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 January 2003
001-14832
(COMMISSION FILE NUMBER)
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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 by furnishing the information contained
in this Form, is the registrant 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 JANUARY 2003
Filed with this Form 6-K is the following:
o Press Release, dated January 28, 2003, the text of which is attached hereto as
Exhibit 99.1 and is incorporated herein by reference, including Celestica Inc.'s
fourth quarter 2002 consolidated financial information
EXHIBITS
99.1 - Press Release, dated January 28, 2003
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: January 29, 2003 BY: /s/ Elizabeth L. DelBianco
--------------------------------
Elizabeth L. DelBianco
Vice President & General Counsel
EXHIBIT INDEX
99.1 - Press Release, dated January 28, 2003
FOR IMMEDIATE RELEASE Tuesday, January 28, 2003
(All amounts in U.S. dollars.
Per share information based on diluted
shares outstanding unless noted otherwise.)
CELESTICA ANNOUNCES FOURTH QUARTER
AND FISCAL YEAR FINANCIAL RESULTS
SUMMARY
- - Revenue of $1,912 million, adjusted net earnings of $0.15 per share
- - Continued strong cash position of $1.85 billion, debt to capital of 19%
- - Company spent additional $67 million for repurchase of subordinate voting
shares and convertible debt
- - Significant improvement in cash cycle and inventory turns
- - Company announces additional charges, plans to further reduce manufacturing
capacity
TORONTO, Canada - Celestica Inc. (NYSE, TSX: CLS), a world leader in electronics
manufacturing services (EMS), today announced financial results for the fourth
quarter and fiscal year ended December 31, 2002.
For the fourth quarter, revenue was $1,912 million, down 22 per cent from $2,448
million in the fourth quarter of 2001. Adjusted net earnings - defined as net
earnings before amortization of intangible assets, integration costs related to
acquisitions and other charges net of tax - were $39 million or $0.15 per share,
compared to $76 million or $0.31 per share for the same period last year
(detailed GAAP financial statements and supplementary information related to
adjusted net earnings appear at the end of this press release). These results
compare with the company's guidance for the fourth quarter, which was announced
on October 16, for revenue of $1.7 - $1.9 billion and $0.13 to $0.21 adjusted
net earnings per share.
Net loss on a GAAP basis for the fourth quarter was $435 million or $1.90 per
share compared to a net loss of $72 million or $0.33 per share for the same
period last year. The loss this quarter includes a $541 million pre-tax charge
that includes $255 million associated with the company's previously announced
restructuring program, non-cash charges of $204 million associated with
impairment of goodwill and $82 million associated with the impairment on long
lived assets, primarily intellectual property and intangible assets.
In the fourth quarter, Celestica continued to deliver positive cash flow,
improved operating efficiency and additional reductions in spending including:
o cash flow from operations of $101 million
o a sequential decrease in inventory of $170 million with turns increasing to
8.4x
o cash cycle improvement to 5 days from 15 days in the third quarter
o a reduction in SG&A spending to $69 million, representing a 6% sequential
decrease from the third quarter
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For the fiscal year ended December 31, 2002, revenue was $8,272 million, down 17
per cent compared to $10,004 million for the same period last year. Adjusted net
earnings were $222 million or $0.87 per share, compared to $321 million or $1.38
last year. Net loss was $445 million or $1.98 per share, compared to a net loss
of $40 million or $0.26 per share last year. Included in the full year net loss
was restructuring charges of $384 million and $294 million of charges primarily
for non-cash impairment of goodwill and other intangible assets.
"While we were able to meet our previously guided range for revenue and adjusted
earnings, we did see weaker than expected results in our European operations,"
said Eugene Polistuk, chairman and CEO, Celestica. "Asia and the Americas
continued to perform well, while losses in Europe reflect anticipated cost
reductions that did not materialize on time as well as product mix. We
anticipate that as our restructuring activities are implemented, we should see
improvements in the region in 2003.
"Though visibility remains limited in high complexity IT and communications
infrastructure, we are encouraged by our progress at diversifying the customer
base. In the past year, we've added 40 new customers including those that
broaden our participation in markets such as industrial, military, medical and
consumer. We are prepared to utilize our very strong financial position to
consider OEM divestiture or acquisition opportunities, but will maintain our
selective approach.
"We continue to be pleased with the company's financial discipline and improved
operating efficiency. We've generated significant cash flow from operations
during the past two years and established one of the strongest balance sheets in
our industry. We've seen continued reductions in SG&A spending and see
opportunities for ongoing improvements. We are also particularly pleased that
despite the significant drop in demand, our focus on efficiency has produced
excellent results in our cash cycle, now at an all-time low. While the
restructuring has been challenging, we believe we have been making the difficult
decisions and necessary adjustments to allow us to improve returns in the future
and offer customers the most advanced, cost-effective and flexible EMS
solutions."
REPURCHASE OF SUBORDINATE VOTING SHARES AND CONVERTIBLE DEBT
During the quarter, the company spent $52 million to repurchase $112.5 million
in principal amount of its outstanding Liquid Yield Option Notes (LYONs). During
2002, the company spent a total of $100.3 million to repurchase LYONs with a
principle amount at maturity of $222.9 million. In addition to the company's
announcement in October that it was authorized to spend up to $100 million to
repurchase LYONs - of which $48 million remains - the company has been
authorized by the board to spend up to an additional $100 million for the
repurchase of LYONs at its discretion.
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During the quarter, Celestica also repurchased one million subordinate voting
shares at the weighted average price of $15.39 per share. During 2002, the
company repurchased two million shares for cancellation at a weighted average
price of $16.23. 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.
Since the share and debt repurchase activities commenced in the third quarter of
2002, Celestica has spent approximately $270 million to repurchase senior
subordinated notes, subordinate voting shares and LYONs.
OUTLOOK
The company said that in response to the continued limited visibility in end
markets, the company plans to further reduce its manufacturing capacity. The
reduction in capacity will result in a restructuring charge between $50 - $70
million to be recorded during 2003, of which approximately 80 per cent will be
cash costs.
The company currently anticipates revenue to be in the range of $1.5 - $1.7
billion and adjusted earnings per share to be between $0.04 - $0.10 in the March
quarter. This guidance reflects the impacts of first quarter seasonality,
ongoing uncertainty in communications and information technology infrastructure
end markets and pricing pressure.
Management will host a conference call today discussing the company's fourth
quarter results. The conference call will start at 4:30 p.m. EST and can be
accessed at www.celestica.com.
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
www.sec.gov.
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SAFE HARBOUR AND FAIR DISCLOSURE STATEMENT
THIS NEWS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS RELATED TO OUR FUTURE
GROWTH, TRENDS IN OUR INDUSTRY AND OUR FINANCIAL AND OPERATIONAL RESULTS AND
PERFORMANCE THAT ARE BASED ON CURRENT EXPECTATIONS, FORECASTS AND ASSUMPTIONS
INVOLVING RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL OUTCOMES AND RESULTS
TO DIFFER MATERIALLY. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED
TO: THE CHALLENGES OF EFFECTIVELY MANAGING OUR OPERATIONS DURING UNCERTAIN
ECONOMIC CONDITIONS; THE CHALLENGE OF RESPONDING TO LOWER-THAN-EXPECTED CUSTOMER
DEMAND; THE EFFECTS OF PRICE COMPETITION AND OTHER BUSINESS AND COMPETITIVE
FACTORS GENERALLY AFFECTING THE EMS INDUSTRY; OUR DEPENDENCE ON THE COMPUTER AND
COMMUNICATIONS INDUSTRIES; OUR DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS AND
ON INDUSTRIES AFFECTED BY RAPID TECHNOLOGICAL CHANGE; COMPONENT CONSTRAINTS;
VARIABILITY OF OPERATING RESULTS AMONG PERIODS; AND THE ABILITY TO MANAGE
EXPANSION, CONSOLIDATION AND THE INTEGRATION OF ACQUIRED BUSINESSES. THESE AND
OTHER RISKS AND UNCERTAINTIES AND FACTORS ARE DISCUSSED IN THE COMPANY'S VARIOUS
PUBLIC FILINGS AT www.sedar.com AND http://www.sec.gov, INCLUDING OUR ANNUAL
REPORT ON FORM 20-F AND SUBSEQUENT REPORTS ON FORM 6-K FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION.
WE DISCLAIM ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
AS OF ITS DATE, THIS PRESS RELEASE CONTAINS ANY MATERIAL INFORMATION ASSOCIATED
WITH THE COMPANY'S FOURTH QUARTER AND FISCAL YEAR-END FINANCIAL RESULTS, AND
REVENUE AND ADJUSTED NET EARNINGS GUIDANCE FOR THE FIRST QUARTER ENDING MARCH
31, 2003. 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
YEAR ENDED DECEMBER 31 2001 2002 CHANGE
- ---------------------- ---- ---- ------
Revenue $ 10,004 M $ 8,272 M $ (1,732) M
Net loss (40) M (445) M (405) M
Net loss per share $ (0.26) $ (1.98) $ (1.72)
Cash Provided by Operations $ 1,291 M $ 983 M $ (308) M
Cash Position at December 31 $ 1,343 M $ 1,851 M $ 508 M
THREE MONTHS ENDED DECEMBER 31 2001 2002 CHANGE
- ------------------------------ ---- ---- ------
Revenue $ 2,448 M $ 1,912 M $ (536) M
Net loss (72) M (435) M (363) M
Net loss per share $ (0.33) $ (1.90) $ (1.57)
Cash Provided by Operations $ 889 M $ 101 M $ (788) M
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ADJUSTED NET EARNINGS SUMMARY
YEAR ENDED DECEMBER 31 2001 2002 CHANGE
- ---------------------- ---- ---- ------
Adjusted net earnings $ 321 M $ 222 M $ (99) M
Adjusted net EPS (1) $ 1.38 $ 0.87 $ (0.51)
THREE MONTHS ENDED DECEMBER 31 2001 2002 CHANGE
- ------------------------------ ---- ---- ------
Adjusted net earnings $ 76 M $ 39 M $ (37) M
Adjusted net EPS (1) $ 0.31 $ 0.15 $ (0.16)
ADJUSTED NET EARNINGS CALCULATION
THREE MONTHS FULL YEAR
------------ ---------
2001 2002 2001 2002
---- ---- ---- ----
GAAP net loss $ (720) M $ (435) M $ (40) M $ (445) M
Add: amortization of intangibles 35 M 23 M 125 M 96 M
Add: acquisition integration costs 3 M 4 M 23 M 21 M
Add: other charges 137 M 541 M 273 M 678 M
Less: tax impact of above (27) M (94) M (60) M (128) M
------- ------ ------- ------
Adjusted net earnings $ 76 M $ 39 M $ 321 M $ 222 M
======= ====== ======= ======
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GUIDANCE SUMMARY
4Q VERSUS ACTUALS 4Q 02 GUIDANCE 4Q 02 ACTUALS
----------------- -------------- -------------
Revenue $1.7B - $1.9B $1.9B
Adjusted net EPS $0.13 - $0.21 $0.15
FORWARD GUIDANCE 1Q 03 GUIDANCE
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Revenue $1.5B - $1.7B
Adjusted net EPS $0.04 - $0.10
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(1) For purposes of the diluted per share calculation for the three
months and full year ended December 31, 2002, the weighted
average number of shares outstanding was 232.8 million and 236.2
million, respectively. Adjusted net EPS excludes the gain on the
repurchase of convertible debt.
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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 financial statements. 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 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 is 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
-----------
2001 2002
-------------- --------------
ASSETS
Current assets:
Cash and short-term investments................... $ 1,342.8 $ 1,851.0
Accounts receivable .............................. 1,054.1 785.9
Inventories ...................................... 1,372.7 775.6
Prepaid and other assets.......................... 177.3 115.1
Deferred income taxes............................. 49.7 36.9
--------------- ---------------
3,996.6 3,564.5
Capital assets ..................................... 915.1 727.8
Goodwill from business combinations (note 2)........ 1,128.8 948.0
Intangible assets (note 2).......................... 427.2 211.9
Other assets ....................................... 165.2 354.6
--------------- ---------------
$ 6,632.9 $ 5,806.8
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 1,198.3 $ 947.2
Accrued liabilities............................... 405.7 475.4
Income taxes payable.............................. 21.0 24.5
Deferred income taxes............................. 21.8 21.5
Current portion of long-term debt ................ 10.0 2.7
--------------- ---------------
1,656.8 1,471.3
Long-term debt (note 4)............................. 137.4 4.2
Accrued pension and post-employment benefits ....... 47.3 77.2
Deferred income taxes............................... 41.5 46.2
Other long-term liabilities......................... 4.3 4.3
-------------- --------------
1,887.3 1,603.2
Shareholders' equity:
Convertible debt (note 5)......................... 886.8 804.6
Capital stock (note 6)............................ 3,699.0 3,670.6
Contributed surplus............................... - 5.8
Retained earnings (deficit)....................... 162.7 (294.7)
Foreign currency translation adjustment........... (2.9) 17.3
-------------- --------------
4,745.6 4,203.6
-------------- --------------
$ 6,632.9 $ 5,806.8
=============== ===============
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 LOSS AND RETAINED EARNINGS (DEFICIT)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
2001 2002 2001 2002
-------------- ------------ --------- ---------
Revenue........................................................ $ 2,448.2 $ 1,911.9 $10,004.4 $ 8,271.6
Cost of sales.................................................. 2,270.7 1,801.6 9,291.9 7,715.8
------------ ------------ --------- ---------
Gross profit................................................... 177.5 110.3 712.5 555.8
Selling, general and administrative expenses .................. 86.6 68.5 341.4 298.5
Amortization of goodwill and intangible assets (note 2)........ 35.1 23.2 125.0 95.9
Integration costs related to acquisitions ..................... 2.6 4.0 22.8 21.1
Other charges (note 7)......................................... 136.5 541.4 273.1 677.8
------------ ------------ --------- ---------
Operating loss................................................. (83.3) (526.8) (49.8) (537.5)
Interest on long-term debt..................................... 5.9 1.6 19.8 16.1
Interest income, net........................................... (2.7) (4.7) (27.7) (17.2)
------------ ------------ --------- ---------
Loss before income taxes....................................... (86.5) (523.7) (41.9) (536.4)
------------ ------------ --------- ---------
Income taxes:
Current expense.............................................. 10.5 4.2 25.8 16.6
Deferred (recovery).......................................... (25.2) (93.2) (27.9) (107.8)
------------ ------------ --------- ---------
(14.7) (89.0) (2.1) (91.2)
------------ ------------ --------- ---------
Net loss for the period........................................ (71.8) (434.7) (39.8) (445.2)
Retained earnings, beginning of period......................... 238.6 141.9 217.5 162.7
Convertible debt accretion, net of tax......................... (4.1) (4.3) (15.0) (17.5)
Gain on repurchase of convertible debt (note 5)................ - 2.4 - 6.7
Loss on repurchase of capital stock (note 6)................... - - - (1.4)
------------ ------------ ---------- ----------
Retained earnings (deficit), end of period..................... $ 162.7 $ (294.7) $ 162.7 $ (294.7)
============ ============ ========== ==========
Basic loss per share (note 9).................................. $ (0.33) $ (1.90) $ (0.26) $ (1.98)
Diluted loss per share (note 9)................................ $ (0.33) $ (1.90) $ (0.26) $ (1.98)
Weighted average number of shares outstanding:
- basic (in millions)....................................... 227.1 229.0 213.9 229.8
- diluted (in millions) (note 9)............................ 227.1 229.0 213.9 229.8
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 YEAR ENDED
DECEMBER 31 DECEMBER 31
2001 2002 2001 2002
----------- ----------- ----------- -----------
CASH PROVIDED BY (USED IN):
OPERATIONS:
Net loss for the period ............................... $ (71.8) $ (434.7) $ (39.8) $ (445.2)
Items not affecting cash:
Depreciation and amortization........................ 94.2 71.9 319.5 311.0
Deferred income taxes................................ (25.2) (93.2) (27.9) (107.8)
Restructuring charges (note 7)....................... 58.8 124.9 98.6 194.5
Other charges (note 7)............................... - 282.5 36.1 292.1
Other................................................ (1.8) (8.4) 1.7 (6.1)
----------- ----------- ----------- -----------
Cash from (used in) earnings........................... 54.2 (57.0) 388.2 238.5
----------- ----------- ----------- -----------
Changes in non-cash working capital items:
Accounts receivable.................................. 388.4 138.1 887.2 297.4
Inventories.......................................... 375.3 171.4 822.5 623.9
Other assets......................................... (34.7) 27.7 45.7 26.1
Accounts payable and accrued liabilities............. 69.7 (184.1) (854.0) (202.7)
Income taxes payable................................. 36.5 4.6 0.9 (0.4)
----------- ----------- ----------- -----------
Non-cash working capital changes..................... 835.2 157.7 902.3 744.3
----------- ----------- ----------- -----------
Cash provided by operations.......................... 889.4 100.7 1,290.5 982.8
----------- ----------- ----------- -----------
INVESTING:
Acquisitions, net of cash acquired................... (435.3) (0.3) (1,299.7) (111.0)
Purchase of capital assets........................... (37.2) (32.1) (199.3) (151.4)
Proceeds from sale of capital assets................. - 3.4 - 71.6
Other................................................ 0.1 0.4 1.4 (0.7)
----------- ----------- ----------- -----------
Cash used in investing activities.................... (472.4) (28.6) (1,497.6) (191.5)
----------- ----------- ----------- -----------
FINANCING:
Bank indebtedness.................................... (1.2) - (2.8) (1.6)
Repayment of long-term debt (note 4)................. (53.3) (1.0) (56.0) (146.5)
Debt redemption fees (note 4)........................ - - - (6.9)
Deferred financing costs............................. 0.2 (2.0) (3.9) (2.6)
Repurchase of convertible debt (note 5).............. - (52.0) - (100.3)
Issuance of capital stock............................ 13.1 1.6 737.7 7.4
Share issue costs, pre-tax .......................... - - (10.0) -
Repurchase of capital stock (note 6)................. - (15.4) - (32.5)
Other................................................ 1.1 (0.6) 1.1 (0.1)
----------- ----------- ----------- -----------
Cash provided by (used in) financing activities...... (40.1) (69.4) 666.1 (283.1)
----------- ----------- ----------- -----------
Increase in cash....................................... 376.9 2.7 459.0 508.2
Cash, beginning of period.............................. 965.9 1,848.3 883.8 1,342.8
----------- ----------- ----------- -----------
Cash, end of period.................................... $ 1,342.8 $ 1,851.0 $ 1,342.8 $ 1,851.0
=========== =========== =========== ===========
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 generally
accepted accounting principles (GAAP) in Canada with a reconciliation to
accounting principles generally accepted in the United States (U.S.
GAAP), included in the annual consolidated financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES:
The disclosures contained in these unaudited interim consolidated financial
statements do not include all requirements of GAAP for annual financial
statements. The unaudited interim consolidated financial statements should be
read in conjunction with the annual consolidated financial statements.
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 December 31, 2002 and the results of operations and cash flows for
the three months and year ended December 31, 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 has not been amortized. In addition, the new
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 discontinued amortization of all existing goodwill. The Company 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 of goodwill must be recorded by December 31, 2002. The impairment of
goodwill is measured by comparing the fair value of goodwill, determined in a
manner similar to a purchase price allocation, to its carrying amount. Any
transitional impairment would have been recognized as an effect of a change in
accounting
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CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
principle and would have been charged to opening retained earnings as of January
1, 2002. The Company completed the transitional 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 following table shows the impact of this change as
if the policy had been applied retroactively to 2001:
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
2001 2002 2001 2002
-------------- -------------- -------------- ----------
Net loss................................... $ (71.8) $ (434.7) $ (39.8) $ (445.2)
Add back: goodwill amortization............ 10.0 - 39.2 -
--------- --------- --------- ---------
Net loss before goodwill amortization...... $ (61.8) $ (434.7) $ (0.6) $ (445.2)
========= ========= ========= =========
Basic loss per share:
As reported................................ $ (0.33) $ (1.90) $ (0.26) $ (1.98)
Before goodwill amortization............... $ (0.29) $ (1.90) $ (0.07) $ (1.98)
Diluted loss per share:
As reported................................ $ (0.33) $ (1.90) $ (0.26) $ (1.98)
Before goodwill amortization............... $ (0.29) $ (1.90) $ (0.07) $ (1.98)
The following table sets forth the changes in goodwill by reportable
segment during the year ended December 31, 2002:
GOODWILL DECEMBER 31, 2001 RECLASS (a) POST CLOSING (b) IMPAIRMENT (c) DECEMBER 31, 2002
----------------- -------------- ----------------- -------------- -----------------
Americas............... $ 243.2 $ 1.8 $ (2.1) $ (127.2) $ 115.7
Europe................. 68.3 6.2 2.0 (76.5) -
Asia................... 817.3 1.1 13.9 - 832.3
---------- ------- ---------- ---------- ----------
$ 1,128.8 $ 9.1 $ 13.8 $ (203.7) $ 948.0
========== ======= ========== ==========- ==========
(a) The Company reclassed $9.1 from intellectual property to goodwill as of
January 1, 2002, to conform with the new goodwill standards.
(b) The Company completed the valuations of certain assets relating to its 2001
business combinations. This resulted in changes to the fair value allocation of
the purchase price, and thus goodwill.
(c) During the fourth quarter of 2002, the Company performed its annual goodwill
impairment test in accordance with the new goodwill standards, Section 3062.
Prolonged declines in the information technology and communications end-markets,
contributed to an impairment of goodwill in the fourth quarter as estimated fair
values of the reporting units fell below their respective carrying values. The
Company obtained independent valuations to support the fair values of its
reporting units. The fair values of the reporting units were estimated using a
combination of a market approach and discounted cash flows. Revenue and expense
projections used in determining the fair value of the reporting units were based
on management estimates including estimates of current and future industry
conditions. Cash flows were discounted using a weighted average cost of capital.
The Company recorded a goodwill impairment of $203.7. See note 7(c) - Other
charges.
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CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
The following table sets forth the Company's intangible assets as of
December 31, 2002:
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
---------- ---------- ----------
Intangible assets:
Intellectual property............... $ 194.5 $ 118.9 $ 75.6
Other intangible assets............. 177.8 41.5 136.3
---------- ---------- ----------
$ 372.3 $ 160.4 $ 211.9
========== ========== ==========
Intellectual property assets primarily consist of certain non-patented
intellectual property and process technology. Other intangible assets consist
primarily of customer relationships and contracts. Intangible assets increased
$49.4 for the year due to acquisitions. This increase has been offset by
reclassifications to goodwill and impairment write-offs. The aggregate
amortization expense for intangible assets was $23.2 and $95.9 for the three
months and year ended December 31, 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 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 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.
The fair value of the options issued by the Company during the year was
determined using the Black-Scholes option pricing model. The Company used the
following weighted average assumptions in the quarter: risk-free rate of 5.06%;
dividend yield of 0%; a volatility factor of the expected market price of the
Company's shares of 70%; and an expected option life of 4.3 years. The
weighted-average grant date fair values of options issued during the quarter was
$10.68 per share. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to income over the vesting period, on a
straight-line basis. For the three months ended December 31, 2002, the Company's
pro forma net loss is $435.9, basic loss per share is $1.90 and diluted loss per
share is $1.90. For the year ended December 31, 2002, the Company's pro forma
net loss is $447.4, basic loss per share is $1.99 and diluted loss per share is
$1.99. The Company's stock option plans are described in the annual consolidated
financial statements.
3. ACQUISITIONS:
ASSET ACQUISITIONS:
In March 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 intangible assets of $49.4, 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 10.5%
Senior Subordinated Notes at a premium of 5.25%. See note 7(e).
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14
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
5. CONVERTIBLE DEBT
During the quarter, the Company paid $52.0 to repurchase Liquid Yield
Option-TM- Notes (LYONs) with a principal amount at maturity of $112.5. For
the year ended December 31, 2002, the Company paid a total of $100.3 to
repurchase LYONs with a principal amount at maturity of $222.9. Pursuant to
Canadian GAAP, the LYONs are recorded as an equity instrument and bifurcated
into a principal equity component and an option component. See the
description in the annual 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 loss per share. See
note 9.
6. CAPITAL STOCK
In July 2002, the Company filed a Normal Course Issuer Bid to repurchase
over the next 12 months, at its discretion, up to 5% of the total outstanding
shares, or 9.6 million subordinate voting shares for cancellation. During the
quarter, the Company repurchased 1.0 million subordinate voting shares at a
weighted average price of $15.39 per share. For the year ended December 31,
2002, the Company repurchased a total of 2.0 million subordinate voting shares
at a weighted average price of $16.23 per share.
7. OTHER CHARGES:
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
2001 2002 2001 2002
-------------- -------------- -------------- ----------
2001 restructuring (a)......................... $ 136.5 $ 3.8 $ 237.0 $ 1.9
2002 restructuring (b)......................... - 254.8 - 383.5
2002 goodwill impairment (c)................... - 203.7 - 203.7
Other impairment (d)........................... - 81.7 36.1 81.7
Deferred financing costs and debt redemption - - - 9.6
fees (e).......................................
Gain on sale of surplus land................... - (2.6) - (2.6)
--------- --------- --------- ---------
$ 136.5 $ 541.4 $ 273.1 $ 677.8
========= ========= ========= =========
(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 quarter ended
December 31, 2002:
LEASE AND
EMPLOYEE OTHER FACILITY
TERMINATION CONTRACTUAL EXIT COSTS
COSTS OBLIGATIONS AND OTHER TOTAL
---------- ---------- ---------- --------
Balance at September 30, 2002....... $ 5.6 $ 23.6 $ 5.3 $ 34.5
Cash payments....................... (1.9) (5.1) (1.9) (8.9)
Adjustments......................... (3.7) 13.6 (3.4) 6.5
---------- ---------- ---------- --------
Balance at December 31, 2002 $ - $ 32.1 $ - $ 32.1
========== ========== ========== ========
A total of 11,925 employees were terminated relating to the 2001
restructuring plan. As of December 31, 2002, the Company completed the major
components of its restructuring plan, except for certain long-term lease and
other contractual obligations. The adjustment to lease and other contractual
obligations relates primarily to changes in estimates and revised timing of
expected sublease recoveries.
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CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(b) 2002 RESTRUCTURING:
In July 2002, the Company announced a new restructuring plan, in response
to the prolonged difficult end-market conditions that focused on the
consolidation of facilities and a workforce reduction. During the quarter, the
Company recorded a pre-tax restructuring charge of $254.8. The following table
details the components of the restructuring charge:
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, 2002 DECEMBER 31, 2002
----------------- -----------------
Employee termination costs..................... $ 86.8 $ 128.8
Lease and other contractual obligations........ 36.7 51.7
Facility exit costs and other.................. 6.4 8.5
Asset impairment (non-cash).................... 124.9 194.5
---------- ----------
$ 254.8 $ 383.5
========== ==========
The following table details the activity through the accrued restructuring
liability for the quarter ended December 31, 2002:
LEASE AND
EMPLOYEE OTHER FACILITY
TERMINATION CONTRACTUAL EXIT COSTS
COSTS OBLIGATIONS AND OTHER TOTAL
---------- ---------- ---------- --------
Balance at September 30, 2002....... $ 27.1 $ 14.7 $ 2.1 $ 43.9
Provision........................... 86.8 36.7 6.4 129.9
Cash payments....................... (26.8) (1.4) (0.7) (28.9)
---------- ---------- ---------- ----------
Balance at December 31, 2002........ $ 87.1 $ 50.0 $ 7.8 $ 144.9
========== ========== ========== ==========
During the quarter, employee termination announcements were made primarily
in the Americas with the majority pertaining to manufacturing and plant
employees. To date, 5,900 employees have been identified to be terminated, of
which 2,410 employees were terminated during 2002. The remaining termination
costs are expected to be paid out during 2003.
The non-cash charges for 2002 for asset impairment reflect 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 expects to complete the major components of the 2002
restructuring plan by the end of 2003, except for certain long-term lease and
other contractual obligations.
(c) 2002 GOODWILL IMPAIRMENT:
During the quarter, the Company recorded a non-cash charge of $203.7, in
connection with its annual impairment assessment as described in notes 2(a).
(d) OTHER IMPAIRMENT:
During the quarter, the Company recorded a non-cash charge of $81.7, in
connection with its annual impairment assessment of long-lived assets, comprised
primarily of a write-down of intangible assets.
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CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
In 2001, the Company recorded a non-cash charge of $36.1, in connection
with its annual impairment assessment of long-lived assets, comprised primarily
of a write-down of goodwill and intangible assets.
(e) DEFERRED FINANCING COSTS AND DEBT REDEMPTION FEES:
In August 2002, the Company paid a premium associated with the redemption
of the Senior Subordinated Notes and expensed related deferred financing costs.
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
reporting segment.
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
2001 2002 2001 2002
----------- ----------- ------------ ------------
REVENUE
Americas.................................... $ 1,483.5 $ 944.2 $ 6,334.6 $ 4,640.8
Europe...................................... 615.8 453.3 3,001.3 1,786.5
Asia........................................ 415.4 580.2 991.1 2,109.7
Elimination of inter-segment revenue........ (66.5) (65.8) (322.6) (265.4)
----------- ----------- ------------ ------------
$ 2,448.2 $ 1,911.9 $ 10,004.4 $ 8,271.6
=========== =========== ============ ============
EBIAT
Americas.................................... $ 46.1 $ 35.0 $ 192.9 $ 157.7
Europe...................................... 23.6 (24.7) 128.5 (11.5)
Asia........................................ 21.2 31.5 49.7 111.1
---------- ---------- ------------ ------------
90.9 41.8 371.1 257.3
Interest, net............................... (3.2) 3.1 7.9 1.1
Amortization of goodwill and intangible assets (35.1) (23.2) (125.0) (95.9)
Integration costs related to acquisitions... (2.6) (4.0) (22.8) (21.1)
Other charges............................... (136.5) (541.4) (273.1) (677.8)
---------- ---------- ------------ ------------
Loss before income taxes.................... $ (86.5) $ (523.7) $ (41.9) $ (536.4)
========== ========== ============ ============
AS AT DECEMBER 31
2001 2002
---------- ----------
TOTAL ASSETS
Americas.................................................................... $ 3,408.2 $ 2,894.1
Europe...................................................................... 1,626.3 1,047.6
Asia........................................................................ 1,598.4 1,865.1
---------- ----------
$ 6,632.9 $ 5,806.8
========== ==========
9. WEIGHTED AVERAGE SHARES OUTSTANDING AND LOSS PER SHARE:
For the three months and years ended December 31, 2001 and 2002, the
weighted average number of shares outstanding for purposes of the diluted loss
per share calculation, excludes the effect of convertible securities as they are
anti-dilutive.
For the three months and year ended December 31, 2002, the gain on the
principal equity component of the convertible debt repurchase of $4.3 and $8.3,
respectively, is included in the calculation of basic and diluted GAAP loss per
share. See note 5.
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CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
10. SUPPLEMENTAL CASH FLOW INFORMATION:
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
2001 2002 2001 2002
---------- --------- --------- ----------
Paid during the period:
Interest............................................. $ 8.3 $ 4.8 $ 20.7 $ 22.0
Taxes................................................ $ 18.5 $ 9.5 $ 89.0 $ 25.5
Non-cash financing activities:
Convertible debt accretion, net of tax ............ $ 4.1 $ 4.3 $ 15.0 $ 17.5
Shares issued for acquisitions..................... $ 386.3 $ - $ 567.0 $ -
11. SUBSEQUENT EVENT:
In January 2003, the Company made the following announcements:
In response to the continued limited visibility in end markets, the Company
plans to further reduce its manufacturing capacity. The reduction in capacity
will result in a pre-tax restructuring charge of between $50.0 - $70.0, to be
recorded during 2003, of which approximately 80% will be cash costs.
The Company has, from time-to-time, purchased LYONs on the open market. The
Company has been authorized by the board of directors to spend up to an
additional $100.0 to repurchase LYONs at its discretion. This is in addition to
the amounts authorized in October 2002, of which $48.0 remains unspent.
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