ANNUAL REPORT ON FORM 10-K
U.S. 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, 1996
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 Jusrisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
132 FAIRGROUNDS ROAD, WEST KINGSTON, RHODE ISLAND 02892
401-789-5735
(Address and telephone number of Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on
Common Stock, Which Registered
$.01 par value Pacific Stock Exchange
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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on February 27, 1997 was approximately $1,578,822,000 based on the
price of the last reported sale as reported by the NASDAQ Stock Market on
February 27, 1997. The number of shares outstanding of the Registrant's Common
Stock on February 27, 1997 was 94,920,771.
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 April 21, 1997 are incorporated
by reference in Part III hereof.
= Exhibit Index on Sequentially Numbered Page 39 =
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 and its leadership in the markets it
serves.
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 Road, 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. Personal computers ("PCs")
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 PCs in local area networks ("LANs"). PCs have become increasingly
important and it has become necessary to ensure that data stored in, and
operating instructions for, PCs 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.
After introducing an entirely new Smart-UPSr product line in 1995, the Company
re-focused sales efforts back to the server segment of the market. Major trends
affecting the Company's business in 1996 included growth of the Internet and
associated web servers, the growth of networking and PCs in international
2
geographies and emerging markets, the onset of electronic commerce, and the
commoditization of the server market. The Company's goal is to leverage these
trends, to target the sales of UPS to new servers, to have the product and
presence to succeed in new geographies and to continue to position itself as the
UPS and power solution provider of choice. The Company also continues to target
promotional efforts at the Small Office, Home Office (SOHO) market which it has
identified as a growth opportunity for the future and continues to target
industries that are becoming more dependent on electronic systems, such as the
telecommunications industry, as potential market growth opportunities. The
Company believes that the overall penetration by UPS products of the server
market is approximately 70% and of the PC market remains less than 10%.
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 PCs 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 over 140 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 PC) 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
$2,997. List prices to end-users for products ranging from 3,000 volt-amps to
5,000 volt-amps range from $2,599 to $6,767. 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-Rr power conditioning products that have list
prices to end-users of $179 and $299. The SurgeArrestr, 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 PowerChuter
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.
3
In addition, the Company offers a range of complimentary accessory products
designed to enhance the functionality of the Company's UPS and surge protection
products. NetShelter(TM) is a high quality, free standing rack enclosure for
storing and protecting network, internetworking, and power protection equipment.
Other accessories offered by the Company include Share-UPS(TM) and the
SmartSlot(TM) Interface Expander for reliable shutdown of multiple servers
connected to a single UPS; Measure-UPS(TM) to provide environmental and
security monitoring; SmartSlot Expansion Chassis to connect multiple
accessories to a single UPS; Call-UPS(TM) II to provide remote, out of band
UPS management via modem; SmartSlot Relay I/O module to integrate UPS
control into dry contact environments; Control-UPS/400(TM) to monitor and
manage an AS/400 system via UPS; and SwapBox(TM) to enhance UPS maintenance.
List prices to end users for accessory products range from $75 to $1,999.
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, 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 an 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 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 1996, the Company sold products to more than 1,700 customers.
In 1996 and 1995, no single customer comprised 10% or more of the Company's net
sales. In 1994, sales to one customer, Ingram Micro Corporation, accounted for
approximately 11% of the Company's net sales. In 1996, sales to the Company's
domestic distributors, value added resellers and private label customers
accounted for approximately 58%, 7%, and 3%, respectively, of the Company's net
sales. In 1996, sales outside of North America constituted approximately 38% of
the Company's net sales.
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
re-organized its domestic sales force in 1995 to provide a much closer focus on
the customer by creating customer units dedicated to specific customer groups.
4
The Company has charged its sales force with providing its customers with
product and service solutions to their power management needs.
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.
Manufacturing, Quality Control, and Supply
The Company's manufacturing operations are located in the United States (Rhode
Island and Florida), Ireland, and the Philippines. 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 ensure 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.
The Company is committed to an ongoing effort to enhance the overall
productivity of its manufacturing facilities. In 1996, the Company re-organized
its manufacturing efforts in its West Kingston, RI, Galway, Ireland, and
Philippine locations to move towards leaner, "cell" based manufacturing
processes. Such processes will be implemented in the Company's other Rhode
Island facilities as well as applied to new international locations over the
next several years. The primary goals of the re-organization were to increase
efficiency, decrease work in process, and improve the overall quality of the
Company's manufacturing processes. The Company has also adopted a "focused
factories" philosophy aimed at reducing the number of products built in any
given location to increase efficiency and overall quality. The Company is
working toward implementing this philosophy in its manufacturing efforts
worldwide.
In 1993, National Quality Assurance granted the Company its ISO 9000 quality
seal. The Company's systems have been audited to the stringent ISO 9002 level
at its manufacturing facilities in West Kingston and Cranston, Rhode Island and
Galway, Ireland.
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 Billerica, Massachusetts facility 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 1996, the Company's new product offerings included the Back-UPS Office
(TM) which was introduced in the second quarter. This product was designed to be
solution specific to the end-user, especially those using the Internet. The
5
Company also added additional products which strengthen the Company's position
as an overall network solution provider. These products include web management
capability with PowerChuter plus software, a network manageable power
distribution unit, and Masterswitch(TM), which enables a network manager to
control attached loads independent of each other.
During 1995, the Company introduced 155 new products, including a major
transition of its flagship product line, the Smart-UPSr, from its five year old
design to a new third generation product feature set, including automatic
voltage regulation and adjustment, a user-replaceable battery replacement
system, and an internal accessory option slot. The Company also introduced its
Back-UPSr 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 Management software package
tailored specifically for the IBM AS/400 environment.
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, 1996, 1995 and 1994, expenditures for the
Company's research and development were $14,784,362, $13,193,037, and
$9,742,553, respectively. The Company expects its research and development
expenditures to 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. 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 five global companies providing a full
range of UPS products and services worldwide in the 0 to 5 kVA UPS market. The
Company's principal competitors in the United States include Exide Electronics
Group, Inc., Best Power, a business unit of General Signal Corporation, and
Trippe Manufacturing Company. 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.
6
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, the Netherlands, South
Africa, and Uruguay for distribution into its international markets. The
Company's primary manufacturing operations outside of the United States are
located in Galway, Ireland and in the Philippines. American Power Conversion
Europe, S.A.R.L., the Company'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
Galway operations. The Company's consolidated financial statements include the
accounts of all of its wholly-owned subsidiaries.
The Company continues to investigate potential sites for manufacturing expansion
in international locations. During the second quarter of 1996, the Company
established a manufacturing operation in the Philippines which is operating
within a designated economic zone which provides certain economic incentives,
primarily in the form of tax exemptions. In 1996, this facility manufactured
certain Back-UPS products sold in the Company's domestic markets. In the
future, this operation will also provide manufacturing and technical support to
better serve the Company's markets in the Asia Pacific region. In January 1997,
the Company purchased a second location in the Philippines for approximately $3
million. The Company expects to begin manufacturing selected products at this
facility beginning in the third quarter of 1997.
In 1994, the Company 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 (a) 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 (b) 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, 1996
was approximately $10.2 million. The total cumulative amount of capital grants
received through December 31, 1996 amounted to approximately $7.9 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, 1996 was approximately $2.0 million. The total cumulative amount of
training grants received through December 31, 1996 amounted to approximately $.7
million.
The Company is continuing negotiations with the IDA for financial incentives in
connection with the future expansion of the Company's manufacturing operations
to an additional site within Ireland.
Financial Information About Foreign and Domestic Operations and Export Sales
The information required under this section is included in note 8 of Notes to
Consolidated Financial Statements in Item 8 of this Report and is incorporated
herein by reference.
Employees
As of December 31, 1996, the Company had approximately 2,650 full-time employees
worldwide, approximately 1,530 of whom are located in the United States and
Canada. The Company also engages other personnel on a part-time basis. The
Company considers its relations with employees to be good.
7
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 February 27, 1997, the executive officers of
the Company were as follows:
Name Age Positions
Rodger B. Dowdell, 47 Chairman of the Board of Directors, President, and
Jr. Chief Executive Officer
Neil E. Rasmussen 42 Vice President of Engineering and Director
Edward W. Machala 43 Vice President of Operations and Treasurer
Donald M. Muir 40 Chief Financial Officer
Emanuel E. Landsman 60 Vice President, Clerk and Director
Darrell A. Lucente 37 Vice President of Sales
John P. DiPippo 31 Vice President of Marketing
David P. Vieau 46 Vice President of Worldwide Business Development
Aaron L. Davis 30 Vice President of Marketing Communications
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.
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 A. Lucente was appointed Vice President of Sales in May 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.
John P. DiPippo became Vice President of Marketing in June 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 October 1989.
8
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.
Aaron L. Davis was appointed Vice President of Marketing Communications in
January 1995, after serving as Director of Marketing Communications. Mr. Davis
joined the Company in May 1989.
Item 2. Properties
The Company's U.S manufacturing and distribution center, and corporate offices,
are 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 four facilities in Rhode Island located in North
Kingstown, 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
North Kingstown Warehouse 94,600
West Warwick Warehouse 334,000
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 June 1996, the Company purchased and improved a 70,000 square foot
manufacturing and warehouse facility in the Philippines for approximately $1.5
million. The purchase price was financed from available operating cash.
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, S.A.R.L. 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
current requirements; however, the Company continues to investigate potential
sites for manufacturing expansion in international regions.
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
9
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.
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
1996 and 1995.
1996 1995
High Low High Low
First $11 5/8 $7 7/8 $20 1/2 $15 1/4
Quarter
Second 13 5/8 9 5/8 25 7/8 14 3/8
Quarter
Third 15 63/64 8 1/2 25 1/4 12 1/8
Quarter
Fourth 28 1/8 14 1/8 13 7/8 9 1/8
Quarter
On February 27, 1997, the closing sale price for the Company's Common Stock was
$20 7/8 per share. As of February 27, 1997, there were approximately 2,823
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.
10
Item 6. Selected Financial Data
All amounts are in dollars except for outstanding shares. Dollars are in
thousands except for earnings per share.
1996 1995 1994 1993 1992
Net Sales $706,877 $515,262 $378,295 $250,298 $157,462
Cost of Goods 407,902 284,500 189,954 122,009 78,260
Gross Profit 298,975 230,762 188,341 128,289 79,202
Costs and Expenses 165,185 127,057 82,692 53,392 36,372
Operating Income 133,790 103,705 105,649 74,897 42,830
Other Income 5,189 860 3,701 977 243
Earnings Before
Income Taxes 138,979 104,565 109,350 75,874 43,073
Income Taxes 46,558 35,029 38,075 27,316 15,291
Net Income $92,421 $69,536 $71,275 $48,558 $27,782
Earnings Per Share $.98 $.74 $.77 $.53 $.31
Weighted Average
Shares Outstanding 94,346,546 93,866,880 92,912,824 91,588,148 91,544,654
Total Assets $504,002 $346,588 $265,163 $158,971 $98,454
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
1993 and 1992.
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,
1996, 1995 and 1994.
1996 1995 1994
Net sales 100.0 100.0 100.0
Cost of goods sold 57.7 55.2 50.2
Gross profit 42.3 44.8 49.8
Selling, general and
administrative expenses 21.3 22.1 19.3
Research and development 2.1 2.6 2.6
Operating income 18.9 20.1 27.9
Interest income .8 .3 .6
Interest expense - (.1) -
Other income - - .4
Earnings before income taxes 19.7 20.3 28.9
Net income 13.1 13.5 18.8
11
Revenues
Net sales in fiscal year 1996 increased by 37.2% to $706,877,478 from
$515,262,424 in fiscal year 1995 which reflected a 36.2% increase from
$378,295,263 in fiscal year 1994. The increases from 1994 to 1996 are
attributable to continued strong worldwide 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 7%, 13%, and 3% of 1996, 1995 and 1994 net sales, respectively.
Export and foreign sales to unaffiliated customers, primarily in Europe, the Far
East, Canada, and South America, in fiscal year 1996 were $294,978,735 or 41.7%
of net sales compared to $204,511,326 or 39.7% of net sales in fiscal 1995 and
$134,306,525 or 35.5% of net sales in fiscal year 1994.
Cost of Goods Sold
Cost of goods sold was $407,902,072 or 57.7% of net sales in fiscal year 1996
compared to $284,500,473 or 55.2% of net sales in fiscal year 1995 and
$189,953,731 or 50.2% of net sales in fiscal year 1994. The increase in cost of
goods sold from 1994 to 1996 was primarily attributable to several factors,
including but not limited to: increased reserves for potential excess
inventories in light of the product transition which occurred largely during
1995 within the Smart-UPSr product family; a shift in product sales mix from the
high-end Smart-UPS products to the lower margin Smart-UPS v/s products partially
offset by a favorable margin impact of increasing sales of third generation
Smart-UPS products; reduced average selling prices resulting from sales
discounting; and increased indirect manufacturing costs associated with
additional indirect manufacturing personnel and other costs incurred to support
manufacturing infrastructure expansion and a transition toward more specific
product-focused factories. The total inventory reserves at December 31, 1996
were $16.1 million compared to $6.5 million at December 31, 1995. 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 5% of total inventories at December 31, 1996 compared to 10% 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.
Operating Expenses
Selling, general, and administrative expenses were $150,401,120 or 21.3% of net
sales in 1996 compared to $113,863,642 or 22.1% of net sales in 1995 and
$72,950,019 or 19.3% of net sales in 1994. The increases in total spending in
1996 and 1995 were due primarily to costs associated with increased advertising
and promotional costs, as well as costs associated with increased staffing of
sales and other related positions both domestically and internationally. The
decrease in SG&A expenses as a percentage of sales during 1996 over 1995 is
attributable to certain fixed SG&A expenses spread over a higher revenue base in
1996. The allowance for bad debts was 9.0% of accounts receivable at December
31, 1996 compared to 8.9% at December 31, 1995. The Company continues to
experience very strong collection performance from its accounts receivable with
outstanding balances over 60 days outstanding representing 9.1% and 5.8% of
total receivables at December 31, 1996 and 1995, 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 1996, 1995 and 1994 were $14,784,362,
$13,193,037, and $9,742,553, 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 1994 to 1996 as a result of continued product and
process development, the decrease from 1995 to 1996 as a percentage of sales is
attributable to certain fixed research and development expenses spread over a
higher revenue base. The Company expects its research and development
12
expenditures to remain at substantially the same level as a percentage of sales
for the foreseeable future.
Other Income (Expenses)
Interest income increased substantially in 1996 over 1995 due to higher average
cash balances available for investment during 1996. The decrease in 1995
compared to 1994 was attributable to a significant reduction in funds available
for investment, particularly during the first nine months of 1995. 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%, 33.5% and 34.8% in 1996,
1995 and 1994, respectively. The decrease from 1994 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.
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, 1996 was $317,790,983 compared to $226,457,935
at December 31, 1995. 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 and the Philippines (see below).
Inventory turnover was 2.9 turns for 1996, 2.4 turns for 1995, and 2.7 turns for
1994. Inventory levels decreased during 1996 as a result of management's
concerted efforts to reduce inventories as a percentage of revenues.
Accordingly, inventory levels declined from 104% of sales in the fourth quarter
of 1995 to 62% of sales in the fourth quarter of 1996. Inventory levels had
been increased during 1995 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 largely during 1995, in particular, the Smart-UPS product transition
discussed above.
At December 31, 1996, 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 .625% and an additional $15 million
under an unsecured line of credit agreement with a second bank at a similar
interest rate. No borrowings were outstanding under these facilities at
December 31, 1996. Additionally, the Company has no significant financial
commitments outstanding other than those required in the normal course of
business.
During 1996 and 1995, the Company's capital expenditures, net of capital grants,
amounted to approximately $25.0 million and $24.0 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, establish manufacturing
capabilities in the Philippines, to support the increased selling, marketing,
and administrative efforts necessitated by the Company's significant growth and
to improve the Company's enterprise-wide software applications. Net capital
expenditures were financed from available operating cash. The Company had no
material capital commitments at December 31, 1996. Capital expenditures in 1997
are estimated to be $15 to $20 million above the level of capital spending
incurred in 1996, primarily to support planned capacity expansions.
The Company continues to investigate potential sites for manufacturing expansion
in international locations. During the second quarter of 1996, the Company
established a manufacturing operation in the Philippines which is operating
within a designated economic zone which provides certain economic incentives,
primarily in the form of tax exemptions. The Company purchased and improved a
70,000 square foot facility for approximately $1.5 million which was financed
from operating cash. In 1996, this facility manufactured certain Back-UPS
13
products sold in the Company's domestic markets. In the future, this operation
will also provide manufacturing and technical support to better serve the
Company's markets in the Asia Pacific region. In January 1997, the Company
purchased a second location in the Philippines for approximately $3 million.
The Company expects to begin manufacturing selected products at this facility
beginning in the third quarter of 1997.
In 1994, the Company 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 (a) 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 (b) 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, 1996 was approximately $10.2 million. The total
cumulative amount of capital grants received through December 31, 1996 amounted
to approximately $7.9 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, 1996 was approximately $2.0 million. The total cumulative amount of
training grants received through December 31, 1996 amounted to approximately $.7
million.
The Company is continuing negotiations with the IDA for financial incentives in
connection with the future expansion of the Company's manufacturing operations
to an additional site within Ireland.
Management believes that current internal cash flows together with available
cash, available credit facilities or, if needed, the proceeds from the sale of
additional equity, will be sufficient to support anticipated capital spending
and other working capital requirements for the foreseeable future.
Acquisitions
On February 14, 1997, the Company completed its acquisition of Systems
Enhancement Corporation ("Systems Enhancement"), a privately-held manufacturer
of power management software and accessories, by means of a merger of a wholly-
owned subsidiary of the Company with and into Systems Enhancement. As a result
of the merger, Systems Enhancement became a wholly-owned subsidiary of the
Company. The Company issued 480,144 shares of its Common Stock, $.01 par value,
in exchange for all of the issued and outstanding shares of Systems Enhancement.
The Company will account for the acquisition as a pooling-of-interests.
Foreign Currency Activity
During 1994, the Company began invoicing its customers in Great Britain, France,
and Germany in their respective local currencies. During the second quarter of
1996, the Company began invoicing certain of its customers in Japan in Yen.
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
1996, 1995 and 1994.
At December 31, 1996, the Company's unhedged foreign currency accounts
receivable, by currency, were as follows:
Foreign US
Currency Dollars
British Pounds 4,175,000 $7,064,000
French Francs 24,100,000 4,608,000
German Marks 7,902,000 5,098,000
Japanese Yen 223,466,000 1,929,000
14
Total gross accounts receivable at December 31, 1996 was $119,333,000. The
Company also had non-trade receivables of 2,156,000 Irish Pounds (approximately
US$3,550,000), as well as Irish Pound denominated liabilities of 5,853,000
(approximately US$9,803,000). The Company also had liabilities denominated in
various European currencies of US$2,278,000, as well as Yen denominated
liabilities of approximately US$1,046,000.
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, 1996 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 these actions has been
recognized in the consolidated financial statements included in Item 8 of this
Report.
Risk Factors That May Affect Future Results
This document may include forward-looking statements. Any statements contained
herein that do not describe historical facts are forward-looking statements.
The Company makes such forward-looking statements under the provisions of the
"safe harbor" section of the Private Securities Litigation Reform Act of 1995.
The forward-looking statements contained herein are based on current
expectations, but are subject to a number of risks and uncertainties. The
factors that could cause actual results to differ materially from such forward-
looking statements include: the general economic conditions and growth rates in
the power protection industry and related industries; pricing pressures; changes
in product mix; changes in the seasonality of demand patterns; inventory risks
due to shifts in market demand; component restraints and shortages; expansion of
manufacturing capacity; risks of nonpayment of accounts receivables; and the
risk factors set forth below.
Fluctuations in Revenue and Operating Results
The Company's quarterly operating results may fluctuate as a result of a number
of factors, including the growth rates in the UPS industry and related
industries; timing of orders from, and shipments to, customers; the timing of
new product introductions and the market acceptance of those products; increased
competition; changes in manufacturing costs; changes in the mix of product
sales; inventory risks due to shifts in market demand; component constraints and
shortages; risks of nonpayment of accounts receivable; expansion of
manufacturing capacity; factors associated with international operations; and
changes in world economic conditions.
Management of Growth
The Company has experienced, and is currently experiencing, a period of rapid
growth which has placed, and could continue to place, a significant strain on
the resources of the Company. In order to support the growth of its business,
the Company plans to significantly expand its level of operations during 1997.
If the Company's management is unable to manage growth effectively, the
Company's operating results could be adversely affected.
Competition
The Company believes it is one of five global companies providing a full range
of UPS products and services in the 0 to 5kVA market. The UPS industry,
however, is highly competitive on both a worldwide basis and a regional
geographic basis. The Company competes, and will continue to compete, with
several U.S. and foreign firms with respect to UPS products, both on a worldwide
basis and in various geographical regions, and within individual UPS product and
application niches. The Company expects competition to increase in the future
15
from existing competitors and a number of companies which may enter the
Company's existing or future markets. Increased competition could adversely
affect the Company's revenue and profitability through price reductions and loss
of market share. The principal competitive factors in the UPS industry are
product performance and quality, marketing and access to distribution channels,
customer services, product design and price. Some of the Company's current and
potential competitors have substantially greater financial, technical, sales and
marketing resources than the Company. There can be no assurance that the
Company will be able to continue to compete successfully with its existing
competitors or will be able to compete successfully with new competitors.
Technological Change; New Product Delays; Risks of Product Defects
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions.
Current competitors or new market entrants may develop new products with
features that could adversely affect the competitive position of the Company's
products. There can be no assurance that the Company will be successful in
selecting, developing, manufacturing and marketing new products or enhancing its
existing products or that the Company will be able to respond effectively to
technological changes, new standards or product announcements by competitors.
The timely availability of new products and enhancements, and their acceptance
by customers are important to the future success of the Company. Delays in such
availability or a lack of market acceptance could have an adverse effect on the
Company. Although the Company has not experienced material adverse effects
resulting from product defects, there can be no assurance that, despite testing
internally or by current or potential customers, defects will not be found in
products, resulting in loss or delay in market acceptance, which could have a
material adverse effect upon the Company's business, operating results and
financial condition.
Dependence on Key Employees
The Company's success depends to a significant degree upon the continuing
contributions of its key management, sales, marketing, research and development
and manufacturing personnel, many of whom would be difficult to replace. The
Company does not have employment contracts with most of its key personnel. The
Company believes that its future success will depend in large part upon its
ability to attract and retain highly-skilled hardware and software engineers,
and management, sales and marketing personnel. Competition for such personnel
is intense, and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. Failure to attract and retain key
personnel could have a material adverse effect on the Company's business,
operating results and financial condition.
Foreign Operations; Risk of Currency Fluctuations
The Company manufactures and markets its products worldwide through several
foreign subsidiaries and independent agents. The Company's worldwide operations
are subject to the risks normally associated with foreign operations including,
but not limited to, the disruption of markets, changes in export or import laws,
restrictions on currency exchanges, potentially negative tax consequences and
the modification or introduction of other governmental policies with potentially
adverse effects.
International sales (sales to customers outside the United States, both direct
and indirect) accounted for approximately 41.7%, 39.7% and 35.5% of the
Company's net sales in 1996, 1995 and 1994, respectively. The Company
anticipates that international sales will continue to account for a significant
portion of revenue. During 1994, the Company began invoicing its customers in
Great Britain, France and Germany in their respective local currencies and
during the second quarter of 1996 began invoicing its customers in Japan in Yen.
To date, the Company does not utilize any rate protection agreements or
derivative agreements to hedge any foreign exchange exposure. Accordingly, the
Company may be exposed to exchange losses based upon currency exchange rate
fluctuations, which losses could have a materially adverse effect on the
Company's operating results.
Dependence on Sole Source Suppliers
Some components of the Company's products are currently obtained from single
sources. There can be no assurance that in the future the Company's suppliers
will be able to meet the Company's demand for components in a timely and cost-
effective manner. The Company generally purchases these single or limited
source components pursuant to purchase orders and has no guaranteed supply
arrangements with the suppliers. In addition, the availability of many of these
components to the Company is dependent in part on the ability of the Company to
16
provide the suppliers with accurate forecasts of future requirements. The
Company has generally been able to obtain adequate supplies of parts and
components in a timely manner from existing sources. The Company's operating
results and customer relationships could be adversely affected by either an
increase in prices for, or an interruption or reduction in supply of, any key
components.
Uncertainties Regarding Patents and Protection of Proprietary Technology
The Company's success will depend, to a large extent, on its ability to protect
its proprietary technology. The Company relies on a combination of contractual
rights, trade secrets and copyrights to protect its proprietary rights.
Although the Company may apply for patents in the future, there can be no
assurance that the Company's intellectual property protection will be sufficient
to prevent competitors from developing similar technology. Moreover, in the
absence of patent protection, the Company's business may be adversely affected
by competitors that independently develop functionally equivalent technology.
The Company attempts to ensure that its products and processes do not infringe
patents and other proprietary rights, but there can be no assurance that such
infringement may not be alleged by third parties in the future. If infringement
is alleged, there can be no assurance that the necessary licenses would be
available on acceptable terms, if at all, or that the Company would prevail in
any such challenge.
Integration of Acquired Businesses
The Company consummated its acquisition of Systems Enhancement in February 1997.
Systems Enhancement currently operates as a wholly-owned subsidiary of the
Company. The Company has limited experience in integrating acquired companies
or technologies into its operations. The Company may from time to time pursue
the acquisition of other companies, assets, products or technologies. There can
be no assurance that products, technologies, distribution channels, key
personnel and businesses of Systems Enhancement or any other acquired companies
will be successfully integrated into the Company's business or product
offerings, or that such integration will not adversely affect the Company's
business, financial condition or results of operations. There can be no
assurance that any acquired companies, assets, products or technologies will
contribute significantly to the Company's sales or earnings, that the sales and
earnings from acquired businesses will not be adversely affected by the
integration process or other factors. If the Company is not successful in the
integration of such acquired businesses, there could be an adverse impact on the
financial results of the Company. There can be no assurance that the Company
will continue to be able to identify and consummate suitable acquisition
transactions in the future.
Possible Volatility of Stock Price
The market price of the Company's Common Stock has been, and may continue to be,
extremely volatile. The trading price of the Company's Common Stock could be
subject to wide fluctuations in response to quarter-to-quarter variations in
operating results, changes in earnings estimates by analysts, announcements of
technological innovations or new products by the Company or its competitors,
challenges associated with integration of businesses and other events or
factors. In addition, the stock market has from time to time experienced
extreme price and volume fluctuations which have particularly affected the
market price for many high technology companies and which often have been
unrelated to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock.
17
ITEM 8. Financial Statements and Supplementary Data
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
Current assets:
Cash and cash equivalents $153,234,392 $ 39,039,735
Accounts receivable, less allowance for
doubtful accounts of
$10,789,000 in 1996, $6,920,000 in 1995
(Note 2) 108,543,665 71,199,105
Inventories (Note 3) 130,443,276 147,541,053
Prepaid expenses and other current assets 11,609,549 9,277,986
Deferred income taxes (Note 5) 20,284,000 11,323,000
Total current assets 424,114,882 278,380,879
Property, plant, and equipment:
Land, buildings, and improvements 18,710,316 15,973,746
Machinery and equipment 64,985,759 51,353,043
Purchased software 7,357,373 4,160,439
Office equipment, furniture, and fixtures 23,299,139 17,860,365
114,352,587 89,347,593
Less accumulated depreciation and 35,655,158 22,144,085
amortization
Net property, plant, and equipment 78,697,429 67,203,508
Other assets 1,189,344 1,003,452
Total assets $504,001,655 $346,587,839
See accompanying notes to consolidated financial statements.
18
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1995
Current liabilities:
Accounts payable $41,586,761 $26,406,283
Accrued expenses 12,575,558 5,790,421
Accrued compensation 12,217,371 6,472,255
Accrued sales and marketing programs 16,360,188 6,780,595
Accrued retirement contributions 6,289,576 4,677,639
Income taxes payable 17,294,445 1,795,751
Total current liabilities 106,323,899 51,922,944
Deferred tax liability (Note 5) 5,780,000 4,899,000
Total liabilities 112,103,899 56,821,944
Shareholders' equity (Notes 6 and 7):
Common stock, $.01 par value;
authorized 200,000,000 shares in 1996
and 1995;issued 94,417,409 in 1996,
93,270,933 in 1995 944,174 932,709
Additional paid-in capital 48,373,647 37,122,872
Retained earnings 344,131,198 251,710,314
Treasury stock, 125,000 shares, at cost (1,551,263) -
Total shareholders' equity 391,897,756 289,765,895
COMMITMENTS AND CONTINGENCIES
(Notes 9, 11 and 12)
OTHER INFORMATION (Notes 4 and 10)
Total liabilities and shareholders'
equity $504,001,655 $346,587,839
See accompanying notes to consolidated financial statements.
19
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Net sales (Note 8) $706,877,478 $515,262,424 $378,295,263
Cost of goods sold 407,902,072 284,500,473 189,953,731
Gross profit 298,975,406 230,761,951 188,341,532
Costs and expenses:
Selling, general, and
administrative expenses 150,401,120 113,863,642 72,950,019
Research and development 14,784,362 13,193,037 9,742,553
165,185,482 127,056,679 82,692,572
Operating income 133,789,924 103,705,272 105,648,960
Other income (deductions):
Interest income 5,229,674 1,303,966 2,099,842
Interest expense - (317,253) -
Other, net (40,714) (126,491) 1,601,242
Earnings before income taxes 138,978,884 104,565,494 109,350,044
Income taxes (Note 5) 46,558,000 35,029,000 38,075,073
Net income $92,420,884 $69,536,494 $71,274,971
Earnings per share (Note 1) $.98 $.74 $.77
Weighted average common stock
and common stock equivalents
outstanding 94,346,546 93,866,880 92,912,824
See accompanying notes to consolidated financial statements.
20
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1996, 1995 and 1994
$.01 Par, Additional Unrealized Treasury
Common Paid-in Holding Retained Stock,
Stock Capital Losses Earnings at Cost Total
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
Exercises of stock options 5,758 2,900,361 2,906,119
Tax effect of exercises of
stock options 1,430,000 1,430,000
Shares issued to Employee
Stock Ownership Plan 5,707 6,920,414 6,926,121
Purchases of common stock (1,551,263) (1,551,263)
Net income 92,420,884 92,420,884
Balances at
December 31, 1996 $944,174 $48,373,647 $ - $344,131,198 $(1,551,263) $391,897,756
See accompanying notes to consolidated financial statements.
21
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operating activities:
Net income $92,420,884 $69,536,494 $71,274,971
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 13,511,073 10,101,882 6,105,146
Provision for doubtful accounts 4,291,000 4,626,500 2,283,000
Deferred income taxes (8,080,000) (3,696,000) 148,000
Changes in operating assets and liabilities:
Increase in accounts receivable (41,635,560) (15,286,733) (29,723,062)
Decrease (increase) in inventories 17,097,777 (55,125,508) (43,343,681)
Increase in prepaid expenses and other (2,331,563) (358,253) (8,121,380)
current assets
Increase in other assets (185,892) (160,504) (794,777)
Increase (decrease) in accounts payable 15,180,478 (7,151,404) 25,355,860
Increase in accrued expenses 6,785,137 2,857,257 1,567,300
Increase (decrease) in accrued compensation 5,745,116 257,550 (1,235,757)
Increase in accrued sales and marketing 9,579,593 2,840,656 213,696
programs
Increase in accrued retirement contributions 1,611,937 1,069,605 1,428,130
Increase (decrease) in income taxes payable 16,928,694 3,896,968 (1,759,845)
Net cash provided by operating activities 130,918,674 13,408,510 23,397,601
Cash flows from investing activities:
Capital expenditures, net of capital grants (25,004,994) (23,994,343) (35,903,813)
Proceeds from sale of equipment - 143,230 -
Purchases of short-term investments - (802,800) (12,693,722)
Sales and maturities of short-term investments,
net of gain and losses - 13,707,529 9,439,838
Net cash used in investing activities (25,004,994) (10,946,384) (39,157,697)
Cash flows from financing activities:
Proceeds from issuances of common stock 9,832,240 7,504,892 6,731,341
Purchases of common stock (1,551,263) - -
Net cash provided by financing activities 8,280,977 7,504,892 6,731,341
Net increase (decrease) in cash and cash
equivalents 114,194,657 9,967,018 (9,028,755)
Cash and cash equivalents at beginning of year 39,039,735 29,072,717 38,101,472
Cash and cash equivalents at end of year $153,234,392 $39,039,735 $29,072,717
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ - $317,253 $ -
Income taxes (net of tax refunds) $37,219,315 $34,828,032 $39,686,918
NON-CASH TRANSACTIONS: In 1996, 1995 and 1994, the tax effect of the exercise of
stock options resulted in increases to additional paid-in capital and reductions
to income taxes payable of $1,430,000, $300,000 and $2,514,000, 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, 1996, 1995 and 1994
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 the straight-line method 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 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 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 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.
23
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this
method, 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. The effect 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 undistributed earnings of
the Company's foreign subsidiaries which aggregated approximately $60 million at
December 31, 1996. The Company plans to reinvest all such earnings for future
expansion. If such earnings were distributed, taxes would be increased by
approximately $15 million.
Cash and Cash Equivalents
Cash and cash equivalents consists of funds on deposit and money market savings
accounts.
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 had no short-term investments at December 31, 1996 and 1995.
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. 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.
Stock Based Compensation
The Company applies APB Opinion 25 and related Interpretations in accounting for
its two stock option plans. Accordingly, no compensation cost has been
recognized for these plans in the accompanying consolidated financial
statements.
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
$36,328,000 in 1996, $23,096,000 in 1995, and $12,829,000 in 1994. 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.
24
2. 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 affect the Company's
estimate of its bad debts.
3. Inventories
Inventories consist of the following:
1996 1995
Raw materials $ 68,657,195 $ 62,495,212
Work in process 13,344,466 28,499,516
Finished goods 48,441,615 56,546,325
$130,443,276 $147,541,053
4. 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 .625%. There were no amounts outstanding under these facilities at
December 31, 1996 and 1995.
5. Income Taxes
Total federal, state and foreign income tax expense (benefit) from continuing
operations for the years ended December 31, 1996, 1995 and 1994 consists of the
following:
Current Deferred Total
1996:
Federal $38,279,000 ($6,759,000) $31,520,000
State 7,100,000 (1,100,000) 6,000,000
Foreign 9,259,000 (221,000) 9,038,000
$54,638,000 ($8,080,000) $46,558,000
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
Income tax expense attributable to continuing operations amounted to $46,558,000
in 1996, $35,029,000 in 1995, and $38,075,073 in 1994 (effective rates of 33.5%,
33.5%, and 34.8%, respectively). The actual expense for 1996, 1995 and 1994
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:
25
1996 1995 1994
Computed "expected" tax expense $48,642,609 $36,597,923 $38,272,515
State income taxes, net of federal
income tax benefit 3,900,000 2,470,000 3,160,300
Foreign earnings taxed at rates lower than
U.S. statutory rate (principally Ireland) (4,520,000) (2,880,000) (750,000)
Foreign sales corporation (1,475,250) (1,331,932) (1,807,606)
Research and development credit - (38,069) (106,991)
Other 10,641 211,078 (693,145)
$46,558,000 $35,029,000 $38,075,073
The domestic and foreign components of earnings before income taxes were
$94,822,083 and $44,156,801, respectively, for 1996, $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, 1996, 1995 and 1994 was allocated as follows:
1996 1995 1994
Income from continuing operations $46,558,000 $35,029,000 $38,075,073
Shareholders' equity, for compensation
expense for tax purposes in excess of
amounts recognized for financial
statement purposes (1,430,000) (300,000) (2,514,000)
$45,128,000 $34,729,000 $35,561,073
At December 31, 1996 and 1995, 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:
1996 1995
Deferred tax liabilities:
Excess of tax over financial statement $ 5,706,000 $ 4,659,000
depreciation
Other 74,000 240,000
Total deferred tax liabilities 5,780,000 4,899,000
Deferred tax assets:
Allowance for doubtful accounts 2,806,000 1,705,000
Additional costs inventoried for tax 1,014,000 975,000
purposes
Intercompany inventory profits 2,793,000 2,035,000
Allowances for sales and marketing programs 5,343,000 2,247,000
Inventory obsolescence reserve 4,875,000 2,145,000
Accrual for compensation and compensated 1,063,000 712,000
absences
Reserve for warranty costs 508,000 320,000
Deferred revenue 1,138,000 443,000
Deferred gain on intercompany sale of 744,000 741,000
equipment
Total gross deferred tax assets 20,284,000 11,323,000
less valuation allowance - -
Net deferred tax assets 20,284,000 11,323,000
Net deferred income taxes $14,504,000 $ 6,424,000
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
1995, 1994 and 1993 was approximately $82.8 million, $85.1 million, and $58.9
million, respectively.
26
6. Stock Option Plans
At December 31, 1996, the Company has two stock option plans, which are
described below. Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," requires companies to either (a)
record an expense related to its stock option plans based on the estimated fair
value of stock options as of the date of the grant or (b) disclose pro forma net
income and earnings per share data as if the company had recorded an expense,
beginning with options granted in 1995. The Company has elected to continue to
apply APB Opinion 25 and related Interpretations in accounting for these plans
and to comply with the SFAS No. 123 disclosure requirements. Accordingly, no
compensation cost has been recognized for its stock option plans in the
accompanying consolidated financial statements. Had compensation cost for such
plans been determined based on the fair value at the grant dates for awards
under these plans consistent with the method of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
1996 1995
Net income As reported $92,420,884 $69,536,494
Pro forma 91,228,000 68,908,000
Earnings per share As reported $.98 $.74
Pro forma .97 .74
The pro forma effect on net income for 1996 and 1995 is not representative of
the pro forma effect on net income in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995. The weighted average fair value of options granted during 1996 and 1995
was $5.13 and $4.95, respectively. The Company estimates the fair value of each
option as of the date of grant using the Black-Scholes pricing model with the
following weighted average assumptions used for grants in 1996 and 1995:
1996 1995
Expected volatility 56% 54%
Dividend yield - -
Risk-free interest rate 6.6% 5.7%
Expected life 5 years 4 years
Under the 1987 Stock Option Plan (the "Plan"), the Company may grant options for
up to 10,800,000 shares of common stock. Options granted under the Plan may be
either (a) options intended to constitute incentive stock options ("ISOs") under
the Internal Revenue Code of 1986 (the "Code") or (b) non-qualified options.
Incentive stock options may be granted under the Plan to employees or officers
of the Company. Non-qualified options may be granted to consultants, directors
(whether or not they are employees), employees or officers of the Company.
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. Non-qualified options granted
under the Plan may not be granted at a price less than the lesser of (a) 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 (b) 50% of the fair
market value of the common stock on the date of grant.
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
27
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).
Options granted under the Plans before December 1, 1995 vested 25% at the end of
the first year and 12.5% at the end of each six month period thereafter.
Options granted after December 1, 1995 vest 20% at the end of the second year
and 20% at the end of each year thereafter.
Options granted under the Plans before January 1, 1993 will expire not more than
five years from the date of grant. Options granted under the Plans after
January 1, 1993 will expire not more than ten years from the date of grant (five
years in the case of ISOs granted to ten percent shareholders). The outstanding
options expire at various dates through 2006. 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.
A summary of the status of the Company's stock option plans as of December 31,
1996, 1995 and 1994, and changes during the years ending on those dates is
presented below:
1996 1995 1994
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at
beginning of
year 1,946,653 $ 8.59 2,258,375 $10.70 3,293,504 $ 5.82
Granted 460,583 9.68 1,114,413 10.75 485,750 18.94
Exercised (575,873) 5.05 (484,665) 4.14 (1,401,829) 1.99
Terminated (222,343) 9.17 (941,470) 18.57 (119,050) 11.73
Outstanding at
end of year 1,609,020 10.04 1,946,653 8.59 2,258,375 10.70
Exercisable
at year-end 556,076 919,293 948,311
Shares reserved
at year-end 2,836,549 3,412,422 3,897,087
The following table summarizes information about stock options outstanding at
December 31, 1996:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Shares Contractual Exercise Shares Exercise
Exercise Prices Outstanding Life (years) Price Exercisable Price
$6.94 to $10.25 1,409,695 7.9 $ 9.35 441,603 $ 9.03
$12.00 to $17.50 161,425 6.8 13.30 93,424 12.81
$19.63 to $26.00 37,900 7.5 21.49 21,049 21.09
$6.94 to $26.0 1,609,020 7.8 10.04 556,076 10.13
28
7. Retirement Benefits
At December 31, 1996, the Company has noncontributory Employee Stock Ownership
Plans (the "ESOP") covering substantially all North American and Irish
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 limitations established by U.S. and Irish tax laws.
The ESOP holds 5,025,546 shares of common stock at December 31, 1996.
Substantially all contributed shares have been allocated to participant
accounts. ESOP contributions amounted to approximately $6,926,000 in 1996,
$5,501,000, in 1995, and $3,939,000 in 1994.
The retirement expense for 1996, 1995 and 1994 amounted to approximately
$8,538,000, $6,570,000, and $5,367,000, respectively.
8. Segment and Geographic 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 1996 and
1995. Sales to one customer, Ingram Micro Corporation, accounted for
approximately 11% of the Company's net sales in 1994.
The Company's primary manufacturing operations outside of the United States are
located in Galway, Ireland, as explained in Note 12, and in the Philippines.
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 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 1996, 1995 and 1994 follows:
1996 1995 1994
Revenues from unaffiliated
customers:
United States $411,898,743 $310,751,098 $243,988,738
Foreign 189,463,261 115,092,696 28,115,344
Export sales from United States 105,515,474 89,418,630 106,191,181
$706,877,478 $515,262,424 $378,295,264
Operating profit:
United States $ 84,531,334 $ 69,848,090 $ 97,720,548
Foreign 49,258,590 33,857,182 7,928,412
$133,789,924 $103,705,272 $105,648,962
Identifiable assets:
United States $352,106,922 $241,891,097 $200,805,337
Foreign 151,894,733 104,696,742 64,357,703
$504,001,655 $346,587,839 $265,163,038
Capital expenditures:
United States $17,269,766 $21,554,156 $25,416,577
Foreign 7,735,228 2,440,187 10,487,236
$25,004,994 $23,994,343 $35,903,813
Depreciation and amortization:
United States $10,813,263 $ 8,401,171 $5,544,032
Foreign 2,697,810 1,700,711 561,114
$13,511,073 $10,101,882 $6,105,146
29
During 1996, 1995 and 1994, respectively, 49%, 38%, and 14% of export sales from
the United States were to unaffiliated customers in the Asia Pacific region and
14%, 23%, and 50% were to unaffiliated customers in European, African, and
Middle Eastern countries, with the remainder in Canada and South America.
During 1996, 1995 and 1994, approximately 81% of foreign sales to unaffiliated
customers were to European, African, and Middle Eastern customers, with the
remainder in the former Soviet Union. Approximately 90% of the Company's
foreign operating profits and identifiable assets were located in Europe, with
the remainder in the Asia Pacific region.
9. 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 these 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.
10. 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.
11. 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
require the Company to pay its proportionate share of utilities, taxes, and
insurance. Rent expense under these leases for 1996 and 1995 was $2,509,000 and
$1,930,000, respectively, and was not material to the Company's results of
operations for 1994.
Future minimum lease payments under these leases are: 1997 - $2,020,000; 1998 -
$1,588,000; 1999 - $1,328,000; 2000 - $1,253,000; 2001 - $1,042,000; and
$519,000 thereafter.
12. Contingencies
In 1994, American Power Conversion Corporation 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 the former
Soviet Union. 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 (a) the Company fail to meet certain employment
goals established under the agreement which are to be achieved over a five year
30
implementation period and/or (b) 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, 1996
was approximately $10.2 million. The total cumulative amount of capital grants
received through December 31, 1996 amounted to approximately $7.9 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, 1996 was approximately $2.0 million. The total cumulative amount of
training grants received through December 31, 1996 amounted to approximately $.7
million.
In addition, the Company executed agreements in 1994 with an unrelated company
to acquire the 280,000 square foot manufacturing and distribution facility
presently occupied 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.
13. Quarterly Financial Data (Unaudited)
The following is a summary of quarterly results of operations:
Q1 Q2 Q3 Q4
(In dollars except shares outstanding)
1996:
Net Sales 141,625,835 161,436,849 193,755,373 210,059,421
Gross Profit 58,185,086 67,338,063 81,983,446 91,468,811
Net Income 15,212,570 19,105,252 27,901,040 30,202,022
Earnings Per Share .16 .20 .30 .32
Weighted Average
Shares Outstanding 93,750,447 94,243,830 94,401,094 95,108,852
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 Oustanding 93,336,733 93,642,721 93,765,475 93,711,946
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
31
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 April 21, 1997. 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 on April 21, 1997 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 on April 21, 1997 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 on April 21, 1997 is incorporated
herein by reference.
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, 1996 and 1995
Consolidated Statements of Income for each of the three years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity
for each of the three years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedules
Schedule
Number Description Page No.
II Valuation and Qualifying 38
Accounts and Reserves
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 schedule are included
herein on pages 35 and 36.
32
3. Exhibit Listing
Exhibit Description
Number
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 Normac-Billerica Associates III
u/d/t dated October 11, 1979 (10.19)
10.20 American Power Conversion Corporation B.V. Profit Sharing
Scheme dated September 25, 1996 (X)
11 Computation of Earnings per Share
21 Subsidiaries of Registrant
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule (for SEC EDGAR filing only)
33
* 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.
******* Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995 and incorporated herein by
reference (File No. 1-12432). The number given in parenthesis indicates the
corresponding exhibit in such Form 10-K.
(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, 1996.
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, 1996 and 1995, 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, 1996.
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, 1996 and 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Providence, Rhode Island
February 10, 1997
35
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
American Power Conversion Corporation:
Under date of February 10, 1997, we reported on the consolidated balance sheets
of American Power Conversion Corporation and subsidiaries as of December 31,
1996 and 1995 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, 1996, as contained in the annual report on Form 10-K for the year
1996. 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 10, 1997
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 1, 1997
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 1, 1997
By: /s/ Rodger B. Dowdell, Jr.
Rodger B. Dowdell, Jr.,
President,
Chairman, Principal Executive Officer and Director
(principal executive officer)
Date: March 1, 1997
/s/ Neil E. Rasmussen
Neil E. Rasmussen,
Vice President and Director
Date: March 1, 1997
/s/ Emanuel E. Landsman
Emanuel E. Landsman,
Vice President, Clerk and Director
Date: March 1, 1997
/s/ Ervin F. Lyon
Ervin F. Lyon,
Director
Date: March 1, 1997
/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, 1996, 1995 and 1994
Valuation accounts deducted from assets to which they apply:
Allowance for Doubtful Accounts Receivable
Balance at Charged to Write Offs/ Balance at
Beginning Costs and Allowances End of
of Year Expenses Taken Year
1996 $6,920,000 $4,291,000 ($422,000) $10,789,000
1995 2,979,000 4,626,500 (685,500) 6,920,000
1994 1,544,000 2,283,000 (848,000) 2,979,000
38
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Descriptions Page
Number 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 Normac-
Billerica Associates III u/d/t dated October 11, 1979
(10.19)
10.20 American Power Conversion Corporation B.V. Profit
Sharing Scheme dated September 25, 1996 (X) 41
11 Computation of Earnings per Share 64
21 Subsidiaries of Registrant 65
23 Consent of KPMG Peat Marwick LLP 66
27 Financial Data Schedule (for SEC EDGAR filing only) 67
39
* 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.
******* Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995 and incorporated herein by
reference (File No. 1-12432). The number given in parenthesis indicates the
corresponding exhibit in such Form 10-K.
40
Exhibit 10.20
THIS TRUST DEED is made the 25 day of September, One Thousand nine hundred and
ninety-six BETWEEN
(1) AMERICAN POWER CONVERSION CORPORATION (A.P.C.) B.V., hereinafter referred
to as American Power Conversion (registered in the Netherlands Number
255098) whose registered office is at Hoehenrode 6, 1102 BR Amsterdam,
which is registered on the external directory as a place of Business at
Ballybrit Industrial Estate, Galway, Ireland Number 903422.
AND
(2) KPMG TRUST (incorporated in Ireland Number 28654) whose registered office
is at 1 Stokes Place, St. Stephen's Green, Dublin 2 (hereinafter
called "the Trustees" which expression shall include the Trustee or
Trustees for the time being hereof) of the other part.
WHEREAS:
(A) By a Resolution (the "Resolution") of the Directors passed on 20 September
1996 the Directors determined to establish the American Power Conversion
Profit Sharing Scheme, as an employee profit sharing scheme which is to be
approved by the Revenue Commissioners in Ireland in accordance with Chapter
IX of Part I and the Third Schedule of the Finance Act 1982 (the "Act"),
for the purposes of providing for eligible employees' and directors'
benefits in the nature of interests in shares.
(B) The Trustees have agreed to act as the first Trustees of the Scheme.
NOW THIS DEED WITNESSETH and it is hereby agreed as follows:
1. (a) Words and expressions defined in the Rules shall bear the same
meanings herein where the context so admits and the provisions of
Rule 1 shall be deemed to be incorporated herein.
(b) In pursuance of the Resolution American Power Conversion Profit
Sharing Scheme is hereby established.
2. (a) The Company shall pay to the Trustees the amount due pursuant to
Rule 3 for the purpose of the acquisition or subscription of Ordinary
Shares by the Trustees in accordance with the Scheme together with
any other amount required to cover any costs, charges and expenses
incurred in such acquisition and any other expenses and charges
incurred by the Trustees in the operation of the Scheme.
(b) The Company shall provide only in respect of Eligible Employees
the Trustees with all information which is necessary for the purposes
of the Scheme and the Trustees shall be entitled to rely on such
information in good faith without further enquiry.
(c) Subject as hereinafter provided, the Trustees hereby covenant
with the Company to apply such sums received for that purpose in the
acquisition or subscription of Ordinary Shares in accordance with the
Rules and to hold the same once appropriated upon trust for the
respective Participants entitled thereto subject to the provisions of
the Scheme.
(d) The Trustees shall in accordance with Rule 3(h) sell or hold as
part of the Residual Fund so many of the Ordinary Shares acquired or
subscribed for by them which have not been appropriated.
(e) The Trustees shall hold:
(i) the net proceeds of any sale made pursuant to paragraph
(d) above; and
41
(ii) any income therefrom,
to be applied in accordance with Clause 13.
3. The Trustees shall hold Scheme Shares upon trust for the benefit of the
Participants to whom Scheme Shares have been appropriated in accordance
with the Rules, provided always that the Trustees:
(a) shall not dispose of any Scheme Shares whether by transfer to a
Participant or otherwise before the end of the Period of Retention
applicable thereto except in the circumstances mentioned in Section
52(3) (a), (b) or (c) of the Act; and
(b) shall not dispose of any Scheme Shares after the end of the
Period of Retention and before the Release Date applicable thereto
pursuant to Rule 4(a) nor in such a way that such a transaction would
involve a breach of that Participant's obligations under Section 52
(1) (c) or (d) of the Act; and
(c) shall deal with any right conferred in respect of Scheme Shares
to be allotted other shares, securities or rights of any description
subject to Rule 4(b) and as directed by or on behalf of the
Participant on whose behalf they hold such Scheme Shares.
(d) shall not dispose of any Scheme Share after the Release Date
except as provided for by Rule 4.
4. Subject to any direction as is referred to in Section 54(3) of the Act, the
Trustees shall pay over to a Participant any money or money's worth
received by them in respect of or by reference to any of his Scheme Shares
other than money consisting of a sum referred to in Section 52(1)(c) of the
Act or money's worth consisting of New Shares.
5. As soon as practicable after any Scheme Shares have been appropriated to a
Participant the Trustees shall give him notice in writing of the
appropriation:
(a) Specifying the number and description of those shares; and
(b) Stating their Initial Market Value and their Appropriation Date.
6. The Trustees shall prepare and keep all such accounts and records as may be
required for the purpose of the Scheme and shall if so requested by the
Company once at least every year submit accounts to the Company and the
Company may cause such accounts to be made up and audited by a firm of
Auditors. In particular the Trustees shall:
(a) maintain such records as may be necessary to enable them to carry
out their obligations under Chapter IX of Part I of the Act; and
(b) inform a Participant who becomes liable to tax under Schedule E
(Income Tax) in relation to the operation of the Scheme of any facts
of which they are aware relevant to the determination of that
liability.
7. (a) The Directors may at any time:
(i) direct that any Subsidiary, not being a party to this Deed
but otherwise eligible to be a Participating Company, shall,
upon entering into a Deed supplemental hereto in such form as
the Directors and the Trustees shall require, become bound by
the provisions hereof; or
42
(ii) by Deed supplemental hereto declare that any
Participating Company shall cease to be bound by the provisions
hereof.
8. The Trustees shall not be liable to satisfy any monetary obligations under
the Scheme (including but without prejudice to the generality of the
foregoing any monetary obligations to Participants) beyond the sums of
money (including income) from time to time in their hands or under their
control as Trustees of the Scheme and properly applicable for that purpose.
9. (a) The costs, charges, expenses and other liabilities of, and
incidental to, the administration, operation and determination of the
Scheme (including, in particular, and without prejudice to the
generality of the foregoing, any remuneration of the Trustees and any
Tax or Duty for which the Trustees may be accountable to the Revenue
Commissioners in Ireland or elsewhere, arising from or in connection
with the Scheme) shall be borne by the Company to the extent that the
same cannot properly be paid by the Trustees out of funds in their
hands available for the purpose.
10. (a) No trustee for the time being of the Scheme and no director or
employee of any corporate trustee shall be responsible chargeable or
liable in any manner whatsoever for or in respect of any loss of or
any depreciation in or default upon any of the investments securities
stocks or policies in or upon which any part of the Fund may at any
time be invested or for any delay which may occur from whatever cause
in the investment of any moneys belonging thereto or for the safety of
any securities or documents of title deposited by the Trustees for
safe custody or for the exercise of any discretionary power vested in
the Trustees by this Deed (including any act or omission by any
committee appointed by the Trustees) or by reason of any other matter
or thing except fraud or deliberate and culpable disregard of the
interests of all or of any of the beneficiaries under the Scheme
PROVIDED THAT a corporation which is a trustee of the Scheme and which
is engaged in the business of providing a trustee service for a fee
shall be liable for negligence.
(b) Each of the Trustees and each director and employee of any
corporate trustee shall be indemnified by the Company against all
liabilities incurred by such Trustee in the execution of the trusts of
and in the management and administration of the Scheme and of the Fund
other than liabilities arising as a consequence of fraud or deliberate
and culpable disregard of the interests of all or of any of the
beneficiaries under the Scheme or (in the case of a corporate trustee
which is engaged in the business of providing a trustee service for a
fee) negligence (and to the extent that the Participating Companies
fail to indemnify each such Trustee he shall be indemnified out of the
Fund).
11. (a) The Trustees have full power and discretion to agree with the
Company all matters relating to the operation and administration of
the trusts of this Deed so that no person claiming any interest under
such trusts shall be entitled to question the legality and correctness
of any arrangement or agreement made between the Company and the
Trustees in relation to such operation and administration.
(b) The Trustees shall comply with any directions given by the
Directors pursuant to the Rules and shall not be under any liability
in respect thereof to the Company or to any Participant.
(c) At the written request of the Company the Trustees may from time
to time by agreement in writing with the Revenue Commissioners
prescribe such date or dates being earlier than the Appropriation Date
as the relevant date or dates for the determination of Initial Market
Value of any share as provided by Section 51(4) of the Act.
12. (a) Subject to Clause 12(e) the Company shall have power (which may
be exercised by resolution of the Board) at any time with the prior
written approval of the Revenue Commissioners and having informed the
Revenue Commissioners of the reason for the exercise of this power to
remove from office any Trustee (by notice in writing addressed to such
Trustee) and the Trustees shall accord therewith by taking whatever
43
further action may be necessary to give effect thereto. Notice of
removal from office of any Trustee shall be deemed to have been duly
given if sent by post in a prepaid cover to the Trustee's last known
address and shall be deemed to have been received 48 hours after
posting.
(b) The Company shall have power at any time by deed to appoint a new
or additional Trustee or Trustees.
(c) The Company hereby declares and confirms the independence of the
Trustees in the exercise of all of their statutory functions and
obligations under the Scheme and undertakes that it shall not
influence them in any manner. The Trustees shall administer the Scheme
impartially and in accordance with this Deed and the Rules of the
Scheme.
(d) Any Trustee may upon the expiry of six weeks prior notice in
writing given to the Company and the remaining Trustees (if any)
resign his office and thereupon cease to be a Trustee and shall not be
responsible for any costs incurred by such retirement.
(e) Without prejudice to the provisions of Clause 12(d) hereof there
shall at all times be at least three individual Trustees or a Trustee
which is a company or trust corporation and the Company shall exercise
its powers under Clauses 12(a) and (b) accordingly. The Trustees shall
at all times include at least one person which is unconnected with the
Company. An individual shall be regarded as unconnected with the
Company if he is not and has not been a director or employee of the
Parent Company or any of its subsidiaries and in the case of a company
if it is not or has not been the Parent Company or any of its
subsidiaries, and in the event of the death or retirement of any such
Trustee the Company shall forthwith exercise its power of appointing a
replacement Trustee who or which is also unconnected with the Company.
13. The Trustees shall subject to Rule S(d), hold and apply the Residual Fund
as follows:
(i) if so instructed by the Directors in accordance with Rule 3(h) to
retain the net proceeds of sale of Ordinary Shares and use this to pay
costs and expenses of the Scheme or to otherwise hold unappropriated
Ordinary Shares until they are appropriated in accordance with the
provisions of the Scheme; and
(ii) upon the determination of the Scheme and to the extent that the
Residual Fund has not been applied as aforesaid the Trustees shall
convert the Residual Fund to moneys and shall pay or transfer any
moneys then comprised in the Residual Fund to the Company.
14. (a) Any Trustee being an individual shall be entitled to receive and
retain as remuneration for his services hereunder such sum or sums as
may from time to time be agreed with the Company.
(b) Any Trustee, being a solicitor, accountant, stockbroker or
engaged in any other profession or business, shall be entitled to be
paid all reasonable professional or proper charges for services
rendered including acts which such Trustee, not being engaged as
aforesaid, could have done personally.
(c) Any Trustee, being a body corporate, (whether or not a trust
corporation) may charge and be paid such reasonable remuneration or
charges as shall from time to time be agreed between the Company and
such body corporate and such body corporate (if a bank) shall be
entitled (without being liable to account for any profit or advantage
so obtained) to act as banker and perform any services in relation to
the Scheme on the same terms as would be made with a customer in the
ordinary course of its business as banker.
44
15. Any Trustee, otherwise eligible to be a Participant, may be so and may
retain for his absolute benefit all the interest to which he is entitled as
a Participant in any Scheme Shares acquired or received by him and other
money or money's worth accruing to him as such and exercise all rights to
which he is entitled as a Participant.
16. Any Trustee, who shall be or become a director of or holder of any other
office or employment in the Company may retain for his own absolute benefit
any fees or remuneration received by him in connection with such office or
employment notwithstanding that his appointment to or retention of such
office or employment may be directly or indirectly due to the exercise or
non-exercise of any votes in respect of shares or other securities in the
Company held by the Trustees or other persons on their behalf under the
trusts of the scheme.
17. No Trustee, nor any holding company of a corporate Trustee, nor any
subsidiary of such holding company, nor any director or officer of a body
corporate acting as Trustee shall be precluded from contracting or entering
into any insurance, financial or other transactions including the provision
of professional services with any participating company or being interested
in any such transaction or accepting and holding the trusteeship of any
debenture stock or other securities of any participating company neither
shall such Trustee be liable to account for any profit made by him thereby
or in connection therewith.
18. (a) In the event of the appointment of Trustees other than a body
corporate as sole Trustee:
(i) the Trustees (which in this Clause shall include the
duly authorised officer of a body corporate which is the Trustee)
may at any time but shall at least once in every year meet
together for the dispatch of business and may adjourn and
otherwise regulate their meetings as they think fit and the
Directors may nominate any one of the Trustees to be Chairman of
any such meeting and, in default of any such nomination, the
Trustees may elect one of their number to be chairman of their
meeting provided that in the event of equality of votes on the
election of a chairman he shall be chosen by lot;
(ii) all business brought before a meeting of the Trustees
shall be decided by a majority of the votes of the Trustees
present and voting thereon and, in the case of equality of votes,
the chairman of the meeting shall have a second or casting vote;
(iii)a resolution in writing signed by all of the
Trustees shall be as effectual as if it has been passed at a
meeting of the Trustees and may consist of one or more documents
in similar form each signed by one or more of the Trustees; and
(iv) two Trustees present at a meeting of the Trustees of
which notice has been give to all Trustees shall form a quorum.
(b) the Trustees shall cause proper minutes to be kept and entered in
a book provided for the purpose of all their resolutions and
proceedings and any such minutes shall be signed by the chairman of
the next succeeding meeting.
19. (a) The Trustees may, in any particular case or cases, decide not to
commence or pursue proceedings for the recovery of any moneys due to
them from any Participant and shall not be responsible for any loss
incurred as a result of such decision.
(b) Valid and effectual receipts and discharges for any moneys or
other property payable, transferable, or deliverable to the Trustees
or any of them may be given by a Trustee who is a body corporate or by
any one Trustee to whom such duty may have been delegated pursuant to
sub clause (d) below or by any person from time to time nominated by
the Company and authorised in writing for the purpose by all the
Trustees.
45
(c) The Trustees may from time to time appoint for the proper
administration and management of the Scheme such secretarial or
executive officers or staff or other persons as they consider
desirable and the Directors shall approve on such terms as they think
fit.
(d) The Trustees may from time to time in writing delegate any
business and the exercise of any of the duties imposed on them by the
Scheme to any one or more of their number.
(e) The Trustees may engage the services of such registrars,
solicitors or other professional or business advisers as they consider
desirable to advise on any business to be done in connection with the
Scheme or for the proper administration and management of the Scheme
or otherwise in connection herewith.
(f) The Trustees may at any time cause any part of the trust property
to be deposited for safekeeping (either electronically or otherwise)
with any one or more of the Trustees or any other persons (including
any company or corporation) on behalf of the Trustees and may pay any
expenses in connection therewith.
(g) The Trustees shall not be liable or responsible for any loss to
the trust property which may be occasioned as a result of the exercise
of the foregoing powers except to the extent that such loss arises as
a result of any fraud, willful default or negligence on the part of
such Trustees.
20. (a) The Company may at any time and from time to time, in the case of
this Deed, by Deed supplemental hereto and, in the case of the Rules,
by resolution of the Directors modify, alter, amend or extend the
Scheme in any respect (such modification, alteration, amendment or
extension being referred to in this Clause as an "amendment") provided
that:
(i) no amendment shall alter to the disadvantage of a
Participant his rights in respect of any Scheme Shares
appropriated before the date of such amendment;
(ii) no amendment shall be made which would or might
infringe any rule against perpetuities or which could result in
the Scheme ceasing to be an employee profit sharing scheme;
(iii) no amendment shall take effect unless the approval
in writing of the Revenue Commissioners in Ireland shall have
first been obtained.
(b) The Directors may, by resolution, subject to proviso (ii) of sub-
clause (a) of this Clause but notwithstanding the remaining provisions
of that sub-clause and without otherwise obtaining the prior approval
thereto of any other person, modify or alter or amend the Scheme in
any way which may be necessary in order to secure the initial approval
of the Scheme by the Revenue Commissioners in Ireland under Chapter IX
of Part I and the Third Schedule of the Act.
(c) Any amendment made in accordance with the provisions of this
Clause shall be binding upon all persons from time to time interested
in the Scheme including any company from time to time which is or
becomes bound by the Deed.
21. The Scheme and the trusts hereby created shall be determined on the
earliest of the happening of either of the following:
(i) the date on which the Directors resolve to terminate the Scheme
which they shall be entitled to do only on a date on which there is no
Scheme Share; or
(ii) the expiry of a period of twenty years after the death of the
last survivor living on the date hereof of his late Britannic Majesty
King George VI.
46
22. Neither the Company nor any other Participating Company nor the Trustees
shall be obliged to perform any obligation under this Deed or the Rules to
the extent that such action would be contrary to any enactment or Exchange
Control or other regulation for the time being in force in the Republic of
Ireland or any other country having jurisdiction in relation thereto.
23. This Deed shall be governed by and construed in accordance with the Law of
Ireland and any dispute thereon shall be heard in a Court of Ireland.
47
IN WITNESS whereof the Deed has been executed by the parties hereto the day and
year first herein written.
SIGNED by American Power Conversion Corporation (A.P.C.) BV per its Director in
the presence of:
NAME: by: /s/ Edward W. Machala
Edward W. Machala
ADDRESS: Ballybrit Industrial Estate, Galway
OCCUPATION: Director
Present when the Common Seal of KPMG Trust was affixed hereto:
by: /s/ Donal Gannon DIRECTOR
Donal Gannon
by: /s/ Michael Mohan DIRECTOR/SECRETARY
Michael Mohan
48
THE FIRST SCHEDULE
AMERICAN POWER CONVERSION CORPORATION (A.P.C.) BV
RULES OF THE PROFIT SHARING SCHEME
1. Definitions
In these Rules and in the Trust Deed:
(a) Words importing the singular shall include the plural and vice
versa and words importing the masculine shall include the feminine.
(b) Any reference to any statute (or a particular Chapter, Part or
Section thereof) shall mean and include any statutory modification or
re-enactment thereof for the time being in force and any regulations
made thereunder.
(c) The following words and expressions shall have the following
meanings:
"Act" the Finance Act, 1982 (as amended).
"Appropriate the meaning given to that expression by Section 52(8) of the Act.
Percentage"
"Appropriation in respect of any Scheme Share not being a New Share, the date on
Date" which it is appropriated to an Eligible Employee pursuant to Rule
3(f), and in respect of any New Share the date on which it is
deemed to have been appropriated pursuant to Rule 5(c).
"Approved Scheme" a scheme approved by the Revenue Commissioners for the purpose of
Chapter IX of Part I of the Third Schedule of the Act.
"Auditors" the Auditors to the Company.
"Capital Receipt" the meaning given to that expression by Section 54 of the Act.
"Company" American Power Conversion Corporation (A.P.C.) BV.
"Corresponding the meaning given to that expression by Section 55(3) of the Act.
Shares"
"Cut-Off Date" 1 January in any year commencing 1 January 1996 or such other date
or dates in any year as the Company shall from time to time with
the approval in writing of the Revenue Commissioners determine.
"Directors" the Board of Directors for the time being of the Company or a duly
authorised committee appointed by them for the purposes of
administering the Scheme.
"Effective Date the first day of the calendar quarter (commencing 1 January)
of Participation" immediately following completion of the employee eligibility
requirements.
"Eligible at an Effective Date of Participation any person who:
Employee"
49
(i) (A) is a permanent full time or permanent part-time
employee including a Director who has a contract of
employment with the Company; and
(B) is chargeable to tax under Schedule E in respect of
that employment; and
(C) has completed one Year of Service (working at least
1,000 hours) on or before the relevant Effective Date of
Participation.
(ii) provided that any such person is not ineligible to become a
participant by virtue of the provisions of Part III of Third
Schedule to the Act.
"Entitlement" the amount of each Eligible Employee's entitlement shall be
determined in accordance with the Third Schedule hereto or on such
other basis as may, from time to time, be agreed in writing between
the Revenue Commissioners and the Company provided that:
(i) an Eligible Employee shall only have such entitlement if he is
employed by the Company and must not be under notice given or
received of the termination of employment on the relevant
Appropriation Date; and
(ii) be resident for Income Tax purposes in the Republic of
Ireland;
(iii)an Eligible Employee who, on the relevant Appropriation
ate is ineligible to participate by virtue of Part III of the
Third Schedule to the Act shall have no such entitlement.
"Initial Market the initial market value as defined by Section 51(4) of the Act.
Value"
"Invitation a period of time for the completion and return of contracts - in
Period" accordance with Rule 2(b) being not less than 14 days nor more than
28 days. The directors shall determine the commencement of the
invitation period which shall be as soon as practicable after the
relevant Cut-off Date.
"Locked-in Value" the meaning given to that expression by Section 53(2) of the Act.
"New Shares" the meaning given to that expression by Section 55(3) of the Act.
"Normal the date of attainment of age 55 or such other date notified in
Retirement Date" writing to a Participant.
"Ordinary Shares" ordinary shares of $0.01 par value or such other shares in the
capital of the Parent Company which for the time being satisfy the
provisions of Part II of the Third Schedule to the Act.
"Parent Company" American Power Conversion Corporation whose registered office is at
132 Fairground Road, West Kingston RI 02892 and which controls the
Company.
50
"Participant" any person to whom a Scheme Share was appropriated including where
the context requires any person in whom an interest in Scheme
Shares or an entitlement thereto is or becomes vested.
"Participating any company being the Company or Subsidiary which is or may be
Company" bound under Clause 7 by the provisions of the Trust Deed other than
in its capacity as Trustee hereof.
"Period of the meaning given to that expression by Section 52(5) of the Act.
Retention"
"Profit Sharing any period of 12 months as determined by the directors which ends
Period" prior to a Cut-Off Date.
"Release Date" the meaning given to that expression by Section 52(7) of the Act.
"Residual Fund" all moneys or Ordinary Shares directed to be held as part of the
Residual Fund or for which no specific provision is made (other
than under Clause 13 of the Trust Deed) and the income (if any)
arising therefrom all of which shall be held in accordance with
Clause 13.
"Rules" the Rules set out in this Schedule which shall be deemed to include
the Second and Third Schedules to the Trust Deed, with, and subject
to, any modifications, alterations, amendments or extensions
thereto for the time being in force.
"Scheme" American Power Conversion Profit Sharing Scheme constituted by the
Trust Deed of which these Rules form part.
"Scheme Share" any Ordinary Share or other security of the Parent Company which
has been appropriated in accordance with Rule 3(f) or has been
deemed to have been appropriated in accordance with Rule 5(c) and
is for the time being held by the Trustees on behalf of a
Participant.
"Share Fund" all Scheme Shares for the time being held by the Trustees.
"Subsidiary" any subsidiary of the Company which is controlled by the Company,
control being construed in accordance with Section 102 of the
Corporation Tax Act, 1976.
"Taxable Amount" (i) on a disposal of Scheme Shares pursuant to a direction given
by a Participant under Rule 4(a)(i), the Appropriate
Percentage of whichever is the lesser of the Locked-in Value
of the Scheme Shares so disposed of and an amount equal to the
proceeds of disposal;
(ii) on a transfer of Scheme Shares pursuant to a direction given
by a participant under Rule 4(a)(ii), the appropriate
percentage of the Locked-in value of the Scheme Shares so
transferred;
(iii)in the case of a Capital Receipt, the amount chargeable
to Income Tax in accordance with the provisions of Section 54
of the Act.
51
"Taxes Act" the Income Tax Act, 1967.
"Trust Deed" the Trust Deed constituting the Scheme with any modifications and
variations thereof for the time being in force.
"Trustees" the trustee or trustees for the time being of the Scheme.
"Year of the meaning given to that expression by Section 1 of the Taxes Act.
Assessment"
"Year of Service" the period of twelve months, ending on the relevant cut-off date,
during which an employee worked at least 1000 hours for the
Company's Irish place of business.
2. Conditions of Participation
Each Eligible Employee shall, on the first occasion on which the Directors
intend to operate the Scheme or on the first occasion that the employee
becomes an eligible employee, be offered participation in the Scheme as
soon as is practicable after the relevant Cut-Off Date provided that on
such Cut-Off Date such Eligible Employee is an employee of a Participating
Company. If he shall accept such offer he shall be required to complete a
form of acceptance and contract of participation in the form set out in the
Second Schedule to the Trust Deed (or such Schedule as amended from time to
time with the concurrence of the Trustees and the approval in writing of
the Revenue Commissioners) (the "Contract") which will confirm that he
wishes to participate in the operation of the Scheme. The Contract shall be
addressed to the Directors and the Trustees and shall be signed by the
Eligible Employee and returned to the Directors by not later than the
expiry of the Invitation Period. An Eligible Employee shall not be entitled
to an appropriation of the Scheme Shares unless he has completed a contract
and is an employee of a Participating Company on the relevant Appropriation
Date.
The signed Contract shall bind such person in contract with the Company and
the Trustees in accordance with its terms in consideration of any
subsequent appropriation to him of Ordinary Shares.
3. Allocation, Acquisition of Shares and Appropriation
(a) As soon as practicable following each Cut-Off Date in each year
in which the Directors intend to operate the Scheme the Directors
shall determine the amount (if any) of the Entitlements.
(b) The Company shall as soon as practicable after the expiry of the
Invitation Period to which the Entitlements relate pay to the
Trustees the appropriate aggregate amounts due following the
completion and return of Contracts in accordance with Rule 2 by
Eligible Employees employed by it (who have not to the knowledge of
the Trustees terminated or breached the same) less any amount of the
Residual Fund which the Directors shall have directed the Trustees to
apply in the acquisition of Ordinary Shares for the appropriation to
such Eligible Employees.
(c) As soon as reasonably practicable after the receipt from the
Company of the amounts referred to in paragraph (b) of this Rule the
Trustees will apply the aggregate of such amounts together with any
amount of the Residual Fund directed by the Directors to be so applied
in accordance with paragraph (b) of this Rule in the acquisition or
subscription of Ordinary Shares for appropriation to each such
Eligible Employee in accordance with the provisions of this Rule on
the basis that the aggregate Initial Market Value of the Ordinary
Shares appropriated to him is as nearly as possible pro rata to the
amount of his Entitlement that has been paid to the Trustees.
52
(d) Where the Trustees are unable to acquire sufficient Ordinary
Shares by the purchase or subscription for Ordinary Shares as directed
by the Directors to satisfy in full appropriations pursuant to Rule
3(c) the Trustees shall reduce the appropriations pro rata.
(e) If the basis on which the Ordinary Shares are appropriated would
otherwise give rise to the appropriation of a fraction of an Ordinary
Share the Trustees may sell such fractional entitlement and the amount
thus received shall be regarded as not having been applied in the
acquisition of Ordinary Shares for the purpose of paragraph (g). In
the event that a portion of the Ordinary Shares acquired by the
Trustees carry the right to receive any dividends which have been
declared the Trustees shall appropriate those Ordinary Shares among
the Eligible Employees in the same proportions as provided in
paragraph (c) of this Rule.
(f) The Trustees shall appropriate the Ordinary Shares so acquired or
subscribed for on one day within thirty days of the expiry of the
Invitation Period.
(g) To the extent that the Trustees have not applied the whole of the
amount received by them in the acquisition of Ordinary Shares in
accordance with paragraph (c) of this Rule within thirty days of the
expiry of the Invitation Period or such longer period as the directors
may from time to time determine they shall pay the balance thereof
promptly to the Participating Companies which provided the same.
(h) The Trustees shall at the direction of the Directors either sell
for the best consideration in money reasonably obtainable at the time
any Ordinary Shares which they do not appropriate under this Rule and
retain the net proceeds of sale or retain such Ordinary Shares as part
of the Residual Fund.
(i) If following the date on which the Trustees are entered on the
Parent Company's register of members (or other registration system
whether electronic or other) but before the Appropriate Date of any
Ordinary Shares the Trustees shall become entitled in respect of such
shares to either:
(i) any dividends or other distribution; or
(ii) any other rights to be allotted securities in the
Company (other than an issue of capitalisation shares of the same
class as Ordinary Shares then held by the Trustees pending an
appropriation which capitalisation shares shall be retained by
the Trustees and shall form part of the Ordinary Shares to be
appropriated); then the Trustees shall retain the same in the
Residual Fund and the Trustees shall use their best endeavours to
sell such rights as are referred to in paragraph (ii) above for
the best consideration in money reasonably obtainable at the
time.
(j) No Ordinary Shares shall be appropriated to any Eligible Employee
after 15 years from the date of death of the last survivor of the
issue living on the date of the Trust Deed of his late Britannic
Majesty King George VI.
(k) The Directors may determine at any Cut-Off Date that there shall
be no Entitlements and may so decide at any subsequent Cut-Off Date.
4. Conditions of Retention and Disposal
(a) Subject as hereinafter provided in this Rule Scheme Shares shall
be held by the Trustees until the date on which the Participant
concerned directs the Trustees:
(i) To sell the Scheme Shares; or
53
(ii) To transfer the legal ownership of the Scheme Shares to
himself;
(iii) To deal in his interest in Scheme Shares
provided that as soon as may be practicable following the Release
Date applicable thereto the Trustees will transfer the legal ownership
of Scheme Shares to the Participants subject to the restrictions
contained in (b) below.
(b) Notwithstanding the Release Date of Scheme Shares has occurred
the Trustees shall hold Scheme Shares on behalf of a Participant until
(i) a Participant having reached Normal Retirement Date,
requests the Trustees to transfer his Scheme Shares into his name
or to sell or otherwise dispose of them on his behalf; or
(ii) a Participant, having terminated his employment
(whether by voluntary redundancy or otherwise) with the Company 5
years previously, requests the Trustees to transfer his Scheme
Shares into his name or to sell or otherwise dispose of them on
this behalf
Provided That:
(a) In the absence of a request the Participant
shall be deemed to have made a request to transfer his
Scheme Shares into his name
(b) any transfer, sale or other disposal shall
occur in five equal (subject to rounding up or down)
tranches beginning of the first anniversary of the
Participant's termination of employment and ending on the
tenth anniversary thereof; or
(iii) a Participant, becomes (in the opinion of the
Company) totally or permanently disabled, in which event the
Trustees shall (subject to having been notified by the Company)
within sixty days of the establishment of total or permanent
disability (as certified by a physician selected or approved by
the Company) sell his Scheme Shares unless otherwise instructed
by the directors; or
(iv) a Participant's death in which event the Trustees shall
hold his Scheme Shares for the benefit of his personal
representative until instructed to sell the shares by the
personal representative of such deceased participant; or
(v) the Company permits the Participant to otherwise
dispose of his Scheme Shares and so notifies the Trustees in
writing.
5. Share Issue or Reorganisation
(a) In the event of the Parent Company proposing to make a rights
issue in respect of any class of its share capital which includes
Scheme Shares, the Trustees shall, upon receipt of the offer from the
Parent Company, notify each Participant of the following options in
respect of the Scheme Shares held by the Trustees on his behalf;
(i) to instruct the Trustees to exercise the rights in
respect of all his Scheme Shares provided that such instruction
is accompanied by payment in cash of the amount necessary to
exercise such rights;
or
(ii) To instruct the Trustees to exercise the rights in
respect of some only of his Scheme Shares and to dispose of the
rights nil paid in respect of the remainder and either:
54
(a) to pay to the Trustees any amount in excess
of the amount of the disposal proceeds necessary to exercise
such rights: or
(b) to instruct the Trustees to pay to him any
amount of the disposal proceeds in excess of the amount
necessary to exercise such rights;
or
(iii) to instruct the Trustees to dispose of the rights
in respect of all his Scheme Shares nil paid and pay the proceeds
to the Participant.
The Participant shall instruct the Trustees accordingly within any
period of time specified by the Trustees and shall, if appropriate,
pay to the Trustees in cash any amounts necessary in order to carry
out such instructions. The Trustees shall subject to receipt of the
cash and instructions as aforesaid carry out the instructions of the
Participants within the period of time allowed by the Parent Company
for exercise of rights. If a Participant shall fail to give any
direction to and shall not otherwise have authorised the Trustees,
they shall sell all rights in respect of the Scheme Shares nil paid on
behalf of that particular Participant.
(b) In the event of an offer being made or a Transaction being
proposed in any of the circumstances described in Section 52(3) (a),
(b) or (c) of the Act, the Trustees shall forthwith notify each
Participant and shall act in accordance with the instructions of the
Participant in dealing with his Scheme Shares and in the absence of
any such instructions shall take no action.
(c) Subject to Section 55 ( 1) of the Act, any New Shares allotted to
the Trustees pursuant to paragraphs (a) or (b) of this Rule or on a
capitalisation issue shall be deemed to have been appropriated to a
Participant on the Appropriate Date of the Scheme Shares in respect of
which they are allotted.
(d) In the event that any Participant shall on the Trustees receiving
any securities as provided in this Rule be entitled in respect of his
Scheme Shares to a fraction of any such security, the Trustees shall
use their best efforts to sell such securities as represent the
aggregate of the fractions so arising and shall distribute the
proceeds of sale (after deducting any expenses of sale and any
taxation which may be payable by the Trustees in respect thereof) to
the Participants concerned provided that any such entitlement which is
less than 3 Pounds Sterling shall be retained by the Trustees and held
as part of the Residual Fund.
6. Payments and Transfers to Participants
(a) If any amount falls to be paid to the Participant prior to the
Release Date in respect of his Scheme Shares being:
(i) the proceeds of a sale of Scheme Shares pursuant to a
direction given by the Participant under Rule 4(a)(i); or
(ii) a Capital Receipt the Trustees shall pay such amount to
the Participant. The Trustees shall if required deduct any Irish
withholding tax in accordance with the Taxes Act.
(b) If a Participant directs the Trustees to transfer the ownership
of any Scheme Share to himself pursuant to Rule 4(a)(ii) before their
Release Date, he shall pay to the Trustees, before the transfer takes
place, a sum equal to Income Tax at the standard rate on the Taxable
Amount at the time of the direction.
(c) The Trustees shall account for any tax in accordance with Section
57 of the Act.
55
(d) Any Transfer Taxes involved in any transfer of Scheme Shares or
other shares or securities by the Trustees into the name of the
Participant concerned shall be payable in the case of:
(i) a transfer as referred to in Rule 4(a); or
(ii) a transfer following the death of a Participant; by the
Trustees out of the Residual Fund or in the case of a deficiency
out of funds made available for the purpose by the Participant's
Participating Company and, in any other case. shall be payable by
the Participant concerned.
7. Repurchase by Trustees
(a) At the time a Participant directs the Trustees to dispose of any
Scheme Shares or to transfer the Scheme Shares into his name or having
transferred the shares into his name the Participant wishes to dispose
of the shares he must notify the Trustees and the Trustees may offer
to purchase the beneficial interest in such Scheme Shares from the
Participant at the best consideration in money that can reasonably be
obtained at the time of the sale and such disposal shall for the
purposes of Rule 4 be regarded as a disposal in accordance with Rule
4(a) (i). In the event of the Trustees making such an offer then the
Participants shall be bound to accept such offer.
(b) If, at the time of the proposed purchase of Scheme Shares under
paragraph (a), the Trustees do not have sufficient funds to purchase
such Scheme Shares they may apply to the Company for such funds. If
any funds are so provided by the Company they shall reduce pro tanto
the liability of the Company making that payment in respect of the
payment to be made by that Company pursuant to Rule 3 following the
next Invitation Period.
(c) The Trustees shall where feasible hold any Ordinary Shares
purchased pursuant to paragraph (a) upon trust for appropriation to
Eligible Employees employed by the Participating Company that provided
the funds used in the purchase of such Ordinary Shares but, subject
thereto, shall hold such Ordinary Shares as part of the Residual Fund.
8. Payment of Dividends
Any dividends paid by the Parent Company to the Trustees in respect of
Scheme Shares shall be forwarded to the Participants on whose behalf the
Trustees hold such Scheme Shares together with particulars of the related
tax credit (if any) and tax deduction certificate (if any). The Trustees
shall if required deduct any Irish withholding tax in accordance with the
Taxes Act.
9. General Meetings of the Parent Company and Voting Rights
Participants have no right to attend or vote at a General Meeting of the
Parent Company. The voting rights in respect of Scheme Shares shall, on a
poll, be exercised only in accordance with any directions in writing by the
Participants concerned to the Trustees. In the absence of any such
direction, the Trustees shall abstain from voting.
10. Notices
(a) All notices required to be given to a Participant by the Trustees
under the Scheme shall be in writing and shall either be delivered to
the Participant at his place of work or be sent by post to the address
shown on the records of the Trustees or of the Company by which such
Participant is employed.
56
Any notice or document, sent by post as aforesaid, shall be
deemed to have been received on the expiry of 48 hours from the time
at which it was posted and to prove such service it shall be
sufficient to prove that the envelope containing the notice or
document was properly pre-paid, addressed and put into the post.
(b) Any notice or document delivered or sent by the Trustees in the
manner described in paragraph (a) of this Rule shall be deemed for all
purposes to have been sufficiently served on the Participant and all
persons claiming through or under such Participant and accordingly
service in manner aforesaid shall operate to exonerate the Trustees
from all or any liability for the non-receipt by a Participant or
other person as aforesaid of any such notice or document.
(c) To be valid any direction to the Trustees in respect of a
Participant's Scheme Shares must be given in writing by or on behalf
of such Participant, shall be effective only when it is received by
the Trustees and shall be subject to Rule 4(b).
(d) A direction once duly given and received as mentioned in
paragraph (c) of this Rule and subject to Rule 4(b) shall be carried
out by the Trustees as soon as practicable in accordance with its
terms unless prior to their acting in respect thereof the Trustees
receive written notice from the Participant revoking the direction.
The Trustees shall incur no liability to a Participant if they
act or fail to act upon a direction or revocation which purports to
have been duly given as aforesaid.
11. The Auditors
In giving any notice or opinion or in determining any value or making any
adjustment or calculation under the Scheme, the Auditors shall be deemed to
be acting as experts and not as arbitrators.
57
THE SECOND SCHEDULE
AMERICAN POWER CONVERSION CORPORATION (A.P.C.) BV
PROFIT SHARING SCHEME
THE PLAN
Date:
Dear
The enclosed booklet gives details of the American Power Conversion Profit
Sharing Scheme (the "Scheme"). As an employee of American Power Conversion
Corporation (A.P.C.) BV Irish Branch - you may be entitled to participate in the
Scheme.
Participation in the Scheme is available to all permanent full time and
permanent part time employees who have completed one year of service (working at
least 1000 hours) with the Company. You should read the booklet carefully and
decide whether you wish to participate.
Entitlement
Each employee is entitled to shares of 15% of basic salary or such other
percentage as specified by the directors in respect of the year ended on (see
booklet).
Participation in the Scheme
In order to participate in the Scheme you should complete the attached contract
of participation indicating your wish to participate.
Following receipt of the form as aforesaid the Company will pay an amount equal
to your entitlement to the Trustees of the Scheme to acquire shares which will
be held on your behalf subject to the Rules of the Scheme.
Yours sincerely
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THE THIRD SCHEDULE
Basis of Calculation of Entitlements
The entitlement of each Eligible Employee under the Scheme shall be calculated
as such percentage of pay applicable to all eligible employees if any, as the
Directors shall allocate for each Profit Sharing Period PROVIDED that in the
case of any Eligible Employee, the total of the Entitlements in any Year of
Assessment shall not exceed the amount for the time being specified as being the
limit on individual appropriations for the purposes of paragraph 1(4) of the
Third Schedule to the Act.
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APPENDIX 1
GLOSSARY OF TERMS
AMERICAN POWER CONVERSION
PROFIT SHARING SCHEME
The form of contract which you are required to complete refers to certain terms.
For your convenience these and other important terms are defined here.
Cut-Off Date 1 January in any year.
Eligible Earnings Your basic pay.
Relevant Amount 10,000 Pounds Sterling or such other figure as is laid down by legislation.
Scheme Shares Ordinary Share of $0.01 par value in American Power Conversion
Corporation allocated to Eligible Employees under the Scheme.
Appropriation Date The date Scheme Shares are allocated by the Trustees to a
Participant in the Scheme.
Period of Retention The period during which Participants in the Plan have undertaken to
leave the Scheme Shares that have been appropriated to them in the
hands of the Trustees and not to assign, charge or otherwise dispose
of their beneficial interest in them. This period begins on the
Appropriation Date and usually ends on the second anniversary of
that date. However, it will end with any of the following events if
they occur before the second anniversary:
(1) the ending of the Participant's employment by the Company
because of injury, disability or redundancy;
(2) the attainment of the State Pension Age 66 years by the
Participant; and
(3) the Participant's death.
Release Date The fifth anniversary of the Appropriation Date, i.e., the date
after which the shares can be sold, or otherwise disposed of,
without incurring any liability to pay Income Tax.
Locked-in Value The initial value of the Participant's Shares - except in special
situations, e.g., where there has been a taxable capital receipt in
respect of a Participant's Scheme Shares (you will be given details
if any such situation arises).
Appropriate The part of the Locked-in Value on which Income Tax will be charged
Percentage which will depend on the number of years the shares have been in the
hands of the Trustees.
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Normal Retirement Age 55 or such other date notified in writing to you by the Company.
Date
Entitlement The cash amount offered by the Company to acquire your Scheme
Shares.
The Company American Power Conversion Corporation (A.P.C.) BV.
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AMERICAN POWER CONVERSION CORPORATION (A.P.C.) BV
PROFIT SHARING SCHEME
FORM OF ACCEPTANCE AND CONTRACT OF PARTICIPATION
TO: The Directors of American Power Conversion Corporation (A.P.C.) BV
and
TO: The Trustees of American Power Conversion Corporation Profit
Sharing Scheme ("the Scheme").
FROM: FIRST NAME(S)_______________________________ Please Print
(Mr./Mrs./Miss) in
BLOCK CAPITALS
SURNAME: _______________________________
ADDRESS: _______________________________
RSI Number:
62
APPLICATION FOR SCHEME SHARES
1. I wish to accept my Entitlement to Ordinary Shares in American Power
Conversion Corporation.
2. I have read the booklet explaining the Rules of the Plan.
3. CONTRACT OF PARTICIPATION:
In consideration of my participation in the Scheme and of any appropriation
to me of Scheme Shares in accordance with the provisions of the Scheme I
bind myself in contract with the Company and the Trustees and I agree to be
bound by the Rules of the Scheme and in particular (subject to Section
52(3) Finance Act, 1982):
(a) to permit Scheme Shares appropriated to me to be held by the
Trustees throughout the applicable Period of Retention;
(b) not to assign, charge or otherwise dispose of my beneficial
interest in the said Scheme Shares during the Period of Retention;
(c) not to direct the Trustees to dispose of the said Scheme Shares
before the applicable Release Date in any other way except as
mentioned in paragraph (d) or by sale for the best consideration in
money that can reasonably be obtained at the time of the sale; and
(d) not to direct the Trustees of the Scheme Shares to dispose of my
shares prior to my Normal Retirement Date subject to the exceptions
provided for by the Scheme on redundancy, disability, termination of
employment or death.
4. I accept that the dividend tax voucher which I may receive from the
Trustees in respect of any of my Scheme Shares will be in full satisfaction
of any rights I have to a tax deduction certificate from the Trustees.
5. I hereby direct the Trustees, in the absence of any further direction from
me, in the event of a rights issue to sell all rights in respect of my
Scheme Shares nil paid and pay the proceeds to me and in the event of any
other offer or transaction in respect of my Scheme Shares (other than an
issue of capitalisation shares) to take such action, if any, as will not
require me to put the Trustees in funds and will lead to a cash payment
being made to me.
6. I undertake to notify the Trustees of any change in my address.
SIGNED: __________________________
DATE: __________________________
IN THE PRESENCE OF:
SIGNATURE: __________________________
NAME: __________________________
ADDRESS: __________________________
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Exhibit 11
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
Computation of Earnings per Share
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Primary:
Weighted average shares outstanding 93,871,520 92,939,494 91,823,665
Net effect of dilutive stock options
based on the treasury stock method
using the average market price 475,026 927,386 1,089,159
Total 94,346,546 93,866,880 92,912,824
Net earnings $92,420,884 $69,536,494 $71,274,971
Per share amount $.98 $.74 $.77
Fully Diluted:
Weighted average shares outstanding 93,871,520 92,939,494 91,823,665
Net effect of dilutive stock options
based on the treasury stock method
using the period end price 1,016,485 341,413 910,654
Total 94,888,005 93,280,907 92,734,319
Net earnings $92,420,884 $69,536,494 $71,274,971
Per share amount $.97 $.74 $.77
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Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Subsidiary Place of Ownership
Incorporation
American Power Conversion The Netherlands 100% by
Corporation (APC) B.V. Registrant
APC Distribution Ltd. Ireland 100% by
Registrant
APC America, Inc. Delaware 100% by
Registrant
American Power Conversion Europe, France 100% by
S.A.R.L. Registrant
APC Foreign Sales Corporation Barbados, W.I. 100% by
Registrant
APC Japan, Inc. Japan 100% by
Registrant
American Power Conversion Philippines 100% by APC B.V.
(Philippines), Inc.
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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
reports dated February 10, 1997, relating to the consolidated balance sheets of
American Power Conversion Corporation and subsidiaries as of December 31, 1996
and 1995, 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, 1996, and the related schedule, which reports appear in the
December 31, 1996 annual report on Form 10-K of American Power Conversion
Corporation.
KPMG Peat Marwick LLP
Providence, Rhode Island
March 18, 1997
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