(All amounts in U.S. dollars.
Per share information based on diluted
shares outstanding unless noted otherwise.)
Fourth Quarter Summary
----------------------
- Revenue of $2,075 million, down 11% from $2,333 million last year
- GAAP loss of ($0.12) per share compared to GAAP loss ($3.59) per share
in 2004
- Adjusted net earnings of $0.13 per share compared to $0.19 per share a
year ago
- Operating margin of 2.3%, cash flow from operations of $100 million
- Q1 revenue guidance of $1.8 - $2.0 billion, adjusted earnings per
share of $0.04 - $0.12.
TORONTO, Jan. 26 /CNW/ - Celestica Inc. (NYSE: CLS, TSX: CLS/SV), a world
leader in electronics manufacturing services (EMS), today announced financial
results for the fourth quarter and fiscal year ended December 31, 2005.
Revenue was $2,075 million, compared to $2,333 million in the fourth
quarter of 2004. Net loss on a GAAP basis for the fourth quarter was ($28)
million or ($0.12) per share, compared to a GAAP net loss for the fourth
quarter of 2004 of ($810) million or ($3.59) per share. Included in GAAP net
loss for the quarter are charges of $57 million associated with previously
announced restructuring plans.
Adjusted net earnings for the quarter were $29 million or $0.13 per share
compared to $43 million or $0.19 per share for the same period last year.
Adjusted net earnings is defined as net earnings before amortization of
intangible assets, gains or losses on the repurchase of shares and debt,
integration costs related to acquisitions, option expense, option exchange
costs and other charges, net of tax and significant deferred tax write-offs
(detailed GAAP financial statements and supplementary information related to
adjusted net earnings appear at the end of this press release). These results
compare with the company's guidance for the fourth quarter, announced on
October 20, 2005, of revenue of $1.9 - $2.1 billion and adjusted net earnings
per share of $0.10 to $0.18.
For 2005, revenue was $8,471 million compared to $8,840 million in 2004.
Net loss on a GAAP basis was ($47) million or ($0.21) per share compared to a
net loss of ($854) million or ($3.85) per share last year. Adjusted net
earnings for the year were $129 million or $0.57 per share compared to
adjusted net earnings of $96 million or $0.43 per share in 2004.
"Demand in the quarter showed some modest seasonal strength, particularly
in our server segment," said Steve Delaney, CEO, Celestica. "Profitability was
adversely affected by the cost of supporting significant transfer activity
combined with a late surge in demand in one of our Americas plants. Transition
activity continues in the site in the first quarter, but we have deployed the
necessary resources to restore efficiencies by the second quarter."
Outlook
-------
For the first quarter ending March 31, 2006, the company anticipates
revenue to be in the range of $1.8 billion to $2.0 billion, and adjusted
earnings per share ranging from $0.04 to $0.12.
Management will be hosting its regular quarterly results conference call
today at 4:30 p.m. EST which can be accessed at www.celestica.com.
Supplementary Information
-------------------------
In addition to disclosing detailed results in accordance with Canadian
generally accepted accounting principles (GAAP), Celestica also provides
supplementary non-GAAP measures as a method to evaluate the company's
operating performance.
Management uses adjusted net earnings as a measure of enterprise-wide
performance. As a result of acquisitions made by the company, restructuring
activities, securities repurchases and the adoption of fair value accounting
for stock options, management believes adjusted net earnings is a useful
measure that facilitates period-to-period operating comparisons and allows the
company to compare its operating results with its competitors in the U.S. and
Asia. Adjusted net earnings excludes the effects of acquisition-related
charges (most significantly, amortization of intangible assets and integration
costs related to acquisitions), other charges (most significantly,
restructuring costs and the write-down of goodwill and long-lived assets),
gains or losses on the repurchase of shares or debt, option expense and option
exchange costs, and the related income tax effect of these adjustments and any
significant deferred tax write-offs. Adjusted net earnings does not have any
standardized meaning prescribed by GAAP and is not necessarily comparable to
similar measures presented by other companies. Adjusted net earnings is not a
measure of performance under Canadian or U.S. GAAP and should not be
considered in isolation or as a substitute for net earnings (loss) prepared in
accordance with Canadian or U.S. GAAP. The company has provided a
reconciliation of adjusted net earnings to Canadian GAAP net earnings (loss)
below.
About Celestica
---------------
Celestica is a world leader in the delivery of innovative electronics
manufacturing services (EMS). Celestica operates a highly sophisticated global
manufacturing network with operations in Asia, Europe and the Americas,
providing a broad range of integrated services and solutions to leading OEMs
(original equipment manufacturers). Celestica's expertise in quality,
technology and supply chain management, and leadership in the global
deployment of Lean principles, enables the company to provide competitive
advantage to its customers by improving time-to-market, scalability and
manufacturing efficiency.
For further information on Celestica, visit its website at
http://www.celestica.com. The company's security filings can also be accessed
at http://www.sedar.com and http://www.sec.gov.
Safe Harbour and Fair Disclosure Statement
------------------------------------------
This news release contains forward-looking statements related to our
future growth, trends in our industry and our financial and operational
results and performance that are based on current expectations, forecasts and
assumptions involving risks and uncertainties that could cause actual outcomes
and results to differ materially. These risks and uncertainties include, but
are not limited to: variability of operating results among periods; inability
to retain or grow our business due to execution problems resulting from
significant headcount reductions, plant closures and product transfer
associated with major restructuring activities; the effects of price
competition and other business and competitive factors generally affecting the
EMS industry; the challenges of effectively managing our operations during
uncertain economic conditions; our dependence on a limited number of
customers; our dependence on industries affected by rapid technological
change; the challenge of responding to lower-than-expected customer demand;
our ability to successfully manage our international operations; component
constraints; our ability to manage our restructuring and the shift of
production to lower cost geographies. These and other risks and uncertainties
and factors are discussed in the Company's various public filings at
www.sedar.com and www.sec.gov, including our Form 20-F and subsequent reports
on Form 6-K filed with the Securities and Exchange Commission.
As of its date, this press release contains any material information
associated with the company's financial results for the fourth quarter and
fiscal year ended December 31, 2005 and revenue and adjusted net earnings
guidance for the first quarter ending March 31, 2006. Earnings guidance is
reviewed by the company's board of directors. It is Celestica's policy that
earnings guidance is effective on the date given, and will only be updated
through a public announcement.
<<
Financial Summary
-----------------
-------------------------------------------------------------------------
GAAP Financial Summary
Three months ended December 31 2004 2005 Change
------------------------------ ---- ---- ------
Revenue $ 2,333 M $ 2,075 M $ (258) M
Net loss $ (810) M $ (28) M 782 M
Net loss per share $ (3.59) $ (0.12) $ 3.47
Cash provided by (used in)
Operations $ (6) M $ 100 M $ 106 M
Cash Position at December 31 $ 969 M $ 969 M $ - M
Year ended December 31 2004 2005 Change
---------------------- ---- ---- ------
Revenue $ 8,840 M $ 8,471 M $ (369) M
Net loss $ (854) M $ (47) M 807 M
Net loss per share $ (3.85) $ (0.21) $ 3.64
Cash provided by (used in)
Operations $ (139) M $ 218 M $ 357 M
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Adjusted Net Earnings Summary
Three months ended December 31 2004 2005 Change
------------------------------ ---- ---- ------
Adjusted net earnings $ 43 M $ 29 M $ (14) M
Adjusted net EPS(1) $ 0.19 $ 0.13 $ (0.06)
Year ended December 31 2004 2005 Change
---------------------- ---- ---- ------
Adjusted net earnings $ 96 M $ 129 M $ 33 M
Adjusted net EPS(1) $ 0.43 $ 0.57 $ 0.14
Adjusted Net Earnings Calculation
Three Months Full Year
------------ ---------
2004 2005 2004 2005
---- ---- ---- ----
GAAP net loss $ (810) M $ (28) M $ (854) M $ (47) M
Add: option expense 2 M 2 M 8 M 9 M
Add: option exchange costs - M - M - M 7 M
Add: amortization of
intangibles 12 M 7 M 35 M 28 M
Add: acquisition
integration costs 2 M - M 3 M 1 M
Add: other charges 587 M 57 M 664 M 131 M
Tax impact of above(2) 250 M (9) M 240 M - M
--------- --------- --------- ---------
Adjusted net earnings $ 43 M $ 29 M $ 96 M $ 129 M
--------- --------- --------- ---------
--------- --------- --------- ---------
(1) For purposes of the diluted per share calculation for the three
months and year ended December 31, 2004, the weighted average number
of shares outstanding was 225.8 million and 223.7 million,
respectively. For purposes of the diluted per share calculation for
the three months and year ended December 31, 2005, the weighted
average number of shares outstanding was 227.4 million and
227.9 million, respectively.
(2) Includes the tax write-off in the three months and year ended
December 31, 2004.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Guidance Summary
4Q versus actuals 4Q 05 Guidance 4Q 05 Actual
----------------- -------------- ------------
Revenue $1.9B - $2.1B $2.1B
Adjusted net EPS $0.10 - $0.18 $0.13
Forward Guidance(1) 1Q 06 Guidance
---------------- --------------
Revenue $1.8B - $2.0B
Adjusted net EPS $0.04 - $0.12
(1) Guidance for the first quarter is provided only on an adjusted net
earnings basis. This is due to the difficulty in forecasting the
various items impacting GAAP net earnings, such as the amount and
timing of our restructuring activities.
-------------------------------------------------------------------------
CELESTICA INC.
CONSOLIDATED BALANCE SHEETS
(in millions of U.S. dollars)
(unaudited)
December 31 December 31
2004 2005
----------- -----------
Assets
Current assets:
Cash and short-term investments.............. $ 968.8 $ 969.0
Accounts receivable.......................... 1,023.3 982.6
Inventories.................................. 1,062.9 1,058.4
Prepaid and other assets..................... 127.4 124.0
Income taxes recoverable..................... 89.1 113.5
Deferred income taxes........................ 1.8 10.9
----------- -----------
3,273.3 3,258.4
Capital assets................................. 569.3 544.8
Goodwill from business combinations............ 872.9 874.5
Intangible assets.............................. 104.5 79.0
Other assets................................... 119.8 101.1
----------- -----------
$ 4,939.8 $ 4,857.8
----------- -----------
----------- -----------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable............................. $ 1,107.9 $ 1,153.3
Accrued liabilities.......................... 486.6 492.1
Income taxes payable......................... 93.2 119.9
Deferred income taxes........................ 0.6 4.5
Current portion of long-term debt (note 4)... 2.6 0.5
Convertible debt (notes 2(i) and 5).......... 124.1 -
----------- -----------
1,815.0 1,770.3
Long-term debt (note 4)........................ 500.8 750.9
Accrued pension and post-employment benefits... 81.0 76.8
Deferred income taxes.......................... 23.4 17.8
Other long-term liabilities.................... 30.8 27.6
----------- -----------
2,451.0 2,643.4
Shareholders' equity:
Capital stock................................ 3,559.1 3,562.3
Warrants (note 6)............................ 8.9 8.4
Contributed surplus.......................... 142.9 169.9
Option component of convertible debt
(notes 2(i) and 5).......................... 210.2 -
Deficit...................................... (1,473.6) (1,545.6)
Foreign currency translation adjustment...... 41.3 19.4
----------- -----------
2,488.8 2,214.4
----------- -----------
$ 4,939.8 $ 4,857.8
----------- -----------
----------- -----------
Accounting policy change (note 2(i))
Guarantees and contingencies (note 14)
See accompanying notes to consolidated financial statements.
These unaudited interim consolidated financial statements should be read
in conjunction with the 2004 annual consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(in millions of U.S. dollars, except per share amounts)
(unaudited)
Three months ended Year ended
December 31 December 31
2004 2005 2004 2005
---------- ---------- ---------- ----------
Revenue.................. $ 2,332.7 $ 2,075.3 $ 8,839.8 $ 8,471.0
Cost of sales............ 2,238.3 1,956.4 8,431.9 7,989.9
---------- ---------- ---------- ----------
Gross profit............. 94.4 118.9 407.9 481.1
Selling, general and
administrative expenses
(SG&A).................. 79.7 73.6 331.6 296.9
Amortization of
intangible assets....... 12.0 7.4 34.6 28.4
Integration costs related
to acquisitions......... 1.5 0.3 3.1 0.6
Other charges (note 7)... 542.6 56.9 603.2 130.9
Accretion of convertible
debt (notes 2(i)
and 5).................. 3.5 - 17.6 7.6
Interest on long-term
debt.................... 8.3 15.7 18.7 48.4
Interest expense (income),
net..................... (0.2) (2.2) 1.0 (6.2)
---------- ---------- ---------- ----------
Loss before income taxes. (553.0) (32.8) (601.9) (25.5)
---------- ---------- ---------- ----------
Income taxes expense
(recovery):
Current................ 1.8 12.5 17.6 36.9
Deferred............... 254.9 (17.1) 234.6 (15.6)
---------- ---------- ---------- ----------
256.7 (4.6) 252.2 21.3
---------- ---------- ---------- ----------
Net loss for the period.. $ (809.7) $ (28.2) $ (854.1) $ (46.8)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Deficit, beginning of
period.................. $ (663.9) $(1,517.4) $ (582.9) $(1,473.6)
Loss on repurchase of
convertible debt
(note 5)................ - - (36.6) (25.2)
Net loss for the period.. (809.7) (28.2) (854.1) (46.8)
---------- ---------- ---------- ----------
Deficit, end of period... $(1,473.6) $(1,545.6) $(1,473.6) $(1,545.6)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic loss per share
(note 11)............... $ (3.59) $ (0.12) $ (3.85) $ (0.21)
Diluted loss per share
(note 11)............... $ (3.59) $ (0.12) $ (3.85) $ (0.21)
Weighted average number
of shares outstanding
(in millions) (note 11):
Basic................. 225.7 226.3 222.1 226.2
Diluted............... 225.7 226.3 222.1 226.2
See accompanying notes to consolidated financial statements.
These unaudited interim consolidated financial statements should be read
in conjunction with the 2004 annual consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars)
(unaudited)
Three months ended Year ended
December 31 December 31
2004 2005 2004 2005
---------- ---------- ---------- ----------
Cash provided by (used in):
Operations:
Net loss for the period.. $ (809.7) $ (28.2) $ (854.1) $ (46.8)
Items not affecting cash:
Depreciation and
amortization.......... 51.6 32.0 207.7 152.7
Deferred income taxes.. 254.9 (17.1) 234.6 (15.6)
Accretion of
convertible debt...... 3.5 - 17.6 7.6
Non-cash charge for option
issuances............. 1.8 1.8 7.6 9.0
Restructuring charges
(note 7).............. 29.8 3.4 35.3 11.0
Other charges (note 7). 497.8 1.6 482.4 (15.3)
Gain on settlement of
principal component of
convertible debt
(note 5).............. - - (32.9) (13.9)
Inventory write-down
related to restructuring
(note 7)................ 44.6 - 61.2 -
Other.................... (0.3) 8.1 1.9 14.5
Changes in non-cash working
capital items:
Accounts receivable.... (190.5) (125.3) (253.0) 42.0
Inventories............ 104.3 36.9 85.6 -
Prepaid and other
assets................ 0.7 16.9 (12.9) 17.3
Income taxes
recoverable........... (48.9) (29.1) (50.0) (24.4)
Accounts payable and
accrued liabilities... 19.1 171.9 (113.8) 51.2
Income taxes payable... 35.1 27.0 43.6 29.0
---------- ---------- ---------- ----------
Non-cash working capital
changes............... (80.2) 98.3 (300.5) 115.1
---------- ---------- ---------- ----------
Cash provided by (used in)
operations.............. (6.2) 99.9 (139.2) 218.3
---------- ---------- ---------- ----------
Investing:
Acquisitions, including
cash/indebtedness
acquired.............. - (4.3) (39.6) (6.5)
Purchase of capital
assets................ (27.9) (46.7) (142.2) (158.5)
Proceeds from sale of
assets................ 27.1 19.8 101.3 50.9
Other.................. (0.9) 1.3 0.6 2.2
---------- ---------- ---------- ----------
Cash used in investing
activities.............. (1.7) (29.9) (79.9) (111.9)
---------- ---------- ---------- ----------
Financing:
Increase in long-term debt
(note 4).............. - - 500.0 250.0
Long-term debt issue
costs................. - - (12.0) (4.2)
Deferred financing
costs................. - (1.1) (4.0) (1.1)
Repurchase of convertible
debt (note 5)......... - - (299.7) (352.0)
Repayment of long-term
debt.................. (0.9) (0.4) (41.1) (3.4)
Issuance of share
capital............... 3.1 2.5 14.6 8.0
Other.................. - 2.5 1.3 (3.5)
---------- ---------- ---------- ----------
Cash provided by (used in)
financing activities.... 2.2 3.5 159.1 (106.2)
---------- ---------- ---------- ----------
Increase (decrease) in
cash.................... (5.7) 73.5 (60.0) 0.2
Cash, beginning of
period.................. 974.5 895.5 1,028.8 968.8
---------- ---------- ---------- ----------
Cash, end of period...... $ 968.8 $ 969.0 $ 968.8 $ 969.0
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Cash is comprised of cash and short-term investments.
Supplemental cash flow information (note 12)
See accompanying notes to consolidated financial statements.
These unaudited interim consolidated financial statements should be read
in conjunction with the 2004 annual consolidated financial statements.
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except per share amounts)
(unaudited)
1. Nature of business:
Our primary operations consist of providing a broad range of services
including manufacturing, design, new product introduction, engineering
services, supply chain management, printed circuit assembly, system
assembly, fulfillment, logistics and after-market services and support to
our customers primarily in the computing and telecommunications
industries and increasingly in the aerospace and defense, automotive,
consumer electronics and industrial end markets. We have operations in
Asia, the Americas and Europe.
We prepare our financial statements in accordance with generally accepted
accounting principles (GAAP) in Canada with a reconciliation to
accounting principles generally accepted in the United States, disclosed
in note 20 to the 2004 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 2004 annual
consolidated financial statements.
These unaudited interim consolidated financial statements reflect all
adjustments, consisting only of normal recurring accruals, which are, in
the opinion of management, necessary to present fairly our financial
position as of December 31, 2005 and the results of operations and cash
flows for the three months and years ended December 31, 2004 and 2005.
These unaudited interim consolidated financial statements are based upon
accounting principles consistent with those used and described in the
2004 annual consolidated financial statements, except for the following:
(i) Liabilities and equity:
Effective December 31, 2004, we adopted the amendment to CICA Handbook
Section 3860, "Financial Instruments - Presentation and Disclosure." The
revised standard requires obligations of a fixed amount that may be
settled, at the issuer's option, by a variable number of the issuer's own
equity instruments to be presented as liabilities. The standard was
effective on a retroactive basis with restatement of prior periods. As a
result of adopting this standard, we reclassified the principal component
of our convertible debt (LYONs) as a debt instrument and recorded all
accretion charges, amortization of deferred financing costs, gains and
losses on repurchases relating to the principal component and related tax
effects as charges to the statement of operations. The option component
of the LYONs continued to be accounted for as an equity instrument.
Upon adoption of this standard, we:
(a) reclassified $124.1 of LYONs from equity to debt at
December 31, 2004;
(b) reclassified $1.3 of deferred financing costs from equity to
other assets at December 31, 2004;
(c) reduced deferred tax assets and equity by $1.9 at
December 31, 2004;
(d) recorded a charge of $1.9 to opening deficit at January 1, 2004
representing the cumulative amount of amortization of deferred
financing costs, net of tax;
(e) recorded accretion charges, amortization of deferred financing
costs and the related tax effects in the statement of operations
in the amounts of $2.4 and $12.0, for the three months and year
ended December 31, 2004, respectively; and
(f) reclassified the gain on the repurchase of LYONs and related tax
effect from equity to other charges and tax expense in the
amount of $0.6 and $22.0 for the three months and year ended
December 31, 2004, respectively.
There was no impact to basic or diluted loss per share as a result of
adopting this change retroactively.
During the third quarter of 2005, we repurchased the remaining
outstanding LYONs. See note 5.
(ii) Capital assets:
Effective October 1, 2005, we changed the estimated useful lives of
certain machinery and equipment from 5 years to 7 years based on our
experience and the extended use of these assets. As a result of this
change in estimated useful life, depreciation expense included in cost of
sales has decreased by approximately $6 in the fourth quarter of 2005.
3. Acquisitions and divestitures:
2004 activities:
In March 2004, we acquired Manufacturers' Services Limited (MSL), a
full-service global electronics manufacturing and supply chain services
company, which provided us with an expanded customer base and service
offerings, and supported our strategy of diversifying our end-markets.
The purchase price of $321.2 was financed with the issuance of
14.1 million subordinate voting shares, the issuance of options to
purchase 2.1 million subordinate voting shares, the issuance of warrants
to purchase 1.1 million subordinate voting shares, and $51.6 in cash.
As part of the purchase price of MSL, we recorded a liability for
consolidating some of the acquired MSL facilities, including a workforce
reduction. The planned actions include employee termination and lease
exit costs in all geographies. The remaining balance in the accrual for
employee termination costs at December 31, 2005 relates to terminated
employees who are receiving their severance amounts over a period of time
in accordance with local regulations. We will continue to draw down this
accrual throughout 2006 as these payment are made. Our long-term lease
and contractual obligations will be paid out over the remaining lease
terms through 2010. Cash outlays are funded from cash on hand.
Details of the activity through the MSL restructuring liability:
Lease and
Employee other Facility Total
termination contractual exit costs accrued
costs obligations and other liability
----------- ----------- ----------- -----------
Accrued on
acquisition........ $ 28.0 $ 6.9 $ 1.2 $ 36.1
Cash payments....... (14.7) (0.6) (0.2) (15.5)
----------- ----------- ----------- -----------
December 31, 2004... 13.3 6.3 1.0 20.6
Cash payments....... - (0.3) - (0.3)
----------- ----------- ----------- -----------
March 31, 2005...... 13.3 6.0 1.0 20.3
Cash payments....... - (3.0) (0.3) (3.3)
----------- ----------- ----------- -----------
June 30, 2005....... 13.3 3.0 0.7 17.0
Adjustments......... (0.7) - 0.7 -
Cash payments....... - (0.4) (1.0) (1.4)
----------- ----------- ----------- -----------
September 30, 2005.. 12.6 2.6 0.4 15.6
Adjustments......... 0.2 (0.2) - -
Cash payments....... (2.2) (0.2) - (2.4)
----------- ----------- ----------- -----------
December 31, 2005... $ 10.6 $ 2.2 $ 0.4 $ 13.2
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
In April 2004, we acquired certain assets located in the Philippines from
NEC Corporation. In September 2004, we sold certain assets relating to
our power operations and signed a multi-year agreement to supply
manufacturing services to the purchaser.
2005 activities:
In the third quarter of 2005, we completed the acquisitions of
CoreSim Inc. and Ramnish Electronics Private Limited. In the fourth
quarter of 2005, we completed the acquisition of Displaytronix Inc. The
total aggregate cash purchase price was $6.5, including indebtedness
assumed. Goodwill arising from these acquisitions was $1.6. Amortizable
intangible assets arising from these acquisitions was $5.3, primarily for
intellectual property.
We are in the process of finalizing the valuation of certain assets
acquired. As such, the fair value allocations of the purchase prices, are
subject to refinement.
4. Long-term debt:
December 31 December 31
2004 2005
----------- -----------
Unsecured, revolving credit facility
due 2007 (a)............................... $ - $ -
Senior Subordinated Notes due 2011 (b)...... 500.0 500.0
Senior Subordinated Notes due 2013 (c)...... - 250.0
Capital lease obligations................... 3.4 1.4
----------- -----------
503.4 751.4
Less current portion........................ 2.6 0.5
----------- -----------
$ 500.8 $ 750.9
----------- -----------
----------- -----------
(a) We have a 364-day credit facility for $600.0 which matures
June 2007. The facility includes a $25.0 swing-line facility that
provides for short-term borrowings up to a maximum of seven days.
The credit facility permits us and certain designated subsidiaries
to borrow funds for general corporate purposes (including
acquisitions). Borrowings under the facility bear interest at LIBOR
plus a margin except that borrowings under the swing-line facility
bear interest at a base rate plus a margin. There are no borrowings
outstanding under this facility. Commitment fees for the year ended
December 31, 2005 were $2.6.
The facility has restrictive covenants relating to debt incurrence
and sale of assets and also contains financial covenants that
require us to maintain certain financial ratios. A change of control
is an event of default. Based on the required minimum financial
ratios, at December 31, 2005, we are limited to approximately
$250 of available debt incurrence. The available debt incurrence
under the facility has been reduced by the two subordinated note
issuances below and outstanding letters of credit and guarantees. We
were in compliance with all covenants as at December 31, 2005.
(b) In June 2004, we issued Senior Subordinated Notes due 2011 with an
aggregate principal amount of $500.0, and a fixed interest rate of
7.875%. We incurred $12.0 in pre-tax underwriting commissions and
expenses which we deferred and are amortizing over the term of the
debt. The 2011 Notes are unsecured and are subordinated in right of
payment to all our senior debt. The 2011 Notes may be redeemed on
July 1, 2008 or later at various premiums above face value.
In connection with the 2011 Notes offering, we entered into
agreements which swap the fixed interest rate on the 2011 Notes with
a variable interest rate based on LIBOR plus a margin. The average
interest rate on the 2011 Notes was 7.1% for the fourth quarter of
2005 and 6.4% for 2005 (5.0% for the fourth quarter of 2004 and 4.9%
for 2004).
(c) In June 2005, we issued Senior Subordinated Notes due 2013 with an
aggregate principal amount of $250.0, and a fixed interest rate of
7.625%. We incurred $4.2 in underwriting commissions and expenses
which we deferred and are amortizing over the term of the debt. The
2013 Notes are unsecured and are subordinated in right of payment to
all our senior debt. The 2013 Notes may be redeemed on July 1, 2009
or later at various premiums above face value.
5. Convertible debt:
Pursuant to Canadian GAAP, the LYONs are bifurcated into a principal and
an option component. The principal component is recorded as debt and the
option component is recorded as equity. See note 2(i).
During the third quarter of 2005, we repurchased the remaining
outstanding LYONs for a total of $352.0 in cash. We realized an
accounting loss of approximately $11.3 on the repurchase, which was
apportioned between the principal and option components, based on their
relative fair values compared to their carrying values. We recognized a
$13.9 gain on the principal component which was recorded in other charges
and a $25.2 loss on the option component which was recorded in deficit.
6. Warrants:
In March 2004, we issued Series A and B warrants to replace the
outstanding MSL warrants.
7. Other charges:
Three months ended Year ended
December 31 December 31
2004 2005 2004 2005
----------- ----------- ----------- -----------
2001, 2002 and 2003
restructuring
(a).............. $ (0.2) $ 0.5 $ 6.6 $ 0.2
2004 restructuring
(b).............. 45.0 1.3 147.1 20.6
2005 restructuring
(c).............. - 53.5 - 139.3
----------- ----------- ----------- -----------
Total restructuring 44.8 55.3 153.7 160.1
2004 Goodwill
impairment (d)... 288.0 - 288.0 -
Long-lived asset
impairment (e)... 99.3 1.6 99.3 1.6
Other (f)......... 116.8 - 116.8 (13.8)
Gain on repurchase of
convertible debt
(note 5)......... - - (32.9) (13.9)
Gain on sale of
surplus land and
building......... (6.3) - (11.3) (3.1)
Gain on sale of
assets (g)....... - - (12.0) -
Deferred financing
costs............ - - 1.6 -
----------- ----------- ----------- -----------
Other charges..... $ 542.6 $ 56.9 $ 603.2 $ 130.9
Inventory write-down
related to one
customer and the
exiting of certain
businesses, recorded
in cost of sales
(f) and (h)...... 44.6 - 61.2 -
----------- ----------- ----------- -----------
Total............. $ 587.2 $ 56.9 $ 664.4 $ 130.9
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(a) 2001, 2002 and 2003 restructuring:
In 2001, we announced a restructuring plan in response to the weak
end-markets in the computing and communications industries. In response
to the prolonged difficult end-market conditions, particularly in the
computing and communications industries, a second restructuring plan was
announced 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.
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. In March 2005, we incurred a
loss of $2.4 when we sold a production facility in Europe that we closed
in 2003. The purchaser agreed to employ certain employees, which reduced
our remaining contractual obligations. We adjusted our accrued liability
to reflect the reduced severance costs. During 2005, we also sold 3 other
restructured facilities that we closed in 2002 and recognized gains on
disposal.
We have completed the major components of these restructuring plans,
except for certain long-term lease and other contractual obligations,
which will be paid out over the remaining lease terms through 2015, and
certain payments to regulatory agencies in accordance with local labor
legislation in Europe which we expect to pay out through 2008. Cash
outlays are funded from cash on hand.
Details of the activity through the accrued restructuring liability and
the non-cash charge:
Lease
and
other Facility
Employee contr- exit
termi- actual costs Total
nation obliga- and accrued Non-cash Total
costs tions other liability charge charge
--------- --------- --------- --------- --------- ---------
January 1,
2001........ $ - $ - $ - $ - $ - $ -
Provision
re: 2001.... 90.7 35.3 12.4 138.4 98.6 237.0
Cash payments (51.2) (1.6) (2.9) (55.7) - -
--------- --------- --------- --------- --------- ---------
December 31,
2001........ 39.5 33.7 9.5 82.7 98.6 237.0
Provision
re: 2002.... 128.8 51.7 8.5 189.0 194.5 383.5
Cash payments (77.1) (14.7) (7.5) (99.3) - -
Adjustments.. (4.1) 11.4 (2.7) 4.6 (2.7) 1.9
--------- --------- --------- --------- --------- ---------
December 31,
2002........ 87.1 82.1 7.8 177.0 290.4 622.4
Provision
re: 2003.... 61.4 0.3 1.1 62.8 8.5 71.3
Cash payments (112.0) (44.4) (8.9) (165.3) - -
Adjustments 7.4 24.1 2.9 34.4 (10.8) 23.6
--------- --------- --------- --------- --------- ---------
December 31,
2003........ 43.9 62.1 2.9 108.9 288.1 717.3
Cash payments (30.8) (27.5) (3.2) (61.5) - -
Adjustments.. 2.7 2.2 0.3 5.2 1.4 6.6
--------- --------- --------- --------- --------- ---------
December 31,
2004........ $ 15.8 $ 36.8 $ - $ 52.6 $ 289.5 $ 723.9
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Details of the 2005 activity by quarter:
Lease
and
other Facility
Employee contr- exit
termi- actual costs Total
nation obliga- and accrued Non-cash Total
costs tions other liability charge charge
--------- --------- --------- --------- --------- ---------
December 31,
2004........ $ 15.8 $ 36.8 $ - $ 52.6 $ 289.5 $ -
Cash payments (1.3) (3.0) - (4.3) - -
Adjustments.. (4.8) 1.5 - (3.3) 2.4 (0.9)
--------- --------- --------- --------- --------- ---------
March 31,
2005........ 9.7 35.3 - 45.0 291.9 (0.9)
Cash payments (0.4) (2.6) - (3.0) - -
Adjustments.. - 0.3 - 0.3 (0.4) (0.1)
--------- --------- --------- --------- --------- ---------
June 30,
2005........ 9.3 33.0 - 42.3 291.5 (1.0)
Cash payments (0.3) (2.4) - (2.7) - -
Adjustments.. (0.2) 0.6 - 0.4 0.3 0.7
--------- --------- --------- --------- --------- ---------
September 30,
2005........ 8.8 31.2 - 40.0 291.8 (0.3)
Cash payments (0.1) (2.4) - (2.5) - -
Adjustments.. - 2.9 - 2.9 (2.4) 0.5
--------- --------- --------- --------- --------- ---------
December 31,
2005........ $ 8.7 $ 31.7 $ - $ 40.4 $ 289.4 $ 0.2
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
$6.5 of the accrued termination costs is classified in Other Long-term
Liabilities. The remaining accrued restructuring liability is recorded in
Accrued Liabilities.
(b) 2004 restructuring:
In January and April 2004, we announced plans to further restructure our
operations to better align capacity with customers' requirements. These
restructuring actions were focused on workforce reductions and facility
consolidations in all regions. As of December 31, 2005, approximately
5,000 employees were terminated, consisting of executive, manufacturing
and plant employees. There are a few employees remaining who are involved
in site closure activities who will be terminated as of March 31, 2006.
Approximately 60% of the employee terminations were in the Americas, 30%
in Asia and 10% in Europe.
In 2004, we recorded a non-cash charge to write-down certain long-lived
assets, primarily in Asia (55%) and the Americas (40%), which became
impaired due to facility consolidations. This included an intellectual
property write-down in the Americas. In May 2005, we sold one of our
restructured facilities in Asia and incurred an additional loss of $6.7.
In the third quarter of 2005, we recorded an additional charge of
$10.6 primarily for termination and other related employee costs, which
were recorded as incurred.
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 2011. Cash
outlays are funded from cash on hand.
Details of the activity through the accrued restructuring liability and
the non-cash charge:
Lease
and
other Facility
Employee contr- exit
termi- actual costs Total
nation obliga- and accrued Non-cash Total
costs tions other liability charge charge
--------- --------- --------- --------- --------- ---------
January 1,
2004........ $ - $ - $ - $ - $ - $ -
Provision.... 98.6 8.7 5.9 113.2 33.9 147.1
Cash payments (79.8) (4.5) (0.9) (85.2) - -
--------- --------- --------- --------- --------- ---------
December 31,
2004........ $ 18.8 $ 4.2 $ 5.0 $ 28.0 $ 33.9 $ 147.1
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Details of the 2005 activity by quarter:
Lease
and
other Facility
Employee contr- exit
termi- actual costs Total
nation obliga- and accrued Non-cash Total
costs tions other liability charge charge
--------- --------- --------- --------- --------- ---------
December 31,
2004........ $ 18.8 $ 4.2 $ 5.0 $ 28.0 $ 33.9 $ -
Cash payments (13.4) (0.2) (1.0) (14.6) - -
Adjustments.. 3.3 0.1 - 3.4 (1.5) 1.9
--------- --------- --------- --------- --------- ---------
March 31,
2005........ 8.7 4.1 4.0 16.8 32.4 1.9
Cash payments (5.7) (0.3) (2.5) (8.5) - -
Adjustments.. 0.8 - (0.7) 0.1 6.7 6.8
--------- --------- --------- --------- --------- ---------
June 30,
2005........ 3.8 3.8 0.8 8.4 39.1 8.7
Cash payments (8.7) (0.2) (0.4) (9.3) - -
Adjustments.. 9.5 0.1 1.0 10.6 - 10.6
--------- --------- --------- --------- --------- ---------
September 30,
2005........ 4.6 3.7 1.4 9.7 39.1 19.3
Cash payments (2.0) (0.4) (0.7) (3.1) - -
Adjustments.. 0.1 0.7 0.3 1.1 0.2 1.3
--------- --------- --------- --------- --------- ---------
December 31,
2005........ $ 2.7 $ 4.0 $ 1.0 $ 7.7 $ 39.3 $ 20.6
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
The accrued restructuring liability is recorded in Accrued Liabilities.
(c) 2005 restructuring:
In January 2005, we announced plans to further improve capacity
utilization and accelerate margin improvements. These restructuring
actions include facility closures and a reduction in workforce, primarily
targeting our higher-cost geographies where end-market demand has not
recovered to the levels management requires to achieve sustainable
profitability.
As of December 31, 2005, we have recorded termination costs related to
approximately 3,000 employees, primarily manufacturing and plant
employees. Approximately 1,800 of these employees have been terminated as
of December 31, 2005 with the balance of the terminations to occur in
2006. Approximately 70% of employee terminations are in the Americas and
30% in Europe.
Details of the activity through the accrued restructuring liability and
the non-cash charge:
Lease
and
other Facility
Employee contr- exit
termi- actual costs Total
nation obliga- and accrued Non-cash Total
costs tions other liability charge charge
--------- --------- --------- --------- --------- ---------
January 1,
2005........ $ - $ - $ - $ - $ - $ -
Provision.... 31.5 0.1 0.4 32.0 - 32.0
Cash payments (2.6) (0.1) (0.4) (3.1) - -
--------- --------- --------- --------- --------- ---------
March 31,
2005........ 28.9 - - 28.9 - 32.0
Provision.... 19.2 3.9 1.3 24.4 (0.2) 24.2
Cash payments (7.2) (0.2) (1.2) (8.6) - -
--------- --------- --------- --------- --------- ---------
June 30,
2005........ 40.9 3.7 0.1 44.7 (0.2) 56.2
Provision.... 19.7 7.9 1.7 29.3 0.3 29.6
Cash payments (31.1) 0.1 (1.5) (32.5) - -
--------- --------- --------- --------- --------- ---------
September 30,
2005........ 29.5 11.7 0.3 41.5 0.1 85.8
Provision.... 43.6 2.6 1.7 47.9 5.6 53.5
Cash payments (33.8) (1.0) (1.3) (36.1) - -
--------- --------- --------- --------- --------- ---------
December 31,
2005........ $ 39.3 $ 13.3 $ 0.7 $ 53.3 $ 5.7 $ 139.3
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
We expect to complete these restructuring actions in 2006. Cash outlays
are and will be funded from cash on hand. The accrued restructuring
liability is recorded in Accrued Liabilities.
Restructuring summary:
We expected total restructuring charges of between $225.0 and $275.0 to
be recorded in 2005 and 2006, with the majority of these to be employee
termination costs. As of December 31, 2005, we have recorded
restructuring charges totaling $160.1.
As of December 31, 2005, we have $4.4 in assets that are
available-for-sale, primarily land and buildings in all geographies as a
result of the restructuring actions we implemented. We have programs
underway to sell these assets.
(d) 2004 Goodwill impairment:
In 2004, we recorded a non-cash charge of $288.0 in connection with our
annual impairment assessment.
In 2005, we conducted our annual impairment assessment and determined
there was no goodwill impairment.
(e) Long-lived asset impairment:
Absent any triggering factors during the year, we conduct our annual
review of long-lived assets in the fourth quarter of each year to
correspond with our planning cycle. In the course of finalizing our
annual business plans, we made certain decisions regarding our
restructuring plans and the transfer of major customer programs from
higher-cost to lower-cost geographies. Reductions in forecasted revenue
have reduced the forecasted net cash flows for certain sites, resulting
in impairment when compared to the carrying value of the assets.
In 2004, we recorded a non-cash charge of $99.3, to impair capital assets
(70%) and customer relationships and contract intangibles (30%).
Approximately 75% of the impairments were in the Americas and 25% in
Europe.
In 2005, we recorded a net charge of $1.6 to impair capital and
intangible assets, principally on assets which were planned to be
restructured in 2006.
(f) Other:
In the fourth quarter of 2004, we determined provisions were required to
reflect estimated recoverable amounts for notes and accounts receivables,
inventory and non-cancelable purchase orders related to one of our
customers, whose financial condition had significantly deteriorated. We
recorded charges of $116.8 and $44.6 to other charges and cost of sales,
respectively. In the second quarter of 2005, this customer ceased
operations and sold certain assets to a third party for cash. We recorded
a recovery in the second quarter of 2005 of $13.8 to reflect actual
amounts recovered relating to that customer.
(g) Gain on sale of assets:
In September 2004, we sold certain assets relating to our power
operations.
(h) Inventory write-down recorded in cost of sales:
During the third quarter of 2004, we decided to restructure and exit
certain service offerings, resulting in a write-down of the related
inventory.
8. Pension and non-pension post-employment benefit plans:
We have recorded the following pension expense:
Three months ended Year ended
December 31 December 31
2004 2005 2004 2005
---------- ---------- ---------- ----------
Pension plans......... $ 9.7 $ 8.2 $ 34.2 $ 31.5
Other benefit plans... (4.7) 1.6 7.8 10.5
---------- ---------- ---------- ---------
Total expense......... $ 5.0 $ 9.8 $ 42.0 $ 42.0
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
9. Stock-based compensation and other stock-based payments:
Effective January 1, 2003, we adopted the revised CICA Handbook Section
3870, "Stock-Based Compensation," which requires that a fair value method
of accounting be applied to all stock-based compensation payments for
both employees and non-employees. In accordance with the transitional
provisions of Section 3870, we have prospectively applied the fair value
method of accounting for stock option awards granted after
January 1, 2003 and, accordingly, have recorded compensation expense.
Prior to January 1, 2003, we accounted for our employee stock options
using the settlement method and no compensation expense was recognized.
For awards granted in 2002, the standard requires the disclosure of pro
forma earnings and per share information as if we had accounted for
employee stock options under the fair value method. The pro forma effect
of awards granted prior to January 1, 2002 has not been included in the
pro forma earnings and per share information.
The fair value of the 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 Year ended
December 31 December 31
2004 2005 2004 2005
---------- ---------- ---------- ----------
Risk-free rate........ 3.2% 4.4% 3.1% 3.5%-4.4%
Dividend yield........ 0.0% 0.0% 0.0% 0.0%
Volatility factor of
the expected market
price of the
Company's shares..... 56%-65% 52%-66% 56%-70% 48%-68%
Expected option life
(in years)........... 3.5-5.5 3.5-5.5 3.5-5.5 3.5-5.5
Weighted average grant
date fair values of
options issued....... $8.95 $4.78 $9.66 $6.54
Compensation expense for the three months and year ended
December 31, 2005 was $1.8 and $9.0 (three months and year ended
December 31, 2004 - $1.8 and $7.6), respectively, relating to the fair
value of options granted after January 1, 2003.
The pro forma disclosure relating to options granted in 2002 is as
follows:
Three months ended Year ended
December 31 December 31
2004 2005 2004 2005
---------- ---------- ---------- ----------
Net loss as reported.. $ (809.7) $ (28.2) $ (854.1) $ (46.8)
Deduct: Stock-based
compensation costs
using fair value
method............... (1.7) (2.1) (7.9) (7.4)
---------- ---------- ---------- ----------
Pro forma net loss.... $ (811.4) $ (30.3) $ (862.0) $ (54.2)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Loss per share:
Basic - as reported. $ (3.59) $ (0.12) $ (3.85) $ (0.21)
Basic - pro forma... $ (3.60) $ (0.13) $ (3.88) $ (0.24)
Diluted -
as reported........ $ (3.59) $ (0.12) $ (3.85) $ (0.21)
Diluted -
pro forma.......... $ (3.60) $ (0.13) $ (3.88) $ (0.24)
Our stock plans are described in note 9 to the 2004 annual consolidated
financial statements.
(i) Option exchange costs recorded in cost of sales and SG&A:
As part of a restructuring of our long-term incentive arrangements to
provide more effective programs and reduce market overhang, we cancelled
6.8 million options during the third quarter of 2005 for an aggregate
cost of $6.8 as part of an option exchange program. All current employees
were eligible to participate except certain executives. Eligible
employees forfeited certain out-of-the-money options for $1.00 in cash
for each option surrendered. We recorded compensation expense of $3.9 to
cost of sales and $2.9 to SG&A in the third quarter. Future compensation
expense was not impacted as all repurchased options were granted prior to
January 1, 2003. We paid $5.6 in cash in the third quarter. The balance
was accrued and will be paid out at the end of three years, in accordance
with the plan.
10. Segmented information:
Our operations fall into one dominant industry segment, the electronics
manufacturing services industry. We manage our operations, and
accordingly determine our operating segments, on a geographic basis. The
performance of geographic operating segments is monitored based on EBIAT
(earnings/loss before interest and accretion on convertible debt,
amortization of intangible assets, integration costs related to
acquisitions, other charges, option expense, option exchange costs and
income taxes). Inter segment transactions are reflected at market value.
The following is a breakdown by reporting segment:
Three months ended Year ended
December 31 December 31
2004 2005 2004 2005
---------- ---------- ---------- ----------
Revenue
Asia.................. $ 962.6 $ 998.3 $ 3,557.2 $ 4,048.9
Americas.............. 953.3 757.7 3,765.5 3,090.5
Europe................ 469.9 366.6 1,815.3 1,510.2
Elimination of inter-
segment revenue...... (53.1) (47.3) (298.2) (178.6)
---------- ---------- ---------- ----------
$ 2,332.7 $ 2,075.3 $ 8,839.8 $ 8,471.0
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Three months ended Year ended
December 31 December 31
2004 2005 2004 2005
EBIAT ---------- ---------- ---------- ----------
Asia.................. $ 39.4 $ 40.3 $ 121.0 $ 159.4
Americas.............. 18.6 12.2 22.1 54.4
Europe................ 3.1 (5.4) 2.0 (13.8)
---------- ---------- ---------- ----------
61.1 47.1 145.1 200.0
Net interest and
accretion charges.... (11.6) (13.5) (37.3) (49.8)
Amortization of
intangible assets.... (12.0) (7.4) (34.6) (28.4)
Option expense........ (1.8) (1.8) (7.6) (9.0)
Option exchange cost
(note 9 (i))......... - - - (6.8)
Integration costs
related to
acquisitions......... (1.5) (0.3) (3.1) (0.6)
Other charges
(note 7)............. (587.2) (56.9) (664.4) (130.9)
---------- ---------- ---------- ----------
Loss before income
taxes................ $ (553.0) $ (32.8) $ (601.9) $ (25.5)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
As at December 31
2004 2005
---------- ----------
Total assets
Asia.......................................... $ 2,352.6 $ 2,494.7
Americas...................................... 1,520.9 1,574.2
Europe........................................ 1,066.3 788.9
---------- ----------
$ 4,939.8 $ 4,857.8
---------- ----------
---------- ----------
Goodwill
Asia.......................................... $ 872.9 $ 874.5
Americas...................................... - -
Europe........................................ - -
---------- ----------
$ 872.9 $ 874.5
---------- ----------
---------- ----------
11. Weighted average shares outstanding and per share calculations:
The following table sets forth the calculation of basic and diluted per
share loss:
Three months ended Year ended
December 31 December 31
2004 2005 2004 2005
---------- ---------- ---------- ----------
Numerator:
Net loss attribu-
table to common
shareholders....... $ (809.7) $ (28.2) $ (854.1) $ (46.8)
Denominator
(in millions):
Weighted average
shares - basic..... 225.7 226.3 222.1 226.2
Effect of dilutive
securities:(1)
Employee stock
options and
warrants,
convertible
debt........... - - - -
---------- ---------- ---------- ----------
Weighted average
shares - diluted... 225.7 226.3 222.1 226.2
Loss per share:
Basic............... $ (3.59) $ (0.12) $ (3.85) $ (0.21)
Diluted............. $ (3.59) $ (0.12) $ (3.85) $ (0.21)
(1) Excludes the effect of all options, warrants and convertible debt as
they are anti-dilutive due to the loss reported in these periods. As
of September 2005, there were no outstanding convertible debt
securities as they have all been repurchased.
12. Supplemental cash flow information:
Three months ended Year ended
December 31 December 31
2004 2005 2004 2005
---------- ---------- ---------- ----------
Paid during the period:
Interest.............. $ 3.2 $ 3.6 $ 13.6 $ 12.7
Net taxes paid........ $ 3.8 $ 7.5 $ 9.9 $ 24.8
Non-cash financing activities:
Shares issued for
acquisition
of MSL............. $ - $ - $ 245.5 $ -
Options issued for
acquisition
of MSL............. $ - $ - $ 15.2 $ -
Warrants issued for
acquisition
of MSL............. $ - $ - $ 8.9 $ -
13. Hedging transactions:
In connection with the issuance of our 2011 Notes in June 2004, we
entered into interest rate swap agreements to hedge the fair value of the
2011 Notes, by swapping the fixed rate of interest for a variable
interest rate. The notional amount of the agreements is $500.0. The
agreements were effective June 2004 and mature July 2011. See note 4(b).
Payments or receipts under the swap agreements are recorded in interest
expense on long-term debt. The fair value of the interest rate swap
agreements at December 31, 2005 was an unrealized loss of $3.1.
14. Guarantees and contingencies:
Contingent liabilities in the form of letters of credit, letters of
guarantee, and surety and performance bonds are provided to various third
parties. These guarantees cover various payments, including customs and
excise taxes, utility commitments and certain bank guarantees. At
December 31, 2005, these liabilities, including guarantees of employee
share purchase loans, amounted to $80.0 (December 31, 2004 - $63.7).
In addition to the above guarantees, we have also provided routine
indemnifications, whose terms range in duration and often are not
explicitly defined. These may include indemnifications against adverse
effects due to changes in tax laws and patent infringements by third
parties. The maximum amounts payable with respect to these
indemnifications cannot reasonably be estimated. In some cases, we have
recourse against other parties to mitigate our risk of loss from these
indemnifications. Historically, we have not made significant payments
relating to these types of indemnifications.
In the normal course of our operations, we are subject to litigation and
claims from time to time. Management believes that adequate provisions
have been recorded in the accounts where required. Although it is not
always possible to estimate the extent of potential costs, if any,
management believes that the ultimate resolution of such contingencies
would not have a material adverse effect on our results of operations,
financial position or liquidity.
We are subject to tax audits by local taxing authorities. International
taxation authorities could challenge the validity of our inter-company
financing and transfer pricing policies which generally involve
subjective areas of taxation and a significant degree of judgment. If any
of these taxation authorities are successful in challenging our financing
or transfer pricing policies, our income tax expense may be adversely
affected and we could also be subjected to interest and penalty charges.
In connection with ongoing tax audits in the United States, taxing
authorities have assessed significant deficiencies and related interest
and penalties arising from inter-company transactions. We believe we have
substantial defenses and have adequately accrued for potential losses.
However, there can be no assurance as to the final resolution of these
audits and any resulting proceedings, and if these audits and proceedings
are determined adversely to us the amounts we may be required to pay may
be material.
15. Comparative information:
We have reclassified certain prior period information to conform to the
current periods' presentation.
>>
%SEDAR: 00010284E
