10-Q 1 0001.txt QUARTERLY REPORT ON FORM 10-Q U.S. 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 July 2, 2000 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 401-789-5735 (Address and telephone number of principal executive offices) 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 [ ] Registrant's Common Stock outstanding, $.01 par value, at August 11, 2000 - 194,544,000 shares 1 FORM 10-Q July 2, 2000 AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES INDEX Page No. Part I - Financial Information: Item 1. Consolidated Condensed Financial Statements: Consolidated Condensed Balance Sheets - July 2, 2000 (Unaudited) and December 31, 1999 3 - 4 Consolidated Condensed Statements of Income - Three Months and Six Months Ended July 2, 2000 and June 27, 1999 (Unaudited) 5 Consolidated Condensed Statements of Cash Flows - Three Months and Six Months Ended July 2, 2000 and June 27, 1999 (Unaudited) 6 Notes to Consolidated Condensed Financial Statements (Unaudited) 7 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 Part II - Other Information: Item 1. Legal Proceedings 14 Item 2. Changes in Securities and Use of Proceeds 14 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 Exhibit Index 17 2 FORM 10-Q July 2, 2000 PART I - CONSOLIDATED CONDENSED FINANCIAL STATEMENTS ITEM 1 - FINANCIAL STATEMENTS AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands) ASSETS
July 2, December 31, 2000 1999 (Unaudited) Current assets: Cash and cash equivalents $307,665 $456,325 Short term investments 75,000 - Accounts receivable, less allowance for doubtful accounts of $17,717 in 2000 and $19,543 in 1999 250,776 216,810 Inventories: Raw materials 98,825 60,708 Work-in-process and finished goods 125,164 115,769 Total inventories 223,989 176,477 Prepaid expenses and other current assets 21,011 18,283 Deferred income taxes 28,845 31,962 Total current assets 907,286 899,857 Property, plant, and equipment: Land, buildings and improvements 65,380 58,220 Machinery and equipment 152,975 130,031 Office equipment, furniture, and fixtures 62,341 55,284 Purchased software 21,020 17,114 301,716 260,649 Less accumulated depreciation and amortization 116,582 103,422 Net property, plant, and equipment 185,134 157,227 Goodwill and other intangibles 112,281 48,239 Other assets 22,021 1,615 Total assets $1,226,722 $1,106,938
See accompanying notes to consolidated condensed financial statements. 3 FORM 10-Q July 2, 2000 AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED) (In thousands) LIABILITIES AND SHAREHOLDERS' EQUITY
July 2, December 31, 2000 1999 (Unaudited) Current liabilities: Accounts payable $110,304 $ 78,641 Accrued expenses 39,775 41,966 Accrued compensation 21,718 25,743 Accrued sales and marketing programs 17,227 16,853 Income taxes payable 20,191 30,616 Total current liabilities 209,215 193,819 Deferred tax liability 13,260 11,029 Total liabilities 222,475 204,848 Shareholders' equity: Common stock, $.01 par value; authorized 450,000 shares; issued 194,625 shares in 2000 and 193,339 shares in 1999 1,946 1,933 Additional paid-in capital 103,682 82,989 Retained earnings 902,744 820,525 Treasury stock, 250 shares, at cost (1,551) (1,551) Accumulated other comprehensive income (loss) (2,574) (1,806) Total shareholders' equity 1,004,247 902,090 Total liabilities and shareholders' equity $1,226,722 $1,106,938
See accompanying notes to consolidated condensed financial statements. 3 FORM 10-Q July 2, 2000 AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (In thousands, except earnings per share)
Six months ended Three months ended July 2, June 27, July 2, June 27, 2000 1999 2000 1999 (Unaudited) Net sales $675,158 $592,647 $365,745 $315,462 Cost of goods sold 364,788 331,939 201,344 176,909 Gross profit 310,370 260,708 164,401 138,553 Operating expenses: Marketing, selling, general and administrative 156,045 137,426 79,558 71,102 Special charges 30,400 - 30,400 - Research and development 20,928 17,775 11,623 8,823 Total operating expenses 207,373 155,201 121,581 79,925 Operating income 102,997 105,507 42,820 58,628 Other income, net 12,804 4,571 6,634 2,100 Earnings before income taxes 115,801 110,078 49,454 60,728 Income taxes 33,582 32,473 14,341 17,914 Net income $82,219 $77,605 $35,113 $42,814 Basic earnings per share $ .42 $ .40 $ .18 $ .22 Basic weighted average shares 193,769 191,861 194,089 191,962 outstanding Diluted earnings per share $ .41 $ .40 $ .17 $ .22 Diluted weighted average shares 200,336 195,850 201,040 195,177 outstanding
See accompanying notes to consolidated condensed financial statements. 5 FORM 10-Q July 2, 2000 AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In thousands)
Six months ended Three months ended July 2, June 27, July 2, June 27, 2000 1999 2000 1999 (Unaudited) Cash flows from operating activities Net income $82,219 $77,605 $35,113 $42,814 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 14,844 10,374 7,710 5,430 Deferred income taxes 5,348 (4,275) 1,313 (5,200) Special charges 30,400 - 30,400 - Other non-cash items, net 2,714 3,434 1,868 259 Changes in operating assets and liabilities excluding effects of acquisitions: Accounts receivable (21,023) (18,429) (29,936) 952 Inventories (31,435) (3,214) (14,809) 11,626 Prepaid expenses and other current assets (4,693) (5,662) (2,664) (5,127) Other assets (47,772) 397 (47,186) 68 Accounts payable 18,821 7,406 5,986 7,147 Accrued expenses (10,532) 12,707 (1,963) 2,330 Income taxes payable (10,608) 1,866 (3,546) 775 Net cash provided by (used in) operating activities 28,283 82,209 (17,714) 61,074 Cash flows from investing activities Purchases of held-to-maturity debt securities (75,000) - - - Capital expenditures, net of capital grants (39,727) (13,904) (28,409) (9,580) Acquisitions (78,922) (8,310) (78,922) (145) Net cash used in investing activities (193,649) (22,214) (107,331) (9,725) Cash flows from financing activities Proceeds from issuances of common stock 16,706 3,448 9,403 2,281 Repayment of short term debt - (11,532) - (7,797) Net cash provided by (used in) financing activities 16,706 (8,084) 9,403 (5,516) Net change in cash and cash equivalents (148,660) 51,911 (115,642) 45,833 Cash and cash equivalents at beginning of period 456,325 219,908 423,307 225,986 Cash and cash equivalents at end of period $307,665 $271,819 $307,665 $271,819 Supplemental cash flow disclosures Cash paid during the period for income taxes (net of refunds) $38,288 $32,265 $16,433 $20,942
See accompanying notes to consolidated condensed financial statements. 6 FORM 10-Q July 2, 2000 AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. Management Representation The accompanying unaudited consolidated condensed financial statements should be read in conjunction with the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the consolidated financial position and the consolidated results of operations and cash flows for the interim periods. The results of operations for the interim periods 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 are eliminated in consolidation. 3. Earnings Per Share Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares and dilutive potential common shares 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 shares at the average market price during the period. Potential common shares for which inclusion would have the effect of increasing diluted earnings per share (i.e., antidilutive) are excluded from the computation.
In thousands Six months ended Three months ended July 2, June 27, July 2, June 27, 2000 1999 2000 1999 Basic weighted average shares outstanding 193,769 191,861 194,089 191,962 Net effect of dilutive potential common shares outstanding based on the treasury stock method using the average market price 6,567 3,989 6,951 3,215 Diluted weighted average shares outstanding 200,336 195,850 201,040 195,177 Antidilutive potential common shares excluded from the computation above - 310 - 315
7 4. Shareholders' Equity Changes in common stock and paid-in capital for the periods presented represent the issuances of common stock resulting from the exercise of employee stock options and the second quarter 2000 acquisition of ABL Electronics Corporation (see "Acquisitions" in Management's Discussion and Analysis below). 5. Comprehensive Income The components of comprehensive income, net of tax, are as follows:
In thousands Six months ended Three months ended July 2, June 27, July 2, June 27, 2000 1999 2000 1999 Net income $82,219 $77,605 $35,113 $42,814 Other comprehensive income (loss), net of tax: Change in foreign currency translation adjustment (768) (1,702) 22 (1,776) Other comprehensive income (loss) (768) (1,702) 22 (1,776) Comprehensive income $81,451 $75,903 $35,135 $41,038
6. Short Term Investments At July 2, 2000, short term investments consisted of U.S. Government debt securities with original maturities greater than three months and less than or equal to one year. Such securities were classified as held-to-maturity and carried at amortized cost. Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold such securities to maturity. 7. Acquisitions Advance Power Early in the second quarter of 2000, the Company acquired Advance International Group subsidiary, Advance Power, a U.K.-based manufacturer of DC-based power solutions used in telecommunications and Internet applications, for $75 million in cash plus expenses. The Company's cash outlays associated with the acquisition were financed from operating cash. At the end of the second quarter of 2000, the excess of the purchase price over the estimated fair value of the tangible net assets acquired has been included in goodwill and is being amortized on a straight-line basis over 15 years. The acquisition has been accounted for as a purchase and, accordingly, Advance Power's results of operations are included in the Company's consolidated financial statements from the date of acquisition. ABL Electronics Corporation Early in the second quarter of 2000, the Company acquired privately-held ABL Electronics Corporation ("ABL"), a North American provider of computer and network cables, switches, and other connectivity products, for $8 million paid in a combination of cash and stock, plus expenses. The Company's cash outlays associated with the acquisition were financed from operating cash. At the end of the second quarter of 2000, the excess of the purchase price over the estimated fair value of the tangible net assets acquired has been included in goodwill and is being amortized on a straight-line basis over 15 years. The acquisition has been accounted for as a purchase and, accordingly, ABL's results of operations are included in the Company's consolidated financial statements from the date of acquisition. 8 8. Special Charges During the second quarter of 2000, the Company agreed to license worldwide patent rights relating to uninterruptible power supply technology for a lump-sum cash payment of $48.0 million, as more fully described under Part II, Item 1 - Legal Proceedings. The license fee was paid from operating cash during the second quarter of 2000. The Company evaluated the portion of the license fee that represented payment for prior use of the subject technology and the portion that represented payment for future use. Considering each of the Company's markets and the historical and projected revenue realized in markets utilizing the licensed technology, the Company estimated the present value of royalty payments, basing this calculation on an appropriate royalty rate and the technology's contribution to the overall value of affected products. Separate present values were calculated for both historic and projected product sales; the historic value was expensed and the projected value was capitalized. Accordingly, a write-off of the fully paid-up portion of the patent licenses was recognized in the Company's statement of income for the second quarter of 2000 as a special charge to pre-tax earnings of $30.4 million, including direct expenses of $1.9 million. The remaining balance of $19.5 million has been classified on the consolidated balance sheet as a long term asset and is being amortized on a straight-line basis over 9 years, the estimated remaining economic life of the patent license. 9. Operating Segment Information Basis for presentation The Company's operating businesses design, manufacture, and market power protection equipment and related software and accessories for computer and computer-related equipment. The Company manages its businesses based on the nature of products provided. These businesses share similar economic characteristics and have been aggregated into one reportable operating segment. The Company evaluates the performance of its businesses based on direct contribution margin. Direct contribution margin includes research and development ("R&D"), marketing, and administrative expenses directly attributable to the segment and excludes certain expenses which are managed outside the reportable segment. Costs excluded from segment profit are indirect operating expenses, primarily consisting of selling and corporate expenses, and income taxes. Expenditures for additions to long-lived assets are not reported to management by the operating businesses. Summary operating segment information is as follows:
In thousands Six months ended Three months ended July 2, June 27, July 2, June 27, 2000 1999 2000 1999 Net sales $675,158 $592,647 $365,745 $315,462 Segment direct contribution margin $284,334 $240,042 $150,274 $130,385 Indirect operating expenses 150,937 134,535 77,054 71,757 Special charges 30,400 - 30,400 - Other income, net 12,804 4,571 6,634 2,100 Earnings before income taxes $115,801 $110,078 $49,454 $60,728
9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: Revenues Net sales were $365.7 million for the second quarter of 2000, an increase of 15.9% compared to $315.5 million for the same period in 1999. Net sales for the first half of 2000 were $675.2 million compared to $592.6 million in 1999, an increase of 13.9%. The growth in net sales in the second quarter and first half of 2000 from the comparable periods in 1999 was attributable to growth in the Company's high-end and enterprise businesses, including $12.9 million in second quarter 2000 sales attributable to Advance Power and ABL Electronics (see "Acquisitions" below). Second quarter and first half 2000 net sales growth was led by increases in Asia and the Americas. Net sales in the Asia Pacific region grew 41% and 42%, respectively, while net sales in the Americas (North and Latin America) grew 21% and 16%, respectively. Net sales in EMEA (Europe, Middle East and Africa) decreased 5% and 2%, respectively, reflecting continued IT industry softness as well as the impact of currency movements. On a constant currency basis, EMEA net sales for the second quarter of 2000 grew two percent versus the second quarter of 1999 while EMEA net sales for the first half of 2000 grew four percent versus the first half of 1999. Cost of Goods Sold Cost of goods sold was $201.3 million or 55.1% of net sales in the second quarter of 2000 compared to $176.9 million or 56.1% of net sales in the second quarter of 1999. Cost of goods sold was $364.8 million or 54.0% of net sales in the first half of 2000 compared to $331.9 million or 56.0% in the first half of 1999. Second quarter 2000 gross margin was 44.9% of net sales, approximately 100 basis points higher than the comparable period in 1999. First half 2000 gross margin was 46.0% of net sales, approximately 200 basis points higher than the comparable period in 1999. The improvements were driven primarily by manufacturing cost reductions, particularly material cost reductions, and the ongoing transition of production from the U.S. and Ireland to the Philippines, partially offset by the full quarter impact of price reductions on selected Back-UPSr products made late in the first quarter of 2000. Total inventory reserves at July 2, 2000 were $19.8 million compared to $17.1 million at December 31, 1999. 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 Operating expenses include marketing, selling, general and administrative (SG&A), special charges, and R&D expenses. SG&A expenses were $79.6 million or 21.8% of net sales for the second quarter of 2000 compared to $71.1 million or 22.5% of net sales for the second quarter of 1999. SG&A expenses were $156.0 million or 23.1% of net sales for the first half of 2000 compared to $137.4 million or 23.2% of net sales for the first half of 1999. The increase in total spending over last year was due primarily to costs associated with increased staffing and operating expenses of selling, administrative, and marketing functions, as well as increased advertising and promotional costs, while the slight decrease as a percentage of net sales was attributable to certain fixed SG&A expenses spread over a higher revenue base. The allowance for doubtful accounts at July 2, 2000 was 6.6% of accounts receivable, compared to 8.3% at December 31, 1999. The Company continues to experience strong collection performance. Accounts receivable balances outstanding over 60 days represented 11.8% of total receivables at July 2, 2000, up from 9.0% at December 31, 1999. This increase reflects a growing portion of the Company's business originating in areas where longer payment terms are customary, including a growing contribution from international markets as well as large system enterprise sales primarily associated with Silcon products. Write-offs of uncollectible accounts have historically represented less than 1% of total net sales. A majority of international customer balances are covered by receivables insurance. During the second quarter of 2000, the Company agreed to license worldwide patent rights relating to uninterruptible power supply technology for a lump-sum 10 cash payment of $48.0 million, as more fully described under Part II, Item 1 - Legal Proceedings. The license fee was paid from operating cash during the second quarter of 2000. The Company evaluated the portion of the license fee that represented payment for prior use of the subject technology and the portion that represented payment for future use. Considering each of the Company's markets and the historical and projected revenue realized in markets utilizing the licensed technology, the Company estimated the present value of royalty payments, basing this calculation on an appropriate royalty rate and the technology's contribution to the overall value of affected products. Separate present values were calculated for both historic and projected product sales; the historic value was expensed and the projected value was capitalized. Accordingly, a write-off of the fully paid-up portion of the patent licenses was recognized in the Company's statement of income for the second quarter of 2000 as a special charge to pre-tax earnings of $30.4 million, including direct expenses of $1.9 million. The remaining balance of $19.5 million has been classified on the consolidated balance sheet as a long term asset and is being amortized on a straight-line basis over 9 years, the estimated remaining economic life of the patent license. R&D expenses were $11.6 million or 3.2% of net sales and $8.8 million or 2.8% of net sales for the second quarters of 2000 and 1999, respectively, and $20.9 million or 3.1% of net sales and $17.8 million or 3.0% of net sales for the first six month periods of 2000 and 1999, respectively. The increase in total R&D spending primarily reflects increased numbers of software and hardware engineers and costs associated with new product development and engineering support. Other Income, Net and Income Taxes Other income is comprised principally of interest income, which increased from 1999 to 2000 due to higher average cash balances available for investment during 2000. The Company's effective income tax rates were approximately 29.0% and 29.5% for the quarters and six month periods ended July 2, 2000 and June 27, 1999, respectively. The decrease in the effective tax rate from last year is due to the expected tax savings from an increasing portion of taxable earnings being generated from the Company's operations in jurisdictions currently having a lower income tax rate than the present U.S. statutory income tax rate. LIQUIDITY AND CAPITAL RESOURCES Working capital at July 2, 2000 was $698.1 million compared to $706.0 million at December 31, 1999. The Company has been able to substantially maintain its working capital position as the result of continued strong operating results and despite internally financing the acquisitions and capital investment required to expand its operations. The Company's cash and short term investments position decreased to $382.7 million at July 2, 2000 from $456.3 million at December 31, 1999, due primarily to second quarter 2000 outlays from operating cash related to acquisitions (see "Acquisitions" below) and the licensing of worldwide patent rights relating to uninterruptible power supply technology (see "Part II, Item 1 - Legal Proceedings). Worldwide inventories were $224.0 million at July 2, 2000 compared to $176.5 million at December 31, 1999. The first half 2000 inventory build was primarily related to anticipation of increased demand patterns during the second half of the year which result from typical seasonal factors, combined with $16.9 million in inventory attributable to Advance Power and ABL Electronics (see "Acquisitions" below). Inventory levels as a percentage of quarterly sales were 61% in the second quarter of 2000, up from 45% in the fourth quarter of 1999. At July 2, 2000, the Company had $50 million available for future borrowings under an unsecured line of credit agreement at a floating interest rate equal to the bank's cost of funds rate plus .625%; an additional $15 million and $7 million were available under unsecured line of credit agreements with a second and third bank at similar interest rates. No borrowings were outstanding under these facilities at July 2, 2000. The Company had no significant financial commitments, other than those required in the normal course of business, at July 2, 2000. Capital investment for the first half of 2000 consisted primarily of manufacturing and office equipment, buildings and improvements, and purchased software applications. The nature and level of capital spending was made to improve manufacturing capabilities, principally in the U.S. and the Far East, and to support the increased marketing, selling, and administrative efforts necessitated by the Company's growth. Net capital expenditures were financed from available operating cash. The Company had no material capital commitments, other than those required in the normal course of business, at July 2, 2000. 12 The Company has agreements with the Industrial Development Authority of Ireland ("IDA") under which the Company receives grant monies for costs incurred for machinery, equipment, and building improvements for its Galway and Castlebar facilities equal to 40% and 60%, respectively, of such costs up to a maximum of $13.1 million and $1.3 million, respectively. Such grant monies are subject to the Company meeting certain employment goals and maintaining operations in Ireland until termination of the respective agreements. 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 Advance Power Early in the second quarter of 2000, the Company acquired Advance International Group subsidiary, Advance Power, a U.K.-based manufacturer of DC-based power solutions used in telecommunications and Internet applications, for $75 million in cash plus expenses. The Company's cash outlays associated with the acquisition were financed from operating cash. At the end of the second quarter of 2000, the excess of the purchase price over the estimated fair value of the tangible net assets acquired has been included in goodwill and is being amortized on a straight-line basis over 15 years. The acquisition has been accounted for as a purchase and, accordingly, Advance Power's results of operations are included in the Company's consolidated financial statements from the date of acquisition. ABL Electronics Corporation Early in the second quarter of 2000, the Company acquired privately-held ABL Electronics Corporation ("ABL"), a North American provider of computer and network cables, switches, and other connectivity products, for $8 million paid in a combination of cash and stock, plus expenses. The Company's cash outlays associated with the acquisition were financed from operating cash. At the end of the second quarter of 2000, the excess of the purchase price over the estimated fair value of the tangible net assets acquired has been included in goodwill and is being amortized on a straight-line basis over 15 years. The acquisition has been accounted for as a purchase and, accordingly, ABL's results of operations are included in the Company's consolidated financial statements from the date of acquisition. Foreign Currency Activity The Company invoices its customers in various 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 second quarters and first six month periods of 2000 and 1999. At July 2, 2000, the Company's unhedged foreign currency accounts receivable, by currency, were as follows:
In thousands Foreign Currency US Dollars European Euros 14,065 $13,256 Japanese Yen 1,240,100 11,750 British Pounds 7,571 11,436 Swiss Francs 17,546 10,634 German Marks 20,498 9,855 French Francs 38,120 5,477
The Company also had non-trade receivables of 3.3 million Irish Pounds (approximately US$4.0 million) and liabilities denominated in various European currencies of US$46.6 million, as well as Yen denominated liabilities of approximately US$5.3 million. 12 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 derivative arrangements. Recently Issued Accounting Standards In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the Commission. This SAB is effective beginning in the fourth quarter of 2000, as provided for in SAB No. 101B. Compliance with this SAB is not expected to have a material impact on the Company's consolidated financial position or results of operations. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. This Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000, as provided for in SFAS No. 137. The adoption of this Statement is not expected to have a material impact on the Company's consolidated financial position or results of operations. Factors That May Affect Future Performance Statements contained in this document, which are not historical facts, may constitute forward-looking statements as that term is defined under the provisions of the "safe harbor" section of the Private Securities Litigation Reform Act of 1995. All forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those projected. The factors that could cause actual results to differ materially include the following: APC's ability to successfully integrate ABL and Advance Power's operations; the timely development and acceptance of new products; ramp up, expansion, and rationalization of global manufacturing capacity; general worldwide economic conditions; growth rates in the power protection industry and related industries, including but not limited to the PC, server, networking, telecommunications, and enterprise hardware industries; competitive factors and pricing pressures; changes in product mix; changes in the seasonality of demand patterns; inventory risks due to shifts in market demand; the effects of any other possible acquisitions; component constraints and shortages; risk of nonpayment of accounts receivable; the uncertainty of the litigation process including risk of an unexpected, unfavorable result of current or future litigation including, without limitation, the pending Anthony F. Coppola litigation, as more fully described under Part II, Item 1 - Legal Proceedings; financial impact during any period of the Company's purchase of the license to certain patent rights under a worldwide patent license from General Signal Power Systems; and the risks described from time to time in the Company's filings with the Securities and Exchange Commission. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company, in the normal course of business, is exposed to market risks relating to fluctuations in foreign currency exchange rates. The information required under this section related to such risks is included in the Foreign Currency Activity section of Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of this Report and is incorporated herein by reference. 13 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On or about August 20, 1999, General Signal Power Systems, Inc, former parent company of Best Power ("General Signal"), filed suit against the Company in the United States District Court for the Western District of Wisconsin alleging patent infringement and false advertising. General Signal sought unspecified damages, costs, fees, and injunctive relief. During March and April 2000, the court dismissed four of the five patent infringement claims. On or about May 12, 2000, General Signal voluntarily dismissed with prejudice the false advertising claims. On May 17, 2000, the parties agreed to the voluntary dismissal of the remaining claim in the lawsuit with prejudice. In connection with the resolution of this dispute, the Company agreed to license from General Signal worldwide patent rights relating to uninterruptible power supply technology for a lump-sum cash payment of $48 million. The license fee was paid from operating cash during the second quarter of 2000. On or about January 27, 1999, the Company was served with a lawsuit filed by an individual in the United States District Court for the Central District of California alleging patent infringement. The plaintiff, Anthony F. Coppola, claims sole ownership of the patent referenced in the lawsuit. Coppola seeks unspecified damages, costs, fees, and injunctive relief. On or about April 14, 1999, the Company removed the case from the United States District Court for the Central District of California to the United States District Court for the District of Massachusetts. The Company intends to vigorously defend against the suit and believes the ultimate disposition of this matter will not have a material adverse effect on the Company's consolidated financial position or results of operations or liquidity. No provision for any liability that may result from this action has been recognized in the Company's 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. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On April 28, 2000, the Company acquired all of the outstanding stock of ABL Electronics Corporation from the stockholders thereof. In partial consideration thereof, the Company agreed to issue to the stockholders of ABL Electronics an aggregate of 113,273 shares of common stock of the Company valued at $35.313 per share in a private placement transaction, of which, on April 28, 2000, the Company issued 84,955 shares, and held back, without issuance, 28,318 shares of common stock of the Company to cover any reimbursable claims arising under the applicable stock purchase agreement. Such selling stockholders represented to the Company that they were acquiring the shares of the Company's common stock as principal for their own respective accounts for investment and would refrain from transferring or otherwise disposing of the shares in contravention of the Securities Act of 1933 or any other applicable securities legislation. Based on the foregoing and the fact that the Company had reason to believe that such stockholders were familiar with and had access to information concerning the operations and financial condition of the Company, the Company issued the common stock on reliance upon the exemption from registration under Section 4(2) of the Securities Act of 1933 as a transaction not involving a public offering. There were no underwriters involved in such private placement transaction. 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders was held on May 11, 2000 at which the shareholders of the Company approved the following: (i) by a vote of 168,992,865 shares in favor, 1,951,643 opposed, 1,635,704 abstaining, and 8,770 broker non-votes, the number of directors was fixed at five. (ii) the following persons (with vote results) were elected to serve another term as Directors of the Company: For Withheld Rodger B. Dowdell, Jr. 165,512,358 7,076,624 James D. Gerson 165,474,303 7,114,679 Emanuel E. Landsman 165,476,563 7,112,419 Ervin F. Lyon 163,910,667 8,678,315 Neil E. Rasmussen 165,503,072 7,085,910 In addition, by a vote of 39,328,134 shares in favor, 91,329,961 opposed, 14,404,482 abstaining, and 27,526,405 broker non-votes, a shareholder proposal regarding the composition of the Company's Board of Directors, was not approved. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits Exhibit No. 3.1 Articles of Organization of the Company, as amended, 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) Exhibit No. 3.2 By-Laws of the Company, as amended and restated, previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and incorporated herein by reference (File No. 1-12432) Exhibit No. 4 Stock Purchase Agreement dated as of April 28, 2000, by and among ABL Acquisition Corporation, Randall R. Amon, Daniel Bryan, William C. Litsinger III, Jack L. Ottenheimer and Kevin W. Campion, previously filed as an exhibit to the Company's Registration Statement on Form S- 3 and incorporated herein by reference (File No. 333-42348) Exhibit No. 27 Financial Data Schedule (B) Reports on Form 8-K No reports on Form 8-K were filed by American Power Conversion Corporation during the quarter ended July 2, 2000. 15 FORM 10-Q July 2, 2000 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 Date: August 16, 2000 /s/ Donald M. Muir Donald M. Muir Chief Financial Officer (Principal Accounting and Financial Officer) 16 FORM 10-Q July 2, 2000 AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES EXHIBIT INDEX
Exhibit Number Description Page No Exhibit Number 3.1 Articles of Organization of the Company, as amended, 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) Exhibit Number 3.2 By-Laws of the Company, as amended and restated, previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and incorporated herein by reference (File No. 1-12432) Exhibit No. 4 Stock Purchase Agreement dated as of April 28, 2000, by and among ABL Acquisition Corporation, Randall R. Amon, Daniel Bryan, William C. Litsinger III, Jack L. Ottenheimer and Kevin W. Campion, previously filed as an exhibit to the Company's Registration Statement on Form S-3 and incorporated herein by reference (File No. 333-42348) Exhibit No. 27 Financial Data Schedule 18