================================================================================ FORM 6-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934 For the month of November 2000 ---------------------------------- CELESTICA INC. (TRANSLATION OF REGISTRANT'S NAME INTO ENGLISH) ---------------------------------- 12 CONCORDE PLACE TORONTO, ONTARIO CANADA, M3C 3R8 (416) 448-5800 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F X Form 40-F -------- -------- Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes No X -------- -------- If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-____________ ================================================================================
CELESTICA INC. FORM 6-K/A MONTH OF NOVEMBER 2000 Filed with this Form 6-K/A is the following: - Press release of Celestica Inc. dated November __, 2000, the text of which is attached hereto as Exhibit 1 and is incorporated herein by reference. - Management's Discussion and Analysis of Financial Condition and Results of Operations Third Quarter 2000, the text of which is attached hereto as Exhibit 2 and is incorporated herein by reference. EXHIBIT 99.1 Press release dated October 18, 2000 99.2 Management's Discussion and Analysis 1
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CELESTICA INC. Date: November __, 2000 BY:__________________________ Name: Elizabeth DelBianco Title: Vice President & General Counsel 2
EXHIBIT INDEX EXHIBIT DESCRIPTION SEQUENTIAL PAGE NO. - ------- ----------- ------------------- 1 Press release dated 5 November __, 2000 2 Management's Discussion and Analysis 3
THIRD QUARTER RESULTS Wednesday, October 18, 2000 (All amounts in U.S. dollars. Per share information based on fully diluted shares outstanding unless noted otherwise. Historical per share information reflects the impact of the December 1999 two-for-one stock split, retroactively applied) CELESTICA ANNOUNCES RECORD THIRD QUARTER RESULTS REVENUE INCREASES 92 PER CENT TO $2.6 BILLION, ADJUSTED EARNINGS UP 157 PER CENT TO $83.9 MILLION ADJUSTED EPS UP 117 PER CENT TO $0.39 PER SHARE TORONTO, Canada - Celestica Inc. (NYSE, TSE: CLS), a world leader in electronics manufacturing services (EMS), today announced financial results for the third quarter ended September 30, 2000. REVENUE for the three months ended September 30, 2000 was $2,600 million, up 92 per cent from $1,357 million in the third quarter of 1999, and up 24 per cent sequentially from the second quarter of 2000. The accelerating growth rate continues to be buoyed by strong organic growth, with strength across all geographies and in key end markets such as communications and internet infrastructure markets such as servers and storage. ADJUSTED NET EARNINGS, which exclude the after-tax impact of amortization of intangible assets and integration costs related to acquisitions, increased 157 per cent to $83.9 million, compared to $32.6 million in the third quarter of 1999, and up 32 per cent from the second quarter this year. The year-over-year and sequential improvements resulted from the strong revenue growth and operating margin expansion in all three of the company's operating geographies. ADJUSTED NET EARNINGS PER SHARE rose 117 per cent to $0.39 per share compared to $0.18 per share for the same period in 1999, and up sequentially 30 per cent from the second quarter in 2000 and continue to exceed revenue growth rates. NET EARNINGS increased 186 per cent to $55.7 million, or $0.26 per share, compared to $19.5 million or $0.11 per share in the third quarter of 1999. FOR THE NINE-MONTH PERIOD ended September 30, 2000, revenue was $6,304 million, up 71 per cent from $3,688 million for the same period last year. Adjusted net earnings were $187.2 million, up 128 per cent from $82.0 million last year. Adjusted net earnings per share were $0.90, up 88 per cent from $0.48 for the same period last year. Net earnings were $123.2 million or $0.60 per share compared to $42.2 million or $0.25 per share last year.
"Celestica's business performance continues to reflect our strong win rates in a very robust industry environment," said Eugene Polistuk, president and CEO, Celestica Inc. "Significant revenue growth was achieved around the globe with over half of our growth being achieved organically. We reached our $10 billion annualized run rate far ahead of schedule. Importantly, we also improved our operating margins in all three of our major geographies reflecting the focus and success the Company is having in improving its profitability. As we look ahead, we believe that the long-term fundamentals for outsourcing remain very strong. Also, our strategy of having diversified, leading customers in multiple end-markets who leverage our leadership in technology, quality and supply chain management gives us a strong engine for continued high growth and improved profitability going forward." ABOUT CELESTICA With more than 23,000 employees worldwide, Celestica operates 33 manufacturing and design facilities in the United States, Canada, Mexico, the United Kingdom, Ireland, Italy, the Czech Republic, Thailand, Hong Kong, China, Malaysia and Brazil. Celestica provides a broad range of services including design, prototyping, assembly, testing, product assurance, supply chain management, worldwide distribution and after-sales service. Its customers include industry leading original equipment manufacturers (OEMs), primarily in the information technology and communications sectors. 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. SAFE HARBOUR AND FAIR DISCLOSURE STATEMENT STATEMENTS CONTAINED IN THIS PRESS RELEASE WHICH ARE NOT HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISK AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS. AMONG THE KEY FACTORS THAT COULD CAUSE SUCH DIFFERENCES ARE: THE LEVEL OF OVERALL GROWTH IN THE ELECTRONICS MANUFACTURING SERVICES (EMS) INDUSTRY; VARIABILITY OF OPERATING RESULTS AMONG PERIODS; DEPENDENCE ON THE COMPUTER AND COMMUNICATIONS INDUSTRIES; DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS; AND THE ABILITY TO MANAGE EXPANSION, CONSOLIDATION AND THE INTEGRATION OF ACQUIRED BUSINESSES. THESE AND OTHER FACTORS ARE DISCUSSED IN THE COMPANY'S VARIOUS PUBLIC FILINGS AT WWW.SEDAR.COM. AS OF ITS DATE, THIS PRESS RELEASE CONTAINS ANY MATERIAL INFORMATION ASSOCIATED WITH THE COMPANY'S THIRD QUARTER FINANCIAL RESULTS. Contacts: Laurie Flanagan Paul Carpino Corporate Communications Celestica Investor Relations (416) 448-2200 (416) 448-2211 FLANAGAN@CELESTICA.COM CLSIR@CELESTICA.COM
2 CELESTICA INC. CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (DEFICIT) (IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS) (unaudited) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 2000 1999 2000 - ------------------------------------------------------------------------------------------------------------------- Revenue $ 1,356,947 $ 2,600,149 $ 3,688,482 $ 6,304,355 ---------------------------------------------------------------- ---------------------------------------------------------------- Gross profit $ 98,588 $ 183,503 $ 262,186 $ 439,925 Selling, general and administrative expenses 51,612 85,121 140,909 216,603 Amortization of intangible assets 14,070 25,607 41,629 60,178 Integration costs related to acquisitions 1,282 4,842 5,250 10,413 Interest expense (income), net 2,995 (5,229) 8,462 (13,323) ---------------------------------------------------------------- Earnings before income taxes 28,629 73,162 65,936 166,054 Provision for income taxes 9,161 17,485 23,727 42,850 ---------------------------------------------------------------- Net earnings for the period 19,468 55,677 42,209 123,204 Retained earnings (deficit), beginning of period (29,477) 83,735 (52,218) 16,208 Convertible debt accretion, net of tax (note 2) - (2,098) - (2,098) ---------------------------------------------------------------- Retained earnings (deficit), end of period $ (10,009) $ 137,314 $ (10,009) $ 137,314 ---------------------------------------------------------------- ---------------------------------------------------------------- Earnings per share - basic (1) $ 0.12 $ 0.26 $ 0.26 $ 0.61 ---------------------------------------------------------------- ---------------------------------------------------------------- Earnings per share - fully diluted (1) $ 0.11 $ 0.26 $ 0.25 $ 0.60 ---------------------------------------------------------------- ---------------------------------------------------------------- Weighted average number of shares Outstanding (in 000's) - basic (1) 168,686 203,003 163,892 198,633 Weighted average number of shares Outstanding (in 000's) - fully diluted (1) 180,196 223,753 175,137 214,599 ---------------------------------------------------------------- ---------------------------------------------------------------- (1)All historical share and per share information has been restated to reflect the effects of the two-for-one stock split on a retroactive basis. - -------------------------------------------------------------------------------- ADJUSTED NET EARNINGS (IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS) (unaudited) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 2000 1999 2000 - ------------------------------------------------------------------------------------------------------------------- Adjusted net earnings (2) $ 32,612 $ 83,925 $ 81,993 $ 187,189 Adjusted net earnings per share - basic (1) $ 0.19 $ 0.40 $ 0.50 $ 0.93 Adjusted net earnings per share - fully diluted $ 0.18 $ 0.39 $ 0.48 $ 0.90 (1) (1)All historical share and per share information has been restated to reflect the effects of the two-for-one stock split on a retroactive basis. (2)Adjusted net earnings exclude the after-tax effect of integration costs related to acquisitions and amortization of intangible assets. - --------------------------------------------------------------------------------
4 CELESTICA INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF U.S. DOLLARS) (unaudited) AS AT SEPTEMBER 30, 1999 2000 ------------------------------------------------------- ----------------- ----------------- ASSETS Current assets Cash and short-term investments $ 73,447 $ 942,494 Accounts receivable 595,325 1,501,027 Inventories 785,442 1,621,268 Other assets 57,936 172,578 ----------------- ----------------- 1,512,150 4,237,367 Capital assets 326,240 544,377 Intangible assets 348,998 589,554 Other assets 85,689 102,299 ----------------- ----------------- $ 2,273,077 $ 5,473,597 ----------------- ----------------- ----------------- ----------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable and accrued liabilities $ 949,605 $ 1,905,599 Deferred income taxes 3,227 6,192 Current portion of long-term debt 2,843 1,922 ----------------- ----------------- 955,675 1,913,713 Long-term debt 132,872 130,073 Other liabilities 17,982 56,418 ----------------- ----------------- 1,106,529 2,100,204 Shareholders' equity Capital stock (note 3) 1,175,009 2,394,610 Convertible debt (note 2) - 854,390 Retained earnings (deficit) (10,009) 137,314 Foreign currency translation adjustment 1,548 (12,921) ----------------- ----------------- 1,166,548 3,373,393 ----------------- ----------------- $ 2,273,077 $ 5,473,597 ----------------- ----------------- ----------------- -----------------
5 CELESTICA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF U.S. DOLLARS) (unaudited) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 2000 1999 2000 - ---------------------------------------------------------------------------------------------------------------- CASH PROVIDED BY (USED IN) OPERATIONS Net earnings for the period $ 19,468 $ 55,677 $ 42,209 $ 123,204 Items not affecting cash: Depreciation and amortization 32,918 58,335 90,623 145,584 Other 1,891 (5,805) (4,302) (20,718) ---------------------------------------------------------------- Cash from earnings 54,277 108,207 128,530 248,070 Non-cash working capital changes 16,132 (206,236) (161,235) (486,518) ---------------------------------------------------------------- 70,409 (98,029) (32,705) (238,448) INVESTING Acquisitions, net of cash acquired (8,554) (25,927) (13,886) (622,660) Purchase of capital assets (76,108) (66,033) (155,210) (163,936) Other (21) 735 (1,466) 22,382 ---------------------------------------------------------------- (84,683) (91,225) (170,562) (764,214) FINANCING Bank indebtedness - 249 - (8,631) Decrease in long-term debt, net (6,018) - (8,363) - Issuance of share capital 3,314 1,125 269,856 765,799 Share issue costs - - (12,737) (26,788) Deferred financing costs (115) (10) (1,261) (114) Issuance of convertible debt - 862,865 - 862,865 Convertible debt issue costs - (19,405) - (19,405) Other (3,395) 3,276 (2,502) (92) ---------------------------------------------------------------- (6,214) 848,100 244,993 1,573,634 INCREASE (DECREASE) IN CASH (20,488) 658,846 41,726 570,972 CASH, BEGINNING OF PERIOD 93,935 283,648 31,721 371,522 ---------------------------------------------------------------- CASH, END OF PERIOD $ 73,447 $ 942,494 $ 73,447 $ 942,494 ---------------------------------------------------------------- ---------------------------------------------------------------- SUPPLEMENTAL INFORMATION Paid during the period Interest $ 969 $ 294 $ 9,233 $ 8,051 Taxes $ 2,143 $ 8,411 $ 17,383 $ 40,785 Cash is comprised of cash and short-term investments.
6 CELESTICA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS OF U.S. DOLLARS) (unaudited) 1. SEGMENTED INFORMATION: The Company's operations fall into one dominant industry segment, the electronics manufacturing services industry. The Company manages its operations, and accordingly determines its operating segments, on a geographic basis. The performance of geographic operating segments is monitored based on EBIAT (earnings before interest, amortization of intangible assets, income taxes, integration costs related to acquisitions and other charges). The Company monitors enterprise-wide performance based on adjusted net earnings, which is calculated as net earnings before amortization of intangible assets, and integration costs related to acquisitions, net of related income taxes. Inter-segment transactions are reflected at market value. The following is a breakdown of: revenue, EBIAT, adjusted net earnings and total assets by operating segment. Certain comparative information has been restated to reflect changes in the management of operating segments. THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 2000 1999 2000 - ---------------------------------------------- ---------------- --------------- ---------------- --------------- REVENUE North America (1) $ 930,695 $ 1,646,147 $ 2,527,526 $ 4,223,920 Europe 262,295 764,272 753,146 1,637,126 Asia 183,005 284,992 480,013 733,135 Elimination of inter-segment revenue (19,048) (95,262) (72,203) (289,826) ---------------- --------------- ---------------- --------------- $ 1,356,947 $ 2,600,149 $ 3,688,482 $ 6,304,355 ---------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- --------------- EBIAT North America $ 29,666 $ 56,017 $ 82,008 $ 131,298 Europe 11,022 33,119 25,347 67,835 Asia 6,288 9,246 13,922 24,189 ---------------- --------------- ---------------- --------------- EBIAT 46,976 98,382 121,277 223,322 Interest, net (2,995) 5,229 (8,462) 13,323 Amortization of intangible assets (14,070) (25,607) (41,629) (60,178) Integration costs related to acquisitions (1,282) (4,842) (5,250) (10,413) ---------------- --------------- ---------------- --------------- Earnings before income taxes $ 28,629 $ 73,162 $ 65,936 $ 166,054 ---------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- --------------- ADJUSTED NET EARNINGS $ 32,612 $ 83,925 $ 81,993 $ 187,189 ---------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- --------------- AS AT SEPTEMBER 30, 1999 2000 ---------------- --------------- TOTAL ASSETS North America $ 1,157,472 $ 3,401,280 Europe 789,522 1,578,123 Asia 326,083 494,194 ---------------- --------------- $ 2,273,077 $ 5,473,597 ---------------- --------------- ---------------- --------------- (1) Revenue from Canadian operations was $598,601 and $833,061 for the three months ended September 30, 1999 and 2000, respectively and $1,658,580 and $2,191,017 for the nine months ended September 30, 1999 and 2000, respectively.
7 CELESTICA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS OF U.S. DOLLARS) (unaudited) 2. CONVERTIBLE DEBT: In August 2000, Celestica issued Liquid Yield Option Notes (LYONs) with a principal amount at maturity of $1,813,550, payable August 1, 2020. The Company received net after tax proceeds, after deducting underwriting commissions, of $850,372. No interest is payable on the LYONs and the issue price of the LYONs represents a yield to maturity of 3.75%. The LYONs are subordinated in right of payment to all existing and future senior indebtedness of the Company. The LYONs are convertible at any time at the option of the holder, unless previously redeemed or repurchased, into 5.6748 subordinate voting shares for each $1 principal amount at maturity. Holders may require the Company to repurchase all or a portion of their LYONs on August 2, 2005, August 1, 2010 and August 1, 2015 and the Company may redeem the LYONs at any time on or after August 1, 2005 (and, under certain circumstances, before that date). The Company is required to offer to repurchase the LYONs if there is a change in control or a delisting event. Generally, the redemption or repurchase price is equal to the accreted value of the LYONs. The Company may elect to pay the principal amount at maturity of the LYONs and the repurchase price is payable in certain circumstances in cash or subordinate voting shares or any combination thereof. Upon the occurrence of certain tax events, the Company may elect to pay interest on the LYONs in lieu of accruing the original issue discount. The Company has recorded the LYONs as an equity instrument pursuant to Canadian GAAP. In accordance with Canadian GAAP the LYONs are bifurcated into a principal equity component (representing the present value of the notes) and an option component (representing the value of the conversion features of the notes). The principal equity component is accreted over the 20-year term through periodic charges to retained earnings. The accretion of the convertible debt is deducted from net earnings for the period to determine earnings available to shareholders for the calculation of basic earnings per share. 3. OUTSTANDING SHARES: As at September 30, 2000, Celestica had outstanding 39,065,950 multiple voting shares, 164,101,435 subordinate voting shares and 14,340,131 options to acquire subordinate voting shares under Celestica's employee incentive plans. The multiple voting shares are convertible into subordinate voting shares on a one-for-one basis. In August 2000, Celestica issued LYONs (see note 2) which are convertible into 5.6748 subordinate voting shares of Celestica for each $1 principal amount at maturity or 10,291,534 subordinate voting shares.
[CELESTICA LOGO] MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER 2000 THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 CONTAINED IN THE COMPANY'S FORM 6-K/A FILING FOR FEBRUARY 2000. CERTAIN STATEMENTS CONTAINED IN THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS BELIEVES, ANTICIPATES, ESTIMATES, EXPECTS, AND WORDS OF SIMILAR IMPORT, CONSTITUTE FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. CELESTICA'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, WHICH ARE DETAILED IN CELESTICA'S ANNUAL REPORT ON FORM 20-F. GENERAL Celestica is a leading provider of electronics manufacturing services to OEMs worldwide and is the third-largest EMS provider in the world with 1999 revenue of $5.3 billion. Celestica provides a wide variety of products and services to its customers, including the high-volume manufacture of complex PCAs and the full system assembly of final products. In addition, the Company is a leading-edge provider of design, repair and engineering services, supply chain management, memory and power products. At October 18, 2000, Celestica operated 33 facilities in eleven countries. During 1998, Celestica operated 18 facilities across North America and Europe. The acquisition of IMS in December 1998 provided the Company with an immediate and major presence in Asia, increasing the number of facilities to 23. Seven facilities were added in 1999 through five acquisitions and two greenfield establishments. In 2000, five facilities have been added through three acquisitions and two smaller facilities were consolidated. In 1998 and 1999, Celestica completed three equity offerings, including its initial public offering, issuing a total of 81.9 million subordinate voting shares for net proceeds (after tax) of $1.1 billion. The net proceeds from the initial public offering were used to prepay a significant portion of Celestica's debt. The net proceeds of the follow-on offerings were used to fund organic and acquisition-related growth. In March 2000, Celestica issued 16.6 million subordinate voting shares for net proceeds (after tax) of $740 million which provided Celestica with additional flexibility to support its growth strategy. In August 2000, Celestica completed an offering of 20-year Liquid Yield Option Notes or LYONs, raising net proceeds (after tax) of $850 million. The LYONs are recorded as an equity instrument pursuant to Canadian GAAP. See "Convertible Debt". The Company's net debt to capitalization ratio decreased from 57% at July 1998 to negative 32% at September 30, 2000. In December 1999, the Company completed a two-for-one stock split of the subordinate voting and multiple voting shares by way of a stock dividend. All historical share and per share information has been restated to reflect the effects of this stock split on a retroactive basis. Celestica prepares its financial statements in accordance with accounting principles which are generally accepted in Canada with a reconciliation to accounting principles generally accepted in the United States, as disclosed in Note 24 to the 1999 Consolidated Financial Statements. ACQUISITIONS A significant portion of Celestica's growth has been generated by the strengthening of its customer relationships and increases in the breadth of its service offerings through facility and business acquisitions completed since the beginning of 1997. During 1997 and 1998, Celestica completed 12 acquisitions and established one greenfield operation. In 1999, Celestica completed five acquisitions and established two greenfield operations. In 2000, Celestica has completed three acquisitions.
In April 1999, Celestica acquired certain assets of Gossen-Metrawatt GmbH's ("Gossen-Metrawatt") manufacturing operation in the Czech Republic, which provided Celestica with a strategic presence in a low-cost geography in Central Europe. In connection with the acquisition, Celestica entered into a long-term supply and cooperation agreement with Gossen-Metrawatt. In September 1999, Celestica acquired VXI Electronics, Inc. in Milwaukie, Oregon, which enhanced the Company's power systems product and service operations in North America and expanded its customer base. In October 1999, Celestica acquired certain assets related to Hewlett-Packard's Healthcare Solutions Group's printed circuit board assembly operations in Andover, Massachusetts. This acquisition enhanced the Company's presence in the Northeast region of the United States and provided further product diversification into the medical equipment market segment. In December 1999, Celestica acquired EPS Wireless, Inc. in Dallas, Texas. Also in December 1999, Celestica acquired certain assets of Fujitsu-ICL's repair business in Dallas, Texas. These acquisitions enhanced the Company's repair capabilities in North America and diversified its relationships with its customers. The aggregate purchase price paid by the Company for acquisitions in 1999 was $65.1 million. In June 1999, Celestica established greenfield operations in Brazil and Malaysia. In February and May, 2000, the Company acquired certain assets from the Enterprise Systems Group and Microelectronics Division of IBM in Rochester, Minnesota and Vimercate and Santa Palomba, Italy, respectively, for a total purchase price of $471.6 million. The purchase price, including capital assets, working capital and intangible assets, was financed with cash on hand. In connection with the acquisition, the Company signed two three-year strategic supply agreements with IBM to provide a complete range of electronics manufacturing services. Annualized revenue from these agreements is expected to be approximately $1.5 billion. The agreements provided for the employment by Celestica of approximately 1,800 employees. The Rochester, Minnesota operation provides printed circuit board assembly and test services. The Vimercate operation provides printed circuit board assembly services and the Santa Palomba operation provides system assembly services. The Company expects that the acquisition of these operations will be accretive to adjusted net earnings in 2000. In June 2000, Celestica acquired NDB Industrial Ltda., NEC Corporation's wholly-owned manufacturing subsidiary in Brazil, for $126.8 million. The Company signed a five-year supply agreement to manufacture NEC communications network equipment for the Brazilian market, with estimated revenue of approximately $1.2 billion over the five-year term of the agreement. The operations employ approximately 680 employees. This acquisition enhanced the Company's presence in South America and provided Celestica a leadership position with communications and Internet infrastructure customers. In August 2000, the Company acquired Bull Electronics Inc., the North American contract manufacturing operation of Groupe Bull, of France. The operations, which are located in Lowell, Massachusetts, have enhanced the Company's service offerings in the New England area. The Company will be moving its printed circuit board assembly operation from Andover into this Lowell facility, resulting in lower infrastructure costs. Celestica's 20 acquisitions completed through October 18, 2000 and the three greenfield operations had purchase prices, or initial investment costs, in the case of greenfield operations, ranging from $2.5 million to $471.6 million, totaling $1,186.2 million. Celestica continues to examine numerous acquisition opportunities in order to: - create strategic relationships with new customers and diversify end-product programs with existing customers; - expand its capacity in selected geographic regions to take advantage of existing infrastructure or low cost manufacturing; - diversify its customer base to serve a wide variety of end-markets with increasing emphasis on the communications sector; - broaden its product and service offerings; and - optimize its global positioning. -2-
Consistent with its past practices and as a normal course of business, Celestica is engaged in ongoing discussions with respect to several possible acquisitions of widely varying sizes, including small single facility acquisitions, significant multiple facilities acquisitions and corporate acquisitions. Celestica has identified several possible acquisitions that would enhance its global operations, increase its penetration in the computer and communication industries and establish strategic relationships with new customers. Celestica is currently involved in discussions at an advanced stage concerning certain of these opportunities. The possible purchase prices of the opportunities under discussion range considerably and may be satisfied by cash, subordinate voting shares, or a combination thereof. There can be no assurance that any of these discussions will result in a definitive purchase agreement and, if they do, what the terms or timing of any agreement would be. Celestica expects to continue its current discussions and actively pursue other acquisition opportunities. RESULTS OF OPERATIONS Celestica's revenue and margins can vary from period to period as a result of the relative mix of the value-add of products and services, the level of business volumes, seasonality of demand, component supply availability, manufacturing effectiveness and efficiency, price competition and the timing of acquisitions and related integration costs. There is no certainty that the historical pace of Celestica's acquisitions will continue in the future. Celestica's contracts with its key customers generally provide a framework for its overall relationship with the customer. Actual production volumes are based on purchase orders for the delivery of products. These orders typically do not commit to firm production schedules for more than 30 to 90 days in advance. Celestica minimizes risk relative to its inventory by usually ordering materials and components only to the extent necessary to satisfy existing customer orders. Celestica is largely protected from the risk of inventory cost fluctuations as these costs are generally passed through to customers. Celestica's annual and quarterly operating results are primarily affected by the level and timing of customer orders, fluctuations in materials costs and the mix of materials and labour and manufacturing overhead costs. The level and timing of a customer's orders will vary due to the customer's attempt to balance its inventory, changes in its manufacturing strategy and variation in demand for its products. Celestica's annual and quarterly operating results are also affected by capacity utilization and other factors, including price competition, experience in manufacturing a particular product, the degree of automation used in the assembly process, the efficiencies achieved by Celestica in managing inventories and capital assets, the timing of expenditures in anticipation of increased sales, the timing of acquisitions and related integration costs, customer product delivery requirements and shortages of components or labour. Historically, Celestica has experienced some seasonal variation in revenue, with revenue typically being highest in the fourth quarter and lowest in the first quarter. The table below sets forth certain operating data expressed as a percentage of revenue for the periods indicated: THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ----------------- 1999 2000 1999 2000 -------- -------- -------- ------- Revenue..................................... 100.0% 100.0% 100.0% 100.0% Cost of sales............................... 92.7 92.9 92.9 93.0 ----- ----- ----- ----- Gross profit................................ 7.3 7.1 7.1 7.0 Selling, general and administrative expenses 3.8 3.3 3.8 3.4 Amortization of intangible assets........... 1.0 1.0 1.1 1.0 Integration costs related to acquisitions... 0.2 0.2 0.2 0.2 ----- ----- ----- ----- Operating income............................ 2.3 2.6 2.0 2.4 Interest expense (income), net.............. 0.2 (0.2) 0.2 (0.2) ----- ------ ----- ------ Earnings before income taxes................ 2.1 2.8 1.8 2.6 Income taxes................................ 0.7 0.7 0.6 0.7 ----- ----- ----- ----- Net earnings................................ 1.4% 2.1% 1.2% 1.9% ===== ===== ===== ===== -3-
As a result of the significant number of acquisitions made by Celestica over the past four years, management of Celestica uses adjusted net earnings as a measure of operating performance on an enterprise-wide basis. Adjusted net earnings exclude the effects of acquisition-related charges (most significantly, amortization of intangible assets and integration costs related to acquisitions) and the related income tax effect of these adjustments. Adjusted net earnings is not a measure of performance under Canadian GAAP or U.S. GAAP. Adjusted net earnings should not be considered in isolation or as a substitute for net earnings prepared in accordance with Canadian GAAP or U.S. GAAP or as a measure of operating performance or profitability. The following table reconciles net earnings to adjusted net earnings: THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- -------------------- 1999 2000 1999 2000 --------- --------- --------- --------- (IN MILLIONS) (IN MILLIONS) Net earnings ............................... $ 19.5 $ 55.7 $ 42.2 $ 123.2 Amortization of intangible assets........... 14.1 25.6 41.6 60.1 Integration costs related to acquisitions... 1.3 4.8 5.3 10.4 Income tax effect of above.................. (2.3) (2.2) (7.1) (6.5) -------- -------- -------- -------- Adjusted net earnings....................... $ 32.6 $ 83.9 $ 82.0 $ 187.2 ======= ======= ===================== As a percentage of revenue 2.4% 3.2% 2.2% 3.0% ======== ======== ======== ======== REVENUE Revenue increased $1,243.2 million, or 91.6%, to $2,600.1 million for the three months ended September 30, 2000 from $1,356.9 million for the same period of 1999. Revenue for the nine months ended September 30, 2000 increased $2,615.8 million, or 70.9%, to $6,304.3 million from $3,688.5 million for the same period of 1999. Sequentially, revenue increased $508.2 million, or 24.3%, for the three months ended September 30, 2000 compared to revenue of $2,091.9 million for the three months ended June 30, 2000. This increase resulted from growth achieved both organically and through strategic acquisitions. This growth was driven by customers in the communications and server industries. Organic revenue growth for the three months ended September 30, 2000 was 51.8% and represented approximately 56.5% of the total year-over-year quarterly growth. The Company defines organic revenue as revenue which excludes business from operations acquired in the preceding 12 months. The organic growth resulted from growth in existing business and new program wins with existing and new customers across all geographic segments. Revenue from Celestica's North American operations grew $715.4 million, or 76.9%, to $1,646.1 million for the three months ended September 30, 2000 from $930.7 million for the same period of 1999 and increased $1,696.4 million, or 67.1%, to $4,223.9 million for the nine months ended September 30, 2000 from $2,527.5 million for the same period of 1999. Revenue from European operations grew $502.0 million, or 191.4%, to $764.3 million for the three months ended September 30, 2000 from $262.3 million for the same period of 1999, and increased $884.0 million, or 117.4%, to $1,637.1 million for the nine months ended September 30, 2000 from $753.1 million for the same period of 1999. The Italian facilities generated over $300.0 million of revenue in the third quarter, representing its first full quarter of revenue contribution. Revenue from Asian operations increased $102.0 million, or 55.7%, to $285.0 million for the three months ended September 30, 2000 from $183.0 million for the same period of 1999, and increased $253.1 million, or 52.7%, to $733.1 million for the nine months ended September 30, 2000 from $480.0 million for the same period of 1999. Inter-segment revenue for the three and nine months ended September 30, 2000 was $95.3 million and $289.8 million, respectively, compared to $19.0 million and $72.2 million for the same period of 1999. Revenue from customers in the communications industry for the three and nine months ended September 30, 2000 increased to 32% and 31% of revenue, respectively, compared to 24% and 24% of revenue for the same period of 1999. This increase is consistent with the Company's strategy to increase the portion of its revenue from customers in the communications industry. Revenue from customers in the server-related business for the three and nine months ended September 30, 2000 increased to 33% and 30% of revenue, respectively, compared to 27% and 27% of revenue for the same period of 1999. The Company expects a further increase in server-related business for 2000 as a result of the Rochester, Minnesota acquisition in February and the Italian acquisition in May 2000. -4-
The following customers represented more than 10% of total revenue for each of the indicated periods: THREE NINE MONTHS ENDED MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------- -------------- 1999 2000 1999 2000 ----- ------ ----- ------ Hewlett-Packard..... X X X Sun Microsystems.... X X X X Cisco Systems....... X X IBM................. X X Celestica's top five customers represented in the aggregate 69.5% and 68.3% of total revenue for the three months ended September 30, 2000 and September 30, 1999, respectively. Celestica's top five customers represented in the aggregate 69.4% of total revenue for the nine months ended September 30, 2000 compared to 68.4% for the same period in 1999. The Company is dependent upon continued revenue from its top five customers. There can be no guarantee that revenue from these or any other customers will not increase or decrease as a percentage of consolidated revenue either individually or as a group. Any material decrease in revenue from these or other customers could have a material adverse effect on the Company's results of operations. The Company expects a significant increase in revenue from IBM in 2000 as a result of the acquisition of the Rochester, Minnesota and Italian operations. GROSS PROFIT Gross profit increased $84.9 million, or 86.1%, for the three months ended September 30, 2000 to $183.5 million from $98.6 million for the same period of 1999. Gross margin decreased to 7.1% for the three months ended September 30, 2000 from 7.3% for the same period of 1999. Gross profit increased $177.7 million, or 67.8%, for the nine months ended September 30, 2000 to $439.9 million from $262.2 million for the same period of 1999. Gross margin decreased to 7.0% for the nine months ended September 30, 2000 from 7.1% for the same period of 1999. Year-over-year gross margin has decreased as a result of a change in product mix, start-up costs for new programs, particularly in Mexico, and lower margins for the Rochester, Minnesota operations. Sequentially, the gross margin increased to 7.1% for the three months ended September 30, 2000 compared to 7.0% for the three months ended June 30, 2000. For the foreseeable future, the Company's gross margin is expected to depend primarily on product mix, production efficiencies, utilization of manufacturing capacity, start-up activity, new product introductions, and pricing within the electronics industry. Over time, gross margins at individual sites and for the Company as a whole are expected to fluctuate. Changes in product mix, additional costs associated with new product introductions and price erosion within the electronics industry could adversely affect the Company's gross margin. Also, the availability of raw materials, which are subject to lead time and other constraints, could possibly limit the Company's revenue growth. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses ("SG & A") increased $33.5 million, or 64.9%, for the three months ended September 30, 2000 to $85.1 million (3.3% of revenue) from $51.6 million (3.8% of revenue) for the same period of 1999. SG & A expenses increased $75.7 million, or 53.7%, for the nine months ended September 30, 2000 to $216.6 million (3.4% of revenue) from $140.9 million (3.8% of revenue) for the same period of 1999. The increase in expense was a result of increased staffing levels and higher selling, marketing and administrative costs to support sales growth, as well as the impact of expenses incurred by operations acquired during the last quarter of 1999 and in 2000. SG & A expenses increased $11.6 million, or 15.8%, for the three months ended September 30, 2000 to $85.1 million (3.3% of revenue) from $73.5 million (3.5% of revenue) for the three months ended June 30, 2000. SG & A expenses have increased at a slower rate than the revenue increases from period to period as a result of continued cost reduction programs and the impact of lower levels of SG & A expenses related to the Rochester, Minnesota and Italian operations. Research and development ("R&D") costs of $5.1 million (0.2% of revenue) were incurred for the three months ended September 30, 2000 compared to $4.6 million (0.3% of revenue) for the same period of 1999. R&D costs for the nine months ended September 30, 2000 were $14.3 million (0.2% of revenue) compared to $13.8 million (0.4% of revenue) for the same period of 1999. -5-
INTANGIBLE ASSETS AND AMORTIZATION Amortization of intangible assets increased $11.5 million, or 81.6%, for the three months ended September 30, 2000 to $25.6 million from $14.1 million for the same period of 1999. Amortization of intangible assets increased $18.5 million, or 44.5%, for the nine months ended September 30, 2000 to $60.1 million from $41.6 million for the same period of 1999. This increase is attributable to the intangible assets arising from the 1999 and 2000 acquisitions. The excess of the purchase price paid over the fair value of tangible assets acquired in the five acquisitions completed in 1999 and the three acquisitions completed in 2000 totaled $331.4 million and has been allocated to goodwill and other intangible assets. The IBM acquisition generated approximately $200 million of intangible assets, primarily intellectual property. At September 30, 2000, intangible assets represented 10.8% of Celestica's total assets compared to 14.8% at June 30, 2000 and 11.5% at March 31, 2000. INTEGRATION COSTS RELATED TO ACQUISITIONS Integration costs related to acquisitions represent one-time costs incurred within 12 months of the acquisition date, such as the costs of implementing compatible information technology systems in newly acquired operations, establishing new processes related to marketing and distribution processes to accommodate new customers and salaries of personnel directly involved with integration activities. Integration costs related to greenfield operations represent costs incurred within three months of commencing operations. All of the integration costs incurred related to either newly acquired facilities or the start-up of greenfield sites, and not to the Company's existing operations. Integration costs increased $3.5 million to $4.8 million for the three months ended September 30, 2000 from $1.3 million for the same period of 1999. Integration costs increased $5.1 million to $10.4 million for the nine months ended September 30, 2000 from $5.3 million for the same period of 1999. The integration costs incurred in 2000 relate primarily to the IBM acquisition. Integration costs vary from period to period due to the timing of acquisitions, the establishment of greenfield operations and related integration activities. Celestica expects to incur additional integration costs in 2000 as it completes the integration of (i) operations acquired in 1999, (ii) the Rochester, Minnesota operation acquired in February 2000, (iii) the Italian operations acquired in May 2000, (iv) the Brazilian operation acquired in June 2000, and (v) the Lowell, Massachusetts operation acquired in August 2000. Celestica will incur future additional integration costs as the Company continues to make acquisitions and establish greenfield operations as part of its growth strategy. INTEREST EXPENSE (INCOME), NET Interest income, net of interest expense, for the three and nine months ended September 30, 2000 amounted to $5.2 million and $13.3 million, respectively. For the three and nine months ended September 30, 1999, the Company incurred net interest expense of $3.0 million and $8.5 million, respectively. Cash balances were higher in the first nine months of 2000 compared to the first nine months of 1999 due to the timing and size of the equity and debt offerings. In 2000, the Company earned interest income on its cash balance which more than offset the interest expense incurred on the Company's Senior Subordinated Notes. In 1999, the Company earned less interest income to offset against the higher interest expense. INCOME TAXES Income tax expense for the three months ended September 30, 2000 was $17.5 million, reflecting an effective tax rate for the period of 24%. This income tax expense compares to $9.1 million, or an effective tax rate of 32%, for the same period of 1999. Commencing in the second half of 1999, the Company's effective tax rate decreased from 39% to 32%. In the second quarter of 2000, the effective tax rate decreased further to 24%. Celestica believes this tax rate is sustainable for the foreseeable future. The decrease in the Company's effective tax rates is attributable to the earning of additional income in lower tax jurisdictions within Europe and Asia. These lower tax rates include special tax holidays or similar tax incentives that Celestica has negotiated with the respective tax authorities. -6-
Income tax expense for the nine months ended September 30, 2000 was $42.9 million resulting in a nine-month effective tax rate of 26%. This is compared to an income tax expense of $23.7 million for the same period of 1999, and an effective tax rate for that period of 36%. Celestica has recognized a net deferred tax asset at September 30, 2000 of $75.1 million, which relates to the recognition of net operating losses and future income tax deductions available to reduce future years' income for income tax purposes. Celestica's current projections demonstrate that it will generate sufficient taxable income (in excess of $250 million) in the future to realize the benefit of these deferred income tax assets in the carry-forward periods, not exceeding 15 years. -7-
QUARTERLY RESULTS OF OPERATIONS The following table sets forth certain unaudited quarterly financial information of Celestica for the eight quarters ended September 30, 2000. Historically, Celestica has experienced some seasonal variation in revenue, with revenue typically being highest in the fourth quarter and lowest in the first quarter. This variation may be offset in part by organic growth and acquisitions. This information has been derived from the quarterly consolidated financial statements of Celestica which are unaudited but which, in the opinion of management, have been prepared on the same basis as the Company's annual Consolidated Financial Statements contained in the Company's form 6-K/A filing made in February 2000 and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial results for such periods. This information should be read in conjunction with the annual Consolidated Financial Statements. The operating results for any previous quarter are not necessarily indicative of results for any future period. DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER DECEMBER MARCH 31, JUNE 30, SEPTEMBER ------------ --------- -------- --------- -------- --------- -------- --------- 1998 1999 1999 30, 1999 31, 1999 2000 2000 30, 2000 ---- ---- ---- -------- -------- ---- ---- -------- QUARTER ENDED(1) ---------------- (U.S.$ millions, except per share amounts) Revenue.................. $ 925.3 $1,081.8 $1,249.7 $1,356.9 $1,608.8 $ 1,612.3 $2,091.9 $ 2,600.1 Cost of sales............ 856.1 1,006.6 1,161.3 1,258.3 1,488.5 1,501.7 1,946.1 2,416.6 ------- -------- -------- -------- -------- ------- -------- --------- Gross profit............. 69.2 75.2 88.4 98.6 120.3 110.6 145.8 183.5 % of revenue......... 7.5% 7.0% 7.1% 7.3% 7.5% 6.9% 7.0% 7.1% Selling, general and administrative expenses 36.6 42.2 47.1 51.6 61.3 58.0 73.5 85.1 % of revenue......... 4.0% 3.9% 3.8% 3.8% 3.8% 3.6% 3.5% 3.3% Amortization of intangible assets................. 10.8 13.8 13.7 14.1 14.0 15.3 19.2 25.6 Integration costs relating to Acquisitions........ 2.5 0.4 3.6 1.3 4.3 0.7 4.9 4.8 Other charges............ 11.9(2) - - - - - - - ------- -------- -------- -------- -------- ------- -------- --------- Operating income......... 7.4 18.8 24.0 31.6 40.7 36.6 48.2 68.0 Interest expense (income) 3.2 3.2 2.3 3.0 2.2 (1.8) (6.3) (5.2) ------- -------- -------- -------- -------- ------- -------- --------- Earnings before tax...... 4.2 15.6 21.7 28.6 38.5 38.4 54.5 73.2 Income taxes ............ 8.0 6.1 8.5 9.1 12.3 12.3 13.1 17.5 ------- -------- -------- -------- -------- ------- -------- --------- Net earnings (loss)...... $ (3.8) $ 9.5 $ 13.2 $ 19.5 $ 26.2 $ 26.1 $ 41.4 $ 55.7 ------- -------- -------- -------- -------- ------- -------- --------- ------- -------- -------- -------- -------- ------- -------- --------- Basic earnings (loss) per share................... $ (0.03) $ 0.06 $ 0.08 $ 0.12 $ 0.15 $ 0.14 $ 0.20 $ 0.26 ------- -------- -------- -------- -------- ------- -------- --------- ------- -------- -------- -------- -------- ------- -------- --------- Adjusted net earnings.... $ 18.7 $ 21.9 $ 27.5 $ 32.6 $ 41.0 $ 39.5 $ 63.7 $ 83.9 ------- -------- -------- -------- -------- ------- -------- --------- ------- -------- -------- -------- -------- ------- -------- --------- - ------ (1) For 1999 and 2000, includes the results of operations of (a) International Manufacturing Services, Inc. ("IMS", renamed Celestica Asia) acquired December 30, 1998, (b) the manufacturing operation of Gossen-Metrawatt GmbH in the Czech Republic acquired in April 1999, (c) greenfield operations established in Brazil and Malaysia in June 1999, (d) VXI Electronics, Inc. acquired in September 1999, (e) the assets acquired from Hewlett-Packard's Healthcare Group in October 1999, (f) EPS Wireless, Inc. acquired in December 1999 and (g) certain assets and repair operations acquired from Fujitsu-ICL Systems Inc. in December 1999; and for 2000, includes the results of operations of (h) certain assets in Rochester, Minnesota and Italy acquired from IBM in February and May, 2000, respectively, (i) NDB Industrial Ltda. acquired in June 2000 and (j) Bull Electronics Inc. acquired in August 2000. (2) Represents a $6.8 million write-off of goodwill and $5.1 million of other charges arising from the merger with IMS. -8-
CONVERTIBLE DEBT In August 2000, Celestica issued LYONs with a principal amount at maturity of $1,813.6 million, payable August 1, 2020. The Company received gross proceeds of $862.9 million and incurred $19.4 million in underwriting commissions, before tax of $6.9 million. No interest is payable on the LYONs; the issue price of the LYONs represents a yield to maturity of 3.75%. The LYONs are subordinated in right of payment to all existing and future senior indebtedness of the Company. The LYONs are convertible at any time at the option of the holder, unless previously redeemed or repurchased, into 5.6748 subordinate voting shares for each $1,000 principal amount at maturity. Holders may require the Company to repurchase all or a portion of their LYONs on August 2, 2005, August 1, 2010 and August 1, 2015 and the Company may redeem the LYONs at any time on or after August 1, 2005 (and, under certain circumstances, before that date). The Company is required to offer to repurchase the LYONs if there is a change in control or a delisting event. Generally, the redemption or repurchase price is equal to the accreted value of the LYONs. The Company may elect to pay the principal amount at maturity of the LYONs or the repurchase price that is payable in certain circumstances, in cash or subordinate voting shares or any combination thereof. Upon the occurrence of certain tax events, the Company may elect to pay interest on the LYONs in lieu of accruing the original issue discount. The proceeds from the LYONs issue will be used for capital expenditures, working capital and general corporate purposes, including future acquisitions. The Company has recorded the LYONs as an equity instrument pursuant to Canadian GAAP. In accordance with Canadian GAAP, the LYONs are bifurcated into a principal equity component (representing the present value of the notes) and an option component (representing the value of the conversion features of the notes). The principal equity component is accreted over the 20-year term through periodic charges to retained earnings. Under U.S. GAAP, the LYONs would be classified as long-term debt and, accordingly, the accrued yield on the LYONs during any period (at 3.75% per year) would be classified as interest expense for that period. The accretion of the convertible debt is deducted from net earnings for the period to determine earnings available to shareholders for the calculation of basic earnings per share for Canadian GAAP. LIQUIDITY AND CAPITAL RESOURCES For the nine months ended September 30, 2000, Celestica used cash of $238.4 million from operating activities, principally to support higher working capital requirements relating to revenue growth, which was offset by cash generated from operations. Investing activities for the nine months included capital expenditures of $163.9 million and $622.7 million for acquisitions. The acquisitions included IBM's operations in Rochester, Minnesota and Italy, NEC's operations in Brazil and Groupe Bull's operations in Lowell, Massachusetts for a total purchase price of $622.7 million. In March 2000, Celestica completed an equity offering and issued 16.6 million subordinate voting shares, for gross proceeds of $757.4 million less expenses and underwriting commissions of $26.8 million. In August 2000, Celestica completed its offering of 20-year LYONs, raising gross proceeds of $862.9 million less underwriting commissions of $19.4 million. For the nine months ended September 30, 1999, Celestica's operating activities utilized $32.7 million in cash. Investing activities for the nine months ended September 30, 1999 included capital expenditures of $155.2 million and $13.9 million for acquisitions. In March 1999, Celestica issued 18.4 million subordinate voting shares in an equity offering for gross proceeds of $263.6 million less expenses and underwriting commissions of $12.7 million. CAPITAL RESOURCES Celestica has two $250 million global, unsecured, revolving credit facilities totaling $500 million, each provided by a syndicate of lenders. The credit facilities permit Celestica and certain designated subsidiaries to borrow funds directly for general corporate purposes (including acquisitions) at floating rates. The credit facilities are available until April 2003 and July 2003, respectively. Under the credit facilities: Celestica is required to -9-
maintain certain financial ratios; its ability and that of certain of its subsidiaries to grant security interests, dispose of assets, change the nature of its business or enter into business combinations, is restricted; and a change in control is an event of default. No borrowings were outstanding under the revolving credit facilities at October 18, 2000. The only other financial covenant in effect is a debt incurrence covenant contained in Celestica's Senior Subordinated Notes due 2006. This covenant is based on Celestica's fixed charge coverage ratio, as defined in the indenture governing the Senior Subordinated Notes. Celestica was in compliance with all debt covenants as at October 18, 2000. Earlier in the year, Celestica's public credit ratings were upgraded by both Standard & Poor's and by Moody's Investors Service. Standard and Poor's senior corporate credit rating for Celestica is BB+ with a stable outlook. Moody's senior implied rating for Celestica is Ba1, also with a stable outlook. Celestica believes that cash flow from operating activities, together with cash on hand and borrowings available under its global, unsecured, revolving credit facilities, will be sufficient to fund currently anticipated working capital, planned capital spending and debt service requirements for the next 12 months. The Company expects capital spending for 2000 to be approximately $200 million to $250 million, including any capital expenditures required for the IBM operations. Capital expenditures totaled $163.9 million in the first nine months of 2000 and $43.0 million was committed at September 30, 2000. In addition, Celestica regularly reviews acquisition opportunities, and may therefore require additional debt or equity financing. Celestica prices the majority of its products in U.S. dollars, and the majority of its material costs are also denominated in U.S. dollars. However, a significant portion of its non-material costs (including payroll, facilities costs and costs of locally sourced supplies and inventory) are primarily denominated in Canadian dollars, British pounds sterling, European euros and Mexican pesos. As a result, Celestica may experience transaction and translation gains or losses because of currency fluctuations. At September 30, 2000, Celestica had forward foreign exchange contracts covering various currencies in an aggregate notional amount of US$535 million with expiry dates up to January 2002. The fair value of these contracts at September 30, 2000 was an unrealized loss of US$8.3 million. Celestica's current hedging activity is designed to reduce the variability of its foreign currency costs and involves entering into contracts to sell U.S. dollars to purchase Canadian dollars, British pounds sterling, Mexican pesos and Euros at future dates. In general, these contracts extend for periods of less than 18 months. Celestica may, from time to time, enter into additional hedging transactions to minimize its exposure to foreign currency and interest rate risks. There can be no assurance that such hedging transactions, if entered into, will be successful. BACKLOG Although Celestica obtains firm purchase orders from its customers, OEM customers typically do not make firm orders for delivery of products more than 30 to 90 days in advance. Celestica does not believe that the backlog of expected product sales covered by firm purchase orders is a meaningful measure of future sales since orders may be rescheduled or cancelled. RECENT ACCOUNTING DEVELOPMENTS In December 1999, the SEC issued Staff Accounting Bulletins (SAB) 101, 101A and 101B in June 2000, "Revenue Recognition", which provided guidelines in applying generally accepted accounting principles to revenue recognition in financial statements and must be implemented as of the fourth quarter of 2000. The Company believes that its revenue recognition practices are consistent with these guidelines. In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. SFAS No. 137 delays the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company will be required to implement SFAS No. 133 for its fiscal year ended December 31, 2001. The Company has not assessed the impact of the adoption of SFAS No. 133 on its financial position, results of operations or cash flows. -10-
The information that you are accessing on this website may include forward-looking statements related to our future growth, trends in our industry, our financial and operational results and performance that are based on current expectations, forecast and assumptions involving risk and uncertainties that could cause actual outcomes and results to differ materially.
Read the full Cautionary Note here