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FORM 6-K
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 March 2002
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CELESTICA INC.
(TRANSLATION OF REGISTRANT'S NAME INTO ENGLISH)
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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-_________
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CELESTICA INC.
FORM 6-K
MONTH OF MARCH 2002
The following information filed with this Form 6-K is not incorporated by
reference in Celestica's registration statements on Forms S-8 (Nos. 333-9500,
333-9822, 333-9780, 333-71126, 333-66726 and 333-63112) or on Forms F-3 (Nos.
333-12272, 333-50240 and 333-69278), or the prospectuses included therein, or
any registration statement subsequently filed by Celestica with the Securities
and Exchange Commission, unless otherwise stated:
- - Notice of Annual and Special Meeting of Shareholders, dated March
19, 2002, and Management Information Circular and Proxy Statement, the text
of which is attached hereto as Exhibit 99.1;
- - Multiple Voting Shares Proxy for use at the Annual and Special
Meeting of Shareholders, the text of which is attached hereto as Exhibit 99.2;
- - Subordinate Voting Shares Proxy for use at the Annual and Special
Meeting of Shareholders, the text of which is attached hereto as Exhibit
99.3;
- - Celestica's Annual Report for fiscal year 2001, the text of which
is attached hereto as Exhibit 99.4; PROVIDED, that the text under the
following captions is incorporated by reference into such registration
statements: "Management's Discussion and Analysis," "Auditors' Report,"
"Consolidated Financial Statements" and "Notes to the Consolidated Financial
Statements"; and
- - Consent of KPMG LLP, Chartered Accountants, the text of which is
attached hereto as Exhibit 99.5 and is incorporated by reference into such
registration statements.
Exhibits
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99.1 - Notice of Annual and Special Meeting of Shareholders, dated March 19,
2002, and Management Information Circular and Proxy Statement
99.2 - Multiple Voting Shares Proxy
99.3 - Subordinate Voting Shares Proxy
99.4 - Annual Report for fiscal year 2001
99.5 - Consent of KPMG LLP
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: March 28, 2002 BY: /s/ Elizabeth DelBianco
----------------------------------
Name: Elizabeth DelBianco
Title: Vice President & General Counsel
EXHIBIT INDEX
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99.1 - Notice of Annual and Special Meeting of Shareholders, dated
March 19, 2002, and Management Information Circular and
Proxy Statement
99.2 - Multiple Voting Shares Proxy
99.3 - Subordinate Voting Shares Proxy
99.4 - Annual Report for fiscal year 2001
99.5 - Consent of KPMG LLP
Exhibit 99.1
_________________
NOTICE OF ANNUAL AND SPECIAL
MEETING OF SHAREHOLDERS
_________________
NOTICE IS HEREBY GIVEN that the annual and special meeting (the "Meeting")
of shareholders of CELESTICA INC. (the "Corporation") will be held in the
Imperial Room of the Fairmont Royal York Hotel, 100 Front Street West, Toronto,
Ontario, on Wednesday, the 17th day of April, 2002, at 10:00 a.m. (Toronto time)
for the following purposes:
1. to receive and consider the financial statements of the Corporation
for its financial year ended December 31, 2001, together with the
report of the auditors thereon;
2. to elect directors for the ensuing year;
3. to appoint auditors for the ensuing year and authorize the directors
to fix the auditors' remuneration;
4. to consider and, if thought advisable, to pass an ordinary resolution
authorizing the amendment to the Long-Term Incentive Plan of the
Corporation to increase the number of subordinate voting shares of
the Corporation reserved for issuance thereunder (the "LTIP Amendment
Resolution"); and
5. to transact such other business as may properly be brought before the
Meeting and any adjournment or postponement thereof.
The text of the LTIP Amendment Resolution is set forth in Schedule A to the
accompanying Management Information Circular and is incorporated by reference in
this notice.
Shareholders are requested to complete, sign, date and return the
accompanying form of proxy for use at the Meeting or any adjournment or
postponement thereof, in the envelope provided for that purpose, whether or not
they are able to attend personally.
Only shareholders of record at the close of business on March 13, 2002 will
be entitled to vote at the Meeting, except to the extent that a shareholder of
record has transferred any shares after that date and the transferee of such
shares establishes proper ownership and requests not later than 10 days before
the Meeting that the transferee's name be included in the list of shareholders
entitled to vote at the Meeting.
DATED at Toronto, Ontario this 19th day of March, 2002.
By Order of the Board of Directors
Elizabeth L. DelBianco
Vice-President, General Counsel
and Secretary
Celestica Inc.
12 Concorde Place
Toronto, Ontario, Canada M3C 3R8
MANAGEMENT INFORMATION CIRCULAR
AND PROXY STATEMENT
IN THIS MANAGEMENT INFORMATION CIRCULAR AND PROXY STATEMENT, ALL DOLLAR
AMOUNTS ARE EXPRESSED IN UNITED STATES DOLLARS, EXCEPT WHERE STATED OTHERWISE.
UNLESS STATED OTHERWISE, ALL REFERENCES TO "U.S.$" OR "$" ARE TO U.S. DOLLARS
AND ALL REFERENCES TO "C$" ARE TO CANADIAN DOLLARS. UNLESS OTHERWISE INDICATED,
ANY REFERENCE IN THIS MANAGEMENT INFORMATION CIRCULAR AND PROXY STATEMENT TO A
CONVERSION BETWEEN U.S.$ AND C$ IS GIVEN AS OF MARCH 1, 2002. AT THAT DATE, THE
NOON BUYING RATE IN NEW YORK CITY FOR CABLE TRANSFERS IN CANADIAN DOLLARS WAS
U.S.$1.00 = C$1.5955, AS CERTIFIED FOR CUSTOMS PURPOSES BY THE FEDERAL RESERVE
BANK OF NEW YORK.
MANAGEMENT SOLICITATION
THIS MANAGEMENT INFORMATION CIRCULAR AND PROXY STATEMENT (THE "CIRCULAR") IS
FURNISHED IN CONNECTION WITH THE SOLICITATION OF PROXIES BY OR ON BEHALF OF
MANAGEMENT OF CELESTICA INC. (THE "CORPORATION" OR "CELESTICA") FOR USE AT THE
ANNUAL AND SPECIAL MEETING (THE "MEETING") OF SHAREHOLDERS OF THE CORPORATION TO
BE HELD AT 10:00 A.M. (TORONTO TIME) ON APRIL 17, 2002 IN THE IMPERIAL ROOM OF
THE FAIRMONT ROYAL YORK HOTEL, 100 FRONT STREET WEST, TORONTO, ONTARIO, OR ANY
POSTPONEMENT(S) OR ADJOURNMENT(S) THEREOF, FOR THE PURPOSES SET FORTH IN THE
ACCOMPANYING NOTICE OF MEETING. EXCEPT AS OTHERWISE STATED, THE INFORMATION
CONTAINED HEREIN IS GIVEN AS OF MARCH 1, 2002. IN DECEMBER 1999, CELESTICA
COMPLETED A TWO-FOR-ONE SPLIT OF ITS SUBORDINATE AND MULTIPLE VOTING SHARES BY
WAY OF A STOCK DIVIDEND. ALL HISTORICAL INFORMATION HAS BEEN RESTATED TO REFLECT
THE EFFECT OF THE TWO-FOR-ONE SPLIT ON A RETROACTIVE BASIS, EXCEPT WHERE
SPECIFICALLY STATED OTHERWISE.
The solicitation will be primarily by mail, but proxies may also be
solicited personally by regular employees of the Corporation for which no
additional compensation will be paid. The Corporation has also engaged Georgeson
Shareholder Communications Canada, Inc. in connection with the solicitation of
proxies in Canada and the United States at an anticipated cost of C$32,500,
which will be borne by the Corporation. The cost of preparing, assembling and
mailing this Circular, the notice of meeting, the form of proxy and any other
material relating to the Meeting has been or will be borne by the Corporation.
The Corporation will reimburse brokers and other entities for costs incurred by
them in mailing soliciting materials to the beneficial owners of shares of the
Corporation in accordance with the rules of the New York Stock Exchange. It is
anticipated that copies of this Circular and accompanying proxy will be
distributed to shareholders on or about March 19, 2002.
PROXIES
VOTING OF PROXIES
THE PERSONS NAMED IN THE ENCLOSED FORM OF PROXY ARE OFFICERS OF THE
CORPORATION AND WILL REPRESENT MANAGEMENT OF THE CORPORATION AT THE MEETING. A
SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON OR COMPANY (WHO NEED NOT BE A
SHAREHOLDER), OTHER THAN THE PERSONS DESIGNATED IN THE ACCOMPANYING FORM OF
PROXY, TO REPRESENT THE SHAREHOLDER AT THE MEETING. SUCH RIGHT MAY BE EXERCISED
BY INSERTING THE NAME OF SUCH PERSON OR COMPANY IN THE BLANK SPACE PROVIDED IN
SUCH FORM OF PROXY.
-2-
The accompanying form of proxy confers discretionary authority upon the
proxy nominees in respect of amendments or variations to matters identified in
the notice of meeting or other matters that may properly come before the Meeting
or any adjournment(s) or postponement(s) thereof.
As of the date of this Circular, management of the Corporation was not aware
of any such amendments or other matters to come before the Meeting. However, if
any amendments, variations or other matters which are not now known to
management should properly come before the Meeting or any adjournment(s) or
postponement(s) thereof, the shares represented by proxies in favour of the
management nominees will be voted on such matters in accordance with the best
judgment of the proxy nominees.
The shares represented by proxies which are hereby solicited will be voted
for or against, or withheld from voting, as the case may be, in accordance with
the instructions of the shareholder on any ballot that may be called for, and,
if the shareholder specifies a choice with respect to any matter to be acted
upon, the shares shall be voted accordingly.
IN RESPECT OF PROXIES IN WHICH A SHAREHOLDER HAS NOT SPECIFIED THAT THE
PROXY NOMINEES ARE REQUIRED TO VOTE OR WITHHOLD FROM VOTING FOR THE ELECTION OF
DIRECTORS OR THE APPOINTMENT OF AUDITORS OF THE CORPORATION AND AUTHORIZATION OF
THE BOARD OF DIRECTORS TO FIX THE REMUNERATION OF THE AUDITORS OF THE
CORPORATION, THE SHARES REPRESENTED BY SUCH PROXIES IN FAVOUR OF MANAGEMENT
NOMINEES WILL BE VOTED IN FAVOUR OF SUCH MATTERS.
IN RESPECT OF PROXIES IN WHICH A SHAREHOLDER HAS NOT SPECIFIED THAT THE
PROXY NOMINEES ARE REQUIRED TO VOTE FOR OR AGAINST THE RESOLUTION AUTHORIZING
THE AMENDMENT TO THE LONG-TERM INCENTIVE PLAN OF THE CORPORATION TO INCREASE THE
MAXIMUM NUMBER OF SUBORDINATE VOTING SHARES OF THE CORPORATION WHICH MAY BE
ISSUED THEREUNDER (SEE "LTIP AMENDMENT RESOLUTION" BELOW), THE SHARES
REPRESENTED BY SUCH PROXIES IN FAVOUR OF MANAGEMENT NOMINEES WILL BE VOTED IN
FAVOUR OF THE LTIP AMENDMENT RESOLUTION.
DEPOSIT OF PROXIES
To be effective, proxies must be deposited with Computershare Trust Company
of Canada ("Computershare"), the registrar and transfer agent of the
Corporation, at 100 University Avenue, 9th Floor, Toronto, Ontario, Canada, M5J
2Y1 not later than 5:00 p.m. (Toronto time) on April 16, 2002 or at least 24
hours, excluding Saturdays and holidays, prior to any adjournment or
postponement of the Meeting at which the proxy is to be used, or deposited with
the Chairman of the Meeting prior to the commencement of the Meeting or any
adjournment or postponement thereof at which the proxy is to be used.
REVOCATION OF PROXIES
Proxies given by shareholders for use at the Meeting may be revoked at any
time prior to their use. In addition to revocation in any other manner permitted
by law, a shareholder who has given a proxy may revoke the proxy by filing an
instrument in writing executed by the shareholder or by the shareholder's
attorney authorized in writing, or if the shareholder is a corporation, by a
duly authorized officer or attorney of such corporation, and deposited at the
office of Computershare shown above at any time up to and including the last
business day preceding the day of the Meeting, or any postponement or
adjournment thereof, at which the proxy is to be used, or with the Chairman of
the Meeting on the day of the Meeting or any adjournment or
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postponement thereof, prior to being voted at the Meeting or any adjournment or
postponement thereof. The execution of a proxy will not affect a shareholder's
right to attend the Meeting and vote in person.
VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
The authorized capital of the Corporation consists of an unlimited number of
preference shares ("Preference Shares"), issuable in series, an unlimited number
of subordinate voting shares ("Subordinate Voting Shares") and an unlimited
number of multiple voting shares ("Multiple Voting Shares"), of which no
Preference Shares, 190,826,868 Subordinate Voting Shares and 39,065,950 Multiple
Voting Shares were issued and outstanding as at March 1, 2002.
The holders of Subordinate Voting Shares and Multiple Voting Shares are
entitled to vote on all matters brought before a meeting of the shareholders
together as a single class, except in respect of matters where only the holders
of shares of one class or a series of shares are entitled to vote separately
pursuant to applicable law. The Subordinate Voting Shares carry one vote per
share and the Multiple Voting Shares carry 25 votes per share. Generally, all
matters to be voted on by shareholders must be approved by a simple majority of
the votes cast in respect of Multiple Voting Shares and Subordinate Voting
Shares held by persons present in person or by proxy, voting together as a
single class. The presence, in person or by proxy, of at least two shareholders
representing not less than 35% of the total number of issued voting shares is
necessary for a quorum at the Meeting.
Only shareholders of record at the close of business on March 13, 2002 will
be entitled to vote at the Meeting or any adjournment(s) or postponement(s)
thereof, except to the extent that a person has transferred any shares after
that date and the transferee of such shares establishes proper ownership and
requests not later than 10 days before the Meeting or any adjournment or
postponement thereof that the transferee's name be included in the list of
shareholders entitled to vote at the Meeting.
As of March 1, 2002 the only persons or corporations who, to the knowledge
of the Corporation, its directors or officers, own beneficially, directly or
indirectly, or exercise control or direction over, in excess of 10% of any class
of the voting securities of the Corporation are as follows:
PERCENTAGE
PERCENTAGE OF ALL PERCENTAGE OF
NAME OF BENEFICIAL OWNER(1) TYPE OF OWNERSHIP NUMBER OF SHARES OF CLASS EQUITY SHARES VOTING POWER
- -------------------------- ----------------- ---------------- ---------- ------------- -------------
Onex Corporation(2) Direct and Indirect 39,065,950 Multiple Voting 100% 17% 83.65%
Shares
3,976,236 Subordinate Voting 2.1% 1.7% *
Shares
Gerald W. Schwartz(3) Direct and Indirect 39,065,950 Multiple Voting 100% 17% 83.65%
Toronto, Ontario Shares
4,136,228 Subordinate Voting 2.17% 1.8% *
Shares
AIM Management Group Inc. Direct and Indirect 21,620,297 Subordinate Voting 11.33% 9.4% 1.85%
Shares
- -----------
* Less than 1%
(1) As used in this table, "beneficial ownership" means sole or shared power
to vote or direct the voting of the security, or the sole or shared
investment power with respect to a security (I.E., the power to dispose,
or direct a disposition, of a security). A person is
-4-
deemed at any date to have "beneficial ownership" of any security that
such person has a right to acquire within 60 days of such date. More than
one person may be deemed to have beneficial ownership of the same
securities.
(2) Includes 11,635,958 Multiple Voting Shares held by wholly-owned
subsidiaries of Onex Corporation ("Onex"), 1,909,980 Subordinate Voting
Shares held in trust for Celestica Employee Nominee Corporation as agent
for and on behalf of certain executives and employees of Celestica
pursuant to certain of Celestica's employee share purchase and option
plans, 33,754 Subordinate Voting Shares representing an undivided
interest of approximately 10.2% in 330,872 Subordinate Voting Shares, and
404,128 Subordinate Voting Shares directly or indirectly held by certain
officers of Onex Corporation which Onex Corporation has the right to
vote. Of these shares, 9,214,320 Subordinate Voting Shares may be
delivered, at the issuer's option, upon the exercise or redemption, or at
maturity or acceleration, of exchangeable debentures due 2025 issued by
certain subsidiaries of Onex and 1,757,467 Subordinate Voting Shares may
be delivered, at the option of Onex or certain persons related to Onex,
to satisfy the obligations of such persons under equity forward
agreements. If a debenture is exercised or an equity forward agreement is
settled and the issuer of the debenture or, in the case of an equity
forward agreement, Onex does not elect to satisfy its obligations in cash
rather than delivering Subordinate Voting Shares, if the issuer or Onex,
as the case may be, does not hold a sufficient number of Subordinate
Voting Shares to satisfy its obligations, the requisite number of
Multiple Voting Shares held by such person will immediately be converted
into Subordinate Voting Shares, which will be delivered to satisfy such
obligations.
(3) Includes 159,992 Subordinate Voting Shares owned by a company controlled
by Mr. Schwartz and all of the shares of Celestica beneficially owned by
Onex Corporation, or in respect of which Onex Corporation exercises
control or direction, of which 1,077,500 Subordinate Voting Shares are
subject to options granted to Mr. Schwartz pursuant to certain management
incentive plans of Onex Corporation. Mr. Schwartz is a director of
Celestica and the Chairman of the Board, President and Chief Executive
Officer of Onex Corporation, and controls Onex Corporation through his
ownership of shares with a majority of the voting rights attaching to all
shares of Onex Corporation. Accordingly, Mr. Schwartz may be deemed to be
the beneficial owner of the Celestica shares owned by Onex Corporation.
TRUST AGREEMENT
Onex Corporation, which, directly or indirectly, owns all of the outstanding
Multiple Voting Shares, has entered into an agreement with Computershare, as
trustee for the benefit of the holders of the Subordinate Voting Shares, which
has the effect of preventing transactions that otherwise would deprive the
holders of Subordinate Voting Shares of rights under applicable provincial
take-over bid legislation to which they would be entitled in the event of a
take-over bid for the Multiple Voting Shares if the Multiple Voting Shares were
Subordinate Voting Shares.
MATTERS FOR CONSIDERATION OF SHAREHOLDERS
ELECTION OF DIRECTORS
It is proposed to nominate the nine persons listed below for election as
directors of the Corporation to hold office until the next annual meeting of
shareholders or until their successors are elected or appointed. All such
proposed nominees are now directors of the Corporation and have been since the
dates indicated. The Articles of the Corporation provide for a minimum of three
and a maximum of 20 directors. By resolution dated March 5, 2002, the board of
directors of the Corporation (the "Board of Directors") set the number of
directors of the Corporation to be elected at the Meeting at nine.
Unless authority to do so is withheld, proxies given pursuant to this
solicitation by the management of the Corporation will be voted for the election
as directors of the proposed nominees listed below. Management of the
Corporation does not contemplate that any of the nominees will be unable, or for
any reason unwilling, to serve as a director, but if that should occur for any
reason prior to their election, the proxy nominees may, in their discretion,
nominate and vote for another nominee.
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A brief statement of the business experience, age and principal occupation
during the past five years for each person nominated for election as a director
of the Corporation is set forth below. There are no contracts, arrangements or
understandings between any director or executive officer or any other person
pursuant to which any of the nominees has been nominated.
NAME AND MUNICIPALITY OF BENEFICIALLY OWNED DIRECTLY
RESIDENCE (AGE) BECAME A DIRECTOR OCCUPATION FOR THE PAST FIVE YEARS OR INDIRECTLY(1)
- ------------------------ ----------------- ------------------------------------------------ -------------------------------
Eugene V. Polistuk(2) (55) October 1996 Chairman of the Board of Celestica since 512,826 Subordinate Voting Shares
AURORA, ONTARIO February 2001 and Chief Executive Officer and
Director of Celestica
Robert L. Crandall(2) (66) July 1998 Corporate Director; prior to May 1998, Chairman 80,000 Subordinate Voting Shares
DALLAS, TEXAS of the Board, President and Chief Executive
Officer of AMR Corporation and Chairman of the
Board and Chief Executive Officer of American
Airlines Inc.
William Etherington(4) (60) October 2001 Corporate Director; prior to October 2001, 10,000 Subordinate Voting Shares
TORONTO, ONTARIO Senior Vice President and Group Executive, Sales
and Distribution, IBM Corporation and CEO, IBM
World Trade Corporation
Richard S. Love(3) (64) July 1998 Corporate Director; prior to 1998, 76,000 Subordinate Voting Shares
LOS ALTOS HILLS, CALIFORNIA Vice-President of Hewlett-Packard Company
Roger L. Martin(3) (45) July 1998 Corporate Director; Dean of the Joseph L. Rotman 43,000 Subordinate Voting Shares
TORONTO, ONTARIO School of Management of the University of Toronto
Anthony R. Melman(2)(3)(4)(54) October 1996 Vice-President of Onex 450,000 Subordinate Voting
Shares(5)
TORONTO, ONTARIO
Michio Naruto (66) October 2001 Chairman of International Computer Ltd., -
TOKYO, JAPAN Vice-Chairman of Fujitsu Corporation and
Chairman of Toyota InfoTechnology Center
Gerald W. Schwartz (60) July 1998 Chairman of the Board, President and Chief 39,065,950 Multiple Voting Shares(6)
TORONTO, ONTARIO Executive Officer of Onex 4,136,228 Subordinate Voting Shares(6)
Don Tapscott(4) (54) September 1998 Co-founder of Digital 4Sight Corp. and President 63,000 Subordinate Voting Shares
TORONTO, ONTARIO of New Paradigm Learning Corporation
- -----------
(1) As used in this table, "beneficial ownership" means sole or shared power
to vote or direct the voting of the security, or the sole or shared
investment power with respect to a security (I.E., the power to dispose,
or direct a disposition, of a security). A person is deemed at any date
to have "beneficial ownership" of any security that such person has a
right to acquire within 60 days of such date. Certain shares subject to
options granted pursuant to management investment plans of Onex are
included as owned beneficially by named individuals although the exercise
of these options is subject to Onex meeting certain financial targets.
More than one person may be deemed to have beneficial ownership of the
same securities.
(2) Member of the Corporation's Executive Committee.
(3) Member of the Corporation's Audit Committee.
(4) Member of the Corporation's Compensation Committee.
(5) Includes 274,588 Subordinate Voting Shares owned by Onex which are
subject to options granted to Mr. Melman pursuant to certain management
investment plans of Onex.
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(6) Includes 159,992 Subordinate Voting Shares owned by a company controlled
by Mr. Schwartz and all of the shares of Celestica beneficially owned by
Onex or in respect of which Onex Corporation exercises control or
direction, of which 1,077,500 Subordinate Voting Shares are subject to
options granted to Mr. Schwartz pursuant to certain management incentive
plans of Onex. Mr. Schwartz is the Chairman of the Board, President and
Chief Executive Officer of Onex, and controls Onex through his ownership
of shares with a majority of the voting rights attaching to all shares of
Onex. Accordingly, Mr. Schwartz may be deemed to be the beneficial owner
of shares of Celestica owned by Onex.
APPOINTMENT OF AUDITORS
Management proposes to nominate KPMG LLP as the auditors of the Corporation
to hold office until the close of the next annual meeting of shareholders. The
Board of Directors negotiates with the auditors of the Corporation on an arm's
length basis in determining the fees to be paid to the auditors. Such fees have
been based upon the complexity of the matters dealt with and the time expended
by the auditors in providing services to the Corporation. Management believes
that the fees negotiated in the past with the auditors of the Corporation have
been reasonable and would be comparable to fees charged by other auditors
providing similar services.
AUDIT AND NON-AUDIT FEES
The Corporation's auditors are KPMG LLP. In 2001, KPMG LLP billed the
Corporation $1.5 million for the audit of the Corporation's annual financial
statements and $2.9 million for tax, audit-related and other services. KPMG LLP
did not provide any financial information systems design and implementation
services to the Corporation. The Corporation's Audit Committee has considered
that the provision of non-audit services is compatible with maintaining KPMG
LLP's independence. Other public accounting firms provided consulting and other
services to the Corporation for fees totalling $3.1 million.
It is intended that, on any ballot that may be called for relating to the
appointment of auditors, the shares represented by proxies in favour of
management nominees will be voted in favour of the appointment of KPMG LLP as
auditors of the Corporation to hold office until the next annual meeting of
shareholders, and authorizing the directors to fix the remuneration to be paid
to the auditors, unless authority to do so is withheld. KPMG LLP have been
auditors of the Corporation since October 14, 1997. Prior to October 14, 1997,
the auditors of the Corporation were Price Waterhouse, Chartered Accountants
(one of the predecessors of PricewaterhouseCoopers LLP).
LTIP AMENDMENT RESOLUTION
Prior to the completion of the Corporation's initial public offering in July
1998, the Corporation established the Long-Term Incentive Plan (the "LTIP").
Under the LTIP, the Board of Directors may in its discretion grant from time to
time stock options, performance shares, performance share units and stock
appreciation rights to directors, permanent employees and consultants of the
Corporation, its subsidiaries and other companies or partnerships in which the
Corporation has a significant investment. As at March 1, 2002, options to
purchase 17,437,354 Subordinate Voting Shares of the Corporation were
outstanding under the LTIP.
At the Meeting, the shareholders of the Corporation will be asked to
consider and, if thought fit, pass a resolution (the "LTIP Amendment
Resolution") approving amending the LTIP to increase the number of Subordinate
Voting Shares of the Corporation that may be issued under the LTIP to 29 million
from 23 million.
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The Corporation's compensation philosophy is predicated on the belief that
broadly-based employee participation in share ownership is critical to maintain
a common entrepreneurial culture and motivation throughout the Corporation's
operational units and across functional and geographic boundaries. The purpose
of the amendment is to ensure that a sufficient number of shares are issuable
under the LTIP to permit the Corporation to maintain its policy of awarding
options to maintain competitive total compensation levels in order to attract
and retain highly qualified professionals and to reward past and expected future
contributions of directors, officers and permanent employees of the Corporation
and its subsidiaries. The 29 million Subordinate Voting Shares of the
Corporation that may be issued under the amended LTIP represent approximately
12.6% of the aggregate of the outstanding Multiple Voting Shares and Subordinate
Voting Shares. This is consistent with the number of Subordinate Voting Shares
of the Corporation that have historically been made available for issuance under
the LTIP relative to the number of outstanding shares. Immediately after the
completion of the Corporation's initial public offering, 7.5 million Subordinate
Voting Shares of the Corporation were available for issuance under the LTIP,
representing approximately 11.7% of the aggregate of the then outstanding
Multiple Voting Shares and Subordinate Voting Shares. The amendment to the LTIP
has been approved by the Board of Directors.
The policies of the Toronto Stock Exchange (the "TSE") require that the
amendment to the LTIP be approved by a majority of the votes cast at the
Meeting. The full text of the LTIP Amendment Resolution is set forth in Schedule
A attached hereto.
The Board of Directors has determined that the amendment to the LTIP is in
the best interests of the Corporation and its shareholders and unanimously
recommends that shareholders vote in favour of the LTIP Amendment Resolution.
COMPENSATION OF NAMED EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth the compensation of the Chief
Executive Officer of Celestica and the four other most highly compensated
executive officers of Celestica and its subsidiaries (collectively, the "Named
Executive Officers") for the three most recently completed financial years of
the Corporation:
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SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION AWARDS
SECURITIES UNDER ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS GRANTED(2) COMPENSATION(3)
--------------------------- ---- ------ ----- ------------------- ---------------
(U.S.$) (U.S.$) (#) (U.S.$)
Eugene V. Polistuk 2001 700,000 - 150,000 210,737
CHAIRMAN OF THE BOARD AND 2000 550,000 1,300,000 100,000 193,029
CHIEF EXECUTIVE OFFICER 1999 376,058 564,086 270,000(4) 85,613
J. Marvin MaGee 2001 516,250 - 135,000 57,773
PRESIDENT AND CHIEF OPERATING OFFICER 2000 360,000 510,000 40,000 31,809
1999 219,367 197,430 120,000(4) 18,148
Anthony P. Puppi 2001 400,000 - 59,000 51,822
EXECUTIVE VICE-PRESIDENT, CHIEF 2000 370,000 524,000 35,000 47,121
FINANCIAL OFFICER AND GENERAL MANAGER - 1999 250,705 225,635 140,000(4) 37,950
SERVICES
R. Thomas Tropea 2001 400,000 - 59,000 10,200
VICE-CHAIRMAN, GLOBAL CUSTOMER UNITS AND 2000 350,000 495,000 35,000 5,100
WORLDWIDE MARKETING AND BUSINESS 1999 207,298 201,600 70,000 27,463
DEVELOPMENT
Stephen Delaney(5) 2001 204,694(5) 150,000(6) 140,000(7) 154,500(8)
SENIOR VICE-PRESIDENT, U.S.,
CELESTICA CORPORATION
- -----------
(1) Excludes perquisites and other benefits because such compensation did not
exceed 10% of the total annual salary and bonus for any of the Named
Executive Officers.
(2) See table under "Options Granted During Year Ended December 31, 2001".
(3) Represents amounts set aside to provide benefits under Celestica's
pension plans (see "Pension Plans").
(4) Includes options granted to Named Executive Officers in 1999 with respect
to fiscal year 1998 as follows: Mr. Polistuk 130,000; Mr. MaGee 50,000;
and Mr. Puppi 70,000.
(5) Mr. Delaney joined Celestica Corporation in May 2001. The amount
specified represents Mr. Delaney's salary from his date of hire to the
end of the year.
(6) Represents the amount the Corporation agreed to pay to Mr. Delaney at his
date of hire as a bonus for the year ended December 31, 2001.
(7) Includes 100,000 options granted to Mr. Delaney upon joining Celestica
Corporation.
(8) Includes $150,000 paid to Mr. Delaney upon joining Celestica Corporation.
SHARE PURCHASE AND OPTION PLANS
Celestica has issued Subordinate Voting Shares and has granted
options to acquire Subordinate Voting Shares for the benefit of certain of its
employees and executives pursuant to various employee share purchase and option
plans in effect prior to Celestica's initial public offering (the "ESPO Plans").
No further options or Subordinate Voting Shares (other than pursuant to
outstanding options) may be issued under these ESPO Plans.
-9-
Pursuant to the ESPO Plans, employees and executives of Celestica were
offered the opportunity to purchase Subordinate Voting Shares and, in connection
with such purchase, receive options to acquire an additional number of
Subordinate Voting Shares based on the number of Subordinate Voting Shares
acquired by them under the ESPO Plans (on average, approximately 1.435 options
for each Subordinate Voting Share acquired under the ESPO Plans). In each case,
the exercise price for the options is equal to the price per share paid for the
corresponding Subordinate Voting Shares acquired under the ESPO Plans.
Upon the completion of Celestica's initial public offering, certain options
became exercisable. The balance of the options issued under the ESPO Plans vest
over a period of five years beginning December 31, 1998. All Subordinate Voting
Shares acquired by employees under the ESPO Plans are held either by the
employee, or by Towers Perrin Share Plan Services in trust for Celestica
Employee Nominee Corporation as agent for and on behalf of such employees.
LONG-TERM INCENTIVE PLAN
Under the Long-Term Incentive Plan, the Board of Directors may in its
discretion grant from time to time stock options, performance shares,
performance share units and stock appreciation rights to directors, permanent
employees and consultants of Celestica, its subsidiaries and other companies or
partnerships in which Celestica has a significant investment.
OPTIONS GRANTED DURING YEAR ENDED DECEMBER 31, 2001
The following table sets out options to purchase Subordinate Voting Shares
granted by the Corporation to the Named Executive Officers during the year ended
December 31, 2001.
EXERCISE OR BASE MARKET VALUE OF
SUBORDINATE VOTING % OF TOTAL OPTIONS PRICE PER SUBORDINATE VOTING
SHARES UNDER OPTIONS GRANTED TO SUBORDINATE VOTING SHARES ON THE
NAME GRANTED(1) EMPLOYEES IN 2001 SHARE(1) DATE OF GRANT(1) EXPIRATION DATE
- ----------------- -------------------- ----------------- ------------------ ------------------ ----------------
(#) ($/Security) ($/Security)
Eugene V. Polistuk 150,000 1.89% C$66.06 C$66.06 December 4, 2011
J. Marvin MaGee 25,000 0.32% C$73.50 C$73.50 March 1, 2011
110,000 1.39% C$66.06 C$66.06 December 4, 2011
Anthony P. Puppi 59,000 0.75% C$66.06 C$66.06 December 4, 2011
R. Thomas Tropea 59,000 0.75% U.S.$41.89 U.S.$41.89 December 4, 2011
Stephen Delaney 100,000 1.26% U.S.$50.00 U.S.$50.00 April 20, 2011
40,000 0.51% U.S.$41.89 U.S.$41.89 December 4, 2011
- -----------
(1) Options vest in four equal annual instalments.
OPTIONS EXERCISED DURING MOST RECENTLY COMPLETED FINANCIAL YEAR AND VALUE OF
OPTIONS AT DECEMBER 31, 2001
The following table sets out certain information with respect to options to
purchase Subordinate Voting Shares that were exercised by Named Executive
Officers during the year ended December 31, 2001 and Subordinate Voting Shares
under option to the Named Executive Officers as at December 31, 2001.
-10-
VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SUBORDINATE DECEMBER 31, 2001 DECEMBER 31, 2001(2)
VOTING SHARES ---------------------- -----------------------
ACQUIRED ON AGGREGATE VALUE
NAME EXERCISE REALIZED(1) EXERCISABLE(3) UNEXERCISABLE(3) EXERCISABLE(3) UNEXERCISABLE(3)
---- ------------- --------------- -------------- --------------- -------------- ----------------
Eugene V. Polistuk 44,607 $1,563,921 390,267 405,566 $9,828,562 $3,769,418
J. Marvin MaGee - - 155,212 235,920 $3,672,565 $1,226,996
Anthony P. Puppi 42,567 $1,701,264 126,395 161,170 $2,595,020 $1,367,221
R. Thomas Tropea - - 183,664 213,526 $4,474,479 $2,998,853
Stephen Delaney - - - 140,000 - -
- -----------
(1) Based on the closing price of the underlying shares on the New York Stock
Exchange on the date of exercise of the options.
(2) Based on the closing price of the Subordinate Voting Shares on the New
York Stock Exchange on December 31, 2001 of $40.39.
(3) Options granted under the ESPO and the LTIP.
PENSION PLANS
Messrs. Polistuk, Puppi and MaGee each participate in Celestica's
non-contributory pension plan (the "Canadian Pension Plan"). The Canadian
Pension Plan has a defined benefit and a defined contribution portion and
provides for a maximum of 30 years' service and retirement eligibility at the
earlier of 30 years' service or age 55.
Mr. MaGee is enrolled in the defined contribution portion of the Canadian
Pension Plan. Messrs. Polistuk and Puppi participate only in the defined benefit
portion of the Canadian Pension Plan. Messrs. Polistuk, Puppi and MaGee also
participate in an unregistered supplementary pension plan (the "Supplementary
Plan") that provides benefits equal to the difference between the benefits
determined in accordance with the formula set out in the Canadian Pension Plan
and Canada Customs and Revenue Agency maximum pension benefits.
The defined contribution portion of the Canadian Pension Plan allows
employees to choose how Celestica contributions are invested on their behalf
within a range of investment options provided by third party fund managers.
Celestica's contributions range from 3% of earnings to a maximum of 6.75% of
earnings based on the number of years of service. Retirement benefits depend
upon the performance of the investment options chosen.
The following table sets forth the estimated aggregate annual benefits
payable under the defined benefit portion of the Canadian Pension Plan and the
Supplementary Plan for Messrs. Polistuk and Puppi.
-11-
CANADIAN PENSION PLAN TABLE(1),(2)
YEARS OF SERVICE
EARNINGS -------------------------------------------------------------------------------------------------------------------
AVERAGE 15 20 25 30 35
-------- -- -- -- -- --
$300,000 $30,000 $40,000 $65,000 $95,000 $95,000
$400,000 $39,000 $52,000 $84,000 $124,000 $124,000
$500,000 $48,000 $64,000 $103,000 $153,000 $153,000
$600,000 $57,000 $76,000 $123,000 $181,000 $181,000
- -----------
(1) This table assumes total of retirement age and years of service is
greater than or equal to 80.
(2) All amounts are shown converted into U.S. dollars from Canadian dollars
at an exchange rate of U.S.$1.00 = C$1.5911.
The benefit provided under the defined benefit portion of the Canadian
Pension Plan for each of the officers who participate in the plan is equal to
the benefit entitlement accrued under the relevant IBM plan prior to October 22,
1996 plus the greater of 1.2% of earnings (salary and bonus) or 0.9% of earnings
up to the yearly maximum pensionable earnings ("YMPE") level, plus 1.45% of
earnings above the YMPE. The defined benefit portion of the Canadian Pension
Plan is of a modified career average design with pre-1999 benefits based on the
three-year earnings average at December 31, 1998. The defined benefit portion of
the Canadian Pension Plan also provides for supplementary early retirement
benefits from the date of early retirement to age 65.
As at December 31, 2001, Messrs. Polistuk and Puppi had completed 33 and 22
years of service, respectively.
During the year ended December 31, 2001, Celestica set aside an aggregate
amount of $321,303 to provide pension benefits for Messrs. Polistuk, Puppi and
MaGee pursuant to the Canadian Pension Plan. No other amounts were set aside or
accrued by Celestica during the year ended December 31, 2001 for the purpose of
providing pension, retirement or similar benefits for Messrs. Polistuk, Puppi
and MaGee pursuant to any other plans.
Messrs. Tropea and Delaney participate in the "U.S. Plan". The U.S. Plan
qualifies as a deferred salary arrangement under section 401 of the Internal
Revenue Code (United States). Under the U.S. Plan, participating employees may
defer a portion of their pre-tax earnings not to exceed 15% of their total
compensation. Celestica, at its discretion, may make contributions for the
benefit of eligible employees.
During the year ended December 31, 2001, Celestica contributed $14,700 to
the U.S. Plan for the benefit of Messrs. Tropea and Delaney. Except as described
above, no other amounts were set aside or accrued by Celestica during the year
ended December 31, 2001 for the purpose of providing pension, retirement or
similar benefits for Mr. Tropea.
EMPLOYMENT AGREEMENTS
Messrs. Polistuk and Puppi each entered into an employment agreement with
Celestica as of October 22, 1996. Mr. Tropea entered into an employment
agreement with Celestica as of June 30, 1998. Each agreement provides for the
executive's base salary and for benefits in accordance with Celestica's
established benefit plans for employees from time to time. Each agreement
provides for the executive to receive an amount equivalent to
-12-
36 months' salary if Celestica terminates the executive's employment, other
than for cause, subject to reduction if the executive earns replacement
earnings during such period from other sources.
REPORT ON EXECUTIVE COMPENSATION
It is the responsibility of the Compensation Committee to define and
communicate compensation principles that reflect and support the Corporation's
strategic direction, business goals and desired culture. The Compensation
Committee reviews and approves the Corporation's executive compensation
policies, programs and levels. The Compensation Committee assesses the annual
performance of the Chief Executive Officer and the President, and reviews and
approves the Chief Executive Officer's and the President's performance
assessments of each of the senior executive officers. The Compensation Committee
makes recommendations to the Board of Directors with respect to the compensation
of the Chief Executive Officer, the Chief Financial Officer, the President and
the Vice-Chairman.
COMPENSATION PHILOSOPHY AND OBJECTIVES
Celestica's goal is to be the premier full service electronics manufacturing
services provider to leading original equipment manufacturers through leadership
in technology, quality and supply chain management. Celestica believes that its
highly skilled workforce and unique culture represent a distinct competitive
advantage and are fundamental to achieving Celestica's strategic objectives.
Celestica has developed a unique entrepreneurial, participative and team-based
culture which is driven by the desire to continually exceed customer
expectations. The knowledge, skill, experience and commitment of all employees,
and especially that of senior management, is of critical importance to the
achievement of Celestica's strategic objectives and successful operation of its
business.
The structure of total compensation for the Corporation's executives is
designed to attract, motivate and retain executives who have the experience,
ability and flexibility to manage the growth of the Corporation globally. The
Compensation Committee recognizes the importance of monitoring the compensation
practices of Celestica's international competitors so as to ensure that its
compensation is competitive.
The Corporation's executive compensation policies and practices are designed
to: (1) align the interests of the executive officers with the short and
long-term interests of the Corporation's shareholders; (2) link executive
compensation to the performance of the Corporation relative to its competitors
and the contribution of the individual to such performance; and (3) compensate
executive officers at a level and in a manner that ensures the Corporation is
capable of attracting, motivating and retaining individuals with exceptional
executive skills and abilities.
The compensation of Celestica's executive officers is comprised of three
components: base salary, annual incentives and long-term incentives. The
Corporation's executive officers participate in either the defined benefit or
the defined contribution portion of the Corporation's non-contributory pension
plans. Certain executive officers also participate in an unregistered
supplementary pension plan. Executive officers participate in health, dental,
life insurance and long-term disability insurance programs on the same basis as
offered to other employees.
-13-
BASE SALARY
Base salaries are established taking into account individual performance and
experience, level of responsibility and competitive pay practices. Celestica
references the median level of base salaries at similarly-sized companies in the
electronics manufacturing services industry or closely related industries in the
U.S.
To ensure that Celestica will continue to attract and retain qualified and
experienced executive officers, base salaries are reviewed annually and adjusted
as appropriate.
ANNUAL INCENTIVES
The Corporation's executives participate in the Celestica Executive Team
Incentive Plan. In 2001, awards under this plan were based on pre-determined
targets for financial performance and customer satisfaction ratings as well as
the performance of the Corporation relative to its direct competitors on key
financial metrics. The Chief Executive Officer and the President evaluate each
executive's performance in accordance with the Corporation's stated values and
principles, teamwork and the executive's special accomplishments. Based on this
individual assessment, the amount of the executive's earned award may increase
by as much as 50% or decrease by as much as 50%.
All of Celestica's employees in eligible geographies, other than the
executive officers, participate in the Celestica Team Incentive Plan. In 2001,
awards under this plan were based on financial performance, customer
satisfaction ratings and individual performance. Under Celestica's Performance
and Development Plan, each participant establishes personal objectives at the
beginning of each year that are aligned with the Corporation's annual business
objectives. At the end of the year, each participant's accomplishments and
results with respect to his or her objectives are reviewed and assessed by his
or her manager. The participant's rating is then used in the determination of
the actual award to be paid.
In 2001, no awards were paid under the Celestica Team Incentive Plan or the
Celestica Executive Team Incentive Plan since the Corporation did not meet its
internal threshold financial performance target.
LONG-TERM INCENTIVES
At the time of the initial public offering, Celestica established two
long-term incentive plans for its employees: the Long-Term Incentive Plan and
the Employee Share Ownership Plan.
The objectives of Celestica's Long-Term Incentive Plan are: (i) to align
employee interests with those of shareholders with respect to the creation of
shareholder value; (ii) to reward employees for their contribution to
Celestica's success; and (iii) to allow the Corporation to attract and retain
the qualified and experienced personnel who are critical to the Corporation's
success. Options are currently granted annually to eligible employees based on
the recommendation of the management of each business unit and are subject to
the approval of the CEO. The Compensation Committee recommends option grants for
the CEO, the Chief Operating Officer, the Chief Financial Officer and the
Vice-Chair to the Board of Directors for approval. The total number of options
to be granted in a given year is approved by the Compensation Committee after
taking into account the total number of options outstanding both before and
after current year grants.
The Employee Share Ownership Plan enables eligible employees, including
executive officers, to acquire Subordinate Voting Shares, so as to encourage
continued employee interest in Celestica's operation,
-14-
growth and development. Under the Employee Share Ownership Plan, an eligible
participant may elect to contribute an amount representing no more than 10%
of his or her salary. The Corporation will contribute 25% of the amount of
the employee contributions, up to a maximum of 1% of the employee's salary
for the relevant payroll period. Contributions are used to purchase
Subordinate Voting Shares of the Corporation on the open market.
Celestica has issued Subordinate Voting Shares and options to acquire
additional Subordinate Voting Shares for the benefit of certain of its employees
and executives pursuant to the ESPO Plans. No further options or Subordinate
Voting Shares (other than pursuant to outstanding options) may be issued under
these plans.
CHIEF EXECUTIVE OFFICER
The compensation package of the Chief Executive Officer is approved by the
Board of Directors, based upon the recommendations of the Compensation
Committee.
The Chief Executive Officer's compensation package consists of base salary,
annual incentives and long-term incentives as described above. In establishing
the Chief Executive Officer's compensation, the Compensation Committee takes
into account Mr. Polistuk's contribution in terms of leadership in the
management of the Corporation, the global scope and size of the Corporation's
operations, the industry it competes in and competitive compensation packages at
the Chief Executive Officer level at similarly-sized companies in the
electronics manufacturing services industry and a comparator group of companies
in closely related industries in the U.S.
Celestica weathered a difficult business environment in 2001. The general
weakness in end-market demand experienced by Celestica's customers and by the
technology sector in general, impacted Celestica's ability to meet its internal
revenue and profit targets. Mr. Polistuk's vision and leadership helped to
mitigate the impact of the downturn on Celestica as the Corporation maintained
its operating margins from 2000 and strengthened its balance sheet by ending the
year with $1.3 billion in cash.
In 2001, Mr. Polistuk received a salary of $700,000 and a Long-Term
Incentive Plan award, as detailed previously. Mr. Polistuk did not receive an
award under the Celestica Executive Team Incentive Plan.
REPORT PRESENTED BY THE COMPENSATION COMMITTEE:
William Etherington
Anthony R. Melman
Don Tapscott
COMPENSATION OF DIRECTORS
Directors who are not officers or employees of Celestica or Onex receive
compensation for their services as directors. These directors receive an annual
retainer fee of $25,000 and a fee of $2,500 for each meeting of the Board of
Directors attended and each meeting attended of a Committee of the Board of
Directors of which the director is a member. Meetings of directors are expected
to occur at least quarterly. In lieu of receiving such retainer and attendance
fees in cash, these directors may elect, at the time they are first elected or
appointed to Celestica's Board of Directors, to receive their fees in
Subordinate Voting Shares. Directors who joined the Board at or about the time
of the Corporation's Initial Public Offering receive an annual retainer and per
meeting fee of 2,860 and 286 Subordinate Voting Shares respectively. Under the
Directors' Compensation
-15-
Plan adopted in July 2001, the number of shares to be paid to other eligible
directors in lieu of cash is calculated, in the case of meeting fees, by
dividing the cash fee that would otherwise be payable by the closing price of
Subordinate Voting Shares on the NYSE on the date of the meeting, and, in the
case of annual retainer fees, by dividing the cash amount that would otherwise
be payable quarterly by the closing price of Subordinate Voting Shares on the
NYSE on the last day of the quarter. Each director has the right to elect to
defer payment of his fees. Grants of Subordinate Voting Shares for such purposes
may not exceed an aggregate of 500,000 Subordinate Voting Shares. The aggregate
compensation paid in 2001 by the Company to its directors in their capacity as
directors was $50,000 and the right to receive, in the aggregate, 18,482.41
Subordinate Voting Shares. The delivery of these shares was deferred until the
respective directors cease to be directors of Celestica. Mr. Crandall also
receives an annual grant of 10,000 Performance Units, convertible into
Subordinate Voting Shares upon his retirement from the Board, in his capacity as
Chairman of the Executive Committee.
In 2001, each of the eligible directors was issued options to acquire 20,000
Subordinate Voting Shares, pursuant to the Long-Term Incentive Plan. 80,000
options were issued at an exercise price of $44.23. 40,000 options were issued
at an exercise price of $35.95.
INDEBTEDNESS OF DIRECTORS AND OFFICERS
As at March 1, 2002, Celestica had guaranteed $1,871,718 aggregate
indebtedness of certain officers and employees of Celestica incurred in
connection with the purchase of Subordinate Voting Shares. The following table
sets forth details of such guarantees by Celestica of indebtedness of the
directors and officers of Celestica.
INDEBTEDNESS OF SENIOR OFFICERS UNDER SECURITIES PURCHASE PROGRAMS(1)
LARGEST AMOUNT
OUTSTANDING AMOUNT OUTSTANDING AS AT
NAME AND PRINCIPAL POSITION DURING 2001(1) MARCH 1, 2002(1),(2)
- --------------------------- ------------- ------------------------
J. Marvin MaGee $155,391 $155,391
PRESIDENT AND CHIEF OPERATING OFFICER
R. Thomas Tropea $407,396 $407,396
VICE-CHAIRMAN, GLOBAL CUSTOMER UNITS AND WORLDWIDE MARKETING AND
BUSINESS DEVELOPMENT
Alastair Kelly $134,805 nil
EXECUTIVE VICE-PRESIDENT, CORPORATE DEVELOPMENT
Daniel P. Shea $280,998 $280,998
SENIOR VICE-PRESIDENT AND CHIEF TECHNOLOGY OFFICER
Rahul Suri $957,108 $957,108
SENIOR VICE-PRESIDENT, MERGERS AND ACQUISITIONS
Graham Thouret $97,383 nil
VICE-PRESIDENT AND CORPORATE TREASURER
Peter Bar $92,957 $70,824
VICE-PRESIDENT AND CORPORATE CONTROLLER
- -----------
(1) All amounts are shown in U.S. dollars converted, where necessary, from
Canadian dollars at an exchange rate of U.S.$1.00 = C$1.5955 and from
British pounds sterling at an exchange rate of U.S.$1.00 =(pound)0.7047.
-16-
(2) All guaranteed amounts incur interest at a rate equal to certain
commercial banks' prime lending rates. The security for each of the
guaranteed amounts is the purchased Subordinate Voting Shares.
No securities were purchased by any director or officer during 2001 with the
financial assistance of Celestica. No director, officer or employee was indebted
to Celestica other than in connection with securities purchase programs during
the fiscal year ended December 31, 2001.
INDEMNIFICATION AGREEMENTS
Celestica and certain of its subsidiaries have entered into indemnification
agreements with certain of the directors and officers of Celestica and its
subsidiaries. These agreements generally provide that Celestica or the
subsidiary of Celestica which is a party to the agreement, as applicable, will
indemnify the director or officer in question (including his or her heirs and
legal representatives) against all costs, charges and expenses incurred by him
or her in respect of any civil, criminal or administrative action or proceeding
to which he or she is made a party by reason of being or having been a director
or officer of such corporation or a subsidiary thereof, provided that (a) he or
she has acted honestly and in good faith with a view to the best interests of
the corporation, and (b) in the case of a criminal or administrative proceeding
that is enforced by a monetary penalty, he or she had reasonable grounds for
believing that his or her conduct was lawful.
INTEREST OF INSIDERS IN CERTAIN TRANSACTIONS
Celestica and Onex are parties to a Management Services Agreement under
which Onex has agreed to provide management, administrative, strategic planning,
financial and support services to Celestica of such nature as Celestica may
reasonably request from time to time having regard to Onex's experience,
expertise and personnel or the personnel of its subsidiaries, as the case may
be. Celestica has agreed to pay Onex certain fees under the Management Services
Agreement equal to approximately $2.0 million per year adjusted for changes in
the Canadian consumer price index. The Management Services Agreement also
provides that if Celestica uses Onex management personnel to provide investment
banking or financial advice in connection with any acquisition, Onex will be
entitled to receive fees consistent in the determination of the Board of
Directors of Celestica with fees typically paid for financial advice in such
circumstances to investment bankers or other expert advisors at arm's-length to
Celestica. The Management Services Agreement has a term of five years with
automatic renewal for successive one-year periods thereafter, subject to
termination on 12 months' prior written notice at any time after the initial
five-year term by the directors of Celestica who are independent of Celestica
and Onex, and provided that in any event the Management Services Agreement, and
the rights of Onex to receive fees (other than accrued and unpaid fees), will
terminate 30 days after the first day upon which Onex ceases to hold at least
one Multiple Voting Share. During 2001, Celestica paid to Onex management and
investment banking fees of approximately $2.1 million.
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
In December 1994, the Toronto Stock Exchange Committee on Corporate
Governance in Canada released its guidelines on corporate governance (the
"Guidelines"). The Board of Directors considers good corporate governance to be
important to the effective and efficient operation of the Corporation. The Board
of Directors is responsible for the structures and procedures necessary for good
corporate governance at the Corporation. The TSE requires the Corporation to
disclose its approach to corporate governance on an annual basis. The
Corporation's disclosure is set out in Schedule B hereto.
-17-
BOARD COMMITTEES
The Board of Directors has established three standing committees of three
directors, each with a specific mandate. The Executive Committee includes a
majority of unrelated directors. The Audit Committee and Compensation Committee
each are composed of unrelated directors.
EXECUTIVE COMMITTEE
Subject to the limitations set out in subsection 127(3) of the BUSINESS
CORPORATIONS ACT (Ontario), the Board of Directors has delegated to the
Executive Committee the powers to consider and approve certain matters relating
to the management of the Corporation, subject to any regulations or restrictions
that may from time to time be made or imposed upon the Executive Committee by
the Board of Directors. The members of the Executive Committee are Messrs.
Crandall, Melman and Polistuk.
AUDIT COMMITTEE
The Audit Committee, which consists of Messrs. Love, Martin and Melman,
selects and engages, on behalf of Celestica, the independent public accountants
to audit Celestica's annual financial statements, and reviews and approves the
planned scope of the annual audit. The Audit Committee has direct communication
channels with the auditors to discuss and review specific issues as appropriate.
The Audit Committee's duties include the responsibility for reviewing financial
statements with management and the auditors, monitoring the integrity of the
Corporation's management information systems and internal control procedures,
and reviewing the adequacy of the Corporation's processes for identifying and
managing risk.
COMPENSATION COMMITTEE
The Compensation Committee approves the Corporation's executive compensation
policies and establishes remuneration levels of Celestica's executive officers
and performs such functions as provided for under Celestica's employee benefit
programs and executive compensation programs. The Compensation Committee
consists of Messrs. Melman, Etherington and Tapscott, all of whom are unrelated
to the Corporation. John Walter was a member of the Compensation Committee until
his retirement from the Board of Directors in June, 2001. Mr. Walter is also
unrelated to the Corporation.
PERFORMANCE GRAPH
The Subordinate Voting Shares of the Corporation have been listed and posted
for trading under the symbol "CLS" on the Toronto Stock Exchange and the New
York Stock Exchange since June 30, 1998. The following chart compares the
cumulative total shareholder return of $100 invested in Subordinate Voting
Shares of the Corporation on June 30, 1998 with the cumulative total shareholder
return of the Toronto Stock Exchange 300 Index for the period June 30, 1998 to
December 31, 2001.
-18-
[GRAPH]
PARTICULARS OF OTHER MATTERS
Management knows of no matters to come before the Meeting other than the
matters referred to in the Notice of Meeting. However, if any other matters
which are not now known to management should properly come before the Meeting,
the proxy will be voted upon such matters in accordance with the best judgment
of the person voting the proxy.
AVAILABILITY OF DOCUMENTS
The Corporation will provide to any person, upon request to the Secretary of
the Corporation, the following documents:
(a) one copy of the latest annual information form, together
with one copy of any document, or the pertinent pages of
any document, incorporated therein by reference;
(b) one copy of the comparative financial statements of the
Corporation for the year ended December 31, 2001, together
with the accompanying report of the auditor, and one copy
of any interim financial statements of the Corporation
subsequent thereto; and
(c) the Corporation's management proxy circular for its last
annual meeting of shareholders.
-19-
CERTIFICATE
The contents of this Circular and the sending thereof to the
shareholders of the Corporation have been approved by the Board of Directors.
Toronto, Ontario, March 19, 2002.
By Order of the Board of Directors
Elizabeth L. DelBianco
Vice-President, General Counsel
and Secretary
SCHEDULE A
RESOLUTION OF THE SHAREHOLDERS OF CELESTICA INC.
LONG-TERM INCENTIVE PLAN AMENDMENT RESOLUTION
1. The amendment to the Long-Term Incentive Plan of the Corporation (the
"LTIP") to increase the maximum number of Subordinate Voting Shares
of the Corporation (the "Subordinate Voting Shares") which may be
issued under options or rights granted under the LTIP from 23,000,000
Subordinate Voting Shares to 29,000,000 Subordinate Voting Shares be
and is hereby approved; and
2. any director or officer of the Corporation be and is hereby
authorized, for, in the name and on behalf of the Corporation, to do
all such acts and things and to execute, whether under the corporate
seal of the Corporation or otherwise, and to deliver all such
documents and instruments as may be considered necessary or desirable
in order to carry out the provisions of this resolution.
SCHEDULE B
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
TSE CORPORATE GOVERNANCE
COMMITTEE GUIDELINE COMMENTS
- ------------------------ --------
1. The Board of Directors should The Board of Directors is elected annually to represent the interests of
explicitly assume resonsibility for all shareholders. The mandate of the Board of Directors is to supervise
stewardship of the Corporation. the business and affairs of the Corporation and to ensure adherence to
good corporate governance practices. In light of this obligation, the
As part of the overall stewardship Board assumes responsibility for matters such as those set out below:
responsibility, the Board should
assume responsibility specifically (i) The adoption of a strategic planning process including the review
for: of long-term corporate objectives and industry positioning.
Substantial strategic planning sessions are a regular part of the
(i) adoption of a strategic planning Board schedule.
process
(ii) identification of principal risks (ii) The regular review of the Corporation's overall business risks
and implementation of risk- and ensuring that appropriate systems are in place to address and
managing systems manage such risks.
(iii) succession planning, including (iii) Succession planning for key senior management positions and
appointing, training and skills assessments of individuals identified to fill key roles.
monitoring management
(iv) communications policy (iv) Review and approval of the contents of major disclosure
documents such as the Annual Information Form, the
Management Information Circular and all Prospectuses; and
ensuring compliance with the Corporation's continuous
(v) the integrity of internal control disclosure obligations. The Corporation complies with the
and management information U.S. Securities and Exchange Commission's Regulation FD and
systems follows fair disclosure practices for the benefit of its
shareholders.
(v) The integrity of the Corporation's internal business controls and
management information systems, which the Board and the
Audit Committee monitor and assess regularly with management
and with the Auditor.
2. Majority of the directors should be The Board of Directors considered the relationship of each of its
"unrelated" (free from conflicting directors to the Corporation and has determined that a majority of the
interest). Board of Directors is composed of directors that are unrelated to the
Corporation. The Board of Directors, in addition to including a
majority of unrelated directors, comprises six directors who do not
have interests or relations with either the Corporation or its significant
shareholder, Onex. The six directors who do not have interests or
relations with either the Corporation or Onex are Messrs. Crandall,
Etherington, Love, Martin, Naruto and Tapscott.
-2-
TSE CORPORATE GOVERNANCE
COMMITTEE GUIDELINE COMMENTS
- ------------------------ --------
3. Disclose for each director whether he Messrs. Crandall, Etherington, Love, Martin, Melman, Schwartz,
or she is related, and how that Naruto and Tapscott have no material business or other relationship
conclusion was reached. with the Corporation or members of the Corporation's management,
other than their positions as directors, optionees and shareholders, and
as a result, the Board of Directors has determined that each of
Messrs. Crandall, Etherington, Love, Martin, Melman, Schwartz
Naruto and Tapscott is an unrelated director. The Board of Directors
has determined that Mr. Polistuk, as Chief Executive Officer of the
Corporation is not an unrelated director because he is a member of the
Corporation's management.
4. Appoint a Committee composed of The Board of Directors has not appointed a committee of directors
non-management directors, a with responsibility for proposing nominees to the Board of Directors
majority of whom are unrelated or assessing directors' performance on an ongoing basis. The Board of
directors, responsible for the Directors does not believe that such a committee is currently necessary
appointment/assessment of directors. given that the Board of Directors has recently been reconstituted.
Additional directors will be proposed from time to time as the Board
of Directors considers appropriate.
5. Implement a process for assessing the While the Board of Directors has not implemented a formal process
effectiveness of the Board, its for evaluating its performance or the performance of individual
Committees and individual directors. directors, the Board informally reviews its role on an ongoing basis. In
addition, the directors are encouraged to discuss any issues and to raise
specific matters with the Chairman or with each other.
6. Provide orientation and education New directors will be oriented to the business and affairs of the
programs for new directors. Corporation through discussions with management and other directors
and by periodic presentations from senior management on major
business, industry and competitive issues.
7. Examination of the size of the Board The Board of Directors believes that its size is appropriate given the
and consideration with a view to size and complexity of the Corporation's business.
determine the impact of the number
upon effectiveness. The current Board composition results in a balanced representation on
the Board of Directors among management, the principal shareholder
and unrelated directors.
8. Review the adequacy and form of The Board of Directors has considered the remuneration paid to
compensation of directors in light of directors and considers it appropriate in light of the time commitment
risks and responsibilities. and risks and responsibilities involved.
9. Committees should generally be The Board of Directors has established three standing committees of
composed of non-management three directors, each with a specific mandate. The Executive
directors, the majority of whom are Committee includes a majority of unrelated directors. The Audit
unrelated. Committee and Compensation Committee each are composed of
unrelated directors.
-3-
TSE CORPORATE GOVERNANCE
COMMITTEE GUIDELINE COMMENTS
- ------------------------ --------
10. The Board should assume The Board of Directors has not appointed a committee of directors
responsibility for or appoint a with responsibility for corporate governance issues. The Board of
Committee responsible for approach Directors as a whole assumes responsibility for corporate governance
to corporate governance issues. This issues.
committee would, among other
things, be responsible for the
response to the TSE Guidelines.
11. Develop position descriptions for the The Board of Directors has not developed position descriptions for
Board and for the CEO, involving the itself or for the Chief Executive Officer because it believes that such
definition of limits for management's individuals' respective responsibilities are well understood. All of the
responsibilities. directors who joined the Board of Directors following the initial public
offering have extensive business experience and directorship
responsibilities on the boards of other public and private institutions.
The Board of Directors requires management to obtain the Board of
Directors' approval for all significant decisions, including major
financings, acquisitions, dispositions, budgets, capital expenditures
and executive appointments. The Board of Directors expects
management to keep it aware of the Corporation's performance and
events affecting the Corporation's business, including opportunities in
the marketplace and adverse or positive developments.
The Board of Directors retains responsibility for any matter which has
not been delegated to senior management or to a committee of
directors.
The Board should develop the The Board of Directors approves specific financial and business
corporate objectives which the CEO objectives which the CEO is responsible for meeting.
is responsible for meeting.
12. Establish appropriate procedures to If all of management's nominess to the Board are elected, the Board of
enable the Board to function Directors will include only one director who is a member of the
independently of management. Corporation's management while eight directors are not part of the
Corporation's management.
An appropriate structure would be to Mr. Polistuk, who is the Chief Executive Officer, currently serves as
(i) appoint a Chairman of the Board Chairman of the Board of Directors. The Board has elected to comply
who is not a member of management with this Guideline through adoption of procedures such as regular
with responsibility to ensure that the meetings of the non-management members of the Board without
Board discharges its responsibilities management present. These sessions are a scheduled part of every
or (ii) adopt alternate means such as Board of Directors meeting. The Board of Directors also has access to
assigning this responsibility to a information independent of management through the Corporation's
committee of the board or to a external Auditors.
director, sometimes referred to as the
"lead director".
-4-
TSE CORPORATE GOVERNANCE
COMMITTEE GUIDELINE COMMENTS
- ------------------------ --------
Appropriate procedures may involve The Board of Directors is of the view that appropriate structures and
the Board meeting on a regular basis procedures are in place to ensure that it can function independently of
without management present or may management, and at the same time, the Corporation recieves the
involve expressly assigning responsi- benefit of having a Chairman of the Board with extensive experience
bility for administering the Board's and knowledge of the Corporation's business.
relationship to management to a
committee of the Board.
13. The Audit Committee should be The Audit Committee is composed of outside directors.
composed only of outside directors.
The roles and responsibilities of the The Audit Committee has a well-defined mandate. It selects and
Audit Committee should be engages, on behalf of Celestica, the independent public accountants to
specifically defined so as to provide audit Celestica's annual financial statements, and reviews and approves
appropriate guidance to Audit the planned scope of the annual audit. The Audit Committee's duties
Committee members as to their include the review and approval of quarterly unaudited and annual
duties. The Audit Committee duties audited financial statements with management and the Auditors prior
should include oversight to consideration by the Board of Directors; monitoring the integrity of
responsibility for management the Corporation's management information systems and internal
reporting on internal control. While it control procedures; and reviewing the adequacy of the Corporation's
is management's responsibility to processes for identifying and managing risk.
design and implement an effective
system of internal control, it is the
responsibility of the Audit
Committee to ensure that
management has done so.
The Audit Committee should have The Audit Committee has direct communication channels with the
direct communication channels with Auditors to discuss and review specific issues as appropriate.
the internal and the external auditors
to discuss and review specific issues
as appropriate.
14. Implement a system to enable An individual director is entitled to engage an outside adviser at the
individual directors to engage outside expense of the Corporation in appropriate circumstances provided that
advisers, at the corporation's expense. such director has obtained the approval of the Chairman to do so.
The engagement of the outside
advisor should be subject to the
approval of an appropriate committee
of the Board.
Exhibit 99.2
CELESTICA INC.
PROXY
FOR USE AT THE
ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 17, 2002
THE UNDERSIGNED HOLDER OF MULTIPLE VOTING SHARES OF CELESTICA INC. (THE
"CORPORATION") HEREBY APPOINTS EUGENE V. POLISTUK, THE CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER OF THE CORPORATION OR, FAILING HIM, J. MARVIN
MAGEE, THE PRESIDENT AND CHIEF OPERATING OFFICER OF THE CORPORATION OR,
INSTEAD OF EITHER OF THE FOREGOING, ..........................................
AS THE NOMINEE OF THE UNDERSIGNED TO ATTEND AND ACT FOR AND ON BEHALF OF THE
UNDERSIGNED AT THE ANNUAL AND SPECIAL MEETING (THE "MEETING") OF THE
SHAREHOLDERS OF THE CORPORATION ("SHAREHOLDERS") TO BE HELD ON THE 17TH DAY
OF APRIL, 2002 AND AT ANY ADJOURNMENT(S) OR POSTPONEMENT(S) OF THE MEETING,
WITH THE SAME POWERS THE UNDERSIGNED WOULD HAVE IF THE UNDERSIGNED WAS
PRESENT AT THE MEETING, OR ANY ADJOURNMENT(S) OR POSTPONEMENT(S) OF THE
MEETING, WITH POWER OF SUBSTITUTION, AND WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING, THE NOMINEE IS DIRECTED TO VOTE AS SPECIFIED BELOW:
1. TO VOTE FOR / / OR TO WITHHOLD FROM VOTING FOR / / the election of
directors.
2. TO VOTE FOR / / OR TO WITHHOLD FROM VOTING FOR / / the appointment of
auditors and the authorization of the directors to fix the remuneration of
the auditors.
3. TO VOTE FOR / / OR AGAINST / / the resolution approving the amendment to
the Long-Term Incentive Plan of the Corporation to increase the maximum
number of subordinate voting shares of the Corporation reserved for
issuance thereunder (the "LTIP Amendment Resolution"), the full text of
which is set forth in Schedule A to the Corporation's Management
Information Circular dated March 19, 2002.
4. To vote at the nominee's discretion upon any amendments or variations to
the matters specified in the notice of the Meeting or upon any other
matters as may properly come before the Meeting or any adjournment(s) or
postponement(s) thereof.
IF NO SPECIFICATION AS TO VOTING IS MADE, THIS PROXY WILL BE VOTED FOR
THE ELECTION OF MANAGEMENT'S NOMINEES AS DIRECTORS, FOR THE APPOINTMENT OF
MANAGEMENT'S NOMINEES AS AUDITORS AND THE AUTHORIZATION OF THE BOARD OF
DIRECTORS OF THE CORPORATION TO FIX THE REMUNERATION OF THE AUDITORS, AND FOR
THE LTIP AMENDMENT RESOLUTION, ALL AS DESCRIBED IN THE MANAGEMENT INFORMATION
CIRCULAR. IF ANY AMENDMENTS OR VARIATIONS TO MATTERS IDENTIFIED IN THE NOTICE
OF MEETING ARE PROPOSED AT THE MEETING OR IF ANY OTHER MATTERS PROPERLY COME
BEFORE THE MEETING, DISCRETIONARY AUTHORITY IS HEREBY CONFERRED WITH RESPECT
TO SUCH MATTERS. The undersigned hereby revokes any proxy previously given by
the undersigned.
THIS PROXY IS SOLICITED ON BEHALF OF THE MANAGEMENT OF THE CORPORATION.
SHAREHOLDERS MAY APPOINT A PROXYHOLDER OTHER THAN THE PERSONS DESIGNATED
ABOVE TO ATTEND AND ACT ON THEIR BEHALF AT THE MEETING AND MAY EXERCISE SUCH
RIGHT BY INSERTING THE NAME OF THEIR NOMINEE IN THE BLANK SPACE PROVIDED FOR
THIS PURPOSE OR BY COMPLETING ANOTHER PROPER FORM OF PROXY.
DATED the ___________ day of ___________________________________________, 2002.
_______________________________________________________________________________
Signature of Shareholder
_______________________________________________________________________________
Name of Shareholder (Please print)
NOTES
1. Kindly fill in and sign this form of proxy and return it in the envelope
provided. TO BE EFFECTIVE, PROXIES MUST BE DEPOSITED WITH COMPUTERSHARE
TRUST COMPANY OF CANADA, 100 UNIVERSITY AVENUE, 9TH FLOOR, TORONTO,
ONTARIO M5J 2Y1, ANY TIME UP TO 5:00 P.M. (TORONTO TIME) ON APRIL 16, 2002
OR AT LEAST 24 HOURS, EXCLUDING SATURDAYS AND HOLIDAYS, PRIOR TO ANY
ADJOURNMENT OR POSTPONEMENT OF THE MEETING AT WHICH THE PROXY IS TO BE
USED, OR WITH THE CHAIRMAN OF THE MEETING PRIOR TO THE COMMENCEMENT OF THE
MEETING OR ANY ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF AT WHICH THE
PROXY IS TO BE USED.
2. If a Shareholder wishes to be represented at the Meeting by proxy, the
proxy must be dated and executed by the Shareholder or the Shareholder's
attorney authorized in writing or, if the Shareholder is a corporation,
under its corporate seal or by an officer or attorney of the corporation
duly authorized. If this proxy is not dated in the space provided, it will
be deemed to be dated as of the date on which it was mailed to
Shareholders by management of the Corporation.
Exhibit 99.3
CELESTICA INC.
PROXY
FOR USE AT THE
ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 17, 2002
THE UNDERSIGNED HOLDER OF SUBORDINATE VOTING SHARES OF CELESTICA INC.
(THE "CORPORATION") HEREBY APPOINTS EUGENE V. POLISTUK, THE CHAIRMAN OF THE
BOARD AND CHIEF EXECUTIVE OFFICER OF THE CORPORATION OR, FAILING HIM, J.
MARVIN MAGEE, THE PRESIDENT AND CHIEF OPERATING OFFICER OF THE CORPORATION
OR, INSTEAD OF EITHER OF THE FOREGOING, ......................................
AS THE NOMINEE OF THE UNDERSIGNED TO ATTEND AND ACT FOR AND ON BEHALF OF THE
UNDERSIGNED AT THE ANNUAL AND SPECIAL MEETING (THE "MEETING") OF THE
SHAREHOLDERS OF THE CORPORATION ("SHAREHOLDERS") TO BE HELD ON THE 17TH DAY
OF APRIL, 2002 AND AT ANY ADJOURNMENT(S) OR POSTPONEMENT(S) OF THE MEETING,
WITH THE SAME POWERS THE UNDERSIGNED WOULD HAVE IF THE UNDERSIGNED WAS
PRESENT AT THE MEETING, OR ANY ADJOURNMENT(S) OR POSTPONEMENT(S) OF THE
MEETING, WITH POWER OF SUBSTITUTION, AND WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING, THE NOMINEE IS DIRECTED TO VOTE AS SPECIFIED BELOW:
1. TO VOTE FOR / / OR TO WITHHOLD FROM VOTING FOR / / the election of
directors.
2. TO VOTE FOR / / OR TO WITHHOLD FROM VOTING FOR / / the appointment of
auditors and the authorization of the directors to fix the remuneration of
the auditors.
3. TO VOTE FOR / / OR AGAINST / / the resolution approving the amendment to
the Long-Term Incentive Plan of the Corporation to increase the maximum
number of subordinate voting shares of the Corporation reserved for issuance
thereunder (the "LTIP Amendment Resolution"), the full text of which is
set forth in Schedule A to the Corporation's Management Information Circular
dated March 19, 2002.
4. To vote at the nominee's discretion upon any amendments or variations to
the matters specified in the notice of the Meeting or upon any other matters
as may properly come before the Meeting or any adjournment(s) or
postponement(s) thereof.
IF NO SPECIFICATION AS TO VOTING IS MADE, THIS PROXY WILL BE VOTED FOR
THE ELECTION OF MANAGEMENT'S NOMINEES AS DIRECTORS, FOR THE APPOINTMENT OF
MANAGEMENT'S NOMINEES AS AUDITORS AND THE AUTHORIZATION OF THE BOARD OF
DIRECTORS OF THE CORPORATION TO FIX THE REMUNERATION OF THE AUDITORS, AND FOR
THE LTIP AMENDMENT RESOLUTION, ALL AS DESCRIBED IN THE MANAGEMENT INFORMATION
CIRCULAR. IF ANY AMENDMENTS OR VARIATIONS TO MATTERS IDENTIFIED IN THE NOTICE
OF MEETING ARE PROPOSED AT THE MEETING OR IF ANY OTHER MATTERS PROPERLY COME
BEFORE THE MEETING, DISCRETIONARY AUTHORITY IS HEREBY CONFERRED WITH RESPECT
TO SUCH MATTERS. The undersigned hereby revokes any proxy previously given by
the undersigned.
THIS PROXY IS SOLICITED ON BEHALF OF THE MANAGEMENT OF THE CORPORATION.
SHAREHOLDERS MAY APPOINT A PROXYHOLDER OTHER THAN THE PERSONS DESIGNATED
ABOVE TO ATTEND AND ACT ON THEIR BEHALF AT THE MEETING AND MAY EXERCISE SUCH
RIGHT BY INSERTING THE NAME OF THEIR NOMINEE IN THE BLANK SPACE PROVIDED FOR
THIS PURPOSE OR BY COMPLETING ANOTHER PROPER FORM OF PROXY.
DATED the _______________ day of _______________________________________, 2002.
_______________________________________________________________________________
Signature of Shareholder
_______________________________________________________________________________
Name of Shareholder (Please print)
NOTES
1. Kindly fill in and sign this form of proxy and return it in the envelope
provided. TO BE EFFECTIVE, PROXIES MUST BE DEPOSITED WITH COMPUTERSHARE
TRUST COMPANY OF CANADA, 100 UNIVERSITY AVENUE, 9TH FLOOR, TORONTO,
ONTARIO M5J 2Y1, ANY TIME UP TO 5:00 P.M. (TORONTO TIME) ON APRIL 16, 2002
OR AT LEAST 24 HOURS, EXCLUDING SATURDAYS AND HOLIDAYS, PRIOR TO ANY
ADJOURNMENT OR POSTPONEMENT OF THE MEETING AT WHICH THE PROXY IS TO BE
USED, OR WITH THE CHAIRMAN OF THE MEETING PRIOR TO THE COMMENCEMENT OF THE
MEETING OR ANY ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF AT WHICH THE
PROXY IS TO BE USED.
2. If a Shareholder wishes to be represented at the Meeting by proxy, the
proxy must be dated and executed by the Shareholder or the Shareholder's
attorney authorized in writing or, if the Shareholder is a corporation,
under its corporate seal or by an officer or attorney of the corporation
duly authorized. If this proxy is not dated in the space provided, it will
be deemed to be dated as of the date on which it was mailed to
Shareholders by management of the Corporation.
[CELESTICA LOGO]
e l e c t r o n i c s m a n u f a c t u r i n g s e r v i c e s
2 0 0 1 a n n u a l r e p o r t
efficiency
ADAPTABLE
EFFICIENT
Once the best manufacturing solution is developed,
you start again and focus on making it even better.
EFFICIENT AND ADAPTABLE. THESE ARE THE TWO MOST IMPORTANT ATTRIBUTES YOU NEED
TO BE A SUCCESSFUL ELECTRONICS MANUFACTURING SERVICES (EMS) PROVIDER. THE
WORLD'S TOP TECHNOLOGY DEVELOPERS - THE COMPANIES WHO CREATE ADVANCED
INFORMATION TECHNOLOGY, COMMUNICATION NETWORKS OR LEADING-EDGE CONSUMER
PRODUCTS - RELY ON EMS PROVIDERS TO PROVIDE THEM WITH THE MOST EFFICIENT AND
ADAPTABLE SUPPLY CHAIN AND MANUFACTURING MODEL REGARDLESS OF THE ECONOMIC
ENVIRONMENT.
WHETHER INTRODUCING NEW TECHNOLOGY, SCALING UP FOR VOLUME PRODUCTION OR
SCALING DOWN TO MEET SWIFT CHANGES IN DEMAND, EMS PROVIDERS ARE FOCUSED ON
MANUFACTURING AS THEIR CORE COMPETENCY. THE MORE FOCUSED WE ARE, THE MORE
EFFICIENT WE CAN BE FOR OUR CUSTOMERS. CELESTICA IS A TECHNOLOGY
MANUFACTURING EFFICIENCY COMPANY FOCUSED ON DRIVING VALUE FOR CUSTOMERS AND
SHAREHOLDERS.
CORPORATE PROFILE
CELESTICA IS A WORLD LEADER IN THE DELIVERY OF INNOVATIVE ELECTRONICS
MANUFACTURING SERVICES (EMS). WITH 2001 REVENUES IN EXCESS OF US $10 BILLION,
CELESTICA IS A GLOBAL OPERATOR OF A HIGHLY SOPHISTICATED MANUFACTURING
NETWORK, PROVIDING A BROAD RANGE OF SERVICES TO LEADING OEMS (ORIGINAL
EQUIPMENT MANUFACTURERS) IN THE INFORMATION TECHNOLOGY AND COMMUNICATIONS
INDUSTRIES. UNRIVALLED IN QUALITY, TECHNOLOGY AND SUPPLY CHAIN MANAGEMENT,
CELESTICA PROVIDES COMPETITIVE ADVANTAGE TO ITS CUSTOMERS BY IMPROVING
TIME-TO-MARKET, SCALABILITY AND MANUFACTURING EFFICIENCY. CELESTICA HAS MORE
THAN 40,000 EMPLOYEES IN OVER 40 LOCATIONS IN THE AMERICAS, EUROPE AND ASIA.
FOR FURTHER INFORMATION ON CELESTICA, VISIT ITS
WEB SITE AT www.celestica.com.
THE COMPANY'S SECURITIES FILINGS CAN ALSO BE
ACCESSED AT www.sedar.com AND www.sec.gov.
quarterly performance
2001
revenue
- ---------------------------------
(U.S.$ billions)
Q1 $2.7
Q2 $2.7
Q3 $2.2
Q4 $2.4
operating margins(1)
- ---------------------------------
(percentage of revenue)
Q1 3.9%
Q2 4.0%
Q3 3.2%
Q4 3.7%
earnings (loss) per share
- ---------------------------------
(U.S.$ diluted)
Q1 $ 0.25
Q2 $ 0.06
Q3 $(0.20)
Q4 $(0.33)
adjusted earnings per share(2)
- ---------------------------------
(U.S.$ diluted)
Q1 $0.39
Q2 $0.41
Q3 $0.27
Q4 $0.31
cash flow from operations
- ---------------------------------
(U.S. $ millions)
Q1 $(261)
Q2 $ 212
Q3 $ 450
Q4 $ 889
(1) Earnings before interest, amortization of intangible assets, income taxes,
integration costs related to acquisitions and other charges (also referred
to as EBIAT).
(2) Based on adjusted net earnings defined as net earnings (loss) adjusted for
amortization of intangible assets, integration costs related to
acquisitions and other charges, net of related income taxes. Adjusted net
earnings is not a GAAP measure. See page 18.
(3) Restated to reflect the treasury stock method, retroactively applied.
annual performance
revenue
- ---------------------------------
(U.S. $ billions)
1998 $ 3.2
1999 $ 5.3
2000 $ 9.8
2001 $10.0
operating margins(1)
- ---------------------------------
(percentage of revenue)
1998 3.1%
1999 3.4%
2000 3.7%
2001 3.7%
earnings (loss) per share(3)
- ---------------------------------
(U.S. $ diluted)
1998 $(0.47)
1999 $ 0.40
2000 $ 0.98
2001 $(0.26)
adjusted earnings per share(2)(3)
- ---------------------------------
(U.S. $ diluted)
1998 $0.42
1999 $0.72
2000 $1.44
2001 $1.38
cash flow from operations
- ---------------------------------
(U.S. $ millions)
1998 $ 82
1999 $ (94)
2000 $ (85)
2001 $1291
investor
highlights
2001
strong balance sheet
Cash balances of $1.3 billion and unused credit facilities of $1 billion at
December 31
strong cash flow
Record cash flow from operations of $1.3 billion
stable operating margins
Operating margins of 3.7% unchanged from 2000
contents
CORPORATE PROFILE
Inside front cover
CHAIRMAN'S MESSAGE
2
CELESTICA'S 2001 OVERVIEW
6
UNAUDITED QUARTERLY FINANCIAL HIGHLIGHTS
15
MANAGEMENT'S DISCUSSION AND ANALYSIS
16
AUDITORS' REPORT
25
CONSOLIDATED FINANCIAL STATEMENTS
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
29
SHARE INFORMATION
47
CORPORATE INFORMATION
49
DIRECTORS
50
OFFICERS OF THE COMPANY
51
CORPORATE VALUES
52
ENVIRONMENTAL POLICY
53
GLOBAL LOCATIONS
54
DEAR FELLOW SHAREHOLDERS,
The "perfect tech storm." It's the best way to describe the unprecedented
economic turmoil that technology end markets faced in 2001.
Rapid deterioration in telecommunications end markets, retrenching capital
markets and significant corporate restructuring all contributed to making 2001
the most challenging year we have faced in our brief three and a half year
history as a public company.
Yet, against the backdrop of this challenging environment, Celestica's execution
was strong and our response to these conditions decisive:
o We responded quickly to the needs of our customers by focusing on operating
efficiency to drive meaningful cost reduction solutions.
o We generated record cash flow from operations of $1.3 billion, providing
enough internal funding to meet the cash acquisition needs of our busiest
acquisition year to date.
o Our balance sheet strengthened and was the strongest in our industry,
ending the year with $1.3 billion in cash and short-term investments.
o Our operating margins were unchanged from 2000, the only top-tier EMS
provider to achieve this.
o We dealt compassionately with the difficult reality of having to
restructure our global footprint, including layoffs on a global basis.
o We grew modestly in a year of major economic contraction through
acquisitions which added key capabilities, expanded customer relationships
and increased our lower cost manufacturing footprint.
In summary, we responded quickly and decisively to the environment and ended the
year in a stronger financial position and with a more superior manufacturing
footprint than when we began the year.
2 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
FINANCIAL HIGHLIGHTS
Revenue for the year was $10 billion, a 3% increase over 2000. Core business
was down 11%, but was offset by acquisition revenue growth of 14%.
Net loss was $40 million or a loss of $0.26 per share compared to net earnings
of $207 million or $0.98 per share in 2000. The net loss includes $273 million
in restructuring and other costs of which half were cash costs.
Adjusted net earnings were $321 million or $1.38 per share compared to $304
million or $1.44 per share in 2000.
Operating margins were 3.7%, unchanged from 2000.
Cash flow from operations was a record $1,291 million compared to negative cash
flow of $85 million in 2000.
Inventory decreased from $1,664 million to $1,373 million.
Cash and short-term investments increased to $1,343 million compared to
$884 million last year.
RESTRUCTURING AND ACQUISITIONS
We implemented some major changes to our global footprint in 2001 in response to
weakening end markets and targeted strategic acquisitions. When we began our
restructuring activities in 2001, 81% of our facilities were in higher-cost
geographies. When the process is complete, that number will drop to 45% giving
the company a better-balanced manufacturing footprint.
While restructuring was an important part of our activities in 2001, so was
investing in the company for the future. In all, we invested $1.9 billion in key
acquisitions that expanded our capabilities in end markets such as
communications and broadened our low-cost footprint.
The net of both restructuring and investing activities was that we ended the
year with more than 40,000 employees and a very robust global manufacturing
footprint with deep technical capabilities at all cost points.
PERFORMANCE VERSUS KEY FINANCIAL GOALS
In 2000, we established four key financial goals for 2003 and our performance
was as follows:
REVENUE OF $20 BILLION: This goal has been deferred based on the uncertainty of
end markets however longer-term outsourcing opportunities remain significant and
Celestica expects to benefit from this trend. Anticipating growth in revenue is
important to Celestica as it drives the timing and scope of future investment in
information technology, human resources and Celestica's manufacturing footprint.
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 3
OPERATING MARGINS OF GREATER THAN 5%: In 2001 our margins were 3.7%, unchanged
from 2000. We believe this goal is still achievable based on our ongoing focus
on operating efficiency; a rebalancing of our global footprint to lower cost
geographies; the achievement of future benefits from our restructuring efforts;
and our mix of business which is biased towards more advanced and higher
value-add products.
CASH CYCLE OF 25 DAYS: Cash cycle for 2001 was 49 days versus 35 days for 2000.
The rapid deterioration of end markets impacted progress on this metric. We feel
this goal is still attainable based on the investments we continue to make in
our supply chain systems and supporting infrastructure. As business stabilized
at the end of the year, cash cycle improvement resumed.
PRE-TAX RETURN ON INVESTED CAPITAL (ROIC) OF GREATER THAN 30%: Our performance
on this metric was 14.8% in 2001 compared to 21.6% in 2000. The significant
deterioration of end markets impacted items such as inventory efficiency and
accounts receivable as we worked with our customers to manage working capital
during this downturn. We believe this goal is still attainable based on
attaining greater working capital efficiencies with our supply chain
capabilities.
OUTLOOK
As we enter 2002, near-term revenue visibility for our communications and
information technology customers remains limited. While we can't control
end-market demand, we don't feel this should limit our commitment to drive value
for our shareholders. Despite the weaker economic environment last year,
Celestica became a stronger company and we are well positioned to capitalize on
growth opportunities when end markets recover.
Continually improving efficiency is where our priorities will lie and as our
2003 goals reflect, operating efficiency is a company-wide priority with the
potential for significant value generation for our shareholders.
Longer-term, the trend for outsourcing is alive and well. Customers continue to
look for strong financial partners with focused core competencies capable of
offering optimal manufacturing solutions that limit execution risk yet provide
global scale and flexibility, a superior technical offering and the most
advanced supply chain capabilities.
OUR COMPANY IS FINANCIALLY STRONG AND VALUES DRIVEN
Celestica is a company driven by corporate values (page 52 of this report) based
on respect and the highest degree of integrity. In an era where investors are
questioning the practices and behaviours of companies, we are proud of the way
we conduct our affairs. Our values are real and have been part of the fabric of
Celestica from the beginning. I encourage you to read them to gain additional
insight into how our company operates.
4 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
We are also an organization whose behaviour is completely aligned with our
primary stakeholders as we believe that to sustainably drive our success, we
have to be aligned with our customers and shareholders. This is reflected in our
culture and further emphasized by aligning our compensation at all levels of the
company to performance metrics such as earnings, returns and customer
satisfaction.
Through these beliefs and approaches we have produced a powerful culture that
cannot be adequately captured in an annual report. The true test of this culture
was seen in 2001 when despite the numerous challenges we faced, our third-party
review of corporate-wide customer satisfaction increased and employee
satisfaction was maintained despite the difficult environment.
I would like to conclude by thanking our employees for their accomplishments
this year. They are consummate professionals and have demonstrated their
ability to adapt and rise to the significant challenges of 2001. In our brief
history, we have dealt with unprecedented business extremes - both intense
growth and swift contractions - and we have executed well. While we can't
predict the timing or strength of current or future economic cycles, I do
believe that the quality of this organization has positioned Celestica to
manage effectively and continue to participate successfully in the
significant outsourcing opportunity ahead.
Eugene V. Polistuk
[/s/ EUGENE V. POLISTUK]
Chairman and
Chief Executive Officer
[GROUP PHOTO]
FROM LEFT TO RIGHT:
THOMAS TROPEA - VICE CHAIR, GLOBAL CUSTOMER UNITS AND WORLDWIDE MARKETING AND
BUSINESS DEVELOPMENT
MARVIN MaGEE - PRESIDENT AND CHIEF OPERATING OFFICER
EUGENE POLISTUK - CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ANTHONY PUPPI - EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND GENERAL
MANAGER, GLOBAL SERVICES
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 5
outsourcing network
CELESTICA DOESN'T JUST RUN PLANTS, IT RUNS A NETWORK - A MANUFACTURING NETWORK.
A NETWORK CONSISTING OF A ROBUST, GLOBAL SET OF SKILLS AND TOOLS THAT
EFFICIENTLY MANAGES PRODUCTION REGARDLESS OF GEOGRAPHY, COST-POINT, TECHNOLOGY
OR END-MARKET DEMAND. THE SUCCESS OF THIS NETWORK IS DETERMINED BY HOW WELL IT
CAN RESPOND TO BOTH THE CHALLENGES AND OPPORTUNITIES IN OUTSOURCING.
- --------------------------------------------------------------------------------
INCREASINGLY, GLOBAL TECHNOLOGY OEMS ARE TURNING TO EMS COMPANIES TO HANDLE THE
MANUFACTURING OF ELECTRONICS. BY LEVERAGING SIGNIFICANT GLOBAL SCALE AND THE
CAPABILITY TO PROVIDE A WIDE ARRAY OF MANUFACTURING SERVICES TO A DIVERSE
CUSTOMER SET, EMS COMPANIES ARE ABLE TO BE EXTREMELY EFFICIENT AND PASS ON
SIGNIFICANT COST SAVINGS AND FLEXIBILITY ADVANTAGES TO THEIR CUSTOMERS.
- --------------------------------------------------------------------------------
DYNAMIC OUTSOURCING MARKETS REQUIRE FLEXIBILITY: The total demand for
outsourcing has three primary drivers. The first is general electronics demand.
Last year, a difficult demand environment for technology products resulted in
our base business declining by 11%. However, the second driver of outsourcing -
the trend toward outsourcing - continued to be strong. The weak economic
environment last year drove all our customers to increasingly outsource their
products to reduce costs and increase flexibility. Customers are increasingly
outsourcing existing and new programs to EMS providers, and some customers
outsource because they don't have any manufacturing facilities. The third driver
of outsourcing is OEM divestitures - where OEMs take a significant step towards
the outsourcing model by transferring entire manufacturing operations to EMS
partners. Last year revenue from acquisitions grew 14% as Celestica completed
some of its largest acquisitions. OEM divestures are fundamentally a transition
of business to the EMS provider as the purchase price is primarily based on
working capital needed for production.
A MANUFACTURING NETWORKS' RESPONSE TO THE OUTSOURCING MARKET: Managing this
dynamic outsourcing market requires a commitment to key technologies and a focus
on intellectual assets. It may sound counter-intuitive, but production equipment
and buildings are actually the least critical aspects of being a successful EMS
provider. To be efficient, EMS companies must be able to seamlessly manage the
inflow of components worldwide, optimize production between factories and
continually balance inventories with demand. Managing this pulsing network is
not easy. What makes Celestica a leader in the EMS industry is the employment of
highly skilled manufacturing and supply chain management professionals who
deploy extremely disciplined processes and leverage a wide variety of IT tools
to help them manage a very complex global business.
Since supply chain management forges the links between our factories, our
customers and our suppliers, the systems our professionals use are critical to
the efficiency of the company. From its inception, Celestica has viewed supply
chain IT investment as a vital component to being a world-class EMS provider.
Our supply chain IT strategy is simple: make the system homogenous, deploy it
globally, and run it with the singular focus of maximizing efficiency and
adaptability for the needs of the customer. Our investments have resulted in
common enterprise resource planning systems that use best-of-breed applications
in the areas of advanced planning, engineering, manufacturing and data
management.
It is this systematic integration of our manufacturing network - the tools, the
people, the processes - that gives Celestica a competitive advantage to respond
to the growing outsourcing opportunity.
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 7
core competency
A SINGULAR FOCUS ON CORE MANUFACTURING SERVICES ENABLED CELESTICA TO MANAGE
EFFECTIVELY THROUGH THE TECHNOLOGY STORM OF 2001.
- --------------------------------------------------------------------------------
IN ITS SIMPLEST FORM, CELESTICA'S "HORIZONTAL" MANUFACTURING MODEL IS BASED ON
AN ADVANCED SUPPLY CHAIN OFFERING INCLUDING DESIGN SERVICES, ADVANCED CIRCUIT
BOARD ASSEMBLY, HIGHLY-ADVANCED TESTING SERVICES, ORDER FULFILLMENT AND
AFTER-MARKET SUPPORT SUCH AS REPAIR SERVICES. A FOCUS ON THESE CORE COMPETENCIES
ALLOWS CELESTICA TO DRIVE EFFICIENCY FOR ITS CUSTOMERS.
- --------------------------------------------------------------------------------
Horizontal versus vertical manufacturing models. Different approaches as to how
to best service customers. A horizontal model focuses on providing a core set of
manufacturing services while using a network of leading suppliers to manage
other parts of the manufacturing supply chain. A vertical model is similar but
also provides additional parts of the supply chain such as component or board
manufacturing as well as other services. One model is not necessarily better
than the other - they're just different, with different attributes in areas such
as requirements for capital investment and operating margin volatility.
Celestica has focused on a horizontal model since its inception. Our view is
that a horizontal model is the simplest model and allows for maximum efficiency
for customers. In our current horizontal service offerings (design, assembly,
test, repair), we have the best capability and global scale to provide the most
competitive and most flexible offering. Outside of these horizontal services,
where we have chosen not to build the scale or focus, we partner with suppliers
who have made those areas their singular core competency. Our approach is to
establish a "virtual verticalization" model, one that allows us to provide our
customers with the best solution without owning those services or having to
divert capital to non-core operations or competing with suppliers.
We feel strongly that our suppliers (who can sometimes be competitors as well)
typically will have better scale, better focus or better deployment of what is a
non-core service to us but core to them. Our approach is to leverage the best
practices incosts and technologies wherever they exist. From a customer offering
perspective, our focus is to provide the best solution regardless of how that
solution can be provided.
From a financial perspective, an optimized horizontal model can produce greater
stability in operating margins. We saw this in a very turbulent 2001, where our
operating margins were unchanged from 2000. A horizontal model can also be less
capital intensive, with capital expenditures on average running between 1% and
3% of revenue. We also believe that a predominantly horizontal model with
superior supply chain capabilities can potentially drive better and more
consistent inventory turns, a lower cash cycle and ultimately higher returns.
At Celestica, we continually evaluate our manufacturing model because
adaptability is a key aspect of being a successful EMS provider. We're a firm
believer that a company can afford to make changes, but it can't afford to be
confused as to what is its core competency.
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 9
global
scope
WHILE 2001 WAS A YEAR OF RESTRUCTURING FOR CELECTICA AND THE TECHNOLOGY INDUSTRY
AS A WHOLE, IT WAS ALSO A YEAR OF GLOBAL INVESTMENT FOR CELESTICA AS THE COMPANY
LOOKED TO REBALANCE ITS GLOBAL MANUFACTURING FOOTPRINT.
- --------------------------------------------------------------------------------
IN 2001, CELESTICA INCURRED $237 MILLION IN RESTRUCTURING CHARGES AS THE
COMPANY RESPONDED DECISIVELY TO THE RAPID CHANGE IN END-MARKET DEMAND. AT THE
SAME TIME, CELESTICA INVESTED STRATEGICALLY IN ACQUISITIONS THAT BETTER
POSITIONED THE COMPANY FOR FUTURE OUTSOURCING OPPORTUNITIES.
- --------------------------------------------------------------------------------
Celestica restructured its corporate footprint in 2001. It was the first major
restructuring the company has undergone since becoming a dedicated outsourcing
provider in the mid-1990s. These actions included closing 18 facilities,
reducing overall capacity by 25% and reducing staffing levels by 30%.
Offsetting the restructuring were the major investments of $1.9 billion for
acquisitions. Importantly, our operations internally generated the cash flow to
fund the $1.3 billion in cash required for these acquisitions. The acquisitions
included expanded OEM outsourcing divestitures - such as transactions with
Lucent Technologies in the U.S. and Sagem S.A. in the Czech Republic - as well
as EMS industry consolidations which included Omni Industries of Singapore.
These transactions play an important role in building the global scope of the
company's manufacturing footprint by adding intellectual assets, key customer
relationships,low-cost geographic capabilities and leading-edge technologies.
The primary focus of the restructuring and acquisitions was to adjust capacity
to meet lower demand and increase capacity in lower-cost geographies. At the
start of 2001, 81% of our facilities were in higher-cost geographies. At the end
of the restructuring, that number will drop to 45%.
While low-cost manufacturing locations are an important part of the company's
global footprint, not all technology products - now or in the future - will be
made exclusively in these geographies. This is particularly true of the most
advanced technology products - a dominant market for Celestica - where new
product introductions and volume production are more suited to locations with
deep engineering infrastructure, sophisticated manufacturing capability and
advanced testing techniques.
In the future, Celestica will participate in additional outsourcing
acquisitions, but only those that can meet our very strict criteria in the areas
of financial returns, capability, customer quality and geographic footprint.
While acquisitions pose integration challenges and risks, Celestica has
developed one of the industry's most experienced integration teams, with
approximately 30 acquisitions completed in the past five years. By continuing
with our highly-disciplined approach, future acquisitions will continue to play
a key role in value creation at Celestica.
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 11
Financial
Performance
WITH THE SIGNIFICANT END-MARKET VOLATILITY EXPERIENCED IN 2001, CELESTICA
FOCUSED ON IMPROVING OPERATING EFFICIENCY AND PRODUCED SOLID RESULTS.
- --------------------------------------------------------------------------------
IN A CHALLENGING ECONOMIC ENVIRONMENT, CELESTICA ENDED 2001 IN A STRONGER
FINANCIAL POSITION THAN WHEN IT STARTED THE YEAR. THE COMPANY DROVE RECORD CASH
FLOW AND ENDED THE YEAR WITH THE INDUSTRY'S STRONGEST BALANCE SHEET. OPERATING
MARGINS WERE UNCHANGED AND THE COMPANY IMPROVED REVENUE DIVERSIFICATION IN ITS
TOP 10 CUSTOMERS.
- --------------------------------------------------------------------------------
REVENUE GROWTH: In 2001, Celestica had revenue of $10,004 million, a 3%
increase over $9,752 million last year. This modest growth was based on a 14%
increase from revenue through acquisitions, offset by an 11% decrease in our
base business volumes. Organic revenue was impacted by a broad,
across-the-board decrease in demand in multiple IT and communications end
markets. Acquisition growth was driven by EMS consolidation transactions and
OEM divestitures.
REVENUE SEGMENTATION: In 2001, Celestica continued to focus on building its
diversified revenue portfolio with industry-leading OEMs. Communications
represented 36% of revenue, servers was 31%, storage and other 18%,
workstations 10% and PC's 5%. The company had three customers over 10% - Sun,
IBM and Lucent -and the company's top 10 customers represented 84% of total
revenue. On a geographic basis, the Americas represented 62% of production,
Europe was 29% and Asia was 9%.
OPERATING MARGINS: Despite the drop in the company's base revenue volumes,
operating margins remained unchanged in 2001 at 3.7%. This was achieved through
the company's focus on reducing costs and improving operating efficiencies. Also
contributing were the restructuring activities announced in 2001. Costs
associated with restructuring and other charges were $273 million, of which $138
million were cash costs. This included the consolidation of 18 facilities in
higher-cost locations. Celestica targeted a payback of the cash costs within 12
months from when these costs are incurred.
RETURNS AND CASH CYCLE: Pre-tax return on invested capital (ROIC) was 14.8% in
2001 compared to 21.6% in 2000. The decrease was due to the overall weaker
economic environment that impacted working capital performance. Correspondingly,
cash cycle in 2001 was 49 days compared to 35 days in 2000. The company has
goals for 2003 of getting ROIC to greater than 30% with a cash cycle of 25 days.
BALANCE SHEET: Celestica's balance sheet is very strong. Cash and short-term
investments balance at the end of 2001 was $1,343 million and debt to
capitalization ratio was 21% (including convertible notes as debt). The company
also has unused credit facilities of $1 billion, giving Celestica ample
financial capacity to pursue growth opportunities.
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 13
QUARTERLY HIGHLIGHTS
UNAUDITED QUARTERLY FINANCIAL HIGHLIGHTS (in millions of U.S. dollars, except
per share amounts)
2001 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL YEAR
- -----------------------------------------------------------------------------------------------------------------------------------
REVENUE $2,692.6 $2,660.7 $2,203.0 $2,448.2 $10,004.4
EBIAT (1) $ 104.3 $ 105.8 $ 70.1 $ 90.9 $ 371.1
% (1) 3.9% 4.0% 3.2% 3.7% 3.7%
NET EARNINGS (LOSS) $ 54.8 $ 15.8 $ (38.7) $ (71.8) $ (39.8)
ADJUSTED NET EARNINGS (2) $ 87.3 $ 93.1 $ 64.7 $ 75.5 $ 320.6
% 3.2% 3.5% 2.9% 3.1% 3.2%
AVERAGE NET INVESTED CAPITAL (5) $2,471.3 $2,674.8 $2,740.1 $2,479.1 $ 2,506.3
- -----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE # OF
SHARES OUTSTANDING (IN MILLIONS)
- - BASIC 203.6 207.0 218.1 227.1 213.9
- - DILUTED (3) 223.1 225.5 218.1 227.1 213.9
BASIC EARNINGS (LOSS) PER SHARE $ 0.25 $ 0.06 $ (0.20) $ (0.33) $ (0.26)
DILUTED EARNINGS (LOSS) PER SHARE (3) $ 0.25 $ 0.06 $ (0.20) $ (0.33) $ (0.26)
DILUTED ADJUSTED EARNINGS PER SHARE (4) $ 0.39 $ 0.41 $ 0.27 $ 0.31 $ 1.38
- -----------------------------------------------------------------------------------------------------------------------------------
ROIC (5) 16.9% 15.8% 10.2% 14.7% 14.8%
2000 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL YEAR
- -----------------------------------------------------------------------------------------------------------------------------------
Revenue $1,612.3 $2,091.9 $2,600.1 $3,447.8 $9,752.1
EBIAT (1) $ 52.6 $ 72.3 $ 98.4 $ 138.6 $ 361.9
% (1) 3.3% 3.5% 3.8% 4.0% 3.7%
Net earnings $ 26.1 $ 41.4 $ 55.7 $ 83.5 $ 206.7
Adjusted net earnings (2) $ 39.5 $ 63.7 $ 83.9 $ 117.0 $ 304.1
% 2.4% 3.0% 3.2% 3.4% 3.1%
Average net invested capital (5) $1,160.6 $1,518.2 $1,912.9 $2,131.3 $1,674.7
Weighted average # of
shares outstanding (in millions)
- - basic 190.1 202.7 203.0 203.2 199.8
- - diluted (6) 199.5 211.9 220.0 222.6 211.8
Basic earnings per share $ 0.14 $ 0.20 $ 0.26 $ 0.39 $ 1.01
Diluted earnings per share (6) $ 0.13 $ 0.20 $ 0.25 $ 0.38 $ 0.98
Diluted adjusted earnings per share (6) $ 0.20 $ 0.30 $ 0.38 $ 0.53 $ 1.44
- -----------------------------------------------------------------------------------------------------------------------------------
ROIC (5) 18.1% 19.1% 20.6% 26.0% 21.6%
(1) Earnings before interest, amortization of intangible assets, income taxes,
integration costs related to acquisitions and other charges (also referred to as
operating margin).
(2) Net earnings (loss) adjusted for amortization of
intangible assets, integration costs related to acquisitions and other charges,
net of related income taxes. Adjusted net earnings is not a GAAP measure.
See page 18.
(3) For the third and fourth quarter and total year 2001, excludes the effect of
options and convertible debt as they are anti-dilutive due to the net loss.
(4) For purposes of calculating diluted adjusted earnings per share for the
third and fourth quarter and total year 2001, the weighted average number of
shares outstanding in millions was 235.7, 244.5 and 232.9, respectively.
(5) ROIC is calculated as EBIAT/average net invested capital. Net invested
capital includes tangible assets less cash, accounts payable, accrued
liabilities and income taxes payable.
(6) Shares outstanding and per share amounts for 2000 have been restated to
reflect the treasury stock method, retroactively applied.
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 15
MANAGEMENT'S DISCUSSION AND ANALYSIS of financial condition and results of
operations
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, 2001.
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.
Forward-looking statements are not guarantees of future performance and
involve risks and uncertainties which could cause actual results to differ
materially from those anticipated in these 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;
lower-than-expected customer demand; component constraints; our variability
of operating results among periods; our dependence on the computer and
communications industries; our dependence on a limited number of customers;
and our ability to manage expansion, consolidation and the integration of
acquired businesses. These and other factors are discussed in the Company's
filings with SEDAR and the U.S. Securities and Exchange Commission.
GENERAL
Celestica is a leading provider of electronics manufacturing services to OEMs
worldwide with 2001 revenue of $10.0 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 and power products. Celestica
operates facilities in North America, Europe, Asia and Latin America.
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 22 to the 2001 Consolidated Financial Statements.
ACQUISITIONS
A significant portion of Celestica's growth has been generated by
strengthening its customer relationships and increasing the breadth of its
service offerings through facility and business acquisitions.
2000 ACQUISITIONS:
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 $470.0 million. The purchase price, including capital
assets, working capital and intangible assets, was financed with cash on
hand. The Company signed two three-year strategic supply agreements with IBM
to provide a complete range of electronics manufacturing services. 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. Approximately 1,800 employees joined Celestica from the IBM
acquisition.
In June 2000, Celestica acquired NDB Industrial Ltda., NEC Corporation's
wholly-owned manufacturing subsidiary in Brazil. The Company signed a
five-year supply agreement to manufacture NEC communications network
equipment for the Brazilian market. Approximately 680 employees joined
Celestica. This acquisition enhanced the Company's presence in South America
and put Celestica in 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. In November 2000, Celestica acquired NEC Technologies
(UK) Ltd., in Telford, UK. The aggregate price for these three acquisitions
in 2000 was $169.8 million. In 2000, Celestica also established a green field
operation in Singapore.
2001 ASSET ACQUISITIONS:
In February 2001, Celestica acquired certain manufacturing assets in Dublin,
Ireland and Mt. Pleasant, Iowa from Motorola Inc. and signed supply
agreements for two and three years, respectively. This acquisition expanded
the Company's business relationship with Motorola, a leading telecom wireless
customer. In March 2001, Celestica acquired certain assets relating to N.K.
Techno Co. Ltd 's repair business, which expanded the Company's presence in
Japan, and established a greenfield operation in Shanghai. In May 2001,
Celestica acquired certain assets from Avaya Inc. in Little Rock, Arkansas
and Denver, Colorado and in August 2001, acquired certain assets in Saumur,
France. The Company signed a five-year supply agreement with Avaya which
positioned Celestica as Avaya's primary outsourcing partner in the area of
printed circuit board and system assembly, test, repair and supply chain
management for a broad range of its telecommunications products. In August
2001, Celestica acquired certain assets in Columbus, Ohio and Oklahoma City,
Oklahoma from Lucent Technologies Inc. The Company signed a five-year supply
agreement with Lucent, which positions Celestica as the leading EMS provider
for Lucent's North American switching, access and wireless networking systems
products.
The aggregate price for these asset acquisitions in 2001 of $834.1 million
was financed with cash.
16 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
MANAGEMENT'S DISCUSSION AND ANALYSIS of financial condition and results of
operations
2001 BUSINESS COMBINATIONS:
In January 2001, Celestica acquired Excel Electronics, Inc. through a merger
with Celestica (U.S.) Inc. which enhanced the Company's prototype service
offering in the southern region of the United States. In June 2001, Celestica
acquired Sagem CRs.r.o., in the Czech Republic, from Sagem SA, of France,
which enhanced the Company's presence in central Europe and positioned
Celestica as Sagem's primary EMS provider. In August 2001, Celestica acquired
Primetech Electronics Inc. (Primetech), an electronics manufacturer in
Canada. This acquisition provided Celestica with additional high complexity
manufacturing capability and an expanded global customer base. The purchase
price for Primetech was financed primarily with the issuance of 3.4 million
subordinate voting shares and the issuance of options to purchase 0.3 million
subordinate voting shares of the Company.
In October 2001, Celestica acquired Omni Industries Limited (Omni). Omni is
an EMS provider, headquartered in Singapore, with locations in Singapore,
Malaysia, China, Indonesia and Thailand and has approximately 9,000
employees. Omni provides printed circuit board assembly and system assembly
services, as well as other related supply chain services including plastic
injection molding and distribution. Omni manufactures products for industry
leading OEMs in the PC, storage and communications sectors. The acquisition
significantly enhanced Celestica's EMS presence in Asia. The purchase price
of Omni of $865.8 million was financed with the issuance of 9.2 million
subordinate voting shares and the issuance of options to purchase 0.3 million
subordinate voting shares of the Company and $479.5 million in cash.
The aggregate purchase price for these business combinations in 2001 was
$1,093.3 million, of which $526.3 million was financed with cash.
The Company is in the process of obtaining third-party valuations of certain
assets for the Primetech and Omni acquisitions. The fair value allocations of
the purchase price are subject to refinement and could result in adjustments
between goodwill and other net assets.
Consistent with its past practices and as a normal course of business,
Celestica may at any time be engaged in ongoing discussions with respect to
several possible acquisitions of widely varying sizes, including small single
facility acquisitions, significant multiple facility acquisitions and
corporate acquisitions. Celestica has identified several possible
acquisitions that would enhance its global operations, increase its
penetration in several industries and establish strategic relationships with
new customers. 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 any 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 level of business volumes, seasonality of demand, component supply
availability and the timing of acquisitions. There is no certainty that the
historical pace of Celestica's acquisitions will continue in the future.
Celestica's contractual arrangements with its key customers generally provide
a framework for its overall relationship with the customer. Celestica
recognizes product revenue upon shipment to the customer as performance has
occurred, all customer specified acceptance criteria have been tested and
met, and the earnings process is considered complete. 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 its risk relative to its inventory
by 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
relative mix of value add products and services. The level and timing of
customers' orders will vary due to customers' attempts to balance their
inventory, changes in their manufacturing strategies, variation in demand for
their products and general economic conditions. Celestica's annual and
quarterly operating results are also affected by capacity utilization and
other factors, including price competition, manufacturing effectiveness and
efficiency, the degree of automation used in the assembly process, the
ability to manage inventory and capital assets effectively, 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. In 2001, weak end-market
conditions in the telecommunications and information technology industries
resulted in customers rescheduling and cancelling orders. This has impacted
Celestica's results of operations.
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 17
MANAGEMENT'S DISCUSSION AND ANALYSIS of financial condition and results of
operations
The table below sets forth certain operating data expressed as a percentage of
revenue for the years indicated:
YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------
1999 2000 2001
- -------------------------------------------------------------------------------
Revenue 100.0% 100.0% 100.0%
Cost of sales 92.8 92.9 92.9
- -------------------------------------------------------------------------------
Gross profit 7.2 7.1 7.1
Selling, general and administrative expenses 3.8 3.3 3.4
Amortization of intangible assets 1.0 1.0 1.3
Integration costs related to acquisitions 0.2 0.2 0.2
Other charges 0.0 0.0 2.7
- -------------------------------------------------------------------------------
Operating income (loss) 2.2 2.6 (0.5)
Interest expense (income), net 0.2 (0.2) (0.1)
- -------------------------------------------------------------------------------
Earnings (loss) before income taxes 2.0 2.8 (0.4)
Income taxes 0.7 0.7 0.0
- -------------------------------------------------------------------------------
Net earnings (loss) 1.3% 2.1% (0.4)%
- -------------------------------------------------------------------------------
ADJUSTED NET EARNINGS
(in millions)
$320.6
$304.1
$123.0
$45.3
1998 1999 2000 2001
ADJUSTED NET EARNINGS
As a result of the significant number of acquisitions made by Celestica over
the past few 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), other charges (most significantly, restructuring
costs and the write-down of goodwill and intangible assets) 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 (loss) prepared in accordance with Canadian GAAP or U.S. GAAP or as
a measure of operating performance or profitability. Adjusted net earnings
does not have a standardized meaning prescribed by GAAP and is not
necessarily comparable to similar measures presented by other companies. The
following table reconciles net earnings (loss) to adjusted net earnings:
YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------
1999 2000 2001
- -------------------------------------------------------------------------------
(in millions)
- -------------------------------------------------------------------------------
Net earnings (loss) $ 68.4 $206.7 $(39.8)
Amortization of intangible assets 55.6 88.9 125.0
Integration costs related to acquisitions 9.6 16.1 22.8
Other charges - - 273.1
Income tax effect of above (10.6) (7.6) (60.5)
- -------------------------------------------------------------------------------
Adjusted net earnings $123.0 $304.1 $320.6
- -------------------------------------------------------------------------------
As a percentage of revenue 2.3% 3.1% 3.2%
- -------------------------------------------------------------------------------
REVENUE
Revenue increased 3%, to $10,004.4 million in 2001 from $9,752.1 million in
2000. Acquisition revenue grew by 14%, offset by an 11% decline in base
business volumes. The acquisition growth was a result of strategic
acquisitions in the communications industry, primarily in the U.S. and Asia.
The Company defines acquisition revenue as revenue from businesses acquired
in the preceding 12 months. Organic revenue declined in 2001 due to the
softening of end markets. The visibility of future end-market conditions is
limited.
18 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
MANAGEMENT'S DISCUSSION AND ANALYSIS of financial condition and results of
operations
Revenue from the Americas operations decreased 3% to $6,334.6 million in 2001
from $6,542.7 million in 2000 primarily due to continued end-market softening
which was partially offset by acquisitions. Revenue from European operations
increased 6% to $3,001.3 million in 2001 from $2,823.3 million in 2000 due to
the flow through of the IBM acquisition from 2000 and from the 2001
acquisitions, partially offset by the general industry downturn. Revenue from
Asian operations increased 14% to $991.1 million in 2001 from $871.6 million
in 2000 primarily due to the Omni acquisition offset in part by the general
industry downturn. Inter-segment revenue in 2001 was $322.6 million, compared
to $485.5million in 2000. We expect that the Americas and Asian operations
will benefit in the future from the flow through of the 2001 acquisitions.
Revenue from customers in the communications industry in 2001 was36% of
revenue compared to 31% and 25% of revenue in2000 and 1999, respectively.
Revenue from customers in the server-related business in 2001 was 31%
compared to 33% and 25%of revenue in 2000 and 1999, respectively. Revenue in
the communications industry benefited from our recent acquisitions.
REVENUE
(in billions)
$9.8 $10.0
$5.3
$3.2
1998 1999 2000 2001
Revenue increased 84%, to $9,752.1 million in 2000 from $5,297.2 million in
1999. 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 in 2000 was 50%
and represented approximately 59% of the total year-over-year growth. Organic
growth came from growth in existing business and new customers across all
geographic segments. The IBM acquisition accounted for the majority of the
acquisition growth in 2000. Revenue from the Americas operations grew 82%, to
$6,542.7 million in 2000 from $3,587.5 million in 1999. Revenue from European
operations grew 155%, to $2,823.3 million in 2000 from $1,108.6 million in
1999. The Italian facilities generated over half of Europe's increase from
the prior year, with the remainder due to an overall increase in Europe's
base business. Revenue from Asian operations increased 23%, to $871.6 million
in 2000 from $710.2 million in 1999. Inter-segment revenue in 2000 was $485.5
million, compared to $109.1 million in 1999.
The following customers represented more than 10% of total revenue for each
of the indicated years:
1999 2000 2001
- ------------------------------------------------------------
Sun Microsystems X X X
IBM X X
Lucent Technologies X
Hewlett-Packard X
Cisco Systems X
Celestica's top-five customers represented in the aggregate 67% of total revenue
in 2001 compared to 69% in 2000 and 68% in 1999. The Company is dependent upon
continued revenue from its top customers. There can be no assurance that revenue
from these or any other customers will not increase or decrease as a percentage
of total 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. See notes 17 (concentration of risk) and 19
to the Consolidated Financial Statements.
GROSS PROFIT
Gross profit increased 4%, to $712.5 million in 2001 from $688.0 million in
2000. Gross margin was 7.1% in 2001, consistent with 2000. Margins were
maintained due to continued focus on costs and supply chain initiatives and
the benefits of restructuring actions.
Gross profit increased 80%, to $688.0 million in 2000 from $382.5 million in
1999. Gross margin decreased to 7.1% in 2000 from 7.2% in 1999. Gross margin
decreased as a result of a change in product mix and start-up costs for new
programs, particularly in Mexico.
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.
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 19
MANAGEMENT'S DISCUSSION AND ANALYSIS of financial condition and results of
operations
SG & A PERCENTAGE
(percentage of revenue)
4.0%
3.8%
3.4%
3.3%
1998 1999 2000 2001
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses increased 5% to
$341.4 million (3.4% of revenue) in 2001 from $326.1 million (3.3% of
revenue) in 2000. The increase in expenses was primarily due to operations
acquired during 2000 and 2001.
SG&A increased 61%, in 2000 to $326.1 million (3.3% of revenue) from $202.2
million (3.8% of revenue) in 1999. The increase in expenses 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 1999 and 2000.
Research and development costs decreased to $17.1 million (0.2% of
revenue) in 2001 compared to $19.5 million (0.2% of revenue) in 2000 and
$19.7 million (0.4% of revenue) in 1999.
INTANGIBLE ASSETS AND AMORTIZATION
Amortization of intangible assets increased 41%, to $125.0 million in 2001
from $88.9 million in 2000. This increase is attributable to the
intangible assets arising from the 2000 and 2001 acquisitions.
Amortization of intangible assets increased 60%, to $88.9 million in 2000
from $55.6 million in 1999. This increase is attributable to the intangible
assets arising from the 1999 and 2000 acquisitions, with the largest portion
relating to the IBM and NEC acquisitions.
At December 2001, intangible assets represented 23% of Celestica's total
assets compared to 10% at December 2000. The increase is due principally to
the Omni acquisition.
Effective July 1, 2001, the Company adopted the new accounting standards for
"Business Combinations" and "Goodwill and Other Intangible Assets" as they
relate to acquisitions consummated after June 30, 2001. Accordingly, the
goodwill related to the acquisitions of Primetech and Omni has not been
amortized. Effective January 1, 2002, amortization will be discontinued for
all other goodwill. Amortization expense in 2001 related to goodwill was
$39.2 million. See "Recent Accounting Developments."
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. All of the integration costs incurred related to
newly acquired facilities, and not to the Company's existing operations.
Integration costs were $22.8 million in 2001 compared to $16.1 million in
2000 and $9.6 million in 1999. The integration costs incurred in 2001
primarily relate to the completion of the IBM acquisition from 2000 and the
Avaya and Motorola acquisitions.
Integration costs vary from period to period due to the timing of
acquisitions and related integration activities. Celestica expects to incur
additional integration costs in 2002 as it completes the integration of its
2001 acquisitions. Celestica will incur future additional integration costs
as the Company continues to make acquisitions as part of its growth strategy.
OTHER CHARGES
Other charges are non-recurring items or items that are unusual in nature. In
2001, Celestica incurred $273.1 million in other charges. $237.0 million
relates to restructuring, of which approximately 40% is non-cash. The
remainder of $36.1 million relates to a non-cash charge to write-down the
carrying value of certain assets, primarily goodwill and intangible assets.
The Company has been impacted by numerous order reductions, reschedulings and
cancellations since the beginning of fiscal 2001, which the Company believes
is consistent with the EMS industry in general. The Company has taken
restructuring actions to resolve surpluses as a result of the end-market
slowdown.
These restructuring actions include facility consolidations and workforce
reductions. Employee terminations were made across all geographic regions
with the majority being manufacturing and plant employees. The Company took a
non-cash charge to write-down certain long-lived assets across all geographic
regions, which became impaired as a result of the rationalization of
facilities. These asset impairments relate to goodwill and other intangible
assets, machinery and equipment, buildings and improvements. The
restructuring charge includes a number of estimates and assumptions based on
information available at the time, and are subject to change.
A further description of these charges is included in Note 13 to the
Consolidated Financial Statements.
The Company expects to benefit from the restructuring measures through margin
improvements and reduced operating costs in the upcoming year. The Company
expects to complete the major components of the restructuring plan by the end
of 2002. Cash outlays are funded from cash on hand.
Celestica did not incur other charges in 2000 or 1999.
20 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
MANAGEMENT'S DISCUSSION AND ANALYSIS of financial condition and results of
operations
INTEREST INCOME, NET
Interest income, net of interest expense, in 2001 and 2000 amounted to $7.9
million and $19.0 million, respectively. The Company incurred net interest
expense of $10.7 million in 1999. Interest income decreased in 2001 compared
to 2000 due to the Company earning lower interest rates on its cash balance.
In 2001 and 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.
INCOME TAXES
The Company's income tax recovery in 2001 was $2.1 million, reflecting an
effective tax recovery rate of 5%. This is compared to an income tax expense
of $69.2 million in 2000, reflecting an effective tax rate of 25%, and an
income tax expense of $36.0 million in 1999, reflecting an effective tax rate
of 34%.
The Company's effective tax rate decreased from 24% to 17% in the second
quarter of 2001 as a result of the mix and volume of business in lower tax
jurisdictions within Europe and Asia. These lower tax rates include tax
holidays and tax incentives that Celestica has negotiated with the respective
tax authorities which expire between 2002 and 2012. The 2001 effective tax
rate is impacted by the occurrence of losses in the third and fourth
quarters, which are tax benefited at these lower tax rates. Notwithstanding
the anomaly created by these losses in determining the year-to-date tax rate,
the Company's current tax rate of 17% is expected to continue for the
foreseeable future.
Celestica has recognized a net deferred tax asset at December 31, 2001 of
$102.8 million compared to $83.5 million at December 31, 2000. The net asset
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 the future to realize the benefit of these deferred income
tax assets in the carry-forward periods. A portion of the net operating
losses have an indefinite carry-forward period. The other portion will expire
over a 20-year period commencing in 2005.
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 $12.5 million in underwriting commissions, net
of tax of $6.9 million. 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 $1,000 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.
The Company has recorded the LYONs as an equity instrument pursuant to
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 are classified as a
long-term liability and, accordingly, the accrued yield on the LYONs during
any period (at 3.75% per year) is classified as interest expense for that
period.
To calculate basic earnings (loss) per share for Canadian GAAP, the accretion
of the convertible debt is deducted from net earnings (loss) for the period
to determine earnings available to shareholders.
LIQUIDITY AND CAPITAL RESOURCES
In 2001, operating activities provided Celestica with $1,290.5 million in
cash principally from earnings and a reduction in working capital. The
primary factors contributing to the positive cash flow for the year were the
reduction of inventory due to better inventory management, strong accounts
receivable collections, the sale of $400.0 million in accounts receivable
under a revolving facility which is available until September 2004 offset by
a decrease in accounts payable and accrued liabilities. Investing activities
in 2001 included capital expenditures of $199.3 million and $1,299.7 million
for acquisitions. See "Acquisitions." Celestica fully funded the cash portion
of its 2001 acquisitions with cash from operations and will continue to focus
on improving working capital management. The Company's 2001 financing
activities included the issuance in May of 12.0 million subordinate voting
shares for gross proceeds of $714.0 million less expenses and underwriting
commissions of $10.0 million (pre-tax) and the repayment of $56.0 million of
debt acquired in connection with the acquisition of Omni.
For the year ended December 31, 2000, Celestica's operating activities
utilized $85.1 million in cash. Investing activities in 2000 included capital
expenditures of $282.8 million and $634.7 million for acquisitions. In March
2000, Celestica issued 16.6 million subordinate voting shares for gross
proceeds of $757.4 million less expenses and underwriting commissions of
$26.8 million (pre-tax). In August 2000, Celestica completed the LYONs
offering, raising gross proceeds of $862.9 million less underwriting
commissions of $19.4 million (pre-tax).
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 21
MANAGEMENT'S DISCUSSION AND ANALYSIS of financial condition and results of
operations
NET DEBT TO CAPITALIZATION IMPROVES
(percentage)
11%
(17%) (28%) (34%)
1998 1999 2000 2001
CAPITAL RESOURCES
Celestica has two $250.0 million and one $500.0 million unsecured, revolving
credit facilities totalling $1 billion, 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 July 2003, April 2004 and July 2005, respectively. Under the
credit facilities: Celestica is required to 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 December 31, 2001.
In addition, there is an 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 this debt covenant as at
December 31, 2001.
A subsidiary of the Company has secured loan facilities of which $13.0
million was outstanding at December 31, 2001. The weighted average interest
rates on these facilities in 2001 was 4.4%. The loans are denominated in
Singapore dollars and are repayable through quarterly payments.
Celestica believes that cash flow from operating activities, together with
cash on hand and borrowings available under its 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 2002 to be approximately $170.0 million to
$220.0 million. At December 31, 2001, Celestica had committed $21.0 million
in capital expenditures. 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
denominated in various currencies. As a result, Celestica may experience
transaction and translation gains or losses because of currency fluctuations.
At December 31, 2001, Celestica had forward foreign exchange contracts
covering various currencies in an aggregate notional amount of $704.8 million
with expiry dates up to May 2003. The fair value of these contracts at
December 31, 2001 was an unrealized loss of $7.4 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, euros,
Thailand baht and Czech koruna 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.
As at December 31, 2001, the Company has contractual obligations that require
future payments as follows:
(IN MILLIONS) TOTAL 2002 2003 2004 2005 2006 THEREAFTER
- ---------------------------------------------------------------------------------------------------------
Long-term debt $147.4 $ 10.0 $ 4.5 $ 1.3 $ 0.7 $130.6 $ 0.3
Operating leases and
license commitments 359.4 104.1 81.3 38.0 26.4 20.4 89.2
- ----------------------------------------------------------------------------------------------------------
The Company has a convertible instrument with a principal amount at
maturity of $1,813.6 million payable August 1, 2020. The Company may elect to
settle in cash or shares or any combination thereof. See further details in
Note 10 to the Consolidated Financial Statements.
As at December 31, 2001, the Company has commitments that expire as follows:
(IN MILLIONS) TOTAL 2002 2003 2004 2005 2006 THEREAFTER
- ----------------------------------------------------------------------------------------------------------
Foreign currency contracts 704.8 654.0 50.8 -- -- -- --
Letters of credit and guarantees 24.1 24.1 -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------
22 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
MANAGEMENT'S DISCUSSION AND ANALYSIS of financial condition and results of
operations
RECENT DEVELOPMENT
In January 2002, the Company entered into an agreement with NEC Corporation
to purchase certain manufacturing assets in Miyagi and Yamanashi, Japan. This
acquisition is expected to close in the first quarter of 2002.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and 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.
Significant estimates are used in determining the allowance for doubtful
accounts, inventory valuation and the useful lives of intangible assets.
Actual results could differ materially from those estimates and assumptions.
Celestica records an allowance for doubtful accounts for estimated credit
losses based on customer and industry concentrations and the Company's
knowledge of the financial condition of its customers. A change to these
factors could impact the estimated allowance.
Celestica values its inventory on a first-in, first-out basis at the lower of
cost and replacement cost for production parts and at the lower of cost and
net realizable value for work in progress and finished goods. Celestica
adjusts its inventory valuation based on estimates of net realizable value
and shrinkage. A change to these assumptions could impact the valuation of
inventory.
Celestica's estimate of the useful life of intangible assets reflects the
periods in which the projected future net cash flows are generated. A
significant change in the projected future net cash flows could impact the
estimated useful life.
RECENT ACCOUNTING DEVELOPMENTS
EARNINGS PER SHARE:
As a result of the new Canadian Institute of Chartered Accountants (CICA)
Handbook Section 3500 "Earnings per share," the Company was required to
retroactively use the treasury stock method for calculating diluted earnings
per share. This change results in an earnings per share calculation which is
consistent with United States GAAP. Previously reported diluted earnings per
share have been restated to reflect this change.
BUSINESS COMBINATIONS AND GOODWILL:
In September 2001, the CICA issued Handbook Sections 1581 "Business
Combinations" and 3062 "Goodwill and Other Intangible Assets." The new
standards mandate the purchase method of accounting for business combinations
and require that goodwill no longer be amortized but instead be tested for
impairment at least annually. The standards also specify criteria that
intangible assets must meet to be recognized and reported apart from
goodwill. The standards require that the value of the shares issued in a
business combination be measured using the average share price for a
reasonable period before and after the date the terms of the acquisition are
agreed to and announced. Previously, the consummation date was used to value
the shares issued in a business combination. The new standards are
substantially consistent with United States GAAP.
Effective July 1, 2001 and for the remainder of the fiscal year, goodwill
acquired in business combinations completed after June 30, 2001 was not
amortized. In addition, the criteria for recognition of intangible assets
apart from goodwill and the valuation of the shares issued in a business
combination has been applied to business combinations completed after June
30, 2001.
Upon full adoption of the standards beginning January 1, 2002, the Company
will discontinue amortization of all existing goodwill, evaluate existing
intangible assets and make any necessary reclassifications in order to
conform with the new criteria for recognition of intangible assets apart from
goodwill and will test for impairment in accordance with the new standards.
In connection with Section 3062's transitional goodwill impairment
evaluation, the Company is required to assess whether goodwill is impaired as
of January 1, 2002. The Company has up to six months to determine the fair
value of its reporting units and compare that to the carrying amounts of the
reporting units. To the extent a reporting unit's carrying amount exceeds its
fair value, the Company must perform a second step to measure the amount of
impairment in a manner similar to a purchase price allocation. This second
step is to be completed no later than December 31, 2002. The change to
assessing fair value by reporting unit could result in an impairment charge.
Any transitional impairment will be recognized as an effect of a change in
accounting principle and will be charged to opening retained earnings as of
January 1, 2002.
As of December 31, 2001, the Company had unamortized goodwill of $1,128.8 and
unamortized other intangible assets including intellectual property of
$427.2, all of which are subject to the transitional provisions of Sections
1581 and 3062. Amortization expense related to goodwill was $39.2 for 2001.
Because of the extensive effort required to comply with the remaining
provisions of Sections 1581 and 3062, the Company has not estimated the
impact of these provisions on its financial statements, beyond discontinuing
goodwill amortization.
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 23
MANAGEMENT'S DISCUSSION AND ANALYSIS of financial condition and results of
operations
STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS:
In December 2001, the CICA issued Handbook Section 3870, which establishes
standards for the recognition, measurement, and disclosure of stock-based
compensation and other stock-based payments made in exchange for goods and
services provided by employees and non-employees. The standard requires that
a fair value based method of accounting be applied to all stock-based
payments to non-employees and to employee awards that are direct awards of
stock, that call for settlement in cash or other assets or are stock
appreciation rights that call for settlement by the issuance of equity
instruments. However, the new standard permits the Company to continue its
existing policy of recording no compensation cost on the grant of stock
options to employees. Consideration paid by employees on the exercise of
stock options is recorded as share capital. The standard is effective for the
Company's fiscal year beginning January 1, 2002 for awards granted on or
after that date. The Company's current accounting policies are consistent
with the new standard.
FOREIGN CURRENCY TRANSLATION AND HEDGING RELATIONSHIPS:
CICA Handbook Section 1650 has been amended to eliminate the deferral and
amortization of foreign currency translation gains and losses on long-lived
monetary items, effective January 1, 2002 with retroactive restatement of
prior periods. The Company is not impacted by this change. The CICA issued
Accounting Guideline AcG-13, which establishes criteria for hedge accounting
effective for the Company's 2003 fiscal year. The Company has complied with
the requirements of AcG-13 and has determined that all of its current hedges
will continue to qualify for hedge accounting when the guideline becomes
effective.
TRANSFER OF RECEIVABLES:
In March 2001, the CICA issued Accounting Guideline AcG-12, which applies to
transfers of receivables after June 30, 2001. AcG-12 requires that transfers
of receivables in which the transferor surrenders control over the assets, be
accounted for as a sale to the extent that consideration other than
beneficial interests in the transferred assets, are received in exchange. The
Company's current accounting policies are consistent with the new standard.
IMPAIRMENT OF LONG-LIVED ASSETS:
In October 2001, FASB issued Statement No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets," which retains the fundamental provisions
of SFAS 121 for recognizing and measuring impairment losses of long-lived
assets other than goodwill. Statement 144 also broadens the definition of
discontinued operations to include all distinguishable components of an
entity that will be eliminated from ongoing operations. This Statement is
effective for the Company's fiscal year commencing January 1, 2002, to be
applied prospectively. In August 2001, SFAS 143, "Accounting for Asset
Retirement Obligations" was approved and requires that the fair value of an
asset retirement obligation be recorded as a liability, at fair value, in the
period in which the Company incurs the obligation. SFAS 143 is effective for
the Company's fiscal year commencing January 1, 2003. The Company expects the
adoption of these standards will have no material impact on its financial
position, results of operations or cash flows.
24 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements have been prepared by
management and approved by the Board of Directors of the Company. Management is
responsible for the information and representations contained in these financial
statements and in other sections of this Annual Report.
The Company maintains appropriate processes to ensure that relevant and reliable
financial information is produced. The Consolidated Financial Statements have
been prepared in accordance with accounting principles generally accepted
in Canada. The significant accounting policies, which management believes are
appropriate for the Company, are described in note 2 to the Consolidated
Financial Statements.
The Board of Directors is responsible for reviewing and approving the
Consolidated Financial Statements and overseeing management's performance of its
financial reporting responsibilities. An Audit Committee of three non-management
Directors is appointed by the Board.
The Audit Committee reviews the Consolidated Financial Statements, adequacy of
internal controls, audit process and financial reporting with management and
with the external auditors. The Audit Committee reports to the Directors prior
to the approval of the audited Consolidated Financial Statements for
publication.
KPMG LLP, the Company's external auditors, who are appointed by the
shareholders, audited the Consolidated Financial Statements in accordance with
Canadian generally accepted auditing standards and United States generally
accepted auditing standards to enable them to express to the shareholders their
opinion on the Consolidated Financial Statements. Their report is below.
[/s/ ANTHONY PUPPI]
Anthony P. Puppi
Executive Vice President,
Chief Financial Officer
January 21, 2002
AUDITORS' REPORT
TO THE SHAREHOLDERS OF CELESTICA INC.
We have audited the consolidated balance sheets of Celestica Inc. as at
December 31, 2000 and 2001 and the consolidated statements of earnings
(loss), shareholders' equity and cash flows for each of the years in the
three year period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
With respect to the consolidated financial statements for each of the years in
the two year period ended December 31, 2001, we conducted our audits in
accordance with Canadian generally accepted auditing standards and United States
generally accepted auditing standards. With respect to the consolidated
financial statements for the year ended December 31, 1999, we conducted our
audit in accordance with Canadian generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2000
and 2001 and the results of its operations and its cash flows for each of the
years in the three year period ended December 31, 2001 in accordance with
Canadian generally accepted accounting principles.
[/s/ KPMG LLP]
Chartered Accountants
Toronto, Canada
January 21, 2002
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 25
CONSOLIDATED BALANCE SHEETS (in millions of U.S. dollars)
AS AT DECEMBER 31
- -------------------------------------------------------------------------------------
2000 2001
- -------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and short-term investments $ 883.8 $ 1,342.8
Accounts receivable (note 4) 1,785.7 1,054.1
Inventories (note 5) 1,664.3 1,372.7
Prepaid and other assets 138.8 177.3
Deferred income taxes 48.4 49.7
- -------------------------------------------------------------------------------------
4,521.0 3,996.6
Capital assets (note 6) 633.4 915.1
Intangible assets (note 7) 578.3 1,556.0
Other assets (note 8) 205.3 165.2
- -------------------------------------------------------------------------------------
$ 5,938.0 $ 6,632.9
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,730.4 $ 1,198.3
Accrued liabilities 466.3 405.7
Income taxes payable 52.6 21.0
Deferred income taxes 7.7 21.8
Current portion of long-term debt (note 9) 1.4 10.0
- -------------------------------------------------------------------------------------
2,258.4 1,656.8
- -------------------------------------------------------------------------------------
Long-term debt (note 9) 130.6 137.4
Accrued post-retirement benefits (note 16) 38.1 47.3
Deferred income taxes 38.6 41.5
Other long-term liabilities 3.0 4.3
- -------------------------------------------------------------------------------------
2,468.7 1,887.3
- -------------------------------------------------------------------------------------
Shareholders' equity 3,469.3 4,745.6
- -------------------------------------------------------------------------------------
$ 5,938.0 $ 6,632.9
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Commitments and contingencies (note 18)
Subsequent event (note 21)
Canadian and United States accounting policy differences (note 22)
On behalf of the Board:
[/s/ ROBERT CRANDALL] [/s/ E. V. POLISTUK]
Robert L. Crandall Eugene V. Polistuk
Director Director
See accompanying notes to consolidated financial statements.
26 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (in millions of U.S. dollars, except
per share amounts)
YEAR ENDED DECEMBER 31
- -----------------------------------------------------------------------------------------------------------------
1999 2000 2001
- -----------------------------------------------------------------------------------------------------------------
Revenue $ 5,297.2 $ 9,752.1 $ 10,004.4
Cost of sales 4,914.7 9,064.1 9,291.9
- -----------------------------------------------------------------------------------------------------------------
Gross profit 382.5 688.0 712.5
Selling, general and administrative expenses 202.2 326.1 341.4
Amortization of intangible assets (note 7) 55.6 88.9 125.0
Integration costs related to acquisitions (note 3) 9.6 16.1 22.8
Other charges (note 13) -- -- 273.1
- -----------------------------------------------------------------------------------------------------------------
267.4 431.1 762.3
- -----------------------------------------------------------------------------------------------------------------
Operating income (loss) 115.1 256.9 (49.8)
Interest on long-term debt 17.3 17.8 19.8
Interest income, net (6.6) (36.8) (27.7)
- -----------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 104.4 275.9 (41.9)
- -----------------------------------------------------------------------------------------------------------------
Income taxes (note 14):
Current 30.7 80.1 25.8
Deferred (recovery) 5.3 (10.9) (27.9)
- -----------------------------------------------------------------------------------------------------------------
36.0 69.2 (2.1)
- -----------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 68.4 $ 206.7 $ (39.8)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share (note 12) $ 0.41 $ 1.01 $ (0.26)
Diluted earnings (loss) per share (notes 2, 12) $ 0.40 $ 0.98 $ (0.26)
Weighted average number of shares outstanding (note 12)
Basic (in millions) 167.2 199.8 213.9
Diluted (in millions) (note 2) 171.2 211.8 213.9
Net earnings (loss) in accordance with U.S. GAAP (note 22) $ 66.5 $ 197.4 $ (51.3)
Basic earnings (loss) per share, in accordance with U.S. GAAP (note 22) $ 0.40 $ 0.99 $ (0.24)
Diluted earnings (loss) per share, in accordance with U.S. GAAP (note 22) $ 0.39 $ 0.96 $ (0.24)
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in millions of U.S. dollars)
FOREIGN
CONVERTIBLE RETAINED CURRENCY TOTAL
DEBT CAPITAL STOCK EARNINGS TRANSLATION SHAREHOLDERS'
(NOTE 10) (NOTE 11) (DEFICIT) ADJUSTMENT EQUITY
- ----------------------------------------------------------------------------------------------------------
Balance -- December 31, 1998 $ -- $ 912.1 $ (52.2) $ (0.6) $ 859.3
Shares issued, net -- 734.0 -- -- 734.0
Currency translation -- -- -- (3.5) (3.5)
Net earnings for the year -- -- 68.4 -- 68.4
- ----------------------------------------------------------------------------------------------------------
Balance -- December 31, 1999 -- 1,646.1 16.2 (4.1) 1,658.2
Convertible debt issued, net 850.4 -- -- -- 850.4
Convertible debt accretion, net of tax 10.1 -- (5.4) -- 4.7
Shares issued, net -- 749.3 -- -- 749.3
Net earnings for the year -- -- 206.7 -- 206.7
- ----------------------------------------------------------------------------------------------------------
Balance -- December 31, 2000 860.5 2,395.4 217.5 (4.1) 3,469.3
Convertible debt accretion, net of tax 26.3 -- (15.0) -- 11.3
Shares issued, net -- 1,303.6 -- -- 1,303.6
Currency translation -- -- -- 1.2 1.2
Net loss for the year -- -- (39.8) -- (39.8)
- ----------------------------------------------------------------------------------------------------------
BALANCE -- DECEMBER 31, 2001 $ 886.8 $ 3,699.0 $ 162.7 $ (2.9) $ 4,745.6
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 27
CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions of U.S. dollars)
YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------
1999 2000 2001
- --------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN):
OPERATIONS:
Net earnings (loss) $ 68.4 $ 206.7 $ (39.8)
Items not affecting cash:
Depreciation and amortization 126.5 212.5 319.5
Deferred income taxes 5.3 (10.9) (27.9)
Other charges (note 13) -- -- 134.7
Other (2.9) (4.4) 1.7
- --------------------------------------------------------------------------------------------
Cash from earnings 197.3 403.9 388.2
- --------------------------------------------------------------------------------------------
Changes in non-cash working capital items:
Accounts receivable (227.7) (995.3) 887.2
Inventories (265.0) (656.7) 822.5
Other assets 1.7 (94.7) 45.7
Accounts payable and accrued liabilities 194.6 1,230.4 (854.0)
Income taxes payable 4.7 27.3 0.9
- --------------------------------------------------------------------------------------------
Non-cash working capital changes (291.7) (489.0) 902.3
- --------------------------------------------------------------------------------------------
Cash provided by (used in) operations (94.4) (85.1) 1,290.5
- --------------------------------------------------------------------------------------------
INVESTING:
Acquisitions, net of cash acquired (64.8) (634.7) (1,299.7)
Purchase of capital assets (211.8) (282.8) (199.3)
Other (0.6) (59.5) 1.4
- --------------------------------------------------------------------------------------------
Cash used in investing activities (277.2) (977.0) (1,497.6)
- --------------------------------------------------------------------------------------------
FINANCING:
Bank indebtedness -- (8.6) (2.8)
Repayments of long-term debt (10.0) (2.2) (56.0)
Deferred financing costs (1.5) (0.1) (3.9)
Issuance of convertible debt -- 862.9 --
Convertible debt issue costs, pre-tax -- (19.4) --
Issuance of share capital 758.2 766.6 737.7
Share issue costs, pre-tax (34.3) (26.8) (10.0)
Other (1.0) 2.0 1.1
- --------------------------------------------------------------------------------------------
Cash provided by financing activities 711.4 1,574.4 666.1
- --------------------------------------------------------------------------------------------
Increase in cash 339.8 512.3 459.0
Cash, beginning of year 31.7 371.5 883.8
- --------------------------------------------------------------------------------------------
Cash, end of year $ 371.5 $ 883.8 $ 1,342.8
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Supplemental information
Paid during the year:
Interest $ 17.2 $ 15.9 $ 20.7
Taxes $ 26.1 $ 55.0 $ 89.0
Non-cash financing activities:
Convertible debt accretion, net of tax (note 10) $ -- $ 5.4 $ 15.0
Shares issued for acquisitions $ -- $ -- $ 567.0
Cash is comprised of cash and short-term investments.
See accompanying notes to consolidated financial statements.
28 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
1. NATURE OF BUSINESS:
The primary operations of the Company include providing a full range of
electronics manufacturing services including design, prototyping, assembly,
testing, product assurance, supply chain management, worldwide distribution and
after-sales service to its customers primarily in the computer and
communications industries. The Company has operations in the Americas, Europe
and Asia.
The Company's accounting policies are in accordance with accounting principles
generally accepted in Canada and, except as outlined in note 22, are, in all
material respects, in accordance with accounting principles generally accepted
in the United States.
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) PRINCIPLES OF CONSOLIDATION:
These consolidated financial statements include the accounts of the Company and
its subsidiaries. The results of subsidiaries acquired during the year are
consolidated from their respective dates of acquisition. The Company's business
combinations are accounted for using the purchase method. Inter-company
transactions and balances are eliminated on consolidation.
(b) REVENUE:
Revenue is comprised of product sales and service revenue earned from
engineering, design and repair services. Revenue from product sales is
recognized upon shipment of the goods. Service revenue is recognized as services
are performed.
(c) CASH AND SHORT-TERM INVESTMENTS:
Cash and short-term investments include cash on account, demand deposits and
short-term investments with original maturities of less than three months.
(d) INVENTORIES:
Inventories are valued on a first-in, first-out basis at the lower of cost and
replacement cost for production parts and at the lower of cost and net
realizable value for work in progress and finished goods. Cost includes
materials and an application of relevant manufacturing value-add.
(e) CAPITAL ASSETS:
Capital assets are carried at cost and amortized over their estimated useful
lives on a straight-line basis. Estimated useful lives for the principal asset
categories are as follows:
- --------------------------------------------------------------------------------
Buildings 25 years
Buildings/leasehold improvements Up to 25 years or term of lease
Office equipment 5 years
Machinery and equipment 5 years
Software 1 to 5 years
- --------------------------------------------------------------------------------
(f) INTANGIBLE ASSETS:
Intangible assets are comprised of goodwill, intellectual property including
process technology, and other intangible assets. Goodwill acquired in business
combinations with acquisition dates prior to July 1, 2001 and other intangible
assets are amortized on a straight-line basis over 10 years and intellectual
property over 5 years. Goodwill acquired in business combinations subsequent to
June 30, 2001 has not been amortized, but will be tested for impairment
annually. Also see note 2(n).
(g) IMPAIRMENT OF LONG-LIVED ASSETS:
The Company reviews long-lived assets for impairment on a regular basis or
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of capital assets is assessed by
comparison of the carrying amount to the projected future net cash flows the
long-lived assets are expected to generate.
The Company assesses the recoverability of enterprise-level goodwill by
determining whether the unamortized goodwill balance can be recovered through
undiscounted projected future net cash flows of the acquired operation. An
impairment in the value of intellectual property and other intangible assets is
assessed based on projected future net cash flows. See note 2(n).
(h) PENSION AND NON-PENSION, POST-RETIREMENT BENEFITS:
The Company accrues its obligations under employee benefit plans and the related
costs, net of plan assets. The cost of pensions and other retirement benefits
earned by employees is actuarially determined using the projected benefit method
pro-rated on service and management's best estimate of expected plan investment
performance, salary escalation, retirement ages of employees and expected health
care costs. For the purpose of calculating the expected return on plan assets,
those assets are valued at fair value. Past service costs arising from plan
amendments are amortized on a straight-line basis over the average remaining
service period of employees active at the date of amendment. The net actuarial
gain (loss) is amortized over the average remaining service period of active
employees. The average remaining service period of active employees covered by
the pension plans is 14 years for 2000 and 2001. The average remaining service
period of active employees covered by the other retirement benefit plans is 21
years for 2000 and 2001.
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
(i) DEFERRED FINANCING COSTS:
Costs relating to long-term debt are deferred in other assets and amortized over
the term of the related debt and debt facilities.
(j) INCOME TAXES:
The Company uses the asset and liability method of accounting for income taxes.
Deferred tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. When necessary,
a valuation allowance is recorded to reduce tax assets to an amount for which
realization is more likely than not. The effect of changes in tax rates is
recognized in the period in which the rate change occurs.
(k) FOREIGN CURRENCY TRANSLATION AND HEDGING:
The functional currency of the majority of the Company's subsidiaries is the
United States dollar. For such subsidiaries, monetary assets and liabilities
denominated in foreign currencies are translated into U.S. dollars at the
year-end rate of exchange. Non-monetary assets and liabilities denominated in
foreign currencies are translated at historic rates and revenue and expenses are
translated at average exchange rates prevailing during the month of the
transaction. Exchange gains or losses are reflected in the consolidated
statements of earnings (loss).
The accounts of the Company's self-sustaining foreign operations, for which the
functional currency is other than the U.S. dollar are translated into U.S.
dollars using the current rate method. Assets and liabilities are translated at
the year-end exchange rate and revenue and expenses are translated at average
exchange rates. Gains and losses arising from the translation of financial
statements of foreign operations are deferred in the "foreign currency
translation adjustment" account included as a separate component of
shareholders' equity.
The Company enters into forward exchange contracts to hedge the cash flow risk
associated with certain firm purchase commitments and forecasted transactions.
Gains and losses on hedges of firm commitments are included in the cost of the
hedged transactions when they occur. Gains and losses on hedges of forecasted
transactions are recognized in earnings in the same period as the underlying
hedged transaction. The Company does not enter into derivatives for speculative
purposes.
(l) RESEARCH AND DEVELOPMENT:
The Company annually incurs costs on activities that relate to research and
development which are expensed as incurred unless development costs meet certain
criteria for capitalization. Total research and development costs recorded in
selling, general and administrative expenses for 2001 were $17.1 (2000 - $19.5;
1999 - $19.7). No amounts have been capitalized.
(m) USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and 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.
Significant estimates are used in determining the allowance for doubtful
accounts, inventory valuation and the useful lives of intangible assets. Actual
results could differ materially from those estimates and assumptions.
(n) CHANGES IN ACCOUNTING POLICIES:
EARNINGS PER SHARE:
As a result of the new Canadian Institute of Chartered Accountants (CICA)
Handbook Section 3500 "Earnings per share," the Company is required to
retroactively use the treasury stock method for calculating diluted earnings per
share. This change results in an earnings per share calculation which is
consistent with United States GAAP. Previously reported diluted earnings per
share have been restated to reflect this change.
BUSINESS COMBINATIONS AND GOODWILL:
In September 2001, the CICA issued Handbook Sections 1581 "Business
Combinations" and 3062 "Goodwill and Other Intangible Assets." The new standards
mandate the purchase method of accounting for business combinations and require
that goodwill no longer be amortized but instead be tested for impairment at
least annually. The standards also specify criteria that intangible assets must
meet to be recognized and reported apart from goodwill. The standards require
that the value of the shares issued in a business combination be measured using
the average share price for a reasonable period before and after the date the
terms of the acquisition are agreed to and announced. Previously, the
consummation date was used to value the shares issued in a business combination.
The new standards are substantially consistent with United States GAAP.
Effective July 1, 2001 and for the remainder of the fiscal year, goodwill
acquired in business combinations completed after June 30, 2001 was not
amortized. In addition, the criteria for recognition of intangible assets apart
from goodwill and the valuation of the shares issued in a business combination
has been applied to business combinations completed after June 30, 2001.
Upon full adoption of the standards beginning January 1, 2002, the Company will
discontinue amortization of all existing goodwill, evaluate existing intangible
assets and make any necessary reclassifications in order to conform with the new
criteria for recognition of intangible assets apart from goodwill and test for
impairment in accordance with the new standards.
30 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
In connection with Section 3062's transitional goodwill impairment evaluation,
the Company is required to assess whether goodwill is impaired as of January 1,
2002. The Company has up to six months to determine the fair value of its
reporting units and compare that to the reporting units' carrying amounts. To
the extent a reporting unit's carrying amount exceeds its fair value, the
Company must perform a second step to measure the amount of impairment in a
manner similar to a purchase price allocation. This second step is to be
completed no later than December 31, 2002. Any transitional impairment will be
recognized as an effect of a change in accounting principle and will be charged
to opening retained earnings as of January 1, 2002.
As of December 31, 2001, the Company had unamortized goodwill of $1,128.8 and
unamortized other intangible assets including intellectual property of $427.2,
all of which are subject to the transitional provisions of Sections 1581 and
3062. Amortization expense related to goodwill was $39.2 for 2001. Because of
the extensive effort required to comply with the remaining provisions of
Sections 1581 and 3062, the Company has not estimated the impact of these
provisions on its financial statements, beyond discontinuing goodwill
amortization.
(o) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS:
In December 2001, the CICA issued Handbook Section 3870, which establishes
standards for the recognition, measurement, and disclosure of stock-based
compensation and other stock-based payments made in exchange for goods and
services provided by employees and non-employees. The standard requires that a
fair value based method of accounting be applied to all stock-based payments to
non-employees and to employee awards that are direct awards of stock, that call
for settlement in cash or other assets or are stock appreciation rights that
call for settlement by the issuance of equity instruments. However, the new
standard permits the Company to continue its existing policy of recording no
compensation cost on the grant of stock options to employees. Consideration paid
by employees on the exercise of stock options is recorded as share capital. The
standard is effective for the Company's fiscal year beginning January 1, 2002
for awards granted on or after that date. The Company's current accounting
policies are consistent with the new standard.
FOREIGN CURRENCY TRANSLATION AND HEDGING RELATIONSHIPS:
CICA Handbook Section 1650 has been amended to eliminate the deferral and
amortization of foreign currency translation gains and losses on long-lived
monetary items, effective January 1, 2002 with retroactive restatement of prior
periods. The Company is not impacted by this change. The CICA issued Accounting
Guideline AcG-13 which establishes criteria for hedge accounting effective for
the Company's 2003 fiscal year. The Company has complied with the requirements
of AcG-13 and has determined that all of its current hedges will continue to
qualify for hedge accounting when the guideline becomes effective.
3. ACQUISITIONS:
2000 ACQUISITIONS:
(a) IBM:
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. The total
purchase price of $470.0 was financed with cash.
(b) OTHER ACQUISITIONS:
In June 2000, the Company acquired 100% of the issued and outstanding shares
of NDB Industrial Ltda. in Brazil from NEC Corporation. In August 2000, the
Company acquired 100% of the issued and outstanding shares of Bull
Electronics Inc. in Lowell, Massachusetts from Groupe Bull. In November 2000,
the Company acquired 100% of the issued and outstanding shares of NEC
Technologies (UK) Ltd. in Telford, U.K. from NEC Corporation. The total
purchase price for these acquisitions of $169.8 was financed with cash.
Details of the net assets acquired in these acquisitions, at fair value, are as
follows:
OTHER
IBM ACQUISITIONS
- --------------------------------------------------------------
Current assets $ 301.1 $ 86.5
Capital assets 98.2 35.1
Other long-term assets 2.3 --
Goodwill and intellectual property 213.9 74.1
Other intangible assets 12.2 --
Liabilities assumed (157.7) (25.9)
- --------------------------------------------------------------
Net assets acquired $ 470.0 $ 169.8
- --------------------------------------------------------------
- --------------------------------------------------------------
Other intangible assets represent the excess of purchase price over the fair
value of tangible assets and intellectual property acquired in asset
acquisitions.
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
2001 ACQUISITIONS:
(c) ASSET ACQUISITIONS:
In February 2001, the Company acquired certain assets located in Dublin, Ireland
and Mt. Pleasant, Iowa from Motorola Inc. In March 2001, the Company acquired
certain assets of a repair facility in Japan from N.K. Techno Co., Ltd. In May
2001, the Company acquired certain assets in Little Rock, Arkansas and Denver,
Colorado from Avaya Inc., and in August 2001, acquired certain assets in Saumur,
France. In August 2001, the Company acquired certain assets in Columbus, Ohio
and Oklahoma City, Oklahoma from Lucent Technologies Inc. The total purchase
price for these acquisitions of $834.1 was financed with cash and was allocated
to the net assets acquired, including intangible assets of $195.7, based on
their relative fair values at the date of acquisition.
(d) BUSINESS COMBINATIONS:
OMNI:
In October 2001, the Company acquired Omni Industries Limited (Omni), an
electronics manufacturer headquartered in Singapore. This acquisition
significantly enhanced the Company's presence in Asia. The purchase price of
$865.8 was financed with the issuance of 9.2 million subordinate voting shares
and the issuance of options to purchase 0.3 million subordinate voting shares of
the Company and $479.5 in cash. The goodwill recorded for Omni is not tax
deductible. The Company is in the process of obtaining third-party valuations of
certain assets. The fair value allocation of the purchase price is subject to
refinement.
OTHER BUSINESS COMBINATIONS:
In January 2001, the Company acquired Excel Electronics, Inc. through a merger
with Celestica (US) Inc., a subsidiary of the Company. This acquisition expanded
the Company's presence in the southern United States. In June 2001, the Company
acquired Sagem CR s.r.o., in the Czech Republic, from Sagem SA, of France, which
positions Celestica as Sagem's primary EMS provider. In August 2001, the Company
acquired Primetech Electronics Inc. (Primetech), an electronics manufacturer in
Canada. This acquisition provided the Company with additional high complexity
manufacturing capability and an expanded global customer base. The purchase
price of Primetech was financed primarily with the issuance of 3.4 million
subordinate voting shares and the issuance of options to purchase 0.3 million
subordinate voting shares of the Company. The Company is in the process of
obtaining third-party valuations of certain assets. The fair value allocation of
the purchase price is subject to refinement.
The value of the shares issued in the Primetech and Omni acquisitions was
determined based on the average market price of the shares for a reasonable
period before and after the date the terms of the acquisitions were agreed to
and announced.
Details of the net assets acquired in these business combinations, at fair
value, are as follows:
OTHER BUSINESS
OMNI COMBINATIONS
- -----------------------------------------------------------
Current assets $ 255.2 $ 63.2
Capital assets 91.8 46.3
Other long-term assets 4.1 0.1
Goodwill 764.4 135.5
Intellectual property 50.0 10.0
Liabilities assumed (299.7) (27.6)
- -----------------------------------------------------------
Net assets acquired $ 865.8 $ 227.5
- -----------------------------------------------------------
- -----------------------------------------------------------
Financed by:
Cash $ 479.5 $ 46.8
Issuance of shares and options 386.3 180.7
- -----------------------------------------------------------
$ 865.8 $ 227.5
- -----------------------------------------------------------
- -----------------------------------------------------------
INTEGRATION COSTS RELATED TO ACQUISITIONS:
The Company incurred costs of $22.8 in 2001 (2000 - $16.1; 1999 - $9.6) relating
to the establishment of business processes, infrastructure and information
systems for acquired operations. None of the integration costs incurred related
to existing operations.
4. ACCOUNTS RECEIVABLE:
Accounts receivable are net of an allowance for doubtful accounts of $74.6 at
December 31, 2001 (2000 - $40.7).
5. INVENTORIES:
2000 2001
- -----------------------------------------------------------
Raw materials $ 1,298.5 $ 903.6
Work in progress 215.2 220.6
Finished goods 150.6 248.5
- -----------------------------------------------------------
$ 1,664.3 $ 1,372.7
- -----------------------------------------------------------
- -----------------------------------------------------------
32 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
6. CAPITAL ASSETS:
2000
- -------------------------------------------------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
- -------------------------------------------------------------------------------------
Land $ 18.0 $ -- $ 18.0
Buildings 131.9 8.7 123.2
Buildings/leasehold improvements 42.8 9.1 33.7
Office equipment 64.5 25.4 39.1
Machinery and equipment 510.2 152.4 357.8
Software 76.9 15.3 61.6
- -------------------------------------------------------------------------------------
$ 844.3 $ 210.9 $ 633.4
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
2001
- -------------------------------------------------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
- -------------------------------------------------------------------------------------
Land $ 53.3 $ -- $ 53.3
Buildings 258.8 17.4 241.4
Buildings/leasehold improvements 66.0 24.8 41.2
Office equipment 86.8 40.2 46.6
Machinery and equipment 727.2 291.2 436.0
Software 136.6 40.0 96.6
- -------------------------------------------------------------------------------------
$ 1,328.7 $ 413.6 $ 915.1
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
The above amounts include $13.3 (2000 - $8.1) of assets under capital lease and
accumulated amortization of $6.8 (2000 - $6.1) related thereto.
Depreciation and rental expense for the year ended December 31, 2001 was $192.8
(2000 - $121.9; 1999 - $69.5) and $79.8 (2000 - $46.7; 1999 - $21.1),
respectively.
7. INTANGIBLE ASSETS:
2000
- -------------------------------------------------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
- -------------------------------------------------------------------------------------
Goodwill $ 434.1 $ 104.0 $ 330.1
Other intangible assets 100.9 27.7 73.2
Intellectual property 250.1 75.1 175.0
- -------------------------------------------------------------------------------------
$ 785.1 $ 206.8 $ 578.3
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
2001
- -------------------------------------------------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
- -------------------------------------------------------------------------------------
Goodwill $ 1,261.1 $ 132.3 $ 1,128.8
Other intangible assets 209.3 26.8 182.5
Intellectual property 388.6 143.9 244.7
- -------------------------------------------------------------------------------------
$ 1,859.0 $ 303.0 $ 1,556.0
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Other intangible assets represent the excess of cost over the fair value of
tangible assets and intellectual property acquired in asset acquisitions.
The intellectual property primarily represents the cost of certain non-patented
intellectual property and process technology.
Amortization expense is as follows:
YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------------------
1999 2000 2001
- ----------------------------------------------------------------------------------------
Amortization of goodwill $ 31.1 $ 39.1 $ 39.2
Amortization of other intangible assets 8.3 10.7 17.0
Amortization of intellectual property 16.2 39.1 68.8
- ----------------------------------------------------------------------------------------
$ 55.6 $ 88.9 $ 125.0
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
8. OTHER ASSETS:
2000 2001
- ---------------------------------------------------------------------------------
Deferred pension (note 16) $ 25.8 $ 28.4
Deferred income taxes 81.5 116.4
Commodity taxes recoverable 78.3 10.7
Other 19.7 9.7
- ---------------------------------------------------------------------------------
$ 205.3 $ 165.2
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Amortization of deferred financing costs for the year ended December 31, 2001
was $1.7 (2000 - $1.7; 1999 - $1.5).
9. LONG-TERM DEBT:
2000 2001
- ---------------------------------------------------------------------------------
Global, unsecured, revolving credit facility due 2003 (a) $ -- $ --
Global, unsecured, revolving credit facility due 2004 (b) -- --
Unsecured revolving credit facility due 2005 (c) -- --
Senior Subordinated Notes due 2006 (d) 130.0 130.0
Other (e) 2.0 17.4
- ---------------------------------------------------------------------------------
132.0 147.4
Less current portion 1.4 10.0
- ---------------------------------------------------------------------------------
$ 130.6 $ 137.4
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
(a) Concurrently with the initial public offering on July 7, 1998, the Company
entered into a global, unsecured, revolving credit facility providing up to
$250.0 of borrowings. The credit facility permits the Company and certain
designated subsidiaries to borrow funds for general corporate purposes
(including acquisitions). Borrowings under the facility bear interest at LIBOR
plus a margin and are repayable in July 2003. There were no borrowings on this
facility during 2000 and 2001. Commitment fees in 2001 were $0.4.
(b) In February 2000, the Company renewed its second global, unsecured,
revolving credit facility providing up to $250.0 of borrowings including a swing
line facility that provides for short-term borrowings up to a maximum of seven
days. The credit facility permits the Company and certain designated
subsidiaries to borrow funds for general corporate purposes (including
acquisitions). The revolving facility is repayable in April 2004. Borrowings
under the facility bear interest at LIBOR plus a margin except that borrowings
under the swing line facility bears interest at a base rate. There were no
borrowings on this facility during 2000 and 2001. Commitment fees in 2001 were
$0.6.
(c) In July 2001, the Company entered into an unsecured, revolving credit
facility providing up to $500.0 of borrowings including a swing line facility
that provides for short-term borrowings up to a maximum of seven days. The
credit facility permits the Company and certain designated subsidiaries to
borrow funds for general corporate purposes (including acquisitions). The
revolving facility is repayable in July 2005. Borrowings under the facility
bear interest at LIBOR plus a margin except that borrowings under the swing
line facility bear interest at a base rate. There were no borrowings on this
facility in 2001. Commitment fees in 2001 were $0.5.
(d) The Senior Subordinated Notes bear interest at 10.5%, are unsecured and are
subordinated to the payment of all senior debt of the Company. The Senior
Subordinated Notes may be redeemed at various premiums above face value.
(e) Other long-term debt includes secured loan facilities of one of the
Company's subsidiaries of which $13.0 is outstanding at December 31, 2001. The
weighted average interest rate on these facilities was 4.4%. The loans are
denominated in Singapore dollars and are repayable through quarterly payments.
There were no commitment fees for 2001.
As at December 31, 2001, principal repayments due within each of the next five
years on all long-term debt are as follows:
2002 $ 10.0
2003 4.5
2004 1.3
2005 0.7
2006 130.6
THEREAFTER 0.3
The unsecured, revolving credit facilities have restrictive covenants relating
to debt incurrence and sale of assets and also contain financial covenants that
indirectly restrict the Company's ability to pay dividends. A change of control
is an event of default. The Company's Senior Subordinated Notes due 2006 include
a covenant restricting the Company's ability to pay dividends.
34 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
10. CONVERTIBLE DEBT:
In August 2000, Celestica issued Liquid Yield Option(TM) Notes (LYONs) with a
principal amount at maturity of $1,813.6, payable August 1, 2020. The Company
received gross proceeds of $862.9 and incurred $12.5 in underwriting
commissions, net of tax of $6.9. 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 one thousand dollars 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.
Pursuant to Canadian generally accepted accounting principles, the LYONs are
recorded as an equity instrument and 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.
11. CAPITAL STOCK:
(a) AUTHORIZED:
An unlimited number of subordinate voting shares, which entitle the holder to
one vote per share, and an unlimited number of multiple voting shares, which
entitle the holder to twenty-five votes per share. Except as otherwise required
by law, the subordinate voting shares and multiple voting shares vote together
as a single class on all matters submitted to a vote of shareholders, including
the election of directors. The holders of the subordinate voting shares and
multiple voting shares are entitled to share ratably, as a single class, in any
dividends declared subject to any preferential rights of any outstanding
preferred shares in respect of the payment of dividends. Each multiple voting
share is convertible at any time at the option of the holder thereof into one
subordinate voting share. The Company is also authorized to issue an unlimited
number of preferred shares, issuable in series.
(b) ISSUED AND OUTSTANDING:
TOTAL
SUBORDINATE
AND MULTIPLE
SUBORDINATE MULTIPLE VOTING SHARES SHARES TO
NUMBER OF SHARES (IN MILLIONS) VOTING SHARES VOTING SHARES OUTSTANDING BE ISSUED
- --------------------------------------------------------------------------------------------------------
Balance December 31, 1999 146.3 39.1 185.4 0.5
Equity offering (i) 16.6 -- 16.6 --
Other share issuances (ii) 1.3 -- 1.3 --
Issued as consideration for acquisitions (iii) 0.1 -- 0.1 (0.1)
- --------------------------------------------------------------------------------------------------------
Balance December 31, 2000 164.3 39.1 203.4 0.4
Equity offering (iv) 12.0 -- 12.0 --
Other share issuances (v) 1.1 -- 1.1 --
Issued as consideration for acquisitions (vi) 13.2 -- 13.2 0.1
- --------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 2001 190.6 39.1 229.7 0.5
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
SUBORDINATE MULTIPLE SHARES TO TOTAL
AMOUNT VOTING SHARES VOTING SHARES BE ISSUED AMOUNT
- --------------------------------------------------------------------------------------------------------
Balance December 31, 1999 $ 1,504.5 $ 138.8 $ 2.8 $ 1,646.1
Equity offering, net of issue costs (i) 740.1 -- -- 740.1
Other share issuances (ii) 9.2 -- -- 9.2
Issued as consideration for acquisitions (iii) 1.1 -- (1.1) --
- --------------------------------------------------------------------------------------------------------
Balance December 31, 2000 2,254.9 138.8 1.7 2,395.4
Equity offering, net of issue costs (iv) 707.4 -- -- 707.4
Other share issuances (v) 29.2 -- -- 29.2
Issued as consideration for acquisitions (vi) 562.8 -- 4.2 567.0
- --------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 2001 $ 3,554.3 $ 138.8 $ 5.9 $ 3,699.0
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
2000 CAPITAL TRANSACTIONS:
(i) In March 2000, the Company issued 16.6 million subordinate voting
shares for gross cash proceeds of $757.4 and incurred $17.3 in share issue
costs, net of tax of $9.5.
(ii) During 2000, pursuant to employee share purchase and option plans and
LTIP awards, the Company issued 1.3 million subordinate voting shares as a
result of the exercise of options for cash of $9.2.
(iii) During 2000, the Company issued 0.1 million of reserved shares at an
ascribed value of $1.1 for $0.2 cash. As at December 31, 2000, 0.4 million
subordinate voting shares remain reserved for issuance at an ascribed value of
$1.7.
2001 CAPITAL TRANSACTIONS:
(iv) In May 2001, the Company issued 12.0
million subordinate voting shares for gross cash proceeds of $714.0 and incurred
$6.6in share issuance costs, net of tax of $3.4.
(v) During 2001, pursuant to employee share purchase and option plans and
LTIP awards, the Company issued 1.1 million subordinate voting shares as a
result of the exercise of options for cash of $23.7 and recorded a tax benefit
of $5.5.
(vi) In 2001, the Company issued 12.7 million subordinate voting shares,
as consideration for acquisitions, for an ascribed value of $558.5 and reserved
0.6 million shares at an ascribed value of $8.5. During 2001, the Company issued
0.5 million of reserved shares at an ascribed value of $4.3. As at December 31,
2001, 0.5 million subordinate voting shares remain reserved for issuance at an
ascribed value of $5.9.
(c) STOCK OPTION PLANS:
(i) LONG-TERM INCENTIVE PLAN (LTIP)
The Company established the LTIP prior to the closing of its initial public
offering. Under this plan, the Company may grant stock options, performance
shares, performance share units and stock appreciation rights to directors,
permanent employees and consultants ("eligible participants") of the Company,
its subsidiaries and other companies or partnerships in which the Company has a
significant investment. Under the LTIP, up to 23.0 million subordinate voting
shares may be issued from treasury. Options are granted at prices equal to the
market value of the day prior to the date of the grant and are exercisable
during a period not to exceed ten years from such date.
(ii) EMPLOYEE SHARE PURCHASE AND OPTION PLANS (ESPO)
The Company has ESPO plans that were available to certain of its employees and
executives. As a result of the establishment of the LTIP, no further options or
shares may be issued under the ESPO plans. Pursuant to the ESPO plans, employees
and executives of the Company were offered the opportunity to purchase, at
prices equal to market value, subordinate voting shares and, in connection with
such purchase, receive options to acquire an additional number of subordinate
voting shares based on the number of subordinate voting shares acquired by them
under the ESPO plans. The exercise price for the options is equal to the price
per share paid for the corresponding subordinate voting shares acquired under
the ESPO plans.
Stock option transactions were as follows:
WEIGHTED
AVERAGE
NUMBER OF OPTIONS (IN MILLIONS) SHARES EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1998 11.5 $ 5.41
Granted 5.2 $ 30.05
Exercised (1.7) $ 8.25
Cancelled (0.4) $ 7.37
- -------------------------------------------------------------------------------------------------
Outstanding at December 31, 1999 14.6 $ 14.84
Granted 4.2 $ 55.40
Exercised (1.4) $ 6.85
Cancelled (0.2) $ 7.33
- -------------------------------------------------------------------------------------------------
Outstanding at December 31, 2000 17.2 $ 25.16
Granted/assumed 8.5 $ 42.54
Exercised (1.6) $ 14.89
Cancelled (0.2) $ 23.36
- -------------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 2001 23.9 $ 31.67
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Cash consideration received on options exercised $ 23.7
- -------------------------------------------------------------------------------------------------
Shares reserved for issuance upon exercise of stock options or awards (in millions) 28.8
- -------------------------------------------------------------------------------------------------
36 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
The following options were outstanding as at December 31, 2001:
OUTSTANDING WEIGHTED EXERCISABLE WEIGHTED REMAINING
RANGE OF OPTIONS AVERAGE OPTIONS AVERAGE LIFE
PLAN EXERCISE PRICES (IN MILLIONS) EXERCISE PRICE (IN MILLIONS) EXERCISE PRICE (YEARS)
- --------------------------------------------------------------------------------------------------------------
ESPO $ 5.00 - $ 7.50 5.3 $ 5.34 3.9 $ 5.42 6
LTIP $ 8.75 - $ 13.69 1.7 $ 12.16 0.9 $ 11.96 7
$ 24.18 - $ 24.18 0.8 $ 24.18 0.4 $ 24.18 8
$ 24.91 - $ 36.89 0.8 $ 30.58 -- -- 10
$ 39.03 - $ 39.03 2.9 $ 39.03 1.4 $ 39.03 8
$ 41.89 - $ 41.89 6.4 $ 41.89 -- -- 10
$ 44.23 - $ 54.15 0.6 $ 49.46 -- -- 9
$ 55.40 - $ 60.06 4.1 $ 55.96 1.0 $ 55.96 9
$ 73.04 - $ 74.90 0.1 $ 73.42 -- -- 9
Other $ 0.93 - $ 13.31 1.0 $ 5.73 0.9 $ 5.67 5
Other $ 29.73 - $ 72.84 0.2 $ 46.28 -- -- 5
----
23.9
----
12. EARNINGS PER SHARE:
The following table sets forth the calculation of basic and diluted earnings
(loss) per share:
YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------------------------
1999 2000 2001
- ----------------------------------------------------------------------------------------------
Numerator:
Net earnings (loss) $ 68.4 $ 206.7 $ (39.8)
Convertible debt accretion, net of tax -- (5.4) (15.0)
- ----------------------------------------------------------------------------------------------
Earnings (loss) available to common shareholders $ 68.4 $ 201.3 $ (54.8)
Denominator:
Weighted average shares - basic (in millions) 167.2 199.8 213.9
Effect of dilutive securities (in millions):
Employee stock options (1) 4.0 7.8 --
Convertible debt -- 4.2 --
- ----------------------------------------------------------------------------------------------
Weighted average shares - diluted (in millions) (2) 171.2 211.8 213.9
Earnings (loss) per share:
Basic $ 0.41 $ 1.01 $ (0.26)
Diluted $ 0.40 $ 0.98 $ (0.26)
(1) For 1999 and 2000, excludes the effect of 3.4 million and 3.3 million "out
of the money" options, respectively, as they are anti-dilutive.
(2) For 2001, excludes the effect of options and convertible debt as they are
anti-dilutive due to the loss.
13. OTHER CHARGES:
YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------------------------
1999 2000 2001
- ----------------------------------------------------------------------------------------------
Restructuring (a) $ -- $ -- $ 237.0
Other (b) -- -- 36.1
- ----------------------------------------------------------------------------------------------
$ -- $ -- $ 273.1
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
(a) RESTRUCTURING:
The Company recorded a pre-tax restructuring charge of $237.0 in 2001, in
response to a slowing end market. The Company's restructuring plan focused on
facility consolidations and a workforce reduction. The following table details
the components of the restructuring charge:
YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------------------------
1999 2000 2001
- ----------------------------------------------------------------------------------------------
Employee termination costs $ -- $ -- $ 90.7
Lease and other contractual obligations -- -- 35.3
Facility exit costs and other -- -- 12.4
Asset impairment (non-cash) -- -- 98.6
- ----------------------------------------------------------------------------------------------
$ -- $ -- $ 237.0
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
The following table details the activity in the accrued restructuring liability:
LEASE AND
EMPLOYEE OTHER FACILITY
TERMINATION CONTRACTUAL EXIT COSTS
COSTS OBLIGATIONS AND OTHER TOTAL
- --------------------------------------------------------------------------------------
Balance at January 1, 2001 $ -- $ -- $ -- $ --
Provision 90.7 35.3 12.4 138.4
Cash payment (51.2) (1.6) (2.9) (55.7)
- --------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001 $ 39.5 $ 33.7 $ 9.5 $ 82.7
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Employee terminations were made across all geographic regions of the Company
with the majority pertaining to manufacturing and plant employees. A total of
12,041 employees have been identified to be terminated, of which 9,711 employees
were terminated during 2001. The remaining termination costs are expected to be
paid out during 2002.
The non-cash charges for asset impairment reflects the write-down of certain
long-lived assets across all geographic regions that have become impaired as a
result of the rationalization of facilities. The asset impairments relate to
goodwill and intangible assets, machinery and equipment, buildings and
improvements. The assets were written down to their recoverable amounts using
estimated cash flows.
The Company expects to complete the major components of the restructuring plan
by the end of 2002, except for certain long-term lease contractual obligations.
(b) OTHER:
In 2001, the Company recorded a non-cash charge of $36.1. This is comprised of a
write-down of the carrying value of certain assets, primarily goodwill and
intangible assets.
14. INCOME TAXES:
YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------------------------
1999 2000 2001
- ----------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAX:
Canadian operations $ 84.8 $ 179.4 $ 34.7
Foreign operations 19.6 96.5 (76.6)
- ----------------------------------------------------------------------------------------------
$ 104.4 $ 275.9 $ (41.9)
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
CURRENT INCOME TAX EXPENSE:
Canadian operations $ 25.4 $ 51.2 $ 17.2
Foreign operations 5.3 28.9 8.6
- ----------------------------------------------------------------------------------------------
$ 30.7 $ 80.1 $ 25.8
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
DEFERRED INCOME TAX EXPENSE (RECOVERY):
Canadian operations $ 14.4 $ 33.0 $ (5.4)
Foreign operations (9.1) (43.9) (22.5)
- ----------------------------------------------------------------------------------------------
$ 5.3 $ (10.9) $ (27.9)
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
The overall income tax provision differs from the provision computed at the
statutory rate as follows:
YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------------------------
1999 2000 2001
- ----------------------------------------------------------------------------------------------
Combined Canadian federal and provincial income tax rate 44.6% 44.0% 42.1%
- ----------------------------------------------------------------------------------------------
Income taxes (recovery) based on earnings (loss) before
income taxes at statutory rates $ 46.6 $ 121.4 $ (17.7)
Increase (decrease) resulting from:
Manufacturing and processing deduction (8.1) (17.7) (5.0)
Foreign income taxed at lower rates (11.4) (43.9) (2.9)
Amortization of non-deductible costs 9.5 8.9 15.4
Other, including large corporations tax (0.6) 0.5 8.1
- ----------------------------------------------------------------------------------------------
Income tax expense (recovery) $ 36.0 $ 69.2 $ (2.1)
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
38 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
Deferred income taxes are recognized for future income tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their tax bases. Deferred tax assets and
liabilities are comprised of the following as at December 31, 2000 and 2001:
2000 2001
- --------------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Income tax effect of net operating losses carried forward $ 52.5 $ 51.9
Accounting provisions not currently deductible 21.6 63.5
Capital, intangible and other assets 6.7 17.0
Share issue and convertible debt issue costs 23.0 17.2
Other 1.8 4.5
- --------------------------------------------------------------------------------------
Total deferred tax assets 105.6 154.1
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Capital, intangible and other assets (12.4) (37.7)
Deferred pension asset (8.9) (9.1)
Other (0.8) (4.5)
- --------------------------------------------------------------------------------------
Total deferred tax liabilities (22.1) (51.3)
- --------------------------------------------------------------------------------------
Deferred income tax asset, net $ 83.5 $ 102.8
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Celestica has been granted tax incentives, including tax holidays, for its Czech
Republic, China, Malaysia, Thailand and Singapore subsidiaries. These tax
incentives expire between 2002 and 2012, and are subject to certain conditions
with which the Company expects to comply.
As at December 31, 2001, the Company had $340.0 of non-capital (net operating)
losses, the income tax benefits of which have been recognized in the financial
statements. A portion of these losses have an indefinite carry-forward period.
The other portion of these losses will expire over a 20-year period commencing
in 2005.
The Company also has net capital losses amounting to $11.5, and has recognized
the benefit of these losses in the financial statements.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
the character of the tax asset and tax planning strategies in making this
assessment. In order to fully realize the deferred tax assets, the Company will
need to generate future taxable income of approximately $295.0. Based upon
projections of future taxable income over the periods in which the deferred tax
assets are deductible, management believes that it is more likely than not that
the Company will realize the benefits of these assets.
15. RELATED PARTY TRANSACTIONS:
In 2001, the Company expensed acquisition and management related fees of $2.1
(2000 - $2.1; 1999 - $2.0) and capitalized acquisition related fees of $Nil
(2000 - $0.5; 1999 - $Nil) charged by its parent company. Management believes
that the fees charged were reasonable in relation to the services provided.
16. PENSION AND NON-PENSION POST-RETIREMENT BENEFIT PLANS:
The Company provides various pension and non-pension post-retirement benefit
plans for its employees. Non-pension post-retirement benefits are available to
all Company retirees. The benefits include medical, surgical, hospitalization
coverage, supplemental health, dental and group life insurance. Certain
employees participate in defined benefit plans; all other employees participate
in defined contribution plans.
The following information is provided with respect to the defined contribution
plans:
YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------------------------
1999 2000 2001
- ----------------------------------------------------------------------------------------------
Period cost, plans providing pension benefits $ 8.6 $ 12.8 $ 18.9
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
For the defined benefit pension plans, actuarial estimates are based on
projections of employees' compensation levels at the time of retirement. Maximum
retirement benefits are based upon the employees' best three consecutive years'
earnings. The Company has funded the plans over the past four years based on
actuarial calculations to maintain the plans on a fully funded basis. The most
recent actuarial valuations were completed as at March and April 2000 and
January 2001. The Company accrues the expected costs of providing non-pension,
post-retirement benefits during the periods in which the employees render
service.
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
The estimated present value of accrued plan benefits and the estimated market
value of the net assets available to provide for these benefits at December 31,
2000 and 2001 are as follows:
PENSION PLANS OTHER BENEFIT PLANS
- ------------------------------------------------------------------------------------------------------
2000 2001 2000 2001
- ------------------------------------------------------------------------------------------------------
Plan assets, at fair value $ 188.6 $ 174.5 $ -- $ --
Projected benefit obligations 170.3 179.1 47.7 56.4
- ------------------------------------------------------------------------------------------------------
Excess (deficit) of plan assets over projected
benefit obligations 18.3 (4.6) (47.7) (56.4)
Unamortized past service costs -- -- 4.3 4.1
Unrecognized net loss from past experience
and effects of changes in assumptions 9.7 33.6 5.3 5.0
Foreign currency exchange rate changes (2.2) (0.6) -- --
- ------------------------------------------------------------------------------------------------------
Deferred amount $ 25.8 $ 28.4 $ (38.1) $ (47.3)
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
The Company has one pension plan with accumulated benefit obligations in excess
of plan assets. This plan has an accumulated benefit obligation of $114.2 and
plan assets of $95.1.
The Company continues to make contributions to support ongoing plan obligations.
These contributions have been included in the deferred pension amount on the
consolidated balance sheets.
Pension fund assets consist primarily of fixed income and equity securities,
valued at market value. The following information is provided on pension fund
assets:
PENSION PLANS
- ----------------------------------------------------------------------------
2000 2001
- ----------------------------------------------------------------------------
Opening plan assets $ 191.1 $ 188.6
Actual return on plan assets 1.5 (13.1)
Foreign currency exchange rate changes (11.1) (8.0)
Contributions by employees 2.1 2.1
Contributions by employer 7.5 10.1
Benefits paid (2.5) (5.2)
- ----------------------------------------------------------------------------
$ 188.6 $ 174.5
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Vested benefit obligations $ 100.6 $ 174.6
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Accumulated benefit obligations $ 143.2 $ 174.6
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
There are no assets recorded for the other benefit plans.
Projected benefit obligations are outlined below:
PENSION PLANS OTHER BENEFIT PLANS
- ------------------------------------------------------------------------------------------------------
2000 2001 2000 2001
- ------------------------------------------------------------------------------------------------------
Opening projected benefit obligations $ 147.3 $ 170.3 $ 17.5 $ 47.7
Service cost 7.5 8.6 1.5 7.6
Interest cost 10.6 11.3 1.5 2.0
Benefits paid (2.5) (5.2) (0.2) (3.8)
Actuarial gains and losses 7.3 -- 0.4 4.6
Plan amendments -- 1.9 0.7 --
Acquisitions -- -- 26.3 1.1
Changes in assumptions 7.4 (1.9) 0.5 (1.4)
Foreign currency exchange rate changes (7.3) (5.9) (0.5) (1.4)
- ------------------------------------------------------------------------------------------------------
$ 170.3 $ 179.1 $ 47.7 $ 56.4
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
40 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
Net plan expense is outlined below:
- -------------------------------------------------------------------------------------------------------------------
PENSION PLANS OTHER BENEFIT PLANS
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------------------------------------------
1999 2000 2001 1999 2000 2001
- -------------------------------------------------------------------------------------------------------------------
Plan cost:
Service cost - benefits earned $ 6.5 $ 7.5 $ 8.6 $ 1.2 $ 1.5 $ 7.6
Interest cost on projected benefit
obligations 9.0 10.6 11.3 1.1 1.5 2.0
Actual return on plan assets (30.0) (1.5) 13.1 -- -- --
Amortization of past service costs -- 2.4 (5.8) -- -- --
Net amortization and deferral 18.6 (15.0) (21.4) 1.4 0.3 0.8
- -------------------------------------------------------------------------------------------------------------------
$ 4.1 $ 4.0 $ 5.8 $ 3.7 $ 3.3 $ 10.4
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Actuarial assumptions (percentages):
Weighted average discount rate for
projected benefit obligations 6.0 - 6.5 6.5 - 7.0 5.8 - 7.8 6.5 - 8.0 7.0 - 8.0 7.0 - 7.8
Weighted average rate of
compensation increase 3.5 - 4.0 4.0 4.5 4.5 4.5 4.5
Weighted average expected long-term
rate of return on plan assets 7.5 7.3 - 7.5 7.3 - 7.8 -- -- --
Health care cost trend rate -- -- -- 5.1 - 7.4 5.1 - 6.8 3.5 - 8.0
A one-percentage point increase and decrease in the assumed healthcare cost
trend rate would increase by $0.9 and decrease by $0.7 the service cost and
increase by $5.1 and decrease by $4.0 the accumulated obligation for other
benefit plans for the year ended December 31, 2001.
17. FINANCIAL INSTRUMENTS:
FAIR VALUES:
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
(a) The carrying amounts of cash, short-term investments, accounts
receivable, accounts payable and accrued liabilities approximate fair value due
to the short-term nature of these instruments.
(b) The fair values of the Company's long-term debt, including the current
portion thereof, is estimated based on the current trading value, where
available, or with reference to similarly traded instruments with similar terms.
(c) The fair values of foreign currency contract obligations are estimated
based on the current trading value, as quoted by brokers active in these
markets.
The carrying amounts and fair values of the Company's financial instruments,
where there are differences at December 31, 2000 and 2001, are as follows:
DECEMBER 31, 2000 DECEMBER 31, 2001
- --------------------------------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
Senior Subordinated Notes and other long-term debt $ 130.0 $ 135.2 $ 143.0 $ 149.5
Foreign currency contracts - asset (liability) -- 7.5 -- (7.4)
DERIVATIVES AND HEDGING ACTIVITIES:
The Company has entered into foreign currency contracts to hedge foreign
currency risk relating to cash flow exposures. The Company's forward exchange
contracts do not subject the Company to risk from exchange rate movements
because gains and losses on such contracts offset losses and gains on
transactions being hedged. The counterparties to the contracts are multinational
commercial banks and therefore the credit risk of counterparty non-performance
is remote. As at December 31, 2001, the Company had outstanding foreign exchange
contracts to sell $379.5 in exchange for Canadian dollars over a period of 17
months at a weighted average exchange rate of U.S. $0.65. In addition, the
Company had exchange contracts to sell $191.8 in exchange for Euros over a
period of 15 months at a weighted average exchange rate of U.S. $0.88, $56.6 in
exchange for British pounds sterling over a period of 15 months at a weighted
average exchange rate of U.S. $1.40, $46.3 in exchange for Mexican pesos over a
period of 12 months at a weighted average exchange rate of U.S. $0.10, $24.2 in
exchange for Thailand baht over a period of 12 months at a weighted average
exchange rate of U.S. $0.02 and $6.4 in exchange for Czech koruna over a period
of 12 months at a weighted average exchange rate of U.S. $0.03. At December 31,
2001, these contracts had a fair value liability of $7.4 (2000 - asset of $7.5).
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
CONCENTRATION OF RISK:
The Company is a turnkey manufacturer of sophisticated electronics for original
equipment manufacturers engaged in the electronics manufacturing industry.
Financial instruments that potentially subject the Company to concentrations of
credit risk are primarily inventory repurchase obligations of customers,
accounts receivable and cash equivalents. The Company performs ongoing credit
evaluations of its customers' financial conditions. In certain instances, the
Company obtains letters of credit from its customers. The Company considers its
concentrations of credit risk in determining its estimates of reserves for
potential credit losses. The Company maintains cash and cash equivalents in high
quality short-term investments or on deposit with major financial institutions.
18. COMMITMENTS AND CONTINGENCIES:
The Company has operating leases and license commitments that require future
payments as follows:
OPERATING LICENSE
LEASES COMMITMENTS TOTAL
- --------------------------------------------------------------------------------
2002 $ 103.5 $ 0.6 $ 104.1
2003 81.3 - 81.3
2004 38.0 - 38.0
2005 26.4 - 26.4
2006 20.4 - 20.4
THEREAFTER 89.2 - 89.2
- --------------------------------------------------------------------------------
Contingent liabilities in the form of letters of credit and guarantees,
including guarantees of employee share purchase loans, amounted to $24.1 at
December 31, 2001 (2000 - $12.0).
In the normal course of operations the Company may be subject to litigation and
claims from customers, suppliers and former employees. Management believes that
adequate provisions have been recorded in the accounts where required. Although
it is not possible to estimate the extent of potential costs, if any, management
believes that the ultimate resolution of such contingencies would not have a
material adverse effect on the financial position of the Company.
19. SIGNIFICANT CUSTOMERS:
During 2001, three customers individually comprised 23%, 21% and 11% of total
revenue across all geographic segments. At December 31, 2001, two customers
represented 14% and 26% of total accounts receivable.
During 2000, two customers individually comprised 25% and 21% of total revenue
across all geographic segments. At December 31, 2000, two customers represented
21% and 26% of total accounts receivable.
During 1999, three customers individually comprised 25%, 18% and 12% of total
revenue across all geographic segments. At December 31, 1999, two customers
represented 14% and 15% of total accounts receivable.
20. 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, income taxes, amortization of intangible assets,
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 (loss) before amortization of intangible assets,
integration costs related to acquisitions and other charges, net of related
income taxes. Inter-segment transactions are reflected at market value.
The following is a breakdown of: revenue; EBIAT, adjusted net earnings (which is
after income taxes); capital expenditures; total assets; intangible assets; and
capital assets by operating segment. Certain comparative information has been
restated to reflect changes in the management of operating segments.
42 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
YEAR ENDED DECEMBER 31
- ------------------------------------------------------------------------------------------
1999 2000 2001
- ------------------------------------------------------------------------------------------
REVENUE
Americas $ 3,587.5 $ 6,542.7 $ 6,334.6
Europe 1,108.6 2,823.3 3,001.3
Asia 710.2 871.6 991.1
Elimination of inter-segment revenue (109.1) (485.5) (322.6)
- ------------------------------------------------------------------------------------------
$ 5,297.2 $ 9,752.1 $10,004.4
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
- ------------------------------------------------------------------------------------------
1999 2000 2001
- ------------------------------------------------------------------------------------------
EBIAT
Americas $ 114.2 $ 200.1 $ 192.9
Europe 42.8 121.1 128.5
Asia 23.3 40.7 49.7
- ------------------------------------------------------------------------------------------
180.3 361.9 371.1
Interest, net (10.7) 19.0 7.9
Amortization of intangible assets (55.6) (88.9) (125.0)
Integration costs related to acquisitions (9.6) (16.1) (22.8)
Other charges -- -- (273.1)
- ------------------------------------------------------------------------------------------
Earnings (loss) before income taxes $ 104.4 $ 275.9 $ (41.9)
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Adjusted net earnings $ 123.0 $ 304.1 $ 320.6
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
- ------------------------------------------------------------------------------------------
1999 2000 2001
- ------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES
Americas $ 138.0 $ 154.0 $ 107.9
Europe 29.1 86.9 55.4
Asia 44.7 41.9 36.0
- ------------------------------------------------------------------------------------------
$ 211.8 $ 282.8 $ 199.3
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
AS AT DECEMBER 31
- ------------------------------------------------------------------------------------------
2000 2001
- ------------------------------------------------------------------------------------------
TOTAL ASSETS
Americas $ 3,444.6 $ 3,408.2
Europe 1,904.7 1,626.3
Asia 588.7 1,598.4
- ------------------------------------------------------------------------------------------
$ 5,938.0 $ 6,632.9
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
INTANGIBLE ASSETS
Americas $ 307.8 $ 516.4
Europe 196.6 165.6
Asia 73.9 874.0
- ------------------------------------------------------------------------------------------
$ 578.3 $ 1,556.0
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
CAPITAL ASSETS
Americas $ 327.0 $ 468.0
Europe 216.0 279.1
Asia 90.4 168.0
- ------------------------------------------------------------------------------------------
$ 633.4 $ 915.1
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
The following table details the Company's external revenue allocated by
manufacturing location among foreign countries exceeding 10%:
YEAR ENDED DECEMBER 31
- ------------------------------------------------------------------------------------------
1999 2000 2001
- ------------------------------------------------------------------------------------------
REVENUE
Canada 43% 28% 20%
United States 22% 30% 35%
Italy -- 10% 13%
United Kingdom 19% 17% 11%
21. SUBSEQUENT EVENT:
In January 2002, the Company entered into an agreement with NEC Corporation to
purchase certain manufacturing assets in Miyagi and Yamanashi, Japan. This
acquisition is expected to close in the first quarter of 2002.
22. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES:
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles ("GAAP") as applied in
Canada. The significant differences between Canadian and United States GAAP and
their effect on the consolidated financial statements of the Company are
described below:
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS):
The following table reconciles net earnings (loss) as reported in the
accompanying consolidated statements of earnings (loss) to net earnings (loss)
that would have been reported had the consolidated financial statements been
prepared in accordance with United States GAAP:
YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------------------------
1999 2000 2001
- --------------------------------------------------------------------------------------------------------------
Net earnings (loss) in accordance with Canadian GAAP $ 68.4 $ 206.7 $ (39.8)
Compensation expense (a) (1.9) (2.5) (3.2)
Interest expense on convertible debt, net of tax of $9.5 (2000 - $3.8) (b) -- (6.8) (17.7)
Other charges (c) -- -- (2.7)
Gain on foreign exchange contract, net of tax of $3.6 (d) -- -- 12.1
- --------------------------------------------------------------------------------------------------------------
Net earnings (loss) in accordance with United States GAAP $ 66.5 $ 197.4 $ (51.3)
Other comprehensive income:
Cumulative effect of a change in accounting policy, net of tax of $1.9 (e) -- -- 5.6
Net loss on derivatives designated as hedges, net of tax of $3.2 (e) -- -- (11.7)
Minimum pension liability, net of tax of $6.4 (f) -- -- (14.9)
Foreign currency translation adjustment (3.5) -- 1.2
- --------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) in accordance with United States GAAP $ 63.0 $ 197.4 $ (71.1)
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
The following table sets forth the computation of United States GAAP basic and
diluted earnings (loss) per share:
YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------------------------
1999 2000 2001
- --------------------------------------------------------------------------------------------------------------
Earnings (loss) available to shareholders - basic $ 66.5 $ 197.4 $ (51.3)
Add: Interest expense on convertible debt, net of tax -- 6.8 17.7
- --------------------------------------------------------------------------------------------------------------
Earnings (loss) available to shareholders - diluted $ 66.5 $ 204.2 $ (33.6)
Weighted average shares - basic (in millions) 167.2 199.8 213.9
Weighted average shares - diluted (in millions) (1) 171.2 211.8 213.9
Basic earnings (loss) per share $ 0.40 $ 0.99 $ (0.24)
Diluted earnings (loss) per share $ 0.39 $ 0.96 $ (0.24)
(1) For 2001, excludes the effect of options and convertible debt as they are
anti-dilutive due to the loss.
44 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
The cumulative effect of these adjustments on shareholders' equity of the
Company is as follows:
AS AT DECEMBER 31
- --------------------------------------------------------------------------------------------------------------
1999 2000 2001
- --------------------------------------------------------------------------------------------------------------
Shareholders' equity in accordance with Canadian GAAP $ 1,658.2 $ 3,469.3 $ 4,745.6
Compensation expense (a) (8.1) (10.6) (13.8)
Capital stock (a) 6.1 8.6 11.8
Interest expense on convertible debt, net of tax (b) -- (6.8) (24.5)
Convertible debt (b) -- (860.5) (886.8)
Convertible debt accretion, net of tax (b) -- 5.4 20.4
Other charges (c) -- -- (2.7)
Gain on foreign exchange contract, net of tax (d) -- -- 12.1
Net loss on cash flow hedges (e) -- -- (6.1)
Minimum pension liability, net of tax (f) -- -- (14.9)
- --------------------------------------------------------------------------------------------------------------
Shareholders' equity in accordance with United States GAAP $ 1,656.2 $ 2,605.4 $ 3,841.1
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
(a) In 1998, the Company amended the vesting provisions of 6.2 million employee
stock options issued in 1997 and 1998. Under the previous vesting provisions,
such options vested based on the achievement of earnings targets. A portion of
these options now vest over a specified time period and the balance vested on
completion of the initial public offering in 1998. Under United States GAAP,
this amendment required a new measurement date for purposes of accounting for
compensation expense, resulting in a charge equal to the aggregate difference
between the fair value of the underlying subordinate voting shares at the date
of the amendment and the exercise price for such options. As a result, under
United States GAAP the Company has and will record an aggregate $15.6 non-cash
stock compensation charge to be reflected in earnings and capital stock over the
vesting period as follows: 1998 - $4.2; 1999 - $1.9; 2000 - $2.5; 2001 - $3.2;
2002 - $3.8. No similar charge is required to be recorded by the Company under
Canadian GAAP.
(b) Under Canadian GAAP, the Company recorded the convertible debt as an equity
instrument and recorded accretion charges to retained earnings. Under United
States GAAP, the convertible debt was recorded as a long-term liability and
accordingly, the Company recorded the accretion charges and amortization of debt
issue costs to interest expense.
(c) In 2001, the Company recorded a charge to write-down goodwill, which was
measured using undiscounted cash flows. United States GAAP requires the use of
discounted cash flows, resulting in an additional charge of $2.7.
(d) In 2001, the Company entered into a forward exchange contract to hedge
the cash portion of the purchase price for the Omni acquisition. The
transaction does not qualify for hedge accounting treatment under SFAS No.
133 which specifically precludes hedges of forecasted business combinations.
As a result, the gain on the exchange contract of $15.7, less tax of $3.6, is
recognized in income for United States GAAP. For Canadian GAAP, the gain on
the contract was included in the cost of the acquisition, resulting in a
goodwill value that is $15.7 lower for Canadian GAAP than United States GAAP.
(e) The Financial Accounting Standards Board (FASB) has issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 138
which amends SFAS No. 133. SFAS No. 133 establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. The standard requires that all
derivatives be recorded on the balance sheet at fair value. The Company has
implemented SFAS No. 133 for 2001 for purposes of the United States GAAP
reconciliation. The Company enters into forward exchange contracts to hedge
certain forecasted cash flows. The contracts are for periods consistent with the
forecasted transactions. All relationships between hedging instruments and
hedged items, as well as risk management objectives and strategies, are
documented. Changes in the spot value of the foreign currency contracts that are
designated, effective and qualify as cash flow hedges of forecasted transactions
are reported in accumulated other comprehensive income and are reclassified into
the same component of earnings and in the same period as the hedged transaction
is recognized. Accordingly, on January 1, 2001, the Company recorded an asset in
the amount of $7.5 and a corresponding credit to other comprehensive income as a
cumulative effect type adjustment to reflect the initial mark-to-market on the
foreign currency contracts pursuant to United States GAAP. At December 31, 2001,
the Company has recorded a liability of $7.4 and has recorded the corresponding
adjustments to other comprehensive income and earnings. It is expected that $7.0
of net losses reported in accumulated other comprehensive income will be
reclassified into earnings during the period ended December 31, 2002. Under
Canadian GAAP, the derivative instruments are not marked to market and the
related, off-balance sheet gains and losses are recognized in earnings in the
same period as the hedged transactions.
(f) Under United States GAAP, the Company is required to record an additional
minimum pension liability for one of its plans to reflect the excess of the
accumulated benefit obligations over the fair value of the plan assets. Other
comprehensive income has been charged with $14.9, net of tax of $6.4. No such
adjustments are required under Canadian GAAP.
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars, except
per share amounts)
OTHER DISCLOSURES REQUIRED UNDER UNITED STATES GAAP:
(a) Stock based compensation:
The Company measures compensation costs related to stock options granted to
employees using the intrinsic value method as prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" as permitted by SFAS No. 123.
However, SFAS No. 123 does require the disclosure of pro forma net earnings
(loss) and earnings (loss) per share information as if the Company had accounted
for its employee stock options under the fair value method prescribed by SFAS
No. 123. Accordingly, the fair value of the options issued was determined using
the Black-Scholes option pricing model with the following assumptions: risk-free
rate of 5.4% (2000 - 5.4%; 1999 - 5%), dividend yield of 0%, a volatility factor
of the expected market price of the Company's shares of 70% (2000 - 70%; 1999 -
47%); and a weighted-average expected option life of 7.5 years in 2001 (2000 -
7.5 years; 1999-5 years). The weighted-average grant date fair values of options
issued in 2001 was $34.31 per share (2000 - $40.49 per share; 1999 - $10.24 per
share). For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to income over the vesting period. For the year ended
December 31, 2001, the Company's United States GAAP pro forma loss is $97.1 and
basic loss per share is $0.45 (2000 - earnings of $176.2 and $0.88 per share;
1999 - earnings of $52.3 and $0.31 per share).
(b) Accumulated other comprehensive income (loss):
YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------------------------
1999 2000 2001
- --------------------------------------------------------------------------------------------------------------
Opening balance of accumulated net gain on cash flow hedges $ -- $ -- $ --
Cumulative effect of a change in accounting policy, net of tax (e) -- -- 5.6
Net loss on derivatives designated as hedges (e) -- -- (11.7)
- --------------------------------------------------------------------------------------------------------------
Closing balance of accumulated net loss on cash flow hedges -- -- (6.1)
Opening balance of foreign currency translation account (0.6) (4.1) (4.1)
Foreign currency translation gain (loss) (3.5) -- 1.2
- --------------------------------------------------------------------------------------------------------------
Closing balance of foreign currency translation account (4.1) (4.1) (2.9)
Minimum pension liability, net of tax (f) -- -- (14.9)
- --------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive loss $ (4.1) $ (4.1) $ (23.9)
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
(c) Under United States GAAP, the subtotal "cash from earnings" would be
excluded from the consolidated statements of cash flows.
(d) New United States accounting pronouncements:
In July 2001, the FASB issued Statement No. 141, "Business Combinations," and
Statement No. 142, "Goodwill and Intangible Assets." These statements are
substantially consistent with CICA Sections 1581 and 3062 (refer to note 2(n))
except that under United States GAAP, any transitional impairment charge is
recognized in earnings as a cumulative effect of a change in accounting
principle. Under Canadian GAAP, the cumulative adjustment is recognized in
opening retained earnings.
In October 2001, FASB issued Statement No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets," which retains the fundamental provisions
of SFAS 121 for recognizing and measuring impairment losses of long-lived
assets other than goodwill. Statement 144 also broadens the definition of
discontinued operations to include all distinguishable components of an
entity that will be eliminated from ongoing operations. This Statement is
effective for the Company's fiscal year commencing January 1, 2002, to be
applied prospectively. In August 2001, SFAS 143, "Accounting for Asset
Retirement Obligations" was approved and requires that the fair value of an
asset retirement obligation be recorded as a liability, at fair value, in the
period in which the Company incurs the obligation. SFAS 143 is effective for
the Company's fiscal year commencing January 1, 2003. The Company expects the
adoption of these standards will have no material impact on its financial
position, results of operations or cash flows.
46 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
SHARE INFORMATION
SHARE INFORMATION
shares and options outstanding at December 31, 2001 (in millions)
- -------------------------------------------------------------------------------
Subordinate Voting Shares (NYSE, TSE) 190.6
Multiple Voting Shares 39.1
- -------------------------------------------------------------------------------
Shares issued and outstanding 229.7
Shares for Convertible Debt 10.3
Employee Stock Options 23.9
- -------------------------------------------------------------------------------
institutional/retail split
- ---------------------------------
institutional 76%
retail 24%
- ---------------------------------
Source: Celestica estimates, Thomson Financial
global ownership
- ---------------------------------
U.S./International 80%
Canada 20%
- ---------------------------------
Source: Celestica estimates, Thomson Financial
average daily trading volumes
- ----------------------------------------------------------
(in millions) 1998 1999 2000 2001
NYSE 0.3 0.4 1.1 2.4
TSE 0.5 0.6 0.8 1.3
- ----------------------------------------------------------
Source: Bloomberg
total volumes traded
- ----------------------------------------------------------
(in millions) 1998 1999 2000 2001
NYSE 22 116 315 702
TSE 34 143 202 408
- ----------------------------------------------------------
Source: Bloomberg
top 20 CLS broker volumes
(VOLUME MILLIONS) (VOLUME MILLIONS)
- ------------------------------------------------------------------------------------------------------------
1 Banc of America Securities 97.3 11 Goldman Sachs 27.4
2 Salomon Smith Barney 80.6 12 Credit Suisse First Boston 27.0
3 Merrill Lynch 65.7 13 JP Morgan H&Q 24.7
4 Morgan Stanley 65.1 14 UBS Warburg 23.2
5 ABN-AMRO 46.7 15 Yorkton Securities 21.1
6 CIBC World Markets 41.7 16 TD Securities 20.8
7 National Bank Financial 41.6 17 Knight/Trimark Group 19.0
8 Lehman Brothers 35.7 18 Robertson Stephens 18.2
9 Royal Bank Financial 33.7 19 Thomas Weisel 11.2
10 BMO Nesbitt Burns 33.6 20 Bear Stearns 11.0
- ------------------------------------------------------------------------------------------------------------
Source: AutEx/BlockDATA, Toronto Stock Exchange. NYSE and TSE combined totals.
48 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
SHARE INFORMATION
RESEARCH BANKING
FIRM COVERAGE RELATIONSHIP*
- -----------------------------------------------------------------
1 ABN AMRO o o
- -----------------------------------------------------------------
2 A.G. Edwards & Sons o
- -----------------------------------------------------------------
3 Banc of America Securities o o
- -----------------------------------------------------------------
4 Bank of Tokyo-Mitsubishi o
- -----------------------------------------------------------------
5 Bear Stearns o
- -----------------------------------------------------------------
6 BMO Nesbitt Burns o o
- -----------------------------------------------------------------
7 Canaccord Capital o
- -----------------------------------------------------------------
8 CIBC World Markets o o
- -----------------------------------------------------------------
9 Credit Suisse First Boston o o
- -----------------------------------------------------------------
10 Deutsche Banc Alex. Brown o o
- -----------------------------------------------------------------
11 Dlouhy Merchant o
- -----------------------------------------------------------------
12 Edward Jones o
- -----------------------------------------------------------------
13 Goldman, Sachs & Co. o o
- -----------------------------------------------------------------
14 Griffiths, McBurney & Partners o
- -----------------------------------------------------------------
15 JP Morgan H & Q o o
- -----------------------------------------------------------------
16 Lehman Brothers o
- -----------------------------------------------------------------
17 McDonald Investments o
- -----------------------------------------------------------------
18 Merrill Lynch o o
- -----------------------------------------------------------------
19 Midwest Research o
- -----------------------------------------------------------------
20 Morgan Stanley Dean Witter o o
- -----------------------------------------------------------------
21 National Bank Financial o o
- -----------------------------------------------------------------
22 Needham and Company o
- -----------------------------------------------------------------
23 Paradigm Capital o
- -----------------------------------------------------------------
24 Prudential Securities o
- -----------------------------------------------------------------
25 Raymond James o
- -----------------------------------------------------------------
26 RBC Capital Markets o o
- -----------------------------------------------------------------
27 Robertson Stephens o o
- -----------------------------------------------------------------
28 Royal Bank of Scotland o
- -----------------------------------------------------------------
29 Salomon Smith Barney o o
- -----------------------------------------------------------------
30 Scotia Capital o o
- -----------------------------------------------------------------
31 SoundView Technology Group o
- -----------------------------------------------------------------
32 Sprott Securities o
- -----------------------------------------------------------------
33 TD Newcrest o o
- -----------------------------------------------------------------
34 Thomas Weisel Partners o
- -----------------------------------------------------------------
35 Yorkton Securities o
- -----------------------------------------------------------------
* Has earned fees in the past for financial services provided to Celestica.
CELESTICA INC. PUBLIC CREDIT RATINGS
STANDARD & POOR'S
Corporate credit rating BB+
Subordinated notes rating BB-
Bank loan rating BB+
Outlook Stable
MOODY'S INVESTOR SERVICE
Senior implied rating Ba1
Subordinated notes rating Ba2
Bank loan rating Ba1
Outlook Stable
AUDIT AND NON-AUDIT FEES
The Company's auditors are KPMG LLP. In 2001, KPMG LLP billed the Company $1.5
million for the audit of the Company`s annual financial statements and $2.9
million for tax, audit-related and other services. KPMG LLP did not provide any
financial information systems design and implementation services to the Company.
The audit committee of the Company's board of directors has considered that the
provision of the non-audit services is compatible with maintaining KPMG's
independence.
The Company also used other public accounting firms for consulting and other
services totalling $3.1 million.
CORPORATE INFORMATION
ANNUAL MEETING
The 2001 annual meeting of Celestica shareholders will be held at 10:00 a.m.
Eastern Standard Time, April 17, 2002 at:
Imperial Room
Fairmont Royal York Hotel
100 Front Street
Toronto, Ontario
Canada M5J 1E3
HEAD OFFICE
CELESTICA INC.
12 Concorde Place, 8th Floor
Toronto, Ontario
Canada M3C 3R8
WEB SITE
http://www.celestica.com
AUDITORS
KPMG LLP
Yonge Corporate Centre
4120 Yonge Street, Suite 500
Toronto, Ontario
Canada M2P 2B8
TRANSFER AGENTS AND REGISTRAR
SUBORDINATE VOTING SHARES
CANADA:
Computershare Trust Company
of Canada
100 University Avenue, 9th Floor
Toronto, Ontario M5J 2Y1
Tel: 1-800-663-9097
Fax: 416-644-3804
U.S.:
Computershare Trust Company, Inc.
12039 West Alameda Parkway
Lakewood, Colorado
80228
USA
Tel: 303-986-5400
Fax: 303-986-2444
INVESTOR RELATIONS
CELESTICA INVESTOR RELATIONS
12 Concorde Place, 8th Floor
Toronto, Ontario
Canada M3C 3R8
Tel: 416-448-2211
Fax: 416-448-2280
E-mail: clsir@celestica.com
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 49
DIRECTORS
EUGENE V. POLISTUK
Eugene V. Polistuk is the founder, Chairman of the Board of Directors and Chief
Executive Officer of Celestica. He has been the Chief Executive Officer of
Celestica since its establishment in 1994, and was the company's President until
February 2001.
Since 1986, Mr. Polistuk has been instrumental in charting Celestica's
transformation and executing the company's successful evolution from its early
history as an operating unit with IBM, to a standalone company, to a US$10
billion public company and leader in the electronics manufacturing services
industry. Previously, Mr. Polistuk spent 25 years with IBM Canada where, over
the course of his career, he managed all key functional areas of the business.
Mr. Polistuk holds a Bachelor of Applied Science degree in Electrical
Engineering from the University of Toronto and a Doctor of Engineering (Hon.)
from Ryerson University. His vision and leadership have been consistently
acknowledged by both industry and his peers. In 1994, he was presented with the
'2T5 Meritorious Service Medal' in recognition of his meritorious service in and
for the profession, by his peers in the University of Toronto Engineering Alumni
Association. He has been the recipient of ELECTRONIC BUSINESS' Outstanding CEO
award, and most recently, under Mr. Polistuk's leadership, Celestica has been
recognized as the number one ranking company on BUSINESSWEEK's 2001 InfoTech
100 list, and as CANADIAN BUSINESS' Company of the Year in the publication's
2001 Tech 100 issue.
ANTHONY P. PUPPI
Anthony P. Puppi has been the Chief Financial Officer of Celestica since
its establishment and a director of Celestica since October 1996. He was
appointed Executive Vice President in October 1999 and General Manager, Global
Services in January 2001. Mr. Puppi is responsible for Celestica's global
financial activities, as well as a number of global service businesses,
including design, repair and power systems. From 1980 to 1992, he held positions
of increasing financial management responsibility with IBM Canada. Mr. Puppi
holds a Bachelor of Business Administration degree in Finance and a Master of
Business Administration degree from York University.
ROBERT L. CRANDALL
Robert L. Crandall is the retired Chairman of the Board and Chief Executive
Officer of AMR Corporation/American Airlines Inc. Mr. Crandall has been a
director of Celestica since July 1998. He is also a director of Allied World
Assurance Company, Anixter International Inc., Clear Channel Communications
Inc., the Halliburton Company, and i2 Technologies Inc. He also serves on the
International Advisory Board of American International Group Inc. Mr. Crandall
holds a Bachelor of Science degree from the University of Rhode Island and a
Master of Business Administration degree from the Wharton School of the
University of Pennsylvania.
WILLIAM A. ETHERINGTON
William A. Etherington is the former Senior Vice President and Group Executive,
Sales and Distribution, IBM Corporation and Chairman, President and Chief
Executive Officer of IBM World Trade Corporation. Mr. Etherington has been a
director of Celestica since October 2001. After joining IBM Canada in 1964, Mr.
Etherington ran successively larger portions of the company's business in
Canada, Latin America, Europe and from the corporate office in Armonk, New York.
He retired from IBM after a 37-year career. Mr. Etherington holds a Bachelor of
Science in Electrical Engineering and a Doctor of Laws (Hon.) degree from the
University of Western Ontario.
MARK L. HILSON
Mark L. Hilson is a Vice President of Onex and has acted as a director of
Celestica since 1996. Mr. Hilson joined Onex in 1988 and was appointed Vice
President in 1993. Prior to 1988, he was an associate in the Mergers &
Acquisitions Group at Merrill Lynch. Mr. Hilson is also a director of MAGNATRAX
Corporation (metal fabrication), Unitive Inc. (advanced semi conductor
packaging), Vincor International Inc. (vintner) and a governor of Wilfrid
Laurier University and the Shaw Festival. Mr. Hilson holds an Honours Bachelor
of Business Administration (gold medallist) from Wilfrid Laurier University and
a Master of Business Administration (George F. Baker Scholar) from the Harvard
University Graduate School of Business Administration.
RICHARD S. LOVE
Richard S. Love is a former Vice President of Hewlett-Packard and a former
General Manager of the Computer Order Fulfillment and Manufacturing Group for
Hewlett-Packard's Computer Systems Organization. Mr. Love has been a director of
Celestica since July 1998. From 1962 until 1997, he held positions of increasing
responsibility with Hewlett-Packard, becoming Vice President in 1992. He is a
former director of HMT Technology Corporation (electronics manufacturing) and
the Information Technology Industry Council. Mr. Love holds a Bachelor of
Science degree in Business Administration and Technology from Oregon State
University and a Master of Business Administration degree from Fairleigh
Dickinson University.
ROGER L. MARTIN
Roger L. Martin is Dean and Professor of Strategy at the Joseph L. Rotman School
of Management at the University of Toronto and has been a director of Celestica
since July 1998. Mr. Martin was formerly a director of Monitor Company, a
Cambridge, Massachusetts-based consulting firm and is Chair of the Ontario Task
Force on Competitiveness, Productivity, and Economic Progress. Mr. Martin also
serves as a director for Thomson Corporation, Ontario SuperBuild Corporation,
the Canadian Film Centre, and as a trustee of the Hospital for Sick Children.
Mr. Martin holds an AB degree (cum laude) from Harvard College, and a Master of
Business Administration degree from the Harvard University Graduate School of
Business Administration.
50 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
ANTHONY R. MELMAN
Anthony R. Melman is a Vice President of Onex and has been a director of
Celestica since 1996. Dr. Melman joined Onex Corporation in 1984 and is actively
involved in negotiating acquisitions, divestitures, and the financing thereof.
He serves on the boards of various Onex subsidiaries. From 1977 to 1984, Dr.
Melman was Senior Vice President of Canadian Imperial Bank of Commerce in charge
of worldwide merchant banking, project financing, acquisitions and other
specialized financing activities. Prior to emigrating to Canada in 1977, he had
extensive merchant banking experience in South Africa and the U.K. Dr. Melman is
also a director of The Baycrest Centre Foundation, The Baycrest Centre for
Geriatric Care, the University of Toronto Asset Management Corporation, and a
member of the Board of Governors of Mount Sinai Hospital. Dr. Melman holds a
Bachelor of Science from the University of The Witwatersrand, a Master of
Business Administration (gold medalist) from Cape Town University and a Ph.D. in
Finance from the University of The Witwatersrand.
MICHIO NARUTO
Michio Naruto has been Chairman of the Board of ICL (International Computer
Ltd.) since 1997. He has been special representative of Fujitsu since June,
2000 and was Vice Chairman of Fujitsu until April, 2000. Mr Naruto is
currently Chairman of Toyota Info Technology Center, a subsidiary of Toyota
Motor Corporation. He has been a director of Celestica since October 2001.
Mr. Naruto joined Fujitsu Limited in February 1962. In 1981, when the company
entered into the technology agreement with ICL, he held the position of
General Manager, Business Administration of International Operations. He was
appointed to the board of Fujitsu Limited in 1985, in charge of International
Operations. Later his responsibility in Fujitsu covered the ICL Business
Group; Legal and Industry Relations; External Affairs and Export Control. In
his current capacity, he attends various international conferences as special
representative of Fujitsu and also takes a role as chairman of Fujitsu
Research Institute. Mr. Naruto holds a Bachelor of Laws degree from the
University of Tokyo.
GERALD W. SCHWARTZ
Gerald W. Schwartz is the Chairman of the Board, President and Chief
Executive Officer of Onex Corporation and has been a director of Celestica
since July 1998. Prior to founding Onex in 1983, Mr. Schwartz was a
co-founder (in 1977) of CanWest Capital Corp., now CanWest Global
Communications Corp. He is a director of Onex, The Bank of Nova Scotia, SC
International Services, Inc. (airline catering) and Phoenix Pictures Inc.
(entertainment). Mr. Schwartz is also Vice Chairman and member of the
Executive Committee of Mount Sinai Hospital and is a director, governor or
trustee of a number of other organizations, including Junior Achievement,
Canadian Council of Christians and Jews and The Board of Associates of the
Harvard Business School. He holds a Bachelor of Commerce degree and a
Bachelor of Laws degree from the University of Manitoba, a Master of Business
Administration degree from the Harvard University Graduate School of Business
Administration and a Doctor of Laws (Hon.) from St. Francis Xavier University.
DON TAPSCOTT
Don Tapscott is an internationally sought authority, consultant and speaker
on business strategy and organizational transformation. He is the author of
several widely read books on the application of technology in business. Mr.
Tapscott is the co-founder of Digital 4Sight, a company that researches and
designs new business models for Global 2000 organizations; President of New
Paradigm Learning Corporation, Chairman of Maptuit, and an adjunct Professor
of Management at the University of Toronto's Joseph L. Rotman School of
Management. He is also a founding member of the Committee of Advisers of the
Business and Economic Roundtable on Addiction and Mental Health. Mr. Tapscott
has been a director of Celestica since September 1998. He holds a Bachelor of
Science degree in Psychology and Statistics and a Master of Education degree,
specializing in Research Methodology, as well as a Doctor of Laws (Hon.) from
the University of Alberta.
OFFICERS OF THE COMPANY
EUGENE V. POLISTUK
Chairman, Chief Executive Officer
J. MARVIN MAGEE
President, Chief Operating Officer
ANTHONY P. PUPPI
Executive Vice President, Chief Financial Officer and General Manager, Global
Services
R. THOMAS TROPEA
Vice Chair, Global Customer Units and Worldwide Marketing and Business
Development
ANDREW G. GORT
Executive Vice President, Global Supply Chain Management
ALASTAIR KELLY
Executive Vice President, Corporate Development
ARTHUR P. CIMENTO
Senior Vice President, Corporate Strategies
LISA J. COLNETT
Senior Vice President, Worldwide Process Management and Chief Information
Officer
IAIN S. KENNEDY
Senior Vice President, Integration
DONALD S. MCCREESH
Senior Vice President, Human Resources
DANIEL P. SHEA
Senior Vice President and Chief Technology Officer
RAHUL SURI
Senior Vice President, Mergers and Acquisitions
PETER J. BAR
Vice President and Corporate Controller
ELIZABETH L. DELBIANCO
Vice President, General Counsel and Secretary
F. GRAHAM THOURET
Vice President and Corporate Treasurer
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 51
VALUES
At Celestica, we are proud of our history in the technology industry. We
compete to win in the global marketplace with products and services that
delight our customers. We are committed to providing superior value to our
stakeholders. Our key competitive advantage is our people - technology alone
will not guarantee our future. Creativity, commitment and our passion for
responsiveness allow us to thrive in a changing business environment. To
ensure continued financial success, pride in our workplace and high morale,
we are committed to achieving Celestica's goals through adherence to these
stated values and principles:
PEOPLE
We are responsible and trustworthy. We have a sense of ownership and perform
best when:
o Respect for the individual is demonstrated and we treat each other with
dignity and fairness.
o Diversity and equity are embraced in all our policies and practices.
o Status differentials are based only on business requirements.
o Conflict is resolved in a direct and timely manner.
o Work is stimulating and challenging.
o There is a balance between work and personal life.
o The leadership team sets an example by demonstrating commitment to these
values and principles.
PARTNERSHIPS
Mutually beneficial relationships with customers, suppliers, educational
institutions and the community are essential.
o The highest standards of ethical behaviour are followed in all of our
dealings.
o We understand and anticipate our partners' needs and capabilities, and help
them plan for future requirements.
o Suppliers and other partners are recognized as an extension of our team.
o We support and encourage community involvement.
CUSTOMERS
Celestica's success is driven by our customers' success.
o It is easy to do business with us.
o We respond to our customers' needs with speed, agility and a `can do'
attitude.
o We are competitive with our commitments and we meet them.
QUALITY
Quality is defined by the customer.
o Requirements are clearly defined, communicated and understood.
o We strive for error-free work and defect prevention.
o Variances are detected and permanently corrected at the source, ensuring
that defects do not escape to the customer.
o Continuous improvement is designed into every aspect of our business.
o Quality is everyone's responsibility.
o We do not compromise quality.
TEAMWORK AND EMPOWERMENT
We work together to achieve Celestica's goals.
o We support Celestica's goals over a team's or individual's business goals.
o Teams have the necessary skills, resources, information and authority to
self-manage both social and technical issues.
o Roles and responsibilities are clearly defined and understood.
o Adaptability, flexibility and initiative are expected from all.
o We willingly undertake any task required for the effective operation of our
business.
o Leadership roles and activities are shared.
o Decisions are made:
- at the source;
- based on input from those affected;
- considering both business and individual needs.
o We are accountable for our actions and responsibilities.
o We challenge boundaries and practices to initiate improvement.
o We encourage activities that build teamwork and high morale.
TECHNOLOGY AND PROCESSES
Our success is based on innovation and technology leadership.
o We make optimal use of resources and adhere to defined processes.
o We strive for simplicity and ease-of-use in the design of processes.
o Processes and systems are understood and developed with input from those
responsible for execution.
o We use tools, technology and processes best suited to sustain our
competitive advantage.
COMMUNICATION
We take time to listen and ensure understanding.
o Information is shared to maximize understanding, commitment and ownership.
o Communication is clear, timely, honest, accurate and takes place directly
between concerned parties.
o We constructively offer and accept feedback.
52 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
HIGH-CALIBRE WORKFORCE
We maintain a high-calibre workforce.
o We attract and retain people with the best qualifications, skills,
aptitudes and attitudes that match our long-term requirements and work
culture.
o We are trained and qualified to be proficient in our jobs.
o The development of appropriate technical, interpersonal and team skills is
a shared responsibility between Celestica and each employee.
o We are responsible for effective knowledge transfer, skills development and
succession planning.
o Developmental and job opportunities are known and accessible to all
employees.
o We are committed to continuous learning.
o We have a flexible workforce in which employment arrangements may differ.
We are committed to making employment a rewarding experience for both
Celestica and the individual.
COMPENSATION AND RECOGNITION
Our compensation programs are competitive and influenced by overall company
success.
o We know what is expected of us and how our contribution is measured.
o Ongoing poor performance is not tolerated.
o We encourage innovation and risk-taking, and treat errors as opportunities
to learn and grow.
o Skills, knowledge and contributions to the achievement of goals are key
elements that influence compensation, recognition and opportunity.
o Individual, team and company achievements are recognized in a fair and
consistent manner.
o We celebrate our successes.
ENVIRONMENT
We take pride in our workplace and are a responsible corporate citizen.
o Each of us is obligated to maintain a safe, clean, healthy and secure work
environment.
o Our workplace is a showcase of our capabilities.
o We promote a healthy lifestyle.
o We protect the environment.
ENVIRONMENTAL POLICY
Celestica has adopted the following Environmental Policy - to protect the
environment and to conduct its operations in the electronics manufacturing
industry using sound management practices. This policy is the foundation for our
environmental objectives listed below.
o Be an environmentally responsible neighbour in the communities where we
operate. We will act responsibly to correct conditions that impact health,
safety or the environment.
o Commit to a `prevention of pollution' program and achieve continual
improvement in our environmental objectives.
o Environmental objectives and targets will be set each year based on the
previous year's results and trends.
o Practice conservation in all areas of our business.
o Develop safe, energy efficient and environmentally conscious products and
manufacturing processes.
o Assist in the development of technological solutions to environmental
problems.
o Comply with or exceed all applicable and anticipated environmental
Legislation and Regulations. Where none exist, we will set and adhere to
stringent standards of our own.
o Conduct rigorous self-assessments and audits to ensure our compliance with
this policy on an ongoing basis.
2 0 0 1 C E L E S T I C A A N N U A L R E P O R T 53
CELESTICA GLOBAL LOCATIONS
CORPORATE HEAD OFFICE
12 Concorde Place
8th Floor
Toronto, Ontario
Canada M3C 3R8
OPERATIONS
THE AMERICAS
CANADA
844 Don Mills Road
Toronto, Ontario
Canada M3C 1V7
18107 Trans-Canada Highway
Kirkland, Quebec
Canada H9J 3K1
U.S.A.
7400 Scott Hamilton Drive
Little Rock, Arkansas
U.S.A. 72209
25902 Town Centre Drive
Foothill Ranch, California
U.S.A. 92610
5325 Hellyer Avenue
San Jose, California
U.S.A. 95138
1200 West 120th Avenue
Westminster, Colorado
U.S.A. 80234
4701 Technology Parkway
Fort Collins, Colorado
U.S.A. 80528
1615 East Washington Street
Mt. Pleasant, Iowa
U.S.A. 52641
20 Alpha Road
Chelmsford, Massachusetts
U.S.A. 01824
3050 Superior Drive NW
Rochester, Minnesota
U.S.A. 55901
9 Northeastern Boulevard
Salem, New Hampshire
U.S.A. 03079
3600 Tarheel Drive
Raleigh, North Carolina
U.S.A. 27609
6200 E. Broad Street
Columbus, Ohio
U.S.A. 43213
7725 West Reno Avenue, 4th Floor
P.O. Box 26060
Oklahoma City, Oklahoma
U.S.A. 73126
4607 SE International Parkway
Milwaukie, Oregon
U.S.A. 9722
4616 West Howard Lane
Building 1, Suite 100
Austin, Texas
U.S.A. 78728
1050 Venture Court
Carrollton, Texas
U.S.A. 75006
925 First Avenue
P.O. Box 5000
Chippewa Falls, Wisconsin
U.S.A. 54729
MEXICO
Av. Iteso #8900-2
Col. Pinar de la Calma
Tlaquepaque, Jalisco
Mexico C.P. 45080
Blvd. Parque Industrial
Monterrey No. 208
Apocada, Nuevo Leon
Mexico C.P. 66600
Av. De la Noria
No 125 Parque Industrial Queretaro
Santa Rosa Jauregui, Queretaro
Mexico
BRAZIL
Rod. SP 340 S/N Km 128, 7B
Jaguariuna, Sao Paolo
Brazil CEP 13820-000
EUROPE
CZECH REPUBLIC
Billundska 3111
Kladno, Czech Republic
CZ 272 01
Ulice Osvobezni 363
Rajecko, Czech Republic
CZ 679 02
FRANCE
ZI de Saint Lambert
49412 Saumur Cedex
France
IRELAND
Holybanks
Swords
Co. Dublin
Ireland
ITALY
Via Ardeatina 2491
00040 Santa Palomba (Roma)
Italia
Via Lecco 61
20059 Vimercate (Milano)
Italia
UNITED KINGDOM
Westfields House
West Avenue
Kidsgrove, Stoke-on-Trent
Staffordshire
U.K. ST7 1TL
Castle Farm
Priorslee
Telford
Shropshire
U.K. TF2 9SA
ASIA
CHINA
Mai Yuen Guan Li Qu, Changping
Dongguan, Guangdong
P.R.C. 511737
2005 Yang Gao Bei Road
318 Fa Sai Road, Wai Gao Qiao
Free Trade Zone
Pudong, Shanghai
P.R.C. 200131
No. 158-58 Hua Shan Road
Suzhou New District, Jiangsu Province
P.R.C. 215219
4th Floor, Block B, No. 5, Xinghan Street
Suzhou Industrial Park, Jiangsu Province
P.R.C. 215021
No. 33 Xiangxing Road 1st
Xiangyu Free Trade Zone
Huli District, Xiamen
P.R.C. 361006
HONG KONG
4/F, Goldlion Holdings Centre
13-15 Yuen Shun Circuit
Siu Lek Yuen, Shatin
Hong Kong
INDONESIA
Lot 509, Jalan Delima
Batamindo Industrial Park
Mukakuning, Batam
Indonesia 29433
Kawasan Industri Bintan
Jln Terati Lot D13
Lobam, Tanjong Uban
Indonesia 29152
JAPAN
450-3 Higashishinmachi, Ota-shi
Gunma, Japan 373-0015
MALAYSIA
No 9, Jalan Tampoi 7/4
81200 Johor Bahru
Johor Darul Takzim, Malaysia
No 10 & 10A, Jalan Bayu
Kawasan Perindustrian Hasil
81200 Johor Bahru, Malaysia
Plot 15, Jalan Hi-Tech
2/3 Phase 1
Kulim Hi-Tech Park
0900 Kulim, Kedah
Malaysia
Lot 7294 Jalan Perusahaan 2
Parit Buntar Industrial Estate
34200 Parit Buntar
Perak, Malaysia
SINGAPORE
2 Ang Mo Kio Street 64, Level 2
Ang Mo Kio Industrial Park 3
Singapore, Singapore
569084
39 Tuas Basin Link
Singapore, Singapore
638772
Blk 33 Marsiling Industrial Estate Road 3
Woodlands Avenue 5 #07-01
Singapore, Singapore
739256
TAIWAN
4f, 113, Sec. 1, Chung Chen Road
Taipei, Taiwan
R.O.C.
THAILAND
49/12 Moo 5
Laem Chabang
Industrial Estate
Siracha District
Chon Buri Province
Thailand 20230
64/65 Moo 4, Highway 331, T. Pluakdaeng
A. Pluakdaeng, Rayong
Thailand 21140
54 2 0 0 1 C E L E S T I C A A N N U A L R E P O R T
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[CELESTICA LOGO] CELESTICA-TM-
Exhibit 99.5
CONSENT OF AUDITORS
The Board of Directors
Celestica Inc.
We consent to the incorporation by reference in the registration statements
on Forms S-8 (Nos. 333-9500, 333-9822, 333-9780, 333-71126, 333-66726 and
333-63112) and on Forms F-3 (Nos. 333-12272, 333-50240 and 333-69278) of
Celestica Inc. of our report dated January 21, 2002, with respect to the
consolidated balances sheets of Celestica Inc. as of December 31, 2000 and
2001 and the related consolidated statements of earnings (loss),
shareholders' equity and cash flows for each of the years in the three year
period ended December 31, 2001, which report appears in the December 31, 2001
annual report filed as an exhibit on the Current Report on Form 6K of
Celestica Inc. dated March 2002.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
January 21, 2002
