Celestica Announces Second Quarter Financial Results
TORONTO, July 23, 2010 /PRNewswire via COMTEX/ --
Celestica Inc. (NYSE, TSX: CLS), a global leader in the delivery of end-to-end product lifecycle solutions, today announced financial results for the second quarter ended June 30, 2010.
Second Quarter and YTD Results
------------------------------
Revenue for the quarter was $1.59 billion, compared to $1.40 billion in the second quarter of 2009. GAAP net loss was $(6.1) million, or $(0.03) per share, compared to GAAP net earnings of $5.3 million, or $0.02 per share, for the same period last year.
Adjusted net earnings for the quarter were $48.3 million, or $0.21 per share, compared to adjusted net earnings of $31.1 million, or $0.14 per share, for the same period last year. The term adjusted net earnings is a non-GAAP measure defined as net earnings before stock-based compensation, amortization of intangible assets (excluding computer software), restructuring and other charges, and gains or losses related to the repurchase of shares or debt, net of tax adjustment and significant deferred tax write-offs or recoveries. Detailed GAAP financial statements and supplementary information related to adjusted net earnings and other non-GAAP measures appear at the end of this press release.
For the six months ended June 30, 2010, revenue was $3.10 billion, compared to $2.87 billion for the same period in 2009. GAAP net earnings were $19.8 million, or $0.09 per share, compared to $24.5 million, or $0.11 per share, for the same period last year. Adjusted net earnings for the six months ended June 30, 2010 were $91.4 million, or $0.39 per share, compared to $64.7 million, or $0.28 per share, for the same period in 2009.
Second Quarter Results Compared to Guidance
-------------------------------------------
The company's revenue and adjusted net earnings per share for the second quarter of 2010 were within the company's published guidance, announced on April 22, 2010, of revenue of $1.50 billion to $1.60 billion, and adjusted net earnings per share of $0.19 to $0.23.
"Celestica's year-over-year increase in revenue reflects the progress the company is making toward achieving its revenue growth objectives in its targeted end markets," said Craig Muhlhauser, President and Chief Executive Officer. "Recent wins in our consumer, computing, industrial segments, and the after-market services business, are expected to further contribute to our revenue growth in the fourth quarter."
Celestica to expand healthcare capabilities through acquisition of Allied
-------------------------------------------------------------------------
Panels Entwicklungs-und Produktions GmbH (Allied Panels)
--------------------------------------------------------
Celestica announced it has signed a definitive agreement to acquire Allied Panels, a medical engineering and manufacturing service provider, offering concept-to-full-production solutions in medical devices, with a core focus on diagnostic imaging products. The acquisition will expand Celestica's capabilities in the healthcare diagnostic and imaging market. Allied Panels' customers include GE Healthcare, Siemens Healthcare, Sonosite and SuperSonic Imagine. Allied Panels' headquarters and main development and production centre is located in Frankenburg, Austria, with an additional engineering and manufacturing services center in Madison, Wisconsin, USA. With annual revenue of approximately 40 million euros, Allied Panels currently employs 130 people. This transaction is expected to close in the third quarter of 2010.
Celestica announces share repurchase plan
-----------------------------------------
Celestica announced its intention to launch a Normal Course Issuer Bid (NCIB), subject to the approval of the Toronto Stock Exchange. If approved, the company expects to be authorized to repurchase, at its discretion during the next 12 months, up to approximately 18 million, or 9%, of its subordinate voting shares on the open market subject to the normal terms and limitations of such bids. The number of subordinate voting shares which may be purchased will be reduced by the number of subordinate voting shares purchased for employee equity-based incentive programs. Any subordinate voting shares purchased by Celestica under the NCIB will be cancelled.
Third Quarter of 2010 Outlook
-----------------------------
For the third quarter ending September 30, 2010, the company anticipates revenue to be in the range of $1.55 billion to $1.65 billion, and adjusted net earnings per share to be in the range of $0.20 to $0.24. The company expects a negative $0.06 to $0.11 per share impact on a GAAP basis for the following items: quarterly stock-based compensation, amortization of intangible assets (excluding computer software) and restructuring charges.
Second Quarter Webcast
----------------------
Management will host its quarterly results conference call today at 8:00 a.m. Eastern. The webcast can be accessed at 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 to consider in evaluating the company's operating performance. See Schedule I.
Management uses adjusted net earnings and other non-GAAP measures to assess operating performance and the effective use and allocation of resources; to provide more meaningful period-to-period comparisons of operating results, both internally and against operating results of competitors; to enhance investors' understanding of the core operating results of our business; and to set management incentive targets.
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 Harbor and Fair Disclosure Statement
-----------------------------------------
This news release contains forward-looking statements related to our future growth, trends in our industry, our financial operational results including quarterly guidance and the impact of recent program wins on our financial results, our financial or operational performance, and our expectations regarding our proposed Normal Course Issuer Bid, including its approval, timing, and permitted number of shares to be repurchased thereunder. 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 effects of price competition and other business and competitive factors generally affecting the electronics manufacturing services (EMS) industry, including changes in the trend for outsourcing; our dependence on a limited number of customers and end markets; variability of operating results among periods; the challenges of effectively managing our operations, including responding to significant changes in demand from our customers; the challenges of managing rising labor costs; our inability to retain or expand our business due to execution problems resulting from significant headcount reductions, plant closures and product transfer activities; the delays in the delivery and/or general availability of various components and materials used in our manufacturing process; our dependence on industries affected by rapid technological change; our ability to successfully manage our international operations; the challenge of managing our financial exposures to foreign currency fluctuations; the risk of potential non-performance by counterparties, including but not limited to financial institutions, customers and suppliers; and the risk of non-approval of our Normal Course Issuer Bid. 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 www.sedar.com and www.sec.gov, including our Annual Report on Form 20-F and subsequent reports on Form 6-K filed with the U.S. Securities and Exchange Commission and our Annual Information Form filed with the Canadian securities regulators. 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 second quarter ended June 30, 2010 and revenue, adjusted net earnings and GAAP net earnings guidance for the third quarter ending September 30, 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 and can fluctuate significantly in terms of volume and mix of products; 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.
Schedule I
Supplementary Non-GAAP Measures
-------------------------------
Our non-GAAP measures include gross profit, gross margin (gross profit as a percentage of revenue), selling, general and administrative expenses (SG&A), SG&A as a percentage of revenue, operating earnings (EBIAT), operating margin (EBIAT as a percentage of revenue), adjusted net earnings, adjusted net earnings per share, return on invested capital and free cash flow. In calculating these non-GAAP financial measures, management excludes the following items: stock-based compensation, amortization of intangible assets (excluding amortization of computer software), restructuring and other charges (most significantly restructuring charges), the write-down of goodwill and long-lived assets, and gains or losses related to the repurchase of shares or debt, net of tax adjustment and significant deferred tax write-offs or recoveries.
These non-GAAP measures do not have any standardized meaning prescribed by Canadian or U.S. GAAP and are not necessarily comparable to similar measures presented by other companies. Non-GAAP measures are not measures of performance under Canadian or U.S. GAAP and should not be considered in isolation or as a substitute for any standardized measure under Canadian or U.S. GAAP. The most significant limitation to management's use of non-GAAP financial measures is that the charges and expenses excluded from the non-GAAP measures are nonetheless charges that are recognized under GAAP and that have an economic impact on the company. Management compensates for these limitations primarily by issuing GAAP results to show a complete picture of the company's performance, and reconciling non-GAAP results back to GAAP.
The economic substance of these exclusions and management's rationale for excluding these from non-GAAP financial measures is provided below:
Stock-based compensation, which represents the estimated fair value of stock options and restricted stock units granted to employees, is excluded since grant activities vary significantly from quarter to quarter in both quantity and fair value. In addition, excluding this expense allows us to better compare core operating results with those of our competitors who also generally exclude stock-based compensation from their core operating results, who may have different granting patterns and types of equity awards, and who may use different option valuation assumptions than we do. Prior to the fourth quarter of 2009, the company only excluded stock options from its non-GAAP measures. Comparables for prior periods reflect the exclusion of stock options and restricted stock units.
Amortization charges (excluding computer software) consists of non-cash charges against intangible assets that are impacted by the timing and magnitude of acquired businesses. Amortization of intangibles varies among competitors, and we believe that excluding these charges permits a better comparison of core operating results with those of our competitors who also generally exclude amortization charges.
Restructuring and other charges, which consist primarily of employee severance, lease termination and facility exit costs associated with closing and consolidating manufacturing facilities and reductions in infrastructure, are excluded because such charges are not directly related to ongoing operating results and do not reflect expected future operating expenses after completion of these activities. We believe that excluding these charges permit a better comparison of our core operating results with those of our competitors who also generally exclude these costs in assessing operating performance.
Impairment charges, which consist of non-cash charges against goodwill and long-lived assets, result primarily when the carrying value of these assets exceeds their fair value. These charges are excluded because they are generally non-recurring. In addition, our competitors may record impairment charges at different times and excluding these charges permits a better comparison of our core operating results with those of our competitors who also generally exclude these charges in assessing operating performance.
Gains or losses related to the repurchase of shares or debt are excluded as these gains or losses do not impact core operating performance and vary significantly among our competitors who also generally exclude these charges in assessing operating performance.
Significant deferred tax write-offs or recoveries are excluded as these write-offs or recoveries do not impact core operating performance and vary significantly among our competitors who also generally exclude these charges in assessing operating performance.
The following table sets forth, for the periods indicated, a reconciliation of Canadian GAAP to non-GAAP measures (in millions of U.S. dollars, except per share amounts):
Three months ended
June 30
------------------------------------------
2009 2010
------------------------------------------
% of % of
revenue revenue
------------------------------------------
Revenue $ 1,402.2 $ 1,585.4
GAAP gross profit $ 101.7 7.3% $ 107.6 6.8%
Stock-based compensation 3.6 4.1
------------ ------------
Non-GAAP gross profit $ 105.3 7.5% $ 111.7 7.0%
------------ ------------
------------ ------------
GAAP SG&A $ 61.9 4.4% $ 61.3 3.9%
Stock-based compensation (4.7) (6.6)
------------ ------------
Non-GAAP SG&A $ 57.2 4.1% $ 54.7 3.5%
------------ ------------
------------ ------------
GAAP earnings before income
taxes $ 3.6 0.3% $ 17.9 1.1%
Net interest expense 10.7 0.8
Stock-based compensation 8.3 10.7
Amortization of intangible
assets (excluding computer
software) 1.9 1.3
Restructuring and other
charges 20.7 23.8
Gains or losses related
to the repurchase of
shares or debt - -
------------ ------------
Non-GAAP operating earnings
(EBIAT)(1) $ 45.2 3.2% $ 54.5 3.4%
------------ ------------
------------ ------------
GAAP net earnings (loss) $ 5.3 0.4% $ (6.1) -0.4%
Stock-based compensation 8.3 10.7
Amortization of intangible
assets (excluding computer
software) 1.9 1.3
Restructuring and other
charges 20.7 23.8
Gains or losses related to the
repurchase of shares or debt - -
Adjustments for taxes(2) (5.1) 18.6
------------ ------------
Non-GAAP adjusted net earnings $ 31.1 2.2% $ 48.3 3.0%
------------ ------------
------------ ------------
Diluted EPS
W.A. # of shares
(in millions) - GAAP 230.2 230.3
GAAP earnings (loss)
per share $ 0.02 $ (0.03)
W.A. # of shares
(in millions) - non-GAAP 230.2 232.8
Non-GAAP adjusted net
earnings per share $ 0.14 $ 0.21
ROIC %(3) 17.9% 23.9%
GAAP cash provided by
(used in) operations $ 54.5 $ (4.3)
Purchase of property, plant
and equipment, net of sales
proceeds (13.5) (10.2)
------------ ------------
Non-GAAP free cash flow(4) $ 41.0 $ (14.5)
------------ ------------
------------ ------------
Six months ended
June 30
------------------------------------------
2009 2010
------------------------------------------
% of % of
revenue revenue
------------------------------------------
Revenue $ 2,871.6 $ 3,103.5
GAAP gross profit $ 212.9 7.4% $ 213.3 6.9%
Stock-based compensation 6.6 8.1
------------ ------------
Non-GAAP gross profit $ 219.5 7.6% $ 221.4 7.1%
------------ ------------
------------ ------------
GAAP SG&A $ 129.3 4.5% $ 121.8 3.9%
Stock-based compensation (8.1) (11.6)
------------ ------------
Non-GAAP SG&A $ 121.2 4.2% $ 110.2 3.6%
------------ ------------
------------ ------------
GAAP earnings before income
taxes $ 18.9 0.7% $ 41.0 1.3%
Net interest expense 20.9 4.7
Stock-based compensation 14.7 19.7
Amortization of intangible
assets (excluding computer
software) 5.0 2.6
Restructuring and other
charges 26.7 29.5
Gains or losses related
to the repurchase of
shares or debt 6.5 8.8
------------ ------------
Non-GAAP operating earnings
(EBIAT)(1) $ 92.7 3.2% $ 106.3 3.4%
------------ ------------
------------ ------------
GAAP net earnings (loss) $ 24.5 0.9% $ 19.8 0.6%
Stock-based compensation 14.7 19.7
Amortization of intangible
assets (excluding computer
software) 5.0 2.6
Restructuring and other
charges 26.7 29.5
Gains or losses related to
the repurchase of shares
or debt 6.5 8.8
Adjustments for taxes(2) (12.7) 11.0
------------ ------------
Non-GAAP adjusted net earnings $ 64.7 2.3% $ 91.4 2.9%
------------ ------------
------------ ------------
Diluted EPS
W.A. # of shares
(in millions) - GAAP 229.7 232.8
GAAP earnings (loss)
per share $ 0.11 $ 0.09
W.A. # of shares
(in millions) - non-GAAP 229.7 232.8
Non-GAAP adjusted net
earnings per share $ 0.28 $ 0.39
ROIC %(3) 18.3% 23.6%
GAAP cash provided by
(used in) operations $ 102.1 $ 7.2
Purchase of property, plant
and equipment, net of sales
proceeds (45.0) (12.5)
------------ ------------
Non-GAAP free cash flow(4) $ 57.1 $ (5.3)
------------ ------------
------------ ------------
(1) EBIAT is defined as earnings before interest, amortization and income
taxes. EBIAT also excludes stock-based compensation, restructuring
and other charges, and gains or losses related to the repurchase of
shares or debt.
(2) The adjustment to GAAP taxes is based on the estimated effective
income tax rate expected to be applicable for the full fiscal period
taking into account the tax effects on the non-GAAP adjustments.
(3) 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. Our ROIC measure includes operating margin, working
capital management and asset utilization. ROIC is calculated by
dividing EBIAT 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. There is no
comparable measure under Canadian or U.S. GAAP.
(4) Management uses free cash flow as a measure, in addition to cash flow
from operations, to assess operational cash flow performance. We
believe free cash flow provides another level of transparency of our
liquidity as it represents cash generated after the purchase of
capital equipment and property (net of proceeds from sale of surplus
equipment and property).
GUIDANCE SUMMARY
Q2 10 Guidance Q2 10 Actual 3Q 10 Guidance(5)
--------------- ------------ ----------------
Revenue $1.50B - $1.60B $1.59B $1.55B - $1.65B
Adjusted net EPS $0.19 - $0.23 $0.21 $0.20 - $0.24
(5) We expect a negative $0.06 to $0.11 per share impact on a GAAP basis
for the following items: quarterly stock-based compensation,
amortization of intangible assets (excluding computer software) and
restructuring charges.
CELESTICA INC.
CONSOLIDATED BALANCE SHEETS
(in millions of U.S. dollars)
(unaudited)
December 31 June 30
2009 2010
------------ ------------
Assets
Current assets:
Cash and cash equivalents (note 6)........... $ 937.7 $ 683.9
Accounts receivable.......................... 828.1 789.0
Inventories.................................. 676.1 676.8
Prepaid and other assets..................... 74.5 64.6
Income taxes recoverable..................... 21.2 16.8
Deferred income taxes........................ 5.2 5.5
------------ ------------
2,542.8 2,236.6
Property, plant and equipment.................. 393.8 372.7
Goodwill from business combinations (note 2)... - 3.0
Intangible assets.............................. 32.3 30.0
Other long-term assets......................... 137.2 142.5
------------ ------------
$ 3,106.1 $ 2,784.8
------------ ------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable............................. $ 927.1 $ 856.5
Accrued liabilities (note 4)................. 331.9 276.0
Income taxes payable......................... 38.0 50.3
Current portion of long-term debt (note 3(b)) 222.8 -
------------ ------------
1,519.8 1,182.8
Accrued pension and post-employment benefits... 75.4 77.1
Deferred income taxes.......................... 28.0 26.7
Other long-term liabilities.................... 7.1 6.5
------------ ------------
1,630.3 1,293.1
Shareholders' equity:
Capital stock................................ 3,591.2 3,597.0
Treasury stock............................... (0.4) (13.1)
Contributed surplus.......................... 211.0 223.2
Deficit...................................... (2,381.8) (2,362.0)
Accumulated other comprehensive income....... 55.8 46.6
------------ ------------
1,475.8 1,491.7
------------ ------------
$ 3,106.1 $ 2,784.8
------------ ------------
------------ ------------
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
2009 annual consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions of U.S. dollars, except per share amounts)
(unaudited)
Three months ended Six months ended
June 30 June 30
2009 2010 2009 2010
----------- ----------- ----------- -----------
Revenue................... $ 1,402.2 $ 1,585.4 $ 2,871.6 $ 3,103.5
Cost of sales............. 1,300.5 1,477.8 2,658.7 2,890.2
----------- ----------- ----------- -----------
Gross profit.............. 101.7 107.6 212.9 213.3
Selling, general and
administrative expenses.. 61.9 61.3 129.3 121.8
Amortization of
intangible assets........ 4.8 3.8 10.6 7.5
Other charges (note 4).... 20.7 23.8 33.2 38.3
Interest on long-term
debt..................... 10.8 0.8 21.2 4.6
Other interest expense
(income)................. (0.1) - (0.3) 0.1
----------- ----------- ----------- -----------
Earnings before income
taxes.................... 3.6 17.9 18.9 41.0
Income tax expense
(recovery):
Current................. 3.4 19.9 6.1 23.0
Deferred................ (5.1) 4.1 (11.7) (1.8)
----------- ----------- ----------- -----------
(1.7) 24.0 (5.6) 21.2
----------- ----------- ----------- -----------
Net earnings (loss) for
the period............... $ 5.3 $ (6.1) $ 24.5 $ 19.8
----------- ----------- ----------- -----------
Basic earnings (loss)
per share................ $ 0.02 $ (0.03) $ 0.11 $ 0.09
Diluted earnings (loss)
per share................ $ 0.02 $ (0.03) $ 0.11 $ 0.09
Shares used in computing
per share amounts:
Basic (in millions)..... 229.4 230.3 229.4 230.1
Diluted (in millions)... 230.2 230.3 229.7 232.8
See accompanying notes to unaudited consolidated financial statements.
These unaudited interim consolidated financial statements
should be read in conjunction with the
2009 annual consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions of U.S. dollars)
(unaudited)
Three months ended Six months ended
June 30 June 30
2009 2010 2009 2010
----------- ----------- ----------- -----------
Net earnings (loss) for
the period............... $ 5.3 $ (6.1) $ 24.5 $ 19.8
Other comprehensive
income (loss),
net of tax:
Currency translation
adjustment............. 4.0 (1.3) (5.1) (3.3)
Change from derivatives
designated as hedges... 25.5 (9.7) 36.0 (5.9)
----------- ----------- ----------- -----------
Comprehensive income
(loss)................... $ 34.8 $ (17.1) $ 55.4 $ 10.6
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
See accompanying notes to unaudited consolidated financial statements.
These unaudited interim consolidated financial statements
should be read in conjunction with the
2009 annual consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars)
(unaudited)
Three months ended Six months ended
June 30 June 30
2009 2010 2009 2010
----------- ----------- ----------- -----------
Cash provided by (used in):
Operations:
Net earnings (loss) for
the period.............. $ 5.3 $ (6.1) $ 24.5 $ 19.8
Items not affecting cash:
Depreciation and
amortization.......... 24.3 22.3 50.1 44.8
Deferred income taxes.. (5.1) 4.1 (11.7) (1.8)
Stock-based
compensation.......... 8.3 10.7 14.7 16.4
Restructuring charges
(note 4).............. 0.7 0.5 1.3 0.3
Other charges.......... - - 6.5 7.7
Other.................... (1.3) (0.5) (9.2) (1.1)
Changes in non-cash
working capital items:
Accounts receivable.... (77.5) 10.7 265.1 39.6
Inventories............ 60.8 47.5 153.1 (0.2)
Prepaid and other
assets................ 2.5 (5.2) 22.4 1.5
Income taxes
recoverable........... (1.6) 4.6 (4.6) 4.4
Accounts payable and
accrued liabilities... 39.6 (102.7) (407.3) (136.5)
Income taxes payable... (1.5) 9.8 (2.8) 12.3
----------- ----------- ----------- -----------
Non-cash working
capital changes....... 22.3 (35.3) 25.9 (78.9)
----------- ----------- ----------- -----------
Cash provided by
(used in) operations.... 54.5 (4.3) 102.1 7.2
----------- ----------- ----------- -----------
Investing:
Acquisition (note 2)... - - - (5.0)
Purchase of computer
software and property,
plant and equipment... (14.0) (11.9) (46.4) (19.5)
Proceeds from sale
of assets............. 0.5 1.7 1.4 7.0
Other.................. (0.3) 0.5 0.5 0.2
----------- ----------- ----------- -----------
Cash used in investing
activities.............. (13.8) (9.7) (44.5) (17.3)
----------- ----------- ----------- -----------
Financing:
Repurchase of Senior
Subordinated Notes
(Notes) (note 3(b))... - - (149.7) (231.6)
Proceeds from
termination of swap
agreements
(note 3(b))........... - - 14.7 -
Issuance of share
capital............... 0.2 0.5 0.2 4.0
Purchase of treasury
stock................. (0.1) (14.1) (0.1) (15.1)
Financing and other
costs................. (2.8) (0.7) (4.4) (1.0)
----------- ----------- ----------- -----------
Cash used in financing
activities............. (2.7) (14.3) (139.3) (243.7)
----------- ----------- ----------- -----------
Increase (decrease) in
cash.................... 38.0 (28.3) (81.7) (253.8)
Cash and cash
equivalents, beginning
of period............... 1,081.3 712.2 1,201.0 937.7
----------- ----------- ----------- -----------
Cash and cash
equivalents, end of
period.................. $ 1,119.3 $ 683.9 $ 1,119.3 $ 683.9
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
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
2009 annual consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in millions of U.S. dollars)
(unaudited)
Accu-
mulated
other
Number of compre-
shares(1) Cont- hensive
(in Capital ributed Treasury income
millions) stock surplus stock(2) Deficit (note 8)
-------- --------- -------- --------- ---------- ---------
Balance -
December 31,
2008.......... 229.2 $ 3,588.5 $ 211.6 $ (7.2) $(2,436.8) $ 9.4
Shares issued.. - 0.2 - - - -
Purchase of
treasury
stock(2)...... - - - (0.1) - -
Stock-based
compensation.. - - 7.1 7.3 - -
Other.......... - - 1.2 - - -
Net earnings
for the first
half of 2009.. - - - - 24.5 -
Currency
translation
adjustments... - - - - - (5.1)
Change from
derivatives
designated
as hedges.... - - - - - 36.0
-------- --------- -------- --------- ---------- ---------
Balance -
June 30,
2009......... 229.2 $ 3,588.7 $ 219.9 $ - $(2,412.3) $ 40.3
-------- --------- -------- --------- ---------- ---------
-------- --------- -------- --------- ---------- ---------
Balance -
December 31,
2009.......... 229.5 $ 3,591.2 $ 211.0 $ (0.4) $(2,381.8) $ 55.8
Shares issued.. 0.7 5.8 - - - -
Purchase of
treasury
stock(2)...... - - - (15.1) - -
Stock-based
compensation.. - - 12.3 2.4 - -
Other.......... - - (0.1) - - -
Net earnings
for the first
half of 2010.. - - - - 19.8 -
Currency
translation
adjustments.. - - - - - (3.3)
Change from
derivatives
designated
as hedges.... - - - - - (5.9)
-------- --------- -------- --------- ---------- ---------
Balance -
June 30,
2010......... 230.2 $ 3,597.0 $ 223.2 $ (13.1) $(2,362.0) $ 46.6
-------- --------- -------- --------- ---------- ---------
-------- --------- -------- --------- ---------- ---------
(1) Includes subordinate voting shares and multiple voting shares.
(2) From time to time, we pay cash for the purchase of shares in the open
market by a trustee to satisfy our obligation to deliver shares upon
vesting of share unit awards under our long-term incentive plans.
During the first half of 2010, we paid $15.1 for the trustee's
purchase of approximately 1.6 million shares in connection with these
plans. At June 30, 2010, the trustee held 1.4 million shares in
connection with these plans, which we classify for accounting
purposes as treasury stock with an ascribed value of $13.1. At June
30, 2009, the trustee did not hold any such shares that were
classified as treasury stock for accounting purposes.
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 2009 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 June
30, 2010 and the results of operations, comprehensive income (loss) and
cash flows for the three and six months ended June 30, 2009 and 2010.
i) 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, taking into account historical experience
and other relevant factors. Actual results could differ materially from
those estimates and assumptions.
During the second quarter of 2010, we recorded a net inventory valuation
reversal of $3.0 through cost of sales to reflect increases in the value
of our inventory, primarily due to changes in estimating net realizable
values.
These unaudited interim consolidated financial statements are based upon
accounting principles consistent with those used and described in the
2009 annual consolidated financial statements.
ii) 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 preliminary IFRS accounting policy decisions are
disclosed in our management's discussion and analysis for the period
ended June 30, 2010.
(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 consideration and
contingencies will also be recorded at fair value at the acquisition
date. The standard also states that acquisition-related costs and
restructuring charges will be expensed as incurred. 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 do not expect the adoption of this standard to have a
material impact on our consolidated financial statements unless we engage
in a significant acquisition.
(c) Multiple deliverable revenue arrangements:
In December 2009, the CICA issued EIC 175, "Multiple deliverable revenue
arrangements," which replaces the existing standards. This abstract
provides additional guidance for arrangements involving multiple
deliverables including how consideration should be measured and allocated
to the separate units of an arrangement. This abstract is effective for
2011. We are evaluating the impact of adopting this abstract on our
consolidated financial statements.
2. Acquisition:
In January 2010, we acquired the shares of Scotland-based Invec Solutions
Limited (Invec) for a cash purchase price of $5.0. Invec provides
warranty management, repair and parts management services to companies in
the information technology and consumer electronics markets. The amount
of goodwill and intangible assets, primarily computer software assets,
arising from this acquisition was $3.0 and $3.8, respectively. We are in
the process of finalizing the valuation of certain items. Accordingly,
our fair value allocation is preliminary and is subject to refinement.
3. Long-term debt:
(a) Credit facility:
We have a revolving $200.0 credit facility with a maturity of April 2011.
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. Commitment fees for the first half of 2010 were $1.1. We were
in compliance with all covenants at June 30, 2010. Based on the required
financial ratios at June 30, 2010, we have full access to this facility.
We also have uncommitted bank overdraft facilities available for intraday
operating requirements which total $65.0 at June 30, 2010.
There were no borrowings outstanding under either of these facilities at
June 30, 2010.
(b) Senior Subordinated Notes:
In March 2009, we paid $149.7 to repurchase a portion of our Senior
Subordinated Notes due 2011 (2011 Notes) and recognized a gain of $9.1 in
other charges. In March 2010, we paid $231.6 to repurchase the remaining
Senior Subordinated Notes due 2013 and recognized a loss of $8.8 in other
charges. At June 30, 2010, we had no outstanding debt.
During the first quarter of 2009, we terminated the interest rate swap
agreements related to the 2011 Notes and received a $14.7 cash
settlement. In connection with the termination of the swap agreements, we
discontinued fair value hedge accounting and recorded a write-down,
through other charges, of $15.6 in the carrying value of the embedded
prepayment option on the 2011 Notes to fair value.
4. Other charges:
Three months ended Six months ended
June 30 June 30
2009 2010 2009 2010
----------- ----------- ----------- -----------
Restructuring(a).......... $ 20.9 $ 23.8 $ 27.6 $ 31.9
Loss (gain) on repurchase
of Notes (note 3(b))..... - - (9.1) 8.8
Write-down of embedded
prepayment option
(note 3(b)).............. - - 15.6 -
Other(b).................. (0.2) - (0.9) (2.4)
----------- ----------- ----------- -----------
$ 20.7 $ 23.8 $ 33.2 $ 38.3
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(a) Restructuring:
In January 2008, we estimated that a restructuring charge of between $50
and $75 would be recorded throughout 2008 and 2009. 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. Since the beginning of 2008, we
have recorded total restructuring charges of $150.3. Of that amount,
$23.8 and $31.9 were recorded in the second quarter and first half of
2010, respectively. 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 under this plan
were 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 2010 activity are as follows:
Lease
and
other Facility
Employee cont- exit Total 2010
termi- ractual costs accrued non- Total
nation obliga- and liabi- cash 2010
costs tions other lity charge charge
-------- -------- -------- -------- -------- --------
December 31, 2009... $ 23.7 $ 20.8 $ 0.5 $ 45.0 $ - $ -
Cash payments....... (21.1) (5.4) (0.8) (27.3) - -
Charges/adjustments. 5.9 1.5 0.9 8.3 (0.2) 8.1
-------- -------- -------- -------- -------- --------
March 31, 2010...... 8.5 16.9 0.6 26.0 (0.2) 8.1
Cash payments....... (8.8) (3.4) (0.9) (13.1) - -
Charges/adjustments. 18.7 3.9 0.7 23.3 0.5 23.8
-------- -------- -------- -------- -------- --------
June 30, 2010....... $ 18.4 $ 17.4 $ 0.4 $ 36.2 $ 0.3 $ 31.9
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
As of June 30, 2010, we had approximately $21 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. We will record gains or losses on disposal through
restructuring charges.
(b) Other:
We realized recoveries on certain assets that were previously written
down through other charges.
5. Segment and customer information:
(a) 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 program wins or losses with
new, existing or disengaging customers; the phasing in or out of
programs; and changes in customer demand.
Three months ended Six months ended
June 30 June 30
2009 2010 2009 2010
--------- -------- --------- --------
Consumer................... 22% 28% 26% 28%
Enterprise Communications.. 23% 22% 22% 22%
Telecommunications......... 20% 13% 19% 13%
Storage.................... 12% 12% 10% 13%
Servers.................... 12% 14% 12% 13%
Industrial, Aerospace and
Defense, and Healthcare... 11% 11% 11% 11%
(b) For the second quarter and first half of 2010, two customers and one
customer, respectively, individually represented more than 10% of
total revenue. For the second quarter and first half of 2009, three
customers and two customers, respectively, individually represented
more than 10% of total revenue.
6. Supplemental cash flow information:
Three months ended Six months ended
June 30 June 30
Paid during the period: 2009 2010 2009 2010
---------- --------- --------- ---------
Interest(a)............. $ 3.0 $ 0.8 $ 31.9 $ 12.9
Taxes(b)................ $ 9.7 $ 4.5 $ 14.8 $ 5.5
(a) This includes interest paid on the Notes. Interest on the Notes was
payable in January and July of each year until maturity or earlier
repurchase or redemption. We redeemed all of our outstanding Notes
prior to March 31, 2010.
(b) Cash taxes paid is net of any income taxes recovered.
December 31 June 30
Cash and cash equivalents are 2009 2010
comprised of the following: ----------- -----------
Cash(i).................................... $ 259.8 $ 250.5
Cash equivalents(i)........................ 677.9 433.4
----------- -----------
$ 937.7 $ 683.9
----------- -----------
----------- -----------
(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 June 30, 2010 a
Standard and Poor's rating of A-1 or above.
7. Derivative financial instruments:
We enter into foreign currency contracts to hedge foreign currency risks
primarily relating to cash flows. The fair value of our foreign currency
contracts at June 30, 2010 was a net unrealized gain of $1.0 (December
31, 2009 - net unrealized gain of $8.0). This is comprised of $5.7 of
derivative assets recorded in prepaid and other assets and other
long-term assets, and $4.7 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.
At June 30, 2010, we had forward exchange contracts to trade U.S. dollars
in exchange for the following currencies:
Weighted
average
exchange Maximum
Amount of rate of period in Fair value
Currency U.S. dollars U.S. dollars months gain/(loss)
---------------------- ------------ ------------- ---------- ------------
Canadian dollar........ $ 163.9 $ 0.94 19 $ 2.1
British pound sterling. 94.5 1.51 4 0.1
Thai baht.............. 78.3 0.03 12 0.6
Malaysian ringgit...... 61.7 0.30 12 1.1
Mexican peso........... 45.9 0.08 12 0.5
Euro................... 32.2 1.24 2 0.1
Singapore dollar....... 23.2 0.71 12 -
Romanian lei........... 18.7 0.32 10 (2.8)
Swiss franc............ 9.1 0.93 4 0.1
Czech koruna........... 7.0 0.05 6 (0.7)
Japanese yen........... 5.0 0.01 1 -
Brazilian real......... 2.6 0.54 3 (0.1)
------------ ------------
Total.................. $ 542.1 $ 1.0
------------ ------------
------------ ------------
8. Accumulated other comprehensive income, net of tax:
Six months
Year ended ended
December 31 June 30
2009 2010
------------ ------------
Opening balance of foreign currency
translation account....................... $ 46.7 $ 46.9
Currency translation adjustment............ (1.6) (3.3)
Release of cumulative currency translation
to other charges.......................... 1.8 -
------------ ------------
Closing balance............................ 46.9 43.6
Opening balance of unrealized net gain
(loss) on cash flow hedges................ $ (37.3) $ 8.9
Net gain on cash flow hedges(a)............ 14.4 3.2
Net loss (gain) on cash flow hedges
reclassified to operations(b)............. 31.8 (9.1)
------------ ------------
Closing balance(c)......................... 8.9 3.0
------------ ------------
Accumulated other comprehensive income..... $ 55.8 $ 46.6
------------ ------------
------------ ------------
(a) Net of income tax expense of nil and $0.3 for the three and six
months ended June 30, 2010 ($0.1 income tax benefit for 2009).
(b) Net of income tax benefit of $0.1 and $0.2 for the three and six
months ended June 30, 2010 ($0.6 income tax expense for 2009).
(c) Net of income tax expense of $0.2 as of June 30, 2010 ($0.1 income
tax expense as of December 31, 2009).
We expect that the majority of the gains on cash flow hedges reported in
accumulated other comprehensive income at June 30, 2010 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. Contingencies:
Litigation:
In the normal course of our operations, we may 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 matters 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 and reviews by local tax authorities of
historical information which could result in additional tax expense in
future periods relating to prior results. Reviews by tax authorities
generally focus on, but are not limited to, 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.
In connection with ongoing tax audits in Hong Kong, tax authorities have
taken the position that income reported by one of our Hong Kong
subsidiaries in 1999 through 2008 should have been materially higher as a
result of certain inter-company transactions. We submitted a proposed
settlement of this tax audit to the Hong Kong tax authorities in July
2010; if accepted, the taxes and penalties would total approximately
129.5 million Hong Kong dollars (approximately $16.6 at current exchange
rates), including the impact on future periods as a result of the
reversal of tax attributes. There can be no assurance as to the final
resolution of these proceedings.
In connection with a tax audit in Brazil, 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. If Brazilian tax authorities ultimately prevail in their
position, our Brazilian subsidiary's tax liability would increase by
approximately 43.5 million Brazilian reais (approximately $24.2 at
current exchange rates). In addition, Brazilian tax authorities may make
similar claims in future audits with respect to these types of
transactions.
The successful pursuit of assertions made by taxing authorities related
to the above noted tax audits or others could result in us owing
significant amounts of tax, interest and possibly penalties. We believe
we have substantial defenses to the asserted positions and have
adequately accrued for any probable potential adverse tax impact.
However, there can be no assurance as to the final resolution of these
claims and any resulting proceedings, and if these claims and any ensuing
proceedings are determined adversely to us, the amounts we may be
required to pay could be material.
We have and expect to 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:
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 and our balance sheet exposures denominated in foreign
currencies. Our major currency exposures, as of June 30, 2010, 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 June 30, 2010.
Chinese Canadian Malaysian Mexican
renminbi dollar ringgit peso
----------- ----------- ---------- -----------
Cash and cash
equivalents.......... $ 25.1 $ 41.7 $ 1.8 $ 0.7
Accounts receivable... 20.0 - 0.1 -
Other financial
assets............... 0.4 0.4 0.4 -
Accounts payable and
accrued liabilities.. (27.8) (30.7) (13.1) (17.7)
----------- ----------- ---------- -----------
Net financial assets
(liabilities)........ $ 17.7 $ 11.4 $ (10.8) $ (17.0)
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
At June 30, 2010, 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:
Chinese Canadian Malaysian Mexican
renminbi dollar ringgit peso
----------- ----------- ---------- -----------
1% Strengthening
Net earnings..... $ 0.2 $ 0.3 $ (0.2) $ (0.2)
Other
comprehensive
income.......... - 1.5 0.5 0.4
1% Weakening
Net earnings..... (0.2) (0.3) 0.2 0.2
Other
comprehensive
income.......... - (1.4) (0.5) (0.4)
11. Comparative information:
We have reclassified certain prior period information to conform to the
current period's presentation.
12. Subsequent events:
In July 2010, we entered into an agreement to acquire the shares of
Austrian-based Allied Panels Entwicklungs-und Produktions GmbH, a medical
engineering and manufacturing service provider focusing on diagnostic
imaging products. We expect to complete this acquisition during the third
quarter of 2010.
In July 2010, we announced our intention to file a Normal Course Issuer
Bid (NCIB) to repurchase, at our discretion during the next 12 months, up
to approximately 18 million, or 9%, of our subordinate voting shares on
the open market, subject to the normal terms and limitations of such
bids. The number of subordinate voting shares which may be purchased will
be reduced by the number of subordinate voting shares purchased for
employee equity-based incentive programs. Any subordinate voting shares
purchased by us under the NCIB will be cancelled. This plan is subject to
the approval of the Toronto Stock Exchange.
SOURCE Celestica Inc.