First Quarter Summary
---------------------
- Revenue of $1,836 million compared to $1,842 million for the same
period last year
- GAAP earnings of $0.13 per share compared to a loss of ($0.15) per
share last year
- Adjusted net earnings of $0.15 per share compared to a loss of
($0.04) per share a year ago
- Operating margin of 2.7%, gross margin of 6.3%
- Inventory turnover of 8.6 turns
- Return on invested capital including intangibles of 10.5% compared to
1.1% last year
- Free cash flow of $33 million, cash balance of $1.149 billion
- Q2/08 revenue guidance $1.8 - $2.0 billion, adjusted net earnings per
share of $0.13 - $0.19
(All amounts in U.S. dollars. Per share information based on diluted
shares outstanding unless noted otherwise.)
TORONTO, April 24 /CNW/ - Celestica Inc. (NYSE, TSX: CLS), a global provider of electronics manufacturing services (EMS), today announced financial results for the first quarter ended March 31, 2008.
Revenue was $1,836 million compared to $1,842 million in the first quarter of 2007. Net earnings on a GAAP basis for the first quarter was $29.8 million or $0.13 per share, compared to GAAP net loss of ($34.3) million or ($0.15) per share for the same period last year. Restructuring charges in the quarter were $3.3 million compared to $8.0 million for the same period last year.
Adjusted net earnings for the quarter were $35.4 million or $0.15 per share, compared to adjusted net loss of ($9.1) million or ($0.04) per share for the same period last year. Adjusted net earnings (loss) is defined as net earnings before other charges, amortization of intangible assets, integration costs related to acquisitions, option expense, option exchange costs and gains or losses on the repurchase of shares and debt, net of tax and significant deferred tax write-offs or recovery (detailed GAAP financial statements and supplementary information related to adjusted net earnings appear at the end of this press release).
These results compare with the company's guidance for the first quarter, announced on January 31, 2008 of revenue of $1.7 billion to $1.9 billion and adjusted net earnings per share of $0.06 to $0.11.
"Celestica delivered another strong performance in the first quarter of 2008 in all of its key financial and operating metrics," said Craig Muhlhauser, President and Chief Executive Officer, Celestica. "With our strong financial position and continuously improving operational performance, we feel Celestica is well positioned for continued progress in 2008 and beyond."
Outlook
-------
For the second quarter ending June 30, 2008, the company anticipates revenue to be in the range of $1.8 billion to $2.0 billion, and adjusted net earnings per share to range from $0.13 to $0.19.
First Quarter and Annual Shareholders Meeting Webcasts
------------------------------------------------------
Management will host its quarterly results conference call today at 8:00 a.m. Eastern Time. The webcast can be accessed at www.celestica.com.
The company's Annual Meeting of Shareholders will be held today at 10:00 a.m. at The Dominion Club, 1 King St. West, Toronto. A live webcast of management's presentation can also be heard at www.celestica.com at approximately 10:10 a.m. Eastern Time.
Supplementary Information
-------------------------
In addition to disclosing detailed results in accordance with Canadian generally accepted accounting principles (GAAP), Celestica also provides supplementary non-GAAP measures as a method to evaluate the company's operating performance.
Management uses adjusted net earnings as a measure of enterprise-wide performance. As a result of restructuring activities, acquisitions made by the company, fair value accounting for stock options and securities repurchases, management believes adjusted net earnings is a useful measure for the company as well as its investors to facilitate period-to-period operating comparisons and allow the comparison of operating results with its competitors in the U.S. and Asia. Adjusted net earnings excludes the effects of other charges (most significantly, restructuring costs and the write-down of goodwill and long-lived assets), acquisition-related charges (amortization of intangible assets and integration costs related to acquisitions), option expense and option exchange costs, 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 recovery. Adjusted net earnings does not have any standardized meaning prescribed by GAAP and is not necessarily comparable to similar measures presented by other companies. Adjusted net earnings is not a measure of performance under Canadian or U.S. GAAP and should not be considered in isolation or as a substitute for net earnings (loss) prepared in accordance with Canadian or U.S. GAAP. The company has provided a reconciliation of adjusted net earnings (loss) to Canadian GAAP net earnings (loss) 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, 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. The risks and uncertainties referred to above include, but are not limited to: variability of operating results among periods; inability to retain or grow our business due to execution problems resulting from significant headcount reductions, plant closures and product transfers associated with major restructuring activities; the effects of price competition and other business and competitive factors generally affecting the EMS industry; the challenges of effectively managing our operations during uncertain economic conditions; our dependence on a limited number of customers; our dependence on industries affected by rapid technological change; the challenge of responding to lower-than-expected customer demand; our ability to successfully manage our international operations; and the delays in the delivery and/or general availability of various components used in our manufacturing process. These and other risks and uncertainties and factors are discussed in the Company's various public filings at www.sedar.com and www.sec.gov, including our Form 20-F and subsequent reports on Form 6-K filed with the Securities and Exchange Commission. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes.
As of its date, this press release contains any material information associated with the company's financial results for the first quarter ended March 31, 2008 and revenue and adjusted net earnings guidance for the second quarter ending June 30, 2008. Revenue and earnings guidance is reviewed by the company's board of directors. Our revenue and earnings guidance is based on various assumptions by management, which management believes are reasonable under the current circumstances, but may prove to be inaccurate, and many of which involve factors that are beyond the control of the Company. The material assumptions may include assumptions regarding the following: forecasts from our customers, which range from 30 to 90 days; investments associated with ramping new business; general economic and market conditions: currency exchange rates, product pricing levels and competition; anticipated customer demand; supplier performance and pricing; operational and financial matters; technological developments; and the 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.
RECONCILIATION OF GAAP TO
ADJUSTED NET EARNINGS
(in millions of
U.S. dollars) 2007 2008
--------------------------- ---------------------------
Three months
ended Adjust- Adjust-
March 31 GAAP ments Adjusted GAAP ments Adjusted
-------- ------ -------- -------- ------ --------
Revenue $1,842.3 $ - $1,842.3 $1,835.7 $ - $1,835.7
Cost of sales(1) 1,763.7 (1.0) 1,762.7 1,720.7 (1.0) 1,719.7
-------- ------ -------- -------- ------ --------
Gross profit 78.6 1.0 79.6 115.0 1.0 116.0
SG&A(1) 74.4 (0.6) 73.8 66.3 (0.7) 65.6
Amortization of
intangible assets 6.0 (6.0) - 4.2 (4.2) -
Integration costs
relating to
acquisitions 0.1 (0.1) - - - -
Other charges 7.1 (7.1) - 3.3 (3.3) -
-------- ------ -------- -------- ------ --------
Operating earnings
(loss) - EBIAT (9.0) 14.8 5.8 41.2 9.2 50.4
Interest
expense, net 16.4 - 16.4 8.7 - 8.7
-------- ------ -------- -------- ------ --------
Net earnings
(loss) before tax (25.4) 14.8 (10.6) 32.5 9.2 41.7
Income tax expense
(recovery) 8.9 (10.4) (1.5) 2.7 3.6 6.3
-------- ------ -------- -------- ------ --------
Net earnings
(loss) $ (34.3) $ 25.2 $ (9.1) $ 29.8 $ 5.6 $ 35.4
-------- ------ -------- -------- ------ --------
-------- ------ -------- -------- ------ --------
W.A. No. of shares
(in millions)
- diluted 228.4 228.4 229.2 229.2
Earnings (loss)
per share
- diluted $ (0.15) $ (0.04) $ 0.13 $ 0.15
(1) Non-cash option expense included in cost of sales and SG&A is added
back for adjusted net earnings
GUIDANCE SUMMARY
1Q 08 Guidance 1Q 08 Actual 2Q 08 Guidance(2)
--------------- ------------- -----------------
Revenue $1.7B - $1.9B $1.8B $1.8B - $2.0B
Adjusted net EPS $0.06 - $0.11 $0.15 $0.13 - $0.19
(2) Guidance for the second quarter is provided only on an adjusted net
earnings basis. This is due to the difficulty in forecasting the
various items impacting GAAP net earnings, such as the amount and
timing of our restructuring activities.
CELESTICA INC.
CONSOLIDATED BALANCE SHEETS
(in millions of U.S. dollars)
December 31 March 31
2007 2008
------------ ------------
Assets (unaudited)
Current assets:
Cash and cash equivalents................... $ 1,116.7 $ 1,149.3
Accounts receivable......................... 941.2 840.3
Inventories................................. 791.9 805.9
Prepaid and other assets.................... 126.2 110.0
Income taxes recoverable.................... 19.8 15.2
Deferred income taxes....................... 3.8 3.6
------------ ------------
2,999.6 2,924.3
Property, plant and equipment................. 466.0 462.5
Goodwill from business combinations........... 850.5 850.5
Intangible assets............................. 35.2 31.0
Other long-term assets........................ 119.2 131.7
------------ ------------
$ 4,470.5 $ 4,400.0
------------ ------------
------------ ------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable............................ $ 1,029.8 $ 981.0
Accrued liabilities......................... 402.6 338.0
Income taxes payable........................ 14.0 15.9
Deferred income taxes....................... - 0.4
Current portion of long-term debt
(note 3)................................... 0.2 0.2
------------ ------------
1,446.6 1,335.5
Long-term debt (note 3)....................... 758.3 770.6
Accrued pension and post-employment
benefits..................................... 70.4 69.5
Deferred income taxes......................... 63.3 58.1
Other long-term liabilities................... 13.7 13.9
------------ ------------
2,352.3 2,247.6
Shareholders' equity (note 10):
Capital stock............................... 3,585.2 3,585.2
Warrants.................................... 3.1 3.1
Contributed surplus......................... 190.3 195.2
Deficit..................................... (1,716.3) (1,686.5)
Accumulated other comprehensive income...... 55.9 55.4
------------ ------------
2,118.2 2,152.4
------------ ------------
$ 4,470.5 $ 4,400.0
------------ ------------
------------ ------------
Guarantees and contingencies (note 11)
See accompanying notes to consolidated financial statements.
These unaudited interim consolidated financial statements should
be read in conjunction with the 2007 annual
consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions of U.S. dollars, except per share amounts)
Three months ended
March 31
2007 2008
------------ ------------
(unaudited) (unaudited)
Revenue....................................... $ 1,842.3 $ 1,835.7
Cost of sales................................. 1,763.7 1,720.7
------------ ------------
Gross profit.................................. 78.6 115.0
Selling, general and administrative
expenses..................................... 74.4 66.3
Amortization of intangible assets............. 6.0 4.2
Integration costs related to acquisitions..... 0.1 -
Other charges (note 4)........................ 7.1 3.3
Interest on long-term debt.................... 17.6 14.5
Interest income, net of interest expense...... (1.2) (5.8)
------------ ------------
Earnings (loss) before income taxes........... (25.4) 32.5
Income tax expense (recovery):
Current..................................... 5.5 5.2
Deferred.................................... 3.4 (2.5)
------------ ------------
8.9 2.7
------------ ------------
Net earnings (loss) for the period............ $ (34.3) $ 29.8
------------ ------------
------------ ------------
Basic earnings (loss) per share............... $ (0.15) $ 0.13
Diluted earnings (loss) per share............. $ (0.15) $ 0.13
Shares used in computing per share amounts:
Basic (in millions)......................... 228.4 229.1
Diluted (in millions)....................... 228.4 229.2
See accompanying notes to consolidated financial statements.
These unaudited interim consolidated financial statements should
be read in conjunction with the 2007 annual
consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions of U.S. dollars)
Three months ended
March 31
2007 2008
------------ ------------
(unaudited) (unaudited)
Net earnings (loss) for the period............ $ (34.3) $ 29.8
Other comprehensive income (loss), net of tax:
Foreign currency translation gain........... 0.6 9.8
Net gain (loss) on derivatives designated
as cash flow hedges........................ (0.5) 0.4
Net gain on derivatives designated as cash
flow hedges reclassified to operations..... (0.3) (10.7)
------------ ------------
Comprehensive income (loss)................... $ (34.5) $ 29.3
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
These unaudited interim consolidated financial statements should
be read in conjunction with the 2007 annual
consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars)
Three months ended
March 31
2007 2008
------------ ------------
(unaudited) (unaudited)
Cash provided by (used in):
Operations:
Net earnings (loss) for the period............ $ (34.3) $ 29.8
Items not affecting cash:
Depreciation and amortization............... 32.0 26.6
Deferred income taxes....................... 3.4 (2.5)
Non-cash charge for option issuances........ 1.6 1.7
Restructuring charges....................... - 0.2
Other charges............................... (0.6) -
Other......................................... 5.6 5.1
Changes in non-cash working capital items:
Accounts receivable......................... 132.2 100.9
Inventories................................. 117.2 (14.0)
Prepaid and other assets.................... 2.4 9.8
Income taxes recoverable.................... (2.4) 4.6
Accounts payable and accrued liabilities.... (359.8) (116.7)
Income taxes payable........................ 1.4 1.9
------------ ------------
Non-cash working capital changes............ (109.0) (13.5)
------------ ------------
Cash provided by (used in) operations......... (101.3) 47.4
------------ ------------
Investing:
Purchase of property, plant and
equipment.................................. (13.3) (15.9)
Proceeds from sale of assets................ 14.4 1.6
Other....................................... 0.1 (0.3)
------------ ------------
Cash provided by (used in) investing
activities................................... 1.2 (14.6)
------------ ------------
Financing:
Repayment of long-term debt................. (0.2) -
Issuance of share capital................... 1.3 -
Other....................................... (0.6) (0.2)
------------ ------------
Cash provided by (used in) financing
activities................................... 0.5 (0.2)
------------ ------------
Increase (decrease) in cash................... (99.6) 32.6
Cash, beginning of period..................... 803.7 1,116.7
------------ ------------
Cash, end of period........................... $ 704.1 $ 1,149.3
------------ ------------
------------ ------------
Supplemental cash flow information (note 8)
See accompanying notes to consolidated financial statements.
These unaudited interim consolidated financial statements should
be read in conjunction with the 2007 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:
We prepare our financial statements in accordance with generally accepted
accounting principles (GAAP) in Canada with a reconciliation to
accounting principles generally accepted in the United States, disclosed
in note 20 to the 2007 annual consolidated financial statements.
2. Significant accounting policies:
The disclosures contained in these unaudited interim consolidated
financial statements do not include all requirements of Canadian GAAP for
annual financial statements. These unaudited interim consolidated
financial statements should be read in conjunction with the 2007 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
March 31, 2008 and the results of operations and cash flows for the three
months ended March 31, 2007 and 2008. These unaudited interim
consolidated financial statements are based upon accounting principles
consistent with those used and described in the 2007 annual consolidated
financial statements, except for the following:
Changes in accounting policies:
(i) Inventories:
Effective January 1, 2008, we adopted CICA Handbook Section 3031,
"Inventories," which requires inventory to be measured at the lower of
cost and net realizable value. This standard provides additional guidance
on the types of costs that can be capitalized and requires the reversal
and disclosure of previous inventory write-downs if economic
circumstances have changed to support higher inventory values. The
adoption of this standard did not have a material impact on our
consolidated financial statements.
During the first quarter of 2008, we recorded a net inventory provision
of $5.4 to write-down the value of our inventory to net realizable value.
This net inventory provision is included in cost of sales. There were no
significant reversals of previously recorded inventory write-downs during
the quarter.
(ii) Financial instruments:
Effective January 1, 2008, we adopted CICA Handbook Section 3862,
"Financial instruments - disclosures," and Section 3863, "Financial
instruments - presentation." These standards provide additional guidance
on disclosing risks related to recognized and unrecognized financial
instruments and how those risks are managed. The adoption of these
standards did not have a material impact on our consolidated financial
statements.
Section 3862 requires us to disclose the classifications of our financial
instruments into the following specific categories:
- financial assets held-for-trading - loans and receivables
- held-for-maturity investments - available-for-sale financial
- financial liabilities held-for- assets
trading - financial liabilities
measured at amortized cost
The classification of our financial instruments is as follows:
Our cash and cash equivalents is comprised of cash and short-term
investments. See note 8. Most of our short-term investments are held-to-
maturity, except for investments in highly-liquid mutual funds which are
held-for-trading. We classify accounts receivable under loans and
receivables. Our derivative assets are included in prepaid and other
assets, and other long-term assets. Our derivative liabilities are
included in accrued liabilities. The majority of our derivative assets
and liabilities arise from foreign currency forward contracts and
interest rate swap agreements. Our foreign currency forward contracts are
recorded at fair value and the majority of our foreign currency forward
contracts are designated as cash flow hedges. Our interest rate swap
agreements related to our $500.0 Senior Subordinated Notes due 2011 are
recorded at fair value and are designated as fair value hedges. See
note 9. Accounts payable and the majority of our accrued liabilities,
excluding derivative liabilities, are classified as financial liabilities
which are recorded at amortized cost. Our Senior Subordinated Notes,
which are recorded in long-term debt, are classified as financial
liabilities. See note 3. The carrying values of our Senior Subordinated
Notes are comprised of elements recorded at fair value and amortized
cost. See note 15 to the 2007 annual consolidated financial statements.
We do not currently have any financial assets designated as
available-for-sale.
We are exposed to a variety of financial risks that we face in the normal
course of business. Our financial risk management objectives are
described in note 15 of the 2007 annual consolidated financial
statements. The new disclosures required by Section 3862 are included in
note 12.
Effective January 1, 2007, we adopted the CICA standards on financial
instruments, hedges and comprehensive income. Section 1530,
"Comprehensive income," Section 3855, "Financial instruments -
recognition and measurement," Section 3861, "Financial instruments -
disclosure and presentation," and Section 3865, "Hedges," were effective
for our first quarter of 2007. These disclosures are included in notes
2(s), 7, 10 and 15 to the 2007 annual consolidated financial statements.
On January 1, 2007, we made certain transitional adjustments to our
consolidated balance sheet which included an adjustment to opening
deficit of $6.4.
(iii) Capital disclosures:
Effective January 1, 2008, we adopted CICA Handbook Section 1535,
"Capital disclosures," which provides guidance for disclosing information
about an entity's capital and how it manages its capital. This standard
requires the disclosure of the entity's capital management objectives,
policies and processes. See note 13. The adoption of this standard did
not have a material impact on our consolidated financial statements.
Recently issued accounting pronouncements:
Goodwill and intangible assets:
In February 2008, the CICA issued Handbook Section 3064, "Goodwill and
intangible assets," which replaces the existing standards. This revised
standard establishes guidance for the recognition, measurement and
disclosure of goodwill and intangible assets, including internally
generated intangible assets. This standard is effective for 2009. We are
currently evaluating the impact of adopting this standard on our
consolidated financial statements.
3. Long-term debt:
December 31 March 31
2007 2008
----------- -----------
Secured, revolving credit facility due
2009(a)..................................... $ - $ -
Senior Subordinated Notes due 2011
(2011 Notes)(b)(c).......................... 500.0 500.0
Senior Subordinated Notes due 2013
(2013 Notes)(b)............................. 250.0 250.0
Embedded prepayment option at fair
value(d).................................. (6.5) (10.5)
Basis adjustments on debt obligation(d).... 6.5 6.2
Unamortized debt issue costs(b)............ (9.6) (9.0)
Fair value adjustment of 2011 Notes
attributable to interest rate risks(d).... 17.9 33.9
----------- -----------
758.3 770.6
Capital lease obligations.................... 0.2 0.2
----------- -----------
758.5 770.8
Less current portion......................... 0.2 0.2
----------- -----------
$ 758.3 $ 770.6
----------- -----------
----------- -----------
(a) We have a revolving credit facility for $300.0 which matures in April
2009. There were no borrowings outstanding under this facility at
March 31, 2008. Commitment fees for the first quarter of 2008 were
$0.4. The facility has restrictive covenants relating to debt
incurrence and sale of assets and also contains financial covenants
that require us to maintain certain financial ratios. We were in
compliance with all covenants at March 31, 2008. Based on the
required financial ratios at March 31, 2008, we have full access to
the $300.0 available under this facility.
We also have uncommitted bank overdraft facilities available for
operating requirements which total $49.5 at March 31, 2008. There
were no borrowings outstanding under these facilities at March 31,
2008.
(b) In June 2004, we issued the 2011 Notes with an aggregate principal
amount of $500.0 and a fixed interest rate of 7.875%. We may redeem
the 2011 Notes on July 1, 2008 or later at various premiums above
face value.
In June 2005, we issued the 2013 Notes with an aggregate principal
amount of $250.0 and a fixed interest rate of 7.625%. We may redeem
the 2013 Notes on July 1, 2009 or later at various premiums above
face value.
The 2011 and 2013 Notes are unsecured and are subordinated in right
of payment to all our senior debt. The 2011 and 2013 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 debt incurrence, the
sale of assets and our ability to incur additional debt. We were in
compliance with all covenants at March 31, 2008.
(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. The average interest rate on the 2011 Notes was 7.7%
for the first quarter of 2008 (8.4% - first quarter of 2007). The
fair value of the interest rate swap agreements is disclosed in
note 9(ii).
(d) The prepayment options in the 2011 and 2013 Notes qualify as
embedded derivatives which must be bifurcated for reporting under the
financial instruments standards. As of March 31, 2008, the fair value
of the embedded derivative asset is $10.5 and is recorded against
long-term debt. The increase in the fair value of the embedded
derivative asset of $4.0 for the first quarter of 2008 is recorded as
a reduction of interest expense on long-term debt. As a result of
bifurcating the prepayment option from these Notes, a basis
adjustment is 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 of
$0.3 for the first quarter of 2008 is recorded as a reduction of
interest expense on long-term debt. The change in the fair value of
the debt obligation attributable to movement in the benchmark
interest rates resulted in a loss of $16.0 for the first quarter of
2008, which increased interest expense on long-term debt.
4. Other charges:
Three months ended
March 31
2007 2008
----------- -----------
2001 to 2004 restructuring(a)................ $ (0.4) $ 0.3
2005 to 2008 restructuring (b)............... 8.4 3.0
----------- -----------
Total restructuring.......................... 8.0 3.3
Other........................................ (0.9) -
----------- -----------
$ 7.1 $ 3.3
----------- -----------
----------- -----------
(a) 2001 to 2004 restructuring:
In 2001, we announced a restructuring plan in response to the weak
end-markets in the enterprise computing and telecommunications
industries. In response to the prolonged difficult end-market conditions,
we announced a second restructuring plan in July 2002. The weak demand
for our manufacturing services resulted in an accelerated move to lower-
cost geographies and additional restructuring in the Americas and Europe.
In January 2003, we announced further reductions to our manufacturing
capacity in Europe. In 2004, we announced plans to further restructure
our operations to better align capacity with customers' requirements.
These restructuring actions were focused on consolidating facilities,
reducing the workforce, and transferring programs to lower-cost
geographies. The majority of the employees terminated were manufacturing
and plant employees. For leased facilities that were no longer used, the
lease costs included in the restructuring costs represent future lease
payments less estimated sublease recoveries. Adjustments were made to
lease and other contractual obligations to reflect incremental
cancellation fees paid for terminating certain facility leases and to
reflect higher accruals for other leases due to delays in the timing of
sublease recoveries and changes in estimated sublease rates, relating
principally to facilities in the Americas.
We have completed the major components of these restructuring plans,
except for certain long-term lease and other contractual obligations,
which will be paid out over the remaining lease terms through 2015. The
restructuring liability is recorded in accrued liabilities.
Details of the lease and other contractual obligations accrual are as
follows:
Total
accrued 2008
liability charge
----------- -----------
December 31, 2007............................ $ 26.8 $ -
Cash payments................................ (1.7) -
Adjustments.................................. 0.3 0.3
----------- -----------
March 31, 2008............................... $ 25.4 $ 0.3
----------- -----------
----------- -----------
(b) 2005 to 2008 restructuring:
In January 2005, we announced plans to further improve capacity
utilization and accelerate margin improvements. These restructuring
actions included facility closures and a reduction in workforce,
primarily targeting our higher-cost geographies where end-market demand
had not recovered to the levels required to achieve sustainable
profitability. We expected to complete these restructuring actions by the
end of 2006.
However, in light of our operating results in 2006 and in the course of
preparing our 2007 plan in the fourth quarter of 2006, we identified
additional restructuring actions. These restructuring actions included
additional downsizing of workforces to reflect the volume reductions at
certain facilities and to reduce overhead costs, which we expected to
complete in 2007.
In the course of preparing our 2008 plan in the fourth quarter of 2007,
we identified additional restructuring actions to drive further
operational improvements throughout our manufacturing network. These
restructuring actions will reduce our workforce and will include the
closure of certain facilities. We plan to consolidate the programs from
the facilities we close into our other facilities. As we complete these
restructuring actions, our overall utilization and operating efficiency
should improve, allowing us to service our customers through fewer and
more cost-effective facilities. When the detailed plans of these
restructuring actions are finalized in mid-2008, we will recognize the
related charges. We estimate the additional restructuring charges will be
in the range of $50 to $75 which will be recorded in 2008. We expect to
complete these actions by mid-2009.
As of March 31, 2008, we have recorded aggregate termination costs,
incurred since 2005, relating to approximately 8,700 employees, primarily
operations and plant employees. Approximately 8,400 of these employees
have been terminated as of March 31, 2008 with the balance of these
terminations to occur by the end of 2008. Approximately 60% of employee
terminations are in the Americas, 30% in Europe and 10% in Asia. Our
lease and other contractual obligations will be paid out over the
remaining lease terms through 2010. The restructuring liability is
recorded in accrued liabilities.
Details of the 2008 activity are as follows:
Lease
and
other Facility
Employee cont- exit Total
termi- ractual costs accrued
nation oblig- and liab- Non-cash 2008
costs ations other ility charge charge
-------- -------- -------- -------- -------- --------
December 31, 2007.. $ 9.0 $ 9.7 $ 0.6 $ 19.3 $ 58.7 $ -
Cash payments...... (7.1) (1.1) (0.8) (9.0) - -
Provisions......... 2.4 - 0.4 2.8 0.2 3.0
-------- -------- -------- -------- -------- --------
March 31, 2008..... $ 4.3 $ 8.6 $ 0.2 $ 13.1 $ 58.9 $ 3.0
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Restructuring summary:
We expected to incur restructuring charges of between $50 and $75 for
2008. During the first quarter of 2008, we recorded restructuring charges
of $3.3. We expect to record the remainder of these restructuring charges
throughout 2008 and to complete these actions by mid-2009.
As of March 31, 2008, we have approximately $25 in assets that are
available-for-sale, primarily land and buildings, as a result of the
restructuring actions we implemented. We have programs underway to sell
these assets.
5. Pension and non-pension post-employment benefit plans:
We have recorded the following pension expense:
Three months ended
March 31
2007 2008
----------- -----------
Pension plans................................ $ 5.0 $ 5.0
Other benefit plans.......................... 1.7 1.9
----------- -----------
Total expense................................ $ 6.7 $ 6.9
----------- -----------
----------- -----------
6. Stock-based compensation and other stock-based payments:
We have granted stock options as part of our long-term incentive plans.
The estimated fair value of options is amortized to expense over the
vesting period, on a straight-line basis, and was determined using the
Black Scholes option pricing model with the following weighted average
assumptions:
Three months ended
March 31
2007 2008
----------- -----------
Risk-free rate............................... 4.5%-4.8% 2.3%-2.7%
Dividend yield............................... 0.0% 0.0%
Volatility factor of the expected market
price of our shares......................... 35%-52% 52%-59%
Expected option life (in years).............. 4.0-5.5 4.0-5.5
Weighted average fair value of options
granted..................................... $2.54 $3.24
Compensation expense for the three months ended March 31, 2008 was $1.7
(three months ended March 31, 2007 was $1.6) relating to the fair value
of options granted.
Our stock plans are described in note 9 to the 2007 annual consolidated
financial statements.
7. 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.
We evaluate financial information for purposes of making decisions and
assessing financial performance based on the types of services we offer.
We have one operating segment which is comprised of electronics
manufacturing services. 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
March 31
2007 2008
----------- -----------
Enterprise communications.................... 32% 27%
Consumer..................................... 18% 22%
Servers...................................... 18% 18%
Telecommunications........................... 13% 15%
Storage...................................... 11% 11%
Industrial, aerospace and defense............ 8% 7%
(ii) For the first quarter of 2008, no customers represented more than
10% of total revenue (first quarter of 2007 -- two customers).
8. Supplemental cash flow information:
Three months ended
March 31
Paid (recovered) during the period: 2007 2008
----------- -----------
Interest(a).................................. $ 35.7 $ 32.6
Taxes(b)..................................... $ 6.8 $ (1.1)
(a) This includes interest paid on the 2011 and 2013 Notes. Interest
on these Notes is payable in January and July of each year until
maturity. See notes 3 (b) and (c). The interest paid on the 2011
Notes reflect the amounts received or paid relating to the
interest rate swap agreements.
(b) Cash taxes paid is net of any income taxes recovered.
December 31 March 31
Cash is comprised of the following: 2007 2008
----------- -----------
Cash......................................... $ 328.7 $ 280.5
Short-term investments....................... 788.0 868.8
----------- -----------
$ 1,116.7 $ 1,149.3
----------- -----------
----------- -----------
9. Derivative financial instruments:
(i) We enter into foreign currency contracts to hedge foreign currency
risks relating to cash flow. At March 31, 2008, we had forward
exchange contracts covering various currencies in an aggregate
notional amount of $452.0. All derivative financial instruments are
recorded at fair value on our consolidated balance sheet. The fair
value of these contracts at March 31, 2008 was a net unrealized gain
of $10.1 (December 31, 2007 - net unrealized gain of $20.0). As of
March 31, 2008, $14.3 of derivative assets are recorded in prepaid
and other assets, $4.1 of derivative liabilities are recorded in
accrued liabilities, and $0.1 of derivative liabilities are recorded
in other long-term liabilities relating to our hedges against
foreign currency risks. The decrease in the fair value of these
forward exchange contracts is primarily due to the settlement of
certain foreign currency forwards, with significant gains, during
the quarter.
(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 is
$500.0. The agreements mature in July 2011. See note 3(c). Payments
or receipts under the swap agreements are recorded in interest
expense on long-term debt. The fair value of the interest rate swap
agreements at March 31, 2008 was an unrealized gain of $21.5, which
is recorded in other long-term assets (December 31, 2007 -
unrealized gain of $8.7). The increase in the fair value of the swap
agreements of $12.8 for the first quarter of 2008 is recorded as a
reduction of interest expense on long-term debt.
Fair value hedge ineffectiveness arises when the change in the fair
values of our swap agreements, hedged debt obligation and its
embedded derivatives, and the amortization of the related basis
adjustments, do not offset each other during a reporting period. The
fair value hedge ineffectiveness for our 2011 Notes is recorded in
interest expense on long-term debt and amounted to a gain of $1.0
for the first quarter of 2008. This fair value hedge ineffectiveness
is primarily driven 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.
10. Shareholders' equity:
Capital Contributed
stock Warrants surplus Deficit
----------- ----------- ----------- -----------
Balance -
December 31, 2006... $ 3,576.6 $ 8.4 $ 179.3 $(1,696.2)
Change in
accounting policy
(note 2(ii))........ - - - (6.4)
Shares issued........ 8.6 - - -
Warrants cancelled... - (5.3) 5.3 -
Stock-based costs.... - - 5.1 -
Other................ - - 0.6 -
Net loss for 2007.... - - - (13.7)
----------- ----------- ----------- -----------
Balance -
December 31, 2007... $ 3,585.2 $ 3.1 $ 190.3 $(1,716.3)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Capital Contributed
stock Warrants surplus Deficit
----------- ----------- ----------- -----------
Balance -
December 31, 2007... $ 3,585.2 $ 3.1 $ 190.3 $(1,716.3)
Stock-based costs.... - - 4.6 -
Other................ - - 0.3 -
Net earnings for
the first quarter
of 2008............. - - - 29.8
----------- ----------- ----------- -----------
Balance - March 31,
2008................ $ 3,585.2 $ 3.1 $ 195.2 $(1,686.5)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Three
months
Year ended ended
Accumulated other comprehensive income, December 31 March 31
net of tax: 2007 2008
----------- -----------
Opening balance of foreign currency
translation account......................... $ - $ 35.2
Transitional adjustment - January 1, 2007.... 26.5 -
Foreign currency translation gain............ 8.7 9.8
----------- -----------
Closing balance.............................. $ 35.2 $ 45.0
Opening balance of unrealized net gain on
cash flow hedges............................ $ - $ 20.7
Transitional adjustment - January 1, 2007.... (0.5) -
Net gain on cash flow hedges(1).............. 37.5 0.4
Net gain on cash flow hedges reclassified
to operations(2)............................ (16.3) (10.7)
----------- -----------
Closing balance(3)........................... $ 20.7 $ 10.4
----------- -----------
Accumulated other comprehensive income....... $ 55.9 $ 55.4
----------- -----------
----------- -----------
(1) Net of income tax expense of $0.6 for the three months ended
March 31, 2008 ($0.2 income tax expense for 2007).
(2) Net of income tax benefit of $0.3 for the three months ended
March 31, 2008 (no income tax for 2007).
(3) Net of income tax expense of $0.5 as of March 31, 2008 ($0.2 income
tax expense as of December 31, 2007).
11. Guarantees and contingencies:
We have contingent liabilities in the form of letters of credit, letters
of guarantee, and surety and performance bonds which we have provided to
various third parties. These guarantees cover various payments, including
customs and excise taxes, utility commitments and certain bank
guarantees. At March 31, 2008, these contingent liabilities amounted to
$71.6 (December 31, 2007 - $74.4).
In addition to the above guarantees, we have also provided routine
indemnifications, the terms of which range in duration and often are not
explicitly defined. These may include indemnifications against adverse
impacts due to changes in tax laws and patent infringements by third
parties. We have also provided indemnifications in connection with the
sale of certain businesses and real property. The maximum potential
liability from these indemnifications cannot be reasonably estimated. In
some cases, we have recourse against other parties to mitigate our risk
of loss from these indemnifications. Historically, we have not made
significant payments relating to these types of indemnifications.
Litigation:
In the normal course of our operations, we are subject to litigation and
claims from time to time. We may also be subject to lawsuits,
investigations and other claims, including environmental, labor, product,
customer disputes and other matters. Management believes that adequate
provisions have been recorded in the accounts where required. Although it
is not possible to estimate the extent of potential costs, if any,
management believes that the ultimate resolution of such contingencies
will not have a material adverse impact on our results of operations,
financial position or liquidity.
In 2007, securities class action lawsuits were commenced against us and
our former Chief Executive and Chief Financial Officers, in the United
States District Court of the Southern District of New York by individuals
who claim they were purchasers of our stock, on behalf of themselves and
other 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 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. A parallel
class proceeding has recently been issued against us and our former Chief
Executive and Chief Financial Officers, in the Ontario Superior Court of
Justice, but neither leave nor certification of the action has been
granted by that court. We believe that the allegations in these claims
are without merit and we intend to defend against them vigorously.
However, there can be no assurance that the outcome of the litigation
will be favorable to us or will not have a material adverse impact on our
financial position or liquidity. In addition, we may incur substantial
litigation expenses in defending these claims. We have liability
insurance coverage that may cover some of the expense of defending these
cases, as well as potential judgments or settlement costs.
Income taxes:
We are subject to tax audits by local tax authorities. Tax authorities
could challenge the validity of our inter-company financing and transfer
pricing policies which generally involve subjective areas of taxation and
a significant degree of judgment. If any of these tax authorities is
successful in challenging our financing or transfer pricing policies, 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 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.
12. Financial instruments - Financial risks:
We have exposures to the following financial risks arising from financial
instruments.
(a) Currency risk: See note 15(a) to the 2007 annual consolidated
financial statements. Due to the nature of our international operations,
we are exposed to exchange rate fluctuations on our financial instruments
denominated in various foreign currencies. Our major currency exposures,
as of March 31, 2008, are summarized in USD equivalents in the following
table. The local currency amounts have been converted to USD equivalents
using the spot rates as of March 31, 2008.
Chinese Canadian
Euro renminbi dollar
----------- ----------- -----------
Cash and cash equivalents........ $ 4.8 $ 33.8 $ -
Accounts receivable.............. 14.0 19.3 0.1
Other financial assets(i)........ 543.6 9.3 7,157.0
Accounts payable and accrued
liabilities..................... (7.6) (17.6) (51.0)
Other financial liabilities(i)... (475.9) (5.6) (7,160.3)
----------- ----------- -----------
Net financial assets
(liabilities)................... $ 78.9 $ 39.2 $ (54.2)
----------- ----------- -----------
----------- ----------- -----------
(i) This includes foreign currency denominated inter-company loans.
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 as of March 31, 2008 has the
following impact:
Chinese Canadian
Euro renminbi dollar
----------- ----------- ----------
Increase (decrease)
1% Strengthening
Net earnings................... $ 0.8 $ 0.4 $ (0.5)
Other comprehensive income..... - - 2.0
1% Weakening
Net earnings................... (0.8) (0.4) 0.5
Other comprehensive income..... - - (2.0)
(b) Interest rate risk: See note 15(b) to the 2007 annual consolidated
financial statements.
(c) Credit risk: See notes 2(e), 15(c) and 18 to the 2007 annual
consolidated financial statements. 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
credit risk. As of March 31, 2008, 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 $16.9 at March 31, 2008 (December 31,
2007 - $21.5).
(d) Liquidity risk: See note 15(d) to the 2007 annual consolidated
financial statements. The majority of our financial liabilities recorded
in accounts payable and accrued liabilities are due within 90 days. The
repayment schedule of our long-term debt and capital lease obligations is
included in note 7 to the 2007 annual consolidated financial statements.
Our foreign currency forward contracts generally extend for periods
ranging from one to 15 months. See note 15 to the 2007 annual
consolidated financial statements.
13. Capital management:
Our main objectives in managing our capital resources are to ensure
liquidity and to have funds available for working capital or other
investments required to grow our business. Our capital resources consist
of cash, short-term investments, access to credit facilities, senior
subordinated notes and issued share capital.
We manage our capitalization levels and make adjustments, as available,
for changes in economic conditions. We have full access to a $300.0
credit facility and we can sell up to $250.0, on a committed basis, under
an accounts receivable sales program to provide short-term liquidity. Our
credit facility has restrictive covenants relating to debt incurrence and
the sale of assets. The facility also contains financial covenants that
may limit the available amount of debt that can be incurred under the
facility. We closely monitor our business performance to evaluate
compliance with our covenants. Our 2011 and 2013 Notes also have
restrictions on financing activities. We continue to monitor and review
the most cost-effective methods for raising capital, taking into account
these restrictions and covenants.
There were no significant changes to our capital structure during the
first quarter of 2008. We have not distributed, nor do we currently plan
to distribute, any dividends to our shareholders.
Our strategy on capital risk management has not changed this quarter.
Other than the restrictive covenants associated with our debt obligations
noted above, we are not subject to any contractual or regulatorily
imposed capital requirements. While some of our international operations
are subject to government restrictions on the flow of capital into and
out of their jurisdictions, we do not believe that these restrictions
will have a material impact on our operations.
%SEDAR: 00010284E