Celestica announces fourth quarter and fiscal year 2012 financial results
Celestica announces fourth quarter and fiscal year 2012 financial results
PR Newswire
TORONTO, Jan. 22, 2013
(All amounts in U.S. dollars.
Per share information based on diluted
shares outstanding unless noted otherwise).
TORONTO, Jan. 22, 2013 /PRNewswire/ - Celestica Inc. (NYSE, TSX: CLS), a
global leader in the delivery of end-to-end product lifecycle solutions, today
announced financial results for the fourth quarter and fiscal year ended
December 31, 2012.
Fourth Quarter 2012 Highlights
* Revenue: $1.50 billion, within the range of our guidance of $1.425 to
$1.525 billion (announced October 23, 2012)
* IFRS EPS: $0.04 per share, compared to $0.32 per share for the fourth
quarter of 2011
* Adjusted EPS (non-IFRS): $0.25 per share, above our guidance of $0.15 to
$0.21 per share (announced October 23, 2012) and includes a $0.06 per
share net income tax recovery
* Free cash flow (non-IFRS): $90.2 million, compared to $89.0 million for
the fourth quarter of 2011
* Diversified end markets: 23% of total revenue, increased from 18% of total
revenue for the fourth quarter of 2011
Fiscal Year 2012 Highlights
* Revenue: $6.51 billion, down 10% from 2011
* IFRS EPS: $0.56 per share, compared to $0.89 per share for 2011
* Adjusted EPS (non-IFRS): $0.98 per share, compared to $1.11 per share for
2011
* Free cash flow (non-IFRS): $211.4 million, up 47% from prior year
* Diversified end markets: 20% of total revenue, increased from 14% of total
revenue for 2011
* Repurchased and cancelled 22.4 million subordinate voting shares under a
substantial issuer bid for $175 million
* Repurchased and cancelled 13.3 million subordinate voting shares under a
Normal Course Issuer Bid for $113.8 million
* Recorded $44.0 million of restructuring charges and $17.7 million of asset
impairment charges
* Acquired D&H Manufacturing Company for $71 million in September 2012
"Celestica delivered revenue and operating profit consistent with our
guidance, and generated strong free cash flow in the fourth quarter, despite
continued softness in end market demand." said Craig Muhlhauser, Celestica
President and Chief Executive Officer. "We overcame a challenging environment
in 2012 and posted solid financial results, while continuing to invest in the
business and returning over $280 million to our shareholders through share
repurchases during the year.
"We are entering 2013 with a solid foundation to execute our strategy and
capitalize on the opportunities before us. We remain focused on driving
profitable growth and creating superior value for our customers and our
shareholders."
Fourth Quarter and Fiscal Year 2012 Summary
Three months ended Fiscal year ended
December 31 December 31
2011 2012 2011 2012
Revenue (in millions) ........................................ $ 1,753.4 $ 1,496.2 $ 7,213.0 $ 6,507.2
IFRS net earnings (in millions) ^(i) ...................... $ 69.2 $ 7.2 $ 195.1 $ 117.7
IFRS $ 0.32 $ 0.04 $ 0.89 $ 0.56
EPS^(i) .......................................................
Adjusted net earnings (non-IFRS) (in millions)^(ii) $ 71.1 $ 50.3 $ 241.9 $ 205.8
Adjusted EPS (non-IFRS)^(i)(ii) ............................ $ 0.33 $ 0.25 $ 1.11 $ 0.98
Non-IFRS return on invested capital (ROIC)^(ii) ... 27.5 % 18.4 % 27.5 % 21.5 %
Non-IFRS operating margin^(ii) ............................ 3.8 % 3.1 % 3.6 % 3.3 %
i. International Financial Reporting Standards (IFRS) net earnings for the
fourth quarter of 2012 included an aggregate charge of $0.13 (pre-tax) per
share for stock-based compensation, amortization of intangible assets
(excluding computer software) and restructuring charges. This is within the
range we provided on October 23, 2012 of a charge between $0.08 and $0.14 per
share. IFRS net earnings for the fourth quarter of 2012 also included a $0.09
(pre-tax) per share impairment charge, primarily against goodwill. Included in
the fourth quarter of 2012 adjusted EPS (non-IFRS) of $0.25 was a net income
tax benefit of $0.06 per share arising from a corporate tax reorganization
involving certain of our European subsidiaries and changes to our tax
provisions related to certain tax uncertainties.
ii. Non-IFRS measures do not have any standardized meaning prescribed by
IFRS and are not necessarily comparable to similar measures presented by other
companies using IFRS or other generally accepted accounting principles (GAAP).
See Schedule 1 for non-IFRS definitions and a reconciliation of non-IFRS to
IFRS measures.
End Markets by Quarter as a Percentage of Total Revenue
2011 2012
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
Communications ^(i) ..... 36 % 34 % 34 % 33 % 35 % 33 % 32 % 37 % 37 % 35 %
Consumer ................... 26 % 25 % 25 % 26 % 25 % 23 % 21 % 15 % 9 % 18 %
Diversified 11 % 13 % 16 % 18 % 14 % 19 % 19 % 21 % 23 % 20 %
^(ii) ..............
Servers ....................... 15 % 17 % 14 % 13 % 15 % 15 % 16 % 14 % 17 % 15 %
Storage ....................... 12 % 11 % 11 % 10 % 11 % 10 % 12 % 13 % 14 % 12 %
Revenue (in billions) ... $ 1.80 $ 1.83 $ 1.83 $ 1.75 $ 7.21 $ 1.69 $ 1.74 $ 1.58 $ 1.50 $ 6.51
i. We combined enterprise communications and telecommunications for
reporting purposes effective the first quarter of 2012. Prior period
percentages were also combined.
ii. Our diversified end market is comprised of industrial, aerospace and
defense, healthcare, green technology, semiconductor equipment and other.
Wind Down of Manufacturing Services for Research In Motion Limited (RIM) and
Restructuring Update
In June 2012, we announced that we would wind down our manufacturing services
for RIM. We completed our manufacturing services for RIM and the related
transition activities by the end of 2012. Revenue from RIM was minimal in the
fourth quarter of 2012 and it represented 12% of our total revenue in full
year 2012 (full year 2011 — 19%).
Due to the historical significance of RIM to our operations and in order to
improve our margin performance, we announced that we would take restructuring
actions throughout our global network to reduce our overall cost structure. In
July 2012, we estimated total restructuring charges of between $40 million and
$50 million. Our current estimate of the total restructuring charges to
complete our planned actions, which we expect to complete by the end of June
2013, is between $55 million and $65 million, taking into account additional
actions in response to the continued challenging demand environment. Of this
amount, we recorded $16.7 million in the fourth quarter of 2012 and $44.0
million in 2012.
Substantial Issuer Bid (SIB)
During the fourth quarter of 2012, we launched and successfully completed a
SIB to repurchase for cancellation $175 million of our subordinate voting
shares. We repurchased for cancellation approximately 22.4 million subordinate
voting shares at a price of $7.80 per share, representing approximately 12% of
the subordinate voting shares issued and outstanding prior to completion of
the SIB. We funded the share repurchases using a combination of cash on hand
and cash from our revolving credit facility.
First Quarter 2013 Outlook
For the first quarter ending March 31, 2013, we anticipate revenue to be in
the range of $1.325 to $1.425 billion, and adjusted net earnings per share to
be in the range of $0.11 to $0.17. We expect a negative $0.07 to $0.13 per
share (pre-tax) aggregate impact on an IFRS basis for the following items:
stock-based compensation, amortization of intangible assets (excluding
computer software) and restructuring charges.
Fourth Quarter Webcast
Management will host its fourth quarter results conference call today at 4:30
p.m. Eastern Standard Time. The webcast can be accessed at www.celestica.com.
Supplementary Information
In addition to disclosing detailed results in accordance with IFRS, Celestica
provides supplementary non-IFRS measures to consider in evaluating the
company's operating performance. See Schedule 1. Management uses adjusted net
earnings and other non-IFRS measures to assess operating performance and the
effective use and allocation of resources; to provide more meaningful
period-to-period comparisons of operating results; to enhance investors'
understanding of the core operating results of Celestica's business; and to
set management incentive targets.
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 www.celestica.com. The company's securities filings can also be
accessed at www.sedar.com and www.sec.gov.
Safe Harbor and Fair Disclosure Statement
This news release contains forward-looking statements related to our future
growth; trends in our industry; our financial or operational results including
our quarterly earnings and revenue guidance; the impact of acquisitions and
program wins or losses on our financial results and working capital
requirements; anticipated expenses, restructuring charges, capital
expenditures or benefits; our expected tax outcomes; our cash flows, financial
targets and priorities; changes in our mix of revenue by end markets; our
ability to diversify and grow our customer base and develop new capabilities;
and the effect of the global economic environment on customer demand. 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", "continues", 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 applicable
Canadian provincial and territorial securities legislation. Forward-looking
statements are not guarantees of future performance. Readers should understand
that the following important factors, among others, could affect our future
results and could cause those results to differ materially from those
expressed in such forward-looking statements: our dependence on a limited
number of customers and on our customers' ability to compete and succeed in
their marketplace for the products we manufacture; the effects of price
competition and other business and competitive factors generally affecting the
electronics manufacturing services (EMS) industry; the challenges of
effectively managing our operations and our working capital performance during
uncertain economic conditions, including responding to significant changes in
demand and changes in the outsourcing strategies of our customers, including
the insourcing of programs by them; the challenges of diversifying our
customer base, including the extent and timing of replacement business for
lost programs or customer disengagements; the challenges of managing changing
commodity costs as well as labor costs and conditions; disruptions to our
operations, or those of our customers, component suppliers, or our logistics
partners, resulting from local events including natural disasters, political
instability, local labor conditions and social unrest, criminal activity and
other risks present in the jurisdictions in which we operate; our inability to
retain or expand our business due to execution problems relating to the
ramping of new programs; the delays in the delivery and/or general
availability of various components and materials used in our manufacturing
process; the challenge of managing our financial exposure to foreign currency
volatility; our dependence on industries affected by rapid technological
change; variability of operating results among periods; our ability to
successfully manage our international operations; increasing income taxes and
our ability to successfully defend tax audits or meet the conditions of tax
incentives; the challenges of completing our restructuring activities or
integrating our acquisitions; and the risk of potential non-performance by
counterparties, including but not limited to financial institutions, customers
and suppliers. These and other risks and uncertainties, as well as other
information related to Celestica, are discussed herein and in our 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 U.S. Securities
and Exchange Commission and our Annual Information Form filed with the
Canadian securities regulators. 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. Except as required by applicable
law, we disclaim any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Our revenue, earnings and other financial guidance, as contained in this press
release, 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 the following: forecasts from our
customers, which range from 30 to 90 days and can fluctuate significantly in
terms of volume and mix of products or services; the timing and execution of,
and investments associated with, ramping new business; the success in the
marketplace of our customers' products; 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; the timing and execution of our restructuring actions; and our
ability to diversify our customer base and develop new capabilities. These
assumptions and estimates 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 our guidance
is effective on the date given, and will only be updated through a public
announcement.
Schedule 1
Supplementary Non-IFRS Measures
Our non-IFRS measures include gross profit, gross margin (gross profit as a
percentage of revenue), selling, general and administrative expenses (SG&A),
SG&A as a percentage of revenue, operating earnings (EBIAT), operating margin
(EBIAT as a percentage of revenue), adjusted net earnings, adjusted net
earnings per share, ROIC, free cash flow, cash cycle days and inventory turns.
In calculating these non-IFRS financial measures, management excludes the
following items, as applicable: stock-based compensation, amortization of
intangible assets (excluding computer software), restructuring and other
charges, net of recoveries (most significantly restructuring charges), the
write-down of goodwill, intangible assets and property, plant and equipment,
and gains or losses related to the repurchase of shares or debt, net of tax
adjustments and significant deferred tax write-offs or recoveries.
These non-IFRS measures do not have any standardized meaning prescribed by
IFRS and are not necessarily comparable to similar measures presented by other
companies using IFRS, or our North American competitors who report under U.S.
GAAP and use non-U.S. GAAP measures to describe similar operating metrics.
Non-IFRS measures are not measures of performance under IFRS and should not be
considered in isolation or as a substitute for any standardized measure under
IFRS. The most significant limitation to management's use of non-IFRS
financial measures is that the charges or credits excluded from the non-IFRS
measures are nonetheless charges or credits that are recognized under IFRS and
that have an economic impact on the company. Management compensates for these
limitations primarily by issuing IFRS results to show a complete picture of
the company's performance, and reconciling non-IFRS results back to IFRS,
unless there are no comparable IFRS measures.
The economic substance of these exclusions and management's rationale for
excluding these from non-IFRS financial measures is provided below:
Stock-based compensation, which represents the estimated fair value of stock
options, restricted share units and performance share units granted to
employees, is excluded because grant activities vary significantly from
quarter-to-quarter in both quantity and fair value. In addition, excluding
this expense allows us to better compare core operating results with those of
our competitors who also generally exclude stock-based compensation from their
core operating results, who may have different granting patterns and types of
equity awards, and who may use different option valuation assumptions than we
do, including those competitors who use U.S. GAAP and non-U.S. GAAP measures
to present similar metrics.
Amortization charges (excluding computer software) consist of non-cash
charges against intangible assets that are impacted by the timing and
magnitude of acquired businesses. Amortization of intangibles varies among
competitors, and we believe that excluding these charges permits a better
comparison of core operating results with those of our competitors who also
generally exclude amortization charges.
Restructuring and other charges, net of recoveries, include costs relating to
employee severance, lease terminations, facility closings and consolidations,
write-downs of owned property and equipment which are no longer used and are
available for sale, reductions in infrastructure and acquisition-related
transaction costs. We exclude restructuring and other charges, net of
recoveries, because they are not directly related to ongoing operating results
and do not reflect expected future operating expenses after completion of
these activities. We believe this exclusion permits a better comparison of
our core operating results with those of our competitors who also generally
exclude these charges in assessing operating performance.
Impairment charges, which consist of non-cash charges against goodwill,
intangible assets and property, plant and equipment, result primarily when the
carrying value of these assets exceeds their fair value. Our competitors may
record impairment charges at different times and excluding these charges
permits a better comparison of our core operating results with those of our
competitors who also generally exclude these charges in assessing operating
performance.
Gains or losses related to the repurchase of shares or debt are excluded as
these gains or losses do not impact core operating performance and vary
significantly among our competitors who also generally exclude these charges
or recoveries in assessing operating performance.
Significant deferred tax write-offs or recoveries are excluded as these
write-offs or recoveries do not impact core operating performance and vary
significantly among our competitors who also generally exclude these charges
or recoveries in assessing operating performance.
The following table sets forth, for the periods indicated, a reconciliation of
IFRS to non-IFRS measures (in millions, except per share amounts):
Three months ended Year ended
December 31 December 31
2011 2012 2011 2012
% of % of % of % of
revenue revenue revenue revenue
Revenue ......................................................... $ 1,753.4 $ 1,496.2 $ 7,213.0 $ 6,507.2
IFRS gross profit ........................................... $ 122.1 7.0% $ 99.8 6.7% $ 491.4 6.8% $ 438.4 6.7%
Stock-based compensation ............................ 3.8 2.9 15.5 13.4
Non-IFRS gross profit ................................... $ 125.9 7.2% $ 102.7 6.9% $ 506.9 7.0% $ 451.8 6.9%
IFRS SG&A ....................................................... $ 58.5 3.3% $ 54.7 3.7% $ 253.4 3.5% $ 237.0 3.6%
Stock-based compensation .............................. (5.9 ) (4.9 ) (28.7 ) (22.2 )
Non-IFRS SG&A ............................................... $ 52.6 3.0% $ 49.8 3.3% $ 224.7 3.1% $ 214.8 3.3%
IFRS earnings before income taxes ............. $ 54.2 $ 2.2 $ 198.8 $ 111.9
Finance costs ................................................... 1.1 1.0 5.4 3.5
Stock-based compensation .............................. 9.7 7.8 44.2 35.6
Amortization of intangible assets (excluding 0.8 1.5 6.2 4.1
computer software) .........................................
Restructuring and other charges, net of 1.0 34.5 6.5 59.5
recoveries ........................................................
Non-IFRS operating earnings (EBIAT) (1) .... $ 66.8 3.8% $ 47.0 3.1% $ 261.1 3.6% $ 214.6 3.3%
IFRS net earnings .......................................... $ 69.2 3.9% $ 7.2 0.5% $ 195.1 2.7% $ 117.7 1.8%
Stock-based compensation ............................. 9.7 7.8 44.2 35.6
Amortization of intangible assets (excluding 0.8 1.5 6.2 4.1
computer software) ..........................................
Restructuring and other charges, net of 1.0 34.5 6.5 59.5
recoveries ........................................................
Adjustments for taxes (2) ................................. (9.6 ) (0.7 ) (10.1 ) (11.1 )
Non-IFRS adjusted net earnings .................. $ 71.1 4.1% $ 50.3 3.4% $ 241.9 3.4% $ 205.8 3.2%
Diluted EPS .....................................................
Weighted average # of shares (in millions) ..... 218.7 203.4 218.3 210.5
IFRS earnings per share ................................. $ 0.32 $ 0.04 $ 0.89 $ 0.56
Non-IFRS adjusted net earnings per share ..... $ 0.33 $ 0.25 $ 1.11 $ 0.98
# of shares outstanding (in millions) ................ 216.5 182.8 216.5 182.8
IFRS cash provided by operations .............. $ 96.8 $ 104.6 $ 196.3 $ 312.4
Purchase of property, plant and equipment, (6.8 ) (13.4 ) (45.2 ) (97.0 )
net of sales proceeds ......................................
Finance costs paid .......................................... (1.0 ) (1.0 ) (7.0 ) (4.0 )
Non-IFRS free cash flow (3) .......................... $ 89.0 $ 90.2 $ 144.1 $ 211.4
ROIC % (4) ........................................................ 27.5% 18.4 % 27.5% 21.5%
1. EBIAT is defined as earnings before interest, amortization of intangible
assets (excluding computer software) and income taxes. EBIAT also
excludes stock-based compensation, restructuring and other charges, net of
recoveries, gains or losses related to the repurchase of shares or debt,
and impairment charges.
2. The adjustments for taxes, as applicable, represent the tax effects on the
non-IFRS adjustments and significant deferred tax write-offs or recoveries
that do not impact our core operating performance.
3. Management uses free cash flow as a measure, in addition to cash flow from
operations, to assess operational cash flow performance. We believe free
cash flow provides another level of transparency to our liquidity as it
represents cash generated from or used in operating activities after the
purchase of property, plant and equipment (net of proceeds from sale of
certain surplus equipment and property) and finance costs paid.
4. Management uses ROIC as a measure to assess the effectiveness of the
invested capital we use to build products or provide services to our
customers. Our ROIC measure includes 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 and other current liabilities
and provisions, and income taxes payable. We use a two-point average to
calculate average net invested capital for the quarter and a five-point
average to calculate average net invested capital for the year. There is
no comparable measure under IFRS.
The following table sets forth, for the periods indicated, our calculation of
ROIC % (in millions, except ROIC %):
Three months Year ended
ended December 31 December 31
2011 2012 2011 2012
Non-IFRS operating earnings (EBIAT) .................. $ 66.8 $ 47.0 $ 261.1 $ 214.6
Multiplier ............................................................... 4 4 1 1
Annualized EBIAT ................................................. $ 267.2 $ 188.0 $ 261.1 $ 214.6
Average net invested capital for the period ........... $ 972.1 $ 1,021.1 $ 950.7 $ 997.1
ROIC % .................................................................. 27.5 % 18.4 % 27.5 % 21.5 %
December 31 March 31 June 30 September 30 December 31
2011 2012 2012 2012 2012
Net invested capital consists of:
Total assets ............................................................ $ 2,969.6 $ 2,955.4 $ 2,951.2 $ 2,885.5 $ 2,658.8
Less: cash .............................................................. 658.9 646.7 630.6 598.2 550.5
Less: accounts payable, accrued and other current
liabilities, provisions and income taxes payable ...... 1,346.6 1,317.8 1,332.1 1,209.6 1,143.9
Net invested capital by quarter ............................... $ 964.1 $ 990.9 $ 988.5 $ 1,077.7 $ 964.4
December 31 March 31 June 30 September 30 December 31
2010 2011 2011 2011 2011
Net invested capital consists of:
Total assets ............................................................ $ 3,013.9 $ 2,997.3 $ 3,020.6 $ 2,914.8 $ 2,969.6
Less: cash .............................................................. 632.8 584.0 552.6 586.1 658.9
Less: accounts payable, accrued and other current
liabilities, provisions and income taxes payable ...... 1,552.6 1,483.1 1,417.3 1,348.6 1,346.6
Net invested capital by quarter ................................ $ 828.5 $ 930.2 $ 1,050.7 $ 980.1 $ 964.1
GUIDANCE SUMMARY
Q4 12 Q4 12 Q1 13
Guidance Actual Guidance ^(1)
Revenue (in billions)............. $1.425 to $1.50 $1.325 to
$1.525 $1.425
Adjusted EPS (diluted) (2) ... $0.15 to $0.25 $0.11 to
$0.21 $0.17
(1) We expect a negative$0.07 to $0.13 per share (diluted) pre-tax aggregate
impact on an IFRS basis for the following recurring items: stock-based
compensation, amortization of intangible assets (excluding computer software)
and restructuring charges.
(2) Included in the fourth quarter of 2012 adjusted EPS (non-IFRS) of $0.25
was a net income tax benefit of $0.06 per share arising from a corporate tax
reorganization involving certain of our European subsidiaries and changes to
our tax provisions related to certain tax uncertainties.
CELESTICA INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions of U.S. dollars)
(unaudited)
December 31 December 31
2011 2012
Assets
Current assets:
Cash and cash equivalents (note 12) ................... $ 658.9 $ 550.5
Accounts receivable (note 5) .............................. 810.8 700.5
Inventories (note 6) ............................................ 880.7 745.7
Income taxes receivable ..................................... 9.1 13.8
Assets classified as held-for-sale ....................... 32.1 30.8
Other current assets .......................................... 71.0 69.4
Total current assets .............................................. 2,462.6 2,110.7
Property, plant and equipment ............................... 322.7 337.0
Goodwill ................................................................ 48.0 60.3
Intangible assets .................................................... 35.5 53.0
Deferred income taxes ........................................... 41.4 36.6
Other non-current assets ...................................... 59.4 61.2
Total assets .......................................................... $ 2,969.6 $ 2,658.8
Liabilities and Equity
Current liabilities:
Borrowings under credit facilities (note 7) ............. $ — $ 55.0
Accounts payable ............................................... 1,002.6 831.6
Accrued and other current liabilities ..................... 268.7 243.7
Income taxes payable .......................................... 39.0 37.8
Current portion of provisions ............................... 36.3 30.8
Total current liabilities ........................................... 1,346.6 1,198.9
Retirement benefit obligations (note 9) .................. 120.5 116.2
Provisions and other non-current liabilities ............ 11.1 13.5
Deferred income taxes .......................................... 27.6 13.5
Total liabilities ....................................................... 1,505.8 1,342.1
Equity:
Capital stock (note 8) .......................................... 3,348.0 2,774.7
Treasury stock (note 8) ....................................... (37.9) (18.3)
Contributed surplus ............................................. 369.5 653.2
Deficit ................................................................. (2,203.5) (2,097.0)
Accumulated other comprehensive income (loss) (12.3) 4.1
Total equity ........................................................... 1,463.8 1,316.7
Total liabilities and equity ....................................... $ 2,969.6 $ 2,658.8
Contingencies (note 13)
The accompanying notes are an integral part of these unaudited interim
condensed consolidated financial statements.
CELESTICA INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions of U.S. dollars, except per share amounts)
(unaudited)
Three months ended Year ended
December 31 December 31
2011 2012 2011 2012
Revenue ......................................................................... $ 1,753.4 $ 1,496.2 $ 7,213.0 $ 6,507.2
Cost of sales (note 6) ..................................................... 1,631.3 1,396.4 6,721.6 6,068.8
Gross profit .................................................................... 122.1 99.8 491.4 438.4
Selling, general and administrative expenses (SG&A) ....... 58.5 54.7 253.4 237.0
Research and development .............................................. 4.7 3.7 13.8 15.2
Amortization of intangible assets ...................................... 2.6 3.7 13.5 11.3
Other charges (note 10) ................................................... 1.0 34.5 6.5 59.5
Earnings from operations .................................................. 55.3 3.2 204.2 115.4
Finance costs ................................................................. 1.1 1.0 5.4 3.5
Earnings before income taxes ........................................... 54.2 2.2 198.8 111.9
Income tax expense (recovery) (note 11):
Current ......................................................................... (5.6) 12.1 10.3 15.5
Deferred ....................................................................... (9.4) (17.1) (6.6) (21.3)
(15.0) (5.0) 3.7 (5.8)
Net earnings for the period ............................................... $ 69.2 $ 7.2 $ 195.1 $ 117.7
Basic earnings per share .................................................. $ 0.32 $ 0.04 $ 0.90 $ 0.56
Diluted earnings per share ................................................ $ 0.32 $ 0.04 $ 0.89 $ 0.56
Shares used in computing per share amounts (in millions):
Basic ............................................................................ 216.6 201.5 216.3 208.6
Diluted .......................................................................... 218.7 203.4 218.3 210.5
The accompanying notes are an integral part of these unaudited interim
condensed consolidated financial statements.
CELESTICA INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions of U.S. dollars)
(unaudited)
Three months ended Year ended
December 31 December 31
2011 2012 2011 2012
Net earnings for the $ 69.2 $ 7.2 $ 195.1 $ 117.7
period ...........................................
Other comprehensive income (loss), net of tax:
Actuarial gains (losses) on pension plans 5.2 (11.2) 5.2 (11.2)
(note 9) .......
Currency translation differences for (3.7) 0.1 (1.7) (0.1)
foreign operations...
Change from derivatives designated as 1.0 0.3 (22.9) 16.5
hedges ...........
Total comprehensive income (loss) for the $ 71.7 $ (3.6) $ 175.7 $ 122.9
period ..........
The accompanying notes are an integral part of these unaudited interim
condensed consolidated financial statements.
CELESTICA INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in millions of U.S. dollars)
(unaudited)
Accumulated
other
comprehensive
Capital stock Treasury Contributed income (loss)
(note 8) stock (note 8) surplus Deficit (a) Total equity
Balance -- January 1, $ 3,329.4 $ (15.9) $ 360.9 $ (2,403.8) $ 12.3 $ 1,282.9
2011 ............................................
Capital transactions (note 8):
Issuance of capital 18.6 — (6.7) — — 11.9
stock ..............................................
Purchase of treasury — (49.4) — — — (49.4)
stock ...........................................
Stock-based compensation and — 27.4 15.3 — — 42.7
other ...........................
Total comprehensive income:
Net earnings for — — — 195.1 — 195.1
2011 ...................................................
Other comprehensive income (loss), net of tax:
Actuarial gains on pension plans (note — — — 5.2 — 5.2
9) .....................
Currency translation differences for foreign operations — — — — (1.7) (1.7)
Change from derivatives designated as — — — — (22.9) (22.9)
hedges ............
Balance -- December 31, $ 3,348.0 $ (37.9) $ 369.5 $ (2,203.5) $ (12.3) $ 1,463.8
2011 ......................................
Capital transactions (note 8):
Issuance of capital 18.3 — (10.8) — — 7.5
stock .............................................
Repurchase of capital stock for (591.6) — 302.0 — — (289.6)
cancellation .................
Purchase of treasury — (21.7) — — — (21.7)
stock ..........................................
Stock-based compensation and — 41.3 (4.1) — — 37.2
other ..........................
Reclassification of cash-settled stock-based
compensation to accrued
liabilities ............................... — — (3.4) — — (3.4)
Total comprehensive income:
Net earnings for — — — 117.7 — 117.7
2012 ..................................................
Other comprehensive income (loss), net of tax:
Actuarial losses on pension plans (note (11.2) (11.2)
9) ...................
Currency translation differences for foreign operations — — — — (0.1) (0.1)
Change from derivatives designated as — — — — 16.5 16.5
hedges ............
Balance -- December 31, $ 2,774.7 $ (18.3) $ 653.2 $ (2,097.0) $ 4.1 $ 1,316.7
2012 ......................................
(a) Accumulated other comprehensive income (loss) is net of tax.
The accompanying notes are an integral part of these unaudited interim
condensed consolidated financial statements.
CELESTICA INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions of U.S. dollars)
(unaudited)
Three months ended Year ended
December 31 December 31
2011 2012 2011 2012
Cash provided by (used in):
Operating activities:
Net earnings for the period ..................................................................... $ 69.2 $ 7.2 $ 195.1 $ 117.7
Adjustments for items not affecting cash:
Depreciation and amortization .............................................................. 18.9 20.9 77.2 81.7
Equity-settled stock-based compensation ............................................ 9.7 7.6 41.2 35.4
Other charges (recoveries) .................................................................. (6.7) 18.9 (12.1) 30.8
Finance costs ..................................................................................... 1.1 1.0 5.4 3.5
Income tax expense (recovery) ............................................................ (15.0) (5.0) 3.7 (5.8)
Other .................................................................................................... (24.5) (5.7) (31.3) (11.2)
Changes in non-cash working capital items:
Accounts receivable ............................................................................. (32.7) 77.0 147.0 116.7
Inventories ............................................................................................ 59.1 61.0 2.0 147.3
Other current assets ............................................................................ (5.7) 1.0 3.9 6.7
Accounts payable, accrued and other current liabilities and provisions 19.4 (73.3) (216.9) (193.1)
Non-cash working capital changes .......................................................... 40.1 65.7 (64.0) 77.6
Net income taxes received (paid) ............................................................ 4.0 (6.0) (18.9) (17.3)
Net cash provided by operating activities ................................................ 96.8 104.6 196.3 312.4
Investing activities:
Acquisitions, net of cash acquired (note 3) ............................................. — 0.4 (80.5) (71.0)
Purchase of computer software and property, plant and equipment ........ (14.8) (17.3) (62.3) (105.9)
Proceeds from sale of assets ................................................................. 8.0 3.9 17.1 8.9
Net cash used in investing activities ....................................................... (6.8) (13.0) (125.7) (168.0)
Financing activities:
Borrowings under credit facilities (note 7) ............................................... — 55.0 — 55.0
Issuance of capital stock (note 8) ........................................................... 0.4 0.4 11.9 7.5
Repurchase of capital stock for cancellation (note 8) .............................. — (175.8) — (289.6)
Purchase of treasury stock (note 8) ........................................................ (16.6) (17.9) (49.4) (21.7)
Finance costs paid ................................................................................. (1.0) (1.0) (7.0) (4.0)
Net cash used in financing activities ........................................................ (17.2) (139.3) (44.5) (252.8)
Net increase (decrease) in cash and cash equivalents ........................... 72.8 (47.7) 26.1 (108.4)
Cash and cash equivalents, beginning of period .................................... 586.1 598.2 632.8 658.9
Cash and cash equivalents, end of period .............................................. $ 658.9 $ 550.5 $ 658.9 $ 550.5
The accompanying notes are an integral part of these unaudited interim
condensed consolidated financial statements.
CELESTICA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except per share amounts)
(unaudited)
1. REPORTING ENTITY
Celestica Inc. (Celestica) is incorporated in Canada with its corporate
headquarters located at 844 Don Mills Road, Toronto, Ontario, M3C 1V7.
Celestica is a publicly listed company on the Toronto Stock Exchange (TSX) and
the New York Stock Exchange (NYSE).
Celestica delivers innovative supply chain solutions globally to customers in
the communications (comprised of enterprise communications and
telecommunications), consumer, computing (comprised of servers and storage),
and diversified (comprised of industrial, aerospace and defense, healthcare,
green technology, semiconductor equipment and other) end markets. Our product
lifecycle solutions include a full range of services to our customers
including design, supply chain management, manufacturing, engineering, complex
mechanical and systems integration, order fulfillment, logistics and
after-market services.
2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance:
These unaudited interim condensed consolidated financial statements have been
prepared in accordance with International Accounting Standard (IAS) 34,
Interim Financial Reporting as issued by the International Accounting
Standards Board (IASB) and accounting policies we adopted in accordance with
International Financial Reporting Standards (IFRS). These unaudited interim
condensed consolidated financial statements reflect all adjustments that are,
in the opinion of management, necessary to present fairly our financial
position as at December 31, 2012 and the results of operations, comprehensive
income and cash flows for the three months and the year ended December 31,
2012.
The unaudited interim condensed consolidated financial statements were
authorized for issuance by our board of directors on January 22, 2013.
Functional and presentation currency:
These unaudited interim condensed consolidated financial statements are
presented in U.S. dollars, which is also our functional currency. All
financial information is presented in millions of U.S. dollars (except per
share amounts).
Use of estimates and judgments:
The preparation of financial statements in conformity with IFRS requires
management to make judgments, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets and
liabilities, revenue and expenses and the related disclosures of contingent
assets and liabilities. Actual results could differ materially from these
estimates and assumptions. We review our estimates and underlying assumptions
on an ongoing basis. Revisions are recognized in the period in which the
estimates are revised and may impact future periods as well.
Key sources of estimation uncertainty and judgment: We have applied
significant estimates and assumptions in the following areas which we believe
could have a significant impact on our reported results and financial
position: our valuations of inventory, assets held for sale and income taxes;
the amount of restructuring charges or recoveries; the measurement of the
recoverable amount of our cash generating units (CGU); our valuations of
financial assets and liabilities, retirement benefit costs, stock-based
compensation, provisions and contingencies; and the allocation of our purchase
price and other valuations we use in our business acquisitions. The near-term
economic environment could also impact certain estimates necessary to prepare
our consolidated financial statements, in particular the recoverable amount
used in our impairment testing of our non-financial assets, the rate of return
on our pension assets and the discount rates applied to our pension and
retirement liabilities.
We have applied significant judgment to the following areas: the determination
of our CGUs and whether events or changes in circumstances during the year are
indicators that a review for impairment should be conducted; and the timing of
restructuring plans.
These unaudited interim condensed consolidated financial statements are based
upon accounting policies and estimates consistent with those used and
described in note 2 of our 2011 annual consolidated financial statements.
3. ACQUISITIONS
In September 2012, we completed the acquisition of D&H Manufacturing Company
(D&H), a leading manufacturer of precision machined components and assemblies
based in California, U.S.A. D&H provides manufacturing and engineering
services, coupled with dedicated capacity and equipment for prototype and
quick-turn support, to some of the world's leading semiconductor capital
equipment manufacturers. The final purchase price was $71.0, net of cash
acquired, which we financed from cash on hand. Details of the final purchase
price allocation are as follows:
Current assets, net of cash acquired ..... $ 21.6
Property, plant and equipment .............. 15.1
Customer intangible assets ................... 24.0
Goodwill ................................................ 26.4
Current liabilities .................................... (4.2)
Deferred income taxes ........................... (11.9)
$ 71.0
Through this acquisition, we have further enhanced our entry into the
semiconductor capital equipment market. We added precision machining
capabilities to our service offerings and have acquired engineering and
technical depth that we can leverage with our existing semiconductor
customers, as well as expand to other customers in our diversified markets. We
do not expect any of the goodwill will be tax deductible. We expensed $0.9 in
acquisition-related transaction costs during the year through other charges.
This acquisition did not have a significant impact on our consolidated results
of operations for 2012.
In June 2011, we acquired the semiconductor equipment contract manufacturing
operations of Brooks Automation, Inc. These operations, located in Oregon,
U.S.A. and Wuxi, China, specialize in manufacturing complex mechanical
equipment and providing systems integration services to some of the world's
largest semiconductor equipment manufacturers. The final purchase price was
$80.5, net of cash acquired. The purchase was financed from cash on hand and
$45.0 from our revolving credit facility which we repaid in the third quarter
of 2011. On the acquisition date, we recorded $33.8 in goodwill and $12.5 in
intangible assets. We expensed $0.6 in acquisition-related transaction costs
during 2011 through other charges.
In August 2010, we completed the acquisition of Austrian-based Allied Panels
Entwicklungs-und Produktions GmbH (Allied Panels), a medical engineering and
manufacturing service provider. The purchase price was subject to adjustment
for contingent consideration if specific pre-determined financial targets were
achieved through 2012. At December 31, 2011, we had a provision of $3.2
related to this contingent consideration. During 2012, we determined that this
provision was no longer necessary and released this provision through other
charges (note 10(d)).
Pro forma disclosure: Revenue and earnings for each period would not have been
materially different had the acquisitions occurred at the beginning of their
respective years.
4. SEGMENT AND CUSTOMER REPORTING
End markets:
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 mix and
complexity of the products or services we provide, the extent, timing and rate
of new program wins, follow-on business or losses from customers, the phasing
in or out of programs, the success in the marketplace of our customers'
products, and changes in customer demand. We expect that the pace of
technological change, the frequency of customers transferring business among
EMS competitors and the level of outsourcing by customers (including decisions
on insourcing), and the constantly changing dynamics of the global economy
will also continue to impact our business from period-to-period.
Starting with the first quarter of 2012, we combined our enterprise
communications and telecommunications end markets into one communications end
market for reporting purposes. We also combined prior period percentages.
Three months ended Year ended
December 31 December 31
2011 2012 2011 2012
Communications ..... 33 % 37 % 35 % 35 %
Consumer ............... 26 % 9 % 25 % 18 %
Diversified .............. 18 % 23 % 14 % 20 %
Servers .................. 13 % 17 % 15 % 15 %
Storage .................. 10 % 14 % 11 % 12 %
Customers:
For the fourth quarter and full year 2012, we had two customers that
individually represented more than 10% of total revenue (fourth quarter and
full year 2011 — two customers). We completed our manufacturing services for
Research In Motion Limited (RIM) and the related transition activities by the
end of 2012. Our revenue from RIM was minimal in the fourth quarter of 2012
(third quarter of 2012 — 10%; fourth quarter of 2011 — 20%). For the full year
2012, RIM accounted for 12% of total revenue (full year 2011 — 19%).
5. ACCOUNTS RECEIVABLE
In November 2012, we entered into an agreement to sell up to $375.0 in
accounts receivable on an uncommitted basis (subject to pre-determined limits
by customer) to two third-party banks. Both banks had a Standard and Poor's
long-term rating of A or above and a short-term rating of A-1at December 31,
2012. This agreement has no fixed termination date and can be terminated at
any time by us or the banks. At December 31, 2012, we had sold $50.0 of
accounts receivable under this facility (December 31, 2011 — $60.0 under a
prior facility). The accounts receivable sold are removed from our
consolidated balance sheet and reflected as cash provided by operating
activities in our consolidated statement of cash flows. Upon sale, we assign
the rights to the accounts receivable to the banks. We continue to collect
cash from our customers and remit the cash to the banks when collected. We pay
interest and fees which we record through finance costs in our consolidated
statement of operations.
6. INVENTORIES
We record our inventory provisions and valuation recoveries through cost of
sales. We record inventory provisions to reflect changes in the value of our
inventory to net realizable value, and valuation recoveries primarily to
reflect realized gains on the disposition of inventory previously written
down. We recorded net inventory provisions of $1.1 and $5.3, respectively, for
the fourth quarter and full year 2012. We recorded net inventory recoveries of
$0.1 for the fourth quarter of 2011 and net inventory provisions of $4.5 for
full year 2011. We regularly review our estimates and assumptions used to
value our inventory through analysis of historical performance. During 2012,
our net inventory provisions of $5.3 were comprised of new net provisions of
$10.9 for aged inventory, offset in part by a $5.6 credit reflecting the
improved recovery of certain inventory.
7. CREDIT FACILITIES
We have a $400.0 revolving credit facility that matures in January 2015. We
are required to comply with certain restrictive covenants including those
relating to debt incurrence, the sale of assets, a change of control and
certain financial covenants related to indebtedness, interest coverage and
liquidity. We have pledged certain assets as security for borrowings under
this facility. Borrowings under this facility bear interest at LIBOR or Prime
rate for the period of the draw plus a margin. The terms of these draws have
historically been less than 90 days. In December 2012, we completed a
substantial issuer bid (SIB) to repurchase for cancellation $175 of our
subordinate voting shares which we funded in part through this credit
facility. See note 8. At December 31, 2012, we had drawn $55.0 under this
facility (December 31, 2011 — no amounts drawn), and we were in compliance
with all covenants. Commitment fees paid in the fourth quarter and full year
2012 were $0.5 and $2.0, respectively. At December 31, 2012, we had issued
$31.1 of letters of credit under this facility.
We also have uncommitted bank overdraft facilities available for intraday and
overnight operating requirements which total $70.0 at December 31, 2012.
There were no amounts drawn under these overdraft facilities at December 31,
2012 (December 31, 2011— no amounts drawn).
The amounts we borrow and repay under these facilities can vary significantly
from month-to-month depending upon our working capital and other cash
requirements.
8. CAPITAL STOCK
In the fourth quarter of 2012, we launched and successfully completed the SIB
pursuant to which we repurchased for cancellation $175 of our subordinate
voting shares. We repurchased for cancellation approximately 22.4 million
subordinate voting shares at a price of $7.80 per share, representing
approximately 12% of our subordinate voting shares issued and outstanding
prior to completion of the SIB. We also recorded $0.8 in transaction related
costs. We funded the share repurchases using a combination of cash on hand and
cash from our revolving credit facility. See note 7.
On February 7, 2012, the TSX accepted our Normal Course Issuer Bid (NCIB) that
allows us to repurchase, at our discretion, until the earlier of February 8,
2013 or the completion of purchases under the bid, up to 16.2 million
subordinate voting shares in the open market or as otherwise permitted,
subject to the normal terms and limitations of such bids. The maximum number
of subordinate voting shares we are permitted to repurchase for cancellation
under the NCIB is reduced by the number of subordinate voting shares purchased
for equity-based compensation plans (see below). During the fourth quarter of
2012, we did not repurchase any subordinate voting shares for cancellation
under the NCIB. As of December 31, 2012, we have paid $113.8, including
transaction fees, to repurchase for cancellation a total of 13.3 million
shares at a weighted average price of $8.52 per share under the NCIB since its
commencement in February 2012.
We have granted share unit awards to employees under our equity-based
compensation plans. We have the option to satisfy the delivery of shares upon
vesting of the awards by issuing new subordinate voting shares from treasury,
purchasing subordinate voting shares in the open market, or by cash. From
time-to-time, we pay cash for the purchase of subordinate voting shares in the
open market by a trustee to satisfy the delivery of shares upon vesting of
awards. For accounting purposes, we classify these shares as treasury stock
until they are delivered pursuant to the plans. In the fourth quarter of 2012,
we entered into an Automatic Share Purchase Plan (ASPP) with a trustee for the
purchase of 2.2 million subordinate voting shares in the open market to
satisfy the deliveries in respect of share unit awards vesting in the first
quarter of 2013. This ASPP allows the trustee to purchase our subordinate
voting shares for such purposes at any time through January 31, 2013,
including during any applicable trading blackout periods. We have paid $17.9
to the trustee to fund purchases under this ASPP. During 2012, we also paid
$3.8 for the trustee's purchase of 0.4 million subordinate voting shares prior
to the ASPP for delivery under our equity-based compensation plans. During the
fourth quarter and full year 2011, we paid $16.6 and $49.4, respectively, for
the trustee's purchase of 2.0 million and 5.7 million, respectively,
subordinate voting shares in the open market. At December 31, 2012, the
trustee held 0.8 million subordinate voting shares, with a value of $6.4, and
$11.9 in cash, representing the estimated amount of cash required to complete
the ASPP program (December 31, 2011 — held 4.5 million with a value of $37.9).
In 2010, we elected to cash-settle certain awards vesting in the first quarter
of 2011 due to limitations on the number of subordinate voting shares we could
purchase in the open market during the term of a prior share buy-back program.
We also elected to cash-settle certain RSUs vesting in the fourth quarter of
2012 due to a prohibition on our purchase of subordinate voting shares in the
open market during the SIB. We account for cash-settled awards as liabilities
and we remeasure these based on our share price at each reporting date until
the settlement date, with a corresponding charge to compensation expense. The
mark-to-market adjustment on these cash-settled awards was $0.2 for 2012 (2011
— $2.7). When we made the decision in the fourth quarter of 2012 to settle
these awards with cash, we reclassified $3.4, representing the fair value of
these awards, from contributed surplus to accrued liabilities. As management
currently intends to settle all other share unit awards with shares purchased
in the open market by a trustee, we have accounted for these share unit awards
as equity-settled awards.
For the fourth quarter and full year 2012, stock-based compensation expense
was $7.8 and $35.6, respectively (fourth quarter and full year 2011 — $9.7 and
$44.2, respectively). The amount of our stock-based compensation expense
varies each period, and includes mark-to-market adjustments for awards we
settled in cash (see above) and plan adjustments. The portion of our expense
that relates to performance-based compensation generally varies depending on
the level of achievement of pre-determined performance goals and financial
targets. We amended the retirement eligibility clauses in our equity-based
compensation plans in 2011 which accelerated our recognition of the related
compensation expense of $3.1 in 2012 (2011 — $4.8).
During 2012, we received cash proceeds of $7.5 (2011 — $11.9) relating to the
exercise of stock options.
9. PENSION AND NON-PENSION POST-EMPLOYMENT BENEFIT PLANS
We provide pension and non-pension post-employment benefit plans for our
employees. Our obligations are determined based on actuarial valuations. We
recognize actuarial gains or losses arising from defined benefit and
post-retirement benefit plans through other comprehensive income and directly
in deficit. For 2012, we recognized $11.2 of net actuarial losses, net of tax
(2011 — $5.2 of net actuarial gains, net of tax). The measurement date used
for the accounting valuation of our pension and non-pension post-employment
benefit plans was December 31, 2012.
10. OTHER CHARGES (RECOVERIES)
Three months ended Year ended
December 31 December 31
2011 2012 2011 2012
Restructuring $ 7.7 $ 16.7 $ 14.5 $ 44.0
(a) ..................
Asset impairment (b) ............ — 17.7 — 17.7
Recovery of damages (c) ...... (5.2) — (5.2) —
Other (1.5) 0.1 (2.8) (2.2)
(d) ..............................
$ 1.0 $ 34.5 $ 6.5 $ 59.5
(a) Restructuring:
Our restructuring charges are comprised of the following:
Three months ended Year ended
December 31 December 31
2011 2012 2011 2012
Cash $ 7.7 $ 15.5 $ 18.2 $ 27.8
charges .............................
Non-cash charges (recoveries) ..... — 1.2 (3.7) 16.2
$ 7.7 $ 16.7 $ 14.5 $ 44.0
Our restructuring charges in 2012 were related to the wind down of our
manufacturing services for RIM and other actions throughout our global
network. We completed our manufacturing services for RIM in Romania and
Malaysia at the end of June 2012 and substantially all of the RIM
manufacturing services in Mexico by the end of September 2012. Due to the
historical significance of RIM to our operations and in order to improve our
overall margin performance, we previously announced that we would take
restructuring actions throughout our global network to reduce our overall cost
structure. In July 2012, we estimated total restructuring charges of between
$40.0 and $50.0 in connection with these restructuring actions. Our current
estimate of the total restructuring charges to complete our planned actions,
which we expect to complete by the end of June 2013, is between $55.0 and
$65.0, taking into account additional actions in response to the continued
challenging demand environment. Of this amount, we recorded $16.7 in the
fourth quarter of 2012 and $44.0 in 2012. In 2012, we recorded cash charges
of $27.8, primarily related to employee termination costs for our RIM
operations and other actions throughout our global network. We also recorded
non-cash charges of $16.2 primarily to write down to recoverable amounts the
RIM-related equipment that was no longer in use in Mexico, Romania and
Malaysia. Also see the discussion on asset impairment in note 10(b).
The recognition of our restructuring charges required us to make certain
judgments and estimates regarding the nature, timing and amounts associated
with the restructuring actions. Our major assumptions included the timing and
number of employees to be terminated, the measurement of termination costs,
and the timing of disposition and estimated fair values used for assets
available for sale. We developed a detailed plan and have recorded termination
costs for employees with whom we have communicated. We engaged independent
brokers to determine the estimated fair values less costs to sell for assets
we no longer used and which were available for sale. We recognized an
impairment loss for assets whose carrying amount exceeded the fair values less
costs to sell as determined by the third-party brokers. We also recorded
adjustments to reflect actual proceeds on disposition of these assets. At the
end of each reporting period, we evaluate the appropriateness of our
restructuring charges and balances. Further adjustments may be required to
reflect actual experience or changes in estimates.
Our restructuring charges for 2011 were primarily for employee termination
costs. We also recorded recoveries resulting from the sale of vacated
properties and surplus equipment against our restructuring charges.
At December 31, 2012, our restructuring provision was $14.8, comprised
primarily of employee termination costs which we expect to pay during the
first half of 2013.
(b) Asset impairment:
We conduct our annual impairment assessment of goodwill, intangible assets and
property, plant and equipment in the fourth quarter of each year and whenever
events or changes in circumstance indicate that the carrying amount of an
asset or CGU may not be recoverable. We recognize an impairment loss when the
carrying amount of an asset or CGU or group of CGUs exceeds the recoverable
amount, which is measured as the greater of its value-in-use and its fair
value less costs to sell.
In the second quarter of 2012, we tested the carrying amounts of the CGUs
impacted by the wind down of our manufacturing services for RIM in Mexico,
Romania and Malaysia. We recorded an impairment loss on the RIM-related
assets that were available for sale through restructuring charges (note
10(a)). We then compared the remaining carrying amounts of these CGUs to
their recoverable amounts and determined there was no impairment to these
assets that had not been recorded to restructuring charges in 2012.
In the fourth quarter of 2012, we performed our annual impairment assessment
of goodwill, intangible assets and property, plant and equipment. We recorded
non-cash impairment charges totaling $17.7, comprised of $14.6 against
goodwill, $0.7 against intangible assets and $2.4 against property, plant and
equipment. The majority of our goodwill impairment related to the healthcare
business we acquired in 2010. Our overall progress and the ability to ramp the
healthcare business has been slower than we originally anticipated. As a
result, we recorded an impairment loss of $11.9 relating to healthcare.
We determined the recoverable amount of our CGUs based on the expected
value-in-use. The process of determining the recoverable amount of a CGU is
subjective and requires management to exercise significant judgment in
estimating future growth and discount rates, and projecting cash flows, among
other factors. The assumptions used in our impairment assessment were
determined based on past experiences adjusted for expected changes in future
conditions. Our major assumptions included projections of cash flows, with
primary emphasis on our 2013 plan. We also considered our strategic plan which
extends through 2015 and other updates. Both the 2013 plan and the three-year
strategic plan were approved by management and presented to our board of
directors. We used cash flow projections ranging from 2 to 5 years for the
impaired CGUs, in line with the remaining useful lives of the CGUs' primary
assets. We generally used our weighted-average cost of capital of
approximately 13%, on a pre-tax basis, to discount our cash flows. For those
CGUs that were subject to higher risk and volatilities, we used discount rates
that ranged from 20% to 28% to reflect the risk inherent in the cash flows.
Where applicable, we worked with independent brokers to obtain market prices
to estimate our real property values.
We performed a sensitivity analysis to identify the impact of changes in key
assumptions, including discount rates and projected growth rates. Our CGU
arising from the acquisition of the semiconductor equipment contract
manufacturing operations of Brooks Automation, which includes $33.8 of
goodwill, has been impacted by the downturn in the semiconductor industry.
Nonetheless, this CGU continues to win new programs from its significant
customers and has assumed growth in 2013 and beyond. Failure to realize the
assumed revenues at an appropriate profit margin could result in an impairment
in a future period. We did not identify any other key assumptions where a
reasonably possible change would result in material impairments to our CGUs.
In 2011, we recorded no impairment against goodwill, intangible assets or
property, plant and equipment as the recoverable amounts exceeded their
carrying amounts.
(c) Recovery of damages:
In 2009, we recorded a provision related to a recovery of damages upon
settlement of a class action lawsuit. Based on management's assessment of the
potential outcomes, we deemed this provision was no longer necessary and
released $5.2 during 2011 through other charges.
(d) Other:
Other includes realized recoveries on certain assets that were previously
written down through other charges and acquisition-related transaction costs.
During 2011 and 2012, we released a portion of our provision related to the
estimated fair value of contingent consideration for our Allied Panels
acquisition and recorded the recoveries through other charges. We also
recorded transaction costs related to our acquisitions. See note 3.
11. INCOME TAXES
Our effective income tax rate can vary significantly quarter-to-quarter for
various reasons, including the mix and volume of business in lower tax
jurisdictions within Europe and Asia, in jurisdictions with tax holidays and
incentives, and in jurisdictions for which no deferred income tax assets have
been recognized because management believed it was not probable that future
taxable profit would be available against which tax losses and deductible
temporary differences could be utilized. Our effective income tax rate can
also vary due to the impact of restructuring charges, foreign exchange
fluctuations, operating losses, and certain tax exposures.
During the fourth quarter of 2011, we formally settled tax audits of one of
our Malaysian subsidiaries related to the years 2001 through 2006 and 2009. As
a result, we released $10.0 of provisions previously recorded for Malaysian
tax uncertainties. In addition, we recognized a deferred tax recovery in
Canada for an inter-company investment we wrote off relating to a restructured
subsidiary.
During the third quarter of 2012, we recorded an income tax recovery of $10.6
arising from changes to our provisions related to certain tax uncertainties.
As a result of the D&H acquisition in September 2012, we recognized $10.4 of
previously unrecognized deferred tax assets in the United States.
During the fourth quarter of 2012, we commenced a corporate tax reorganization
involving certain of our European subsidiaries. As a result, we recognized
$17.0 of deferred tax assets in the fourth quarter of 2012 as it became
probable that the temporary differences associated with our investment in
these subsidiaries would reverse in the foreseeable future. These recoveries
were partially offset by income tax expense arising from changes to our
provisions for certain tax uncertainties.
12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Our financial assets are comprised primarily of cash and cash equivalents,
accounts receivable and derivatives used for hedging purposes. Our financial
liabilities are comprised primarily of accounts payable, certain accrued and
other liabilities and provisions, and derivatives. The majority of our
financial liabilities is recorded at amortized cost except for derivative
liabilities, which are measured at fair value. Our term deposits are
classified as held-to-maturity and our short-term investments in money market
funds are recorded at fair value, with changes recognized through our
consolidated statement of operations.
Cash and cash equivalents are comprised of the following:
December 31 December 31
2011 2012
Cash ........................ $ 191.7 $ 265.3
Cash equivalents ...... 467.2 285.2
$ 658.9 $ 550.5
Our current portfolio consists of bank deposits and certain money market funds
that hold primarily U.S. government securities. The majority of our cash and
cash equivalents is held with financial institutions each of which had at
December 31, 2012 a Standard and Poor's short-term rating of A-1 or above.
Currency risk:
Due to the global nature of our operations, we are exposed to exchange rate
fluctuations on our financial instruments denominated in various currencies.
The majority of our currency risk is driven by the operational costs incurred
in local currencies by our subsidiaries. We manage our currency risk through
our hedging program using forecasts of future cash flows and balance sheet
exposures denominated in foreign currencies.
Our major currency exposures at December 31, 2012 are summarized in U.S.
dollar equivalents in the following table. We have included in this table only
those items that we classify as financial assets or liabilities and which were
denominated in non-functional currencies. In accordance with the financial
instruments standard, we have excluded items such as retirement benefits and
income taxes. The local currency amounts have been converted to U.S. dollar
equivalents using the spot rates at December 31, 2012.
Chinese Malaysian Canadian Mexican Thai
renminbi ringgit dollar peso baht
Cash and cash $ 33.9 $ 2.9 $ 2.6 $ 3.0 $ 2.3
equivalents .................................
Accounts 19.3 — 13.9 — —
receivable ...........................................
Other financial 1.6 0.6 — 0.6 0.4
assets .........................................
Accounts payable and certain accrued and other
liabilities and
provisions .................................... (43.3) (16.9) (33.9) (16.3) (17.7)
Net financial assets $ 11.5 $ (13.4) $ (17.4) $ (12.7) $ (15.0)
(liabilities) ............................
Foreign currency risk sensitivity analysis:
At December 31, 2012, the financial impact of 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 is
summarized in the following table. The financial instruments impacted by a
change in exchange rates include our exposures to the above financial assets
or liabilities denominated in non-functional currencies and our foreign
exchange forward contracts.
Chinese Malaysian Canadian Mexican Thai
renminbi ringgit dollar peso baht
Increase (decrease)
1% Strengthening
Net $ 0.5 $ (0.1) $ 2.1 $ — $ —
earnings ...............................
Other comprehensive income ...... — 0.8 0.5 0.2 1.0
1% Weakening
Net (0.4) 0.1 (2.0) — —
earnings ...............................
Other comprehensive income ...... — (0.8) (0.4) (0.2) (1.0)
At December 31, 2012, we had forward exchange contracts to trade U.S. dollars
in exchange for the following currencies:
Weighted
average
exchange Maximum
Amount of rate of period in Fair value
Currency U.S. dollars U.S. dollars months gain/(loss)
Canadian dollar .......... $ 288.2 $ 1.01 9 $ (0.7)
Thai baht .................... 118.3 0.03 15 2.1
Malaysian ringgit ........ 87.6 0.32 15 1.1
Mexican peso ............. 37.9 0.08 12 0.4
British pound .............. 68.3 1.62 4 0.1
Chinese renminbi ....... 34.1 0.16 12 0.1
Euro ........................... 11.9 1.31 4 0.1
Romanian leu ............. 11.3 0.28 12 0.5
Other .......................... 24.6 12 0.5
Total ........................... $ 682.2 $ 4.2
At December 31, 2012, the fair value of these contracts was a net unrealized
gain of $4.2 (December 31, 2011 — net unrealized loss of $13.9). Changes in
the fair value of hedging derivatives to which we apply cash flow hedge
accounting, to the extent effective, are deferred in other comprehensive
income until the expenses or items being hedged are recognized in our
consolidated statement of operations. Any hedge ineffectiveness, which at
December 31, 2012 was not significant, is recognized immediately in our
consolidated statement of operations. At December 31, 2012, we recorded $6.2
of derivative assets in other current assets and $2.0 of derivative
liabilities in accrued and other current liabilities. The unrealized gains and
losses are a result of fluctuations in foreign exchange rates between the date
the currency forward contracts were entered into and the valuation date at
period end.
13. CONTINGENCIES
Litigation
In the normal course of our operations, we may 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 always possible to estimate the extent of potential costs, if any,
management believes that the ultimate resolution of such matters 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 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 added one of our directors and Onex
Corporation as defendants. On October 14, 2010, the District Court granted the
defendants' motions to dismiss the consolidated amended complaint in its
entirety. The plaintiffs appealed to the United States Court of Appeals for
the Second Circuit the dismissal of its claims against us, our former Chief
Executive and Chief Financial Officers, but not as to the other defendants. In
a summary order dated December 29, 2011, the Court of Appeals reversed the
District Court's dismissal of the consolidated amended complaint and remanded
the case to the District Court for further proceedings. The parties are
currently engaged in the discovery process. Parallel class proceedings,
including a claim issued in October 2011, remain against us and our former
Chief Executive and Chief Financial Officers in the Ontario Superior Court of
Justice. On October 15, 2012, the Ontario Superior Court of Justice granted
limited aspects of the defendants' motion to strike, which ruling is subject
to appeal, but the court has not granted leave nor certification of any
actions. We believe the allegations in the 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 that it will not
have a material adverse impact on our financial position or liquidity. In
addition, we may incur substantial litigation expenses in defending the
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 and reviews by various tax authorities of
historical information which could result in additional tax expense in future
periods relating to prior results. Reviews by tax authorities generally focus
on, but are not limited to, 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 should
have been materially higher in 2001 and 2002 and materially lower in 2003 and
2004 as a result of certain inter-company transactions.
Canadian tax authorities have taken the position that certain interest amounts
deducted by one of our Canadian entities in 2002 through 2004 on historical
debt instruments should be re-characterized as capital losses. If tax
authorities are successful with their challenge, we estimate that the maximum
net impact for additional income taxes and interest expense could be
approximately $30.5 million Canadian dollars (approximately $30.6 at current
exchange rates). We believe that our asserted position is appropriate and
would be sustained upon full examination by the tax authorities and, if
necessary, upon consideration by the judicial courts. Our position is
supported by our Canadian legal tax advisers.
In connection with a tax audit in Brazil, tax authorities had taken the
position that income reported by our Brazilian subsidiary in 2004 should have
been materially higher as a result of certain inter-company transactions. In
June 2011, we received a ruling from the Brazilian Lower Administrative Court
that was largely consistent with our original filing position. As the ruling
generally favored the taxpayer, the Brazilian tax authorities appealed the
matter to a higher court. In June 2012, the Brazilian Higher Administrative
Court unanimously upheld the Lower Administrative Court decision. Although we
believe it is unlikely to occur due to the recent unanimous decision by the
higher court, the Brazilian tax authorities have the right to present a
Special Appeal to change the decision. We did not previously accrue for any
potential adverse tax impact for the 2004 tax audit. Brazilian tax authorities
are not precluded from taking similar positions in future audits with respect
to these types of transactions.
We have and expect to continue to recognize the future benefit of certain
Brazilian tax losses on the basis that these tax losses can and will be fully
utilized in the fiscal period ending on the date of dissolution of our
Brazilian subsidiary. While our ability to do so is not certain, we believe
that our interpretation of applicable Brazilian law will be sustained upon
full examination by the Brazilian tax authorities and, if necessary, upon
consideration by the Brazilian judicial courts. Our position is supported by
our Brazilian legal tax advisors. A change to the benefit realizable on these
Brazilian losses could increase our net deferred tax liabilities by
approximately 48.8 million Brazilian reais (approximately $23.9 at current
exchange rates).
The successful pursuit of the assertions made by any taxing authority related
to the above noted tax audits or others could result in our owing significant
amounts of tax, interest and possibly penalties. We believe we have
substantial defenses to the asserted positions and have adequately accrued for
any probable potential adverse tax impact. However, there can be no assurance
as to the final resolution of these claims and any resulting proceedings and
if these claims and any ensuing proceedings are determined adversely to us,
the amounts we may be required to pay could be material.
SOURCE Celestica Inc.
Contact:
Celestica Communications
(416) 448-2200 media@celestica.com
Celestica Investor Relations
(416) 448-2211 clsir@celestica.com
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