(All amounts in U.S. dollars. Per share information based on
diluted shares outstanding unless noted otherwise). TORONTO, Jan.
27 /PRNewswire-FirstCall/ -- Celestica Inc. (NYSE, TSX: CLS), a
global leader in the delivery of end-to-end product lifecycle
solutions, today announced financial results for the fourth quarter
ended December 31, 2009. Fourth Quarter Results
---------------------- Revenue for the quarter was $1,664 million,
compared to $1,935 million in the fourth quarter of 2008,
reflecting primarily the impacts of weaker end-market demand. GAAP
net earnings were $31.1 million, or $0.13 per share, compared to
GAAP net loss of $822.2 million, or $3.58 per share, for the same
period last year. GAAP net loss in the fourth quarter of 2008 was
primarily a result of an $850.5 million, or $3.71 per share,
write-off for impairment of goodwill. Adjusted net earnings (using
the revised definition discussed below) for the quarter were $49.5
million, or $0.21 per share, compared to adjusted net earnings of
$65.2 million, or $0.28 per share, for the same period last year.
The term adjusted net earnings is a non-GAAP measure defined as net
earnings (loss) before other charges, amortization of intangible
assets (excluding amortization of computer software), total
stock-based compensation including option and restricted stock
expense (see "Adjusted Net Earnings Revised Definition" below), and
gains or losses related to the repurchase of shares and debt, net
of tax and significant deferred tax write-offs or recoveries.
Detailed GAAP financial statements and supplementary information
related to adjusted net earnings, other non-GAAP metrics and the
revised definitions appears at the end of this press release. All
non-GAAP measures disclosed in this release, including comparables
for prior periods, reflect the revised definitions, unless
otherwise specified. Fourth Quarter Results Compared to Guidance
------------------------------------------- The company's revenue
for the fourth quarter of 2009 of $1.66 billion compares to the
company's published guidance, announced on October 22, 2009, of
revenue of $1.55 billion to $1.70 billion. The company's published
guidance on October 22, 2009 for adjusted net earnings per share of
$0.14 to $0.20 did not reflect the revised definition for this
metric. The guidance for adjusted net earnings per share, using the
revised definition, would have been $0.16 to $0.22. The company's
adjusted net earnings per share for the fourth quarter of 2009 was
$0.21, and met the high end of this range. Annual Results
-------------- For 2009, revenue was $6,092 million, compared to
$7,678 million for 2008. GAAP net earnings were $55.0 million, or
$0.24 per share, compared to a GAAP net loss of $720.5 million, or
$3.14 per share, for 2008. Adjusted net earnings for 2009 were
$158.5 million, or $0.69 per share, compared to $204.2 million, or
$0.89 per share, in 2008. "Celestica continued to deliver strong
operational and financial performance in the fourth quarter as
end-market demand strengthened," said Craig Muhlhauser, President
& CEO. "In 2009, our continuously improving operational
effectiveness and cost productivity resulted in some of the
strongest financial results in the company's history. We believe
the company is very well positioned to build on its 2009 successes
and momentum in 2010." 2011 Debt Redemption -------------------- In
November 2009, the company redeemed its outstanding 7.875% Senior
Subordinated Notes due 2011 (the "2011 Notes") for $346.1 million,
excluding accrued interest. The 2011 Notes had a principal amount
of $339.4 million. The company recorded a gain of $10.4 million on
redemption. This gain is excluded from adjusted net earnings. 2013
Debt Redemption -------------------- The company announced that it
will exercise its option to redeem all of its outstanding 7.625%
Senior Subordinated Notes due 2013 (the "2013 Notes"). The
outstanding principal amount of the 2013 Notes is $223.1 million.
In accordance with the terms of the Notes, the redemption will be
at a price of 103.813% of the principal amount, together with
accrued and unpaid interest to the redemption date. The redemption
will be funded out of the company's existing cash resources. Giving
effect to the redemption of the 2013 Notes at December 31, 2009,
the company would have had approximately $706 million in cash and
no long-term debt outstanding. The company expects to complete the
redemption in the first quarter of 2010. The redemption will reduce
the company's annual net interest expense by approximately $17
million. First Quarter of 2010 Outlook
----------------------------- For the first quarter ending March
31, 2010, the company anticipates revenue to be in the range of
$1.45 billion to $1.60 billion, and adjusted net earnings per share
to be in the range of $0.15 to $0.21. Fourth Quarter Webcast
---------------------- Management will host its quarterly results
conference call today at 4:15 p.m. Eastern. The webcast can be
accessed at http://www.celestica.com/. Supplementary Information
------------------------- In addition to disclosing detailed
results in accordance with Canadian generally accepted accounting
principles (GAAP), Celestica provides supplementary non-GAAP
measures as a method to evaluate the company's operating
performance. See table below. Management uses adjusted net earnings
(and other non-GAAP metrics) as a measure of enterprise-wide
performance. Management believes adjusted net earnings is a useful
measure for management, as well as investors, to facilitate
period-to-period operating comparisons at the company and with its
major North American EMS competitors. As discussed below under
"Adjusted Net Earnings Revised Definition," beginning with the
fourth quarter of 2009, the company revised its definition of
adjusted net earnings. Adjusted net earnings do not include the
effects of other charges, most significantly the write-down of
goodwill and long-lived assets, gains or losses on the repurchase
of shares or debt and the related income tax effect of these
adjustments, and any significant deferred tax write-offs or
recoveries. The company also excludes the following recurring
charges: restructuring costs, total stock-based compensation
(including option and restricted stock expense), the amortization
of intangible assets (except amortization of computer software),
and the related income tax effect of these adjustments. The term
adjusted net earnings does not have any standardized meaning
prescribed by GAAP and is not necessarily comparable to similar
measures presented by other companies. Adjusted net earnings is not
a measure of performance under Canadian or U.S. GAAP and should not
be considered in isolation or as a substitute for net earnings
prepared in accordance with Canadian or U.S. GAAP. The company has
provided a reconciliation of adjusted net earnings, which is a
non-GAAP measure, to Canadian GAAP net earnings (loss) below. About
Celestica --------------- Celestica is dedicated to delivering
end-to-end product lifecycle solutions to drive our customers'
success. Through our simplified global operations network and
information technology platform, we are solid partners who deliver
informed, flexible solutions that enable our customers to succeed
in the markets they serve. Committed to providing a truly
differentiated customer experience, our agile and adaptive
employees share a proud history of demonstrated expertise and
creativity that provides our customers with the ability to overcome
any challenge. For further information on Celestica, visit its
website at http://www.celestica.com/. The company's security
filings can also be accessed at http://www.sedar.com/ and
http://www.sec.gov/. Safe Harbour and Fair Disclosure Statement
------------------------------------------ This news release
contains forward-looking statements related to our future growth,
trends in our industry, our financial and/or operational results
including those relating to the redemption of our Senior
Subordinated Notes and the expected benefits of such redemption,
and our financial or operational performance. Such forward-looking
statements are predictive in nature and may be based on current
expectations, forecasts or assumptions involving risks and
uncertainties that could cause actual outcomes and results to
differ materially from the forward-looking statements themselves.
Such forward-looking statements may, without limitation, be
preceded by, followed by, or include words such as "believes",
"expects", "anticipates", "estimates", "intends", "plans", or
similar expressions, or may employ such future or conditional verbs
as "may", "will", "should" or "would", or may otherwise be
indicated as forward-looking statements by grammatical
construction, phrasing or context. For those statements, we claim
the protection of the safe harbor for forward-looking statements
contained in the U.S. Private Securities Litigation Reform Act of
1995, and in any applicable Canadian securities legislation.
Forward-looking statements are not guarantees of future
performance. You should understand that the following important
factors could affect our future results and could cause those
results to differ materially from those expressed in such
forward-looking statements: the challenges of effectively managing
our operations during uncertain economic conditions, including
significant changes in demand from our customers as a result of an
uncertain or weak economic environment; the risk of potential
non-performance by counterparties, including but not limited to
financial institutions, customers and suppliers; the effects of
price competition and other business and competitive factors
generally affecting the EMS industry, including changes in the
trend for outsourcing; our dependence on a limited number of
customers; variability of operating results among periods; the
challenge of managing our financial exposures to foreign currency
fluctuations; the challenge of responding to changes in customer
demand; our inability to retain or grow our business due to
execution problems resulting from significant headcount reductions,
plant closures and product transfers associated with restructuring
activities; our dependence on industries affected by rapid
technological change; our ability to successfully manage our
international operations; and the delays in the delivery and/or
general availability of various components and materials used in
our manufacturing process. These and other risks and uncertainties,
as well as other information related to the company, are discussed
in the Company's various public filings at http://www.sedar.com/
and http://www.sec.gov/, including our Annual Report on Form 20-F
and subsequent reports on Form 6-K filed with the Securities and
Exchange Commission and our Annual Information Form filed with the
Canadian Securities Commissions. Forward-looking statements are
provided for the purpose of providing information about
management's current expectations and plans relating to the future.
Readers are cautioned that such information may not be appropriate
for other purposes. Except as required by applicable law, we
disclaim any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise. As of its date, this press release
contains any material information associated with the Company's
financial results for the fourth quarter ended December 31, 2009
and revenue and adjusted net earnings guidance for the first
quarter ending March 31, 2010. Revenue and earnings guidance is
reviewed by the Company's Board of Directors. Our revenue and
earnings guidance is based on various assumptions which management
believes are reasonable under the current circumstances, but may
prove to be inaccurate, and many of which involve factors that are
beyond the control of the Company. The material assumptions may
include the following: forecasts from our customers, which range
from 30 to 90 days; timing and investments associated with ramping
new business; general economic and market conditions; currency
exchange rates; pricing and competition; anticipated customer
demand; supplier performance and pricing; commodity, labor, energy
and transportation costs; operational and financial matters;
technological developments; and the timing and execution of our
restructuring plan. These assumptions are based on management's
current views with respect to current plans and events, and are and
will be subject to the risks and uncertainties referred to above.
It is Celestica's policy that revenue and earnings guidance is
effective on the date given, and will only be updated through a
public announcement. Adjusted Net Earnings Revised Definition
---------------------------------------- Beginning with the fourth
quarter of 2009, the company revised the definition of its non-GAAP
adjusted net earnings metric to exclude (in addition to the items
excluded under the previous definition) all stock-based
compensation expense (consisting of option and restricted stock
expense) to allow for a better comparison with its major North
American EMS competitors. For consistency, Celestica has made
similar changes in the definitions of the following additional
non-GAAP metrics: adjusted gross margin; adjusted selling, general
and administrative expenses (SG&A); earnings before interest,
amortization and taxes (EBIAT or adjusted operating margin);
adjusted net earnings per share; and return on invested capital
(ROIC). Prior to this quarter, option expense was the only
stock-based compensation item excluded from the adjusted net
earnings definition and other non-GAAP metrics. As a result of the
changed definitions, Celestica now excludes (in addition to the
items excluded under the previous definition) restricted stock
expense and any other stock compensation expense that may arise,
which it did not exclude under the previous definition. All
non-GAAP measures disclosed in this release, including comparables
for prior periods, reflect the revised definitions, unless
otherwise specified. Set out below is a table showing these
metrics, the impact on these metrics from the definition change,
and a reconciliation of these metrics to the most comparable GAAP
metrics. A supplemental information table showing side-by-side
comparisons reflecting the impact of this definition change for
each quarter of 2008 and 2009, and on an annual basis for the years
2005 to 2009, is available in the Investor Relations section at
http://www.celestica.com/. While Celestica only provides guidance
for adjusted net earnings for the upcoming quarter, please note
that financial estimates with respect to Celestica for the fourth
quarter of 2009 and for future periods, published by third-party
research analysts, institutional investors, the media and other
organizations prior to and possibly following this press release,
may solely reflect Celestica's previous definition of adjusted net
earnings, may not reflect Celestica's revised definition of
adjusted net earnings, and may be subject to change by these
persons to reflect our definition change. The following table sets
forth, for the periods indicated, a reconciliation of Canadian GAAP
net earnings (loss) to adjusted net earnings and other non-GAAP
metrics (in millions of U.S. dollars, except per share amounts):
2008 2009
------------------------------------------------------------ Three
months ended Adjust- Adjust- December 31 GAAP ments Adjusted GAAP
ments Adjusted --------- --------- --------- --------- ---------
--------- Revenue $1,935.4 $ - $1,935.4 $1,664.4 $ - $1,664.4 Cost
of sales(1)(2) 1,794.8 (2.7) 1,792.1 1,555.3 (8.3) 1,547.0
--------- --------- --------- --------- --------- --------- Gross
profit(2) 140.6 2.7 143.3 109.1 8.3 117.4 SG&A(1)(2)(3) 76.9
(4.2) 72.7 61.2 (9.2) 52.0 Amortization of intangible assets(3) 6.4
(3.3) 3.1 6.6 (1.9) 4.7 Other charges 861.9 (861.9) - (8.7) 8.7 -
--------- --------- --------- --------- --------- ---------
Operating earnings (loss) - EBIAT(4) (804.6) 872.1 67.5 50.0 10.7
60.7 Interest expense, net 13.7 - 13.7 5.7 - 5.7 ---------
--------- --------- --------- --------- --------- Net earnings
(loss) before tax (818.3) 872.1 53.8 44.3 10.7 55.0 Income tax
expense (recovery) 3.9 (15.3) (11.4) 13.2 (7.7) 5.5 ---------
--------- --------- --------- --------- --------- Net earnings
(loss) $ (822.2) $ 887.4 $ 65.2 $ 31.1 $ 18.4 $ 49.5 ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- # of shares (in
millions) - diluted 229.4 229.4 232.0 232.0 Earnings (loss) per
share - diluted $ (3.58) $ 0.28 $ 0.13 $ 0.21 ROIC(5) 18.8% 27.5%
Free cash flow(6) $ (17.3) $ 27.5 2008 2009
------------------------------------------------------------ Year
ended Adjust- Adjust- December 31 GAAP ments Adjusted GAAP ments
Adjusted --------- --------- --------- --------- ---------
--------- Revenue $7,678.2 $ - $7,678.2 $6,092.2 $ - $6,092.2 Cost
of sales(1)(2) 7,147.1 (10.3) 7,136.8 5,662.4 (18.0) 5,644.4
--------- --------- --------- --------- --------- --------- Gross
profit(2) 531.1 10.3 541.4 429.8 18.0 447.8 SG&A(1)(2)(3) 292.0
(13.1) 278.9 244.5 (20.9) 223.6 Amortization of intangible
assets(3) 26.9 (15.1) 11.8 21.9 (8.8) 13.1 Other charges 885.2
(885.2) - 68.0 (68.0) - --------- --------- --------- ---------
--------- --------- Operating earnings (loss) - EBIAT(4) (673.0)
923.7 250.7 95.4 115.7 211.1 Interest expense, net 42.5 - 42.5 35.0
- 35.0 --------- --------- --------- --------- --------- ---------
Net earnings (loss) before tax (715.5) 923.7 208.2 60.4 115.7 176.1
Income tax expense (recovery) 5.0 (1.0) 4.0 5.4 12.2 17.6 ---------
--------- --------- --------- --------- --------- Net earnings
(loss) $ (720.5) $ 924.7 $ 204.2 $ 55.0 $ 103.5 $ 158.5 ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- # of shares (in
millions) - diluted 229.3 229.6 230.9 230.9 Earnings (loss) per
share - diluted $ (3.14) $ 0.89 $ 0.24 $ 0.69 ROIC(5) 14.6% 22.0%
Free cash flow (6) $ 127.1 $ 223.7 (1) Total stock-based
compensation, comprised of option and restricted stock expense, is
excluded from the calculation of adjusted net earnings, adjusted
gross margin, adjusted SG&A, adjusted operating margin (EBIAT)
and return on invested capital (ROIC). Prior to the fourth quarter
of 2009, option expense was the only stock-based compensation item
excluded from the calculation of these metrics. The following table
shows (in millions of U.S. dollars, except per share amounts) how
the revised definition has resulted in an increase or decrease in
certain items and operating metrics as compared to the amounts
previously reported using the previous definition: Q4 Q4 2008 YTD
2009(a) YTD(a) -------- -------- -------- -------- Adjusted gross
profit increase(2) $ 2.1 $ 7.4 $ 2.6 $ 10.5 Adjusted SG&A
decrease(2) 3.2 9.4 2.7 11.6 EBIAT increase(4) 5.3 16.8 5.3 22.1
Adjusted net earnings increase 6.1 16.5 4.8 20.0 Adjusted EPS
increase $ 0.02 $ 0.07 $ 0.02 $ 0.09 ROIC % increase(5) 1.5% 1.0%
2.3% 2.3% (a) excluded the impact of a mark-to-market accounting
adjustment related to restricted stock awards totaling $10.9
million recorded in the fourth quarter of 2009 (cost of sales -
$5.2 million; SG&A - $5.7 million). See note 8(a) to the
December 31, 2009 interim consolidated financial statements. (2)
Management uses these non-GAAP measures to assess operating
performance. As discussed above, we revised our definition of each
of these measures commencing with the results for the fourth
quarter of 2009. Management believes that each of these measures is
an appropriate metric for management, as well as investors, to
compare operating performance from period-to-period. Adjusted gross
profit is calculated by excluding total stock-based compensation
from GAAP gross profit as shown in the "Reconciliation of GAAP to
adjusted net earnings" table above. Adjusted gross margin is
calculated by dividing adjusted gross profit by revenue. Adjusted
SG&A is calculated by excluding total stock-based compensation
from GAAP SG&A, as shown in the "Reconciliation of GAAP to
adjusted net earnings" table above. Adjusted SG&A percentage is
calculated by dividing adjusted SG&A by revenue. Neither
adjusted gross profit, adjusted gross margin, nor adjusted SG&A
has any standardized meaning prescribed by Canadian or U.S. GAAP,
and no such measure is therefore likely to be comparable to similar
measures presented by other companies. Neither adjusted gross
profit, adjusted gross margin, nor adjusted SG&A is a measure
of performance under Canadian or U.S. GAAP and no such measure
should be considered in isolation or as a substitute for any
standardized measure. (3) Certain 2008 GAAP numbers have been
restated to reflect the change in accounting for computer software
effective January 1, 2009 as required under Canadian GAAP. For the
fourth quarter of 2008, $3.1 million in amortization of computer
software has been reclassified from SG&A expenses to
amortization of intangible assets (2008 - $11.8 million).
Amortization of computer software is not excluded for EBIAT or
adjusted net earnings. There is no impact to our current or
previously reported EBIAT, adjusted net earnings or net earnings
(loss) for this change in accounting. (4) Management uses EBIAT
(adjusted operating margin) as a measure to assess operating
performance. As discussed above, we revised our definition of EBIAT
commencing with the results for the fourth quarter of 2009.
Excluded from EBIAT are the effects of other charges, most
significantly the write-down of goodwill and long-lived assets,
gains or losses on the repurchase of shares or debt, and the
related income tax effect of these adjustments, and any significant
deferred tax write-offs or recoveries. We also exclude the
following recurring charges: restructuring costs, total stock-based
compensation (including option and restricted stock expense),
amortization of intangible assets (except amortization of computer
software), interest expense or income, and the related income tax
effect of these adjustments. Management believes EBIAT, which
isolates operating activities before interest and taxes, is an
appropriate measure for management, as well as investors, to
compare the company's operating performance from period-to-period.
The term EBIAT does not have any standardized meaning prescribed by
Canadian or U.S. GAAP and is therefore unlikely to be comparable to
similar measures presented by other companies. EBIAT is not a
measure of performance under Canadian or U.S. GAAP and should not
be considered in isolation or as a substitute for net earnings
prepared in accordance with Canadian or U.S. GAAP. (5) Management
uses ROIC as a measure to assess the effectiveness of the invested
capital it uses to build products or provide services to its
customers. As discussed above, we revised our definition of ROIC
commencing with the results for the fourth quarter of 2009. The
ROIC metric used by the company includes operating margin, working
capital management and asset utilization. ROIC is calculated by
dividing EBIAT (defined in (4) above) by average net invested
capital. Net invested capital consists of total assets less cash,
accounts payable, accrued liabilities and income taxes payable. We
use a two- point average to calculate average net invested capital
for the quarter and a five-point average to calculate average net
invested capital for the year. Management believes ROIC is an
appropriate metric for management, as well as investors, to compare
operating performance from period-to-period. The term ROIC does not
have any standardized meaning prescribed by Canadian or U.S. GAAP
and is therefore unlikely to be comparable to similar measures
presented by other companies. ROIC is not a measure of performance
under Canadian or U.S. GAAP and should not be considered in
isolation or as a substitute for any standardized measure. There is
no comparable measure under GAAP. (6) Management uses free cash
flow as a measure to assess cash flow performance. Free cash flow
is calculated as cash generated from operations less capital
expenditures (net of proceeds from the sale of surplus property and
equipment). Management believes free cash flow is an appropriate
metric for management, as well as investors, to compare cash flow
performance from period-to-period. The term free cash flow does not
have any standardized meaning prescribed by Canadian or U.S. GAAP
and is therefore unlikely to be comparable to similar measures
presented by other companies. Free cash flow is not a measure of
performance under Canadian or U.S. GAAP and should not be
considered in isolation or as a substitute for any standardized
measure. There is no comparable measure under GAAP. GUIDANCE
SUMMARY Q4 09 Q4 09 1Q 10 Guidance Actual Guidance(8)
---------------- -------- ---------------- Revenue $1.55B - $1.70B
$1.66B $1.45B - $1.60B Adjusted net EPS(7) $0.16 - $0.22 $0.21
$0.15 - $0.21 (7) The company's published guidance on October 22,
2009 for adjusted net earnings per share of $0.14 to $0.20 did not
reflect the revised definition for this metric. The guidance for
adjusted net earnings per share using the revised definition would
have been $0.16 to $0.22. The company's adjusted net earnings per
share for the fourth quarter was $0.21 and met the high end of this
range. (8) Guidance for the first quarter of 2010 is provided only
on an adjusted net earnings basis. This is due to the difficulty in
forecasting the various items impacting GAAP net earnings, such as
the amount and timing of our restructuring and debt repurchase
activities. CELESTICA INC. CONSOLIDATED BALANCE SHEETS (in millions
of U.S. dollars) December 31 December 31 2008 2009 ------------
------------ Assets (unaudited) Current assets: Cash and cash
equivalents (note 6)........... $ 1,201.0 $ 937.7 Accounts
receivable (note 10(c))............. 1,074.0 828.1 Inventories
(note 2)......................... 787.4 676.1 Prepaid and other
assets (note 7(i))......... 87.1 74.5 Income taxes
recoverable..................... 14.1 21.2 Deferred income
taxes........................ 8.2 5.2 ------------ ------------
3,171.8 2,542.8 Property, plant and equipment (note 1(i))......
433.5 393.8 Intangible assets (note 1(i)).................. 54.1
32.3 Other long-term assets (note 7(ii))............ 126.8 137.2
------------ ------------ $ 3,786.2 $ 3,106.1 ------------
------------ ------------ ------------ Liabilities and
Shareholders' Equity Current liabilities: Accounts
payable............................. $ 1,090.6 $ 927.1 Accrued
liabilities (notes 4 and 7(i))....... 463.1 331.9 Income taxes
payable......................... 13.5 38.0 Deferred income
taxes........................ 0.2 - Current portion of long-term
debt (note 3)... 1.0 222.8 ------------ ------------ 1,568.4
1,519.8 Long-term debt (note 3)........................ 732.1 -
Accrued pension and post-employment benefits... 63.2 75.4 Deferred
income taxes.......................... 47.2 28.0 Other long-term
liabilities.................... 9.8 7.1 ------------ ------------
2,420.7 1,630.3 Shareholders' equity (note 8): Capital
stock................................ 3,588.5 3,591.2 Contributed
surplus.......................... 204.4 210.6
Deficit...................................... (2,436.8) (2,381.8)
Accumulated other comprehensive income....... 9.4 55.8 ------------
------------ 1,365.5 1,475.8 ------------ ------------ $ 3,786.2 $
3,106.1 ------------ ------------ ------------ ------------
Guarantees and contingencies (note 9) Subsequent events (note 12)
See accompanying notes to unaudited consolidated financial
statements. These unaudited interim consolidated financial
statements should be read in conjunction with the 2008 annual
consolidated financial statements. CELESTICA INC. CONSOLIDATED
STATEMENTS OF OPERATIONS (in millions of U.S. dollars, except per
share amounts) Three months ended Year ended December 31 December
31 2008 2009 2008 2009 ----------- ----------- -----------
----------- (unaudited) (unaudited) (unaudited) (unaudited)
Revenue.................. $ 1,935.4 $ 1,664.4 $ 7,678.2 $ 6,092.2
Cost of sales............ 1,794.8 1,555.3 7,147.1 5,662.4
----------- ----------- ----------- ----------- Gross
profit............. 140.6 109.1 531.1 429.8 Selling, general and
administrative expenses (note 1(i))............. 76.9 61.2 292.0
244.5 Amortization of intangible assets (note 1(i)).............
6.4 6.6 26.9 21.9 Other charges (recoveries) (note 4)... 861.9
(8.7) 885.2 68.0 Interest on long-term debt....................
15.5 5.7 57.8 35.3 Interest income, net of interest expense........
(1.8) - (15.3) (0.3) ----------- ----------- -----------
----------- Earnings (loss) before income taxes............ (818.3)
44.3 (715.5) 60.4 Income tax expense (recovery):
Current................ 13.3 25.8 18.4 33.6 Deferred...............
(9.4) (12.6) (13.4) (28.2) ----------- ----------- -----------
----------- 3.9 13.2 5.0 5.4 ----------- ----------- -----------
----------- Net earnings (loss) for the period.............. $
(822.2) $ 31.1 $ (720.5) $ 55.0 ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- Basic
earnings (loss) per share............... $ (3.58) $ 0.14 $ (3.14) $
0.24 Diluted earnings (loss) per share............... $ (3.58) $
0.13 $ (3.14) $ 0.24 Shares used in computing per share amounts:
Basic (in millions)... 229.4 229.7 229.3 229.5 Diluted (in
millions)............ 229.4 232.0 229.3 230.9 See accompanying
notes to unaudited consolidated financial statements. These
unaudited interim consolidated financial statements should be read
in conjunction with the 2008 annual consolidated financial
statements. CELESTICA INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS) (in millions of U.S. dollars) Three months ended Year
ended December 31 December 31 2008 2009 2008 2009 -----------
----------- ----------- ----------- (unaudited) (unaudited)
(unaudited) (unaudited) Net earnings (loss) for the
period.............. $ (822.2) $ 31.1 $ (720.5) $ 55.0 Other
comprehensive income, net of tax: Currency translation
adjustment............ 8.7 (2.0) 11.5 (1.6) Reclass foreign
currency translation to other charges...... - - - 1.8 Change from
derivatives designated as hedges.. (27.5) 3.7 (58.0) 46.2
----------- ----------- ----------- ----------- Comprehensive
income (loss).................. $ (841.0) $ 32.8 $ (767.0) $ 101.4
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- See accompanying notes to
unaudited consolidated financial statements. These unaudited
interim consolidated financial statements should be read in
conjunction with the 2008 annual consolidated financial statements.
CELESTICA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions
of U.S. dollars) Three months ended Year ended December 31 December
31 2008 2009 2008 2009 ----------- ----------- -----------
----------- (unaudited) (unaudited) (unaudited) (unaudited) Cash
provided by (used in): Operations: Net earnings (loss) for the
period.............. $ (822.2) $ 31.1 $ (720.5) $ 55.0 Items not
affecting cash: Depreciation and amortization.......... 27.7 25.9
109.2 100.4 Deferred income taxes.. (9.4) (12.6) (13.4) (28.2)
Stock-based compensation.......... 6.9 6.6 23.4 28.0 Restructuring
charges (note 4).............. 0.6 (0.3) 1.1 3.8 Other charges
(note 4).............. 850.3 1.5 850.3 9.5
Other.................... (8.2) 4.2 (0.2) (4.0) Changes in non-cash
working capital items: Accounts receivable.... (33.9) 25.9 (132.8)
244.9 Inventories............ 55.9 21.4 4.5 110.2 Prepaid and other
assets................ (2.5) (14.3) 22.5 21.7 Income taxes
recoverable........... 20.3 (0.7) 5.7 (7.1) Accounts payable and
accrued liabilities... (73.9) (69.8) 58.9 (265.2) Income taxes
payable... (6.8) 26.1 (0.5) 24.5 ----------- -----------
----------- ----------- Non-cash working capital changes.......
(40.9) (11.4) (41.7) 129.0 ----------- ----------- -----------
----------- Cash provided by operations.............. 4.8 45.0
208.2 293.5 ----------- ----------- ----------- -----------
Investing: Purchase of property, plant and equipment... (25.6)
(21.0) (88.8) (77.3) Proceeds from sale of assets................
3.5 3.5 7.7 10.0 Other.................. 0.4 0.5 0.3 1.0
----------- ----------- ----------- ----------- Cash used in
investing activities (21.7) (17.0) (80.8) (66.3) -----------
----------- ----------- ----------- Financing: Repurchase of Senior
Subordinated Notes (Notes) (notes 3(d)(e))....... (30.4) (346.1)
(30.4) (495.8) Proceeds from termination of swap agreements (note
3(d))........... - - - 14.7 Financing costs........ (0.5) (0.5)
(0.5) (2.8) Repayment of capital lease obligations..... (0.2) -
(0.4) (1.0) Issuance of share capital............... - 0.7 2.1 2.7
Other.................. (9.2) (5.8) (13.9) (8.3) -----------
----------- ----------- ----------- Cash used in financing
activities.............. (40.3) (351.7) (43.1) (490.5) -----------
----------- ----------- ----------- Increase (decrease) in
cash.................... (57.2) (323.7) 84.3 (263.3) Cash and cash
equivalents, beginning of period............... 1,258.2 1,261.4
1,116.7 1,201.0 ----------- ----------- ----------- -----------
Cash and cash equivalents, end of period.................. $
1,201.0 $ 937.7 $ 1,201.0 $ 937.7 ----------- -----------
----------- ----------- ----------- ----------- -----------
----------- Supplemental cash flow information (note 6) See
accompanying notes to unaudited consolidated financial statements.
These unaudited interim consolidated financial statements should be
read in conjunction with the 2008 annual consolidated financial
statements. CELESTICA INC. NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (in millions of U.S. dollars, except per share amounts)
(unaudited) 1. Basis of presentation and significant accounting
policies: We prepare our financial statements in accordance with
generally accepted accounting principles (GAAP) in Canada. The
disclosures contained in these unaudited interim consolidated
financial statements do not include all requirements of Canadian
GAAP for annual financial statements. These unaudited interim
consolidated financial statements should be read in conjunction
with the 2008 annual consolidated financial statements. These
unaudited interim consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to
present fairly our financial position as at December 31, 2009 and
the results of operations, comprehensive income (loss), and cash
flows for the three months and years ended December 31, 2008 and
2009. Use of estimates: The preparation of financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and related disclosures of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenue and expenses during the reporting
period. We applied significant estimates and assumptions to our
valuations against inventory and income taxes, to the amount and
timing of restructuring charges or recoveries, to the fair values
used in testing long-lived assets, and to valuing our pension
costs. We evaluate our estimates and assumptions on a regular
basis, based on historical experience and other relevant factors.
Actual results could differ materially from those estimates and
assumptions, especially in light of the economic environment and
uncertainties. These unaudited interim consolidated financial
statements are based upon accounting principles consistent with
those used and described in the 2008 annual consolidated financial
statements, except for the following: Changes in accounting
policies: (i) Goodwill and intangible assets: On January 1, 2009,
we adopted CICA Handbook Section 3064, "Goodwill and intangible
assets." This revised standard establishes guidance for the
recognition, measurement and disclosure of goodwill and intangible
assets, including internally generated intangible assets. As
required by this standard, we have retroactively reclassified
computer software assets on our consolidated balance sheet from
property, plant and equipment to intangible assets. We have also
reclassified computer software amortization on our consolidated
statement of operations from depreciation expense, included in
selling, general and administrative expenses, to amortization of
intangible assets. There is no impact on previously reported net
earnings or loss. Intangible assets: December 31 December 31 2008
2009 ------------- ------------ Intellectual property
......................... $ 0.6 $ - Other intangible assets
....................... 19.5 8.9 Computer software assets
...................... 34.0 23.4 --------- --------- $ 54.1 $ 32.3
--------- --------- --------- --------- Amortization expense is as
follows: Three months ended Year ended December 31 December 31 2008
2009 2008 2009 -------- --------- --------- --------- Amortization
of intellectual property ..... $ 0.2 $ - $ 1.1 $ 0.2 Amortization
of other intangible assets ......... 3.1 1.9 14.0 8.6 Amortization
of computer software assets ........... 3.1 4.7 11.8 13.1 -------
------- ------- ------- $ 6.4 $ 6.6 $ 26.9 $ 21.9 ------- -------
------- ------- ------- ------- ------- ------- Recently issued
accounting pronouncements: (a) International financial reporting
standards (IFRS): In February 2008, the Canadian Accounting
Standards Board announced the adoption of IFRS for publicly
accountable enterprises. IFRS will replace Canadian GAAP effective
January 1, 2011. IFRS is effective for our first quarter of 2011
and will require that we restate our 2010 comparative numbers under
IFRS. Our IFRS transition plan is progressing according to our
implementation schedule. We will disclose our preliminary IFRS
accounting policy decisions in our 2009 annual management's
discussion and analysis. Although we have identified key accounting
policy differences, we cannot at this time determine the impact of
IFRS on our consolidated financial statements. (b) Business
combinations: In January 2009, the CICA issued Handbook Section
1582, "Business combinations," which replaces the existing
standards. This section establishes the standards for the
accounting of business combinations, and states that all assets and
liabilities of an acquired business will be recorded at fair value.
Obligations for contingent considerations and contingencies will
also be recorded at fair value at the acquisition date. The
standard states that acquisition-related costs will be expensed as
incurred and that restructuring charges will be expensed in the
periods after the acquisition date. This standard is equivalent to
the IFRS on business combinations. This standard is applied
prospectively to business combinations with acquisition dates on or
after January 1, 2011. We are currently evaluating the impact of
adopting this standard on our consolidated financial statements.
(c) Consolidated financial statements: In January 2009, the CICA
issued Handbook Section 1601, "Consolidated financial statements,"
which replaces the existing standards. This section establishes the
standards for preparing consolidated financial statements and is
effective for 2011. We are currently evaluating the impact of
adopting this standard on our consolidated financial statements.
(d) Financial instruments - disclosures: Effective December 31,
2009, we adopted the amendment issued by the CICA to Handbook
Section 3862, "Financial instruments - disclosures," which requires
enhanced disclosures on liquidity risk of financial instruments and
new disclosures on fair value measurements of financial
instruments. These requirements correspond to the IFRS on financial
instruments disclosures and will be included in our 2009 annual
consolidated financial statements. 2. Inventories: During 2009, we
recorded a net inventory valuation reversal through cost of sales
of $1.0 to reflect changes in the value of our inventory to net
realizable value. 3. Long-term debt: December 31 December 31 2008
2009 ------------- ------------ Secured, revolving credit facility
due 2011 (a) ............................. $ - $ - Senior
Subordinated Notes due 2011 (2011 Notes) (b)(c)(d)(e)
................ 489.4 - Senior Subordinated Notes due 2013 (2013
Notes) (b)(e) ...................... 223.1 223.1 Embedded
prepayment option at fair value (d)(f)
............................. (19.2) (1.5) Basis adjustments on
debt obligation (f) .. 4.9 3.1 Unamortized debt issue costs
.............. (7.0) (1.9) Fair value adjustment of 2011 Notes
attributable to interest rate risks (d)(f) 40.9 - ---------
--------- 732.1 222.8 Capital lease obligations .................
1.0 - --------- --------- 733.1 222.8 Less current portion
...................... 1.0 222.8 --------- --------- $ 732.1 $ -
--------- --------- --------- --------- (a) In April 2009, we
renewed our revolving credit facility on generally similar terms
and conditions, and reduced the size from $300.0 to $200.0, with a
maturity of April 2011. Under the terms of the renewed facility,
borrowings bear a higher interest rate than under the previous
terms and we are required to comply with certain restrictive
covenants relating to debt incurrence, the sale of assets, a change
of control and certain financial covenants related to indebtedness,
interest coverage and liquidity. There were no borrowings
outstanding under the facility at December 31, 2009. Commitment
fees for 2009 were $2.1. We were in compliance with all covenants
at December 31, 2009. Based on the required financial ratios at
December 31, 2009, we have full access to this facility. We also
have uncommitted bank overdraft facilities available for operating
requirements which total $65.0 at December 31, 2009. There were no
borrowings outstanding under these facilities at December 31, 2009.
(b) In June 2004, we issued the 2011 Notes with a principal amount
of $500.0 and a fixed interest rate of 7.875%. In June 2005, we
issued the 2013 Notes with a principal amount of $250.0 and a fixed
interest rate of 7.625%. We repurchased the 2011 Notes in the first
and fourth quarters of 2009. See notes 3(d) and (e). In January
2010, we announced our intention to redeem our 2013 Notes. See note
12. The 2013 Notes are unsecured and subordinated in right of
payment to our secured debt. The 2013 Notes have restrictive
covenants that limit our ability to pay dividends, repurchase our
own stock or repay debt that is subordinated to the Notes. These
covenants also place limitations on the sale of assets and our
ability to incur additional debt. We were in compliance with all
covenants at December 31, 2009. (c) In connection with the 2011
Notes, we entered into agreements to swap the fixed interest rate
with a variable interest rate based on LIBOR plus a margin. In
February 2009, we terminated the interest rate swap agreements.
Interest on the 2011 Notes was fixed at 7.875% after termination of
the swap agreement through to the redemption of the debt in the
fourth quarter of 2009. The average interest rate was 7.875% and
7.0%, respectively, for the fourth quarter of 2009 and year ended
December 31, 2009, through to the redemption of the debt (6.9% and
6.5%, respectively, for the fourth quarter of 2008 and year ended
December 31, 2008). See note 3(d). (d) In March 2009, we paid
$149.7, excluding accrued interest, to repurchase 2011 Notes with a
principal amount of $150.0. In November 2009, we redeemed the
remaining 2011 Notes and paid $346.1, excluding accrued interest,
to repurchase 2011 Notes with a principal amount of $339.4. We
recognized a gain of $9.1 in the first quarter of 2009 and a gain
of $10.4 in the fourth quarter of 2009 on the repurchase of the
2011 Notes which we recorded in other charges. See note 4. The
gains on the repurchases were measured based on the carrying value
of the repurchased portion of the 2011 Notes on the dates of
repurchase. In the first quarter of 2009, we terminated the
interest rate swap agreements related to the 2011 Notes and
received $14.7 in cash, excluding accrued interest, as settlement
of these agreements. In connection with the termination of the swap
agreements, we discontinued fair value hedge accounting on the 2011
Notes. In the first quarter of 2009, we recorded a write-down,
through other charges, of $15.6 in the carrying value of the
embedded prepayment option on the 2011 Notes to reflect the change
in fair value upon hedge de-designation. See note 4. We amortized
the historical fair value adjustment on the 2011 Notes until the
Notes were repaid, using the effective interest rate method. This
amortization is recorded as a reduction of interest expense on
long-term debt. Also see note 12. (e) During the fourth quarter of
2008, we paid a total of $30.4, excluding accrued interest, to
repurchase 2011 Notes with a principal amount of $10.6 and to
repurchase 2013 Notes with a principal amount of $26.9. We
recognized a gain of $7.6 on the repurchase of the Notes which we
recorded in other charges. See note 4. The gain on the repurchase
was measured based on the carrying values of the repurchased
portion of the Notes on the dates of repurchase. (f) The prepayment
option in our Notes qualify as embedded derivatives which we
bifurcated for reporting. As of December 31, 2009, the fair value
of the embedded derivative asset is $1.5 for the 2013 Notes and is
recorded against long-term debt. The decrease in the fair value of
the embedded derivative asset from December 31, 2008 primarily
reflects the write-down upon hedge de-designation described in note
3 (d). We also recorded a write-down, through other charges, of
$1.1 to eliminate the carrying value of the embedded prepayment
option on the 2011 Notes in the third quarter of 2009, when we
announced our intention to redeem the 2011 Notes. See note 4. As a
result of bifurcating the prepayment option, a basis adjustment is
added to the cost of long-term debt. We amortize the basis
adjustment over the term of the debt using the effective interest
rate method. The amortization of the basis adjustment is recorded
as a reduction of interest expense on long-term debt. The
unamortized fair value adjustment on the 2011 Notes attributable to
movements in the benchmark interest rates decreased from $40.9 at
December 31, 2008 to zero at December 31, 2009 primarily as a
result of the debt repurchases and hedge de-designation described
in note 3 (d). After the hedge de-designation, we amortized the
fair value adjustment to interest expense on long-term debt until
the 2011 Notes were redeemed. Upon redemption of the 2011 Notes in
the fourth quarter of 2009, the related basis adjustment, the
unamortized debt issue costs and the unamortized fair value
adjustment were eliminated in determining the gain that we recorded
in other charges. We applied fair value hedge accounting to our
interest rate swaps and our hedged debt obligation (2011 Notes)
until February 2009. We also mark-to-market the bifurcated embedded
prepayment options in our debt instruments until the options are
extinguished. The changes in the fair values each period are
recorded in interest expense on long-term debt, except for the
write-down of the embedded prepayment option due to hedge
de-designation or debt repurchase which is recorded in other
charges. The mark-to-market adjustment fluctuates each period as it
is dependent on market conditions, including future interest rates,
implied volatility and credit spreads. The impact on our results of
operations is as follows: Three months ended Year ended December 31
December 31 2008 2009 2008 2009 -------- --------- ---------
--------- Increase (decrease) in interest expense on long-term debt
............ $ 0.8 $ (2.0) $ 1.0 $ (9.0) 4. Other charges
(recoveries): Three months ended Year ended December 31 December 31
2008 2009 2008 2009 -------- --------- --------- ---------
Restructuring (a) ...... $ 11.6 $ 13.5 $ 35.3 $ 83.1 Goodwill
impairment (b) ........ 850.5 - 850.5 - Long-lived asset impairment
(c) ........ 8.8 12.3 8.8 12.3 Gain on repurchase of Notes (notes
3(d)(e)(f)) .... (7.6) (10.4) (7.6) (19.5) Write-down of embedded
prepayment option (notes 3(d)(f)) ....... - - - 16.7 Recovery of
damages (d) ........... - (23.7) - (23.7) Release of cumulative
translation adjustment (e) ........ - - - 1.8 Other (f)
.............. (1.4) (0.4) (1.8) (2.7) ------- ------- -------
------- $ 861.9 $ (8.7) $ 885.2 $ 68.0 ------- ------- -------
------- ------- ------- ------- ------- (a) Restructuring: In
January 2008, we estimated that a restructuring charge of between
$50 and $75 would be recorded throughout 2008 and 2009. In light of
the continued uncertain economic environment, we determined that
further restructuring actions were required to improve our overall
utilization and reduce overhead costs. In July 2009, we announced
additional restructuring charges of between $75 and $100. Combined,
we expect to incur total restructuring charges of between $150 and
$175 associated with this program. During 2008 and 2009, we
recorded a total of $118.4 in restructuring charges. Of that
amount, $13.5 was recorded in the fourth quarter of 2009. We expect
to complete these restructuring actions by the end of 2010. We
recognize the restructuring charges as the detailed plans are
finalized. Our restructuring actions include consolidating
facilities and reducing our workforce. The majority of the
employees terminated are manufacturing and plant employees in the
Americas, Europe and the Philippines. For leased facilities that we
no longer use, the lease costs included in the restructuring costs
represent future lease payments less estimated sublease recoveries.
Adjustments are made to lease and other contractual obligations to
reflect incremental cancellation fees paid for terminating certain
facility leases and to reflect changes in the accruals for other
leases due to delays in the timing of sublease recoveries, changes
in estimated sublease rates, or changes in use, relating
principally to facilities in the Americas. We expect our long-term
lease and other contractual obligations to be paid out over the
remaining lease terms through 2015. Our restructuring liability is
recorded in accrued liabilities. Details of the 2009 activity are
as follows: Lease and other Facility Employee cont- exit Total 2009
termi- ractual costs accrued non- nation oblig- and liab- cash 2009
costs ations other ility charge charge -------- -------- --------
-------- -------- -------- December 31, 2008.. $18.7 $ 26.7 $ 0.2 $
45.6 $ - $ - Cash payments ..... (14.6) (2.2) (0.1) (16.9) - -
Charges/ adjustments ...... 10.4 (4.5) 0.2 6.1 0.6 6.7 --------
-------- -------- -------- -------- -------- March 31, 2009 ....
14.5 20.0 0.3 34.8 0.6 6.7 Cash payments ..... (14.9) (2.6) (0.3)
(17.8) - - Charges/ adjustments ...... 16.2 3.7 0.3 20.2 0.7 20.9
-------- -------- -------- -------- -------- -------- June 30, 2009
..... 15.8 21.1 0.3 37.2 1.3 27.6 Cash payments ..... (16.7) (3.6)
(0.9) (21.2) - - Charges/ adjustments ...... 33.8 4.2 1.2 39.2 2.8
42.0 -------- -------- -------- -------- -------- --------
September 30, 2009 ............. 32.9 21.7 0.6 55.2 4.1 69.6 Cash
payments ..... (18.7) (4.0) (1.3) (24.0) - - Charges/ adjustments
...... 9.5 3.1 1.2 13.8 (0.3) 13.5 -------- -------- --------
-------- -------- -------- December 31, 2009 ............. $23.7
$20.8 $ 0.5 $45.0 $ 3.8 $83.1 -------- -------- -------- --------
-------- -------- As of December 31, 2009, we have approximately
$23.0 in assets that are held-for-sale, primarily land and
buildings, as a result of the restructuring actions we have
implemented. We have programs underway to sell these assets. (b)
Goodwill impairment: Our goodwill balance prior to the 2008
impairment charge was $850.5 and was established primarily as a
result of an acquisition in 2001. All goodwill was allocated to our
Asia reporting unit. During the fourth quarter of 2008, we
performed our annual goodwill impairment assessment. We completed
our step one analysis using a combination of valuation approaches
including a market capitalization approach, multiples approach and
discounted cash flow. The market capitalization approach used our
publicly traded stock price to determine fair value. The multiples
approach used comparable trading multiples of our major competitors
to arrive at a fair value and the discounted cash flow method used
revenue and expense projections and risk-adjusted discount rates.
The process of determining fair value was subjective and required
management to exercise a significant amount of judgment in
determining future growth rates, discount rates and tax rates,
among other factors. At that time, the economic environment had
negatively impacted our ability to forecast future demand and in
turn resulted in our use of higher discount rates, reflecting the
risk and uncertainty in the markets. The results of our step one
analysis indicated potential impairment in our Asia reporting unit,
which was corroborated by a combination of factors including a
significant and sustained decline in our market capitalization,
which was significantly below our book value, and the then
deteriorating macro environment, which resulted in a decline in our
expected future demand. We performed the second step of the
goodwill impairment assessment to quantify the amount of
impairment. This involved calculating the implied fair value of
goodwill, determined in a manner similar to a purchase price
allocation, and comparing the residual amount to the carrying
amount of goodwill. Based on our analysis incorporating the
declining market capitalization in 2008, as well as the significant
end market deterioration and economic uncertainties impacting
expected future demand at that time, we concluded that the entire
goodwill balance as of December 31, 2008 of $850.5 was impaired.
The goodwill impairment charge was non-cash in nature and did not
affect our liquidity, cash flows from operating activities, or our
compliance with debt covenants. The goodwill impairment charge was
not deductible for income tax purposes and, therefore, we did not
record a corresponding tax benefit in 2008. (c) Long-lived asset
impairment: We conduct our annual impairment assessment of
long-lived assets in the fourth quarter of each year. We recorded a
non-cash charge of $12.3 in 2009 against property, plant and
equipment primarily in Japan and a non- cash charge of $8.8 in 2008
against property, plant and equipment in the Americas and Europe.
(d) Recovery of damages: In the fourth quarter of 2009, we received
a recovery of damages related to certain purchases we made in prior
periods as a result of the settlement of a class action lawsuit. We
recorded a recovery, net of estimated reserves, of $23.7 through
other charges in the fourth quarter. Future adjustments to our
estimated reserves, if any, will be recorded through other charges.
(e) Release of cumulative translation adjustment: We recorded a net
loss of $1.8 for the release of the cumulative currency translation
adjustment related to a liquidated foreign subsidiary. (f) Other:
We recognized recoveries on the sale of certain assets that were
previously written down through other charges. 5. Segment
information: The accounting standards establish the criteria for
the disclosure of certain information in the interim and annual
financial statements regarding operating segments, products and
services and major customers. Operating segments are defined as
components of an enterprise for which separate financial
information is available that is regularly evaluated by the chief
operating decision maker in deciding how to allocate resources and
in assessing performance. Our operating segment is comprised of our
electronics manufacturing services business. Our chief operating
decision maker is our Chief Executive Officer. (i) The following
table indicates revenue by end market as a percentage of total
revenue. Our revenue fluctuates from period to period depending on
numerous factors, including but not limited to: seasonality of
business; the level of business from new, existing and disengaging
customers; the level of program wins or losses; the phasing in or
out of programs; and changes in customer demand. Three months ended
Year ended December 31 December 31 2008 2009 2008 2009
------------------- -------------------- Consumer .................
28% 32% 23% 29% Enterprise Communications .......... 22% 20% 25%
21% Telecommunications ....... 17% 11% 15% 15% Servers
.................. 13% 14% 16% 13% Storage .................. 9%
13% 10% 12% Industrial, Aerospace and Defense, and Healthcare
.............. 11% 10% 11% 10% (ii) For the fourth quarter of 2009,
two customers represented more than 10% of total revenue (fourth
quarter of 2008 - one customer represented more than 10% of total
revenue). For the full year 2009, one customer, Research In Motion
(RIM), represented more than 10% of total revenue (2008 - no
customer represented more than 10% of total revenue). RIM accounted
for 21% of total revenue in the fourth quarter of 2009 and 17% of
total revenue for the full year 2009. 6. Supplemental cash flow
information: Three months ended Year ended December 31 December 31
2008 2009 2008 2009 ------------------- -------------------- Paid
(recovered) during the period: Interest(a) ........... $ 1.3 $ 10.3
$ 65.4 $ 64.8 Taxes(b) .............. $ 2.9 $ (0.4) $ 17.0 $ 16.6
(a) This includes interest paid on the Notes. Interest on the Notes
is payable in January and July of each year until maturity or
earlier repurchase or redemption. See notes 3(b) and (c). (b) Cash
taxes paid is net of any income taxes recovered. December 31
December 31 2008 2009 ------------- ------------ Cash and cash
equivalents are comprised of the following: Cash (i)
.................................. $ 406.2 $ 259.8 Cash equivalents
(i) ...................... 794.8 677.9 --------- --------- $
1,201.0 $ 937.7 --------- --------- --------- --------- (i) Our
current portfolio consists of certificates of deposit and certain
money market funds that are secured exclusively by U.S. government
securities. The majority of our cash and cash equivalents are held
with financial institutions each of which had at December 31, 2009
a Standard and Poor's rating of A-1 or above. 7. Derivative
financial instruments: (i) We enter into foreign currency contracts
to hedge foreign currency risks primarily relating to cash flows.
At December 31, 2009, we had forward exchange contracts covering
various currencies in an aggregate notional amount of $489.2. All
derivative financial instruments are recorded at fair value on our
consolidated balance sheet. The fair value of our foreign currency
contracts at December 31, 2009 was a net unrealized gain of $8.0
(December 31, 2008 - net unrealized loss of $38.9). This is
comprised of $9.4 of derivative assets recorded in prepaid and
other assets and other long-term assets, and $1.4 of derivative
liabilities recorded in accrued liabilities. The unrealized gains
and losses are a result of fluctuations in foreign exchange rates
between the time the currency forward contracts were entered into
and the valuation date at period end. The change in the net
unrealized gains and losses of our foreign currency contracts
during 2009 is due primarily to the favourable movement in the
exchange rates for the currencies that we hedge and the settlement
of contracts with significant losses. At December 31, 2009, we had
forward exchange contracts to trade U.S. dollars in exchange for
the following currencies: Weighted average exchange Fair rate of
Maximum value Amount of U.S. period in gain/ Currency U.S. dollars
dollars months (loss) ----------------------- --------------
----------- ---------- ----------- Canadian dollar ....... $ 206.5
$ 0.92 15 $ 7.7 British pound sterling ............. 89.5 1.60 4
(0.1) Thai baht ............. 50.1 0.03 12 0.2 Malaysian ringgit
..... 47.8 0.29 12 0.2 Mexican peso .......... 37.1 0.08 12 0.1
Singapore dollar ...... 18.9 0.70 12 0.3 Euro ..................
13.3 1.45 3 - Romanian lei .......... 13.1 0.33 12 (0.3) Czech
koruna .......... 12.9 0.05 6 (0.1) --------- --------- Total
................. $ 489.2 $ 8.0 --------- --------- ---------
--------- (ii) In connection with the issuance of our 2011 Notes in
June 2004, we entered into agreements to swap the fixed rate of
interest for a variable interest rate. The notional amount of the
agreements was $500.0. The fair value of the interest rate swap
agreements at December 31, 2008 was an unrealized gain of $17.3,
which we recorded in other long-term assets. In connection with the
debt repurchase (see notes 3(c) and (d)), we terminated our swap
agreements. We received $14.7 in February 2009 representing the
fair value of the swap agreements, excluding accrued interest,
prior to termination. Notes 3(d) and (f) summarize the impact of
our mark-to-market adjustments and our fair value hedge accounting.
Fair value hedge ineffectiveness arose when the change in the fair
values of our swap agreements, our hedged debt obligation and its
embedded derivatives, and the amortization of the related basis
adjustments did not offset each other during a reporting period.
The fair value hedge ineffectiveness loss of $1.4 for our 2011
Notes was recorded in interest expense on long-term debt for 2009
(loss of $0.9 for 2008). This fair value hedge ineffectiveness was
driven primarily by the difference in the credit risk used to value
our hedged debt obligation as compared to the credit risk used to
value our interest rate swaps. As a result of discontinuing the
fair value hedge on our 2011 Notes in February 2009, no further
fair value hedge ineffectiveness has occurred. 8. Shareholders'
equity: Accumu- lated other Contri- compre- Capital buted hensive
stock Warrants surplus Deficit income ---------- ----------
---------- ---------- ---------- Balance - December 31, 2007
........ $3,585.2 $ 3.1 $ 190.3 $(1,716.3) $ 55.9 Shares issued
...... 3.3 - - - - Warrants cancelled ... - (3.1) 3.1 - -
Stock-based compensation costs ....... - - 10.0 - - Other ........
- - 1.0 - - Net loss for 2008 .... - - - (720.5) - Change from
derivatives designated as hedges ... - - - - (58.0) Currency
translation adjustments . - - - - 11.5 -------- -------- --------
--------- -------- Balance - December 31, 2008 .... 3,588.5 - 204.4
(2,436.8) 9.4 Shares issued ...... 2.7 - - - - Stock-based
compensation costs ....... - - 17.6 - - Reclass to accrued
liabilities(a) - - (13.3) - - Other ........ - - 1.9 - - Net
earnings for 2009 .... - - - 55.0 - Change from derivatives
designated as hedges ...... - - - - 46.2 Currency translation
adjustments .. - - - - 0.2 -------- -------- -------- ---------
-------- Balance - December 31, 2009 .... $3,591.2 $ - $ 210.6
$(2,381.8) $ 55.8 -------- -------- -------- --------- --------
-------- -------- -------- --------- -------- (a) We have the
option to settle restricted share unit awards in the form of shares
that we purchase in the open market or cash. Historically, we have
settled these awards with shares purchased in the open market.
During the fourth quarter of 2009, we decided to settle the share
unit awards vesting in the first quarter of 2010 with cash. As a
result, we reclassified $13.3, which we had accumulated in
contributed surplus, to accrued liabilities. We adjusted this
liability to the market value of our underlying subordinate voting
shares at December 31, 2009, with a corresponding charge to
compensation expense. A mark-to-market adjustment of $10.9 (cost of
sales - $5.2; SG&A - $5.7) was recorded in the fourth quarter
of 2009. Management intends to settle the remaining share unit
awards in the form of shares purchased in the open market and will
continue to account for these share units as equity awards. Year
ended Year ended Accumulated other comprehensive December 31
December 31 income, net of tax 2008 2009 ------------- ------------
Opening balance of foreign currency translation account
...................... $ 35.2 $ 46.7 Currency translation
adjustment ........... 11.5 (1.6) Release of cumulative currency
translation to other charges (note 4(e)) ............. - 1.8
--------- --------- Closing balance ...........................
46.7 46.9 Opening balance of unrealized net gain (loss) on cash
flow hedges ............... $ 20.7 $ (37.3) Net gain (loss) on cash
flow hedges(1) .... (53.1) 14.4 Net loss (gain) on cash flow hedges
reclassified to operations(2) ............ (4.9) 31.8 ---------
--------- Closing balance(3) ........................ (37.3) 8.9
--------- --------- Accumulated other comprehensive income .... $
9.4 $ 55.8 --------- --------- --------- --------- (1) Net of
income tax benefit of nil and $0.1 for the three months and year
ended December 31, 2009 ($0.8 income tax benefit for 2008). (2) Net
of income tax expense of nil and $0.6 for the three months and year
ended December 31, 2009 ($0.2 income tax expense for 2008). (3) Net
of income tax expense of $0.1 as of December 31, 2009 ($0.4 income
tax benefit as of December 31, 2008). We expect that the majority
of the gains on cash flow hedges reported in accumulated other
comprehensive income at December 31, 2009 will be reclassified to
operations during the next 12 months, primarily through cost of
sales as the underlying expenses that are being hedged are included
in cost of sales. 9. Guarantees and contingencies: We have
contingent liabilities in the form of letters of credit, letters of
guarantee and surety bonds which we have provided to various third
parties. These guarantees cover various payments, including customs
and excise taxes, utility commitments and certain bank guarantees.
At December 31, 2009, these contingent liabilities amounted to
$50.2 (December 31, 2008 - $55.4). In addition to the above
guarantees, we have also provided routine indemnifications, the
terms of which range in duration and often are not explicitly
defined. These may include indemnifications against adverse impacts
due to changes in tax laws and patent infringements by third
parties. We have also provided indemnifications in connection with
the sale of certain businesses and real property. The maximum
potential liability from these indemnifications cannot be
reasonably estimated. In some cases, we have recourse against other
parties to mitigate our risk of loss from these indemnifications.
Historically, we have not made significant payments relating to
these types of indemnifications. Litigation: In the normal course
of our operations, we are subject to litigation and claims from
time to time. We may also be subject to lawsuits, investigations
and other claims, including environmental, labor, product, customer
disputes and other matters. Management believes that adequate
provisions have been recorded in the accounts where required.
Although it is not always possible to estimate the extent of
potential costs, if any, management believes that the ultimate
resolution of such contingencies will not have a material adverse
impact on our results of operations, financial position or
liquidity. In 2007, securities class action lawsuits were commenced
against us and our former Chief Executive and Chief Financial
Officers in the United States District Court of the Southern
District of New York by certain individuals, on behalf of
themselves and other unnamed purchasers of our stock, claiming that
they were purchasers of our stock during the period January 27,
2005 through January 30, 2007. The plaintiffs allege violations of
United States federal securities laws and seek unspecified damages.
They allege that during the purported class period we made
statements concerning our actual and anticipated future financial
results that failed to disclose certain purportedly material
adverse information with respect to demand and inventory in our
Mexican operations and our information technology and
communications divisions. In an amended complaint, the plaintiffs
have added one of our directors and Onex Corporation as defendants.
All defendants have filed motions to dismiss the amended complaint.
These motions are pending. A parallel class proceeding has also
been issued against us and our former Chief Executive and Chief
Financial Officers in the Ontario Superior Court of Justice, but
neither leave nor certification of the action has been granted by
that court. We believe that the allegations in these claims are
without merit and we intend to defend against them vigorously.
However, there can be no assurance that the outcome of the
litigation will be favorable to us or that it will not have a
material adverse impact on our financial position or liquidity. In
addition, we may incur substantial litigation expenses in defending
these claims. We have liability insurance coverage that may cover
some of our litigation expenses, potential judgments or settlement
costs. Income taxes: We are subject to tax audits by local tax
authorities of historical information which could result in
additional tax expense in future periods relating to prior results.
In addition, tax authorities could challenge the validity of our
inter-company transactions, including financing and transfer
pricing policies which generally involve subjective areas of
taxation and a significant degree of judgment. If any of these tax
authorities are successful with their challenges, our income tax
expense may be adversely affected and we could also be subject to
interest and penalty charges. In connection with ongoing tax audits
in Canada, tax authorities have taken the position that income
reported by one of our Canadian subsidiaries in 2001 through 2003
should have been materially higher as a result of certain
inter-company transactions. The successful pursuit of that
assertion could result in that subsidiary owing significant amounts
of tax, interest and possibly penalties. We believe we have
substantial defenses to the asserted position and have adequately
accrued for any probable potential adverse tax impact. However,
there can be no assurance as to the final resolution of this claim
and any resulting proceedings and if this claim and any ensuing
proceedings are determined adversely to us, the amounts we may be
required to pay could be material. In connection with a tax audit
in Brazil, in the fourth quarter of 2009, tax authorities have
taken the position that income reported by our Brazilian subsidiary
in 2004 should have been materially higher as a result of certain
inter-company transactions. We believe we have substantial defenses
to the asserted position. However, there can be no assurance as to
the final resolution of this matter and, if it is determined
adversely to us, the amounts we may be required to pay for taxes,
interest and penalties could be material. We have and will continue
to recognize the future benefit of certain Brazilian tax losses on
the basis that these tax losses can and will be fully utilized in
the fiscal period ending on the date of dissolution of our
Brazilian subsidiary. We regularly review Brazilian laws and assess
the likelihood of the realization of the future benefit of the tax
losses. A change to the benefit realizable on these Brazilian
losses could result in a substantial increase to our net future tax
liabilities. 10. Financial instruments - financial risks: We have
exposures to the following financial risks arising from financial
instruments: market risk, credit risk and liquidity risk. Market
risk is the risk that results in changes to market prices, such as
foreign exchange rates and interest rates, that could affect our
operations or the value of our financial instruments. (a) Currency
risk: Due to the nature of our international operations, we are
exposed to exchange rate fluctuations on our cash receipts, cash
payments and balance sheet exposures denominated in various foreign
currencies. We manage our currency risk through our hedging program
using forecasts of future cash flows denominated in foreign
currencies and our currency exposures. Our major currency
exposures, as of December 31, 2009, are summarized in U.S. dollar
equivalents in the following table. For purposes of this table, we
have excluded items such as pension, post- employment benefits and
income taxes, in accordance with the financial instruments
standards. The local currency amounts have been converted to U.S.
dollar equivalents using the spot rates as of December 31, 2009.
Mexican Thai Malaysian Canadian peso baht ringgit dollar
-------------- ----------- ---------- ----------- Cash and cash
equivalents ....... $ 0.5 $ 1.0 $ 0.9 $ 54.8 Accounts receivable
........ - - 0.2 - Other financial assets ............ - 1.3 0.3
0.3 Accounts payable and accrued liabilities ....... (20.4) (14.0)
(12.6) (44.0) ---------- ---------- --------- ---------- Net
financial assets (liabilities) ..... $ (19.9) $ (11.7) $ (11.2) $
11.1 ---------- ---------- --------- ---------- ----------
---------- --------- ---------- At December 31, 2009, a
one-percentage point strengthening or weakening of the following
currencies against the U.S. dollar for our financial instruments
denominated in non-functional currencies has the following impact:
Mexican Thai Malaysian Canadian peso baht ringgit dollar
-------------- ----------- ---------- ----------- 1% Strengthening
Net earnings ..... $ - $ (0.1) $ (0.2) $ - Other comprehensive
income .......... 0.1 0.5 0.4 2.0 1% Weakening Net earnings ..... -
0.1 0.2 - Other comprehensive income .......... (0.1) (0.5) (0.4)
(2.0) (b) Interest rate risk: We are exposed to interest rate risks
as we have significant cash balances invested at floating rates.
Borrowings under our revolving credit facility bear interest at
LIBOR plus a margin. If we borrow under this facility, we will be
exposed to interest rate risks due to fluctuations in the LIBOR
rate. (c) Credit risk: Credit risk refers to the risk that a
counterparty may default on its contractual obligations resulting
in a financial loss to us. To mitigate the risk of financial loss
from defaults under our foreign currency forward contracts, these
counterparty financial institutions each had a Standard and Poor's
rating of A or above at December 31, 2009. In November 2009, we
renewed our accounts receivable sales program on similar terms and
conditions for an additional year. This financial institution had a
Standard and Poor's rating of A+ at December 31, 2009. At December
31, 2009, no accounts receivable were sold under this program. See
notes 14(c) and 18 to the 2008 annual consolidated financial
statements. We also provide credit to our customers in the normal
course of business. The carrying amount of financial assets
recorded in the financial statements, net of any allowances or
reserves for losses, represents our estimate of maximum exposure to
this credit risk. As of December 31, 2009, less than 1% of our
gross accounts receivable are over 90 days past due. Accounts
receivable are net of an allowance for doubtful accounts of $7.5 at
December 31, 2009 (December 31, 2008 - $13.7). (d) Liquidity risk:
Liquidity risk is the risk that we may not have cash available to
satisfy our financial obligations as they come due. The majority of
our financial liabilities recorded in accounts payable and accrued
liabilities are due within 90 days. The maturity analysis of our
derivative financial liabilities is included in note 7(i). The
redemption of our 2011 Notes in the fourth quarter of 2009 was
funded from existing cash resources. In January 2010, we announced
our intention to redeem the 2013 Notes. See note 12. Management
believes that cash flow from operations, together with cash on
hand, cash from the sale of accounts receivable, and borrowings
available under our credit facility and bank overdraft facilities
will be sufficient to support our financial obligations. See note
14(d) to the 2008 annual consolidated financial statements. 11.
Comparative information: We have reclassified certain prior period
information to conform to the current period's presentation. 12.
Subsequent events: In January 2010, we completed the acquisition of
Invec Solutions Ltd. which is based in Scotland. Invec provides
warranty management, repair and parts management services to
companies in the information technology and consumer electronics
markets. The cash purchase price was $6.4. In January 2010, we
announced our intention to redeem the outstanding 2013 Notes with a
principal amount of $223.1. In accordance with the terms of the
2013 Notes, we will redeem the Notes at a price of 103.813% of the
principal amount, together with accrued and unpaid interest to the
redemption date. Based on the carrying value at December 31, 2009
of $222.8, we expect to incur a loss of approximately $9 on
redemption, which we will record through other charges. We expect
to complete the redemption during the first quarter of 2010 using
existing cash resources. As a result, we have reclassified the 2013
Notes from long-term debt to current debt on our consolidated
balance sheet. DATASOURCE: Celestica Inc. CONTACT: Laurie Flanagan,
Celestica Global Communications, (416) 448-2200, ; Paul Carpino,
Celestica Investor Relations, (416) 448-2211,
Copyright