FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________to_____________
COMMISSION FILE NUMBER: 1-12432
AMERICAN POWER CONVERSION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2722013
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
132 FAIRGROUNDS ROAD, WEST KINGSTON, RHODE ISLAND 02892
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 401-789-5735
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS 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 [ ]
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK, $.01 PAR
VALUE, ON MAY 8, 1995 WAS 92,698,528 SHARES.
1
FORM 10-Q
MARCH 31, 1995
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
------------------------------------------------------
INDEX
PAGE NO.
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PART I - FINANCIAL INFORMATION:
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS:
CONSOLIDATED CONDENSED
BALANCE SHEETS - MARCH 31, 1995
(UNAUDITED) AND DECEMBER 31, 1994 3,4
UNAUDITED CONSOLIDATED
CONDENSED STATEMENTS OF
INCOME - THREE MONTHS ENDED
MARCH 31, 1995 AND 1994 5
UNAUDITED CONSOLIDATED
CONDENSED STATEMENTS OF CASH
FLOWS - THREE MONTHS ENDED
MARCH 31, 1995 AND 1994 6
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
8 - 10
PART II - OTHER INFORMATION:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
2
FORM 10-Q
MARCH 31,1995
PART I - CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
ITEM 1 - FINANCIAL STATEMENTS
--------------------
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
------------------------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
ASSETS
MARCH 31, DECEMBER 31,
1995 1994
---- ----
(UNAUDITED)
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 24,144,980 $ 29,072,717
SHORT-TERM INVESTMENTS 13,310,698 12,407,729
ACCOUNTS RECEIVABLE, LESS
ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF $3,493,908 IN 1995
AND $2,978,908 IN 1994 62,410,138 60,538,872
------------ ------------
INVENTORIES:
RAW MATERIALS 65,563,350 40,786,937
WORK-IN-PROCESS AND
FINISHED GOODS 68,031,322 51,628,608
------------ ------------
TOTAL INVENTORIES 133,594,672 92,415,545
------------ ------------
PREPAID EXPENSES AND OTHER
CURRENT ASSETS 10,666,113 8,919,733
RECOVERABLE INCOME TAXES - 1,801,217
DEFERRED INCOME TAXES 7,031,000 5,710,000
------------ ------------
TOTAL CURRENT ASSETS 251,157,601 210,865,813
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
LAND, BUILDING AND IMPROVEMENTS 13,033,228 11,320,618
MACHINERY AND EQUIPMENT 42,676,646 40,522,512
PURCHASED SOFTWARE 3,526,968 3,302,513
OFFICE EQUIPMENT AND FURNITURE 13,718,150 11,417,622
------------ ------------
72,954,992 66,563,265
LESS ACCUMULATED DEPRECIATION AND
AMORTIZATION 14,093,091 13,108,988
------------ ------------
NET PROPERTY, PLANT AND EQUIPMENT 58,861,901 53,454,277
------------ ------------
OTHER ASSETS 842,948 842,948
------------ ------------
TOTAL ASSETS $310,862,450 $265,163,038
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
3
FORM 10-Q
MARCH 31, 1995
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
------------------------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)
-------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
MARCH 31, DECEMBER 31,
1995 1994
------------ ------------
(UNAUDITED)
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 55,133,232 $ 33,557,687
ACCRUED EXPENSES 3,919,851 2,933,164
ACCRUED COMPENSATION 5,042,863 6,214,705
ACCRUED SALES AND MARKETING PROGRAMS 1,677,087 3,939,939
ACCRUED PENSION CONTRIBUTIONS 4,728,722 3,608,034
INCOME TAXES PAYABLE 6,010,708 -
------------ ------------
TOTAL CURRENT LIABILITIES 76,512,463 50,253,529
DEFERRED INCOME TAX LIABILITY 3,372,000 2,982,000
------------ ------------
TOTAL LIABILITIES 79,884,463 53,235,529
------------ ------------
SHAREHOLDERS' EQUITY:
COMMON STOCK, $.01 PAR VALUE;
AUTHORIZED 200,000,000 SHARES IN
1995, 100,000,000 IN 1994; ISSUED AND
OUTSTANDING 92,567,226 SHARES
IN 1995, 92,451,801 IN 1994 925,672 924,518
ADDITIONAL PAID-IN CAPITAL 29,810,682 29,326,171
UNREALIZED HOLDING LOSSES (202,000) (497,000)
RETAINED EARNINGS 200,443,633 182,173,820
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 230,977,987 211,927,509
------------ ------------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $310,862,450 $265,163,038
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4
FORM 10-Q
MARCH 31, 1995
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
------------------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
-------------------------------------------
(UNAUDITED)
THREE MONTHS ENDED
----------------------------
MARCH 31, MARCH 31,
1995 1994
------------ -----------
Net Sales $109,203,576 $74,620,259
Cost of goods sold 56,612,773 36,353,141
------------ -----------
Gross Profit 52,590,803 38,267,118
------------ -----------
Operating expenses:
Research and Development 2,749,179 2,147,840
Selling, General and
Administrative 23,023,425 15,362,929
------------ -----------
Total Operating Expenses 25,772,604 17,510,769
------------ -----------
Operating Income 26,818,199 20,756,349
Other income:
Interest Income 635,887 420,436
Other income 18,727 17,171
------------ -----------
Earnings before income taxes 27,472,813 21,193,956
Income Taxes 9,203,000 7,630,000
------------ -----------
Net Income $ 18,269,813 $13,563,956
============ ===========
Earnings per Share $0.20 $0.15
Weighted average shares outstanding 93,336,733 93,243,567
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5
FORM 10-Q
MARCH 31, 1995
American Power Conversion Corporation and Subsidiaries
------------------------------------------------------
Consolidated Condensed Statements of Cash Flows
-----------------------------------------------
(Unaudited)
Three Months Ended
------------------
MARCH 31, MARCH 31,
1995 1994
---- ----
Cash flows from operating activities:
Net income $ 18,269,813 $ 13,563,956
Adjustments to reconcile net income to
net
cash provided by operating activities:
Depreciation and amortization 2,077,810 1,050,002
Provision for deferred income taxes (931,000) (714,000)
Provision for doubtful accounts 515,000 367,000
Increase in accounts receivable (2,386,266) (3,051,114)
Increase in inventories (41,179,127) (13,686,268)
Decrease (increase) in prepaid expenses
and other current assets (1,746,380) 43,551
Decrease in recoverable income taxes 1,801,217 -
Increase in other assets - (7,047)
Increase in accounts payable 21,575,545 9,420,143
Decrease in accrued expenses (1,327,319) (279,168)
Increase in income taxes payable 6,010,708 5,366,578
------------ ------------
Net cash provided by operating 2,680,001 12,073,633
activities ------------ ------------
Cash flows from investing activities:
Capital expenditures, net of capital (7,615,744) (6,629,693)
grants
Proceeds from sale of capital equipment 130,310 -
Sales and maturities of short-term
investments,
net of gains and losses 194,831 2,152,869
Purchases of short-term investments (802,800) (2,795,236)
------------ ------------
Net cash used in investing activities (8,093,403) (7,272,060)
------------ ------------
Cash flows from financing activities:
Issuances of common stock 485,665 3,193,359
------------ ------------
Net cash provided by financing 485,665 3,193,359
activities ------------ ------------
Net increase (decrease) in cash
and cash equivalents (4,927,737) 7,994,932
Cash and cash equivalents at
beginning of period 29,072,717 38,101,472
------------ ------------
Cash and cash equivalents at
end of period $ 24,144,980 $ 46,096,404
============ ============
The Company paid $2,322,100 and $2,977,400 for income taxes for the three month
periods ended March 31, 1995 and 1994, respectively. During the first quarter
of 1995, changes in unrealized holding losses on short-term investments resulted
in increases to shareholders' equity and to short-term investments of $295,000.
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
6
FORM 10-Q
MARCH 31, 1995
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) MANAGEMENT REPRESENTATION: In the opinion of management, the accompanying
unaudited interim financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the financial
position and the results of operations for the interim periods. The results of
operations for the interim period are not necessarily indicative of results to
be expected for the full year.
(2) PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the financial statements of American Power Conversion Corporation and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(3) PER SHARE DATA: Earnings per common share are based on the weighted
average number of shares of common stock and dilutive common stock options and
warrants outstanding during each period. Under the treasury stock method, the
unexercised options were assumed to be exercised at the beginning of the period
or at issuance, if later. The assumed proceeds were 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 periods presented.
(4) SHORT-TERM INVESTMENTS: Short-term investments consist primarily of U.S.
and State government and government agency debt securities with fixed rates of
interest and have original maturities greater than three months. The cost of
short-term investments sold is determined using the specific identification
method. Short-term investments are designated as available for sale.
(5) SHAREHOLDERS' EQUITY: Changes in paid-in capital for the periods presented
represent the issuances of common stock resulting from the exercise of employee
stock options, as well as the Company's contributions to the Employee Stock
Ownership Plan.
7
FORM 10-Q
MARCH 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
NET SALES: Net sales for the first quarter of 1995 increased 46.3% compared
to the same period in 1994. The increase is attributable to continued strong
end-user demand for the Company's products across fast-growing core markets,
including computer networking, internetworking equipment and point-of-sale
devices, as well as what the Company believes is an increasing awareness by
computer users of the consequences of data loss and hardware damage which can be
caused by power problems. International sales (including Canada) comprised 41%
of net sales in the first quarter of 1995 compared to 37% in the first quarter
of 1994.
GROSS PROFIT: Gross profit as a percentage of net sales for the three month
period ended March 31, 1995 decreased to 48.1% from 51.3% for the same period
last year. The favorable effect of economies of scale associated with increased
unit volume was exceeded by the negative effect of start-up costs and production
inefficiencies relating to the newly-established manufacturing operations in
Galway, Ireland, as well as additional freight and duty costs associated with
the transportation of component materials to the Galway facility.
OPERATING EXPENSES: Operating expenses include Selling, General and
Administrative and Research and Development expenses.
Selling, General and Administrative expenses increased to 21.1% from 20.6% of
net sales for the three month period ended March 31, 1995 compared to the same
period one year ago. The increase was due primarily to costs associated with
increased advertising and promotional efforts, and, to a lesser degree, costs
associated with increased staffing of sales and other related positions both
domestically and internationally.
Research and Development (R&D) expenses decreased as a percentage of sales for
the first quarter (2.5% vs. 2.9% in 1994) of 1995. Although the aggregate
dollars of R&D expenses increased from 1994 to 1995 as a result of continued
product and process development, the decrease as a percentage of sales is
attributable to certain fixed R&D expenses spread over a higher revenue base in
1995.
OTHER INCOME: Interest income increased by 51% for the three months ended
March 31, 1995 compared to the same period a year ago. The increase is
attributable to the upward trend of short-term investment rates from the first
quarter of 1994 to 1995.
8
FORM 10-Q
MARCH 31, 1995
PROVISION FOR INCOME TAXES: The Company's effective tax rate was
approximately 33.5% and 36% for the periods ended March 31, 1995 and 1994,
respectively. The decrease in 1995 is primarily attributable to the tax savings
derived from the Company's operations in Ireland, a jurisdiction currently
having a lower income tax rate for manufacturing companies.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1995 was $174,645,138 compared to $160,612,284 at
December 31, 1994. The Company has been able to increase its working capital
position as the result of continued strong operating results and despite
internally financing the capital investment of the expansion of its operations,
particularly in Ireland (see below), and the build-up of inventories. The
increase in inventory levels has been needed to support the growth in the
Company's sales volume, as well as the need to increase the carrying levels of
raw materials, in-process assemblies and finished stock as a result of major new
products introduced during the fourth quarter of 1994 . The Company anticipates
its cash requirements for the foreseeable future will be satisfied by cash flow
from operations, existing cash and, if needed, short-term borrowings or proceeds
from the sale of additional equity.
At March 31, 1995, the Company had available for future borrowings $25,000,000
under unsecured line of credit agreements with two banks at floating rates of
interest equal to the banks' prime rate. The Company has not drawn any advances
under these facilities through March 31, 1995. Additionally, the Company has no
significant financial commitments outstanding other than those required in the
normal course of business and except for those capital commitments explained
below.
Capital investment for the first quarter of 1995 consisted primarily of
manufacturing and office equipment. The nature and level of capital spending was
made to improve manufacturing capabilities and to support the increased selling,
marketing and administrative efforts necessitated by the Company's significant
growth.
The Company has continued to expand its operations in the United States. In
January 1995, the Company commenced leasing an additional 85,000 square foot
facility in Fort Myers, Florida which will increase its distribution and
manufacturing capacity in Florida to better service Latin and South American
markets. During 1994, the Company began excavation for a 200,000 square foot
addition to its West Kingston, Rhode Island manufacturing facility. The Company
completed construction of a 30,000 square foot office addition in February 1995
and expects to commence construction of the remaining 170,000 square feet of the
addition subject to finalizing agreements with the State of Rhode Island.
Construction and new capital equipment requirements for the expanding United
States operations are expected to be approximately $20.0 million for the
remainder of 1995 and will be financed from operating cash and, if needed,
short-term borrowings.
9
On January 31, 1994, the Company formally began establishing a manufacturing and
distribution operation in Galway, Ireland. Through its newly-formed subsidiary,
American Power Conversion Corporation (A.P.C.) B.V., 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 Irish facility. The
maximum amount attainable under the agreement is approximately $13.1 million.
The grant monies would be repayable, in whole or in part, should (1) the Company
fail to meet certain employment goals established under the agreement which are
to be achieved over a five year implementation period and/or (2) the Company
discontinue 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 amount of capital grant claims submitted
during the first quarter of 1995 was approximately $2.8 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 amount of training grant claims submitted during the first quarter was
approximately $353,000.
During the first quarter of 1995, gross capital expenditures for the Galway
facility were primarily for production equipment and amounted to approximately
$1.9 million. Capital expenditures for the remainder of 1995 are projected to
be approximately $5.0 million based upon anticipated manufacturing capacity
requirements and future operational needs. In addition to the grant monies
provided by the Irish government, the remaining capital expenditures will be
financed with cash generated from operations and, if needed, third party
borrowings or the sale of additional equity.
Management believes that current internal cash flows together with available
cash and short-term investments, available credit facilities or, if needed, the
proceeds from the sale of additional equity would provide sufficient financing
support for anticipated capital spending needs and other working capital
requirements.
FOREIGN CURRENCY ACTIVITY
During the fourth quarter of 1994, the Company began invoicing its customers in
Great Britain, France and Germany in their respective local currencies.
Realized and unrealized transaction gains or losses are included in the results
of operations and are measured based upon the effect of changes in exchange
rates on the actual or expected amount of functional currency cash flows.
Transaction gains and losses were not material to the results of operations in
the first quarter of 1995.
The Company is continually reviewing the manner in which it manages its foreign
exchange exposure and will consider various techniques including the netting of
foreign currency receipts and disbursements, rate protection agreements with
customers/vendors and foreign exchange contracts.
10
FORM 10-Q
MARCH 31, 1995
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
EXHIBIT NO. 11 - COMPUTATION OF EARNINGS PER SHARE (PAGE 13)
EXHIBIT NO. 27 - FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K
NO REPORT ON FORM 8-K WAS FILED BY AMERICAN POWER CONVERSION
CORPORATION DURING THE QUARTER ENDED MARCH 31, 1995.
11
FORM 10-Q
MARCH 31, 1995
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
AMERICAN POWER CONVERSION CORPORATION
/s/ Rodger B. Dowdell, Jr.
--------------------------
Date: May 12, 1995
RODGER B. DOWDELL, JR.
CHAIRMAN AND PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER)
12
Exhibit Index
Number Description Page
11 Earnings per share
27 Financial Data Schedule
13