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American Power Conversion Announces Cost Reduction Actions

October 12, 2006 by Jeff Shepard

American Power Conversion Corp. (APC) announced cost reduction actions that call for a 4% reduction of the company's global workforce or approximately 330 jobs. When combined with the job reductions in Ireland announced in June, the company has plans to reduce approximately 7% of its workforce or 580 positions worldwide. In total, APC expects annual pre-tax savings of approximately $32 million from the combined actions, principally in 2007, with pre-tax savings of approximately $5 million anticipated in the fourth quarter of 2006.

"APC's management team and I have taken a comprehensive look at our business, our strategy and our teams, and we believe APC has an opportunity to realign resources, increase productivity and continue growing the business," explained Rob Johnson, APC's President and CEO. "This does not mean we are decreasing our commitment to our data center and InfraStruXure® initiatives or to our core uninterruptible power supply (UPS) business. We remain significantly committed to succeeding at the businesses we operate in and will make the appropriate investments required to accomplish this objective and better meet customer needs. But we do believe by realigning resources against several key applications, specifically Home and Distributed Systems, Enterprise Systems, Software and Management, Industrial, Access Providers and Global Services, our global teams will be more productive and have a better opportunity to drive profitable business expansion."

"This is an extremely difficult decision to make, and one I do not take lightly," continued Johnson. "But given the company's recent financial performance, it is essential to ensure our continued competitiveness in the market." The job reductions will impact employees worldwide in multiple company functions. In June, APC announced plans to reduce 200 to 250 positions in Ireland, primarily in the manufacturing, operations and customer support areas.

The company anticipates incurring total costs of approximately $10 million to $12 million, including costs associated with the previously announced streamlining of operations in Ireland. These costs will be recognized predominantly in the third and fourth quarters of 2006 as required by generally accepted accounting principles and consisting primarily of one-time employee severance costs. The company foresees completing the combined actions in the first quarter of 2007 and that all of the expected costs will be financed from available operating cash.

In addition to these costs, APC will record approximately $1.5 million in the third quarter of 2006 for severance payments to the company's former president and CEO, Rodger B. Dowdell, Jr., in accordance with the previously disclosed severance and compensation agreement between the company and Dowdell. Finally, also in the third quarter, the company anticipates recording a net tax credit of approximately $12 million or $0.06 per share associated with the adjustment of income tax provisioning resulting from the outcome of recent tax audits.