(All amounts in U.S. dollars.
Per share information based on diluted
shares outstanding unless noted otherwise).
Second Quarter Summary
----------------------
- Revenue of $1,402 million, compared to $1,876 million for the same
period last year
- GAAP earnings of $5.3 million or $0.02 per share, compared to GAAP
earnings of $39.8 million or $0.17 per share last year
- Adjusted net earnings of $0.11 per share, compared to $0.17 per share
for the same period last year
- Return on invested capital, including intangibles, of 15.3%, compared
to 11.8% last year
- Operating margin of 2.7%, compared to 3.0% last year
- Gross margin of 7.3%, compared to 6.7% last year
- Cash flow from operations of $55 million, free cash flow of
$41 million
- Third quarter of 2009 revenue guidance of $1.425 billion -
$1.575 billion, adjusted net earnings per share of $0.11 - $0.17
- Company plans $75 - $100 million restructuring program to further
reduce cost and improve efficiency
TORONTO, July 23 /CNW/ - Celestica Inc. (NYSE, TSX: CLS), a global leader in the delivery of end-to-end product lifecycle solutions, today announced financial results for the second quarter ended June 30, 2009.
Revenue for the quarter was $1,402 million, compared to $1,876 million in the second quarter of 2008. GAAP net earnings were $5.3 million, or $0.02 per share, compared to GAAP net earnings of $39.8 million, or $0.17 per share, for the same period last year. The year-over-year change reflects the impact of weaker end-market demand, as well as higher restructuring costs in 2009 associated with the company's restructuring program announced at the beginning of 2008.
Adjusted net earnings for the quarter were $25 million, or $0.11 per share, compared to adjusted net earnings of $38.9 million, or $0.17 per share, for the same period last year. The term adjusted net earnings is defined as net earnings before other charges, amortization of intangible assets (excluding amortization of computer software), option expense, gains or losses related to the repurchase of shares and debt, net of tax and significant deferred tax write-offs or recoveries. Detailed GAAP financial statements and supplementary information related to adjusted net earnings appears at the end of this press release.
The company's revenue and adjusted net earnings for the second quarter of 2009 were within the company's published guidance, announced on April 23, 2009, of revenue of $1.30 billion to $1.45 billion and adjusted net earnings per share of $0.07 to $0.13.
For the six months ended June 30, 2009, revenue was $2,872 million, compared to $3,712 million for the same period in 2008. GAAP net earnings were $24.5 million, or $0.11 per share, compared to $69.6 million, or $0.30 per share, for the same period last year. Adjusted net earnings for the six months ended June 30, 2009 were $54.3 million, or $0.24 per share, compared to $74.3 million, or $0.32 per share, for the same period in 2008.
"Celestica's second quarter financial results reflect our continued success at driving quality and efficiency throughout the company while delivering value for our customers, despite the challenging economic environment," said Craig Muhlhauser, President and Chief Executive Officer, Celestica.
"The combination of our financial strength, operational excellence and the speed and flexibility of Celestica's global supply chain network creates a unique advantage to support our future growth and profitability as markets begin to improve."
Third Quarter Outlook --------------------- For the third quarter ending September 30, 2009, the company anticipates revenue to be in the range of $1.425 billion to $1.575 billion, and adjusted net earnings per share to range from $0.11 to $0.17. The company also announced plans to further reduce fixed costs and overhead expenses and to eliminate excess capacity through a $75 - $100 million restructuring program. Second Quarter Webcast ---------------------- Management will host its quarterly results conference call today at 8:00 a.m. Eastern. The webcast can be accessed at www.celestica.com. Supplementary Information -------------------------
In addition to disclosing detailed results in accordance with Canadian generally accepted accounting principles (GAAP), Celestica provides supplementary non-GAAP measures as a method to evaluate the company's operating performance. See table below.
Management uses adjusted net earnings as a measure of enterprise-wide performance. Management believes adjusted net earnings is a useful measure for management, as well as investors, to facilitate period-to-period operating comparisons. Adjusted net earnings do not include the effects of other charges, most significantly the write-down of goodwill and long-lived assets, gains or losses on the repurchase of shares or debt and the related income tax effect of these adjustments, and any significant deferred tax write-offs or recoveries. The company also excludes the following recurring charges: restructuring costs, option expense, the amortization of intangible assets (except amortization of computer software), and the related income tax effect of these adjustments. The term adjusted net earnings does not have any standardized meaning prescribed by GAAP and is not necessarily comparable to similar measures presented by other companies. Adjusted net earnings is not a measure of performance under Canadian or U.S. GAAP and should not be considered in isolation or as a substitute for net earnings prepared in accordance with Canadian or U.S. GAAP. The company has provided a reconciliation of adjusted net earnings to Canadian GAAP net earnings below.
About Celestica ---------------
Celestica is dedicated to delivering end-to-end product lifecycle solutions to drive our customers' success. Through our simplified global operations network and information technology platform, we are solid partners who deliver informed, flexible solutions that enable our customers to succeed in the markets they serve. Committed to providing a truly differentiated customer experience, our agile and adaptive employees share a proud history of demonstrated expertise and creativity that provides our customers with the ability to overcome any challenge.
For further information on Celestica, visit its website at http://www.celestica.com. The company's security filings can also be accessed at http://www.sedar.com and http://www.sec.gov.
Safe Harbour and Fair Disclosure Statement ------------------------------------------
This news release contains forward-looking statements related to our future growth, trends in our industry, our financial and/or operational results including anticipated expenses, and our financial or operational performance. Such forward-looking statements are predictive in nature and may be based on current expectations, forecasts or assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially from the forward-looking statements themselves. Such forward-looking statements may, without limitation, be preceded by, followed by, or include words such as "believes", "expects", "anticipates", "estimates", "intends", "plans", or similar expressions, or may employ such future or conditional verbs as "may", "will", "should" or "would", or may otherwise be indicated as forward-looking statements by grammatical construction, phrasing or context. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995, and in any applicable Canadian securities legislation. Forward-looking statements are not guarantees of future performance. You should understand that the following important factors could affect our future results and could cause those results to differ materially from those expressed in such forward-looking statements: the challenges of effectively managing our operations during uncertain economic conditions, including significant changes in demand from our customers as a result of the impact of the global economic crisis and capital markets weakness; the risk of potential non-performance by counterparties, including but not limited to financial institutions, customers and suppliers, during uncertain economic conditions; the effects of price competition and other business and competitive factors generally affecting the EMS industry, including changes in the trend for outsourcing; our dependence on a limited number of customers; variability of operating results among periods; the challenge of managing our financial exposures to foreign currency fluctuations; the challenge of responding to lower-than-expected customer demand; our inability to retain or grow our business due to execution problems resulting from significant headcount reductions, plant closures and product transfers associated with major restructuring activities; our dependence on industries affected by rapid technological change; our ability to successfully manage our international operations; and the delays in the delivery and/or general availability of various components used in our manufacturing process. These and other risks and uncertainties, as well as other information related to the company, are discussed in the Company's various public filings at www.sedar.com and www.sec.gov, including our Annual Report on Form 20-F and subsequent reports on Form 6-K filed with the Securities and Exchange Commission and our Annual Information Form filed with the Canadian Securities Commissions. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes.
As of its date, this press release contains any material information associated with the Company's financial results for the second quarter ended June 30, 2009 and revenue and adjusted net earnings guidance for the third quarter ending September 30, 2009. Revenue and earnings guidance is reviewed by the Company's board of directors. Our revenue and earnings guidance is based on various assumptions which management believes are reasonable under the current circumstances, but may prove to be inaccurate, and many of which involve factors that are beyond the control of the Company. The material assumptions may include assumptions regarding the following: forecasts from our customers, which range from 30 to 90 days; timing and investments associated with ramping new business; general economic and market conditions; currency exchange rates; pricing and competition; anticipated customer demand; supplier performance and pricing; commodity, labor, energy and transportation costs; operational and financial matters; technological developments; and the timing and execution of our restructuring plan. These assumptions are based on management's current views with respect to current plans and events, and are and will be subject to the risks and uncertainties referred to above. It is Celestica's policy that revenue and earnings guidance is effective on the date given, and will only be updated through a public announcement.
The following table sets forth, for the periods indicated, a reconciliation of Canadian GAAP net earnings to adjusted net earnings and other non-GAAP information (in millions of U.S. dollars, except per share amounts):
2008 2009
Three months ----------------------------- -----------------------------
ended Adjust- Adjust-
June 30 GAAP ments Adjusted GAAP ments Adjusted
--------- --------- --------- --------- --------- ---------
Revenue $1,876.3 $ - $1,876.3 $1,402.2 $ - $1,402.2
Cost of
sales(1) 1,750.8 (0.8) 1,750.0 1,300.5 (0.6) 1,299.9
--------- --------- --------- --------- --------- ---------
Gross profit 125.5 0.8 126.3 101.7 0.6 102.3
SG&A(1)(2) 68.8 (1.4) 67.4 61.9 (1.0) 60.9
Amortization
of intangible
assets(2) 7.0 (4.2) 2.8 4.8 (1.9) 2.9
Other charges 3.6 (3.6) - 20.7 (20.7) -
--------- --------- --------- --------- --------- ---------
Operating
earnings -
EBIAT(3) 46.1 10.0 56.1 14.3 24.2 38.5
Interest
expense, net 10.3 - 10.3 10.7 - 10.7
--------- --------- --------- --------- --------- ---------
Net earnings
before tax 35.8 10.0 45.8 3.6 24.2 27.8
Income tax
expense
(recovery) (4.0) 10.9 6.9 (1.7) 4.5 2.8
--------- --------- --------- --------- --------- ---------
Net earnings $ 39.8 $ (0.9) $ 38.9 $ 5.3 $ 19.7 $ 25.0
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
W.A. no. of
shares (in
millions) -
diluted 230.4 230.4 230.2 230.2
Earnings
per share -
diluted $ 0.17 $ 0.17 $ 0.02 $ 0.11
ROIC(4) 11.8% 15.3%
Free cash
flow(5) $ 53.9 $ 41.0
2008 2009
Six months ----------------------------- -----------------------------
ended Adjust- Adjust-
June 30 GAAP ments Adjusted GAAP ments Adjusted
--------- --------- --------- --------- --------- ---------
Revenue $3,712.0 $ - $3,712.0 $2,871.6 $ - $2,871.6
Cost of
sales(1) 3,471.5 (1.8) 3,469.7 2,658.7 (1.3) 2,657.4
--------- --------- --------- --------- --------- ---------
Gross profit 240.5 1.8 242.3 212.9 1.3 214.2
SG&A(1)(2) 132.1 (2.1) 130.0 129.3 (2.0) 127.3
Amortization
of intangible
assets(2) 14.2 (8.4) 5.8 10.6 (5.0) 5.6
Other charges 6.9 (6.9) - 33.2 (33.2) -
--------- --------- --------- --------- --------- ---------
Operating
earnings -
EBIAT(3) 87.3 19.2 106.5 39.8 41.5 81.3
Interest
expense, net 19.0 - 19.0 20.9 - 20.9
--------- --------- --------- --------- --------- ---------
Net earnings
before tax 68.3 19.2 87.5 18.9 41.5 60.4
Income tax
expense
(recovery) (1.3) 14.5 13.2 (5.6) 11.7 6.1
--------- --------- --------- --------- --------- ---------
Net earnings $ 69.6 $ 4.7 $ 74.3 $ 24.5 $ 29.8 $ 54.3
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
W.A. no. of
shares (in
millions) -
diluted 229.7 229.7 229.7 229.7
Earnings per
share -
diluted $ 0.30 $ 0.32 $ 0.11 $ 0.24
ROIC(4) 11.2% 16.1%
Free cash
flow(5) $ 87.0 $ 57.1
(1) Non-cash option expense included in cost of sales and SG&A is added
back for adjusted net earnings.
(2) Certain 2008 GAAP numbers have been restated to reflect the change in
accounting for computer software effective January 1, 2009 as
required under Canadian GAAP. For the second quarter of 2008,
$2.8 million in amortization of computer software has been
reclassified from SG&A expenses to amortization of intangible assets
(first half of 2008 - $5.8 million). Amortization of computer
software is not added back for EBIAT and adjusted net earnings. There
is no impact to our current or previously reported EBIAT, adjusted
net earnings or net earnings.
(3) Management uses EBIAT as a measure to assess operating performance.
Excluded from EBIAT are the effects of other charges, most
significantly the write-down of goodwill and long-lived assets, gains
or losses on the repurchase of shares or debt, the related income tax
effect of these adjustments, and any significant deferred tax
write-offs or recoveries. We also exclude the following recurring
charges: restructuring costs, option expense, amortization of
intangible assets (except amortization of computer software),
interest expense or income, and the related income tax effect of
these adjustments. Management believes EBIAT, which isolates
operating activities before interest and taxes, is an appropriate
measure for management, as well as investors, to compare the
company's operating performance from period-to-period. The term EBIAT
does not have any standardized meaning prescribed by Canadian or U.S.
GAAP and is therefore unlikely to be comparable to similar measures
presented by other companies. EBIAT is not a measure of performance
under Canadian or U.S. GAAP and should not be considered in isolation
or as a substitute for net earnings prepared in accordance with
Canadian or U.S. GAAP.
(4) Management uses ROIC as a measure to assess the effectiveness of the
invested capital it uses to build products or provide services to its
customers. A ROIC metric encompasses operating margin, working
capital management and asset utilization. ROIC is calculated by
dividing EBIAT by average net invested capital. Net invested capital
consists of total assets less cash, accounts payable, accrued
liabilities and income taxes payable. The term ROIC does not have any
standardized meaning prescribed by Canadian or U.S. GAAP and is
therefore unlikely to be comparable to similar measures presented by
other companies. ROIC is not a measure of performance under Canadian
or U.S. GAAP and should not be considered in isolation or as a
substitute for any standardized measure.
(5) Management uses free cash flow as a measure to assess cash flow
performance. Free cash flow is calculated as cash generated from
operations less capital expenditures (net of proceeds from the sale
of surplus property and equipment). The term free cash flow does not
have any standardized meaning prescribed by Canadian or U.S. GAAP and
is therefore unlikely to be comparable to similar measures presented
by other companies. Free cash flow is not a measure of performance
under Canadian or U.S. GAAP and should not be considered in isolation
or as a substitute for any standardized measure.
GUIDANCE SUMMARY
2Q 09 Guidance 2Q 09 Actual 3Q 09 Guidance(6)
-------------- ------------ -----------------
Revenue $1.3B - $1.45B $1.4B $1.425B - $1.575B
Adjusted net EPS $0.07 - $0.13 $0.11 $0.11 - $0.17
(6) Guidance for the third quarter is provided only on an adjusted net
earnings basis. This is due to the difficulty in forecasting the
various items impacting GAAP net earnings, such as the amount and
timing of our restructuring activities.
CELESTICA INC.
CONSOLIDATED BALANCE SHEETS
(in millions of U.S. dollars)
December 31 June 30
2008 2009
------------ -----------
Assets (unaudited)
Current assets:
Cash and cash equivalents (note 6)............. $ 1,201.0 $ 1,119.3
Accounts receivable (note 10(c))............... 1,074.0 808.9
Inventories (note 2)........................... 787.4 634.3
Prepaid and other assets (note 7(i))........... 87.1 67.1
Income taxes recoverable....................... 14.1 18.7
Deferred income taxes.......................... 8.2 6.1
----------- -----------
3,171.8 2,654.4
Property, plant and equipment (note 1(i))........ 433.5 422.4
Intangible assets (note 1(i)).................... 54.1 44.9
Other long-term assets (note 7(ii)).............. 126.8 123.7
----------- -----------
$ 3,786.2 $ 3,245.4
----------- -----------
----------- -----------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable............................... $ 1,090.6 $ 790.5
Accrued liabilities (notes 4 and 7(i))......... 463.1 312.5
Income taxes payable........................... 13.5 10.7
Deferred income taxes.......................... 0.2 0.2
Current portion of long-term debt (note 3)..... 1.0 0.1
----------- -----------
1,568.4 1,114.0
Long-term debt (note 3).......................... 732.1 583.2
Accrued pension and post-employment benefits..... 63.2 66.9
Deferred income taxes............................ 47.2 35.6
Other long-term liabilities...................... 9.8 9.1
----------- -----------
2,420.7 1,808.8
Shareholders' equity (note 8):
Capital stock.................................. 3,588.5 3,588.7
Contributed surplus............................ 204.4 219.9
Deficit........................................ (2,436.8) (2,412.3)
Accumulated other comprehensive income......... 9.4 40.3
----------- -----------
1,365.5 1,436.6
----------- -----------
$ 3,786.2 $ 3,245.4
----------- -----------
----------- -----------
Guarantees and contingencies (note 9)
See accompanying notes to unaudited consolidated financial statements.
These unaudited interim consolidated financial statements should be read
in conjunction with the 2008 annual consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions of U.S. dollars, except per share amounts)
Three months ended Six months ended
June 30 June 30
2008 2009 2008 2009
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue.................. $ 1,876.3 $ 1,402.2 $ 3,712.0 $ 2,871.6
Cost of sales............ 1,750.8 1,300.5 3,471.5 2,658.7
----------- ----------- ----------- -----------
Gross profit............. 125.5 101.7 240.5 212.9
Selling, general and
administrative expenses
(note 1(i))............. 68.8 61.9 132.1 129.3
Amortization of
intangible assets
(note 1(i))............. 7.0 4.8 14.2 10.6
Other charges (note 4)... 3.6 20.7 6.9 33.2
Interest on long-term
debt.................... 13.7 10.8 28.2 21.2
Interest income, net of
interest expense........ (3.4) (0.1) (9.2) (0.3)
----------- ----------- ----------- -----------
Earnings before income
taxes................... 35.8 3.6 68.3 18.9
Income tax expense
(recovery):
Current................ (6.5) 3.4 (1.3) 6.1
Deferred............... 2.5 (5.1) - (11.7)
----------- ----------- ----------- -----------
(4.0) (1.7) (1.3) (5.6)
----------- ----------- ----------- -----------
Net earnings for
the period.............. $ 39.8 $ 5.3 $ 69.6 $ 24.5
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings per share.. $ 0.17 $ 0.02 $ 0.30 $ 0.11
Diluted earnings per
share................... $ 0.17 $ 0.02 $ 0.30 $ 0.11
Shares used in computing
per share amounts:
Basic (in millions).... 229.2 229.4 229.2 229.4
Diluted (in millions).. 230.4 230.2 229.7 229.7
See accompanying notes to unaudited consolidated financial statements.
These unaudited interim consolidated financial statements should be read
in conjunction with the 2008 annual consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions of U.S. dollars)
Three months ended Six months ended
June 30 June 30
2008 2009 2008 2009
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Net earnings for
the period.............. $ 39.8 $ 5.3 $ 69.6 $ 24.5
Other comprehensive
income, net of tax:
Foreign currency
translation gain
(loss)................ (3.7) 4.0 6.1 (5.1)
Net gain on
derivatives
designated as cash
flow hedges........... 2.0 14.3 2.4 1.6
Reclass net loss
(gain) on derivatives
designated as cash
flow hedges to
operations............ (8.3) 11.2 (19.0) 34.4
----------- ----------- ----------- -----------
Comprehensive income..... $ 29.8 $ 34.8 $ 59.1 $ 55.4
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
See accompanying notes to unaudited consolidated financial statements.
These unaudited interim consolidated financial statements should be read
in conjunction with the 2008 annual consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars)
Three months ended Six months ended
June 30 June 30
2008 2009 2008 2009
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Cash provided by (used in):
Operations:
Net earnings for
the period.............. $ 39.8 $ 5.3 $ 69.6 $ 24.5
Items not affecting cash:
Depreciation and
amortization.......... 27.7 24.3 54.3 50.1
Deferred income taxes.. 2.5 (5.1) - (11.7)
Non-cash charge for
option issuances...... 2.2 1.6 3.9 3.3
Restructuring charges
(note 4).............. 0.1 0.7 0.3 1.3
Other charges
(note 4).............. - - - 6.5
Other.................... 6.9 5.4 12.0 2.2
Changes in non-cash
working capital items:
Accounts receivable.... (53.0) (77.5) 47.9 265.1
Inventories............ (6.1) 60.8 (20.1) 153.1
Prepaid and
other assets.......... 5.4 2.5 15.2 22.4
Income taxes
recoverable........... (17.7) (1.6) (13.1) (4.6)
Accounts payable and
accrued liabilities... 58.3 39.6 (58.4) (407.3)
Income taxes payable... 2.1 (1.5) 4.0 (2.8)
----------- ----------- ----------- -----------
Non-cash working
capital changes....... (11.0) 22.3 (24.5) 25.9
----------- ----------- ----------- -----------
Cash provided by
operations.............. 68.2 54.5 115.6 102.1
----------- ----------- ----------- -----------
Investing:
Purchase of property,
plant and equipment... (16.5) (14.0) (32.4) (46.4)
Proceeds from sale
of assets............. 2.2 0.5 3.8 1.4
Other.................. 0.3 (0.3) - 0.5
----------- ----------- ----------- -----------
Cash used in investing
activities.............. (14.0) (13.8) (28.6) (44.5)
----------- ----------- ----------- -----------
Financing:
Repurchase of Senior
Subordinated Notes
(Notes) (note 3(d))... - - - (149.7)
Proceeds from
termination of
swap agreements
(note 3(d))........... - - - 14.7
Financing costs........ - (2.3) - (2.3)
Repayment of
long-term debt........ (0.2) (0.3) (0.2) (0.9)
Issuance of share
capital............... 1.9 0.2 1.9 0.2
Other.................. (2.2) (0.3) (2.4) (1.3)
----------- ----------- ----------- -----------
Cash used in financing
activities.............. (0.5) (2.7) (0.7) (139.3)
----------- ----------- ----------- -----------
Increase (decrease)
in cash................. 53.7 38.0 86.3 (81.7)
Cash and cash
equivalents,
beginning of period..... 1,149.3 1,081.3 1,116.7 1,201.0
----------- ----------- ----------- -----------
Cash and cash
equivalents,
end of period........... $ 1,203.0 $ 1,119.3 $ 1,203.0 $ 1,119.3
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Supplemental cash flow information (note 6)
See accompanying notes to unaudited consolidated financial statements.
These unaudited interim consolidated financial statements should be read
in conjunction with the 2008 annual consolidated financial statements.
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except per share amounts)
(unaudited)
1. Basis of presentation and significant accounting policies:
We prepare our financial statements in accordance with generally accepted
accounting principles (GAAP) in Canada.
The disclosures contained in these unaudited interim consolidated
financial statements do not include all requirements of Canadian GAAP for
annual financial statements. These unaudited interim consolidated
financial statements should be read in conjunction with the 2008 annual
consolidated financial statements. These unaudited interim consolidated
financial statements reflect all adjustments which are, in the opinion of
management, necessary to present fairly our financial position as at
June 30, 2009 and the results of operations, comprehensive income, and
cash flows for the three months and six months ended June 30, 2008 and
2009.
Use of estimates:
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and related disclosures of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenue and expenses during the reporting period. We
applied significant estimates and assumptions to our valuations against
accounts receivable, inventory and income taxes, to the amount and timing
of restructuring charges or recoveries, to the fair values used in
testing long-lived assets, and to valuing our financial instruments and
pension costs. Actual results could differ materially from those
estimates and assumptions, especially in light of the current economic
environment and uncertainties.
These unaudited interim consolidated financial statements are based upon
accounting principles consistent with those used and described in the
2008 annual consolidated financial statements, except for the following:
Changes in accounting policies:
(i) Goodwill and intangible assets:
On January 1, 2009, we adopted CICA Handbook Section 3064, "Goodwill and
intangible assets." This revised standard establishes guidance for the
recognition, measurement and disclosure of goodwill and intangible
assets, including internally generated intangible assets. As required by
this standard, we have retroactively reclassified computer software
assets on our consolidated balance sheet from property, plant and
equipment to intangible assets. We have also reclassified computer
software amortization on our consolidated statement of operations from
depreciation expense, included in selling, general and administrative
expenses, to amortization of intangible assets. There is no impact on
previously reported net earnings or loss.
Intangible assets:
December 31 June 30
2008 2009
----------- -----------
Intellectual property............................ $ 0.6 $ -
Other intangible assets.......................... 19.5 14.5
Computer software assets......................... 34.0 30.4
----------- -----------
$ 54.1 $ 44.9
----------- -----------
----------- -----------
Amortization expense is as follows:
Three months ended Six months ended
June 30 June 30
2008 2009 2008 2009
----------- ----------- ----------- -----------
Amortization of
intellectual property... $ 0.3 $ - $ 0.6 $ 0.2
Amortization of other
intangible assets....... 3.9 1.9 7.8 4.8
Amortization of computer
software assets......... 2.8 2.9 5.8 5.6
----------- ----------- ----------- -----------
$ 7.0 $ 4.8 $ 14.2 $ 10.6
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Recently issued accounting pronouncements:
(a) International financial reporting standards (IFRS):
In February 2008, the Canadian Accounting Standards Board announced the
adoption of IFRS for publicly accountable enterprises. IFRS will replace
Canadian GAAP effective January 1, 2011. IFRS is effective for our first
quarter of 2011 and will require that we restate our 2010 comparative
numbers. We have started an IFRS conversion project to evaluate the
impact of implementing the new standards. We cannot at this time
reasonably estimate the impact of adopting IFRS on our consolidated
financial statements.
(b) Business combinations:
In January 2009, the CICA issued Handbook Section 1582, "Business
combinations," which replaces the existing standards. This section
establishes the standards for the accounting of business combinations,
and states that all assets and liabilities of an acquired business will
be recorded at fair value. Obligations for contingent considerations and
contingencies will also be recorded at fair value at the acquisition
date. The standard also states that acquisition-related costs will be
expensed as incurred and that restructuring charges will be expensed in
the periods after the acquisition date. This standard is equivalent to
the IFRS on business combinations. This standard is applied prospectively
to business combinations with acquisition dates on or after January 1,
2011. Earlier adoption is permitted. We will consider the impact of
adopting this standard on our consolidated financial statements if we
have a business combination.
(c) Consolidated financial statements:
In January 2009, the CICA issued Handbook Section 1601, "Consolidated
financial statements," which replaces the existing standards. This
section establishes the standards for preparing consolidated financial
statements and is effective for 2011. Earlier adoption is permitted. We
will consider the impact of adopting this standard on our consolidated
financial statements if we have a business combination.
(d) Financial instruments - disclosures:
In June 2009, the CICA issued amendments to Handbook Section 3862,
"Financial instruments - disclosures," which requires enhanced
disclosures on liquidity risk of financial instruments and new
disclosures on fair value measurements of financial instruments. These
requirements correspond to the IFRS on financial instruments disclosures.
This amendment is effective for our 2009 annual consolidated financial
statements. We are currently evaluating the impact of adopting this
amendment on our consolidated financial statements.
2. Inventories:
During the second quarter of 2009, we recorded a net inventory provision
through cost of sales of $0.9 (first half of 2009 - $3.0) to write down
the value of our inventory to net realizable value.
3. Long-term debt:
December 31 June 30
2008 2009
----------- -----------
Secured, revolving credit facility due 2009(a)... $ - $ -
Senior Subordinated Notes due 2011
(2011 Notes)(b)(c)(d)........................... 489.4 339.4
Senior Subordinated Notes due 2013
(2013 Notes)(b)................................. 223.1 223.1
Embedded prepayment option at fair value(d)(e)... (19.2) (1.1)
Basis adjustments on debt obligation(e).......... 4.9 4.1
Unamortized debt issue costs..................... (7.0) (4.8)
Fair value adjustment of 2011 Notes attributable
to interest rate risks(d)(e).................... 40.9 22.5
----------- -----------
732.1 583.2
Capital lease obligations........................ 1.0 0.1
----------- -----------
733.1 583.3
Less current portion............................. 1.0 0.1
----------- -----------
$ 732.1 $ 583.2
----------- -----------
----------- -----------
(a) In April 2009, we renewed our revolving credit facility and reduced
the size from $300.0 to $200.0, on generally similar terms and
conditions, with a maturity of April 2011. Under the terms of the
renewed facility, borrowings bear a higher interest rate than under
the previous terms and we are required to comply with certain
restrictive covenants relating to debt incurrence and the sale of
assets and certain financial covenants related to indebtedness,
interest coverage and liquidity. There were no borrowings outstanding
under the facility at June 30, 2009. Commitment fees for the first
half of 2009 were $1.0. We were in compliance with all covenants at
June 30, 2009. Based on the required financial ratios at June 30,
2009, we have full access to this facility.
We also have uncommitted bank overdraft facilities available for
operating requirements which total $65.0 at June 30, 2009. There were
no borrowings outstanding under these facilities at June 30, 2009.
(b) Our 2011 Notes bear a fixed interest rate of 7.875%. Our 2013 Notes
bear a fixed interest rate of 7.625%. We are entitled to redeem our
Notes at various premiums above face value.
The Notes are unsecured and subordinated in right of payment to all
our senior debt. The Notes have restrictive covenants that limit our
ability to pay dividends, repurchase our own stock or repay debt that
is subordinated to these Notes. These covenants also place
limitations on the sale of assets and our ability to incur additional
debt. We were in compliance with all covenants at June 30, 2009.
(c) In connection with the 2011 Notes, we entered into agreements to swap
the fixed interest rate with a variable interest rate based on LIBOR
plus a margin. In February 2009, we terminated our interest rate swap
agreements. See note 3(d). Interest costs on the 2011 Notes were
based on a fixed rate of 7.875% for the second quarter of 2009 and
the average interest rate was 6.6% for the first half of 2009 (5.7%
and 6.7%, respectively, for the second quarter and first half of
2008).
(d) In March 2009, we paid $149.7, excluding accrued interest, to
repurchase 2011 Notes with a principal amount at maturity of $150.0.
During the first quarter of 2009, we recognized a gain of $9.1 on the
repurchase of the 2011 Notes which we recorded in other charges. See
note 4. The gain on the repurchase was measured based on the carrying
value of the repurchased portion of the 2011 Notes on the date of
repurchase. We also terminated our interest rate swap agreements in
the amount of $500.0 related to the 2011 Notes and received $14.7 in
cash, excluding accrued interest, as settlement of these agreements.
In connection with the termination of the swap agreements, we
discontinued fair value hedge accounting on the 2011 Notes and will
amortize the historical fair value adjustment on the 2011 Notes as a
reduction to interest expense on long-term debt, over the remaining
term of the 2011 Notes, using the effective interest rate method. As
a result of discontinuing fair value hedge accounting in the first
quarter of 2009, we recorded a write-down of $15.6 in the carrying
value of the embedded prepayment options on the 2011 Notes to reflect
the change in fair value upon hedge de-designation, which we recorded
in other charges. See note 4.
(e) The prepayment options in the Notes qualify as embedded derivatives
which must be bifurcated for reporting under the financial
instruments standards. As of June 30, 2009, the fair value of the
embedded derivative asset is $1.1 and is recorded against long-term
debt. The decrease in the fair value of the embedded derivative asset
from December 31, 2008 primarily reflects the write-down related to
the hedge de-designation and debt repurchase described in note 3(d).
As a result of bifurcating the prepayment option from these Notes, a
basis adjustment was added to the cost of the long-term debt. This
basis adjustment is amortized over the term of the debt using the
effective interest rate method. The amortization of the basis
adjustment is recorded as a reduction of interest expense on
long-term debt. As of June 30, 2009, the fair value adjustment to the
2011 Notes attributable to the movement in the benchmark interest
rates is $22.5. The decrease in this fair value adjustment from
December 31, 2008 primarily reflects the debt repurchase and hedge
de-designation described in note 3(d). After the hedge
de-designation, this fair value adjustment is being amortized to
interest expense on long-term debt, over the remaining term of the
2011 Notes.
We applied fair value hedge accounting to our interest rate swaps and
our hedged debt obligation (2011 Notes) until February 2009. We have
also marked-to-market the bifurcated embedded prepayment options in
our debt instruments. The changes in the fair values each period are
recorded in interest expense on long-term debt. The mark-to-market
adjustment fluctuates each period as it is dependent on market
conditions, including future interest rates, implied volatility and
credit spreads. The impact on our results of operations is as
follows:
Three months ended Six months ended
June 30 June 30
2008 2009 2008 2009
----------- ----------- ----------- -----------
Increase (decrease)
in interest expense
on long-term debt... $ 0.4 $ (1.5) $ (0.7) $ (3.3)
4. Other charges:
Three months ended Six months ended
June 30 June 30
2008 2009 2008 2009
----------- ----------- ----------- -----------
Restructuring(a)......... $ 3.6 $ 20.9 $ 6.9 $ 27.6
Gain on repurchase of
Notes (see note 3(d))... - - - (9.1)
Write-down of embedded
prepayment option
(see note 3(d))......... - - - 15.6
Other.................... - (0.2) - (0.9)
----------- ----------- ----------- -----------
$ 3.6 $ 20.7 $ 6.9 $ 33.2
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(a) Restructuring:
In January 2008, we estimated that a restructuring charge of between $50
to $75 would be recorded throughout 2008 and 2009. During 2008 and
through the second quarter of 2009, we recorded a total of $62.9 in
restructuring charges. Of that amount, $20.9 was recorded in the second
quarter of 2009. In light of the continuing uncertain economic
environment, we determined that further restructuring actions are
required to maintain our operational leverage and improve our overall
utilization. In July 2009, we announced further restructuring charges, in
addition to those announced in January 2008, of between $75 and $100. We
expect to complete these restructuring actions by the end of 2010. We
recognize the restructuring charges as the detailed plans are finalized.
Our restructuring actions include consolidating facilities and reducing
our workforce. The majority of the employees terminated are manufacturing
and plant employees in the Americas and Europe. For leased facilities
that we no longer use, the lease costs included in the restructuring
costs represent future lease payments less estimated sublease recoveries.
Adjustments are made to lease and other contractual obligations to
reflect incremental cancellation fees paid for terminating certain
facility leases and to reflect changes in the accruals for other leases
due to delays in the timing of sublease recoveries, changes in estimated
sublease rates, or changes in use, relating principally to facilities in
the Americas. We expect our long-term lease and other contractual
obligations to be paid out over the remaining lease terms through 2015.
Our restructuring liability is recorded in accrued liabilities.
Details of the 2009 activity are as follows:
Lease
and
other Facility
Employee contrac- exit
termin- tual costs Total 2009
ation oblig- and accrued non-cash 2009
costs ations other liability charge charge
--------- -------- ------- --------- --------- -------
December 31,
2008.............. $ 18.7 $ 26.7 $ 0.2 $ 45.6 $ - $ -
Cash payments...... (14.6) (2.2) (0.1) (16.9) - -
Charges/
adjustments....... 10.4 (4.5) 0.2 6.1 0.6 6.7
-------- -------- -------- -------- -------- --------
March 31, 2009..... 14.5 20.0 0.3 34.8 0.6 6.7
Cash payments...... (14.9) (2.6) (0.3) (17.8) - -
Charges/
adjustments....... 16.2 3.7 0.3 20.2 0.7 20.9
-------- -------- -------- -------- -------- --------
June 30, 2009...... $ 15.8 $ 21.1 $ 0.3 $ 37.2 $ 1.3 $ 27.6
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
As of June 30, 2009, we have approximately $25 in assets that are
held-for-sale, primarily land and buildings, as a result of the
restructuring actions we have implemented. We have programs underway to
sell these assets.
5. Segment information:
The accounting standards establish the criteria for the disclosure of
certain information in the interim and annual financial statements
regarding operating segments, products and services and major customers.
Operating segments are defined as components of an enterprise for which
separate financial information is available that is regularly evaluated
by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
Our operating segment is comprised of our electronics manufacturing
services business. Our chief operating decision maker is our Chief
Executive Officer.
(i) The following table indicates revenue by end market as a percentage
of total revenue. Our revenue fluctuates from period to period
depending on numerous factors, including but not limited to:
seasonality of business; the level of business from new, existing
and disengaging customers; the level of program wins or losses; the
phasing in or out of programs; and changes in customer demand.
Three months ended Six months ended
June 30 June 30
2008 2009 2008 2009
----------- ----------- ----------- -----------
Enterprise
communications..... 27% 23% 27% 22%
Consumer............ 21% 22% 20% 26%
Telecommunications.. 15% 20% 15% 19%
Servers............. 17% 12% 17% 12%
Storage............. 10% 12% 11% 10%
Industrial,
aerospace and
defense, and
other.............. 10% 11% 10% 11%
(ii) For the second quarter and first half of 2009, three customers and
two customers, respectively, individually represented more than 10%
of total revenue (second quarter and first half of 2008 - no
customer represented more than 10% of total revenue).
6. Supplemental cash flow information:
Three months ended Six months ended
June 30 June 30
Paid during the period: 2008 2009 2008 2009
----------- ----------- ----------- -----------
Interest(a).............. $ 1.3 $ 3.0 $ 33.9 $ 31.9
Taxes(b)................. $ 9.0 $ 9.7 $ 7.9 $ 14.8
(a) This includes interest paid on the Notes. Interest on these Notes is
payable in January and July of each year until maturity. See notes
3(b) and (c).
(b) Cash taxes paid is net of any income taxes recovered.
Cash and cash equivalents are December 31 June 30
comprised of the following: 2008 2009
----------- -----------
Cash(i).......................................... $ 406.2 $ 241.0
Cash equivalents(i).............................. 794.8 878.3
----------- -----------
$ 1,201.0 $ 1,119.3
----------- -----------
----------- -----------
(i) Our current portfolio consists of certificates of deposit and certain
money market funds that are secured exclusively by U.S. government
securities. The majority of our cash and cash equivalents are held
with financial institutions each of which had at June 30, 2009 a
Standard and Poor's rating of A-1 or above.
7. Derivative financial instruments:
(i) We enter into foreign currency contracts to hedge foreign currency
risks primarily relating to cash flows. At June 30, 2009, we had
forward exchange contracts covering various currencies in an
aggregate notional amount of $332.2. All derivative financial
instruments are recorded at fair value on our consolidated balance
sheet. The fair value of our foreign currency contracts at June 30,
2009 was a net unrealized loss of $4.7 (December 31, 2008 - net
unrealized loss of $38.9). This is comprised of $6.5 of derivative
assets recorded in prepaid and other assets and $11.2 of derivative
liabilities recorded in accrued liabilities. The unrealized losses
are a result of fluctuations in foreign exchange rates between the
time the currency forward contracts were entered into and the
valuation date at period end. The decrease in the net unrealized
loss of our foreign currency contracts during the first half of 2009
is due primarily to the favourable movement in the exchange rates
for the currencies that we hedge and the settlement of contracts
with significant losses.
At June 30, 2009, we had forward exchange contracts to trade U.S.
dollars in exchange for the following currencies:
Weighted
average
exchange
Amount rate Maximum
of U.S. of U.S. period Fair value
Currency dollars dollars in months gain/(loss)
------------------------- ----------- ----------- ----------- -----------
Canadian dollar.......... $ 116.6 $ 0.86 9 $ 0.5
British pound sterling... 75.4 1.54 4 (5.7)
Mexican peso............. 63.3 0.07 6 1.2
Thai baht................ 26.0 0.03 6 0.2
Malaysian ringgit........ 25.6 0.29 6 (0.5)
Singapore dollar......... 9.3 0.66 6 (0.1)
Euro..................... 7.0 1.37 6 (0.2)
Brazilian real........... 7.0 0.50 3 -
Czech koruna............. 2.0 0.06 1 (0.1)
----------- -----------
Total $ 332.2 $ (4.7)
----------- -----------
----------- -----------
(ii) In connection with the issuance of our 2011 Notes in June 2004, we
entered into agreements to swap the fixed rate of interest for a
variable interest rate. The notional amount of the agreements was
$500.0. The fair value of the interest rate swap agreements at
December 31, 2008 was an unrealized gain of $17.3, which we recorded
in other long-term assets. In connection with the debt repurchase
(see notes 3(c) and (d)), we terminated our swap agreements. We
received $14.7 in February 2009 representing the fair value of the
swap agreements, excluding accrued interest, prior to termination.
Notes 3(d) and (e) summarize the impact of our mark-to-market
adjustments and our fair value hedge accounting.
Fair value hedge ineffectiveness arose when the change in the fair
values of our swap agreements, our hedged debt obligation and its
embedded derivatives, and the amortization of the related basis
adjustments did not offset each other during a reporting period. The
fair value hedge ineffectiveness loss of $1.4 for our 2011 Notes was
recorded in interest expense on long-term debt for the first half of
2009 (loss of $0.4 for the first half of 2008). This fair value
hedge ineffectiveness was driven primarily by the difference in the
credit risk used to value our hedged debt obligation as compared to
the credit risk used to value our interest rate swaps. As a result
of discontinuing our fair value hedge on our 2011 Notes in
February 2009, no further fair value hedge ineffectiveness will
occur in subsequent quarters with respect to the 2011 Notes.
8. Shareholders' equity:
Capital Contributed
stock Warrants surplus Deficit
----------- ---------- ------------ -----------
Balance - December 31,
2007.................... $ 3,585.2 $ 3.1 $ 190.3 $(1,716.3)
Shares issued............ 2.4 - - -
Stock-based
compensation costs...... - - 10.1 -
Other.................... - - 0.5 -
Net earnings for the
first half of 2008...... - - - 69.6
----------- ----------- ----------- -----------
Balance - June 30, 2008.. $ 3,587.6 $ 3.1 $ 200.9 $(1,646.7)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Balance - December 31,
2008.................... $ 3,588.5 $ - $ 204.4 $(2,436.8)
Shares issued............ 0.2 - - -
Stock-based
compensation costs...... - - 14.4 -
Other.................... - - 1.1 -
Net earnings for the
first half of 2009...... - - - 24.5
----------- ----------- ----------- -----------
Balance - June 30, 2009.. $ 3,588.7 $ - $ 219.9 $(2,412.3)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Six months
Year ended ended
Accumulated other comprehensive income, December 31 June 30
net of tax: 2008 2009
----------- -----------
Opening balance of foreign currency
translation account............................. $ 35.2 $ 46.7
Foreign currency translation gain (loss)......... 11.5 (5.1)
----------- -----------
Closing balance.................................. 46.7 41.6
Opening balance of unrealized net gain
(loss) on cash flow hedges...................... $ 20.7 $ (37.3)
Net (loss) gain on cash flow hedges(1)........... (53.1) 1.6
Net (gain) loss on cash flow hedges
reclassified to operations(2)................... (4.9) 34.4
----------- -----------
Closing balance(3)............................... (37.3) (1.3)
----------- -----------
Accumulated other comprehensive income........... $ 9.4 $ 40.3
----------- -----------
----------- -----------
(1) Net of income tax expense (benefit) of $0.1 and $(0.2) for the three
and six months ended June 30, 2009 ($0.8 income tax benefit for
2008).
(2) Net of income tax expense of $0.2 and $0.5 for the three and six
months ended June 30, 2009 ($0.2 income tax expense for 2008).
(3) Net of income tax benefit of $0.1 as of June 30, 2009 ($0.4 income
tax benefit as of December 31, 2008).
We expect that all the losses on cash flow hedges reported in accumulated
other comprehensive income at June 30, 2009 will be reclassified to
operations during the next 12 months.
9. Guarantees and contingencies:
We have contingent liabilities in the form of letters of credit, letters
of guarantee, and surety and performance bonds which we have provided to
various third parties. These guarantees cover various payments, including
customs and excise taxes, utility commitments and certain bank
guarantees. At June 30, 2009, these contingent liabilities amounted to
$50.3 (December 31, 2008 - $55.4).
In addition to the above guarantees, we have also provided routine
indemnifications, the terms of which range in duration and often are not
explicitly defined. These may include indemnifications against adverse
impacts due to changes in tax laws and patent infringements by third
parties. We have also provided indemnifications in connection with the
sale of certain businesses and real property. The maximum potential
liability from these indemnifications cannot be reasonably estimated. In
some cases, we have recourse against other parties to mitigate our risk
of loss from these indemnifications. Historically, we have not made
significant payments relating to these types of indemnifications.
Litigation:
In the normal course of our operations, we are subject to litigation and
claims from time to time. We may also be subject to lawsuits,
investigations and other claims, including environmental, labor, product,
customer disputes and other matters. Management believes that adequate
provisions have been recorded in the accounts where required. Although it
is not possible to estimate the extent of potential costs, if any,
management believes that the ultimate resolution of such contingencies
will not have a material adverse impact on our results of operations,
financial position or liquidity.
In 2007, securities class action lawsuits were commenced against us and
our former Chief Executive and Chief Financial Officers, in the United
States District Court of the Southern District of New York by certain
individuals, on behalf of themselves and other unnamed purchasers of our
stock, claiming that they were purchasers of our stock during the period
January 27, 2005 through January 30, 2007. The plaintiffs allege
violations of United States federal securities laws and seek unspecified
damages. They allege that during the purported class period we made
statements concerning our actual and anticipated future financial results
that failed to disclose certain purportedly material adverse information
with respect to demand and inventory in our Mexican operations and our
information technology and communications divisions. In an amended
complaint, the plaintiffs have added one of our directors and Onex
Corporation as defendants. All defendants have filed motions to dismiss
the amended complaint. These motions are pending. A parallel class
proceeding has also been issued against us and our former Chief Executive
and Chief Financial Officers in the Ontario Superior Court of Justice,
but neither leave nor certification of the action has been granted by
that court. We believe that the allegations in these claims are without
merit and we intend to defend against them vigorously. However, there can
be no assurance that the outcome of the litigation will be favorable to
us or will not have a material adverse impact on our financial position
or liquidity. In addition, we may incur substantial litigation expenses
in defending these claims. We have liability insurance coverage that may
cover some of our litigation expenses, potential judgments or settlement
costs.
Income taxes:
We are subject to tax audits by local tax authorities of historical
information which could result in additional tax expense in future
periods relating to prior results. In addition, tax authorities could
challenge the validity of our inter-company transactions, including
financing and transfer pricing policies which generally involve
subjective areas of taxation and a significant degree of judgment. If any
of these tax authorities are successful with their challenges, our income
tax expense may be adversely affected and we could also be subject to
interest and penalty charges.
In connection with ongoing tax audits in Canada, tax authorities have
taken the position that income reported by one of our Canadian
subsidiaries in 2001 and 2002 should have been materially higher as a
result of certain inter-company transactions. The successful pursuit of
that assertion could result in that subsidiary owing significant amounts
of tax, interest and possibly penalties. We believe we have substantial
defenses to the asserted position and have adequately accrued for any
probable potential adverse tax impact. However, there can be no assurance
as to the final resolution of this claim and any resulting proceedings,
and if this claim and any ensuing proceedings are determined adversely to
us, the amounts we may be required to pay could be material.
10. Financial instruments - financial risks:
We have exposures to the following financial risks arising from financial
instruments: market risk, credit risk and liquidity risk. Market risk is
the risk that results in changes to market prices, such as foreign
exchange rates and interest rates, that could affect our operations or
the value of our financial instruments.
(a) Currency risk: Due to the nature of our international operations, we
are exposed to exchange rate fluctuations on our financial instruments
denominated in various foreign currencies. We manage our currency risk
through our cash flow hedging program. Our major currency exposures, as
of June 30, 2009, are summarized in U.S. dollar equivalents in the
following table. For purposes of this table, we have excluded items such
as pension, post-employment benefits and income taxes, in accordance with
the financial instruments standards. The local currency amounts have been
converted to U.S. dollar equivalents using the spot rates as of June 30,
2009.
Chinese Brazilian Canadian Mexican
renminbi real dollar peso
----------- ----------- ----------- -----------
Cash and cash
equivalents............. $ 21.1 $ 3.4 $ 42.4 $ 1.3
Accounts receivable...... 17.7 12.2 - -
Other financial assets... 0.5 9.4 - 0.2
Accounts payable and
accrued liabilities..... (17.1) (4.4) (32.2) (11.8)
----------- ----------- ----------- -----------
Net financial assets
(liabilities)........... $ 22.2 $ 20.6 $ 10.2 $ (10.3)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
At June 30, 2009, a one-percentage point strengthening or weakening of
the following currencies against the U.S. dollar for our financial
instruments denominated in non-functional currencies has the following
impact:
Chinese Brazilian Canadian Mexican
renminbi real dollar peso
----------- ----------- ----------- -----------
Increase (decrease)
1% Strengthening
Net earnings............ $ 0.2 $ 0.1 $ 0.1 $ 0.1
Other comprehensive
income................. - - 1.0 0.1
1% Weakening
Net earnings............ (0.2) (0.1) (0.1) (0.1)
Other comprehensive
income................. - - (1.0) (0.1)
(b) Interest rate risk: We are exposed to interest rate risks as we have
significant cash balances invested at floating rates. Borrowings under
our revolving credit facility bear interest at LIBOR plus a margin. If we
borrow under this facility, we will be exposed to interest rate risks due
to fluctuations in the LIBOR rate.
(c) Credit risk: Credit risk refers to the risk that a counterparty may
default on its contractual obligations resulting in a financial loss to
us. To mitigate the risk of financial loss from defaults under our
foreign currency forward contracts, these counterparty financial
institutions each had a Standard and Poor's rating of A or above at
June 30, 2009. The financial institution with which we have an accounts
receivable sales program had a Standard and Poor's rating of A+ at
June 30, 2009. See notes 14(c) and 18 to the 2008 annual consolidated
financial statements.
We also provide credit to our customers in the normal course of business.
The carrying amount of financial assets recorded in the financial
statements, net of any allowances or reserves for losses, represents our
estimate of maximum exposure to this credit risk. As of June 30, 2009,
less than 1% of our gross accounts receivable are over 90 days past due.
Accounts receivable are net of an allowance for doubtful accounts of
$14.6 at June 30, 2009 (December 31, 2008 - $13.7).
(d) Liquidity risk: Liquidity risk is the risk that we may not have cash
available to satisfy our financial obligations as they come due. The
majority of our financial liabilities recorded in accounts payable and
accrued liabilities are due within 90 days. The repayment schedule of our
long-term debt obligations is in 2011 and 2013. Management believes that
cash flow from operations, together with cash on hand, cash from the sale
of accounts receivable, and borrowings available under our credit
facility and bank overdraft facilities will be sufficient to support our
financial obligations. See note 14(d) to the 2008 annual consolidated
financial statements.
11. Comparative information:
We have reclassified certain prior period information to conform to the
current period's presentation.
%SEDAR: 00010284E
