American Power Conversion Reports Third Quarter 2006 Financial Results

WEST KINGSTON, R.I., Nov. 2 /PRNewswire-FirstCall/ -- American Power Conversion Corporation (APC) today reported financial results for the third quarter ended September 24, 2006.

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Revenue for the third quarter 2006 was a record $621.3 million, up 21 percent from $512.3 million in the third quarter 2005 and up 11 percent sequentially from $560.0 million in the second quarter 2006. Net income for the third quarter 2006 was $45.1 million or $0.24 per diluted share, down 7 percent from $48.7 million or $0.24 per diluted share in the third quarter 2005 and up 83 percent from $24.7 million or $0.13 per diluted share in the second quarter 2006.

Net income for the third quarter of 2006 includes several previously announced items:

* $6.1 million in costs, consisting primarily of employee severance costs, associated with workforce reduction actions announced in June and September. * $1.5 million 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 Mr. Dowdell. * A net tax benefit of $12.9 million or $0.07 per share associated with the adjustment of income tax provisioning resulting from recent tax audits.

Adjusted for these items, non-GAAP net income in the third quarter was $38.1 million or $0.20 per share, down 22 percent from the third quarter 2005 and up 54 percent from the second quarter 2006.

Third Quarter 2006 Financial Summary (In millions, except per share amounts) YOY QOQ Q3 2006 Q3 2005 Change Q2 2006 Change Revenue $621.3 $512.3 21 % $560.0 11 % Operating Income $36.8 $58.2 (37)% $27.0 36 % Net Income $45.1 $48.7 (7)% $24.7 83 % Diluted EPS $0.24 $0.24 (3)% $0.13 85 %

"Our business was strong during the third quarter, reaching record revenue levels, accelerating revenue growth and achieving the thirteenth straight quarter of double-digit year-over-year revenue growth," said Rob Johnson, APC's president and chief executive officer. "In addition to strong revenue growth, sequential improvements in gross margin coupled with operating expense growth of just five percent sequentially helped drive a greater than 50 percent increase in non-GAAP net income sequentially."

Small Systems segment gross margin increased sequentially to 43.0 percent, or 1.5 percentage points, as a result of higher Smart-UPS(R) family sales and price increases in the segment. Large Systems segment gross margin, however, declined sequentially to 15.9 percent, or 2.6 percentage points, as the result of improved product mix in the segment offset by higher service costs.

"We recently announced a definitive merger agreement with Schneider Electric," continued Johnson. "The complementary nature of our solutions and businesses will deliver customers globally industry leading solutions from the data center to the living room and expand the sales and support system for our InfraStruXure(R) architecture. Both companies have a dedication to innovation and customer service that make our combined enterprise an even stronger player in the industry."

Segment Review

For the third quarter 2006, revenue in APC's Large Systems segment, consisting primarily of 3-phase uninterruptible power supplies (UPSs), APC Global Services, precision cooling and ancillary products for data centers, facilities and communication applications, increased 35 percent year-over-year to $135.9 million. Continued year-over-year growth in products for APC's InfraStruXure architecture, including Symmetra(R) three-phase UPSs, as well as strong demand for the company's broadband power products, drove the segment's strong top line performance.

The Small Systems segment, which provides power protection, UPS and management products for the PC, server and networking markets, continued posting healthy results, increasing 18 percent year-over-year to $460.0 million. The segment's solid revenue growth stemmed from demand for APC's online single-phase Smart-UPS solution, the Smart-UPS RT, as well as Back- UPS(R) desktop UPSs and InfraStruXure architecture components, including racks and power distribution.

Business Outlook

"The demand drivers in our industry, particularly relating to powering and cooling the data center, continue to be strong and we are very excited about the opportunities ahead of APC," continued Johnson.

Additionally, associated with previously announced workforce reductions, APC anticipates recognizing approximately $4 to $6 million in costs in addition to those costs recognized in the third quarter. These costs will be predominantly in the fourth quarter of 2006 and will consist primarily of employee severance costs.

Non-GAAP Results

The Company believes that the non-GAAP results, i.e., results excluding certain charges or one-time events, described in this release for the third quarter 2006, are useful for an understanding of its ongoing operations because GAAP (generally accepted accounting principles) results include financial results not expected to be part of the Company's ongoing business. Specifically, the Company does not currently believe the reduction in income tax recorded during the third quarter 2006, the severance payment to its former CEO or the third quarter restructuring actions will recur in future quarters. The Company cautions that non-GAAP results are not a substitute for GAAP results. A comparison and reconciliation from non-GAAP to GAAP results is included in the financial statements accompanying this release.

Conference Call and Webcast

In light of the merger agreement announced earlier this week with Schneider Electric, APC will not be hosting a conference call to discuss its third quarter 2006 financial results.

About American Power Conversion

Founded in 1981, American Power Conversion (APC) is a leading provider of global, end-to-end solutions for real-time infrastructure. APC's comprehensive products and services for home and corporate environments improve the availability, manageability and performance of sensitive electronic, network, communication and industrial equipment of all sizes. APC offers a wide variety of products for network-critical physical infrastructure including InfraStruXure(R), its revolutionary architecture for on-demand data centers, as well as physical threat management products through the company's NetBotz(R) division. These products and services help companies increase the availability and reliability of their IT systems. Headquartered in West Kingston, Rhode Island, APC reported sales of $2 billion for the year ended December 31, 2005, and is a Fortune 1000, Nasdaq 100 and S&P 500 Company.

All trademarks are the property of their respective owners. Additional Information Relating to the Merger and Where to Find It

APC will file a proxy statement with the U.S. Securities and Exchange Commission (SEC) in connection with the proposed transaction. Investors are urged to read any such proxy statement, when available, which will contain important information. The proxy statement will be, and other documents filed by APC with the SEC are, available free of charge at the SEC's website (http://www.sec.gov/) or from APC by directing a request to American Power Conversion Corporation, 132 Fairgrounds Road, West Kingston, Rhode Island 02892, Attention: Investor Relations (telephone [phone]), or from APC's website at http://www.apcc.com/.

APC, Schneider and their respective directors, executive officers and other employees may be deemed to be participating in the solicitation of proxies from APC shareholders in connection with the approval of the proposed transaction. Information about APC's directors and executive officers is available in APC's proxy statements and Annual Reports on Form 10-K previously filed with the SEC. Information about Schneider's directors and executive officers is available from its 2005 Annual Report, which can be obtained for free from its website at http://www.schneider-electric.com/, and will also be available in a Schedule 13D to be filed by Schneider with the SEC. Additional information about the interests of potential participants will be included in the proxy statement APC will file with the SEC.

Safe Harbor Provision

This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. All statements in this press release that do not describe historical facts, such as statements concerning the Company's future plans or prospects and those contained in the "Business Outlook" section of the press release, are forward- looking statements. All forward-looking statements are not guarantees and are subject to risks and uncertainties that could cause actual results to differ from those projected. While not exhaustive, the factors that could cause actual results to differ include the following: The ability of APC and Schneider to gain regulatory and shareholder approval for the proposed merger; successful completion of the transaction; ability to achieve expected growth, savings and benefits of merger; potential disruption in business or relationships with customers, vendors, partners and employees as a result of the proposed merger; the pervasive and intensifying competition in all markets where we operate; prolonged adverse economic and employment conditions in the markets we serve; changes in available technology that make our existing technology obsolete or expensive to upgrade; the availability and cost of capital; the impact of any industry consolidation; the outcome of pending or threatened complaints and litigation; the Company's ability to achieve the targeted job reductions and savings; the Company's ability to improve the execution of its operations processes and eliminate operational waste and excess expense; depending on market circumstances, the Company may not complete its previously approved stock repurchase program; the impact of foreign currency exchange rate fluctuations; the impact on demand, component availability and pricing, and logistics, and the disruption of manufacturing operations that result from labor disputes, war, acts of terrorism or political instability; ramp up, expansion, transfer and rationalization of global manufacturing capacity, including successfully consolidating its Irish manufacturing operations in Castlebar, Ireland and redeploying certain customer-facing positions within the Europe, Middle East and Africa region; the Company's ability to effectively align operating expenses and production capacity with the current demand environment; the potential impact of complying with changing environmental regulations; the discovery of a latent defect in any of the Company's products; growth rates in the power protection industry and related industries; product mix changes and the potential negative impact on gross margins from such changes; changes in the seasonality of demand patterns; inventory risks due to shifts in market demand; component constraints, shortages, pricing and quality; risk of nonpayment of accounts receivable; and the risks described from time to time in the Company's filings with the Securities and Exchange Commission.

For more information contact: Investors: Richard Thompson, chief financial officer, 401-789-5735, ext. 2325

Debbie Hancock, director, investor relations, 401-789-5735, ext. 2994, [e-mail]

Media:

Chet Lasell, APC director, public relations-North America, 800-788-2208 ext. 2693, [e-mail]

Supplemental Financial Information for American Power Conversion Corporation

Third Quarter 2006 Financial Summary (In millions, except per share amounts) YOY QOQ Q3 2006 Q3 2005 Change Q2 2006 Change Revenue $621.3 $512.3 21 % $560.0 11 % Operating Income $36.8 $58.2 (37)% $27.0 36 % Net Income $45.1 $48.7 (7)% $24.7 83 % Diluted EPS $0.24 $0.24 (3)% $0.13 85 % Third Quarter Segment Summary YOY QOQ Q3 2006 Q3 2005 Change Q2 2006 Change Revenue (In millions) Small Systems $460.0 $390.3 18 % $399.6 15 % % of revenue 75 % 76 % 72 % Large Systems $135.9 $100.4 35 % $139.5 (3)% % of revenue 22 % 20 % 25 % Other $19.4 $18.5 5 % $15.6 24 % % of revenue 3 % 4 % 3 % Shipping and Handling $6.0 $3.1 $5.3 Net Sales $621.3 $512.3 21 % $560.0 11 % YOY Basis QOQ Basis Point Point Q3 2006 Q3 2005 Change Q2 2006 Change Gross Margin Percentage Small Systems 43.0 % 44.8 % (180) 41.5 % 150 Large Systems 15.9 % 16.4 % (50) 18.5 % (260) Other 50.8 % 60.3 % (950) 55.2 % (440) Third Quarter Geographic Summary YOY QOQ Q3 2006 Q3 2005 Change Q2 2006 Change Revenue (In millions) Americas $343.1 $268.3 28 % $304.8 13 % % of revenue 55 % 52 % 54 % EMEA $167.0 $148.9 12 % $162.3 3 % % of revenue 27 % 29 % 29 % Asia Pacific $111.2 $95.1 17 % $92.9 20 % % of revenue 18 % 19 % 17 % Net Sales $621.3 $512.3 21 % $560.0 11 % Note: Totals may not add to 100% due to rounding YOY = year-over-year QOQ = quarter-over-quarter AMERICAN POWER CONVERSION CORPORATION & SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS IN THOUSANDS (UNAUDITED) SEPTEMBER 24, DECEMBER 31, 2006 2005 CURRENT ASSETS CASH AND CASH EQUIVALENTS $187,566 $262,414 SHORT TERM INVESTMENTS 323,175 511,181 ACCOUNTS RECEIVABLE, NET 415,469 374,694 INVENTORIES 636,534 541,823 PREPAID EXPENSES AND OTHER CURRENT ASSETS 76,561 59,181 DEFERRED INCOME TAXES 69,835 60,139 TOTAL CURRENT ASSETS 1,709,140 1,809,432 PROPERTY, PLANT & EQUIPMENT 516,394 459,736 LESS: ACCUMULATED DEPRECIATION AND AMORTIZATION 320,059 293,692 NET PROPERTY, PLANT & EQUIPMENT 196,335 166,044 LONG TERM INVESTMENTS 330 562 GOODWILL 18,202 15,781 OTHER INTANGIBLES, NET 26,338 36,115 DEFERRED INCOME TAXES 44,535 42,427 OTHER ASSETS 3,954 5,101 TOTAL ASSETS $1,998,834 $2,075,462 CURRENT LIABILITIES ACCOUNTS PAYABLE $175,027 $176,345 ACCRUED EXPENSES 249,390 204,702 INCOME TAXES PAYABLE 12,928 39,755 TOTAL CURRENT LIABILITIES 437,345 420,802 DEFERRED TAX LIABILITY 11,894 14,911 TOTAL LIABILITIES 449,239 435,713 SHAREHOLDERS' EQUITY COMMON STOCK 1,899 1,958 ADDITIONAL PAID-IN CAPITAL 14,134 131,862 RETAINED EARNINGS 1,530,692 1,504,093 ACCUMULATED OTHER COMPREHENSIVE INCOME 2,870 1,836 TOTAL SHAREHOLDERS' EQUITY 1,549,595 1,639,749 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,998,834 $2,075,462

Note: The data reported above are based on an unaudited balance sheet, but include all adjustments that the Company considers necessary for a fair presentation of financial condition for this period.

AMERICAN POWER CONVERSION CORPORATION & SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME IN THOUSANDS EXCEPT PER SHARE AMOUNTS (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 24, SEPTEMBER 25, 2006 2005 NET SALES $621,318 $512,289 COST OF GOODS SOLD 410,546 323,633 GROSS PROFIT 210,772 188,656 MARKETING, SELLING, GENERAL AND ADMINISTRATIVE 147,292 108,276 RESEARCH AND DEVELOPMENT 26,699 22,200 TOTAL OPERATING EXPENSES 173,991 130,476 OPERATING INCOME 36,781 58,180 OTHER INCOME, NET 4,796 5,448 EARNINGS BEFORE INCOME TAXES 41,577 63,628 INCOME TAXES (3,545) 14,953 NET INCOME $45,122 $48,675 DILUTED EARNINGS PER SHARE $0.24 $0.24 DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 191,895 200,740

Note: The data reported above are based on unaudited statements of income, but include all adjustments that the Company considers necessary for a fair presentation of results for these periods.

Net income for the third quarter of 2006 includes a net tax benefit of approximately $12.9 million or $0.07 per share associated with the adjustment of income tax provisioning resulting from recent tax audits, partially offset by a charge for workforce reductions and severance payments of $7.6 million, or $0.03 per share after-tax. Excluding these items, non-GAAP net income for the third quarter of 2006 was $38.1 million or $0.20 per share.

The following table details a reconciliation from Non-GAAP amounts to U.S. GAAP and effects of these items: FOR THE THREE MONTHS ENDED SEPTEMBER 24, 2006 Per Diluted Pretax Net of Tax Share Non-GAAP income, excluding charges $49,172 $38,108 $0.20 Items excluded from non-GAAP results: Charge for workforce reductions in COGS (3,384) (2,623) (0.01) Charge for workforce reductions in SG&A (4,211) (3,263) (0.02) Tax reserve adjustment -- 12,900 0.07 GAAP income, including charges $41,577 $45,122 $0.24 AMERICAN POWER CONVERSION CORPORATION & SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME IN THOUSANDS EXCEPT PER SHARE AMOUNTS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 24, SEPTEMBER 25, 2006 2005 NET SALES $1,660,096 $1,400,898 COST OF GOODS SOLD 1,102,911 869,526 GROSS PROFIT 557,185 531,372 MARKETING, SELLING, GENERAL AND ADMINISTRATIVE 405,113 314,474 RESEARCH AND DEVELOPMENT 75,061 65,175 TOTAL OPERATING EXPENSES 480,174 379,649 OPERATING INCOME 77,011 151,723 OTHER INCOME, NET 15,148 14,431 EARNINGS BEFORE INCOME TAXES 92,159 166,154 INCOME TAXES 7,836 39,559 NET INCOME $84,323 $126,595 DILUTED EARNINGS PER SHARE $0.43 $0.63 DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 194,755 199,686

Note: The data reported above are based on unaudited statements of income, but include all adjustments that the Company considers necessary for a fair presentation of results for these periods.

Net income for the first nine months of 2006 includes a net tax benefit of approximately $12.9 million or $0.07 per share associated with the adjustment of income tax provisioning resulting from recent tax audits, partially offset by a charge for workforce reductions and severance payments of $7.6 million, or $0.03 per share after-tax. Excluding these items, non-GAAP net income for the first nine months of 2006 was $77.3 million or $0.39 per share.

The following table details a reconciliation from Non-GAAP amounts to U.S. GAAP and effects of these items: FOR THE NINE MONTHS ENDED SEPTEMBER 24, 2006 Per Diluted Pretax Net of Tax Share Non-GAAP income, excluding charges $99,754 $77,309 $0.39 Items excluded from non-GAAP results: Charge for workforce reductions in COGS (3,384) (2,623) (0.01) Charge for workforce reductions in SG&A (4,211) (3,263) (0.02) Tax reserve adjustment -- 12,900 0.07 GAAP income, including charges $92,159 $84,323 $0.43
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