First Quarter Summary
---------------------
- Revenue of $1,934 million, down 10% from $2,151 million last year
- GAAP loss of ($0.08) per share compared to GAAP loss ($0.05) per share
last year
- Adjusted net earnings of $0.08 per share compared to $0.15 per share a
year ago
- Q2 revenue guidance of $2.05 - $2.25 billion, adjusted earnings per
share of $0.08 - $0.16
(All amounts in U.S. dollars.
Per share information based on diluted
shares outstanding unless noted otherwise.)
TORONTO, April 27 /CNW/ - Celestica Inc. (NYSE: CLS, TSX: CLS/SV), a
world leader in electronics manufacturing services (EMS), today announced
financial results for the first quarter ended March 31, 2006.
Revenue was $1,934 million, compared to $2,151 million in the first
quarter of 2005. Net loss on a GAAP basis for the first quarter was
($17.4) million or ($0.08) per share, compared to a GAAP net loss for the
first quarter of 2005 of ($11.6) million or ($0.05) per share. Included in
GAAP net loss for the quarter are charges of $17.0 million associated with
previously announced restructuring plans.
Adjusted net earnings for the quarter were $17.4 million or $0.08 per
share compared to $33.4 million or $0.15 per share for the same period last
year. Adjusted net earnings is defined as net earnings before amortization of
intangible assets, gains or losses on the repurchase of shares and debt,
integration costs related to acquisitions, option expense, option exchange
costs and other charges, net of tax and significant deferred tax write-offs
(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 first quarter, announced on
January 26, 2006, of revenue of $1.8 to $2.0 billion and adjusted net earnings
per share of $0.04 to $0.12.
"Our results in the first quarter reflected the impact of a seasonal
revenue decline from the fourth quarter as well as substantial investments
being made to support our major new program launches and growth in our
low-cost facilities," said Steve Delaney, CEO, Celestica. "We continue to see
a positive demand environment into the second quarter. As our new programs
ramp, material flows stabilize and restructuring activities continue as
planned, we expect to show improvements in our operating results in the coming
quarters."
Outlook
-------
For the second quarter ending June 30, 2006, the company anticipates
revenue to be in the range of $2.05 billion to $2.25 billion, and adjusted
earnings per share ranging from $0.08 to $0.16.
First Quarter and Annual Shareholders Meeting Webcasts
------------------------------------------------------
Management will host its quarterly results conference call today at
8:30 a.m. Eastern Time which can be accessed at www.celestica.com.
The company's Annual Shareholders Meeting is also being held today in
Toronto and will commence at 10:00 a.m. Eastern Time in the Auditorium of the
TSX Broadcast and Conference Centre, The Exchange Tower, 130 King Street West,
Toronto, Ontario. A live webcast of management's presentation will be
available at www.celestica.com at approximately 10:10 a.m.
Supplementary Information
-------------------------
In addition to disclosing detailed results in accordance with Canadian
generally accepted accounting principles (GAAP), Celestica also provides
supplementary non-GAAP measures as a method to evaluate the company's
operating performance.
Management uses adjusted net earnings as a measure of enterprise-wide
performance. As a result of acquisitions made by the company, restructuring
activities, securities repurchases and the adoption of fair value accounting
for stock options, management believes adjusted net earnings is a useful
measure that facilitates period-to-period operating comparisons and allows the
company to compare its operating results with its competitors in the U.S. and
Asia. Adjusted net earnings excludes 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 long-lived assets),
gains or losses on the repurchase of shares or debt, option expense and option
exchange costs, and the related income tax effect of these adjustments and any
significant deferred tax write-offs. 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 (loss) prepared in
accordance with Canadian or U.S. GAAP. The company has provided a
reconciliation of adjusted net earnings to Canadian GAAP net earnings (loss)
below.
About Celestica
---------------
Celestica is a world leader in the delivery of electronics manufacturing
services (EMS). Celestica operates a global manufacturing network with
operations in Asia, Europe and the Americas, providing a broad range of
integrated services and solutions to leading OEMs (original equipment
manufacturers).
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 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: variability of operating results among periods; inability
to retain or grow our business due to execution problems resulting from
significant headcount reductions, plant closures and product transfer
associated with major restructuring activities; the effects of price
competition and other business and competitive factors generally affecting the
EMS industry; the challenges of effectively managing our operations during
uncertain economic conditions; our dependence on a limited number of
customers; our dependence on industries affected by rapid technological
change; the challenge of responding to lower-than-expected customer demand;
our ability to successfully manage our international operations; component
constraints; our ability to manage our restructuring and the shift of
production to lower cost geographies. These and other risks and uncertainties
and factors are discussed in the Company's various public filings at
www.sedar.com and www.sec.gov, including our Form 20-F and subsequent reports
on Form 6-K filed with the Securities and Exchange Commission.
As of its date, this press release contains any material information
associated with the company's financial results for the first quarter ended
March 31, 2006 and revenue and adjusted net earnings guidance for the second
quarter ending June 30, 2006. Earnings guidance is reviewed by the company's
board of directors. It is Celestica's policy that earnings guidance is
effective on the date given, and will only be updated through a public
announcement.
<<
RECONCILIATION OF GAAP TO
ADJUSTED NET EARNINGS
2005
-------------------------------------
Three months ended March 31
(in millions of U.S. dollars) GAAP Adjustments Adjusted
----------------------------- ----------- ----------- -----------
Revenue $ 2,150.6 $ - $ 2,150.6
Cost of sales(1) 2,027.6 (1.4) 2,026.2
----------- ----------- -----------
Gross profit 123.0 1.4 124.4
SG&A(1) 75.6 (1.1) 74.5
Amortization of intangible assets 7.2 (7.2) -
Integration costs relating to
acquisitions 0.3 (0.3) -
Other charges 31.9 (31.9) -
----------- ----------- -----------
Operating earnings (EBIAT) 8.0 41.9 49.9
Lyons accretion 3.2 - 3.2
Interest expense, net 7.9 - 7.9
----------- ----------- -----------
Net earnings (loss) before tax (3.1) 41.9 38.8
Income tax expense (recovery) 8.5 (3.1) 5.4
----------- ----------- -----------
Net earnings (loss) $ (11.6) $ 45.0 $ 33.4
----------- ----------- -----------
----------- ----------- -----------
W.A. No. of shares (in millions)
- diluted 226.9 229.0
Earnings (loss) per share
- diluted $ (0.05) $ 0.15
2006
-------------------------------------
Three months ended March 31
(in millions of U.S. dollars) GAAP Adjustments Adjusted
----------------------------- ----------- ----------- -----------
Revenue $ 1,934.0 $ - $ 1,934.0
Cost of sales(1) 1,828.2 (1.5) 1,826.7
----------- ----------- -----------
Gross profit 105.8 1.5 107.3
SG&A(1) 74.5 (1.3) 73.2
Amortization of intangible assets 6.6 (6.6) -
Integration costs relating to
acquisitions 0.5 (0.5) -
Other charges 17.0 (17.0) -
----------- ----------- -----------
Operating earnings (EBIAT) 7.2 26.9 34.1
Lyons accretion - - -
Interest expense, net 13.9 - 13.9
----------- ----------- -----------
Net earnings (loss) before tax (6.7) 26.9 20.2
Income tax expense (recovery) 10.7 (7.9) 2.8
----------- ----------- -----------
Net earnings (loss) $ (17.4) $ 34.8 $ 17.4
----------- ----------- -----------
----------- ----------- -----------
W.A. No. of shares (in millions)
- diluted 226.7 227.9
Earnings (loss) per share
- diluted $ (0.08) $ 0.08
(1) Non-cash option expense included in cost of sales and SG&A is added
back for adjusted net earnings
GUIDANCE SUMMARY
1Q versus actuals 1Q 06 Guidance 1Q 06 Actual
-------------- ------------
Revenue $1.8B - $2.0B $1.9B
Adjusted net EPS $0.04 - $0.12 $0.08
Forward Guidance(2) 2Q 06 Guidance
--------------
Revenue $2.05B - $2.25B
Adjusted net EPS $0.08 - $0.16
(2) Guidance for the second 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)
(unaudited)
December 31 March 31
2005 2006
------------ ------------
Assets
Current assets:
Cash and short-term investments .......... $ 969.0 $ 776.0
Accounts receivable ...................... 982.6 985.4
Inventories .............................. 1,058.4 1,157.8
Prepaid and other assets ................. 124.0 133.0
Income taxes recoverable ................. 113.5 91.8
Deferred income taxes .................... 10.9 9.3
------------ ------------
3,258.4 3,153.3
Capital assets ............................. 544.8 582.0
Goodwill from business combinations ........ 874.5 874.8
Intangible assets .......................... 79.0 80.1
Other assets ............................... 101.1 96.3
------------ ------------
$ 4,857.8 $ 4,786.5
------------ ------------
------------ ------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ......................... $ 1,153.3 $ 1,199.3
Accrued liabilities ...................... 492.1 406.7
Income taxes payable ..................... 119.9 102.7
Deferred income taxes .................... 4.5 3.7
Current portion of long-term debt
(note 4) ................................ 0.5 0.4
------------ ------------
1,770.3 1,712.8
Long-term debt (note 4) .................... 750.9 750.7
Accrued pension and post-employment
benefits .................................. 76.8 75.7
Deferred income taxes ...................... 17.8 16.2
Other long-term liabilities ................ 27.6 25.1
------------ ------------
2,643.4 2,580.5
Shareholders' equity:
Capital stock ............................ 3,562.3 3,567.9
Warrants ................................. 8.4 8.4
Contributed surplus ...................... 169.9 172.1
Deficit .................................. (1,545.6) (1,563.0)
Foreign currency translation adjustment .. 19.4 20.6
------------ ------------
2,214.4 2,206.0
------------ ------------
$ 4,857.8 $ 4,786.5
------------ ------------
------------ ------------
Guarantees and contingencies (note 12)
See accompanying notes to consolidated financial statements.
These unaudited interim consolidated financial statements should be read
in conjunction with the 2005 annual consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(in millions of U.S. dollars, except per share amounts)
(unaudited)
Three months ended
March 31
2005 2006
------------ ------------
Revenue .................................... $ 2,150.6 $ 1,934.0
Cost of sales .............................. 2,027.6 1,828.2
------------ ------------
Gross profit ............................... 123.0 105.8
Selling, general and administrative
expenses (SG&A) ........................... 75.6 74.5
Amortization of intangible assets .......... 7.2 6.6
Integration costs related to acquisitions .. 0.3 0.5
Other charges (note 6) ..................... 31.9 17.0
Accretion of convertible debt (note 5) ..... 3.2 -
Interest on long-term debt ................. 8.8 15.9
Interest income, net ....................... (0.9) (2.0)
------------ ------------
Loss before income taxes ................... (3.1) (6.7)
------------ ------------
Income taxes expense:
Current .................................. 8.2 8.9
Deferred ................................. 0.3 1.8
------------ ------------
8.5 10.7
------------ ------------
Net loss for the period .................... $ (11.6) $ (17.4)
------------ ------------
------------ ------------
Deficit, beginning of period ............... $ (1,473.6) $ (1,545.6)
Net loss for the period .................... (11.6) (17.4)
------------ ------------
Deficit, end of period ..................... $ (1,485.2) $ (1,563.0)
------------ ------------
------------ ------------
Basic loss per share ....................... $ (0.05) $ (0.08)
Diluted loss per share ..................... $ (0.05) $ (0.08)
Shares used in computing per share amounts:
Basic (in millions) ...................... 226.9 226.7
Diluted (in millions) .................... 226.9 226.7
See accompanying notes to consolidated financial statements.
These unaudited interim consolidated financial statements should be read
in conjunction with the 2005 annual consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars)
(unaudited)
Three months ended
March 31
2005 2006
------------ ------------
Cash provided by (used in):
Operations:
Net loss for the period .................... $ (11.6) $ (17.4)
Items not affecting cash:
Depreciation and amortization ............ 42.3 31.5
Deferred income taxes .................... 0.3 1.8
Accretion of convertible debt ............ 3.2 -
Non-cash charge for option issuances ..... 2.5 2.8
Restructuring charges .................... 0.9 -
Other charges ............................ (1.1) -
Other ...................................... (1.8) 3.8
Changes in non-cash working capital items:
Accounts receivable ...................... 77.2 (3.0)
Inventories .............................. (39.5) (92.5)
Prepaid and other assets ................. (20.5) (9.0)
Income taxes recoverable ................. 0.5 21.7
Accounts payable and accrued liabilities . (37.4) (40.3)
Income taxes payable ..................... (4.4) (17.2)
------------ ------------
Non-cash working capital changes ......... (24.1) (140.3)
------------ ------------
Cash provided by (used in) operations ...... 10.6 (117.8)
------------ ------------
Investing:
Acquisitions ............................. - (19.1)
Purchase of capital assets ............... (38.4) (55.1)
Proceeds from sale of assets ............. 11.1 -
Other .................................... 0.3 0.9
------------ ------------
Cash used in investing activities .......... (27.0) (73.3)
------------ ------------
Financing:
Repayment of long-term debt .............. (2.9) (0.3)
Issuance of share capital ................ 2.3 0.5
Other .................................... (0.4) (2.1)
------------ ------------
Cash used in financing activities .......... (1.0) (1.9)
------------ ------------
Decrease in cash ........................... (17.4) (193.0)
Cash, beginning of period .................. 968.8 969.0
------------ ------------
Cash, end of period ........................ $ 951.4 $ 776.0
------------ ------------
------------ ------------
Cash is comprised of cash and short-term investments.
Supplemental cash flow information (note 10)
See accompanying notes to consolidated financial statements.
These unaudited interim consolidated financial statements should be read
in conjunction with the 2005 annual consolidated financial statements.
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except per share amounts)
(unaudited)
1. Nature of business:
Our primary operations consist of providing a broad range of electronic
product solutions such as design and engineering, manufacturing and
systems integration, fulfillment and after market solutions to customers
in the computing and communications industries and, increasingly, in the
aerospace and defense, automotive, consumer and industrial end markets.
We have operations in Asia, the Americas and Europe.
We prepare our financial statements in accordance with generally accepted
accounting principles (GAAP) in Canada with a reconciliation to
accounting principles generally accepted in the United States, disclosed
in note 20 to the 2005 annual consolidated financial statements.
2. Significant accounting policies:
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 2005 annual
consolidated financial statements. These 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 our financial position as of March 31, 2006 and the
results of operations and cash flows for the three months ended March 31,
2005 and 2006. These unaudited interim consolidated financial statements
are based upon accounting principles consistent with those used and
described in the 2005 annual consolidated financial statements.
3. Acquisitions:
As part of the acquisition of Manufacturers' Services Limited (MSL) in
2004, we recorded liabilities for consolidating some of the acquired MSL
sites. These liabilities are detailed in the chart below. The remaining
liability for employee termination costs at March 31, 2006 relates to
employees terminated in 2005 who are receiving their severance amounts
over a period of time in accordance with local regulations. We will
continue to draw down this accrual throughout 2006 as these payments are
made. Our long-term lease and contractual obligations will be paid out
over the remaining lease terms through 2010. Cash outlays are funded from
cash on hand. We record the restructuring liability in accrued
liabilities. Details of the activity through the MSL restructuring
liability are as follows:
Lease and
Employee other Facility Total
termination contractual exit costs accrued
costs obligations and other liability
---------- ---------- ---------- ----------
Accrued on acquisition ... $ 28.0 $ 6.9 $ 1.2 $ 36.1
Cash payments ............ (14.7) (0.6) (0.2) (15.5)
---------- ---------- ---------- ----------
December 31, 2004 ........ 13.3 6.3 1.0 20.6
Adjustments .............. (0.5) (0.2) 0.7 -
Cash payments ............ (2.2) (3.9) (1.3) (7.4)
---------- ---------- ---------- ----------
December 31, 2005 ........ 10.6 2.2 0.4 13.2
Cash payments ............ (2.6) (0.2) - (2.8)
---------- ---------- ---------- ----------
March 31, 2006 ........... $ 8.0 $ 2.0 $ 0.4 $ 10.4
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
2005 activities:
In the third quarter of 2005, we completed the acquisitions of CoreSim
Inc. and Ramnish Electronics Private Limited. In the fourth quarter of
2005, we completed the acquisition of Displaytronix Inc. The total
aggregate cash purchase price was $6.5, including indebtedness assumed.
2006 activities:
In March 2006, we acquired certain assets located in the Philippines from
Powerwave Technologies, Inc. for a cash purchase price of $19.1.
Amortizable intangible assets arising from this acquisition are expected
to be approximately $7.6, primarily for customer relationships and
contract intangibles.
We are in the process of finalizing the valuation of certain assets
acquired. As such, the fair value allocation of the purchase price is
subject to refinement.
4. Long-term debt:
December 31 March 31
2005 2006
------------ ------------
Unsecured, revolving credit facility
due 2007 (a) .............................. $ - $ -
Senior Subordinated Notes due 2011 (b) ..... 500.0 500.0
Senior Subordinated Notes due 2013 (c) ..... 250.0 250.0
Capital lease obligations .................. 1.4 1.1
------------ ------------
751.4 751.1
Less current portion ....................... 0.5 0.4
------------ ------------
$ 750.9 $ 750.7
------------ ------------
------------ ------------
(a) We have a 364-day credit facility for $600.0 which matures in June
2007. The facility includes a $25.0 swing-line facility that provides
for short-term borrowings up to a maximum of seven days. The credit
facility permits us and certain designated subsidiaries to borrow
funds for general corporate purposes (including acquisitions).
Borrowings under the facility bear interest at LIBOR plus a margin
except that borrowings under the swing-line facility bear interest at
a base rate plus a margin. There are no borrowings outstanding under
this facility. Commitment fees for the first quarter of 2006 were
$0.7.
The facility has restrictive covenants relating to debt incurrence
and sale of assets and also contains financial covenants that require
us to maintain certain financial ratios. A change of control is an
event of default. Based on the required minimum financial ratios at
March 31, 2006, we are limited to approximately $170 of available
debt incurrence. The available debt incurrence under the facility has
been reduced by covenants relating to the two subordinated note
issuances and outstanding letters of credit and guarantees. We were
in compliance with all covenants at March 31, 2006.
(b) In June 2004, we issued Senior Subordinated Notes due 2011 with an
aggregate principal amount of $500.0, and a fixed interest rate of
7.875%. We incurred $12.0 in underwriting commissions and expenses
which we deferred and are amortizing over the term of the debt. The
2011 Notes are unsecured and are subordinated in right of payment to
all our senior debt. We may redeem the 2011 Notes on July 1, 2008 or
later at various premiums above face value.
In connection with the 2011 Notes offering, we entered into
agreements which swap the fixed interest rate with a variable
interest rate based on LIBOR plus a margin. The average interest rate
on the 2011 Notes was 7.5% for the first quarter of 2006 (7.1% for
the fourth quarter of 2005 and 5.6% for the first quarter of 2005).
(c) In June 2005, we issued Senior Subordinated Notes due 2013 with an
aggregate principal amount of $250.0, and a fixed interest rate of
7.625%. We incurred $4.2 in underwriting commissions and expenses
which we deferred and are amortizing over the term of the debt. The
2013 Notes are unsecured and are subordinated in right of payment to
all our senior debt. We may redeem the 2013 Notes on July 1, 2009 or
later at various premiums above face value.
5. Convertible debt:
During the third quarter of 2005, we repurchased the remaining
outstanding LYONs and recorded gains on the principal component through
other charges and losses on the option component through deficit. After
the third quarter of 2005, we have not recorded any accretion charges
related to the LYONs.
6. Other charges:
Three months ended
March 31
2005 2006
------------ ------------
2001 to 2004 restructuring (a) ............. $ 1.0 $ 0.5
2005 and 2006 restructuring (b) ............ 32.0 16.5
------------ ------------
Total restructuring ........................ 33.0 17.0
Gain on sale of surplus land and building .. (1.1) -
------------ ------------
$ 31.9 $ 17.0
------------ ------------
------------ ------------
(a) 2001 to 2004 restructuring:
In 2001, we announced a restructuring plan in response to the weak
end-markets in the computing and telecommunications industries. In
response to the prolonged difficult end-market conditions, we announced a
second restructuring plan in July 2002. The weak demand for our
manufacturing services resulted in an accelerated move to lower-cost
geographies and additional restructuring in the Americas and Europe. In
January 2003, we announced further reductions to our manufacturing
capacity in Europe. In January and April 2004, we announced plans to
further restructure our operations to better align capacity with
customers' requirements. These restructuring actions were focused on
workforce reductions and facility consolidations in all regions.
These restructuring actions were focused on consolidating facilities,
reducing the workforce, and transferring programs to lower-cost
geographies. The majority of the employees terminated were manufacturing
and plant employees. For leased facilities that were no longer used, the
lease costs included in the restructuring costs represent future lease
payments less estimated sublease recoveries. Adjustments were made to
lease and other contractual obligations to reflect incremental
cancellation fees paid for terminating certain facility leases and to
reflect higher accruals for other leases due to delays in the timing of
sublease recoveries and changes in estimated sublease rates, relating
principally to facilities in the Americas.
We have completed the major components of these restructuring plans,
except for certain long-term lease and other contractual obligations,
which will be paid out over the remaining lease terms through 2015, and
certain payments to regulatory agencies in accordance with local labor
legislation in Europe which we expect to pay out through 2008. Cash
outlays are funded from cash on hand.
$5.9 of the accrued termination costs is classified in other long-term
liabilities. The remaining restructuring liability is recorded in accrued
liabilities.
Details of the activity through the accrued restructuring liability and
the non-cash charge are as follows:
Lease and
other Facility
Employee contrac- exit
termi- tual costs Total
nation obliga- and accrued Non-cash Total
costs tions other liability charge charge
--------- -------- -------- -------- -------- --------
January 1,2001 ... $ - $ - $ - $ - $ - $ -
Provision re: 2001 90.7 35.3 12.4 138.4 98.6 237.0
Cash payments .... (51.2) (1.6) (2.9) (55.7) - -
--------- -------- -------- -------- -------- --------
December 31, 2001 39.5 33.7 9.5 82.7 98.6 237.0
Provision re: 2002 128.8 51.7 8.5 189.0 194.5 383.5
Cash payments .... (77.1) (14.7) (7.5) (99.3) - -
Adjustments ...... (4.1) 11.4 (2.7) 4.6 (2.7) 1.9
--------- -------- -------- -------- -------- --------
December 31, 2002 87.1 82.1 7.8 177.0 290.4 622.4
Provision re: 2003 61.4 0.3 1.1 62.8 8.5 71.3
Cash payments .... (112.0) (44.4) (8.9) (165.3) - -
Adjustments ...... 7.4 24.1 2.9 34.4 (10.8) 23.6
--------- -------- -------- -------- -------- --------
December 31, 2003 43.9 62.1 2.9 108.9 288.1 717.3
Provision re: 2004 98.6 8.7 5.9 113.2 33.9 147.1
Cash payments .... (110.6) (32.0) (4.1) (146.7) - -
Adjustments ...... 2.7 2.2 0.3 5.2 1.4 6.6
--------- -------- -------- -------- -------- --------
December 31, 2004 34.6 41.0 5.0 80.6 323.4 871.0
Cash payments .... (31.9) (11.5) (4.6) (48.0) - -
Adjustments ...... 8.7 6.2 0.6 15.5 5.3 20.8
--------- -------- -------- -------- -------- --------
December 31, 2005 $ 11.4 $ 35.7 $ 1.0 $ 48.1 $ 328.7 $ 891.8
--------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- --------
Details of the 2006 activity by quarter are as follows:
Lease and
other Facility
Employee contrac- exit
termi- tual costs Total
nation obliga- and accrued Non-cash Total
costs tions other liability charge charge
--------- -------- -------- -------- -------- --------
December 31, 2005. $ 11.4 $ 35.7 $ 1.0 $ 48.1 $ 328.7 $ -
Cash payments .... (2.5) (2.2) - (4.7) - -
Adjustments ...... 0.2 0.3 - 0.5 - 0.5
--------- -------- -------- -------- -------- --------
March 31, 2006 ... $ 9.1 $ 33.8 $ 1.0 $ 43.9 $ 328.7 $ 0.5
--------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- --------
(b) 2005 and 2006 restructuring:
In January 2005, we announced plans to further improve capacity
utilization and accelerate margin improvements. These restructuring
actions are ongoing and include facility closures and a reduction in
workforce, primarily targeting our higher-cost geographies where
end-market demand has not recovered to the levels management requires to
achieve sustainable profitability.
As of March 31, 2006, we have recorded termination costs related to
approximately 3,000 employees, primarily operations and plant employees.
Approximately 2,500 of these employees have been terminated as of
March 31, 2006 with the balance of the terminations to occur throughout
2006. Approximately 75% of employee terminations are in the Americas and
25% in Europe.
Details of the activity through the accrued restructuring liability and
the non-cash charge are as follows:
Lease and
other Facility
Employee contrac- exit
termi- tual costs Total
nation obliga- and accrued Non-cash Total
costs tions other liability charge charge
--------- -------- -------- -------- -------- --------
January 1, 2005 .. $ - $ - $ - $ - $ - $ -
Provision ........ 114.0 14.5 5.1 133.6 5.7 139.3
Cash payments .... (74.7) (1.2) (4.4) (80.3) - -
--------- -------- -------- -------- -------- --------
December 31, 2005. 39.3 13.3 0.7 53.3 5.7 139.3
Provision ........ 13.2 1.6 1.7 16.5 - 16.5
Cash payments .... (33.3) (2.0) (2.0) (37.3) - -
--------- -------- -------- -------- -------- --------
March 31, 2006 ... $ 19.2 $ 12.9 $ 0.4 $ 32.5 $ 5.7 $ 155.8
--------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- --------
We expect to complete the major components of these restructuring actions
by the end of 2006. Cash outlays are and will be funded from cash on
hand. The restructuring liability is recorded in accrued liabilities.
Restructuring summary:
We expect total restructuring charges of approximately $250 to $275 to be
recorded in 2005 and 2006, with the majority of these charges to be
employee termination costs. As of March 31, 2006, we have recorded
restructuring charges totaling $160.1 in 2005 and $17.0 in 2006.
As of March 31, 2006, we have $4.1 in assets that are available-for-sale,
primarily land and buildings in all geographies as a result of the
restructuring actions we implemented. We have programs underway to sell
these assets.
7. Pension and non-pension post-employment benefit plans:
We have recorded the following pension expense:
Three months ended
March 31
2005 2006
------------ ------------
Pension plans .............................. $ 9.1 $ 8.7
Other benefit plans ........................ 3.2 2.2
------------ ------------
Total expense .............................. $ 12.3 $ 10.9
------------ ------------
------------ ------------
8. Stock-based compensation and other stock-based payments:
We have applied the fair-value method of accounting for stock option
awards granted after January 1, 2003 and, accordingly, have recorded
compensation expense. For awards granted in 2002, we have disclosed the
pro forma earnings and per share information as if we had accounted for
employee stock options under the fair-value method. We are not required
to apply the pro forma effect of awards granted prior to January 1, 2002.
The estimated fair value of options is amortized to expense over the
vesting period, on a straight-line basis, and was determined using the
Black Scholes option pricing model with the following weighted average
assumptions:
Three months ended
March 31
2005 2006
------------ ------------
Risk-free rate ............................. 3.5% - 3.9% 4.5% - 4.6%
Dividend yield ............................. 0.0% 0.0%
Volatility factor of the expected market
price of the Company's shares ............. 48% - 63% 48% - 65%
Expected option life (in years) ............ 3.5 - 5.5 3.5 - 5.5
Weighted average grant date fair values
of options issued ......................... $7.31 $5.60
Compensation expense for the three months ended March 31, 2006 was $2.8
(three months ended March 31, 2005 - $2.5) relating to the fair value of
options granted after January 1, 2003.
The pro forma disclosure relating to options granted in 2002 is as
follows:
Three months ended
March 31
2005 2006
------------ ------------
Net loss as reported ....................... $ (11.6) $ (17.4)
Deduct: Stock-based compensation costs using
fair value method ......................... (1.6) (1.8)
------------ ------------
Pro forma net loss ......................... $ (13.2) $ (19.2)
------------ ------------
------------ ------------
Loss per share:
Basic - as reported ...................... $ (0.05) $ (0.08)
Basic - pro forma ........................ $ (0.06) $ (0.08)
Diluted - as reported .................... $ (0.05) $ (0.08)
Diluted - pro forma ...................... $ (0.06) $ (0.08)
Our stock plans are described in note 9 to the 2005 annual consolidated
financial statements.
9. Segmented information:
Our operations fall into one dominant industry segment, the electronics
manufacturing services industry. We manage our operations, and
accordingly determine our operating segments, on a geographic basis. The
performance of geographic operating segments is monitored based on EBIAT
(earnings/loss before interest and accretion on convertible debt,
amortization of intangible assets, integration costs related to
acquisitions, other charges, option expense and income taxes). Inter
segment transactions are reflected at market value.
The following is a breakdown by reporting segment:
Three months ended
March 31
2005 2006
------------ ------------
Revenue
Asia ....................................... $ 965.4 $ 1,002.5
Americas ................................... 818.9 672.1
Europe ..................................... 408.7 308.9
Elimination of inter-segment revenue ....... (42.4) (49.5)
------------ ------------
$ 2,150.6 $ 1,934.0
------------ ------------
------------ ------------
Three months ended
March 31
EBIAT 2005 2006
------------ ------------
Asia ....................................... $ 36.4 $ 37.8
Americas ................................... 14.7 2.5
Europe ..................................... (1.2) (6.2)
------------ ------------
49.9 34.1
Net interest and accretion charges ......... (11.1) (13.9)
Amortization of intangible assets .......... (7.2) (6.6)
Option expense ............................. (2.5) (2.8)
Integration costs related to acquisitions .. (0.3) (0.5)
Other charges .............................. (31.9) (17.0)
------------ ------------
Loss before income taxes ................... $ (3.1) $ (6.7)
------------ ------------
------------ ------------
December 31 March 31
2005 2006
------------ ------------
Total assets
Asia ....................................... $ 2,494.7 $ 2,545.9
Americas ................................... 1,574.2 1,477.0
Europe ..................................... 788.9 763.6
------------ ------------
$ 4,857.8 $ 4,786.5
------------ ------------
------------ ------------
Goodwill
Asia ....................................... $ 874.5 $ 874.8
Americas ................................... - -
Europe ..................................... - -
------------ ------------
$ 874.5 $ 874.8
------------ ------------
------------ ------------
10. Supplemental cash flow information:
Three months ended
March 31
2005 2006
------------ ------------
Paid during the period:
Interest ................................... $ 1.9 $ 3.4
Taxes ...................................... $ 6.5 $ 4.8
11. Hedging transactions:
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 is $500.0. The
agreements mature July 2011. See note 4(b).
Payments or receipts under the swap agreements are recorded in interest
expense on long-term debt. The fair value of the interest rate swap
agreements at March 31, 2006 was an unrealized loss of $13.2
(December 31, 2005 - unrealized loss of $3.1).
12. Guarantees and contingencies:
We have contingent liabilities in the form of letters of credit, letters
of guarantee, and surety and performance bonds which we provided to
various third parties. These guarantees cover various payments, including
customs and excise taxes, utility commitments and certain bank
guarantees. At March 31, 2006, these contingent liabilities, including
guarantees of employee share purchase loans, amounted to $84.4
(December 31, 2005 - $80.0).
In addition to the above guarantees, we have also provided routine
indemnifications, whose terms range in duration and often are not
explicitly defined. These may include indemnifications against adverse
effects due to changes in tax laws and patent infringements by third
parties. 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.
In the normal course of our operations, we may be subject to litigation
and claims from time to time. Management believes that adequate
provisions have been recorded in the accounts where required. Although it
is not possible to estimate the extent of potential costs, if any,
management believes that the ultimate resolution of such contingencies
would not have a material adverse effect on our results of operations,
financial position or on our liquidity.
We are subject to tax audits by local taxing authorities. International
taxation authorities could challenge the validity of our inter-company
financing and transfer pricing policies which generally involve
subjective areas of taxation and a significant degree of judgment. If any
of these taxation authorities are successful in challenging our financing
or transfer pricing policies, our income tax expense may be adversely
affected and we could also be subjected to interest and penalty charges.
In connection with ongoing tax audits in the United States, taxing
authorities have asserted that our United States subsidiaries owe
significant amounts of tax, interest and penalties arising from
inter-company transactions. We believe we have substantial defenses to
the asserted deficiencies and have adequately accrued for any likely
potential losses. However, there can be no assurance as to the final
resolution of these asserted deficiencies and any resulting proceedings,
and if these asserted deficiencies and proceedings are determined
adversely to us, the amounts we may be required to pay may be material.
>>
%SEDAR: 00010284E
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Celestica Inc. (CLS) Exchange: Toronto Stock Exchange
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Celestica announces first quarter financial results
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