XPAC, formerly Export Packaging Company, is a provider of packaging services. XPAC offers five core services: sub-assembly, painting, kitting, packaging, and order fulfillment. XPAC also offers custom software development, expediting, and other value-added supply chain services. Founded in 1974, and headquartered in Milan, Illinois, XPAC has grown to approximately 2,000 employees[1] across 14 U.S. facilities.
Xilinx, Inc. (“Xilinx”) researches, develops, manufactures, and markets integrated circuit devices and related development software systems. Xilinx wanted to expand its position in the European market and established Xilinx Ireland (“XI”) in 1994 as an unlimited liability company under the laws of Ireland. XI sold programmable logic devices and conducted research and development (“R & D”). Two wholly owned Irish subsidiaries of Xilinx owned XI during the tax years of 1997, 1998 and 1999, the only years at issue in this appeal.
In 1995, Xilinx and XI entered into a Cost and Risk Sharing Agreement (“the Agreement”), which provided that all right, title and interest in new technology developed by either Xilinx or XI would be jointly owned. Under the Agreement, each party was required to pay a percentage of the total R & D costs in proportion to the anticipated benefits to each from the new technology that was expected to be created. Specifically, the Agreement required the parties to share: (1) direct costs, defined as costs directly related to the R & D of new technology, including, but not limited to, salaries, bonuses and other payroll costs and benefits; (2) indirect costs, defined as costs incurred by departments not involved in R & D that generally benefit R & D, including, but not limited to, administrative, legal, accounting and insurance costs; and (3) costs incurred to acquire products or intellectual property rights necessary to conduct R & D. The Agreement did not specifically address whether employee stock options (ESOs) were a cost to be shared.
Xilinx offered ESOs to its employees under two plans. Under one plan, employees were granted options as part of the employee hiring and retention program. The options were of two varieties: incentive stock options (ISOs) and nonstatutory stock options (NSOs). Employees could exercise these options two ways: (1) by purchasing the stock at the market price on the day the option was issued (“exercise price”) regardless of its then-current market price or (2) by simultaneously exercising the option at the exercise price and selling it at its then-current price, pocketing the difference. Under the other plan, employees could acquire employee stock purchase plan shares (ESPPs) by contributing to an account through payroll deductions and purchasing stock at 85 percent of either its exercise price or its market price on the purchase date. Employees must always pay taxes on NSOs, see 26 U.S.C. § 83, but have to pay taxes on ISOs and ESPPs only if they sell acquired stock shares before a specified waiting period has expired (“a disqualifying disposition”), see 26 U.S.C. § 421(b). In determining the R & D costs to be shared under the Agreement for tax years 1997, 1998 and 1999, Xilinx did not include any amount related to ESOs.
In tax years 1997, 1998 and 1999, Xilinx deducted as business expenses under 26 U.S.C. §§ 83 and 162 approximately $41,000,000, $40,000,000 and $96,000,000, respectively, based on its employees' exercises of NSOs or disqualifying dispositions of ISOs and ESPPs.1 It also claimed an R & D credit under 26 U.S.C. § 41 for wages related to R & D activity, of which approximately $34,000,000, $23,000,000 and $27,000,000 in the respective tax years were attributable to exercised NSOs or disqualifying dispositions of ISOs and ESPPs.2 Furthermore, in 1996 Xilinx and XI entered into two agreements that allowed XI employees to acquire options for Xilinx stock. Both agreements provided XI would pay Xilinx for the “cost” of the XI employees' exercise of the stock options, which was to equal the stock's market price on the exercise date minus the exercise price. In the 1997, 1998 and 1999 tax years, XI paid Xilinx $402,978, $243,094 and $808,059, respectively, under these agreements.
The Commissioner of Internal Revenue (“Commissioner”) issued notices of deficiency against Xilinx for tax years 1997, 1998 and 1999, contending ESOs issued to its employees involved in or supporting R & D activities were costs that should have been shared between Xilinx and XI under the Agreement. Specifically, the Commissioner concluded the amount Xilinx deducted under 26 U.S.C. § 83(h) for its employees' exercises of NSOs or disqualifying dispositions of ISOs and ESPPs should have been shared. By sharing those costs with XI, Xilinx's deduction would be reduced, thereby increasing its taxable income. The Commissioner's determination resulted in substantial tax deficiencies and accuracy-related penalties under 26 U.S.C. § 6662(a).
Xilinx timely filed suit in the tax court. The tax court denied cross motions for summary judgment. After a bench trial, the tax court found that two unrelated parties in a cost sharing agreement would not share any costs related to ESOs. After assuming ESOs were costs for purposes of 26 C.F.R. § 1.482-7A(d)(1), the tax court then found 26 C.F.R. § 1.482-1(b)(1)-which requires cost sharing agreements between related parties to reflect how two unrelated parties operating at arm's length would behave-dispositive and concluded the Commissioner's allocation was arbitrary and capricious because it included the ESOs in the pool of costs to be shared under the Agreement, even though two unrelated companies dealing with each other at arm's length would not share those costs.
The Commissioner timely appealed. On appeal, the parties focused primarily on whether the requirement in 26 C.F.R. § 1.482-7A(d)(1) that “all costs” be shared between related parties in a cost sharing agreement or whether the controlling requirement was 26 C.F.R. § 1.482-1(b)(1) that all transactions between related parties reflect what two parties operating at arm's length would do. After oral argument, we requested supplemental briefing on whether ESOs were “costs” and whether they were “related to” the intangible product development for purposes of 26 C.F.R. § 1.482-7A(d)(1), and whether a literal application of 26 C.F.R. § 1.482-7A(d)(1) would conflict with a tax treaty between the United States and Ireland that was in effect during the 1998 and 1999 tax years.
The parties provide dueling interpretations of the “arm's length standard” as applied to the ESO costs that Xilinx and XI did not share. Xilinx contends that the undisputed fact that there are no comparable transactions in which unrelated parties share ESO costs is dispositive because, under the arm's length standard, controlled parties need share only those costs uncontrolled parties share. By implication, Xilinx argues, costs that uncontrolled parties would not share need not be shared.
On the other hand, the Commissioner argues that the comparable transactions analysis is not always dispositive. The Commissioner reads the arm's length standard as focused on what unrelated parties would do under the same circumstances, and contends that analyzing comparable transactions is unhelpful in situations where related and unrelated parties always occupy materially different circumstances. As applied to sharing ESO costs, the Commissioner argues (consistent with the tax court's findings) that the reason unrelated parties do not, and would not, share ESO costs is that they are unwilling to expose themselves to an obligation that will vary with an unrelated company's stock price. Related companies are less prone to this concern precisely because they are related-i.e., because XI is wholly owned by Xilinx, it is already exposed to variations in Xilinx's overall stock price, at least in some respects. In situations like these, the Commissioner reasons, the arm's length result must be determined by some method other than analyzing what unrelated companies do in their joint development transactions.
Under Xilinx's interpretation, § 1.482-1(b)(1) and § 1.482-7A(d)(1) are irreconcilable. The latter specifies that controlled parties in a cost sharing agreement must share all “costs ․ related to the intangible development area,” and that phrase is explicitly defined to include virtually all expenses not included in the cost of goods. The plain language does not permit any exceptions, even for costs that unrelated parties would not share, so each provision mandates a different result.
Under the Commissioner's interpretation, § 1.482-7A(d)(1)'s “all costs” requirement is consistent with § 1.482-1(b)(1)'s arm's length standard and controls. In particular, the Commissioner argues that, because there are material differences in the economic circumstances of related and unrelated companies in relation to cost-sharing agreements like the one in this case, it was proper for the IRS to require that in this narrow context the arm's length result should be defined by the “all costs” requirement.
Having thoroughly considered not only the plain language of the regulations but also the various interpretive tools the parties and amici have brought before us, including the legislative history of § 482, the drafting history of the regulations, persuasive authority from international tax treaties 1 and what appears to have been the understanding of corporate taxpayers in similar circumstances and of others,2 I conclude that Xilinx's understanding of the regulations is the more reasonable even if the Commissioner's current interpretation may be theoretically plausible. Traditional tools of statutory construction do not resolve the apparent conflict in these regulations as applied to Xilinx, and the Commissioner's attempts to square the “all costs” regulation with the arm's length standard have only succeeded in demonstrating that the regulations are at best ambiguous.3
Although I would not go so far as Xilinx in characterizing the Commissioner's interpretation as merely a “convenient litigating position,” Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 213, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988), we need not defer to it because he has not clearly articulated his rationale until now. See United States v. Thompson/Ctr. Arms Co., 504 U.S. 505, 518-19 & n. 9, 112 S.Ct. 2102, 119 L.Ed.2d 308 (1992) (declining to defer to an agency interpretation of a tax statute where no prior guidance went directly “to the narrow question presented”). Indeed, I am troubled by the complex, theoretical nature of many of the Commissioner's arguments trying to reconcile the two regulations. Not only does this make it difficult for the court to navigate the regulatory framework, it shows that taxpayers have not been given clear, fair notice of how the regulations will affect them.4
Accordingly, I join Judge Noonan in affirming the tax court. These regulations are hopelessly ambiguous and the ambiguity should be resolved in favor of what appears to have been the commonly held understanding of the meaning and purpose of the arm's length standard prior to this litigation.
I have considerable doubt as to whether Xilinx, Inc. (“Xilinx”) and Xilinx Ireland allocated the costs associated with employee stock options in a manner that can be characterized as an arm's length result. I will assume, however, that the tax court correctly resolved that issue. If so, there is clearly a conflict between the arm's length regulation codified at 26 C.F.R. § 1.482-1(b)(1), which applies to all transactions between controlled parties, and the “all costs” regulation codified at § 1.482-7A(d)(1), which applies only to cost-sharing arrangements between controlled parties.1 I continue to believe that, as a matter of law, the “all costs” regulation, as the specific of the two provisions, the one designed to deal specifically with the type of question before us, controls. I would therefore reverse the tax court's ruling that the Commissioner's proposed allocation was arbitrary and capricious for the reasons explained in our opinion, Xilinx Inc. v. CIR, 567 F.3d 482 (9th Cir.2009), withdrawn on January 13, 2010 in anticipation of the issuance of Judge Noonan's and Judge Fisher's new opinions, supra.
I agree with the majority that the canons of construction “are not mandatory rules,” and that their interpretive force can be overcome by other circumstances evidencing legislative intent. Maj. op. at 1196 (quoting Chickasaw Nation v. United States, 534 U.S. 84, 94, 122 S.Ct. 528, 151 L.Ed.2d 474 (2001)). Such circumstances, however, are not present here. Contrary to the majority's assertions, the conflict between the arm's length provision and the “all costs” requirement cannot be resolved by looking to the purpose of the regulations or to Treasury's Technical Explanation of the 1997 United States-Ireland Tax Treaty. Judge Fisher also looks to the understanding of the multinational corporations and their business and tax advisors, a dubious practice for which he cites no legal authority.
XPAC announced it likely will have to lay off most employees at its Bartonville plant and likely close that facility if it can't replace two contracts it recently lost.
Most of the company's 275 employees at the plant that handles parts packaging and export consolidations services for Caterpillar Inc. - work that has been canceled - will be laid off by early September if new work isn't found, said Jennifer Ruggles, vice president of human resources for Milan-based XPAC, formerly known as Export Packaging.
The employees of the plant, where about 100 were laid off in January, were informed of the situation just before the company issued a news release Tuesday afternoon.
The announcement is being made now so the employees know what is happening while XPAC tries to find replacement work, she said. "I frankly don't know what the prospects are (given the economy), but we will continue exploring our options."
Greg Ruggles, president of XPAC, said, "We deeply regret having to lay off so many of our valued employees, and know this will have a negative impact on them and their families. We will do whatever we can to keep these jobs by trying to find replacement business for this plant, and, if that's not successful, we will do whatever we can to make this transition as tolerable as possible."
XPAC's Bartonville plant exclusively handles parts packaging and export consolidation services for Caterpillar. But Caterpillar recently informed XPAC of its intent to move one portion of its work from the Bartonville plant to a Chicago-area supplier and the other portion to another local supplier.
XPAC learned of these planned changes from Caterpillar over the past several weeks. Caterpillar explained to company executives that the decisions were driven by supplier-consolidation strategies as well as transportation efficiencies, and certain process conditions, the news release said.
Caterpillar declined to comment, saying it is company policy to not discuss suppliers.
Caterpillar has been cutting costs the past several months because of declining sales and some of that includes reworking contracts with its supplier network, sources have said.
XPAC employees have been informed the transition will conclude by early September, XPAC said.
Should the company be unable to replace the lost business in the very near future, XPAC will have no alternative but to close that facility, Jennifer Ruggles said.
XPAC has been in the Peoria area since 1994, and it also has a plant in East Peoria, along with others in Illinois.
To assist the employees and the community, XPAC will relocate a small portion of the Bartonville employees to other plants and encourage other area companies to hire its employees. The company will also provide a retention bonus for employees.
"Our Bartonville employees are talented and knowledgeable," said Greg Ruggles. "If we are not able to find the work to retain them, we are hopeful other area companies will see the wisdom in hiring them. It's unfortunate they will be impacted by this business decision."
Xilinx, Inc. (“Xilinx”) researches, develops, manufactures, and markets integrated circuit devices and related development software systems. Xilinx wanted to expand its position in the European market and established Xilinx Ireland (“XI”) in 1994 as an unlimited liability company under the laws of Ireland. XI sold programmable logic devices and conducted research and development (“R & D”). Two wholly owned Irish subsidiaries of Xilinx owned XI during the tax years of 1997, 1998 and 1999, the only years at issue in this appeal.
In 1995, Xilinx and XI entered into a Cost and Risk Sharing Agreement (“the Agreement”), which provided that all right, title and interest in new technology developed by either Xilinx or XI would be jointly owned. Under the Agreement, each party was required to pay a percentage of the total R & D costs in proportion to the anticipated benefits to each from the new technology that was expected to be created. Specifically, the Agreement required the parties to share: (1) direct costs, defined as costs directly related to the R & D of new technology, including, but not limited to, salaries, bonuses and other payroll costs and benefits; (2) indirect costs, defined as costs incurred by departments not involved in R & D that generally benefit R & D, including, but not limited to, administrative, legal, accounting and insurance costs; and (3) costs incurred to acquire products or intellectual property rights necessary to conduct R & D. The Agreement did not specifically address whether employee stock options (ESOs) were a cost to be shared.
Xilinx offered ESOs to its employees under two plans. Under one plan, employees were granted options as part of the employee hiring and retention program. The options were of two varieties: incentive stock options (ISOs) and nonstatutory stock options (NSOs). Employees could exercise these options two ways: (1) by purchasing the stock at the market price on the day the option was issued (“exercise price”) regardless of its then-current market price or (2) by simultaneously exercising the option at the exercise price and selling it at its then-current price, pocketing the difference. Under the other plan, employees could acquire employee stock purchase plan shares (ESPPs) by contributing to an account through payroll deductions and purchasing stock at 85 percent of either its exercise price or its market price on the purchase date. Employees must always pay taxes on NSOs, see 26 U.S.C. § 83, but have to pay taxes on ISOs and ESPPs only if they sell acquired stock shares before a specified waiting period has expired (“a disqualifying disposition”), see 26 U.S.C. § 421(b). In determining the R & D costs to be shared under the Agreement for tax years 1997, 1998 and 1999, Xilinx did not include any amount related to ESOs.
In tax years 1997, 1998 and 1999, Xilinx deducted as business expenses under 26 U.S.C. §§ 83 and 162 approximately $41,000,000, $40,000,000 and $96,000,000, respectively, based on its employees' exercises of NSOs or disqualifying dispositions of ISOs and ESPPs.1 It also claimed an R & D credit under 26 U.S.C. § 41 for wages related to R & D activity, of which approximately $34,000,000, $23,000,000 and $27,000,000 in the respective tax years were attributable to exercised NSOs or disqualifying dispositions of ISOs and ESPPs.2 Furthermore, in 1996 Xilinx and XI entered into two agreements that allowed XI employees to acquire options for Xilinx stock. Both agreements provided XI would pay Xilinx for the “cost” of the XI employees' exercise of the stock options, which was to equal the stock's market price on the exercise date minus the exercise price. In the 1997, 1998 and 1999 tax years, XI paid Xilinx $402,978, $243,094 and $808,059, respectively, under these agreements.
The Commissioner of Internal Revenue (“Commissioner”) issued notices of deficiency against Xilinx for tax years 1997, 1998 and 1999, contending ESOs issued to its employees involved in or supporting R & D activities were costs that should have been shared between Xilinx and XI under the Agreement. Specifically, the Commissioner concluded the amount Xilinx deducted under 26 U.S.C. § 83(h) for its employees' exercises of NSOs or disqualifying dispositions of ISOs and ESPPs should have been shared. By sharing those costs with XI, Xilinx's deduction would be reduced, thereby increasing its taxable income. The Commissioner's determination resulted in substantial tax deficiencies and accuracy-related penalties under 26 U.S.C. § 6662(a).
Xilinx timely filed suit in the tax court. The tax court denied cross motions for summary judgment. After a bench trial, the tax court found that two unrelated parties in a cost sharing agreement would not share any costs related to ESOs. After assuming ESOs were costs for purposes of 26 C.F.R. § 1.482-7A(d)(1), the tax court then found 26 C.F.R. § 1.482-1(b)(1)-which requires cost sharing agreements between related parties to reflect how two unrelated parties operating at arm's length would behave-dispositive and concluded the Commissioner's allocation was arbitrary and capricious because it included the ESOs in the pool of costs to be shared under the Agreement, even though two unrelated companies dealing with each other at arm's length would not share those costs.
The Commissioner timely appealed. On appeal, the parties focused primarily on whether the requirement in 26 C.F.R. § 1.482-7A(d)(1) that “all costs” be shared between related parties in a cost sharing agreement or whether the controlling requirement was 26 C.F.R. § 1.482-1(b)(1) that all transactions between related parties reflect what two parties operating at arm's length would do. After oral argument, we requested supplemental briefing on whether ESOs were “costs” and whether they were “related to” the intangible product development for purposes of 26 C.F.R. § 1.482-7A(d)(1), and whether a literal application of 26 C.F.R. § 1.482-7A(d)(1) would conflict with a tax treaty between the United States and Ireland that was in effect during the 1998 and 1999 tax years.
The parties provide dueling interpretations of the “arm's length standard” as applied to the ESO costs that Xilinx and XI did not share. Xilinx contends that the undisputed fact that there are no comparable transactions in which unrelated parties share ESO costs is dispositive because, under the arm's length standard, controlled parties need share only those costs uncontrolled parties share. By implication, Xilinx argues, costs that uncontrolled parties would not share need not be shared.
On the other hand, the Commissioner argues that the comparable transactions analysis is not always dispositive. The Commissioner reads the arm's length standard as focused on what unrelated parties would do under the same circumstances, and contends that analyzing comparable transactions is unhelpful in situations where related and unrelated parties always occupy materially different circumstances. As applied to sharing ESO costs, the Commissioner argues (consistent with the tax court's findings) that the reason unrelated parties do not, and would not, share ESO costs is that they are unwilling to expose themselves to an obligation that will vary with an unrelated company's stock price. Related companies are less prone to this concern precisely because they are related-i.e., because XI is wholly owned by Xilinx, it is already exposed to variations in Xilinx's overall stock price, at least in some respects. In situations like these, the Commissioner reasons, the arm's length result must be determined by some method other than analyzing what unrelated companies do in their joint development transactions.
Under Xilinx's interpretation, § 1.482-1(b)(1) and § 1.482-7A(d)(1) are irreconcilable. The latter specifies that controlled parties in a cost sharing agreement must share all “costs ․ related to the intangible development area,” and that phrase is explicitly defined to include virtually all expenses not included in the cost of goods. The plain language does not permit any exceptions, even for costs that unrelated parties would not share, so each provision mandates a different result.
Under the Commissioner's interpretation, § 1.482-7A(d)(1)'s “all costs” requirement is consistent with § 1.482-1(b)(1)'s arm's length standard and controls. In particular, the Commissioner argues that, because there are material differences in the economic circumstances of related and unrelated companies in relation to cost-sharing agreements like the one in this case, it was proper for the IRS to require that in this narrow context the arm's length result should be defined by the “all costs” requirement.
Having thoroughly considered not only the plain language of the regulations but also the various interpretive tools the parties and amici have brought before us, including the legislative history of § 482, the drafting history of the regulations, persuasive authority from international tax treaties 1 and what appears to have been the understanding of corporate taxpayers in similar circumstances and of others,2 I conclude that Xilinx's understanding of the regulations is the more reasonable even if the Commissioner's current interpretation may be theoretically plausible. Traditional tools of statutory construction do not resolve the apparent conflict in these regulations as applied to Xilinx, and the Commissioner's attempts to square the “all costs” regulation with the arm's length standard have only succeeded in demonstrating that the regulations are at best ambiguous.3
Although I would not go so far as Xilinx in characterizing the Commissioner's interpretation as merely a “convenient litigating position,” Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 213, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988), we need not defer to it because he has not clearly articulated his rationale until now. See United States v. Thompson/Ctr. Arms Co., 504 U.S. 505, 518-19 & n. 9, 112 S.Ct. 2102, 119 L.Ed.2d 308 (1992) (declining to defer to an agency interpretation of a tax statute where no prior guidance went directly “to the narrow question presented”). Indeed, I am troubled by the complex, theoretical nature of many of the Commissioner's arguments trying to reconcile the two regulations. Not only does this make it difficult for the court to navigate the regulatory framework, it shows that taxpayers have not been given clear, fair notice of how the regulations will affect them.4
Accordingly, I join Judge Noonan in affirming the tax court. These regulations are hopelessly ambiguous and the ambiguity should be resolved in favor of what appears to have been the commonly held understanding of the meaning and purpose of the arm's length standard prior to this litigation.
I have considerable doubt as to whether Xilinx, Inc. (“Xilinx”) and Xilinx Ireland allocated the costs associated with employee stock options in a manner that can be characterized as an arm's length result. I will assume, however, that the tax court correctly resolved that issue. If so, there is clearly a conflict between the arm's length regulation codified at 26 C.F.R. § 1.482-1(b)(1), which applies to all transactions between controlled parties, and the “all costs” regulation codified at § 1.482-7A(d)(1), which applies only to cost-sharing arrangements between controlled parties.1 I continue to believe that, as a matter of law, the “all costs” regulation, as the specific of the two provisions, the one designed to deal specifically with the type of question before us, controls. I would therefore reverse the tax court's ruling that the Commissioner's proposed allocation was arbitrary and capricious for the reasons explained in our opinion, Xilinx Inc. v. CIR, 567 F.3d 482 (9th Cir.2009), withdrawn on January 13, 2010 in anticipation of the issuance of Judge Noonan's and Judge Fisher's new opinions, supra.
I agree with the majority that the canons of construction “are not mandatory rules,” and that their interpretive force can be overcome by other circumstances evidencing legislative intent. Maj. op. at 1196 (quoting Chickasaw Nation v. United States, 534 U.S. 84, 94, 122 S.Ct. 528, 151 L.Ed.2d 474 (2001)). Such circumstances, however, are not present here. Contrary to the majority's assertions, the conflict between the arm's length provision and the “all costs” requirement cannot be resolved by looking to the purpose of the regulations or to Treasury's Technical Explanation of the 1997 United States-Ireland Tax Treaty. Judge Fisher also looks to the understanding of the multinational corporations and their business and tax advisors, a dubious practice for which he cites no legal authority.
XPAC announced it likely will have to lay off most employees at its Bartonville plant and likely close that facility if it can't replace two contracts it recently lost.
Most of the company's 275 employees at the plant that handles parts packaging and export consolidations services for Caterpillar Inc. - work that has been canceled - will be laid off by early September if new work isn't found, said Jennifer Ruggles, vice president of human resources for Milan-based XPAC, formerly known as Export Packaging.
The employees of the plant, where about 100 were laid off in January, were informed of the situation just before the company issued a news release Tuesday afternoon.
The announcement is being made now so the employees know what is happening while XPAC tries to find replacement work, she said. "I frankly don't know what the prospects are (given the economy), but we will continue exploring our options."
Greg Ruggles, president of XPAC, said, "We deeply regret having to lay off so many of our valued employees, and know this will have a negative impact on them and their families. We will do whatever we can to keep these jobs by trying to find replacement business for this plant, and, if that's not successful, we will do whatever we can to make this transition as tolerable as possible."
XPAC's Bartonville plant exclusively handles parts packaging and export consolidation services for Caterpillar. But Caterpillar recently informed XPAC of its intent to move one portion of its work from the Bartonville plant to a Chicago-area supplier and the other portion to another local supplier.
XPAC learned of these planned changes from Caterpillar over the past several weeks. Caterpillar explained to company executives that the decisions were driven by supplier-consolidation strategies as well as transportation efficiencies, and certain process conditions, the news release said.
Caterpillar declined to comment, saying it is company policy to not discuss suppliers.
Caterpillar has been cutting costs the past several months because of declining sales and some of that includes reworking contracts with its supplier network, sources have said.
XPAC employees have been informed the transition will conclude by early September, XPAC said.
Should the company be unable to replace the lost business in the very near future, XPAC will have no alternative but to close that facility, Jennifer Ruggles said.
XPAC has been in the Peoria area since 1994, and it also has a plant in East Peoria, along with others in Illinois.
To assist the employees and the community, XPAC will relocate a small portion of the Bartonville employees to other plants and encourage other area companies to hire its employees. The company will also provide a retention bonus for employees.
"Our Bartonville employees are talented and knowledgeable," said Greg Ruggles. "If we are not able to find the work to retain them, we are hopeful other area companies will see the wisdom in hiring them. It's unfortunate they will be impacted by this business decision."