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of income, shareholders' equity, and
cash flows for each of the years in the three-year period ended
December 31, 1995, as contained in the annual report on Form 10-
K for the year 1995. In connection with our audits of the
aforementioned consolidated financial statements, we also
audited the related financial statement schedule listed in Item
14(a)(2). This financial statement schedule is the
responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Providence, Rhode Island
February 14, 1996
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly
authorized.
AMERICAN POWER CONVERSION CORPORATION
Date: March 25, 1996
By: /s/ Donald M. Muir
Donald M. Muir, Chief Financial Officer
(principal financial and accounting officer)
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the
following persons on behalf of the Registrant and in the
capacities indicated on the date indicated.
Date: March 25, 1996
By: /s/ Rodger B. Dowdell, Jr.
Rodger B. Dowdell, Jr.,
President,
Chairman, Principal Executive Officer and Director
(principal executive officer)
Date: March 25, 1996
/s/ Neil E. Rasmussen
Neil E. Rasmussen,
Vice President and Director
Date: March 25, 1996
/s/ Emanuel Landsman
Emanuel E. Landsman,
Vice President, Clerk and Director
Date: March 25, 1996
/s/ Ervin F. Lyon
Ervin F. Lyon,
Director
Date: March 25, 1996
/s/ James D. Gerson
James D. Gerson,
Director
37
Schedule II
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
For the years ended December 31, 1995, 1994 and 1993
Valuation accounts deducted
from assets to which they
apply:
Provision Provision
Allowance for Balance at Charged to Write Offs/ Balance
Doubtful Accounts beginning Costs and Allowances at end
Receivable of year Expenses Taken of year
1995 $2,979,000 $4,626,500 ($685,500) $6,920,000
1994 1,544,000 2,283,000 (848,000) 2,979,000
1993 930,000 821,335 (207,335) 1,544,000
38
EXHIBIT LIST
Exhibit Number Description Page No.
3.01**** Articles of Organization of the Registrant,
as amended. (3.01)
3.02** By-Laws of the Registrant, as amended.
(3.02)
10.01* 1987 Stock Option Plan of the Registrant.
(10.01) (X)
10.02* Form of Incentive Stock Option Agreement
under the Registrant's 1987 Stock Option
Plan (10.02) (X)
10.03* Form of the Non-Qualified Stock Option
Agreement under the Registrant's 1987 Stock
Option Plan. (10.03) (X)
10.04* The Registrant's Employee Stock Ownership
Plan Trust Agreement dated December 30,
1987. (10.04) (X)
10.05** The Registrant's Employee Stock Ownership
Plan dated December 30, 1987, as amended
and restated. (10.05) (X)
10.06* Employment Agreement dated June 16, 1986
between the Company and Rodger B. Dowdell,
Jr. (10.07) (X)
10.7** Unsecured line of credit agreement dated
June 29, 1991 between the Registrant and
Rhode Island Hospital Trust National Bank
(10.19)
10.8** Unsecured line of credit agreement dated
December 30, 1991 between the Registrant
and Fleet National Bank (10.20)
10.9*** Amendment dated December 30, 1992 to
Unsecured line of credit agreement between
the Registrant and Fleet National Bank
(10.13)
10.10*** Grant agreement dated February 16, 1994
between the Registrant and Industrial
Development Authority of Ireland (10.14)
10.11*** Contract for Sale dated January 31, 1994
between the Registrant and Digital
Equipment International (10.15)
10.12*** Management Agreement dated January 31, 1994
between the Registrant and Digital
Equipment International (10.17)
10.13*** Licence Agreement dated January 31, 1994
between the Registrant (Grantor) and
Digital Equipment International (Licencee)
(10.18)
10.14*** Grant of Options Agreement dated January
31, 1994 between the Registrant and Digital
Equipment International (10.19)
10.15*** Memorandum Agreement dated January 31, 1994
between the Registrant and Digital
Equipment International (10.20)
10.16*** 1993 Non-Employee Director Stock Option
Plan (10.22) (X)
10.17***** Letter Agreement dated June 22, 1995 to
amend loan agreement dated December 30,
1991 by and between Registrant and Fleet
National Bank (10.1)
10.18****** Letter Agreement dated October 11, 1995 to
amend loan agreement dated December 30,
1991 by and between Registrant and Fleet
National Bank (10.1)
10.19 Purchase and Sale Contract dated April 12,
1995 between the Registrant and Trustees of 41
Normac-Billerica Associates III u/d/t
dated October 11, 1979
11 Computation of Earnings per Share. 50
21 Subsidiaries of Registrant 51
23 Consent of KPMG Peat Marwick LLP 52
27 Financial Data Schedule 53
* Previously filed as exhibits to the Company's
Registration Statement on Form S-18 dated July, 1988 (File
No. 33-22707-B).
** Previously filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1991 and incorporated herein by reference (File No. 0-
17126). The number given in parenthesis indicates the
corresponding exhibit in such Form 10-K.
*** Previously filed as an exhibit (Exhibit No. 22) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by
reference (File No. 1-12432). The number given in
parenthesis indicates the corresponding exhibit in such
Form 10-K.
39
**** Previously filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference (File No. 1-
12432). The number given in parenthesis indicates the
corresponding exhibit in such Form 10-K.
***** Previously filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1995 and incorporated herein by reference (File
No. 1-12432). The number given in parenthesis indicates
the corresponding exhibit in such Form 10-Q.
****** Previously filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1995 and incorporated herein by reference
(File No. 1-12432). The number given in parenthesis
indicates the corresponding exhibit in such Form 10-Q.
40
Exhibit 10.19
PURCHASE AND SALE AGREEMENT
1. Rodger P. Nordblom, Peter C. Nordblom, George Macomber
and John D. Macomber, Trustees of Normac-Billerica Associates
III u/d/t dated October 11, 1979 and recorded with Middlesex
North Registry of Deeds in Book 2389, Page 104, with a mailing
address c/o Nordblom Company, 31 Third Avenue, Burlington, MA
01803 ("Seller") agrees to SELL and American Power Conversion
Corporation, with a place of business at 9 Executive Park Drive,
Billerica, MA ("Buyer") agrees to BUY, upon the terms
hereinafter set forth, the premises at 755 Middlesex Turnpike,
Billerica, MA more particularly described in Exhibit A attached
hereto.
Together with the 41,000+/- sq. ft. office, R&D facility and all
other buildings, structures, and improvements now thereon, and
the fixtures used in connection therewith including, if any, all
heating equipment, hot water heaters, plumbing fixtures,
electric and other lighting fixtures, and HVAC systems (the
aforesaid premises and property are herein collectively called
"the Premises"). For Seller's title see deed of Manning Park
Associates, dated October 11, 1979, recorded with said Deeds in
Book 2389, Page 117.
2. The Premises are to be conveyed by a good and sufficient
quitclaim deed running to Buyer or to such grantee as Buyer may
designate by notice to Seller at least seven days before the
deed is to be delivered as herein provided, and said deed shall
convey a good and clear record and marketable title thereto,
sufficient to entitle Buyer to a Certificate of Title to the
Premises if the title thereto is registered, free from liens and
encumbrances, except:
(a) Provisions of existing building, zoning and
environmental laws;
(b) Such taxes for the then current tax period as are
not due and payable on the date of the delivery of such deed,
which taxes Buyer assumes and agrees to pay, subject to the
adjustment referred to in Paragraph 11 hereof;
(c) Any liens for municipal betterments assessed after
the date of this agreement; and
(d) Easements, agreements and restrictions of record
referred to in Exhibit B attached hereto.
3. Buyer and its agents, consultants and engineers shall
have the right to enter upon the Premises during the period
commencing from the date of execution hereof through May 26,
1995 (the "Inspection Period") to inspect the Premises, examine
title, have the property surveyed, inspect and test for oil and
hazardous materials, analyze zoning matters and easements, and
41
perform any other due diligence activities and investigations as
Buyer may determine to be necessary or desirable, at Buyer's
sole cost and expense ("Buyer's Due Diligence"). Buyer agrees
to notify Seller prior to any entry onto the Premises. Buyer
agrees to restore the Premises to substantially the same
condition they were in prior to any of Buyer's Due Diligence,
and Buyer agrees to indemnify and hold Seller harmless from all
claims, demands, suits or causes of action arising out of bodily
injury or property damage caused by Buyer's Due Diligence
activities. Provided Buyer complies with the following
provisions of this Paragraph 3 with respect to confidentiality,
the foregoing indemnity shall not include liability for any
claims, demands, suits or damages arising from Buyer's discovery
through Buyer's Due Diligence of adverse environmental
conditions on or under the Premises.
Seller hereby notifies Buyer that the items set forth on
Exhibit B hereto are some of the existing encumbrances on the
Premises, which Buyer should review as part of Buyer's Due
Diligence. Seller acknowledges that Buyer has not reviewed any
of the items listed on Exhibit B and that any of the same may be
set forth in a notice from Buyer under the following paragraph
as a reason for Buyer's dissatisfaction. Said reasons for
dissatisfaction may also include (without limitation), insofar
as such as is the case, that (a) the means of access to the
Premises is not located completely within the boundary lines of
the Premises and encroaches upon or under the property of
another person or entity, (b) a building, structure or
improvements of any kind (other than utility lines) belonging to
any other person or entity encroaches upon or under the
Premises, or (c) the Premises do not abut a public way duly laid
out and accepted as such by the Town of Billerica, the County of
Middlesex or the Commonwealth of Massachusetts.
At any time on or before May 26, 1995, Buyer may notify Seller
of its dissatisfaction with the results of Buyer's Due Diligence
(the "Dissatisfaction Notice"), which notice shall specifically
describe the items with which Buyer is dissatisfied. Within
five (5) days of receipt of such notice, Seller may notify Buyer
that it has elected to correct the defects set forth in the
Dissatisfaction Notice. If Seller does not so elect to correct
said defects, then Buyer shall have the option to terminate this
Purchase and Sale Agreement by notice to Seller given within ten
(10) days after receipt by Seller of the Dissatisfaction Notice,
failing which Buyer shall be deemed to have agreed to take title
to the Premises in their then current condition. In the event
of such termination, this Purchase and Sale Agreement shall
terminate without any further recourse to either party, and all
deposits previously delivered shall be immediately returned to
Buyer together with 50% of the interest accrued thereon (it
being agreed that the balance of said interest shall be paid to
Seller). If Buyer has not delivered a Dissatisfaction Notice as
42
aforesaid, on or before May 26, 1995, Buyer will be deemed to
have waived any and all defects which exist as of that date in
the Premises (it being understood that the term "defects" shall
not be limited to the physical condition of the Premises, but
shall also include non-compliance with applicable zoning and
other municipal, state and federal laws and regulations, adverse
environmental conditions and all other matters affecting the
Premises) or the then condition of the title.
Notwithstanding the foregoing, Buyer's completion of Buyer's
Due Diligence shall not be deemed to be an acceptance of any
materially adverse change in the condition of the Premises
occurring after the expiration of the Inspection Period and
prior to the closing. Buyer shall be entitled to inspect the
Premises (but not to conduct any sub-surface investigations
thereof) prior to the closing to verify that there has been no
materially adverse change in the condition of the Premises from
that which existed at the expiration of the Inspection Period
including, without limitation, any such change in environmental
conditions. In the event that any such materially adverse
change occurs after the expiration of said Inspection Period and
prior to the closing hereunder, Buyer shall have the right to
notify Seller of the occurrence thereof and its objection
thereto, prior to the closing hereunder. Upon delivery of such
notice by Buyer, the closing hereunder shall be extended for a
period of ten (10) days from the date of receipt by Seller of
Buyer's notice. If Seller does not elect, by notice to Buyer
given within five (5) days of receipt of Buyer's notice, to
correct said defect(s), then Buyer shall have the option to
terminate this agreement by notice to Seller given prior to the
extended closing date, failing which Buyer shall be deemed to
have agreed to take title to the Premises in their then current
state as aforesaid and to proceed to close in accordance with
the provisions of this agreement. If Seller elects to cure such
defect, the closing hereunder shall be further extended for the
period of time reasonably necessary for Seller to effect such
cure, but in no event more than thirty (30) days.
If the Purchase and Sale Agreement is terminated as set forth
above, Buyer will provide Seller with copies of any and all
reports and plans prepared for Buyer, and Buyer will keep all
information (written or oral) it receives about the Premises
confidential unless legally required to do otherwise.
Buyer hereby agrees that any reports issued by Buyer's
consultants in connection with Buyer's Due Diligence
(collectively the "Property Information") shall be kept
confidential. Notwithstanding the foregoing, the provisions of
this paragraph 3 shall in no event (x) apply to Property
Information which is a matter of public record and shall not
prevent Buyer from complying with laws, including, without
limitation, governmental regulatory, disclosure, tax and
reporting requirements, or (y) prohibit Buyer from disclosing
such reports or their contents to Buyer's accountants,
43
contractors, prospective lenders and financial advisors. The
provisions of this paragraph shall survive the termination of
this agreement but not the closing.
4. The agreed purchase price for the Premises is One Million
Two Hundred Ten Thousand Dollars of which
$ 60,500.00 have been paid as a deposit this day and
$ 1,149,500.00 are to be paid at the time of delivery of
the deed in cash or by certified or bank check
______________ or checks acceptable to Seller
$ 1,210,000.00 T O T A L
Buyer and Seller hereby agree to execute a separate
Designation Agreement in the form attached as Exhibit I,
designating the reporting person pursuant to Section 6045 of the
Internal Revenue Code. Seller agrees to provide the reporting
person with information substantially in the form of Exhibit A
attached to the Designation Agreement, or if the transaction
contemplated by this agreement is exempt from the reporting
requirements of Section 6045, with a certification to that
effect, specifying the grounds for the exemption, which
certification shall meet the requirements of Treasury Regulation
1.6045-3T.
5. Such deed is to be delivered at 10:00 o'clock A.M. on the
9th day of June, 1995, at the offices of Hale and Dorr, 60 State
Street, Boston, MA, or at Buyer's option (but provided notice
thereof is given to Seller not less than five (5) days prior to
the closing) the office of Buyer's lender's counsel, unless
otherwise agreed upon in writing (such time, as the same may be
extended pursuant to Paragraph 7 hereof, being hereinafter
referred to as "the Time of Closing"). Buyer shall have the
option to accelerate the closing date upon ten (10) days written
notice to Seller. It is agreed that time is of the essence of
this agreement.
6. Full possession of the Premises free of all tenants and
occupants and broom clean is to be delivered at the Time of
Closing.
7. If Seller shall be unable to give title or to make
conveyance, or to deliver possession of the Premises, all as
herein stipulated, or if at the Time of Closing the Premises do
not conform with the provisions hereof, then, subject to the
provisions of the fourth grammatical paragraph of Paragraph 3,
any payments made under this agreement shall be refunded and all
other obligations of the parties hereto shall cease and this
agreement shall be void and without recourse to the parties
hereto.
44
8. The acceptance of a deed by Buyer or the grantee
designated by Buyer, as the case may be, shall be deemed to be a
full performance and discharge of every agreement and obligation
herein contained or expressed, except the provisions of
Paragraph 11, 12 and 13 hereof and those provisions which by
their terms expressly survive delivery of the deed or are to be
performed after the delivery of the deed hereunder.
9. To enable Seller to make conveyance as herein provided,
Seller may, at the Time of Closing use the purchase money or any
portion thereof to clear the title of any or all encumbrances or
interests, provided that provision reasonably satisfactory to
Buyer's attorney and Buyer's lender's attorney is made at the
Time of Closing for prompt recording of all instruments so
procured.
10. Until the Time of Closing, Seller shall maintain
insurance on the Premises against fire and hazards covered by
extended endorsement in an amount at least equal to 80% of the
replacement value of the Premises. Notwithstanding the
provisions of this Paragraph 10, if any damage occurs to the
Premises from any cause whatsoever prior to the closing, and (a)
the cost of repairing such damage is greater than or equal to
$30,000 and such damage is not restored or remedied on or before
the closing, Buyer may, at its sole option and discretion (i)
take the insurance proceeds or claim, if any, relating to such
damage and fulfill its obligations pursuant to this agreement,
or (ii) terminate this agreement by notice to Seller, in which
case all deposits made hereunder together with 50% of the
interest earned thereon shall be immediately refunded to Buyer
(it being agreed that the balance of said interest shall be paid
to Seller) and all further rights and obligations of the parties
hereto shall thereupon terminate, or (b) if the cost of
repairing such damage is less than $30,000, Buyer shall agree to
complete its performance pursuant to the terms of this agreement
and, unless the Premises have been restored to their former
condition by Seller prior to the closing, Buyer and Seller shall
mutually select three qualified contractors to submit bids for
the repair of such damage, and the purchase price shall be
reduced by an amount equal to the lowest of the three bids so
submitted. In the event Buyer and Seller cannot agree on three
contractors, the reduction in the purchase price shall be
determined by binding arbitration in accordance with the
Construction Industry Arbitration Rules of the American
Arbitration Association. It is expressly understood that in the
circumstances of clauses (a)(ii) and (b) above, all insurance
proceeds and claims shall belong to Seller.
11. Water and sewer use charges, and taxes for the then
current tax period shall be apportioned and fuel value shall be
adjusted, as of the Time of Closing and the net amount thereof
shall be added to or be deducted from, as the case may be, the
purchase price payable by Buyer at the Time of Closing.
45
If the amount of said taxes is not known at the Time of
Closing, they shall be apportioned on the basis of the taxes
assessed for the preceding year, with a reapportionment as soon
as the new tax rate and valuation can be ascertained; and, if
the taxes which are to be apportioned shall thereafter be
reduced by abatement, the amount of such abatement, less the
reasonable cost of obtaining same, shall be apportioned between
the parties, provided that neither party shall be obligated to
institute or prosecute proceedings for an abatement unless
otherwise agreed. If such proceedings are commenced, the party
commencing the same shall give the other party notice thereof,
thereafter diligently prosecute such proceedings and not
discontinue the same without first giving the other party notice
of its intention so to do and reasonable opportunity to be
substituted in such proceedings; and the other party agrees to
cooperate in such proceedings without being obligated to incur
any expense in connection therewith.
12. This agreement constitutes the entire agreement between
the parties hereto and no verbal statements made by anyone with
regard to the transaction which is the subject of this agreement
shall be construed as a part hereof unless the same be
incorporated herein by writing. Buyer acknowledges that neither
Seller nor anyone acting in Seller's behalf has made any
warranties or representations upon which Buyer has relied (other
than as specifically set forth in this agreement) with respect
to the condition of the Premises, or any other fact, matter or
condition respecting or concerning the transaction which is the
subject hereof.
13. Buyer and Seller represent and warrant to each other that
they have engaged or consulted with no person or firm other than
The Stubblebine Company and Nordblom Brokerage Company, Inc.
(the "Brokers") in connection with the sale of the Premises
described in this agreement and that no person or firm other
than the Brokers would be entitled to be paid a commission by
reason of the procurement of this agreement or the transaction
which is the subject matter hereof. Buyer and Seller agree to
indemnify and hold each other harmless from and against any
loss, cost, damage or expense arising out of any claim for a
commission by any person or firm with whom Buyer or Seller has
dealt, other than the Brokers, whose fees will be paid by
Seller. The warranties, indemnifications and representations
made hereunder shall survive delivery of the deed hereunder.
14. All deposits made hereunder shall be held in escrow by
Hale and Dorr, as escrow agent, as earnest money for the proper
performance of this agreement on the part of Buyer subject to
the terms of this agreement and shall be duly accounted for at
the Time of Closing. Such deposits shall be held in a fully
insured interest bearing account, or money market account
approved by Buyer and Seller, with all interest thereon being
46
shared equally by Buyer and Seller, unless there is a default
hereunder in which event all of the interest shall follow the
deposits.
15. If Buyer shall fail to fulfill Buyer's obligations
hereunder, all payments made hereunder by Buyer shall be payable
to Seller as liquidated damages, which shall be Seller's sole
and exclusive remedy at law or in equity for any such default of
Buyer hereunder.
16. If Buyer records this agreement, it shall, at the option
of Seller, become ipso facto null and void, and all payments
made hereunder shall be retained by Seller as liquidated
damages.
17. All notices required or permitted to be given hereunder
shall be in writing and delivered by hand or by overnight delivery
by a recognized carrier, addressed in the case of Seller to E.E.
Landsman, Vice President, American Power Conversion Corporation, 9
Executive Park Drive, North Billerica, MA 01862-1318, with a copy
to: Victoria L. Karlson, Esq., Testa, Hurwitz & Thibeault,
Exchange Place, 53 State Street, Boston, MA 02109; and in the case
of Buyer to Rodger P. Nordblom and Peter C. Nordblom, Nordblom
Company, 31 Third Avenue, Burlington, MA 01803-4470, with a copy
to: Richard Berkman, Esq., Hale and Dorr, 60 State Street,
Boston, MA 02109; or in the case of either party to such other
address as shall be designated by written notice given to the
other party. Any such notice shall be deemed given when so
delivered by hand or overnight mail.
18. If Seller executes this agreement in a representative or
fiduciary capacity, only the principal or the estate represented
shall be bound and neither Seller so executing nor any shareholder
or beneficiary of any trust shall be personally liable for the
performance or observance of any obligation expressed or implied
hereunder.
19. The submission of a draft of this agreement or a summary of
some or all of its provisions does not constitute an offer to buy
or to sell the Premises, it being understood and agreed that
neither Buyer nor Seller shall be legally obligated with respect
to the purchase or sale of the Premises unless and until this
agreement has been executed by both Buyer and Seller and a fully
executed copy has been delivered.
20. Buyer represents, warrants and covenants to Seller that:
(a) Buyer is a validly existing Massachusetts corporation
and is authorized to purchase the Premises in accordance with this
agreement, and that the officer of Buyer who has executed and
delivered this agreement on behalf of Buyer has been duly
authorized so to do.
(b) To Buyer's knowledge, there are no contractual or
legal obligations or restrictions which would prevent Buyer from
buying the Premises and performing Buyer's obligations and
responsibilities described in this agreement.
47
Seller represents, warrants and covenants to Buyer that:
(a) Seller consists of the trustees of a nominee trust
duly organized and validly existing under the laws of the
Commonwealth of Massachusetts and Seller has been duly authorized
by all of the beneficiaries of said trust to execute and deliver
this agreement and perform its obligations hereunder.
(b) There are no contracts or agreements for services
rendered in connection with the operation of the Premises which
will survive the delivery of the deed.
(c) There is no litigation or proceeding, at law or in
equity, and there are no actions, proceedings or investigations
before any commission or other administrative authority, pending,
or to Seller's knowledge and belief, threatened against Seller or
the Premises.
(d) Seller has not received any notice of violation by the
Premises of any applicable building or zoning laws, codes or by-
laws, or other municipal, state or federal laws, regulations or
ordinances.
(e) To Seller's knowledge, there has been no release of
oil or hazardous materials (as defined in Massachusetts General
Laws Chapter 21E) on or from the Premises.
(f) Seller has not received written notice of and is not
aware of any condemnation proceedings proposed, pending or
threatened relating to the Premises.
(g) To Seller's knowledge, there are no contractual or
legal obligations or restrictions which would prevent Seller from
selling the Premises and performing Seller's obligations and
responsibilities described in this agreement.
(h) No work, labor or materials have been furnished to the
Premises which now constitutes a lien against the Premises, and no
such work or materials have been performed or furnished which
would or may allow such lien to arise.
(i) Pursuant to the terms of the trust creating Seller,
two of the four trustees set forth in paragraph 1 hereof are
authorized to sign this agreement and bind Seller.
All representations and warranties contained in this
Paragraph 20 will survive the delivery of the deed for a period of
two years.
21. In addition to the deed described in Paragraph 2 and the
documentation referred to in Paragraph 4 of this agreement, Seller
agrees that it shall deliver to Buyer at the closing described
herein the following closing documentation:
(a) a duly executed Schedule of Beneficiaries,
Authorization and Direction of Beneficiaries and Trustees'
Certificate of Seller and any other evidence or documentation as
may be reasonably requested by Buyer, Buyer's lender or their
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title insurance company to evidence the status, capacity and
authority of the person or persons who executed the deed and other
documents on behalf of Seller at the closing, including, without
limitation, evidence of the existence and capacity of the
beneficiaries of Seller if such beneficiaries are minors or
entities other than individuals; and a waiver of the corporate
excise tax lien duly issued by the Commonwealth of Massachusetts
Department of Revenue with respect to the sale contemplated by
this agreement, if any beneficiary is a corporation, or an
affidavit that the sale does not constitute a sale of all or
substantially all of the corporation's assets in Massachusetts;
and
(b) FIRPTA, Mechanic's Lien and Parties in Possession
affidavits.
22. If during the pendency of this agreement, Seller receives
written notice that any portion of the Premises is to be taken by
condemnation or purchased in lieu thereof, Seller shall give Buyer
written notice thereof and Buyer shall have the right to terminate
this agreement or confirm that this agreement shall continue in
full force and effect, within ten (10) days of Seller's notice of
the condemnation. If Buyer does not exercise its right to
terminate, Seller shall assign to Buyer any claim for compensation
to such condemned portion of the Premises.
This instrument, executed this 12th day of April, 1995, is to be
construed as a Massachusetts contract, is to take effect as a
sealed instrument, sets forth the entire contract between the
parties and may be cancelled, modified or amended only by a
written instrument executed by both Seller and Buyer.
Witnessed by:
/s/ Renee Marie Beck Seller: /s/ Rodger P. Nordblom
As Trustee, as aforesaid
and not individually
/s/ John Macomber
As Trustee, as aforesaid
and not individually
Buyer: AMERICAN POWER
CONVERSION CORPORATION
By: /s/ E.E. Landsman
Its: VP
49
Exhibit 11
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
Computation of Earnings per Share
For the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Primary:
Weighted Average shares
outstanding 92,939,494 91,823,665 89,102,550
Net Effect of dilutive stock
options and warrants based
on the treasury stock
method using the average
market price 927,386 1,089,159 2,225,467
Total 93,866,880 92,912,824 91,328,017
Net Earnings $69,536,494 $71,274,971 $48,558,636
Per Share Amount $0.74 $0.77 $0.53
Fully Diluted:
Weighted Average Shares
outstanding 92,939,494 91,823,665 89,102,550
Net Effect of dilutive stock
options and warrants based
on the treasury stock
method using the period end
price 341,414 910,654 2,485,598
Total 93,280,907 92,734,319 91,588,148
Net Earnings $69,536,494 $71,274,971 $48,558,636
Per Share Amount $0.74 $0.77 $0.53
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Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Subsidiary Place of Incorporation Ownership
American Power Conversion The Netherlands 100% by Registrant
Corporation (APC) B.V.
APC Distribution Ltd. Ireland 100% by Registrant
APC America, Inc. Delaware 100% by Registrant
American Power Conversion
Europe, S.A.R.L. France 100% by Registrant
American Power Conversion
Foreign Sales Corporation Barbados, W.I. 100% by Registrant
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Exhibit 23
ACCOUNTANTS' CONSENT
The Board of Directors
American Power Conversion Corporation:
We consent to incorporation by reference in the registration
statements (Nos. 33-25873 and 33-54416) on Forms S-8 of American
Power Conversion Corporation of our report dated February 14,
1996, relating to the consolidated balance sheets of American
Power Conversion Corporation and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1995, and the
related schedule, which reports appear in the December 31, 1995
annual report on Form 10-K of American Power Conversion
Corporation.
KPMG Peat Marwick LLP
Providence, Rhode Island
March 27, 1996
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