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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 October 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 is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1): ____
Indicate by check mark whether the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7): ____
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 OCTOBER 2002
Filed with this Form 6-K is the following:
o Press Release, dated October 16, 2002, the text of which is attached hereto as
Exhibit 99.1 and is incorporated herein by reference, including Celestica Inc.'s
third quarter 2002 consolidated financial information.
o Supplemental Information, the text of which is attached hereto as Exhibit
99.2 and is incorporated herein by reference.
o Management's Discussion and Analysis of Financial Conditions and Results of
Operations for the nine months ended September 30, 2002, the text of which is
attached hereto as Exhibit 99.3 and is incorporated herein by reference.
o Consolidated Financial Statements of Celestica Inc. for the nine months
ended September 30, 2002, the text of which is attached hereto as Exhibit
99.4 and is incorporated herein by reference.
EXHIBITS
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99.1 - Press Release, dated October 16, 2002
99.2 - Supplemental Information
99.3 - Management's Discussion and Analysis
99.4 - Consolidated Financial Statements
99.5 - Certification of Chief Executive Officer
99.6 - Certification of Chief Financial Officer
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: October 18, 2002 BY: /s/ Elizabeth L. DelBianco
______________________________________
Name: Elizabeth L. DelBianco
Title: Vice President & General Counsel
EXHIBIT INDEX
Exhibit 99.1 Press Release, dated October 16, 2002
Exhibit 99.2 Supplemental Information
Exhibit 99.3 Management's Discussion and Analysis
Exhibit 99.4 Consolidated Financial Statements
Exhibit 99.5 Certification of Chief Executive Officer
Exhibit 99.6 Certification of Chief Financial Officer
FOR IMMEDIATE RELEASE Wednesday, October 16, 2002
(All amounts in U.S. dollars.
Per share information based on diluted
shares outstanding unless noted otherwise.)
CELESTICA ANNOUNCES THIRD QUARTER RESULTS
SUMMARY
- - Revenue of $1,959 million, adjusted net earnings of $0.20 per share
- - Efficiency gains drive cash cycle improvements and strong cash flow
- - Debt to capitalization reduced to 18%, cash position increases to record
$1.8 billion
- - Company repurchases 1 million subordinate voting shares; also fully redeems
10 1/2% notes
- - Company repurchases $48 million of convertible debt
TORONTO, Canada - Celestica Inc. (NYSE, TSX: CLS), a world leader in electronics
manufacturing services (EMS), today announced financial results for the third
quarter ended September 30, 2002.
For the third quarter, revenue was $1,959 million, down 11 per cent from $2,203
million in the third quarter of 2001. Adjusted net earnings* were $51 million or
$0.20 per share, compared to $65 million or $0.27 for the same period last year.
The company's guidance for the third quarter, which was revised in September,
was for revenue of $1.9 - $2.0 billion and $0.18 to $0.22 adjusted net earnings
per share.
Net loss on a GAAP basis for the third quarter was $91 million or $0.40 per
share. The results reflect the after-tax impact of a $136 million charge
primarily associated with the company's $300 - $375 million restructuring
program announced in July 2002. In the third quarter last year, the company
reported a net loss of $39 million or $0.20 per share that reflected the
after-tax impact of a $79.6 million restructuring charge.
Despite late quarter revenue reductions, Celestica continued to improve
operating efficiency and deliver solid results in cash flow and balance sheet
metrics. Highlights in the third quarter included:
o Cash flow from operations of $371 million
o Sequential decrease in inventory of $171 million
o Cash cycle improvement to 15 days from 21 days quarter-to-quarter
o Cash balances increased to $1,848 million or $8.06 per share, up $164
million from the second quarter despite spending $203 million to
repurchase shares, senior subordinated notes and convertible debt
o Sequential reduction in SG&A by 9% to $73 million
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For the nine-month period ended September 30, 2002, revenue was $6,360 million,
compared to $7,556 million for the same period last year. Adjusted net earnings
were $184 million or $0.72 per share compared to $245 million or $1.08 last
year. GAAP net loss was $11 million or $0.09 per share compared to net earnings
of $32 million or $0.10 per share last year.
"The quarter was very challenging as we experienced unexpected revenue declines
during September," said Eugene Polistuk, chairman and CEO, Celestica.
"Specifically, higher complexity products built in Europe and North America were
impacted by weaker end-market demand."
"Within this difficult environment, however, we continued to deliver on our
goals of driving efficiency and enhancing our very strong balance sheet," said
Polistuk. "Our cash balances increased to just over $8.00 per share, and our
debt to capital was a conservative 18%. We also made solid sequential progress
on our cash cycle, further reducing it to 15 days, achieving our best
performance ever and a significant improvement from 67 days one year ago."
SENIOR SUBORDINATED NOTE REDEMPTION AND NORMAL COURSE ISSUER BID
During the quarter, Celestica redeemed all of its $130.0 million of Senior
Subordinated Notes which were due in 2006.
During the quarter, Celestica also repurchased 1.0 million Subordinate Voting
Shares at the weighted average price of $17.08 per share. The share repurchase
program is part of the company's Normal Course Issuer Bid which allows the
company to repurchase up to 9.6 million subordinate voting shares, for
cancellation, over a period from August 1, 2002 to July 30, 2003.
REPURCHASE OF CONVERTIBLE DEBT
During the quarter, the company paid $48.3 million to repurchase $110.4 million
in principal amount, of its outstanding Liquid Yield OptionTM Notes (LYONs) in
the open market. The company may, from time-to-time, purchase additional LYONs
and has been authorized by the board of directors to purchase up to an
additional $100 million subject to market conditions. The amount and timing of
any such purchases will be at Celestica's discretion.
Looking forward, the company provided guidance for the fourth quarter ending
December 31, 2002 for revenue in the range of $1.7 - $1.9 billion, and adjusted
earnings per share between $0.13-$0.21. This guidance reflects continued weak
end-market conditions, particularly in communications and information technology
infrastructure spending.
Management will host a conference call today discussing the company's third
quarter results. The conference call will start at 4:30 EST and can be accessed
at www.celestica.com.
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*Detailed GAAP financial statements and supplementary information related to
adjusted net earnings appear at the end of this press release.
ABOUT CELESTICA
Celestica is a world leader in the delivery of innovative electronics
manufacturing services (EMS). Celestica operates a highly sophisticated global
manufacturing network with over 40 operations in Asia, Europe and the Americas,
providing a broad range of services to leading OEMs (original equipment
manufacturers). A recognized leader in quality, technology and supply chain
management, Celestica provides competitive advantage to its customers by
improving time-to-market, scalability and manufacturing efficiency.
For further information on Celestica, visit its Web site at www.celestica.com.
-----------------
The company's security filings can also be accessed at www.sedar.com and
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www.sec.gov.
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SAFE HARBOUR AND FAIR DISCLOSURE STATEMENT
STATEMENTS CONTAINED IN THIS PRESS RELEASE WHICH ARE NOT HISTORICAL FACTS ARE
FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISK AND UNCERTAINTIES WHICH COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE
FORWARD-LOOKING STATEMENTS. AMONG THE KEY FACTORS THAT COULD CAUSE SUCH
DIFFERENCES ARE: THE LEVEL OF OVERALL GROWTH IN THE ELECTRONICS MANUFACTURING
SERVICES (EMS) INDUSTRY; LOWER-THAN-EXPECTED CUSTOMER DEMAND; COMPONENT
CONSTRAINTS; VARIABILITY OF OPERATING RESULTS AMONG PERIODS; DEPENDENCE ON THE
COMPUTER AND COMMUNICATIONS INDUSTRIES; DEPENDENCE ON A LIMITED NUMBER OF
CUSTOMERS; AND THE ABILITY TO MANAGE EXPANSION, CONSOLIDATION AND THE
INTEGRATION OF ACQUIRED BUSINESSES. THESE AND OTHER FACTORS ARE DISCUSSED IN THE
COMPANY'S VARIOUS PUBLIC FILINGS AT www.sedar.com AND http://www.sec.gov.
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WE DISCLAIM ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE,
UNLESS REQUIRED TO DO SO BY APPLICABLE SECURITIES LAW.
AS OF ITS DATE, THIS PRESS RELEASE CONTAINS ANY MATERIAL INFORMATION ASSOCIATED
WITH THE COMPANY'S THIRD QUARTER FINANCIAL RESULTS, AND REVENUE AND ADJUSTED NET
EARNINGS GUIDANCE FOR THE FOURTH QUARTER ENDING DECEMBER 31, 2002. EARNINGS
GUIDANCE IS REVIEWED BY THE COMPANY'S BOARD OF DIRECTORS.
Contacts:
Laurie Flanagan Paul Carpino
Celestica Global Communications Celestica Investor Relations
(416) 448-2200 (416) 448-2211
media@celestica.com clsir@celestica.com
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FINANCIAL SUMMARY
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GAAP FINANCIAL SUMMARY
THREE MONTHS ENDED SEPTEMBER 30 2001 2002 CHANGE
- ------------------------------- ---- ---- ------
Revenue $ 2,203 M $ 1,959 M $ (244)M
Net loss (39)M (91)M (52)M
Net loss per share $ (0.20) $ (0.40) $ (0.20)
Cash Provided by Operations $ 450 M $ 371 M $ (79)M
Cash Position at September 30 $ 966 M $ 1,848 M $ 882 M
NINE MONTHS ENDED SEPTEMBER 30 2001 2002 CHANGE
- ------------------------------ ---- ---- ------
Revenue $ 7,556 M $ 6,360 M $(1,196)M
Net earnings (loss) 32 M (11)M (43)M
Net earnings (loss) per share $ 0.10 $ (0.09) $ (0.19)
Cash Provided by Operations $ 401 M $ 882 M $ 481 M
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ADJUSTED NET EARNINGS SUMMARY
THREE MONTHS ENDED SEPTEMBER 30 2001 2002 CHANGE
- ------------------------------- ---- ---- ------
Adjusted net earnings $ 65 M $ 51 M $ (14)M
Adjusted net EPS (1) $ 0.27 $ 0.20 $ (0.07)
NINE MONTHS ENDED SEPTEMBER 30 2001 2002 CHANGE
- ------------------------------ ---- ---- ------
Adjusted net earnings $ 245 M $ 184 M $ (61)M
Adjusted net EPS (1) $ 1.08 $ 0.72 $ (0.36)
Adjusted Net Earnings Calculation
THREE MONTHS NINE MONTHS
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2001 2002 2001 2002
---- ---- ---- ----
GAAP net earnings (loss) $ (39)M $(91)M $ 32 M $(11)M
Add: amortization of intangibles 32 M 29 M 90 M 73 M
Add: acquisition integration costs 10 M 3 M 20 M 17 M
Add: other non-recurring charges 80 M 136 M 137 M 136 M
Less: tax impact of above (18)M (26)M (34)M (31)M
------ ----- ----- -----
Adjusted net earnings $ 65 M $ 51 M $245 M $184 M
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GUIDANCE SUMMARY
3Q 02
3Q VERSUS ACTUALS REVISED GUIDANCE 3Q 02 ACTUALS
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Revenue $1.9B - $2.0B $1.96B
Adjusted net EPS $0.18 - $0.22 $0.20
FORWARD GUIDANCE 4Q 02 GUIDANCE
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Revenue $1.7B - $1.9B
Adjusted net EPS $0.13 - $0.21
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(1) For purposes of the diluted per share calculation for the three and nine
months ended September 30, 2002, the weighted average number of shares
outstanding was 234.9 million and 236.0 million, respectively. Adjusted net
EPS excludes the gain on the repurchase of
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convertible debt.
6
DISCLOSURE ON FINANCIAL RESULTS
As part of its quarterly financial press releases, Celestica provides extensive
disclosure including income statement, balance sheet, cash flow from operations
and detailed accompanying footnotes. All information is prepared in accordance
with Canadian GAAP which conforms in all material respects with U.S. GAAP except
as noted in the company's annual report. These same documents are also filed
with the United States Securities and Exchange Commissions and Canadian
Securities Commissions.
To supplement this information, Celestica also provides information on adjusted
net earnings. As a result of the significant number of acquisitions made by
Celestica over the past few years, management of Celestica believes adjusted net
earnings is a useful measure of operating performance on an enterprise-wide
basis that also facilitates reliable period-to-period comparisons. Adjusted net
earnings exclude the effects of acquisition-related charges, (most
significantly, amortization of intangible assets and integration costs related
to acquisitions) other non-recurring 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 do not have any
standardized meaning prescribed by GAAP and are not necessarily comparable to
similar measures presented by other issuers. Adjusted net earnings are not a
measure of performance under Canadian GAAP or U.S. GAAP and should not be
considered in isolation or as a substitute for net earnings prepared in
accordance with Canadian GAAP or U.S. GAAP.
For comparative purposes, historical detail on adjusted net earnings are shown
in the company's securities filings including annual reports, press releases and
prospectuses, as well as in supplementary historical information found on the
company's web site.
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CELESTICA INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS OF U.S. DOLLARS)
(UNAUDITED)
DECEMBER 31 SEPTEMBER 30
2001 2002
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ASSETS
Current assets:
Cash and short-term investments............................$ 1,342.8 $ 1,848.3
Accounts receivable ....................................... 1,054.1 924.0
Inventories ............................................... 1,372.7 945.8
Prepaid and other assets................................... 177.3 142.8
Deferred income taxes...................................... 49.7 56.5
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3,996.6 3,917.4
Capital assets .............................................. 915.1 831.4
Goodwill on business combinations (note 2)................... 1,128.8 1,155.1
Other intangible assets (note 2)............................. 427.2 355.5
Other assets ................................................ 165.2 232.3
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$ 6,632.9 $ 6,491.7
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...........................................$ 1,198.3 $ 1,137.6
Accrued liabilities........................................ 405.7 471.4
Income taxes payable....................................... 21.0 18.2
Deferred income taxes...................................... 21.8 22.1
Current portion of long-term debt ......................... 10.0 2.7
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1,656.8 1,652.0
Long-term debt (note 4)...................................... 137.4 5.2
Accrued post-retirement benefits ............................ 47.3 75.5
Deferred income taxes........................................ 41.5 52.9
Other long-term liabilities.................................. 4.3 4.9
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1,887.3 1,790.5
Shareholders' equity:
Convertible debt (note 5).................................. 886.8 853.7
Capital stock (note 6)..................................... 3,699.0 3,687.4
Contributed surplus........................................ - 2.8
Retained earnings.......................................... 162.7 141.9
Foreign currency translation adjustment.................... (2.9) 15.4
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4,745.6 4,701.2
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$ 6,632.9 $ 6,491.7
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
THESE INTERIM FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS.
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CELESTICA INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND RETAINED EARNINGS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2002 2001 2002
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Revenue.............................................................$ 2,203.0 $ 1,958.9 $ 7,556.2 $ 6,359.6
Cost of sales....................................................... 2,053.5 1,827.6 7,021.2 5,914.1
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Gross profit........................................................ 149.5 131.3 535.0 445.5
Selling, general and administrative expenses ....................... 79.4 73.2 254.8 230.0
Amortization of goodwill and other intangible assets (note 2)....... 32.2 29.0 89.9 72.7
Integration costs related to acquisitions .......................... 10.0 3.0 20.1 17.1
Other charges (note 7).............................................. 79.6 136.4 136.6 136.4
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Operating income (loss)............................................. (51.7) (110.3) 33.6 (10.7)
Interest on long-term debt.......................................... 4.4 3.5 13.9 14.5
Interest income, net................................................ (9.5) (4.6) (24.9) (12.5)
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Earnings (loss) before income taxes................................. (46.6) (109.2) 44.6 (12.7)
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Income taxes:
Current .......................................................... (4.0) (6.7) 15.3 12.4
Deferred (recovery)............................................... (3.9) (11.9) (2.7) (14.6)
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(7.9) (18.6) 12.6 (2.2)
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Net earnings (loss) for the period.................................. (38.7) (90.6) 32.0 (10.5)
Retained earnings, beginning of period.............................. 281.1 234.2 217.5 162.7
Convertible debt accretion, net of tax.............................. (3.8) (4.6) (10.9) (13.2)
Gain on repurchase of convertible debt (note 5)..................... - 4.3 - 4.3
Loss on repurchase of capital stock (note 6)........................ - (1.4) - (1.4)
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Retained earnings, end of period....................................$ 238.6 $ 141.9 $ 238.6 $ 141.9
========== ========== ========= =========
Basic earnings (loss) per share (note 9)............................$ (0.20) $ (0.40) $ 0.10 $ (0.09)
Diluted earnings (loss) per share (note 9)..........................$ (0.20) $ (0.40) $ 0.10 $ (0.09)
Weighted average number of shares outstanding:
- basic (in millions)............................................ 218.1 230.1 208.0 230.0
- diluted (in millions) (note 9)................................. 218.1 230.1 226.6 230.0
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
THESE INTERIM FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS.
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CELESTICA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS OF U.S. DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2002 2001 2002
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CASH PROVIDED BY (USED IN):
OPERATIONS:
Net earnings (loss) for the period .................................$ (38.7) $ (90.6) $ 32.0 $ (10.5)
Items not affecting cash:
Depreciation and amortization..................................... 84.3 82.7 225.3 239.2
Deferred income taxes............................................. (3.9) (11.9) (2.7) (14.6)
Other charges..................................................... 58.7 79.2 75.9 79.2
Other............................................................. 2.2 (2.0) 3.5 2.2
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Cash from earnings.................................................. 102.6 57.4 334.0 295.5
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Changes in non-cash working capital items:
Accounts receivable............................................... 324.9 178.9 498.7 159.3
Inventories....................................................... 270.5 171.8 447.2 452.5
Other assets...................................................... (10.8) 10.8 80.5 (1.6)
Accounts payable and accrued liabilities.......................... (219.2) (35.2) (923.7) (18.6)
Income taxes payable.............................................. (18.3) (12.3) (35.6) (5.0)
----------- ----------- ---------- ----------
Non-cash working capital changes.................................. 347.1 314.0 67.1 586.6
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Cash provided by operations....................................... 449.7 371.4 401.1 882.1
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INVESTING:
Acquisitions, net of cash acquired................................ (716.3) (7.8) (864.4) (110.7)
Purchase of capital assets........................................ (26.0) (44.3) (162.1) (119.3)
Proceeds on sale of capital assets................................ - 47.2 - 68.2
Other............................................................. 0.4 (1.0) 1.3 (1.1)
---------- ----------- --------- ----------
Cash used in investing activities................................. (741.9) (5.9) (1,025.2) (162.9)
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FINANCING:
Bank indebtedness................................................. (1.6) - (1.6) (1.6)
Repayment of long-term debt (note 4).............................. (1.0) (130.6) (2.7) (145.5)
Debt redemption fees (note 4)..................................... - (6.9) - (6.9)
Deferred financing costs.......................................... (4.1) (0.1) (4.1) (0.6)
Repurchase of convertible debt (note 5)........................... - (48.3) - (48.3)
Issuance of capital stock......................................... 2.6 1.3 724.6 5.8
Share issue costs, pre-tax ....................................... - - (10.0) -
Repurchase of capital stock (note 6).............................. - (17.1) - (17.1)
Other............................................................. 0.9 0.8 - 0.5
---------- ---------- --------- ---------
Cash provided by (used in) financing activities................... (3.2) (200.9) 706.2 (213.7)
----------- ----------- --------- ----------
Increase (decrease) in cash......................................... (295.4) 164.6 82.1 505.5
Cash, beginning of period........................................... 1,261.3 1,683.7 883.8 1,342.8
---------- ---------- --------- ---------
Cash, end of period.................................................$ 965.9 $ 1,848.3 $ 965.9 $ 1,848.3
========== ========== ========= =========
Cash is comprised of cash and short-term investments.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
THESE INTERIM FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS.
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CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. NATURE OF BUSINESS:
The primary operations of the Company consist of 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 information technology and
communications industries. The Company has operations in the Americas, Europe
and Asia.
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.
2. SIGNIFICANT ACCOUNTING POLICIES:
The disclosures contained in these unaudited interim consolidated
financial statements do not include all requirements of generally accepted
accounting principles (GAAP) for annual financial statements. The unaudited
interim consolidated financial statements should be read in conjunction with the
annual consolidated financial statements for the year ended December 31, 2001.
The unaudited interim consolidated financial statements reflect all
adjustments, consisting only of normal recurring accruals, which are, in the
opinion of management, necessary to present fairly the financial position of the
Company as of September 30, 2002 and the results of operations and cash flows
for the three and nine months ended September 30, 2001 and 2002.
The unaudited interim consolidated financial statements are based upon
accounting principles consistent with those used and described in the annual
consolidated financial statements, except the following:
(A) BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS:
In September 2001, the Canadian Institute of Chartered Accountants (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 U.S. GAAP.
Effective July 1, 2001, 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 have been applied to business
combinations completed after June 30, 2001.
The Company has fully adopted these new standards as of January 1, 2002,
and has discontinued amortization of all existing goodwill. The Company has also
evaluated existing intangible assets, including estimates of remaining useful
lives, and has reclassed $9.1 from intellectual property to goodwill as of
January 1, 2002 to conform with the new criteria.
Section 3062 requires the completion of a transitional goodwill impairment
evaluation within six months of adoption. Impairment is identified by comparing
the carrying amounts of the Company's reporting units with their fair values. To
the extent a reporting unit's carrying amount exceeds its fair value, the
impairment is measured in a manner similar to a purchase price allocation and
must be recorded by December 31, 2002. Any transitional impairment would be
recognized as an effect of a change in accounting principle and would be charged
to opening retained earnings as of January 1, 2002. The Company completed the
transitional
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CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
goodwill impairment assessment during the second quarter of 2002, and determined
that no impairment existed as of the date of adoption.
Effective January 1, 2002, the Company had unamortized goodwill of
$1,137.9 which is no longer being amortized. This change in accounting policy is
not applied retroactively and the amounts presented for prior periods have not
been restated for this change. The impact of this change is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2002 2001 2002
-------------- ------------- ---------- ------------
Net earnings (loss)...................................... $ (38.7) $ (90.6) $ 32.0 $ (10.5)
Add back: goodwill amortization.......................... 7.9 - 29.2 -
--------- --------- --------- ---------
Net earnings (loss) before goodwill amortization......... $ (30.8) $ (90.6) $ 61.2 $ (10.5)
========== ========== ========= ==========
Basic earnings (loss) per share:
Net earnings (loss)...................................... $ (0.20) $ (0.40) $ 0.10 $ (0.09)
Net earnings (loss) before goodwill amortization......... $ (0.16) $ (0.40) $ 0.24 $ (0.09)
Diluted earnings (loss) per share:
Net earnings (loss)...................................... $ (0.20) $ (0.40) $ 0.10 $ (0.09)
Net earnings (loss) before goodwill amortization......... $ (0.16) $ (0.40) $ 0.24 $ (0.09)
The following table sets forth the Company's goodwill and other intangible
assets as of September 30, 2002:
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
Goodwill........................................ $ 1,287.4 $ 132.3 $ 1,155.1
============ ============ ============
Other intangible assets:
Intellectual property........................... $ 353.8 $ 184.5 $ 169.3
Other intangible assets......................... 230.4 44.2 186.2
------------ ------------ ------------
$ 584.2 $ 228.7 $ 355.5
============ ============ ============
Intellectual property primarily represents the cost of certain
intellectual property and process technology. Other intangible assets consist
primarily of customer relationship and contracts representing the excess of cost
over the fair value of tangible assets and intellectual property acquired in
asset acquisitions.
Other intangible assets have increased $51.5 due to acquisitions. This
increase has been offset by reclassifications to goodwill (see note 8(b)) and
write-offs due to restructuring.
The aggregate amortization expense for other intangible assets was $29.0
and $72.7 for the three and nine months ended September 30, 2002, respectively.
(b) STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS:
Effective January 1, 2002, the Company adopted the new CICA Handbook
Section 3870, which requires that a fair value based method of accounting be
applied to all stock-based payments to non-employees and to direct awards of
stock to employees. 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 with the addition of pro forma information. The Company
has applied the pro forma disclosure provisions of the new standard to awards
granted on or after January 1, 2002. The pro forma effect of awards granted
prior to January 1, 2002, has not been included.
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12
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
The standard requires the disclosure of pro forma net earnings and
earnings per share information as if the Company had accounted for employee
stock options under the fair value method. The fair value of the options issued
in the quarter and nine-month period were determined using the Black-Scholes
option pricing model. The following assumptions were used in the quarter:
risk-free rate of 4.88%; dividend yield of 0%; a volatility factor of the
expected market price of the Company's shares of 70%; and a weighted-average
expected option life of 7.5 years. The weighted-average grant date fair values
of options issued during the quarter was $13.32 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 three months ended September 30, 2002,
the Company's pro forma net loss is $91.1, basic loss per share is $0.40 and
diluted loss per share is $0.40. For the nine months ended September 30, 2002,
the Company's pro forma net loss is $11.5, basic loss per share is $0.09 and
diluted loss per share is $0.09. The Company's stock option plans are described
in note 11 to the 2001 consolidated financial statements.
3. ACQUISITIONS:
ASSET ACQUISITIONS:
On March 31, 2002, the Company acquired certain assets located in Miyagi
and Yamanashi, Japan from NEC Corporation. In August 2002, the Company acquired
certain assets from Corvis Corporation in the United States. The purchase price
for these acquisitions was financed with cash and allocated to the net assets
acquired, including other intangible assets of $51.5, based on their relative
fair values at the date of acquisition.
4. LONG-TERM DEBT
In August 2002, the Company redeemed the entire $130.0 of outstanding
Senior Subordinated Notes at a premium of 5.25%. See note 7(b).
5. CONVERTIBLE DEBT
During the quarter the Company repurchased Liquid Yield OptionTM Notes
(LYONs) with a principal amount at maturity of $110.4. The Company paid a total
of $48.3. Pursuant to Canadian GAAP, the LYONs are recorded as an equity
instrument and bifurcated into a principal equity component and an option
component. See note 10 to the 2001 Consolidated Financial Statements. The gain
on the repurchase of LYONs is recorded to retained earnings and apportioned
between the principal equity and option components, based on their relative fair
values compared to their carrying values. Consistent with the treatment of the
periodic accretion charges, the gain on the principal equity component has been
included in the calculation of basic and diluted earnings (loss) per share. See
note 9.
6. CAPITAL STOCK
In July 2002, the Company filed a Normal Course Issuer Bid to repurchase,
at its discretion, up to 5% of the total outstanding shares, or 9.6 million
Subordinate Voting Shares for cancellation, over the next 12 months. During the
quarter, the Company repurchased 1.0 million Subordinate Voting Shares at a
weighted average price of $17.08 per share.
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13
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
7. OTHER CHARGES:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2002 2001 2002
----------- ------------ ------------ ------------
2001 restructuring (a)..................................... $ 43.5 $ (1.9) $ 100.5 $ (1.9)
Deferred financing costs and debt redemption fees (b)...... - 9.6 - 9.6
2002 restructuring (c)..................................... - 128.7 - 128.7
Other (d).................................................. 36.1 - 36.1 -
-------- --------- --------- ---------
$ 79.6 $ 136.4 $ 136.6 $ 136.4
======== ========= ========= =========
(A) 2001 RESTRUCTURING:
In 2001, the Company recorded a restructuring charge that reflected
facility consolidations and a workforce reduction. The following table details
the activity through the accrued restructuring liability for the period ended
September 30, 2002:
LEASE AND
EMPLOYEE OTHER FACILITY
TERMINATION CONTRACTUAL EXIT COSTS
COSTS OBLIGATIONS AND OTHER TOTAL
---------- ----------- --------- ---------
Balance at June 30, 2002........................ $ 13.7 $ 27.5 $ 6.6 $ 47.8
Cash payments................................... (7.7) (1.7) (2.0) (11.4)
Adjustments..................................... (0.4) (2.2) 0.7 (1.9)
---------- --------- --------- ---------
Balance at September 30, 2002................... $ 5.6 $ 23.6 $ 5.3 $ 34.5
========== ========= ========= =========
As of December 31, 2001, 2,330 employee positions remained to be
terminated during 2002. As of September 30, 2002, approximately 300 employees
remain to be terminated by year-end. 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) DEFERRED FINANCING COSTS AND DEBT REDEMPTION FEES:
In August 2002, the Company expensed deferred financing costs and paid a
premium associated with the redemption of the Senior Subordinated Notes.
(C) 2002 RESTRUCTURING:
In July 2002, the Company announced a new restructuring plan, in response
to the prolonged difficult end-market conditions. The Company expects that it
will incur a pre-tax charge of between $300.0 and $375.0, for the consolidation
of facilities and a workforce reduction, to be recorded by the end of the year.
During the quarter, the Company recorded a pre-tax restructuring charge of
$128.7. The following table details the components of the restructuring charge:
THREE AND NINE
MONTHS ENDED
SEPTEMBER 30, 2002
------------------
Employee termination costs..................................... $ 42.0
Lease and other contractual obligations........................ 7.1
Facility exit costs and other.................................. 10.0
Asset impairment (non-cash).................................... 69.6
---------
$ 128.7
=========
The following table details the activity through the accrued restructuring
liability for the period ended September 30, 2002:
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14
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
LEASE AND
EMPLOYEE OTHER FACILITY
TERMINATION CONTRACTUAL EXIT COSTS
COSTS OBLIGATIONS AND OTHER TOTAL
---------- ----------- ---------- ---------
Balance at June 30, 2002........................ $ - $ - $ - $ -
Provision....................................... 42.0 7.1 10.0 59.1
Cash payments................................... (14.9) - (0.3) (15.2)
----------- ----------- ---------- ---------
Balance at September 30, 2002................... $ 27.1 $ 7.1 $ 9.7 $ 43.9
========== =========== ========== =========
During the quarter, employee termination announcements were made primarily
in the Americas with the majority pertaining to manufacturing and plant
employees. To date, 2,368 employees have been identified to be terminated, of
which 458 employees were terminated in the quarter. The remaining termination
costs are expected to be paid out within one year.
The non-cash charges for asset impairment reflects the write-down of
certain long-lived assets primarily in the Americas that have become impaired as
a result of the rationalization of facilities. The asset impairments relate to
intangible assets, machinery and equipment, buildings and improvements. The
assets were written down to their recoverable amounts using estimated cash
flows.
The Company will record additional charges in the fourth quarter and
expects to complete the major components of the restructuring plan by the end of
2003, except for certain long-term lease contractual obligations.
(D) OTHER:
During the third quarter of 2001, the Company recorded a non-cash charge of
$36.1. This is comprised of a write-down of certain assets, primarily goodwill
and intangible assets.
8. 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,
other charges and integration costs related to acquisitions). Inter-segment
transactions are reflected at market value. The following is a breakdown by
operating segment.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2002 2001 2002
----------- ------------ ------------ ------------
REVENUE
Americas.................................................... $1,442.7 $ 1,028.4 $ 4,851.1 $ 3,696.6
Europe...................................................... 641.6 382.3 2,385.5 1,333.2
Asia........................................................ 163.8 595.4 575.7 1,529.5
Elimination of inter-segment revenue........................ (45.1) (47.2) (256.1) (199.7)
-------- --------- --------- ----------
$2,203.0 $ 1,958.9 $ 7,556.2 $ 6,359.6
======== ========= ========= =========
EBIAT
Americas.................................................... $ 38.8 $ 38.3 $ 146.7 $ 122.7
Europe...................................................... 23.2 (14.0) 104.9 13.2
Asia........................................................ 8.1 33.8 28.6 79.6
-------- --------- --------- ---------
70.1 58.1 280.2 215.5
Interest, net............................................... 5.1 1.1 11.0 (2.0)
Amortization of goodwill and other intangible assets........ (32.2) (29.0) (89.9) (72.7)
Integration costs related to acquisitions................... (10.0) (3.0) (20.1) (17.1)
Other charges............................................... (79.6) (136.4) (136.6) (136.4)
-------- --------- --------- ---------
Earnings (loss) before income taxes......................... $ (46.6) $ (109.2) $ 44.6 $ (12.7)
======== ========= ========= ==========
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15
AS AT SEPTEMBER 30
2001 2002
------------ -----------
TOTAL ASSETS
Americas....................................... $ 3,777.6 $ 3,224.1
Europe......................................... 1,723.9 1,288.1
Asia........................................... 436.1 1,979.5
----------- ------------
$ 5,937.6 $ 6,491.7
=========== ============
The following table sets forth the changes in goodwill by operating
segment during the nine months ended September 30, 2002:
GOODWILL DECEMBER 31, 2001 RECLASS (A) POST CLOSING (B) SEPTEMBER 30, 2002
------------------ -------------- ------------------ -------------------
Americas.................................... $ 243.2 $ 1.8 $ (0.5) $ 244.5
Europe...................................... 68.3 6.2 1.0 75.5
Asia........................................ 817.3 1.1 16.7 835.1
----- --------- ------------- ------------
$ 1,128.8 $ 9.1 $ 17.2 $ 1,155.1
============== ========= ============= ============
(a) The Company has reclassed $9.1 from intellectual property to goodwill as of
January 1, 2002 to conform with the new goodwill standards.
(b) The Company has completed the valuations of certain assets relating to the
2001 business combinations. This resulted in changes to the fair value
allocation of the purchase price, and thus goodwill.
9. WEIGHTED AVERAGE SHARES OUTSTANDING AND EARNINGS (LOSS) PER SHARE:
For the three months ended September 30, 2001 and the three and nine
months ended September 30, 2002, the weighted average number of shares
outstanding for purposes of the diluted earnings (loss) per share calculation,
excludes the effect of convertible securities as they are anti-dilutive.
For the three and nine months ended September 30, 2002, the gain on the
principal equity component of the convertible debt repurchase of $4.0 is
included in the calculation of basic and diluted GAAP earnings (loss) per share.
See note 5.
10. SUPPLEMENTAL CASH FLOW INFORMATION:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2002 2001 2002
----------- ---------- ---------- ----------
Paid during the period:
Interest.....................................................$ 4.2 $ 5.1 $ 12.4 $ 17.2
Taxes........................................................$ 38.4 $ 4.5 $ 70.5 $ 16.0
Non-cash financing activities:
Convertible debt accretion, net of tax ....................$ 3.8 $ 4.6 $ 10.9 $ 13.2
Shares issued for acquisitions.............................$ 178.7 $ - $ 180.7 $ -
-30-
[CELESTICA INC. LOGO]
CELESTICA INC.
SUPPLEMENTAL INFORMATION
(in millions of US dollars, except per share amounts)
(unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
Q3 2000 Q4 2000 Q1 2001 Q2 2001 Q3 2001 Q4 2001 Q1 2002 Q2 2002
--------------------------------------------------------------------------------------------
REVENUE $2,600.1 $3,447.8 $2,692.6 $2,660.7 $2,203.0 $2,448.2 $2,151.5 $2,249.2
GAAP
NET EARNINGS (LOSS) 55.7 83.5 54.8 15.8 (38.7) (71.8) 39.7 40.4
Gain on repurchase of convertible
debt (GAAP only) - - - - - - - -
Convertible debt accretion, net of tax (2.1) (3.3) (3.4) (3.6) (3.9) (4.1) (4.2) (4.4)
--------------------------------------------------------------------------------------------
Earnings (loss) available to
shareholders - basic 53.6 80.2 51.4 12.2 (42.6) (75.9) 35.5 36.0
Earnings (loss) per share - basic $ 0.26 $0.39 $0.25 $0.06 $ (0.20) $ (0.33) $0.15 $0.16
--------------------------------------------------------------------------------------------
Earnings (loss) per share - $0.25 $0.38 $0.25 $0.06 $ (0.20) $ (0.33) $0.15 $0.15
diluted (1)(2)
--------------------------------------------------------------------------------------------
Weighted average number of shares
(in millions)
outstanding - basic 203.0 203.2 203.6 207.0 218.1 227.1 229.8 230.2
- diluted (1)(2) 220.0 222.6 223.1 225.5 218.1 227.1 236.8 236.0
Actual number of shares (in
millions) outstanding - basic 203.2 203.4 203.8 216.3 219.9 229.7 230.1 230.3
- -----------------------------------------------------------------------------------------------------------------------------------
ADJUSTED NET EARNINGS
Net earnings (loss) $55.7 $83.5 $54.8 $15.8 $ (38.7) $ (71.8) $39.7 $40.4
Adjustments:
Amortization of intangible assets 25.6 28.8 29.6 28.1 32.2 35.1 22.0 21.7
Integration costs related to
acquisitions 4.8 5.7 2.3 7.8 10.0 2.6 3.9 10.2
Other charges - - 3.8 53.2 79.6 136.5 - -
Income tax effect of above (2.2) (1.0) (3.2) (11.8) (18.4) (26.9) (2.2) (2.9)
--------------------------------------------------------------------------------------------
Adjusted net earnings $83.9 $117.0 $87.3 $93.1 $64.7 $75.5 $63.4 $69.4
--------------------------------------------------------------------------------------------
As a percentage of revenue 3.2% 3.4% 3.2% 3.5% 2.9% 3.1% 2.9% 3.1%
ADJUSTED NET EARNINGS FOR EPS
CALCULATION 83.9 117.0 87.3 93.1 64.7 75.5 63.4 69.4
Convertible debt accretion, net
of tax (2.1) (3.3) (3.4) (3.6) (3.9) (4.1) (4.2) (4.4)
--------------------------------------------------------------------------------------------
Adjusted net earnings available
to shareholders - basic 81.8 113.7 83.9 89.5 60.8 71.4 59.2 65.0
Adjusted net earnings per share - $0.40 $0.56 $0.41 $0.43 $0.28 $0.31 $0.26 $0.28
basic
--------------------------------------------------------------------------------------------
Adjusted net earnings per share - $0.38 $0.53 $0.39 $0.41 $0.27 $0.31 $0.26 $0.28
diluted* (1)
- -----------------------------------------------------------------------------------------------------------------------------------
EBITDA
Net earnings (loss) $55.7 $83.5 $54.8 $15.8 $ (38.7) $ (71.8) $39.7 $40.4
Income taxes 17.5 26.3 17.3 3.3 (7.9) (14.7) 8.1 8.3
--------------------------------------------------------------------------------------------
EBT 73.2 109.8 72.1 19.1 (46.6) (86.5) 47.8 48.7
Integration costs related to
acquisitions 4.8 5.7 2.3 7.8 10.0 2.6 3.9 10.2
Other charges - - 3.8 53.2 79.6 136.5 - -
--------------------------------------------------------------------------------------------
EBT 78.0 115.5 78.2 80.1 43.0 52.6 51.7 58.9
Interest expense (income), net (5.2) (5.7) (3.5) (2.4) (5.1) 3.2 1.7 1.4
--------------------------------------------------------------------------------------------
EBIT 72.8 109.8 74.7 77.7 37.9 55.8 53.4 60.3
Amortization of intangible assets 25.6 28.8 29.6 28.1 32.2 35.1 22.0 21.7
--------------------------------------------------------------------------------------------
EBIAT 98.4 138.6 104.3 105.8 70.1 90.9 75.4 82.0
3.8% 4.0% 3.9% 4.0% 3.2% 3.7% 3.5% 3.6%
--------------------------------------------------------------------------------------------
EBITDA $131.1 $175.2 $143.9 $148.5 $121.6 $149.8 $131.3 $137.2
--------------------------------------------------------------------------------------------
5.0% 5.1% 5.3% 5.6% 5.5% 6.1% 6.1% 6.1%
- -----------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Q3 2002 Q3 YTD 2001 Q3 YTD 2002 FY 2000 FY 2001
REVENUE $1,958.9 $ 7,556.2 $ 6,359.6 $9,752.1 $10,004.4
GAAP
NET EARNINGS (LOSS) (90.6) 32.0 (10.5) 206.7 (39.8)
Gain on repurchase of convertible debt (GAAP only) 4.0 - 4.0 - -
Convertible debt accretion, net of tax (4.6) (10.9) (13.2) (5.4) (15.0)
----------------------------------------------------------------
Earnings (loss) available to shareholders - basic (91.2) 21.1 (19.7) 201.3 (54.8)
Earnings (loss) per share - basic $ (0.40) $0.10 $ (0.09) $ 1.01 $ (0.26)
Earnings (loss) per share - diluted (1)(2) $ (0.40) $ 0.10 $ (0.09) $0.98 $ (0.26)
----------------------------------------------------------------
Weighted average number of shares (in millions)
outstanding - basic 230.1 208.0 230.0 199.8 213.9
- diluted (1)(2) 230.1 226.6 230.0 211.8 213.9
Actual number of shares (in millions)
outstanding - basic 229.4 219.9 229.4 203.4 229.7
- --------------------------------------------------------------------------------------------------------------------------
ADJUSTED NET EARNINGS
Net earnings (loss) $ (90.6) $32.0 $ (10.5) $206.7 $ (39.8)
Adjustments:
Amortization of intangible assets 29.0 89.9 72.7 88.9 125.0
Integration costs related to acquisitions 3.0 20.1 17.1 16.1 22.8
Other charges 136.4 136.6 136.4 - 273.1
Income tax effect of above (26.9) (33.5) (32.0) (7.6) (60.5)
----------------------------------------------------------------
Adjusted net earnings $ 50.9 $245.1 $183.7 $304.1 320.6
----------------------------------------------------------------
As a percentage of revenue 2.6% 3.2% 2.9% 3.1% 3.2%
ADJUSTED NET EARNINGS FOR EPS CALCULATION 50.9 245.1 183.7 304.1 320.6
Convertible debt accretion, net of tax (4.6) (10.9) (13.2) (5.4) (15.0)
----------------------------------------------------------------
Adjusted net earnings available to shareholders - basic 46.3 234.2 170.5 298.7 305.6
Adjusted net earnings per share - basic $ 0.20 $1.13 $0.74 $1.50 $1.43
----------------------------------------------------------------
Adjusted net earnings per share - diluted* (1) $ 0.20 $1.08 $0.72 $1.44 $1.38
- --------------------------------------------------------------------------------------------------------------------------
EBITDA
Net earnings (loss) $ (90.6) $32.0 $ (10.5) $206.7 $ (39.8)
Income taxes (18.6) 12.6 (2.2) 69.2 (2.1)
----------------------------------------------------------------
EBT (109.2) 44.6 (12.7) 275.9 (41.9)
Integration costs related to acquisitions 3.0 20.1 17.1 16.1 22.8
Other charges 136.4 136.6 136.4 - 273.1
----------------------------------------------------------------
EBT 30.2 201.3 140.8 292.0 254.0
Interest expense (income), net (1.1) (11.0) 2.0 (19.0) (7.9)
----------------------------------------------------------------
EBIT 29.1 190.3 142.8 273.0 246.1
Amortization of intangible assets 29.0 89.9 72.7 88.9 125.0
----------------------------------------------------------------
EBIAT 58.1 280.2 215.5 361.9 371.1
3.0% 3.7% 3.4% 3.7% 3.7%
----------------------------------------------------------------
EBITDA $ 111.2 $414.0 $379.7 $483.8 $563.8
----------------------------------------------------------------
5.7% 5.5% 6.0% 5.0% 5.6%
- --------------------------------------------------------------------------------------------------------------------------
(1) Restated to reflect treasury stock method, retroactively applied.
(2) 2001-Q3, Q4 and FY; 2002-Q3 and Q3YTD excludes options and convertible debt
as they are anti-dilutive due to the losses. 2002-Q1 and Q2 excludes
convertible debt as it is anti-dilutive.
Convertible debt accretion must be deducted from net earnings to calculate
diluted EPS.
- - Adjusted net earnings per share - diluted:
For Q3, Q4 and FY 2001, the diluted weighted average shares (in millions)
for "Adjusted net earnings" is 235.7, 244.5 and 232.9, respectively.
For Q1 2002, the diluted weighted average shares for "Adjusted net
earnings" is 247.1 million.
For Q2, Q3 and Q3YTD 2002, the diluted weighted average shares (in
millions) for "Adjusted net earnings" is 236.0, 234.9 and 236.0,
respectively, and excludes convertible debt as it is anti-dilutive.
Convertible debt accretion must be deducted from net earnings to calculate
diluted EPS.
EXHIBIT 99.3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER 2002
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE 2001
CONSOLIDATED FINANCIAL STATEMENTS.
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 THE CANADIAN
SECURITIES COMMISSION AND THE U.S. SECURITIES AND EXCHANGE COMMISSION.
WE DISCLAIM ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE, UNLESS REQUIRED TO DO SO BY APPLICABLE SECURITIES LAW.
THE COMPANY HAS VOLUNTARILY COMPLIED WITH THE CERTIFICATION REQUIREMENT
OF RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED BY SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002, FOR THE PERIOD ENDED SEPTEMBER 30, 2002. THIS
CERTIFICATION REQUIREMENT IS APPLICABLE TO DOMESTIC U.S. COMPANIES WHO FILE
QUARTERLY REPORTS ON FORM 10-Q WITH THE SECURITIES AND EXCHANGE COMMISSION.
GENERAL
Celestica is a world leader in providing electronics manufacturing
services to OEMs in the information technology and communications industries
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 printed circuit board assemblies 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 the Americas, Europe and Asia.
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 asset and business acquisitions.
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. 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, system assembly, test, repair and supply chain
management
2
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.
These supply agreements may be subject to order cancellations and
reschedulings, as described below with respect to our base business, generally,
as a result of weak end-market conditions.
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 CR s.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 had approximately 9,000
employees at the date of acquisition. 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 for 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.
2002 ASSET ACQUISITIONS:
On March 31, 2002, the Company acquired certain assets located in
Miyagi and Yamanashi, Japan from NEC Corporation. The Company signed a five-year
supply agreement to provide a complete range of electronics manufacturing
services for a broad range of NEC's optical backbone and broadband access
equipment. In August 2002, the Company acquired certain assets from Corvis
Corporation in the United States. The Company signed a multi-year supply
agreement with Corvis, which positions Celestica as the exclusive manufacturer
of Corvis' terrestrial optical networking products and sub-sea terminating
equipment. The purchase price for these acquisitions was financed with cash and
allocated to the net assets acquired, based on their relative fair values at the
date of acquisition.
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.
3
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 agreements 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
and other costs and the 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 labour, inventory and capital assets effectively, the timing of
expenditures in anticipation of forecasted sales levels, the timing of
acquisitions and related integration costs, customer product delivery
requirements, shortages of components or labour and other factors. Weak
end-market conditions have continued in the telecommunications and information
technology industries which resulted in customers rescheduling or cancelling
orders. This has impacted Celestica's results of operations.
The table below sets forth certain operating data expressed as a
percentage of revenue for the periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2002 2001 2002
-------- ------- ------- -------
Revenue..................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales............................... 93.2 93.3 92.9 93.0
-------- ------- ------- -------
Gross profit................................ 6.8 6.7 7.1 7.0
Selling, general and administrative expenses 3.6 3.7 3.4 3.6
Amortization of goodwill and other intangible
assets...................................... 1.5 1.5 1.2 1.2
Integration costs related to acquisitions... 0.5 0.1 0.3 0.3
Other charges............................... 3.6 7.0 1.8 2.1
-------- ------- ------- -------
Operating income (loss)..................... (2.4) (5.6) 0.4 (0.2)
Interest expense (income), net.............. (0.2) (0.1) (0.2) 0.0
-------- ------- ------- -------
Earnings (loss) before income taxes......... (2.2) (5.5) 0.6 (0.2)
Income taxes (recovery)..................... (0.4) (0.9) 0.2 0.0
-------- ------- ------- -------
Net earnings (loss)......................... (1.8)% (4.6)% 0.4% (0.2)%
-------- ------- ------- -------
-------- ------- ------- -------
ADJUSTED NET EARNINGS
As a result of the significant number of acquisitions made by Celestica
over the past few years, management of Celestica believes adjusted net earnings
is a useful measure of operating performance on an enterprise-wide basis, that
also facilitates reliable period to period comparisons. Adjusted net earnings
exclude the effects of acquisition-related charges (most significantly,
amortization of intangible assets and integration costs related to
acquisitions), other non-recurring 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 do not have any
standardized meaning prescribed by GAAP and are not necessarily comparable to
similar measures presented by other companies. Adjusted net earnings are not a
measure of performance under Canadian GAAP or U.S. GAAP and should not be
considered in isolation or as a substitute for net earnings prepared in
accordance with Canadian GAAP or U.S. GAAP. The following table reconciles net
earnings (loss) to adjusted net earnings:
4
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2002 2001 2002
--------- -------- ------- ---------
(in millions) (in millions)
Net earnings (loss).................................. $ (38.7) $ (90.6) $ 32.0 $ (10.5)
Add: Amortization of goodwill and other intangible 32.2 29.0 89.9 72.7
assets...............................................
Add: Integration costs related to acquisitions....... 10.0 3.0 20.1 17.1
Add: Other non-recurring charges (1)................. 79.6 136.4 136.6 136.4
Less: Income tax effect of above..................... (18.4) (26.9) (33.5) (32.0)
--------- -------- ------- ---------
Adjusted net earnings................................ $ 64.7 $ 50.9 $ 245.1 $ 183.7
--------- -------- ------- ---------
As a percentage of revenue........................ 2.9% 2.6% 3.2% 2.9%
--------- -------- ------- ---------
(1) See "Other Charges" and note 7 to the September 30, 2002
consolidated financial statements.
REVENUE
Revenue decreased 11%, to $1,958.9 million for the three months ended
September 30, 2002, from $2,203.0 million for the same period in 2001. Revenue
for the nine months ended September 30, 2002 decreased 16%, to $6,359.6 million
from $7,556.2 million for the same period in 2001. For the quarter,
base-business volumes declined 28%, offset by a 17% increase in acquisition
revenue year-to-year. Acquisition growth was driven by the Company's
acquisitions in the latter half of 2001 and in 2002, primarily in Asia. Base
revenue continues to decline due to the prolonged weakened end-market
conditions. The visibility of future end-market conditions remains limited.
Revenue from the Americas operations decreased 29% to $1,028.4 million
for the three months ended September 30, 2002, compared to the same period in
2001, and decreased 24% to $3,696.6 million for the nine months ended September
30, 2002, compared to the same period in 2001, primarily due to the continued
end-market weakness. Revenue from European operations decreased 40% to $382.3
million for the three months ended September 30, 2002, compared to the same
period in 2001, and decreased 44% to $1,333.2 million for the nine months ended
September 30, 2002, compared to the same period in 2001, primarily due to the
general industry downturn. The Americas and European operations have been
hardest hit by customer cancellations or delays of orders because of the
downturn in end-market demand for their products, as well as, the need for lower
product manufacturing costs. As a result, the Company has initiated additional
restructuring actions to reduce the manufacturing capacity in these geographies.
This includes the downsizing and closing of manufacturing facilities. The
Company also plans to transfer programs to lower cost geographies. Revenue from
Asian operations increased 263% to $595.4 million for the three months ended
September 30, 2002, compared to the same period in 2001, and increased 166% to
$1,529.5 million for the nine months ended September 30, 2002, compared to the
same period in 2001. The increase in revenue from the Asian operations is
primarily due to acquisitions, however, base business volumes have also
increased. Inter-segment revenue for the three and nine months ended September
30, 2002, was $47.2 million and $199.7 million, respectively, compared to $45.1
million and $256.1 million for the same periods in 2001. Acquisitions completed
in the latter part of 2001 and in 2002 are expected to increase revenue
primarily in the Asian operations.
Sequentially, revenue decreased 13% from $2,249.2 million for the three
months ended June 30, 2002 due to continued base business declines attributed to
weakened end-markets.
The following represents the end-market industries as a percentage of
revenue for the indicated periods:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------ -------------------
2001 2002 2001 2002
---- ---- ---- ----
Communications......... 38% 46% 34% 46%
Servers................ 30% 22% 32% 26%
Storage and Other...... 18% 26% 18% 21%
Workstations and PCs... 14% 6% 16% 7%
5
The following customers represented more than 10% of total revenue for
each of the indicated periods:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------ -------------------
2001 2002 2001 2002
---- ---- ---- ----
Sun Microsystems.... X X X X
IBM................. X X X X
Lucent Technologies X X X
Hewlett Packard..... X X
Celestica's top five customers represented in the aggregate 62% and
67%, respectively, of total revenue for the three and nine months ended
September 30, 2002, compared to 67% and 65%, respectively, of total revenue for
the same period in 2001. 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 2001
Consolidated Financial Statements.
GROSS PROFIT
Gross profit decreased 12%, to $131.3 million for the three months
ended September 30, 2002 compared to the same period in 2001. Gross margin
decreased to 6.7% for the three months ended September 30, 2002 from 6.8% for
the same period in 2001. Gross profit decreased 17% to $445.5 million for the
nine months ended September 30, 2002 compared to the same period in 2001. Gross
margin decreased to 7.0% for the nine months ended September 30, 2002, from 7.1%
for the same period in 2001.
Sequentially, gross margin decreased 0.5% from 7.2% for the three
months ended June 30, 2002. This reduction was primarily due to unexpected
significant late quarter reductions in business volumes, primarily in Europe
which was operating at lower levels of utilization and higher fixed costs in the
period. In addition, these volume reductions were on higher value-added
products, further adversely affecting margins in Europe. The above margin and
gross profit decline in Europe was partially offset by improved operating
efficiencies, higher value-added product mix and the effects of restructuring in
the Americas, higher volumes and utilization rates in Asia and overall lower
variable compensation costs (commissions and bonuses).
For the foreseeable future, the Company's gross margin is expected to
depend on product mix, production efficiencies, utilization of manufacturing
capacity, start-up activity, new product introductions, pricing within the
electronics industry and other factors. 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, price
erosion within the electronics industry and other factors could adversely affect
the Company's gross margin. Also, the availability of raw materials, which are
subject to lead time and other constraints, could possibly limit the Company's
revenue growth.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses decreased 8% to
$73.2 million (3.7% of revenue) for the three months ended September 30, 2002,
from $79.4 million (3.6% of revenue) for the same period in 2001. SG&A expenses
decreased 10% for the nine months ended September 30, 2002, to $230.0 million
(3.6% of revenue) from $254.8 million (3.4% of revenue) for the same period in
2001. SG&A as a percentage of revenue has increased since decreases in spending
were slower than decreases in revenue. The decrease in expenses, on an absolute
basis, reflects the benefits from the Company's restructuring programs and a
reduction in discretionary spending, which more than offset the increase in
expenses due to operations acquired in the latter part of 2001 and in 2002.
Sequentially, SG&A expenses decreased 9% from $80.0 million for the
three months ended June 30, 2002, as a result of lower costs, due to workforce
and spending reductions as well as lower variable compensation costs
(commissions and bonuses).
6
Research and development (R&D) costs decreased to $4.1 million (0.2% of
revenue) for the three months ended September 30, 2002, compared to $7.2 million
(0.3% of revenue) for the same period in 2001. R&D costs for the nine months
ended September 30, 2002 were $13.5 million, compared to $16.1 million for the
same period of 2001.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS
Amortization of goodwill and other intangible assets decreased to $29.0
million and $72.7 million, respectively, for the three and nine months ended
September 30, 2002, from $32.2 million and $89.9 million for the same periods in
2001. Effective January 1, 2002, the Company fully adopted the new accounting
standards for "Business Combinations" and "Goodwill and Other Intangible Assets"
and has discontinued amortization of all goodwill effective January 1, 2002.
Amortization of goodwill for the three and nine months ended September 30, 2001
was $7.9 million and $29.2 million, respectively, and for fiscal 2001 was $39.2
million. See "Recent Accounting Developments." The decrease in amortization is
the result of this change in accounting for goodwill, offset in part by the
amortization of other intangible assets arising from the 2001 and 2002
acquisitions.
Sequentially, amortization increased $7.3 million from $21.7 million
for the three months ended June 30, 2002. During the quarter, the Company
completed the valuation of certain assets relating to 2001 and 2002
acquisitions, resulting in additional amortization on the fair value of the
intangible assets.
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 $3.0 million and $17.1 million, respectively,
for the three and nine months ended September 30, 2002, compared to $10.0
million and $20.1 million for the same periods in 2001. The integration costs
incurred in 2002 primarily relate to the Lucent, NEC Japan and Omni
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
and 2002 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 unique in
nature. For the three and nine months ended September 30, 2002, Celestica
incurred $136.4 million in other charges, compared to $79.6 million and $136.6
million, respectively, for the same periods in 2001. The largest portion of the
other charges relate to the Company's two restructuring programs.
The details of the other charges are included in note 7 to the
September 30, 2002 Consolidated Financial Statements.
The Company has and expects to continue to benefit from the
restructuring measures taken in 2001 and 2002 through margin improvements and
reduced operating costs. The Company expects to complete the major components of
the 2001 restructuring plan by the end of 2002 and of the 2002 restructuring
plan by the end of 2003, except for certain long-term lease contractual
obligations. Cash outlays are funded from cash on hand.
INTEREST INCOME, NET
Net interest income for the three months ended September 30, 2002
amounted to $1.1 million and net interest expense, for the nine months ended
September 30, 2002 amounted to $2.0 million, compared to net interest
7
income of $5.1 million and $11.0 million for the same periods in 2001. Interest
income decreased for the three and nine months ended September 30, 2002 compared
to the same periods in 2001 because of lower interest rates on cash balances.
Interest income was offset by the interest expense on the Company's Senior
Subordinated Notes and debt facilities.
The Company redeemed its Senior Subordinated Notes in August 2002.
Interest expense will decrease as a result of this redemption.
INCOME TAXES
Income tax recovery for the three months ended September 30, 2002 was
$18.6 million compared to a recovery of $7.9 million for the same period in
2001, both periods reflecting an effective tax rate of 17%. Income tax recovery
for the nine months ended September 30, 2002 was $2.2 million, reflecting an
effective tax rate of 17%, compared to an expense of $12.6 million and an
effective tax rate of 28% for the same period in 2001.
The Company's effective tax rate is the 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 Company
does not expect the expiry of the tax incentive in 2002 to have a significant
impact on its effective tax rate. The Company expects the current tax rate of
17% to continue for the foreseeable future.
Celestica has recognized a net deferred tax asset at September 30, 2002
of $162.7 million (net of a valuation allowance of $19.3 million) compared to
$102.8 million (net of a valuation allowance of nil) at December 31, 2001. The
net deferred tax asset arises from available tax losses and future income tax
deductions. The utilization of these tax losses and future income tax deductions
is limited to the future operations of the Company in the tax jurisdictions in
which such losses or deductions arose. The valuation allowance provides a
reserve against deferred tax assets that may expire or go unutilized by the
Company. The remaining net deferred tax asset relates to the recognition of tax
losses and future income tax deductions available to reduce future years' income
for income tax purposes. Celestica's current projections demonstrate that it
will more likely than not generate sufficient taxable income in the future to
realize the benefit of these deferred tax assets in the carry forward periods. A
portion of the tax losses has an indefinite carry forward period. The other
portion will expire over a 19-year period commencing in 2005.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended September 30, 2002, operating activities
provided Celestica with $371.4 million in cash compared to $449.7 million for
the same period in 2001. For the nine months ended September 30, 2002, operating
activities provided Celestica with $882.1 million in cash compared to $401.1
million for the same period in 2001. Cash was generated primarily from earnings
and a reduction in working capital, in particular, inventory, due to improved
inventory management and the sale of accounts receivable. The Company will
continue to focus on improving working capital management.
For the three months ended September 30, 2002, investing activities
included capital expenditures of $44.3 million, offset by proceeds from the sale
of the Columbus facility of $47.2 million. For the nine months ended September
30, 2002, investing activities included capital expenditures of $119.3 million
and acquisitions of $110.7 million, offset in part by proceeds of $68.2 million
from the sale-leaseback of machinery and equipment and the sale of the Columbus
facility. For the nine months ended September 30, 2001, investing activities
included capital expenditures of $162.1 million and $864.4 million for
acquisitions. See "Acquisitions."
During the quarter, Celestica redeemed the entire $130.0 million of
outstanding Senior Subordinated Notes which were due in 2006. Celestica paid the
contractual premium of 5.25%, or $6.9 million, on the redemption. The Company
also reduced the leverage on its balance sheet by repurchasing Liquid Yield
OptionTM Notes (LYONs) in the open market during the quarter. These LYONs,
having a principal amount at maturity of $110.4 million, were repurchased at an
average price of $437.60 per LYON, for a total of $48.3 million. The Company
may, from time to time, purchase additional LYONs in the open market. The board
of directors have authorized the Company to
8
purchase additional LYONs, having an aggregate purchase price of up to $100
million, subject to market conditions. The amount and timing of any such
purchases cannot be determined at this time.
In July 2002, Celestica filed a Normal Course Issuer Bid to repurchase
up to 9.6 million Subordinate Voting Shares, for cancellation, over a period
from August 1, 2002 to July 30, 2003. The shares will be purchased at the market
price at the time of purchase. The number of shares to be repurchased during any
30-day period may not exceed 2% of the outstanding Subordinate Voting Shares. A
copy of our Notice relating to the Normal Course Issuer Bid may be obtained from
Celestica, without charge, by contacting the Company's Investor Relations
Department at clsir@celestica.com. During the quarter, the Company repurchased
-------------------
1.0 million Subordinate Voting Shares at the weighted average price of $17.08
per share. All of these transactions were funded with cash on hand.
In May 2001, Celestica issued 12.0 million Subordinate Voting Shares
for gross proceeds of $714.0 million less costs of $10.0 million (pre-tax).
CAPITAL RESOURCES
Celestica has three unsecured, revolving credit facilities totalling
$960.0 million, each provided by a syndicate of lenders and which are available
until July 2003, April and July 2005. The credit facilities permit Celestica and
certain designated subsidiaries to borrow funds directly for general corporate
purposes (including acquisitions) at floating rates. 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 September
30, 2002.
Celestica and certain subsidiaries have uncommitted bank facilities
which total $46.8 million that are available for operating requirements.
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 2.0% of revenue. At
September 30, 2002, Celestica had committed $44.3 million in capital
expenditures. In addition, Celestica regularly reviews acquisition
opportunities, and may therefore require additional debt or equity financing.
The Company has an arrangement to sell up to $400.0 million in accounts
receivable under a revolving facility which is available until September 2004.
Consistent with previous quarters, the Company has received $400.0 million cash
in connection with the sale of accounts receivable.
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 September 30,
2002, Celestica had forward foreign exchange contracts covering various
currencies in an aggregate notional amount of $645.4 million with expiry dates
up to February 2004, except for one contract for $10.6 million that expires in
January 2006. The fair value of these contracts at September 30, 2002 was an
unrealized gain of $22.8 million. Celestica's current hedging activity is
designed to reduce the variability of its foreign currency costs and generally
involves entering into contracts to trade U.S. dollars for Canadian dollars,
British pounds sterling, Mexican pesos, euros, Thailand baht, Singapore dollars,
Brazilian reais and Czech koruna at future dates. In general, these contracts
extend for periods of less than 19 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.
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
9
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 will be generated. A
significant change in the projected future net cash flows could impact the
estimated useful life.
RECENT ACCOUNTING DEVELOPMENTS
BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS:
In September 2001, the CICA issued Handbook Sections 1581, "Business
Combinations" and 3062, "Goodwill and Other Intangible Assets." See note 2(a)
to the September 30, 2002 Consolidated Financial Statements.
Effective January 1, 2002, the Company fully adopted these standards
which requires the completion of a transitional goodwill impairment evaluation
within six months of adoption. The Company has completed the transitional
assessment during the second quarter of 2002 and has determined that no
impairment existed as of the date of adoption.
STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS:
Effective January 1, 2002, the Company adopted the new CICA Handbook
Section 3870. See note 2(b) to the September 30, 2002 Consolidated Financial
Statements.
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 2004 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.
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 that the
adoption of these standards will have no material impact on its financial
position, results of operations or cash flows.
10
GUARANTEES:
In June 2002, the Accounting Standards Board ("AcSB") published an
exposure draft relating to a proposed Accounting Guideline on disclosure
requirements for guarantees. The proposed Accounting Guideline requires that a
guarantor disclose significant information about guarantees it has provided,
without regard to whether it will have to make any payments under the
guarantees. The proposed Guideline would be applied to financial statements for
annual and interim periods ending on or after December 31, 2002. The Company
expects that the adoption of this guideline will have no material impact on its
financial position, results of operations or cash flows.
COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES:
In July 2002, FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses financial
accounting and reporting for costs associated with exit or disposal activities.
The Statement is effective for exit or disposal activities that are initiated
after December 31, 2002. The Company expects that the adoption of this standard
will not have a material impact on its existing restructuring plans as these
plans were initiated under an exit plan that meets the criteria of Emerging
Issues Task Force No. 94-3.
EXHIBIT 99.4
CELESTICA INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS OF U.S. DOLLARS)
(UNAUDITED)
DECEMBER 31 SEPTEMBER 30
2001 2002
-------------- ---------------
ASSETS
Current assets:
Cash and short-term investments.................$ 1,342.8 $ 1,848.3
Accounts receivable ............................ 1,054.1 924.0
Inventories .................................... 1,372.7 945.8
Prepaid and other assets........................ 177.3 142.8
Deferred income taxes........................... 49.7 56.5
--------------- ---------------
3,996.6 3,917.4
Capital assets ................................... 915.1 831.4
Goodwill on business combinations (note 2)........ 1,128.8 1,155.1
Other intangible assets (note 2).................. 427.2 355.5
Other assets ..................................... 165.2 232.3
--------------- ---------------
$ 6,632.9 $ 6,491.7
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................$ 1,198.3 $ 1,137.6
Accrued liabilities............................. 405.7 471.4
Income taxes payable............................ 21.0 18.2
Deferred income taxes........................... 21.8 22.1
Current portion of long-term debt .............. 10.0 2.7
--------------- ---------------
1,656.8 1,652.0
Long-term debt (note 4)........................... 137.4 5.2
Accrued post-retirement benefits ................. 47.3 75.5
Deferred income taxes............................. 41.5 52.9
Other long-term liabilities....................... 4.3 4.9
-------------- --------------
1,887.3 1,790.5
Shareholders' equity:
Convertible debt (note 5)....................... 886.8 853.7
Capital stock (note 6).......................... 3,699.0 3,687.4
Contributed surplus............................. - 2.8
Retained earnings............................... 162.7 141.9
Foreign currency translation adjustment......... (2.9) 15.4
--------------- --------------
4,745.6 4,701.2
-------------- --------------
$ 6,632.9 $ 6,491.7
=============== ===============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
THESE INTERIM FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS.
2
CELESTICA INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND RETAINED EARNINGS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2002 2001 2002
-------------- -------------- -------------- ------------
Revenue........................................................ $ 2,203.0 $ 1,958.9 $ 7,556.2 $ 6,359.6
Cost of sales.................................................. 2,053.5 1,827.6 7,021.2 5,914.1
------------ ------------ --------- ---------
Gross profit................................................... 149.5 131.3 535.0 445.5
Selling, general and administrative expenses .................. 79.4 73.2 254.8 230.0
Amortization of goodwill and other intangible assets (note 2).. 32.2 29.0 89.9 72.7
Integration costs related to acquisitions ..................... 10.0 3.0 20.1 17.1
Other charges (note 7)......................................... 79.6 136.4 136.6 136.4
------------ ----------- --------- ---------
Operating income (loss)........................................ (51.7) (110.3) 33.6 (10.7)
Interest on long-term debt..................................... 4.4 3.5 13.9 14.5
Interest income, net........................................... (9.5) (4.6) (24.9) (12.5)
------------- ------------- ---------- ----------
Earnings (loss) before income taxes............................ (46.6) (109.2) 44.6 (12.7)
------------- ------------- --------- ----------
Income taxes:
Current ..................................................... (4.0) (6.7) 15.3 12.4
Deferred (recovery).......................................... (3.9) (11.9) (2.7) (14.6)
------------- ------------- ---------- ----------
(7.9) (18.6) 12.6 (2.2)
------------- ------------- --------- ----------
Net earnings (loss) for the period............................. (38.7) (90.6) 32.0 (10.5)
Retained earnings, beginning of period......................... 281.1 234.2 217.5 162.7
Convertible debt accretion, net of tax......................... (3.8) (4.6) (10.9) (13.2)
Gain on repurchase of convertible debt (note 5)................ - 4.3 - 4.3
Loss on repurchase of capital stock (note 6)................... - (1.4) - (1.4)
----------- ------------- ---------- ----------
Retained earnings, end of period............................... $ 238.6 $ 141.9 $ 238.6 $ 141.9
============ ============ ========== ==========
Basic earnings (loss) per share (note 9)....................... $ (0.20) $ (0.40) $ 0.10 $ (0.09)
Diluted earnings (loss) per share (note 9)..................... $ (0.20) $ (0.40) $ 0.10 $ (0.09)
Weighted average number of shares outstanding:
- basic (in millions)....................................... 218.1 230.1 208.0 230.0
- diluted (in millions) (note 9)............................ 218.1 230.1 226.6 230.0
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
THESE INTERIM FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS.
3
CELESTICA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS OF U.S. DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2002 2001 2002
-------------- -------------- -------------- --------------
CASH PROVIDED BY (USED IN):
OPERATIONS:
Net earnings (loss) for the period .................... $ (38.7) $ (90.6) $ 32.0 $ (10.5)
Items not affecting cash:
Depreciation and amortization........................ 84.3 82.7 225.3 239.2
Deferred income taxes................................ (3.9) (11.9) (2.7) (14.6)
Other charges........................................ 58.7 79.2 75.9 79.2
Other................................................ 2.2 (2.0) 3.5 2.2
----------- ------------ ----------- -----------
Cash from earnings..................................... 102.6 57.4 334.0 295.5
----------- ----------- ----------- -----------
Changes in non-cash working capital items:
Accounts receivable.................................. 324.9 178.9 498.7 159.3
Inventories.......................................... 270.5 171.8 447.2 452.5
Other assets......................................... (10.8) 10.8 80.5 (1.6)
Accounts payable and accrued liabilities............. (219.2) (35.2) (923.7) (18.6)
Income taxes payable................................. (18.3) (12.3) (35.6) (5.0)
------------ ------------ ------------ ------------
Non-cash working capital changes..................... 347.1 314.0 67.1 586.6
----------- ----------- ----------- -----------
Cash provided by operations.......................... 449.7 371.4 401.1 882.1
----------- ----------- ----------- -----------
INVESTING:
Acquisitions, net of cash acquired................... (716.3) (7.8) (864.4) (110.7)
Purchase of capital assets........................... (26.0) (44.3) (162.1) (119.3)
Proceeds on sale of capital assets................... - 47.2 - 68.2
Other................................................ 0.4 (1.0) 1.3 (1.1)
----------- ------------ ----------- ------------
Cash used in investing activities.................... (741.9) (5.9) (1,025.2) (162.9)
------------ ------------ ------------ ------------
FINANCING:
Bank indebtedness.................................... (1.6) - (1.6) (1.6)
Repayment of long-term debt (note 4)................. (1.0) (130.6) (2.7) (145.5)
Debt redemption fees (note 4)........................ - (6.9) - (6.9)
Deferred financing costs............................. (4.1) (0.1) (4.1) (0.6)
Repurchase of convertible debt (note 5).............. - (48.3) - (48.3)
Issuance of capital stock............................ 2.6 1.3 724.6 5.8
Share issue costs, pre-tax .......................... - - (10.0) -
Repurchase of capital stock (note 6)................. - (17.1) - (17.1)
Other................................................ 0.9 0.8 - 0.5
----------- ----------- ----------- -----------
Cash provided by (used in) financing activities...... (3.2) (200.9) 706.2 (213.7)
------------ ------------ ----------- ------------
Increase (decrease) in cash............................ (295.4) 164.6 82.1 505.5
Cash, beginning of period.............................. 1,261.3 1,683.7 883.8 1,342.8
----------- ----------- ----------- -----------
Cash, end of period.................................... $ 965.9 $ 1,848.3 $ 965.9 $ 1,848.3
=========== =========== =========== ===========
Cash is comprised of cash and short-term investments.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
THESE INTERIM FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH
THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS.
4
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. NATURE OF BUSINESS:
The primary operations of the Company consist of 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 information technology and
communications industries. The Company has operations in the Americas, Europe
and Asia.
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.
2. SIGNIFICANT ACCOUNTING POLICIES:
The disclosures contained in these unaudited interim consolidated financial
statements do not include all requirements of generally accepted accounting
principles (GAAP) for annual financial statements. The unaudited interim
consolidated financial statements should be read in conjunction with the annual
consolidated financial statements for the year ended December 31, 2001.
The unaudited interim consolidated financial statements reflect all
adjustments, consisting only of normal recurring accruals, which are, in the
opinion of management, necessary to present fairly the financial position of the
Company as of September 30, 2002 and the results of operations and cash flows
for the three and nine months ended September 30, 2001 and 2002.
The unaudited interim consolidated financial statements are based upon
accounting principles consistent with those used and described in the annual
consolidated financial statements, except the following:
(a) BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS:
In September 2001, the Canadian Institute of Chartered Accountants (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 U.S. GAAP.
Effective July 1, 2001, 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 have been applied to business
combinations completed after June 30, 2001.
The Company has fully adopted these new standards as of January 1, 2002,
and has discontinued amortization of all existing goodwill. The Company has also
evaluated existing intangible assets, including estimates of remaining useful
lives, and has reclassed $9.1 from intellectual property to goodwill as of
January 1, 2002 to conform with the new criteria.
Section 3062 requires the completion of a transitional goodwill impairment
evaluation within six months of adoption. Impairment is identified by comparing
the carrying amounts of the Company's reporting units with their fair values. To
the extent a reporting unit's carrying amount exceeds its fair value, the
impairment is measured in a manner similar to a purchase price allocation and
must be recorded by December 31, 2002. Any transitional impairment would be
recognized as an effect of a change in accounting principle and would be charged
to opening retained earnings as of January 1, 2002. The Company completed the
transitional
5
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
goodwill impairment assessment during the second quarter of 2002,
and determined that no impairment existed as of the date of adoption.
Effective January 1, 2002, the Company had unamortized goodwill of $1,137.9
which is no longer being amortized. This change in accounting policy is not
applied retroactively and the amounts presented for prior periods have not been
restated for this change. The impact of this change is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2002 2001 2002
-------------- -------------- -------------- -------------
Net earnings (loss)........................ $ (38.7) $ (90.6) $ 32.0 $ (10.5)
Add back: goodwill amortization............ 7.9 - 29.2 -
--------- --------- --------- ---------
Net earnings (loss) before goodwill
amortization............................... $ (30.8) $ (90.6) $ 61.2 $ (10.5)
========== ========== ========= ==========
Basic earnings (loss) per share:
Net earnings (loss)........................ $ (0.20) $ (0.40) $ 0.10 $ (0.09)
Net earnings (loss) before goodwill
amortization............................... $ (0.16) $ (0.40) $ 0.24 $ (0.09)
Diluted earnings (loss) per share:
Net earnings (loss)........................ $ (0.20) $ (0.40) $ 0.10 $ (0.09)
Net earnings (loss) before goodwill
amortization............................... $ (0.16) $ (0.40) $ 0.24 $ (0.09)
The following table sets forth the Company's goodwill and other intangible
assets as of September 30, 2002:
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
Goodwill............................ $ 1,287.4 $ 132.3 $ 1,155.1
========== ========== ==========
Other intangible assets:
Intellectual property............... $ 353.8 $ 184.5 $ 169.3
Other intangible assets............. 230.4 44.2 186.2
---------- ---------- ----------
$ 584.2 $ 228.7 $ 355.5
========== ========== ==========
Intellectual property primarily represents the cost of certain intellectual
property and process technology. Other intangible assets consist primarily of
customer relationship and contracts representing the excess of cost over the
fair value of tangible assets and intellectual property acquired in asset
acquisitions.
Other intangible assets have increased $51.5 due to acquisitions. This
increase has been offset by reclassifications to goodwill (see note 8(b)) and
write-offs due to restructuring.
The aggregate amortization expense for other intangible assets was
$29.0 and $72.7 for the three and nine months ended September 30, 2002,
respectively.
(b) STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS:
Effective January 1, 2002, the Company adopted the new CICA Handbook
Section 3870, which requires that a fair value based method of accounting be
applied to all stock-based payments to non-employees and to direct awards of
stock to employees. 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 with the addition of pro forma information. The Company has
applied the pro forma disclosure provisions of the new standard to awards
granted on or after January 1, 2002. The pro forma effect of awards granted
prior to January 1, 2002, has not been included.
6
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
The standard requires the disclosure of pro forma net earnings and earnings
per share information as if the Company had accounted for employee stock options
under the fair value method. The fair value of the options issued in the quarter
and nine-month period were determined using the Black-Scholes option pricing
model. The following assumptions were used in the quarter: risk-free rate of
4.88%; dividend yield of 0%; a volatility factor of the expected market price of
the Company's shares of 70%; and a weighted-average expected option life of 7.5
years. The weighted-average grant date fair values of options issued during the
quarter was $13.32 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 three months ended September 30, 2002, the Company's pro forma
net loss is $91.1, basic loss per share is $0.40 and diluted loss per share is
$0.40. For the nine months ended September 30, 2002, the Company's pro forma net
loss is $11.5, basic loss per share is $0.09 and diluted loss per share is
$0.09. The Company's stock option plans are described in note 11 to the 2001
consolidated financial statements.
3. ACQUISITIONS:
ASSET ACQUISITIONS:
On March 31, 2002, the Company acquired certain assets located in Miyagi
and Yamanashi, Japan from NEC Corporation. In August 2002, the Company acquired
certain assets from Corvis Corporation in the United States. The purchase price
for these acquisitions was financed with cash and allocated to the net assets
acquired, including other intangible assets of $51.5, based on their relative
fair values at the date of acquisition.
4. LONG-TERM DEBT
In August 2002, the Company redeemed the entire $130.0 of outstanding
Senior Subordinated Notes at a premium of 5.25%. See note 7(b).
5. CONVERTIBLE DEBT
During the quarter the Company repurchased Liquid Yield OptionTM Notes
(LYONs) with a principal amount at maturity of $110.4. The Company paid a total
of $48.3. Pursuant to Canadian GAAP, the LYONs are recorded as an equity
instrument and bifurcated into a principal equity component and an option
component. See note 10 to the 2001 Consolidated Financial Statements. The gain
on the repurchase of LYONs is recorded to retained earnings and apportioned
between the principal equity and option components, based on their relative fair
values compared to their carrying values. Consistent with the treatment of the
periodic accretion charges, the gain on the principal equity component has been
included in the calculation of basic and diluted earnings (loss) per share.
See note 9.
6. CAPITAL STOCK
In July 2002, the Company filed a Normal Course Issuer Bid to repurchase,
at its discretion, up to 5% of the total outstanding shares, or 9.6 million
Subordinate Voting Shares for cancellation, over the next 12 months. During the
quarter, the Company repurchased 1.0 million Subordinate Voting Shares at a
weighted average price of $17.08 per share.
7
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
7. OTHER CHARGES:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2002 2001 2002
-------------- -------------- -------------- -------------
2001 restructuring (a)..................... $ 43.5 $ (1.9) $ 100.5 $ (1.9)
Deferred financing costs and debt redemption
fees (b)................................... - 9.6 - 9.6
2002 restructuring (c)..................... - 128.7 - 128.7
Other (d).................................. 36.1 - 36.1 -
--------- --------- --------- ---------
$ 79.6 $ 136.4 $ 136.6 $ 136.4
========= ========= ========= =========
(A) 2001 RESTRUCTURING:
In 2001, the Company recorded a restructuring charge that reflected
facility consolidations and a workforce reduction. The following table details
the activity through the accrued restructuring liability for the period ended
September 30, 2002:
LEASE AND
EMPLOYEE OTHER FACILITY
TERMINATION CONTRACTUAL EXIT COSTS
COSTS OBLIGATIONS AND OTHER TOTAL
------------ ------------- ------------ ------------
Balance at June 30, 2002............ $ 13.7 $ 27.5 $ 6.6 $ 47.8
Cash payments....................... (7.7) (1.7) (2.0) (11.4)
Adjustments......................... (0.4) (2.2) 0.7 (1.9)
----------- ---------- ---------- ----------
Balance at September 30, 2002....... $ 5.6 $ 23.6 $ 5.3 $ 34.5
========== ========== ========== ==========
As of December 31, 2001, 2,330 employee positions remained to be terminated
during 2002. As of September 30, 2002, approximately 300 employees remain to be
terminated by year-end. 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) DEFERRED FINANCING COSTS AND DEBT REDEMPTION FEES:
In August 2002, the Company expensed deferred financing costs and paid a
premium associated with the redemption of the Senior Subordinated Notes.
(C) 2002 RESTRUCTURING:
In July 2002, the Company announced a new restructuring plan, in response
to the prolonged difficult end-market conditions. The Company expects that it
will incur a pre-tax charge of between $300.0 and $375.0, for the consolidation
of facilities and a workforce reduction, to be recorded by the end of the year.
During the quarter, the Company recorded a pre-tax restructuring charge of
$128.7. The following table details the components of the restructuring charge:
THREE AND NINE
MONTHS ENDED
SEPTEMBER 30, 2002
------------------
Employee termination costs..................... $ 42.0
Lease and other contractual obligations........ 7.1
Facility exit costs and other.................. 10.0
Asset impairment (non-cash).................... 69.6
----------
$ 128.7
==========
The following table details the activity through the accrued restructuring
liability for the period ended September 30, 2002:
8
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
LEASE AND
EMPLOYEE OTHER FACILITY
TERMINATION CONTRACTUAL EXIT COSTS
COSTS OBLIGATIONS AND OTHER TOTAL
------------ ------------ ---------- -----------
Balance at June 30, 2002............ $ - $ - $ - $ -
Provision........................... 42.0 7.1 10.0 59.1
Cash payments....................... (14.9) - (0.3) (15.2)
----------- --------- ----------- -----------
Balance at September 30, 2002....... $ 27.1 $ 7.1 $ 9.7 $ 43.9
========== ========== ========== ==========
During the quarter, employee termination announcements were made primarily
in the Americas with the majority pertaining to manufacturing and plant
employees. To date, 2,368 employees have been identified to be terminated, of
which 458 employees were terminated in the quarter. The remaining termination
costs are expected to be paid out within one year.
The non-cash charges for asset impairment reflects the write-down of
certain long-lived assets primarily in the Americas that have become impaired as
a result of the rationalization of facilities. The asset impairments relate to
intangible assets, machinery and equipment, buildings and improvements. The
assets were written down to their recoverable amounts using estimated cash
flows.
The Company will record additional charges in the fourth quarter and
expects to complete the major components of the restructuring plan by the end of
2003, except for certain long-term lease contractual obligations.
(D) OTHER:
During the third quarter of 2001, the Company recorded a non-cash charge of
$36.1. This is comprised of a write-down of certain assets, primarily goodwill
and intangible assets.
8. 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,
other charges and integration costs related to acquisitions). Inter-segment
transactions are reflected at market value. The following is a breakdown by
operating segment.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2002 2001 2002
-------------- -------------- -------------- ---------------
REVENUE
Americas.................................... $ 1,442.7 $ 1,028.4 $ 4,851.1 $ 3,696.6
Europe...................................... 641.6 382.3 2,385.5 1,333.2
Asia........................................ 163.8 595.4 575.7 1,529.5
Elimination of inter-segment revenue........ (45.1) (47.2) (256.1) (199.7)
------------ ------------ ------------- -------------
$ 2,203.0 $ 1,958.9 $ 7,556.2 $ 6,359.6
=========== =========== ============ ============
EBIAT
Americas.................................... $ 38.8 $ 38.3 $ 146.7 $ 122.7
Europe...................................... 23.2 (14.0) 104.9 13.2
Asia........................................ 8.1 33.8 28.6 79.6
---------- ---------- ------------ ------------
70.1 58.1 280.2 215.5
Interest, net............................... 5.1 1.1 11.0 (2.0)
Amortization of goodwill and other intangible
assets...................................... (32.2) (29.0) (89.9) (72.7)
Integration costs related to acquisitions... (10.0) (3.0) (20.1) (17.1)
Other charges............................... (79.6) (136.4) (136.6) (136.4)
---------- ----------- ------------ ------------
Earnings (loss) before income taxes......... $ (46.6) $ (109.2) $ 44.6 $ (12.7)
=========== =========== ============ =============
9
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
AS AT SEPTEMBER 30
2001 2002
-------------- --------------
TOTAL ASSETS
Americas.................................... $ 3,777.6 $ 3,224.1
Europe...................................... 1,723.9 1,288.1
Asia........................................ 436.1 1,979.5
---------- ------------
$ 5,937.6 $ 6,491.7
========== ============
The following table sets forth the changes in goodwill by operating segment
during the nine months ended September 30, 2002:
GOODWILL DECEMBER 31, 2001 RECLASS (A) POST CLOSING (B) SEPTEMBER 30, 2002
----------------- -------------- ----------------- ------------------
Americas............................$ 243.2 $ 1.8 $ (0.5) $ 244.5
Europe............................... 68.3 6.2 1.0 75.5
Asia................................. 817.3 1.1 16.7 835.1
--------- ------- ---------- ----------
$ 1,128.8 $ 9.1 $ 17.2 $ 1,155.1
========== ======= ========== ==========
(a) The Company has reclassed $9.1 from intellectual property to goodwill as of
January 1, 2002 to conform with the new goodwill standards.
(b) The Company has completed the valuations of certain assets relating to the
2001 business combinations. This resulted in changes to the fair value
allocation of the purchase price, and thus goodwill.
9. WEIGHTED AVERAGE SHARES OUTSTANDING AND EARNINGS (LOSS) PER SHARE:
For the three months ended September 30, 2001 and the three and nine months
ended September 30, 2002, the weighted average number of shares outstanding for
purposes of the diluted earnings (loss) per share calculation, excludes the
effect of convertible securities as they are anti-dilutive.
For the three and nine months ended September 30, 2002, the gain on the
principal equity component of the convertible debt repurchase of $4.0 is
included in the calculation of basic and diluted GAAP earnings (loss) per share.
See note 5.
10. SUPPLEMENTAL CASH FLOW INFORMATION:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2002 2001 2002
-------------- -------------- -------------- ------------
Paid during the period:
Interest............................................ $ 4.2 $ 5.1 $ 12.4 $ 17.2
Taxes............................................... $ 38.4 $ 4.5 $ 70.5 $ 16.0
Non-cash financing activities:
Convertible debt accretion, net of tax ........... $ 3.8 $ 4.6 $ 10.9 $ 13.2
Shares issued for acquisitions.................... $ 178.7 $ - $ 180.7 $ -
EXHIBIT 99.5
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Eugene V. Polistuk, certify that:
1. I have reviewed this report on Form 6-K of Celestica Inc.,
which constitutes a quarterly report of the registrant;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and
procedures to ensure that material
information relating to the registrant,
including its consolidated subsidiaries, is
made known to us by others within those
entities, particularly during the period in
which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the
registrant's disclosure controls and
procedures as of a date within 90 days prior
to the filing date of this quarterly report
(the "Evaluation Date"); and
(c) presented in this quarterly report our
conclusions about the effectiveness of the
disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design
or operation of internal controls which
could adversely affect the registrant's
ability to record, process, summarize and
report financial
data and have identified for the
registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that
involves management or other employees who
have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: October 18, 2002
/s/ Eugene V. Polistuk
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Eugene V. Polistuk
Chief Executive Officer
2
EXHIBIT 99.6
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Anthony P. Puppi, certify that:
1. I have reviewed this report on Form 6-K of Celestica Inc.,
which constitutes a quarterly report of the registrant;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and
procedures to ensure that material
information relating to the registrant,
including its consolidated subsidiaries, is
made known to us by others within those
entities, particularly during the period in
which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the
registrant's disclosure controls and
procedures as of a date within 90 days prior
to the filing date of this quarterly report
(the "Evaluation Date"); and
(c) presented in this quarterly report our
conclusions about the effectiveness of the
disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design
or operation of internal controls which
could adversely affect the registrant's
ability to record, process, summarize and
report financial
data and have identified for the
registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that
involves management or other employees who
have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: October 18, 2002
/s/ Anthony P. Puppi
- -----------------------
Anthony P. Puppi
Chief Financial Officer
2
