(All amounts in U.S. dollars. Per share information based on
diluted shares outstanding unless noted otherwise). TORONTO, Oct.
22 /PRNewswire-FirstCall/ -- Celestica Inc. (NYSE, TSX: CLS), a
global leader in the delivery of end-to-end product lifecycle
solutions, today announced financial results for the third quarter
ended September 30, 2009. Revenue for the quarter was $1,556
million, compared to $2,031 million in the third quarter of 2008.
GAAP net loss was $0.6 million, or $0.00 per share, compared to
GAAP net earnings of $32.1 million, or $0.14 per share, for the
same period last year. The year-over-year change reflects the
impact of weaker end-market demand, as well as higher restructuring
costs in 2009 associated with the company's previously announced
restructuring program. Adjusted net earnings for the quarter were
$39.5 million, or $0.17 per share, compared to adjusted net
earnings of $54.3 million, or $0.24 per share, for the same period
last year. The term adjusted net earnings is a non-GAAP measure
defined as net earnings before other charges, amortization of
intangible assets (excluding amortization of computer software),
option expense, gains or losses related to the repurchase of shares
and debt, net of tax and significant deferred tax write-offs or
recoveries. Detailed GAAP financial statements and supplementary
information related to adjusted net earnings appears at the end of
this press release. The company's revenue and adjusted net earnings
for the third quarter of 2009 met the high end of the company's
published guidance, announced on July 23, 2009, of revenue of
$1.425 billion to $1.575 billion and adjusted net earnings per
share of $0.11 to $0.17. For the nine months ended September 30,
2009, revenue was $4,428 million, compared to $5,743 million for
the same period in 2008. GAAP net earnings were $23.9 million, or
$0.10 per share, compared to $101.7 million, or $0.44 per share,
for the same period last year. Adjusted net earnings for the nine
months ended September 30, 2009 were $93.8 million, or $0.41 per
share, compared to $128.6 million, or $0.56 per share, for the same
period in 2008. "Celestica continues to deliver improved operating
performance and financial results despite a very challenging and
volatile business environment," said Craig Muhlhauser, President
& CEO. "One of the company's goals during this downturn was to
continue to deliver on our commitments to our customers and
increase our return on invested capital even at the low point of an
economic cycle. We are very pleased with the performance we have
achieved thus far." Debt Redemption --------------- In September
2009, the company announced its intention to redeem all of its
outstanding 7.875% Senior Subordinated Notes due 2011 (Notes), with
an aggregate principal amount of $339.4 million. In accordance with
the terms of the Notes, the company will redeem the Notes at a
price of 101.969% of the principal amount, plus accrued and unpaid
interest to the redemption date. The company will complete the
redemption in the fourth quarter of 2009 and expects to record a
gain of approximately $10 million on redemption. The company plans
to fund the redemption using existing cash resources. After giving
effect to the completion of the Notes redemption as of September
30, 2009, the company's cash balance would have been $906 million,
and our Senior Subordinated Notes due 2013 remains at $223 million.
The company also estimates a reduction to its 2010 net interest
expense of approximately $14 million. Fourth Quarter Outlook
---------------------- For the fourth quarter ending December 31,
2009, the company anticipates revenue to be in the range of $1.55
billion to $1.70 billion, and adjusted net earnings per share to
range from $0.14 to $0.20. Third Quarter Webcast
--------------------- Management will host its quarterly results
conference call today at 4:30 p.m. Eastern. The webcast can be
accessed at http://www.celestica.com/. Supplementary Information
------------------------- In addition to disclosing detailed
results in accordance with Canadian generally accepted accounting
principles (GAAP), Celestica provides supplementary non-GAAP
measures as a method to evaluate the company's operating
performance. See table below. Management uses adjusted net earnings
as a measure of enterprise-wide performance. Management believes
adjusted net earnings is a useful measure for management, as well
as investors, to facilitate period-to-period operating comparisons.
Adjusted net earnings do not include the effects of other charges,
most significantly the write-down of goodwill and long-lived
assets, gains or losses on the repurchase of shares or debt and the
related income tax effect of these adjustments, and any significant
deferred tax write-offs or recoveries. The company also excludes
the following recurring charges: restructuring costs, option
expense, the amortization of intangible assets (except amortization
of computer software), and the related income tax effect of these
adjustments. The term adjusted net earnings does not have any
standardized meaning prescribed by GAAP and is not necessarily
comparable to similar measures presented by other companies.
Adjusted net earnings is not a measure of performance under
Canadian or U.S. GAAP and should not be considered in isolation or
as a substitute for net earnings prepared in accordance with
Canadian or U.S. GAAP. The company has provided a reconciliation of
adjusted net earnings, which is a non-GAAP measure, to Canadian
GAAP net earnings below. About Celestica --------------- Celestica
is dedicated to delivering end-to-end product lifecycle solutions
to drive our customers' success. Through our simplified global
operations network and information technology platform, we are
solid partners who deliver informed, flexible solutions that enable
our customers to succeed in the markets they serve. Committed to
providing a truly differentiated customer experience, our agile and
adaptive employees share a proud history of demonstrated expertise
and creativity that provides our customers with the ability to
overcome any challenge. For further information on Celestica, visit
its website at http://www.celestica.com/. The company's security
filings can also be accessed at http://www.sedar.com/ and
http://www.sec.gov/. Safe Harbour and Fair Disclosure Statement
------------------------------------------ This news release
contains forward-looking statements related to our future growth,
trends in our industry, our financial and/or operational results
including anticipated expenses, the expected gains from our
recently announced intention to redeem our 7.875% Senior
Subordinated Notes due 2011, and our financial or operational
performance. Such forward-looking statements are predictive in
nature and may be based on current expectations, forecasts or
assumptions involving risks and uncertainties that could cause
actual outcomes and results to differ materially from the
forward-looking statements themselves. Such forward-looking
statements may, without limitation, be preceded by, followed by, or
include words such as "believes", "expects", "anticipates",
"estimates", "intends", "plans", or similar expressions, or may
employ such future or conditional verbs as "may", "will", "should"
or "would", or may otherwise be indicated as forward-looking
statements by grammatical construction, phrasing or context. For
those statements, we claim the protection of the safe harbor for
forward-looking statements contained in the U.S. Private Securities
Litigation Reform Act of 1995, and in any applicable Canadian
securities legislation. Forward-looking statements are not
guarantees of future performance. You should understand that the
following important factors could affect our future results and
could cause those results to differ materially from those expressed
in such forward-looking statements: the challenges of effectively
managing our operations during uncertain economic conditions,
including significant changes in demand from our customers as a
result of the impact of the global economic downturn and capital
markets weakness; the risk of potential non-performance by
counterparties, including but not limited to financial
institutions, customers and suppliers; the effects of price
competition and other business and competitive factors generally
affecting the EMS industry, including changes in the trend for
outsourcing; our dependence on a limited number of customers;
variability of operating results among periods; the challenge of
managing our financial exposures to foreign currency fluctuations;
the challenge of responding to changes in customer demand; our
inability to retain or grow our business due to execution problems
resulting from significant headcount reductions, plant closures and
product transfers associated with restructuring activities; our
dependence on industries affected by rapid technological change;
our ability to successfully manage our international operations;
and the delays in the delivery and/or general availability of
various components and materials used in our manufacturing process.
These and other risks and uncertainties, as well as other
information related to the company, are discussed in the Company's
various public filings at http://www.sedar.com/ and
http://www.sec.gov/, including our Annual Report on Form 20-F and
subsequent reports on Form 6-K filed with the Securities and
Exchange Commission and our Annual Information Form filed with the
Canadian Securities Commissions. Forward-looking statements are
provided for the purpose of providing information about
management's current expectations and plans relating to the future.
Readers are cautioned that such information may not be appropriate
for other purposes. 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. As of its date, this press release
contains any material information associated with the Company's
financial results for the third quarter ended September 30, 2009
and revenue and adjusted net earnings guidance for the fourth
quarter ending December 31, 2009. Revenue and earnings guidance is
reviewed by the Company's Board of Directors. Our revenue and
earnings guidance is based on various assumptions which management
believes are reasonable under the current circumstances, but may
prove to be inaccurate, and many of which involve factors that are
beyond the control of the Company. The material assumptions may
include the following: forecasts from our customers, which range
from 30 to 90 days; timing and investments associated with ramping
new business; general economic and market conditions; currency
exchange rates; pricing and competition; anticipated customer
demand; supplier performance and pricing; commodity, labor, energy
and transportation costs; operational and financial matters;
technological developments; and the timing and execution of our
restructuring plan. These assumptions are based on management's
current views with respect to current plans and events, and are and
will be subject to the risks and uncertainties referred to above.
It is Celestica's policy that revenue and earnings guidance is
effective on the date given, and will only be updated through a
public announcement. The following table sets forth, for the
periods indicated, a reconciliation of Canadian GAAP net earnings
to adjusted net earnings and other non-GAAP information (in
millions of U.S. dollars, except per share amounts): 2008 2009
Three months -----------------------------
----------------------------- ended Adjust- Adjust- September 30
GAAP ments Adjusted GAAP ments Adjusted --------- ---------
--------- --------- --------- --------- Revenue $2,030.8 $ -
$2,030.8 $1,556.2 $ - $1,556.2 Cost of sales(1) 1,880.8 (0.5)
1,880.3 1,448.4 (0.5) 1,447.9 --------- --------- ---------
--------- --------- --------- Gross profit 150.0 0.5 150.5 107.8
0.5 108.3 SG&A(1)(2) 83.0 (0.6) 82.4 54.0 (0.8) 53.2
Amortization of intangible assets(2) 6.3 (3.4) 2.9 4.7 (1.9) 2.8
Other charges 16.4 (16.4) - 43.5 (43.5) - --------- ---------
--------- --------- --------- --------- Operating earnings -
EBIAT(3) 44.3 20.9 65.2 5.6 46.7 52.3 Interest expense, net 9.8 -
9.8 8.4 - 8.4 --------- --------- --------- --------- ---------
--------- Net earnings (loss) before tax 34.5 20.9 55.4 (2.8) 46.7
43.9 Income tax expense (recovery) 2.4 (1.3) 1.1 (2.2) 6.6 4.4
--------- --------- --------- --------- --------- --------- Net
earnings (loss) $ 32.1 $ 22.2 $ 54.3 $ (0.6) $ 40.1 $ 39.5
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- W.A.
no. of shares (in millions) - diluted 230.3 230.3 229.5 231.7
Earnings per share - diluted $ 0.14 $ 0.24 $ 0.00 $ 0.17 ROIC(4)
13.9% 21.9% Free cash flow(5) $ 57.4 $ 139.1 2008 2009 Nine months
----------------------------- ----------------------------- ended
Adjust- Adjust- September 30 GAAP ments Adjusted GAAP ments
Adjusted --------- --------- --------- --------- ---------
--------- Revenue $5,742.8 $ - $5,742.8 $4,427.8 $ - $4,427.8 Cost
of sales(1) 5,352.3 (2.3) 5,350.0 4,107.1 (1.8) 4,105.3 ---------
--------- --------- --------- --------- --------- Gross profit
390.5 2.3 392.8 320.7 1.8 322.5 SG&A(1)(2) 215.1 (2.7) 212.4
183.3 (2.8) 180.5 Amortization of intangible assets(2) 20.5 (11.8)
8.7 15.3 (6.9) 8.4 Other charges 23.3 (23.3) - 76.7 (76.7) -
--------- --------- --------- --------- --------- ---------
Operating earnings - EBIAT(3) 131.6 40.1 171.7 45.4 88.2 133.6
Interest expense, net 28.8 - 28.8 29.3 - 29.3 --------- ---------
--------- --------- --------- --------- Net earnings before tax
102.8 40.1 142.9 16.1 88.2 104.3 Income tax expense (recovery) 1.1
13.2 14.3 (7.8) 18.3 10.5 --------- --------- --------- ---------
--------- --------- Net earnings $ 101.7 $ 26.9 $ 128.6 $ 23.9 $
69.9 $ 93.8 --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- W.A. no. of shares (in millions) - diluted 230.0 230.0
230.5 230.5 Earnings per share - diluted $ 0.44 $ 0.56 $ 0.10 $
0.41 ROIC(4) 12.1% 18.1% Free cash flow(5) $ 144.4 $ 196.2 (1)
Non-cash option expense included in cost of sales and SG&A is
added back for adjusted net earnings. (2) Certain 2008 GAAP numbers
have been restated to reflect the change in accounting for computer
software effective January 1, 2009 as required under Canadian GAAP.
For the third quarter of 2008, $2.9 million in amortization of
computer software has been reclassified from SG&A expenses to
amortization of intangible assets (first nine months of 2008 - $8.7
million). Amortization of computer software is not added back for
EBIAT and adjusted net earnings. There is no impact to our current
or previously reported EBIAT, adjusted net earnings or net
earnings. (3) Management uses EBIAT as a measure to assess
operating performance. Excluded from EBIAT are the effects of other
charges, most significantly the write-down of goodwill and
long-lived assets, gains or losses on the repurchase of shares or
debt, the related income tax effect of these adjustments, and any
significant deferred tax write-offs or recoveries. We also exclude
the following recurring charges: restructuring costs, option
expense, amortization of intangible assets (except amortization of
computer software), interest expense or income, and the related
income tax effect of these adjustments. Management believes EBIAT,
which isolates operating activities before interest and taxes, is
an appropriate measure for management, as well as investors, to
compare the company's operating performance from period-to-period.
The term EBIAT does not have any standardized meaning prescribed by
Canadian or U.S. GAAP and is therefore unlikely to be comparable to
similar measures presented by other companies. EBIAT is not a
measure of performance under Canadian or U.S. GAAP and should not
be considered in isolation or as a substitute for net earnings
prepared in accordance with Canadian or U.S. GAAP. (4) Management
uses ROIC as a measure to assess the effectiveness of the invested
capital it uses to build products or provide services to its
customers. The ROIC metric used by the company 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 liabilities and income taxes payable. The term
ROIC does not have any standardized meaning prescribed by Canadian
or U.S. GAAP and is therefore unlikely to be comparable to similar
measures presented by other companies. ROIC is not a measure of
performance under Canadian or U.S. GAAP and should not be
considered in isolation or as a substitute for any standardized
measure. (5) Management uses free cash flow as a measure to assess
cash flow performance. Free cash flow is calculated as cash
generated from operations less capital expenditures (net of
proceeds from the sale of surplus property and equipment). The term
free cash flow does not have any standardized meaning prescribed by
Canadian or U.S. GAAP and is therefore unlikely to be comparable to
similar measures presented by other companies. Free cash flow is
not a measure of performance under Canadian or U.S. GAAP and should
not be considered in isolation or as a substitute for any
standardized measure. GUIDANCE SUMMARY 3Q 09 Guidance 3Q 09 Actual
4Q 09 Guidance(6) ----------------- -----------------
----------------- Revenue $1.425B - $1.575B $1.556B $1.55B - $1.70B
Adjusted net EPS $0.11 - $0.17 $0.17 $0.14 - $0.20 (6) Guidance for
the fourth quarter is provided only on an adjusted net earnings
basis. This is due to the difficulty in forecasting the various
items impacting GAAP net earnings, such as the amount and timing of
our restructuring activities. CELESTICA INC. CONSOLIDATED BALANCE
SHEETS (in millions of U.S. dollars) December 31 September 30 2008
2009 ------------ ------------ Assets (unaudited) Current assets:
Cash and cash equivalents (note 6)........... $ 1,201.0 $ 1,261.4
Accounts receivable (note 10(c))............. 1,074.0 854.0
Inventories (note 2)......................... 787.4 697.5 Prepaid
and other assets (note 7(i))......... 87.1 55.3 Income taxes
recoverable..................... 14.1 20.5 Deferred income
taxes........................ 8.2 5.7 ------------ ------------
3,171.8 2,894.4 Property, plant and equipment (note 1(i))......
433.5 410.0 Intangible assets (note 1(i)).................. 54.1
40.7 Other long-term assets (note 7(ii))............ 126.8 124.7
------------ ------------ $ 3,786.2 $ 3,469.8 ------------
------------ ------------ ------------ Liabilities and
Shareholders' Equity Current liabilities: Accounts
payable............................. $ 1,090.6 $ 1,001.6 Accrued
liabilities (notes 4 and 7(i))....... 463.1 302.4 Income taxes
payable......................... 13.5 11.9 Deferred income
taxes........................ 0.2 0.6 Current portion of long-term
debt (note 3)... 1.0 357.4 ------------ ------------ 1,568.4
1,673.9 Long-term debt (note 3)........................ 732.1 223.7
Accrued pension and post-employment benefits... 63.2 71.9 Deferred
income taxes.......................... 47.2 33.7 Other long-term
liabilities.................... 9.8 9.4 ------------ ------------
2,420.7 2,012.6 Shareholders' equity (note 8): Capital
stock................................ 3,588.5 3,590.5 Contributed
surplus.......................... 204.4 225.5
Deficit...................................... (2,436.8) (2,412.9)
Accumulated other comprehensive income....... 9.4 54.1 ------------
------------ 1,365.5 1,457.2 ------------ ------------ $ 3,786.2 $
3,469.8 ------------ ------------ ------------ ------------
Guarantees and contingencies (note 9) See accompanying notes to
unaudited consolidated financial statements. These unaudited
interim consolidated financial statements should be read in
conjunction with the 2008 annual consolidated financial statements.
CELESTICA INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in millions
of U.S. dollars, except per share amounts) Three months ended Nine
months ended September 30 September 30 2008 2009 2008 2009
----------- ----------- ----------- ----------- (unaudited)
(unaudited) (unaudited) (unaudited) Revenue.................. $
2,030.8 $ 1,556.2 $ 5,742.8 $ 4,427.8 Cost of sales............
1,880.8 1,448.4 5,352.3 4,107.1 ----------- ----------- -----------
----------- Gross profit............. 150.0 107.8 390.5 320.7
Selling, general and administrative expenses (note
1(i))............. 83.0 54.0 215.1 183.3 Amortization of intangible
assets (note 1(i))............. 6.3 4.7 20.5 15.3 Other charges
(note 4)... 16.4 43.5 23.3 76.7 Interest on long-term
debt.................... 14.1 8.4 42.3 29.6 Interest income, net of
interest expense........ (4.3) - (13.5) (0.3) -----------
----------- ----------- ----------- Earnings (loss) before income
taxes............ 34.5 (2.8) 102.8 16.1 Income tax expense
(recovery): Current................ 6.4 1.7 5.1 7.8
Deferred............... (4.0) (3.9) (4.0) (15.6) -----------
----------- ----------- ----------- 2.4 (2.2) 1.1 (7.8) -----------
----------- ----------- ----------- Net earnings (loss) for the
period.......... $ 32.1 $ (0.6) $ 101.7 $ 23.9 -----------
----------- ----------- ----------- ----------- -----------
----------- ----------- Basic earnings per share............... $
0.14 $ 0.00 $ 0.44 $ 0.10 Diluted earnings per share...............
$ 0.14 $ 0.00 $ 0.44 $ 0.10 Shares used in computing per share
amounts: Basic (in millions).... 229.4 229.5 229.2 229.5 Diluted
(in millions).. 230.3 229.5 230.0 230.5 See accompanying notes to
unaudited consolidated financial statements. These unaudited
interim consolidated financial statements should be read in
conjunction with the 2008 annual consolidated financial statements.
CELESTICA INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in
millions of U.S. dollars) Three months ended Nine months ended
September 30 September 30 2008 2009 2008 2009 -----------
----------- ----------- ----------- (unaudited) (unaudited)
(unaudited) (unaudited) Net earnings (loss) for the
period.......... $ 32.1 $ (0.6) $ 101.7 $ 23.9 Other comprehensive
income, net of tax: Foreign currency translation gain
(loss)................ (3.3) 5.5 2.8 0.4 Reclass foreign currency
translation to other charges...... - 1.8 - 1.8 Net gain (loss) on
derivatives designated as cash flow hedges... (11.4) 4.5 (9.0) 6.1
Reclass net loss (gain) on derivatives designated as cash flow
hedges to operations............ (2.5) 2.0 (21.5) 36.4 -----------
----------- ----------- ----------- Comprehensive income..... $
14.9 $ 13.2 $ 74.0 $ 68.6 ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- See
accompanying notes to unaudited consolidated financial statements.
These unaudited interim consolidated financial statements should be
read in conjunction with the 2008 annual consolidated financial
statements. CELESTICA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars) Three months ended Nine months ended
September 30 September 30 2008 2009 2008 2009 -----------
----------- ----------- ----------- (unaudited) (unaudited)
(unaudited) (unaudited) Cash provided by (used in): Operations: Net
earnings (loss) for the period.......... $ 32.1 $ (0.6) $ 101.7 $
23.9 Items not affecting cash: Depreciation and
amortization.......... 27.2 24.4 81.5 74.5 Deferred income taxes..
(4.0) (3.9) (4.0) (15.6) Non-cash stock-based
compensation.......... 3.7 6.7 16.5 21.4 Restructuring charges
(note 4).............. 0.2 2.8 0.5 4.1 Other charges (note
4).............. - 1.5 - 8.0 Other.................... 4.9 1.0 8.0
(8.2) Changes in non-cash working capital items: Accounts
receivable.... (146.8) (46.1) (98.9) 219.0 Inventories............
(31.3) (64.3) (51.4) 88.8 Prepaid and other assets.......... 9.8
13.6 25.0 36.0 Income taxes recoverable........... (1.5) (1.8)
(14.6) (6.4) Accounts payable and accrued liabilities... 191.2
211.9 132.8 (195.4) Income taxes payable... 2.3 1.2 6.3 (1.6)
----------- ----------- ----------- ----------- Non-cash working
capital changes....... 23.7 114.5 (0.8) 140.4 -----------
----------- ----------- ----------- Cash provided by
operations.............. 87.8 146.4 203.4 248.5 -----------
----------- ----------- ----------- Investing: Purchase of
property, plant and equipment... (30.8) (9.9) (63.2) (56.3)
Proceeds from sale of assets............. 0.4 5.1 4.2 6.5
Other.................. (0.1) - (0.1) 0.5 ----------- -----------
----------- ----------- Cash used in investing
activities.............. (30.5) (4.8) (59.1) (49.3) -----------
----------- ----------- ----------- Financing: Repurchase of Senior
Subordinated Notes (Notes) (note 3(d))... - - - (149.7) Proceeds
from termination of swap agreements (note 3(d))........... - - -
14.7 Financing costs........ - - - (2.3) Repayment of capital lease
obligations..... - (0.1) (0.2) (1.0) Issuance of share
capital............... 0.2 1.8 2.1 2.0 Other..................
(2.3) (1.2) (4.7) (2.5) ----------- ----------- -----------
----------- Cash provided by (used in) financing activities....
(2.1) 0.5 (2.8) (138.8) ----------- ----------- -----------
----------- Increase in cash......... 55.2 142.1 141.5 60.4 Cash
and cash equivalents, beginning of period..... 1,203.0 1,119.3
1,116.7 1,201.0 ----------- ----------- ----------- -----------
Cash and cash equivalents, end of period........... $ 1,258.2 $
1,261.4 $ 1,258.2 $ 1,261.4 ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental cash flow information (note 6) See accompanying notes
to unaudited consolidated financial statements. These unaudited
interim consolidated financial statements should be read in
conjunction with the 2008 annual consolidated financial statements.
CELESTICA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in
millions of U.S. dollars, except per share amounts) (unaudited) 1.
Basis of presentation and significant accounting policies: We
prepare our financial statements in accordance with generally
accepted accounting principles (GAAP) in Canada. The disclosures
contained in these unaudited interim consolidated financial
statements do not include all requirements of Canadian GAAP for
annual financial statements. These unaudited interim consolidated
financial statements should be read in conjunction with the 2008
annual consolidated financial statements. These unaudited interim
consolidated financial statements reflect all adjustments which
are, in the opinion of management, necessary to present fairly our
financial position as at September 30, 2009 and the results of
operations, comprehensive income, and cash flows for the three
months and nine months ended September 30, 2008 and 2009. Use of
estimates: The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
related disclosures of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of
revenue and expenses during the reporting period. We applied
significant estimates and assumptions to our valuations against
accounts receivable, inventory and income taxes, to the amount and
timing of restructuring charges or recoveries, to the fair values
used in testing long-lived assets, and to valuing our financial
instruments and pension costs. Actual results could differ
materially from those estimates and assumptions, especially in
light of the economic environment and uncertainties. These
unaudited interim consolidated financial statements are based upon
accounting principles consistent with those used and described in
the 2008 annual consolidated financial statements, except for the
following: Changes in accounting policies: (i) Goodwill and
intangible assets: On January 1, 2009, we adopted CICA Handbook
Section 3064, "Goodwill and intangible assets." This revised
standard establishes guidance for the recognition, measurement and
disclosure of goodwill and intangible assets, including internally
generated intangible assets. As required by this standard, we have
retroactively reclassified computer software assets on our
consolidated balance sheet from property, plant and equipment to
intangible assets. We have also reclassified computer software
amortization on our consolidated statement of operations from
depreciation expense, included in selling, general and
administrative expenses, to amortization of intangible assets.
There is no impact on previously reported net earnings or loss.
Intangible assets: December 31 September 30 2008 2009 ------------
------------ Intellectual property.......................... $ 0.6
$ - Other intangible assets........................ 19.5 12.6
Computer software assets....................... 34.0 28.1
------------ ------------ $ 54.1 $ 40.7 ------------ ------------
------------ ------------ Amortization expense is as follows: Three
months ended Nine months ended September 30 September 30 2008 2009
2008 2009 ----------- ----------- ----------- -----------
Amortization of intellectual property... $ 0.3 $ - $ 0.9 $ 0.2
Amortization of other intangible assets....... 3.1 1.9 10.9 6.7
Amortization of computer software assets......... 2.9 2.8 8.7 8.4
----------- ----------- ----------- ----------- $ 6.3 $ 4.7 $ 20.5
$ 15.3 ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- Recently issued accounting
pronouncements: (a) International financial reporting standards
(IFRS): In February 2008, the Canadian Accounting Standards Board
announced the adoption of IFRS for publicly accountable
enterprises. IFRS will replace Canadian GAAP effective January 1,
2011. IFRS is effective for our first quarter of 2011 and will
require that we restate our 2010 comparative numbers. We have
started an IFRS conversion project to evaluate the impact of
implementing the new standards. Our transition plan is currently on
track with our implementation schedule. Although we have identified
key accounting differences that may potentially affect our
financial statements or operations, we cannot at this time
determine the impact on our consolidated financial statements. (b)
Business combinations: In January 2009, the CICA issued Handbook
Section 1582, "Business combinations," which replaces the existing
standards. This section establishes the standards for the
accounting of business combinations, and states that all assets and
liabilities of an acquired business will be recorded at fair value.
Obligations for contingent considerations and contingencies will
also be recorded at fair value at the acquisition date. The
standard also states that acquisition-related costs will be
expensed as incurred and that restructuring charges will be
expensed in the periods after the acquisition date. This standard
is equivalent to the IFRS on business combinations. This standard
is applied prospectively to business combinations with acquisition
dates on or after January 1, 2011. Earlier adoption is permitted.
We will consider the impact of adopting this standard on our
consolidated financial statements if we have a business
combination. (c) Consolidated financial statements: In January
2009, the CICA issued Handbook Section 1601, "Consolidated
financial statements," which replaces the existing standards. This
section establishes the standards for preparing consolidated
financial statements and is effective for 2011. Earlier adoption is
permitted. We will consider the impact of adopting this standard on
our consolidated financial statements if we have a business
combination. (d) Financial instruments - disclosures: In June 2009,
the CICA issued amendments to Handbook Section 3862, "Financial
instruments - disclosures," which requires enhanced disclosures on
liquidity risk of financial instruments and new disclosures on fair
value measurements of financial instruments. These requirements
correspond to the IFRS on financial instruments disclosures. This
amendment is effective for our 2009 annual consolidated financial
statements. We are currently evaluating the impact of adopting this
amendment on our consolidated financial statements. 2. Inventories:
For the first nine months of 2009, we recorded a net inventory
provision through cost of sales of $1.3 to write down the value of
our inventory to net realizable value. 3. Long-term debt: December
31 September 30 2008 2009 ------------ ------------ Secured,
revolving credit facility due
2009(a)................................... $ - $ - Senior
Subordinated Notes due 2011 (2011
Notes)(b)(c)(d)(e)...................... 489.4 339.4 Senior
Subordinated Notes due 2013 (2013
Notes)(b)............................... 223.1 223.1 Embedded
prepayment option at fair value(d)(f)..............................
(19.2) (0.7) Basis adjustments on debt obligation(f)........ 4.9
3.8 Unamortized debt issue costs................... (7.0) (4.3)
Fair value adjustment of 2011 Notes attributable to interest rate
risks(d)(e)(f).. 40.9 19.8 ------------ ------------ 732.1 581.1
Capital lease obligations...................... 1.0 - ------------
------------ 733.1 581.1 Less current
portion(e)........................ 1.0 357.4 ------------
------------ $ 732.1 $ 223.7 ------------ ------------ ------------
------------ (a) In April 2009, we renewed our revolving credit
facility and reduced the size from $300.0 to $200.0, on generally
similar terms and conditions, with a maturity of April 2011. Under
the terms of the renewed facility, borrowings bear a higher
interest rate than under the previous terms and we are required to
comply with certain restrictive covenants relating to debt
incurrence, the sale of assets, a change of control and certain
financial covenants related to indebtedness, interest coverage and
liquidity. There were no borrowings outstanding under the facility
at September 30, 2009. Commitment fees for the first nine months of
2009 were $1.5. We were in compliance with all covenants at
September 30, 2009. Based on the required financial ratios at
September 30, 2009, we have full access to this facility. We also
have uncommitted bank overdraft facilities available for operating
requirements which total $65.0 at September 30, 2009. There were no
borrowings outstanding under these facilities at September 30,
2009. (b) Our 2011 Notes bear a fixed interest rate of 7.875%. Our
2013 Notes bear a fixed interest rate of 7.625%. We are entitled to
redeem our Notes at various premiums above face value. See note
3(e). The Notes are unsecured and subordinated in right of payment
to all our senior debt. The Notes have restrictive covenants that
limit our ability to pay dividends, repurchase our own stock or
repay debt that is subordinated to these Notes. These covenants
also place limitations on the sale of assets and our ability to
incur additional debt. We were in compliance with all covenants at
September 30, 2009. (c) In connection with the 2011 Notes, we
entered into agreements to swap the fixed interest rate with a
variable interest rate based on LIBOR plus a margin. In February
2009, we terminated our interest rate swap agreements. See note
3(d). Interest costs on the 2011 Notes were based on a fixed rate
of 7.875% for the third quarter of 2009 and the average interest
rate was 7.0% for the first nine months of 2009 (5.8% and 6.4%,
respectively, for the third quarter and first nine months of 2008).
(d) In March 2009, we paid $149.7, excluding accrued interest, to
repurchase 2011 Notes with a principal amount at maturity of
$150.0. During the first quarter of 2009, we recognized a gain of
$9.1 on the repurchase of the 2011 Notes which we recorded in other
charges. See note 4. The gain on the repurchase was measured based
on the carrying value of the repurchased portion of the 2011 Notes
on the date of repurchase. We also terminated our interest rate
swap agreements in the amount of $500.0 related to the 2011 Notes
and received $14.7 in cash, excluding accrued interest, as
settlement of these agreements. In connection with the termination
of the swap agreements, we discontinued fair value hedge accounting
on the 2011 Notes and will amortize the historical fair value
adjustment on the 2011 Notes as a reduction to interest expense on
long-term debt, over the remaining term of the 2011 Notes, using
the effective interest rate method. As a result of discontinuing
fair value hedge accounting in the first quarter of 2009, we
recorded a write-down of $15.6 in the carrying value of the
embedded prepayment option on the 2011 Notes to reflect the change
in fair value upon hedge de-designation, which we recorded in other
charges. See note 4. (e) In September 2009, we announced our intent
to redeem all of the outstanding 2011 Notes, with an aggregate
principal amount of $339.4. In accordance with the terms of the
2011 Notes, we will redeem the 2011 Notes at a price of 101.969% of
the principal amount, plus accrued and unpaid interest to the
redemption date. We plan to complete the redemption in the fourth
quarter of 2009. As a result, we reclassified our 2011 Notes from
long-term debt on our consolidated balance sheet to current debt.
At September 30, 2009, we carried our 2011 Notes at an amortized
cost of $357.4. This carrying amount was comprised primarily of the
principal component of $339.4 and the unamortized fair value
adjustment attributable to interest rate risk of $19.8, net of
unamortized debt issue costs. We expect to record a gain of
approximately $10 on the redemption of the 2011 Notes in other
charges during the fourth quarter of 2009. (f) The prepayment
options in the Notes qualify as embedded derivatives which must be
bifurcated for reporting under the financial instruments standards.
As of September 30, 2009, the fair value of the embedded derivative
asset for the 2013 Notes is $0.7 and is recorded against long-term
debt. The decrease in the fair value of the embedded derivative
asset from December 31, 2008 primarily reflects the write-down
related to the hedge de-designation and debt repurchase described
in note 3(d). In addition, in connection with our intent to redeem
the remaining 2011 Notes as noted in note 3(e), we recorded a
write-down of $1.1 in the carrying value of the embedded prepayment
option on the 2011 Notes. This write-down is recorded in other
charges. See note 4. As a result of bifurcating the prepayment
option from these Notes, a basis adjustment was added to the cost
of the long-term debt. This basis adjustment is amortized over the
term of the debt using the effective interest rate method. The
amortization of the basis adjustment is recorded as a reduction of
interest expense on long-term debt. As of September 30, 2009, the
unamortized fair value adjustment to the 2011 Notes attributable to
the movement in the benchmark interest rates is $19.8. The decrease
in this fair value adjustment from December 31, 2008 primarily
reflects the debt repurchase and hedge de-designation described in
note 3(d). After the hedge de-designation, this fair value
adjustment is being amortized to interest expense on long-term debt
over the remaining term of the 2011 Notes. As noted in note 3(e),
in connection with the planned redemption of the 2011 Notes in the
fourth quarter of 2009, the related basis adjustment, the
unamortized debt issue costs and the unamortized fair value
adjustment will be eliminated in determining the gain on
redemption. We applied fair value hedge accounting to our interest
rate swaps and our hedged debt obligation (2011 Notes) until
February 2009. We also mark-to-market the bifurcated embedded
prepayment options in our debt instruments until the options are
extinguished. The changes in the fair values each period are
recorded in interest expense on long-term debt, except for the
write-down of the embedded prepayment option due to hedge
de-designation or planned debt redemption which we recorded in
other charges. The mark-to-market adjustment fluctuates each period
as it is dependent on market conditions, including future interest
rates, implied volatility and credit spreads. The impact on our
results of operations is as follows: Three months ended Nine months
ended September 30 September 30 2008 2009 2008 2009 -----------
----------- ----------- ----------- Increase (decrease) in interest
expense on long-term debt.......... $ 0.9 $ (3.7) $ 0.2 $ (7.0) 4.
Other charges: Three months ended Nine months ended September 30
September 30 2008 2009 2008 2009 ----------- -----------
----------- ----------- Restructuring(a)......... $ 16.8 $ 42.0 $
23.7 $ 69.6 Release of cumulative translation
adjustment(b)........... - 1.8 - 1.8 Gain on repurchase of Notes
(notes 3(d)(e)(f))...... - - - (9.1) Write-down of embedded
prepayment option (notes 3(d)(f))......... - 1.1 - 16.7
Other(c)................. (0.4) (1.4) (0.4) (2.3) -----------
----------- ----------- ----------- $ 16.4 $ 43.5 $ 23.3 $ 76.7
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- (a) Restructuring: In January
2008, we estimated that a restructuring charge of between $50 and
$75 would be recorded throughout 2008 and 2009. In light of the
continued uncertain economic environment, we determined that
further restructuring actions were required to improve our overall
utilization and reduce overhead costs, and in July 2009 we
announced additional restructuring charges of between $75 and $100.
Combined, we expect to incur total restructuring charges of between
$150 and $175 associated with this program. During 2008 and through
the third quarter of 2009, we recorded a total of $104.9 in
restructuring charges. Of that amount, $42.0 was recorded in the
third quarter of 2009. We expect to complete these restructuring
actions by the end of 2010. We recognize the restructuring charges
as the detailed plans are finalized. Our restructuring actions
include consolidating facilities and reducing our workforce. The
majority of the employees terminated are manufacturing and plant
employees in the Americas and Europe. For leased facilities that we
no longer use, the lease costs included in the restructuring costs
represent future lease payments less estimated sublease recoveries.
Adjustments are made to lease and other contractual obligations to
reflect incremental cancellation fees paid for terminating certain
facility leases and to reflect changes in the accruals for other
leases due to delays in the timing of sublease recoveries, changes
in estimated sublease rates, or changes in use, relating
principally to facilities in the Americas. We expect our long-term
lease and other contractual obligations to be paid out over the
remaining lease terms through 2015. Our restructuring liability is
recorded in accrued liabilities. Details of the 2009 activity are
as follows: Lease and other Employee contrac- Facility termin- tual
exit Total 2009 ation oblig- costs accrued non-cash 2009 costs
ations and other liability charge charge --------- ---------
--------- --------- --------- --------- December 31, 2008.........
$ 18.7 $ 26.7 $ 0.2 $ 45.6 $ - $ - Cash payments..... (14.6) (2.2)
(0.1) (16.9) - - Charges/ adjustments.. 10.4 (4.5) 0.2 6.1 0.6 6.7
--------- --------- --------- --------- --------- --------- March
31, 2009......... 14.5 20.0 0.3 34.8 0.6 6.7 Cash payments.....
(14.9) (2.6) (0.3) (17.8) - - Charges/ adjustments.. 16.2 3.7 0.3
20.2 0.7 20.9 --------- --------- --------- --------- ---------
--------- June 30, 2009......... 15.8 21.1 0.3 37.2 1.3 27.6 Cash
payments..... (16.7) (3.6) (0.9) (21.2) - - Charges/ adjustments..
33.8 4.2 1.2 39.2 2.8 42.0 --------- --------- --------- ---------
--------- --------- September 30, 2009......... $ 32.9 $ 21.7 $ 0.6
$ 55.2 $ 4.1 $ 69.6 --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- As of September 30, 2009, we have approximately
$28 in assets that are held-for-sale, primarily land and buildings,
as a result of the restructuring actions we have implemented. We
have programs underway to sell these assets. (b) Release of
cumulative translation adjustment: We recorded a net loss of $1.8
for the release of the cumulative foreign currency translation
adjustment related to a liquidated foreign subsidiary. (c) Other:
We recognized recoveries on the sale of certain assets that were
previously written down through other charges. 5. Segment
information: The accounting standards establish the criteria for
the disclosure of certain information in the interim and annual
financial statements regarding operating segments, products and
services and major customers. Operating segments are defined as
components of an enterprise for which separate financial
information is available that is regularly evaluated by the chief
operating decision maker in deciding how to allocate resources and
in assessing performance. Our operating segment is comprised of our
electronics manufacturing services business. Our chief operating
decision maker is our Chief Executive Officer. (i) The following
table indicates revenue by end market as a percentage of total
revenue. Our revenue fluctuates from period to period depending on
numerous factors, including but not limited to: seasonality of
business; the level of business from new, existing and disengaging
customers; the level of program wins or losses; the phasing in or
out of programs; and changes in customer demand. Three months ended
Nine months ended September 30 September 30 2008 2009 2008 2009
----------- ----------- ----------- -----------
Consumer............ 25% 32% 22% 28% Enterprise communications.....
25% 20% 26% 21% Servers............. 15% 13% 17% 13%
Storage............. 10% 13% 10% 11% Telecommunications.. 14% 12%
15% 17% Industrial, aerospace and defense, and healthcare.........
11% 10% 10% 10% (ii) For the third quarter and first nine months of
2009, one customer represented more than 10% of total revenue
(third quarter and first nine months of 2008 - no customer
represented more than 10% of total revenue). 6. Supplemental cash
flow information: Three months ended Nine months ended September 30
September 30 Paid during the period: 2008 2009 2008 2009
----------- ----------- ----------- -----------
Interest(a).............. $ 30.2 $ 22.6 $ 64.1 $ 54.5
Taxes(b)................. $ 6.2 $ 2.2 $ 14.1 $ 17.0 (a) This
includes interest paid on the Notes. Interest on these Notes is
payable in January and July of each year until maturity. See notes
3(b) and (c). (b) Cash taxes paid is net of any income taxes
recovered. Cash and cash equivalents are December 31 September 30
comprised of the following: 2008 2009 ------------ ------------
Cash(i)........................................ $ 406.2 $ 399.0
Cash equivalents(i)............................ 794.8 862.4
------------ ------------ $ 1,201.0 $ 1,261.4 ------------
------------ ------------ ------------ (i) Our current portfolio
consists of certificates of deposit and certain money market funds
that are secured exclusively by U.S. government securities. The
majority of our cash and cash equivalents are held with financial
institutions each of which had at September 30, 2009 a Standard and
Poor's rating of A-1 or above. 7. Derivative financial instruments:
(i) We enter into foreign currency contracts to hedge foreign
currency risks primarily relating to cash flows. At September 30,
2009, we had forward exchange contracts covering various currencies
in an aggregate notional amount of $469.6. All derivative financial
instruments are recorded at fair value on our consolidated balance
sheet. The fair value of our foreign currency contracts at
September 30, 2009 was a net unrealized gain of $6.2 (December 31,
2008 - net unrealized loss of $38.9). This is comprised of $9.0 of
derivative assets recorded in prepaid and other assets, and $2.8 of
derivative liabilities recorded in accrued liabilities and other
long-term liabilities. The unrealized gains and losses are a result
of fluctuations in foreign exchange rates between the time the
currency forward contracts were entered into and the valuation date
at period end. The change in the net unrealized gains and losses of
our foreign currency contracts during the first nine months of 2009
is due primarily to the favourable movement in the exchange rates
for the currencies that we hedge and the settlement of contracts
with significant losses. At September 30, 2009, we had forward
exchange contracts to trade U.S. dollars in exchange for the
following currencies: Weighted average Amount exchange Maximum of
U.S. rate of U.S. period Fair value Currency dollars dollars in
months gain/(loss) ------------------------- -----------
----------- ----------- ----------- Canadian dollar.......... $
189.2 $ 0.90 15 $ 4.6 British pound sterling... 84.3 1.62 4 1.5
Mexican peso............. 60.6 0.07 12 0.3 Thai
baht................ 38.4 0.03 12 (0.1) Malaysian ringgit........
35.9 0.28 12 0.2 Singapore dollar......... 21.8 0.69 12 0.4
Euro..................... 21.2 1.43 4 (0.3) Brazilian
real........... 7.0 0.56 3 (0.3) Romanian lei............. 6.3 0.34
7 (0.1) Czech koruna............. 4.9 0.06 3 - -----------
----------- Total.................... $ 469.6 $ 6.2 -----------
----------- ----------- ----------- (ii) In connection with the
issuance of our 2011 Notes in June 2004, we entered into agreements
to swap the fixed rate of interest for a variable interest rate.
The notional amount of the agreements was $500.0. The fair value of
the interest rate swap agreements at December 31, 2008 was an
unrealized gain of $17.3, which we recorded in other long-term
assets. In connection with the debt repurchase (see notes 3(c) and
(d)), we terminated our swap agreements. We received $14.7 in
February 2009 representing the fair value of the swap agreements,
excluding accrued interest, prior to termination. Notes 3(d) and
(f) summarize the impact of our mark-to-market adjustments and our
fair value hedge accounting. Fair value hedge ineffectiveness arose
when the change in the fair values of our swap agreements, our
hedged debt obligation and its embedded derivatives, and the
amortization of the related basis adjustments did not offset each
other during a reporting period. The fair value hedge
ineffectiveness loss of $1.4 for our 2011 Notes was recorded in
interest expense on long-term debt for the first nine months of
2009 (loss of $0.5 for the first nine months of 2008). This fair
value hedge ineffectiveness was driven primarily by the difference
in the credit risk used to value our hedged debt obligation as
compared to the credit risk used to value our interest rate swaps.
As a result of discontinuing our fair value hedge on our 2011 Notes
in February 2009, no further fair value hedge ineffectiveness will
occur in subsequent quarters with respect to the 2011 Notes. 8.
Shareholders' equity: Capital Contributed stock Warrants surplus
Deficit ----------- ----------- ----------- ----------- Balance -
December 31, 2007.................... $ 3,585.2 $ 3.1 $ 190.3
$(1,716.3) Shares issued............ 3.3 - - - Warrants
cancelled....... - (3.1) 3.1 - Stock-based compensation
costs................... - - 12.2 - Other.................... - -
0.7 - Net earnings for first nine months of 2008..... - - - 101.7
----------- ----------- ----------- ----------- Balance - September
30, 2008.................... $ 3,588.5 $ - $ 206.3 $(1,614.6)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- Balance - December 31,
2008.................... $ 3,588.5 $ - $ 204.4 $(2,436.8) Shares
issued............ 2.0 - - - Stock-based compensation
costs................... - - 19.6 - Other.................... - -
1.5 - Net earnings for first nine months of 2009..... - - - 23.9
----------- ----------- ----------- ----------- Balance - September
30, 2009.................... $ 3,590.5 $ - $ 225.5 $(2,412.9)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- Year Nine months ended ended
Accumulated other comprehensive income, December 31 September 30
net of tax: 2008 2009 ------------ ------------ Opening balance of
foreign currency translation account........................... $
35.2 $ 46.7 Foreign currency translation gain.............. 11.5
0.4 Release of cumulative foreign currency translation to other
charges (note 4(b))...... - 1.8 ------------ ------------ Closing
balance................................ 46.7 48.9 Opening balance
of unrealized net gain (loss) on cash flow
hedges........................... $ 20.7 $ (37.3) Net gain (loss)
on cash flow hedges(1)......... (53.1) 6.1 Net loss (gain) on cash
flow hedges reclassified to operations(2)................. (4.9)
36.4 ------------ ------------ Closing
balance(3)............................. (37.3) 5.2 ------------
------------ Accumulated other comprehensive income......... $ 9.4
$ 54.1 ------------ ------------ ------------ ------------ (1) Net
of income tax expense (benefit) of $0.1 and $(0.1) for the three
and nine months ended September 30, 2009 ($0.8 income tax benefit
for 2008). (2) Net of income tax expense of $0.1 and $0.6 for the
three and nine months ended September 30, 2009 ($0.2 income tax
expense for 2008). (3) Net of income tax expense of $0.1 as of
September 30, 2009 ($0.4 income tax benefit as of December 31,
2008). We expect that all the gains on cash flow hedges reported in
accumulated other comprehensive income at September 30, 2009 will
be reclassified to operations during the next 12 months. 9.
Guarantees and contingencies: We have contingent liabilities in the
form of letters of credit, letters of guarantee and surety bonds
which we have provided to various third parties. These guarantees
cover various payments, including customs and excise taxes, utility
commitments and certain bank guarantees. At September 30, 2009,
these contingent liabilities amounted to $49.0 (December 31, 2008 -
$55.4). In addition to the above guarantees, we have also provided
routine indemnifications, the terms of which range in duration and
often are not explicitly defined. These may include
indemnifications against adverse impacts due to changes in tax laws
and patent infringements by third parties. We have also provided
indemnifications in connection with the sale of certain businesses
and real property. The maximum potential liability from these
indemnifications cannot be reasonably estimated. In some cases, we
have recourse against other parties to mitigate our risk of loss
from these indemnifications. Historically, we have not made
significant payments relating to these types of indemnifications.
Litigation: In the normal course of our operations, we are subject
to litigation and claims from time to time. We may also be subject
to lawsuits, investigations and other claims, including
environmental, labor, product, customer disputes and other matters.
Management believes that adequate provisions have been recorded in
the accounts where required. Although it is not always possible to
estimate the extent of potential costs, if any, management believes
that the ultimate resolution of such contingencies will not have a
material adverse impact on our results of operations, financial
position or liquidity. In 2007, securities class action lawsuits
were commenced against us and our former Chief Executive and Chief
Financial Officers in the United States District Court of the
Southern District of New York by certain individuals, on behalf of
themselves and other unnamed purchasers of our stock, claiming that
they were purchasers of our stock during the period January 27,
2005 through January 30, 2007. The plaintiffs allege violations of
United States federal securities laws and seek unspecified damages.
They allege that during the purported class period we made
statements concerning our actual and anticipated future financial
results that failed to disclose certain purportedly material
adverse information with respect to demand and inventory in our
Mexican operations and our information technology and
communications divisions. In an amended complaint, the plaintiffs
have added one of our directors and Onex Corporation as defendants.
All defendants have filed motions to dismiss the amended complaint.
These motions are pending. A parallel class proceeding has also
been issued against us and our former Chief Executive and Chief
Financial Officers in the Ontario Superior Court of Justice, but
neither leave nor certification of the action has been granted by
that court. We believe that the allegations in these claims are
without merit and we intend to defend against them vigorously.
However, there can be no assurance that the outcome of the
litigation will be favorable to us or 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
these claims. We have liability insurance coverage that may cover
some of our litigation expenses, potential judgments or settlement
costs. We expect to receive a recovery of damages related to
certain purchases we made in prior periods as a result of the
settlement of a class action lawsuit. The distribution of the
settlement funds is subject to court approval and, as a result, we
have not yet recorded a gain. We intend to record the recovery, net
of estimated costs and expenses, in other charges when the
settlement is approved. We expect to record a net recovery of
between $21 and $27 during the fourth quarter of 2009. Income
taxes: We are subject to tax audits by local tax authorities of
historical information which could result in additional tax expense
in future periods relating to prior results. In addition, tax
authorities could challenge the validity of our inter-company
transactions, including financing and transfer pricing policies
which generally involve subjective areas of taxation and a
significant degree of judgment. If any of these tax authorities are
successful with their challenges, our income tax expense may be
adversely affected and we could also be subject to interest and
penalty charges. In connection with ongoing tax audits in Canada,
tax authorities have taken the position that income reported by one
of our Canadian subsidiaries in 2001 and 2002 should have been
materially higher as a result of certain inter-company
transactions. The successful pursuit of that assertion could result
in that subsidiary owing significant amounts of tax, interest and
possibly penalties. We believe we have substantial defenses to the
asserted position and have adequately accrued for any probable
potential adverse tax impact. However, there can be no assurance as
to the final resolution of this claim and any resulting
proceedings, and if this claim and any ensuing proceedings are
determined adversely to us, the amounts we may be required to pay
could be material. 10. Financial instruments - financial risks: We
have exposures to the following financial risks arising from
financial instruments: market risk, credit risk and liquidity risk.
Market risk is the risk that results in changes to market prices,
such as foreign exchange rates and interest rates, that could
affect our operations or the value of our financial instruments.
(a) Currency risk: Due to the nature of our international
operations, we are exposed to exchange rate fluctuations on our
financial instruments denominated in various foreign currencies. We
manage our currency risk through our hedging program using
forecasts of future cash flows denominated in foreign currencies
and our currency exposures. Our major currency exposures, as of
September 30, 2009, are summarized in U.S. dollar equivalents in
the following table. For purposes of this table, we have excluded
items such as pension, post-employment benefits and income taxes,
in accordance with the financial instruments standards. The local
currency amounts have been converted to U.S. dollar equivalents
using the spot rates as of September 30, 2009. Canadian Thai
Mexican dollar baht peso ----------- ----------- ----------- Cash
and cash equivalents............ $ 50.5 $ 0.3 $ 1.1 Accounts
receivable.................. 0.1 - - Other financial
assets............... 0.3 1.3 0.2 Accounts payable and accrued
liabilities................. (33.7) (12.0) (11.4) Other financial
liabilities.......... - (0.3) - ----------- ----------- -----------
Net financial assets (liabilities)... $ 17.2 $ (10.7) $ (10.1)
----------- ----------- ----------- ----------- -----------
----------- At September 30, 2009, a one-percentage point
strengthening or weakening of the following currencies against the
U.S. dollar for our financial instruments denominated in
non-functional currencies has the following impact: Canadian Thai
Mexican dollar baht peso ----------- ----------- -----------
Increase (decrease) 1% Strengthening Net
earnings....................... $ 0.2 $ (0.1) $ - Other
comprehensive income......... 1.9 0.4 0.2 1% Weakening Net
earnings....................... (0.2) 0.1 - Other comprehensive
income......... (1.9) (0.4) (0.2) (b) Interest rate risk: We are
exposed to interest rate risks as we have significant cash balances
invested at floating rates. Borrowings under our revolving credit
facility bear interest at LIBOR plus a margin. If we borrow under
this facility, we will be exposed to interest rate risks due to
fluctuations in the LIBOR rate. (c) Credit risk: Credit risk refers
to the risk that a counterparty may default on its contractual
obligations resulting in a financial loss to us. To mitigate the
risk of financial loss from defaults under our foreign currency
forward contracts, these counterparty financial institutions each
had a Standard and Poor's rating of A or above at September 30,
2009. The financial institution with which we have an accounts
receivable sales program had a Standard and Poor's rating of A+ at
September 30, 2009. At September 30, 2009, there were no
outstanding accounts receivable that were sold under the program.
See notes 14(c) and 18 to the 2008 annual consolidated financial
statements. We also provide credit to our customers in the normal
course of business. The carrying amount of financial assets
recorded in the financial statements, net of any allowances or
reserves for losses, represents our estimate of maximum exposure to
this credit risk. As of September 30, 2009, less than 1% of our
gross accounts receivable are over 90 days past due. Accounts
receivable are net of an allowance for doubtful accounts of $10.8
at September 30, 2009 (December 31, 2008 - $13.7). (d) Liquidity
risk: Liquidity risk is the risk that we may not have cash
available to satisfy our financial obligations as they come due.
The majority of our financial liabilities recorded in accounts
payable and accrued liabilities are due within 90 days. The
redemption of our 2011 Notes is planned for the fourth quarter of
2009 and will be funded from existing cash resources. Our 2013
Notes are scheduled to mature in July 2013. Management believes
that cash flow from operations, together with cash on hand, cash
from the sale of accounts receivable, and borrowings available
under our credit facility and bank overdraft facilities will be
sufficient to support our financial obligations. See note 14(d) to
the 2008 annual consolidated financial statements. 11. Comparative
information: We have reclassified certain prior period information
to conform to the current period's presentation. DATASOURCE:
Celestica Inc. CONTACT: Laurie Flanagan, Celestica Global
Communications, (416) 448-2200, ; Paul Carpino, Celestica Investor
Relations, (416) 448-2211,
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