AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 2002APRIL 21, 2003
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 20-F
/ / REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 20012002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-14832
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CELESTICA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)(Exact name of registrant as specified in its charter)
ONTARIO, CANADA
(JURISDICTION OF INCORPORATION OR ORGANIZATION)
12 CONCORDE PLACE1150 EGLINTON AVENUE EAST
TORONTO, ONTARIO, CANADA M3C 3R81H7
(ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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SECURITIES REGISTERED OR TO BE REGISTERED
PURSUANT TO SECTION 12(b)12(B) OF THE ACT:
Subordinate Voting Shares The Toronto Stock Exchange
(TITLE OF CLASS) The New York Stock Exchange
(NAME OF EACH EXCHANGE ON WHICH REGISTERED)
Liquid Yield Option-TM- Notes due 2020 The New York Stock Exchange
(TITLE OF CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
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SECURITIES REGISTERED OR TO BE REGISTERED
PURSUANT TO SECTION 12(g)12(G) OF THE ACT:
N/A
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SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION
PURSUANT TO SECTION 15(d)15(D) OF THE ACT:
10 1/2% Senior Subordinated Notes Due 2006
(TITLE OF CLASS)
------------------------------N/A
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Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
190,642,482189,538,365 Subordinate Voting Shares 0 Preference Shares
39,065,950 Multiple Voting Shares
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X/X/ No / /
Indicate by check mark which financial statement item the registrant has
elected to follow. Item 17 / / Item 18 X/X/
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TABLE OF CONTENTS
PAGE
--------
PART I..............................................................................I...................................................... 1
Item 1. Identity of Directors, Senior Management and
Advisors...........Advisers............................................... 1
Item 2. Offer Statistics and Expected Timetable.........................Timetable......... 1
Item 3. Key Information.................................................Information................................. 1
A. Selected Financial Data.....................................Data......................... 1
B. Capitalization and Indebtedness............................. 4Indebtedness................. 5
C. Reasons for Offer and Use of Proceeds....................... 4Proceeds........... 5
D. Risk Factors................................................ 4Factors.................................... 5
Item 4. Information on the Company...................................... 12Company...................... 14
A. History and Development of the Company...................... 12Company.......... 14
B. Business Overview........................................... 13Overview............................... 14
C. Organizational Structure.................................... 25Structure........................ 26
D. Description of Property..................................... 25Property......................... 26
Item 5. Operating and Financial Review and Prospects.................... 26Prospects.... 27
A. Operating Results........................................... 28Results............................... 31
B. Liquidity and Capital Resources............................. 34Resources................. 35
C. Research and Development, Patents and Licenses,
Etc......... 37Etc................................................. 39
D. Trend Information........................................... 37Information............................... 39
Item 6. Directors, Senior Management and Employees...................... 38Employees...... 39
A. Directors and Senior Management............................. 38Management................. 39
B. Compensation................................................ 42Compensation.................................... 44
C. Board Practices............................................. 47Practices................................. 49
D. Employees................................................... 48Employees....................................... 50
E. Share Ownership............................................. 48Ownership................................. 51
Item 7. Major Shareholders and Related Party
Transactions............... 52Transactions........................................... 55
A. Major Shareholders.......................................... 52Shareholders.............................. 55
B. Related Party Transactions.................................. 54Transactions...................... 56
C. Interests of Experts and Counsel............................ 55Counsel................ 57
Item 8. Financial Information........................................... 55Information........................... 57
A. Consolidated Statements and Other Financial
Information..... 55Information......................................... 57
B. Significant Changes......................................... 55Changes............................. 57
Item 9. The Offer and Listing........................................... 55Listing........................... 57
A. Offer and Listing Details................................... 55Details....................... 57
B. Plan of Distribution........................................ 57Distribution............................ 59
C. Markets..................................................... 58Markets......................................... 60
D. Selling Shareholders........................................ 58Shareholders............................ 60
E. Dilution.................................................... 58Dilution........................................ 60
F. Expense of the Issue........................................ 58Issue........................... 60
Item 10. Additional Information.......................................... 58Information......................... 60
A. Share Capital............................................... 58Capital................................... 60
B. Memorandum and Articles of Incorporation.................... 58Incorporation........ 60
C. Material Contracts..........................................Contracts.............................. 62
D. Exchange Controls...........................................Controls............................... 62
E. Taxation....................................................Taxation........................................ 62
F. Dividends and Paying Agents.................................Agents.................... 67
G. Statement by Experts........................................Experts............................ 67
H. Documents on Display........................................Display............................ 67
I. Subsidiary Information...................................... 68Information......................... 67
Item 11. Quantitative and Qualitative Disclosures about
Market Risk......Risk............................................ 68
Item 12. Description of Securities Other than Equity
Securities..........Securities............................................. 69
PART II............................................................................. 70II..................................................... 69
Item 13. Defaults, Dividend Arrearages and
Delinquencies................. 70Delinquencies.......................................... 69
Item 14. Material Modifications to the Rights of
Security Holders and Use of Proceeds..................................................... 70Proceeds................... 69
Item 15. [RESERVED]...................................................... 70Controls and Procedures........................ 69
Item 16. [RESERVED]......................................................[Reserved]..................................... 69
PART III.................................................... 70
PART III............................................................................ 71
Item 17. Financial Statements............................................ 71Statements........................... 70
Item 18. Financial Statements............................................ 71Statements........................... 70
Item 19. Exhibits........................................................ 71Exhibits....................................... 70
i
PART I
IN THIS ANNUAL REPORT, "CELESTICA," THE "COMPANY," "WE," "US" AND "OUR"
REFER TO CELESTICA INC. AND ITS SUBSIDIARIES.
IN DECEMBER 1999, WECELESTICA COMPLETED A TWO-FOR-ONE SPLIT OF OUR SUBORDINATE
VOTING SHARES AND MULTIPLE VOTING SHARES BY WAY OF A STOCK DIVIDEND. WE HAVE
RESTATED ALL HISTORICAL SHARE AND PER SHARE INFORMATION TO REFLECT THE EFFECTS
OF THIS TWO-FOR-ONE SPLIT ON A RETROACTIVE BASIS, EXCEPT WHERE WE SPECIFICALLY
STATE OTHERWISE.
IN THIS ANNUAL REPORT, ALL DOLLAR AMOUNTS ARE EXPRESSED IN UNITED STATES
DOLLARS, EXCEPT WHERE WE STATE OTHERWISE. UNLESS WE STATE OTHERWISE, ALL
REFERENCES TO "U.S.$" OR "$" ARE TO U.S. DOLLARS AND ALL REFERENCES TO "C$" ARE
TO CANADIAN DOLLARS. UNLESS WE INDICATE OTHERWISE, ANY REFERENCE IN THIS ANNUAL
REPORT TO A CONVERSION BETWEEN U.S.$ AND C$ OR BETWEEN U.S.$ AND L IS GIVEN AS OF MARCH 1, 2002.FEBRUARY 28, 2003. AT
THAT DATE, THE NOON BUYING RATE IN NEW YORK CITY FOR CABLE TRANSFERS IN CANADIAN
DOLLARS WAS U.S.$1.00=C$1.5955,1.4880, AS CERTIFIED FOR CUSTOMS PURPOSES BY THE FEDERAL
RESERVE BANK OF NEW YORK.
UNLESS WE INDICATE OTHERWISE, ALL INFORMATION IN THIS ANNUAL REPORT IS
STATED AS OF MARCH 1, 2002.FEBRUARY 28, 2003.
FORWARD-LOOKING STATEMENTS
Item 4, "Information on the Company," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in Item 5 and other
sections of this Annual Report contain forward-looking statements within the
meaning of section 27A of the Securities Act of 1933, as amended, or the
U.S. Securities Act, and section 21E of the Securities Exchange Act of 1934, as
amended, or the U.S. Exchange Act, including (without limitation) statements
concerning possible or assumed future results of operations of Celestica
preceded by, followed by or that include the words "believes," "expects,"
"anticipates," "estimates," "intends," "plans""plans," or similar expressions. For
those statements, we claim the protection of the safe harbor for forward-lookingforward-
looking statements contained in the U.S. Private Securities Litigation Reform
Act of 1995.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions. You should understand that the
following important factors, in addition to those discussed in Item 3, "Key
Information -- Risk Factors," and elsewhere in this Annual Report, could affect
our future results and could cause those results to differ materially from those
expressed in such forward-looking statements: the levelchallenges of overall growth ineffectively
managing our operations during uncertain economic conditions; the challenge of
responding to lower-than-expected customer demand; the effects of price
competition and other business and competitive factors generally affecting the
electronics manufacturing services, or EMS, industry; lower-than-expected customer
demand; component constraints; variability of our operating results among
periods; our dependence on the
computerinformation technology and communications industries; our dependence on a
limited number of customers;customers and ouron industries affected by rapid technological
change; component constraints; variability of operating results among periods;
and the ability to manage expansion, consolidationour restructuring and the integrationshift of acquired businesses.production to lower
cost geographies.
We disclaim any intention or obligation to update or revise any
forward-looking statements contained in this Annual Report or the documents incorporatedwe
incorporate by reference herein, whether as a result of new information, future
events, or otherwise.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORSADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. SELECTED FINANCIAL DATA
You should read the following selected financial data together with Item 5,
"Operating and Financial Review and Prospects," the Consolidated Financial
Statements in Item 18, and the other information in this Annual Report. The
selected financial data is derived from the consolidated financial statements
for the years we present.
1
The Consolidated Financial Statements have been prepared in accordance with
Canadian generally accepted accounting principles, or GAAP. These principles
conform in all material respects with U.S. GAAP except as described in Notenote 22
to the Consolidated Financial Statements.Statements in Item 18. For all the years
presented, the selected financial data is prepared in accordance with Canadian
GAAP. The differences between the line items under Canadian GAAP and those as
determined under U.S. GAAP are not significant except that, under U.S. GAAP:
- our net loss for the year ended December 31, 1998 would be $6.2 million
greater due to non-cash charges for compensation expense and the loss on
extinguishment of debt amounting to $14.3 million, net of income tax,
would be treated as an extraordinary loss;expense;
- our net earnings for the year ended December 31, 1999 would be
$1.9 million less due to non-cash charges for compensation expense;
- our net earnings for the year ended December 31, 2000 would be
$2.5 million less due to non-cash charges for compensation expense and
$6.8 million less due to interest on the convertible debt we issued in
August 2000, in the principal amount of $1,813.6 million, that would be
classified as a long-term liability rather than as an equity instrument;
and
- our net loss for the year ended December 31, 2001 would be $3.2 million
greater due to non-cash charges for compensation expense, $17.7 million
greater due to interest on convertible debt classified as a long-term
liability rather than as an equity instrument, $2.7 million greater due to
other charges, and $12.1 million less due to the gain on a foreign
exchange contract.contract; and
- our net loss for the year ended December 31, 2002 would be $3.8 million
greater due to non-cash charges for compensation expense, $27.8 million
greater due to interest on convertible debt classified as a long-term
liability rather than as an equity instrument, $26.5 million greater due
to other charges, and $8.4 million less due to gain on repurchase of
convertible debt.
YEAR ENDED DECEMBER 31
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1997(1)---------------------------------------------------------
1998(1) 1999(1) 2000(1) 2001(1) -------- -------- -------- --------2002(1)
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(in millions, except per share amounts)
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
DATA:
Revenue.............................................. $2,006.6Revenue..................................... $3,249.2 $5,297.2 $9,752.1 $10,004.4 $8,271.6
Cost of sales........................................ 1,866.9sales............................... 3,018.7 4,914.7 9,064.1 9,291.9 --------7,715.8
-------- -------- -------- --------- --------
Gross profit......................................... 139.7profit................................ 230.5 382.5 688.0 712.5 555.8
Selling, general and administrative
expenses......... 68.3expenses.................................. 130.5 202.2 326.1 341.4 298.5
Amortization of goodwill and intangible
assets(2)................. 15.3................................. 45.4 55.6 88.9 125.0 95.9
Integration costs related to
acquisitions(3)......... 13.3........................... 8.1 9.6 16.1 22.8 21.1
Other charges(4)..................................... 13.9............................ 64.7 -- -- 273.1 --------677.8
-------- -------- -------- --------- --------
Operating income (loss).............................. 28.9..................... (18.2) 115.1 256.9 (49.8) (537.5)
Interest expense (income), net(5).................... 33.6........... 32.3 10.7 (19.0) (7.9) --------(1.1)
-------- -------- -------- --------- --------
Earnings (loss) before income taxes.................. (4.7)taxes......... (50.5) 104.4 275.9 (41.9) (536.4)
Income taxes......................................... 2.2tax expense (recovery)............... (2.0) 36.0 69.2 (2.1) --------(91.2)
-------- -------- -------- --------- --------
Net earnings (loss).................................. $ (6.9)......................... $ (48.5) $ 68.4 $ 206.7 $ (39.8) ========$ (445.2)
======== ======== ======== ========= ========
Basic earnings (loss) per share(6)................... $ (0.10).......... $ (0.47) $ 0.41 $ 1.01 $ (0.26) $ (1.98)
Diluted earnings (loss) per share(6)................. $ (0.10)........ $ (0.47) $ 0.40 $ 0.98 $ (0.26) $ (1.98)
OTHER DATA:
Capital expenditures................................. $ 32.1expenditures........................ $ 65.8 $ 211.8 $ 282.8 $ 199.3 $ 151.4
2
AS AT DECEMBER 31
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1997---------------------------------------------------------
1998 1999 2000 2001 -------- -------- -------- --------2002
--------- --------- --------- --------- ---------
(in millions)
CONSOLIDATED BALANCE SHEET DATA:
Cash and short-term investments...................... $ 106.1investments............. $ 31.7 $ 371.5 $ 883.8 $1,342.8 $1,851.0
Working capital...................................... $ 363.3capital(7).......................... $ 356.2 $1,000.2 $2,262.6 $2,339.8 $2,093.2
Capital assets....................................... $ 124.2assets.............................. $ 214.9 $ 365.4 $ 633.4 $ 915.1 $ 727.8
Total assets......................................... $1,347.3assets................................ $1,636.4 $2,655.6 $5,938.0 $6,632.9 $5,806.8
Total long-term debt, including current
portion...... $ 518.9portion................................... $ 135.8 $ 134.2 $ 132.0 $ 147.4 $ 6.9
Shareholders' equity................................. $ 363.2equity........................ $ 859.3 $1,658.1 $3,469.3 $4,745.6 $4,203.6
- -------------------------
(1) The consolidated statements of earnings (loss) data for:
1997, 1998, 1999, 2000, 2001 and 2001 include the results of operations of
Design-to-Distribution Limited acquired effective January 1997, the assets
acquired from Hewlett-Packard Company in Colorado and New England in July,
August and October 1997 and Ascent Power Technologies Inc. acquired in
October 1997;
1998, 1999, 2000 and 20012002 include the results of operations of the
manufacturing operation acquired from Madge Networks N.V. in February 1998,
the manufacturing operation acquired from Lucent Technologies Inc. in
April 1998, Analytic Design, Inc. acquired in May 1998, the manufacturing
operation acquired from Silicon Graphics Inc. in June 1998, and
Accu-Tronics, Inc. acquired in September 1998 and a greenfield operation
established in Tennessee in September 1998;
1999, 2000, 2001 and 20012002 include the results of operations of International
Manufacturing Services, Inc., or IMS, acquired December 1998, Signar SRO
acquired in April 1999, greenfield operations established in Brazil and
Malaysia in June 1999, VXI Electronics, Inc. acquired in September 1999, the
assets acquired from Hewlett-Packard's Healthcare Group in October 1999, EPS
Wireless, Inc. acquired in December 1999, and certain assets acquired from
Fujitsu-ICL Systems Inc. in December 1999;
2000, 2001 and 20012002 include the results of operations of the assets of the
Enterprise System Group and the Microelectronics Division of IBM in
Minnesota and in Italy acquired in February and May 2000, respectively, NDB
Industrial Ltda. acquired in June 2000, Bull Electronics Inc. acquired in
August 2000, and NEC Technologies (UK) Ltd. acquired in November 2000;
2001 and 20012002 includes the results of operations of Excel Electronics, Inc.
acquired in January 2001, certain assets of Motorola Inc. in Ireland and
Iowa acquired in February 2001, certain assets of a repair facility of N.K.
Techno Co., Ltd. in Japan acquired in March 2001, certain assets of
Avaya Inc. in Arkansas and Colorado acquired in May 2001, Sagem CR s.r.o.
acquired in June 2001, certain assets of Avaya Inc. in France acquired in
August 2001, certain assets of Lucent Technologies Inc. in Ohio and Oklahoma
acquired in August 2001, Primetech Electronics Inc. acquired in
August 2001, and Omni Industries Limited acquired in October 2001.2001; and
2002 includes the results of operations of certain assets of NEC Corporation
in Miyagi and Yamanashi, Japan acquired in March 2002, and certain assets of
Corvis Corporation in the United States acquired in August 2002.
(2) Effective January 1, 1998, we revised the estimated useful life of our
goodwill and intellectual property for accounting purposes from 20 years
each to 10 years and 5 years, respectively.
In 2001, the Canadian Institute of Chartered Accountants (CICA) approved
Handbook Sections 1581, "Business combinations" and 3062, "Goodwill and
other intangible assets." The new standards mandate the purchase method of
accounting for business combinations and require that the value of the
shares issued in a business combination be measured using the average share
price for a reasonable period before and after the date the terms of the
acquisition are agreed to and announced. Previously, the consummation date
was used to value the shares issued in a business combination. The new standards are substantially
consistent with U.S. GAAP.
Effective July 1, 2001, and for the remainder of the fiscal year, goodwill acquired in business combinations completed
after June 30, 2001 washas not been amortized. Celestica has fully adopted
these new standards as of January 1, 2002, and discontinued amortization of
all existing goodwill. We also evaluated existing intangible assets,
including estimates of remaining useful lives, and have reclassed
$9.1 million from intellectual property to goodwill, as of January 1, 2002,
to conform with the new criteria.
Section 3062 required the completion of a transitional goodwill impairment
evaluation within six months of adoption. Any transitional impairment would
have been recognized as an effect of a change in accounting principle and
would have been charged to opening retained earnings as of January 1, 2002.
We completed the transitional goodwill impairment assessment during the
second quarter of 2002, and determined that no impairment existed as of the
date of adoption. Under U.S. GAAP, any transitional impairment charge would
have been recognized in earnings as a cumulative effect of a change in
accounting principle.
3
Effective January 1, 2002, we had unamortized goodwill of $1,137.9 million
which is no longer being amortized. This change in accounting policy is not
applied retroactively and the amounts presented for prior periods have not
been restated for this change. The following table shows the impact of this
change as if the policy had been applied retroactively to 2001:
YEAR ENDED DECEMBER 31
---------------------------
2001 2002
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(in millions, except
per share amounts)
Net loss as reported........................................ $ (39.8) $(445.2)
Add back: goodwill amortization............................. 39.2 --
------- -------
Net loss before goodwill amortization....................... $ (0.6) $(445.2)
======= =======
Basic loss per share:
As reported................................................. $ (0.26) $ (1.98)
Before goodwill amortization................................ $ (0.07) $ (1.98)
Diluted loss per share:
As reported................................................. $ (0.26) $ (1.98)
Before goodwill amortization................................ $ (0.07) $ (1.98)
(3) These costs include costs to implement new information systems and
processes, including salary and other costs directly related to the
integration activities in newly acquired facilities.
(4) In 1997, other charges include a $13.9 million ($8.7 million after income
taxes) credit loss relating to a customer which filed for bankruptcy. In 1998, other charges totaled $64.7 million ($51.5 million after income
taxes), comprised of non-cash charges of $35.0 million relating to the
write-down of intellectual property, $6.8 million of goodwill which became
impaired as a result of the merger with IMS, a write-off of deferred
financing fees and debt redemption fees of $17.8 million relating to the
prepayment of debt with the net proceeds of our initial public offering, and
other charges of $5.1 million.
In 2001, other charges totaled $273.1 million ($226.4 million after income
taxes) and includecomprised of (a) a $237.0 million restructuring charge, comprised of
employee termination costs of $90.7 million, termination of lease and other
contractual obligations of $35.3 million, facility exit and other costs of
$12.4 million and non-cash asset impairment of $98.6 million and (b) a
non-cash charge of $36.1 million relating to the annual impairment
assessment of long-lived assets, comprised primarily of a write-down of the carrying
value of certain assets, primarily
goodwill and intangible assets.
In 2002, other charges totaled $677.8 million ($562.6 million after income
taxes) comprised primarily of (a) a $385.4 million restructuring charge,
(b) a non-cash write-down of $203.7 million relating to the annual goodwill
impairment assessment, (c) a non-cash write-down of $81.7 million relating
to the annual impairment assessment of long-lived assets, primarily a
write-down of intangible assets, and (d) a $9.6 million charge for the
premium paid and related deferred financing costs on the redemption of our
Senior Subordinated Notes.
(5) Interest expense (income) is comprised of interest expense incurred on
indebtedness less interest income earned on cash and short-term investments.
(6) WeIn 2001, we retroactively adopted retroactively the new CICA Handbook Section 3500,
"Earnings per share"share," which requires the retroactive use of the treasury
stock method for calculating diluted earnings per share. This change results
in an earnings per share calculation which is consistent with U.S. GAAP.
3
For purposes of the basic and diluted earnings (loss) per share
calculations, the weighted average number of shares outstanding were:
YEAR ENDED DECEMBER 31
----------------------------------------------------
1997 1998 1999 2000 2001 2002
-------- -------- -------- -------- --------
(in millions)
Basic....................................................... 69.6 103.0 167.2 199.8 213.9 229.8
Diluted..................................................... 69.6 103.0 171.2 211.8 213.9 229.8
(7) Calculated as current assets less current liabilities.
4
EXCHANGE RATE INFORMATION
The rate of exchange as of March 1, 2002February 28, 2003 for the conversion of Canadian
dollars into United States dollars was U.S. $0.6268.$0.6720. The following table sets
forth the exchange rates for the conversion of U.S.$1.00 into C$1.00 as at the
end of the following fiscal periods and the average exchange rates for those
periods (based upon the average of the exchange rates on the last day of each
month during the periods). The rates of exchange set forth herein are shown as,
or are derived from, the reciprocals of the noon buying rates in New York City
for cable transfers payable in Canadian dollars, as certified for customs
purposes by the Federal Reserve Bank of New York. The source of this data is the
Federal Reserve Statistical Releases.
1998 1999 2000 2001 2000 1999 1998 19972002
-------- -------- -------- -------- --------
Average(1)..................................................................................... 1.4836 1.4858 1.4855 1.5487 1.4855 1.4858 1.4836 1.38491.5704
MARCH FEBRUARY JANUARY DECEMBER NOVEMBER OCTOBER
SEPTEMBER2003 2003 2003 2002 2002 2001 2001 2001 20012002
-------- -------- -------- -------- -------- -----------------
High.................................. 1.6110 1.6132 1.5956 1.6021 1.5867 1.57931.4905 1.5315 1.5798 1.5792 1.5903 1.5943
Low................................... 1.5885 1.5897 1.5633 1.5718 1.55791.4659 1.4880 1.5219 1.5478 1.5528 1.5610
- ------------
(1) Calculated by using the averages of the exchange rates as of the last day of
each month during the period.
The rate of exchange as of March 1, 2002February 28, 2003 for the conversion of United
States dollars into Canadian dollars was 1.59551.4880 (U.S.$1 = C$1.5955)1.4480).
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
SHAREHOLDERS AND PROSPECTIVE INVESTORS IN CELESTICA SHOULD CAREFULLY
CONSIDER EACH OF THE FOLLOWING RISKS AND ALL OF THE OTHER INFORMATION SET FORTH
IN THIS ANNUAL REPORT. THE RISKS AND UNCERTAINTIES WE DESCRIBE BELOW ARE NOT THE
ONLY ONES FACING OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES NOT CURRENTLY
KNOWN TO US OR THAT WE CURRENTLY BELIEVE TO BE IMMATERIAL MAY ALSO ADVERSELY
AFFECT OUR BUSINESS.
OUR OPERATING RESULTS FLUCTUATE
Our annual and quarterly results have fluctuated in the past. The reasons
for these fluctuations may similarly affect us in the future. Our operating
results may fluctuate in the future as a result of many factors, including:
- Thethe volume of orders received relative to our manufacturing capacity;
- Fluctuationsfluctuations in material costs and the mix in material costs versus labor
and manufacturing overhead costs; and
- Variationsvariations in the level and timing of orders placed by a customer due to
the customer's attempts to balance its inventory, changes in the
customer's manufacturing strategy or sourcing plans, and variation in
demand for the
4
customer's products. These changes can result from life
cycles of customer products, competitive conditions, and general economic
conditions.
Any one of the following factors or combinations of these factors could also
affect our results of operations for a financial period:
- Thethe level of price competition;competition as a result of the highly competitive
nature of our business;
- Ourour past experience in manufacturing a particular product;
- Thethe degree of automation we use in the assembly process;
5
- Whetherwhether we are managing our inventories and fixed assets efficiently;effectively;
- Theour customer and end-market concentrations;
- the timing of our expenditures in anticipation of increased sales;
- Customerincreased or unexpected expenses associated with the shifting of products
between manufacturing locations, including transfer delays from higher
cost locations;
- customer product delivery requirements and shortages of components or
labor;
- the shifting of production by our customers from our operations, to one of
our competitor's operations; and
- Thethe timing of, and the price we pay for, our acquisitions and related
integration costs.
In addition, most of our customers typically do not commit to firm
production schedules for more than 30 to 90 days in advance. Accordingly, we
cannot forecast the level of customer orders with certainty. This makes it
difficult to order appropriate levels of materials and to schedule production
and maximize utilization of our manufacturing capacity. In the past, we have
been required to increase staffing, purchase materials, and incur other expenses
to meet the anticipated demand of our customers. Sometimes these anticipated
orders from certain customers have failed to materialize, and sometimes delivery
schedules have been deferred as a result of changes in the customer's business
needs. On other occasions, customers have required rapid and sudden increases in
production which have placed an excessive burden on our manufacturing capacity.
Deferred delivery schedules result in a delay, and may result in a reduction in
our revenue from these customers, and also may lead to excess capacity at
affected facilities. Also, certain customers may be unable to pay us or
otherwise meet their commitments under their agreements or purchase orders with
us.
Any of these factors or a combination of these factors could have a material
adverse effect on our results of operations.
Historically, our fourth quarter revenue has been highest and our first
quarter revenue has been lowest. Prospective investors should not rely on results of operations in any past
period to indicate what our results will be for any future period.
WE HAVE HAD RECENT OPERATING LOSSES
We generated net earnings in each of the years from 1993 through 1996, and
in 1999 and 2000. We recorded net losses of $6.9 million in 1997, $48.5 million
in 1998, and $39.8 million in 2001.2001, and $445.2 million in 2002. In 1997, we incurred
$13.3 million of integration costs related to acquisitions and a $13.9 million
credit loss, with these charges totaling $27.2 million ($17.0 million after
income taxes). In 1998, we incurred $8.1 million of integration costs related to
acquisitions, a $41.8 million write-down of intellectual property and goodwill,
a write-off of deferred financing fees and debt redemption fees of
$17.8 million, and $5.1 million of charges related to the acquisition of International
Manufacturing Services, Inc., or IMS
with these charges totaling $72.8 million ($56.5 million after income taxes). In
2001, we incurred $22.8 million of integration costs related to acquisitions,
$237.0 million of restructuring charges, and a $36.1 million write-down of
certain assets, primarily goodwill and intangible assets, with these charges
totaling $295.9 million ($245.2 million after income taxes). In 2002, we
incurred $21.1 million of integration costs related to acquisitions,
$385.4 million of restructuring charges, a $285.4 million write-down of certain
assets, primarily goodwill and intangible assets, and $9.6 million in deferred
financing costs and debt redemption fees, with these charges totaling
$701.5 million ($582.2 million after income taxes). We may not be profitable in
future periods. Furthermore, if
businessIn response to the continued limited visibility in end markets,
we plan to further reduce our manufacturing capacity. The reduction in capacity
will result in an estimated pre-tax restructuring charge of between
$50.0 million and $70.0 million, to be recorded during 2003. If end-market
conditions were to unexpectedly weaken significantly from current levels, we may have to undertake
furtheradditional restructuring activities, thereby
further reducing profitability in future
periods.
WE ARE EXPOSED TO CHANGES IN GENERAL ECONOMIC CONDITIONS
As a result of unfavorable general economic conditions and reduced demand
for technology capital goods, our sales have been particularly volatile in
recent quarters. Specifically, since the first fiscal quarter of 2001, we have
seen declines in the demand for products in the end-marketsend markets that we serve. If
global economic conditions in
6
the markets we serve do not improve, we may experience a continued material
adverse impact on our business, operating results and financial condition.
5
THE WAR IN IRAQ, ACTS OF TERRORISM, AND OTHER POLITICAL AND ECONOMIC
DEVELOPMENTS COULD ADVERSELY AFFECT OUR BUSINESS
Increased international political instability, evidenced by the threat or
occurrence of terrorist attacks, enhanced national security measures, sustained
military action in Iraq, other conflicts in the Middle East and Asia, strained
international relations arising from these conflicts and the related decline in
consumer confidence and continued economic weakness, may hinder our ability to
do business and may adversely affect our stock price. Any escalation in these
events or similar future events may disrupt our operations or those of our
customers and suppliers and may affect the availability of materials needed to
manufacture our products or the means to transport those materials to
manufacturing facilities and finished products to customers. These events have
had and may continue to have an adverse impact on the U.S. and world economy in
general and customer confidence and spending in particular, which in turn
adversely affects our revenues and results of operations. The impact of these
events on the volatility of the U.S. and world financial markets could increase
the volatility in our stock price and may limit the capital resources available
to us and our customers or suppliers.
WE ARE UNCLEAR HOW THE SEVERE ACUTE RESPIRATORY SYNDROME (SARS) OUTBREAK
WILL IMPACT OUR BUSINESS
We, our suppliers, and our customers have manufacturing operations in Asia,
the geographic region most directly affected by the current outbreak of the SARS
virus. Existing bans being imposed by some employers on non-essential travel to
this region could begin to impact business in that region, including
postponement of factory maintenance and delay in customer qualification of our
manufacturing facilities for new programs. The continuation of this disease
outbreak in Asia, or its expansion in other regions where we or our customers or
suppliers have operations, could also disrupt our manufacturing supply chain and
adversely affect our operations through higher operating expenses, lower or
delayed production volumes resulting in weaker than expected utilization of our
facilities, and delays in product transfer activities from higher to lower cost
facilities as we implement our restructuring programs.
OUR RESULTS ARECAN BE AFFECTED BY LIMITED AVAILABILITY OF COMPONENTS
A significant portion of our costs are in the form ofreflects component purchases. A majority
of the products we manufacture require one or more components that we order from
sole-source suppliers of these particular components. Supply shortages for a
particular component can delay production of all products using that component
or cause price increases in the services we provide. In addition, at various
times there have been industry-wide shortages of electronic components. Such
shortages, or future fluctuations in material costs, may have a material adverse
effect on our business or cause our results of operations to fluctuate from
period to period. Also, we rely on a variety of common carriers for materials
transportation and route materials through various world ports. A work stoppage,
strike or shutdown of a major port or airport could result in manufacturing and
shipping delays or expediting charges, which could have a material adverse
effect on our results of operations.
WE DEPEND ON CERTAIN INDUSTRIES
Our financial performance depends on our customers' continued growth,
viability, financial
stability, and the cyclicality of end-markets.demand for our customers' end-market products. Our customers,
in turn, depend substantially depend on the growth of the computerinformation technology and
communications industries. These industries are characterized by rapidly
changing technologies and shortshortening product life cycles. Recently theseThese industries have
experiencedbeen experiencing severe revenue erosion, pricing and margin pressures, excess
inventories, and increased difficulty in attracting capital. These factors
affecting the computerinformation technology and communications industries in general,
and the impact these factors might have from time to time on our customers in
particular, could continue to have a material adverse effect on our business.
WE FACE CUSTOMER CREDIT RISK
We generate significant accounts receivable and inventory balances in
connection with providing manufacturing services to our customers. We may encounter significant
delays or defaults in payments owed to us by customers for
whom we have manufactured products.customers.
7
WE DEPEND ON A LIMITED NUMBER OF CUSTOMERS
Our three largest customers in 20012002 were IBM Corporation, Sun
Microsystems Inc., and Lucent Technologies Inc., which each represented more
than 10% of our total 2002 revenue and collectively represented 48% of our total
2002 revenue. Our next seven largest customers collectively represented 37% of
our total revenue in 2002. IBM Corporation, Sun Microsystems Inc., and Lucent
Technologies Inc., our three largest customers in 2001, each represented more
than 10% of our total 2001 revenue and collectively represented 55% of our total
2001 revenue. Our next five largest customers collectively represented 24% of our total revenue in
2001. IBM and Sun Microsystems Inc., our two largest customers in 2000, each
represented more than 10% of our total 2000 revenue and collectively represented
46% of our total 2000 revenue. Our next fiveseven largest customers represented 32%29% of total 20002001
revenue. We expect to continue to depend upon a relatively small number of
customers for a significant percentage of our revenue.
Our mix of business with customers in higher complexity communications and
information technology products had a major impact on our results in 2002 as
spending in these areas was adversely affected. We saw the biggest declines in
revenues from our top 10 customers, which represent over 80% of our business.
Other than in the case of asset acquisitions, otherwise known as "OEM
divestitures," we generally we do not enter into long-term supply commitments with
our customers. Instead, we bid on a project basis and have supply contracts or
purchase orders in place for each project. We are dependent on customers to
fulfill the terms associated with these orders and/or contracts. Significant
reductions in, or the loss of, sales to any of our largest customers would have
a material adverse effect on us. OEM divesturesdivestitures often entail long-term supply
agreementagreements between ourselves and the OEM customer, and we are similarly
dependent on customers to fulfill thetheir obligations associated withunder these contracts.
OUR CUSTOMERS MAY CANCEL THEIR ORDERS, CHANGE PRODUCTION QUANTITIES OR DELAY
PRODUCTION
Our customers are increasingly dependent on EMS providers for new product
introductions and rapid response times to volume requirements. We generally do
not obtain firm, long-term purchase commitments from our customers and we often
experience reduced lead-times in customers' orders. Customers may cancel their
orders, change production quantities, or delay production for a number of
reasons. The uncertain economic condition of our customers' end-marketsend markets and
general order volume volatility has resulted, and may continue to result, in
some of our customers delaying or canceling the delivery of some of the products
we manufacture for them, and placing purchase orders for lower volumes of
products than previously anticipated. Cancellation, reduction, or delays by a
significant customer, or by a group of customers, would seriously harm our
results of operations by reducing the volumes of products manufactured and
delivered by us for the customers in that period. Such order changes could also
cause a delay in the repayment to us for inventory expenditures we incurred in
preparation 6
for the customer orders. Order cancellations and delays could also
lower asset utilization, resulting in higher productive assets and lower gross
margins.
WE FACE RISKS DUE TO EXPANSION ORARISING FROM THE RESTRUCTURING OF OUR OPERATIONS
New operations, whether foreign or domestic, can require significant
start-up costs and capital expenditures. As we continue to expand our domestic
and international operations, we may not be able to successfully generate
revenue necessary to recover start-up and operating costs. The successful
operation of an acquired business requires effective communication and
cooperation between us and our new employees, including cooperation in product
development and marketing. This cooperation may not occur or a disruption in one
or more sectors of our business may result. In addition, we may not be able to
retain key technical, management, sales and other personnel of an acquired
business for any significant length of time, and we may not realize any of the
other anticipated benefits of an acquisition. Furthermore, additional
acquisitions would require investment of financial resources and may require
debt financing or dilutive equity financing. We may not consummate any
acquisitions in the future. If we do, any debt or equity financing required for
any acquisition may not be available on terms acceptable to us.
We have undertaken numerous initiatives to restructure and reduce our
capacity in response to the recent downturn in demand,difficult economic climate, with the intention of
improving utilization and realizing significant cost savings in the future. These
initiatives have included changing the number and location of our production
facilities, largely to align our capacity and infrastructure with anticipated
customer demand, and to rationalize our footprint worldwide. This alignment
includes transferring programs from higher cost geographies to lower cost
geographies. The process of restructuring entails, among other activities,
moving product production between facilities, reducing staff levels, realigning
our business processes and reorganizing our management. Any failure to
successfully execute the aforementioned activitiesthese initiatives can have a material adverse impact on our
results. If, in the future, our customer demand falls, or we are required to
reduce prices, at a rate exceeding the rate at which we are able to reduce our
costs, this could have a material adverse impact on our operating results.
WE MAY NOT BE ABLE TO RESTRUCTURE QUICKLY ENOUGH IN SOME OF OUR KEY
MANUFACTURING REGIONS, SUCH AS EUROPE
We have operations in multiple regions around the world. As a result, we are
subject to different regulatory requirements governing how quickly we are able
to reduce manufacturing capacity and terminate related employees. Restrictions
on our ability to close under-performing facilities will result in higher
expenses associated with carrying excess capacity and infrastructure during our
restructuring activities.
8
CHANGES IN OUR INDUSTRY REQUIRE US TO MOVE A SIGNIFICANT PORTION OF OUR
MANUFACTURING BASE TO LOWER COST REGIONS
With the significant and severe weakness in technology end markets over the
past two years, our customers require significant cost reductions in order to
maintain sales and improve their financial performance. This environment has
resulted in an accelerated movement of our production from higher cost regions
such as North America and western Europe to lower cost regions such as Asia,
Latin America and Central Europe. This accelerated move could impact current and
future results by such factors as increasing the risks associated with
transferring production to new regions where skills or experience may be more
limited than in higher cost regions, higher operating expenses during the
transition, and additional restructuring costs associated with the decrease in
production levels in higher cost geographies.
WE FACE ADDITIONAL RISKS DUE TO OUR INTERNATIONAL OPERATIONS
During 2001, over 35%2002, approximately 40% of our revenue was derivedproduced from locations
outside of North America. In addition, we purchased material from international
suppliers for much of our business, including our North American business. We
believe that our future growth depends in large part on our ability to increase
our business in international markets.markets and, as we describe above, the shift of
much of our production to lower cost geographies. We will continue to expand our
operations outside of North America. This expansion will require significant
management attention and financial resources. To increase international sales in subsequent periods, we
must establish additional foreign operations, hire additional personnel and
establish additional international facilities. We may not expand or even
maintain our international sales. If the revenue we generate from foreign
activities is inadequate to offset the expense of maintaining foreign offices
and activities, our profitability will be adversely affected. International operations are
subject to inherent risks, which may adversely affect us, including:
- Laborlabor unrest;
- Unexpectedunexpected changes in regulatory requirements;
- Tariffs,tariffs, import and export duties, value-added taxes and other barriers;
- Lessless favorable intellectual property laws;
- Difficultiesdifficulties in staffing and managing foreign sales and support
operations;
- Longerlonger accounts receivable payment cycles and difficulties in collecting
payments;
- Changeschanges in local tax rates and other potentially adverse tax consequences,
including the cost of repatriation of earnings;
- Lacklack of acceptance of localizedlocally manufactured products in other foreign
countries;
- Burdensburdens of complying with a wide variety of foreign laws, including
changing import and export regulations which could erode our profit
margins or restrict exports;
- Adverseadverse changes in Canadian and U.S. trade policies with the other
countries in which we maintain operations;
- Politicalpolitical instability;
7
- Potential restrictionpotential restrictions on the transfer of funds;
and
- Inflexibleinflexible employee contracts that restrict our flexibility in responding
to events of business downtowns.downturns; and
- foreign exchange risks.
We have either purchased or built manufacturing facilities in severalnumerous Asian
countries, including Thailand, Malaysia, China, Indonesia, and Singapore, and
are subject to the significant political, economic, and legal risks associated
with doing business in these countries. For instance, under its current
leadership, the Chinese government has instituted a policy of economic reform
which has included encouraging foreign trade and investment, and greater
economic decentralization. However, the Chinese government may discontinue or
change these policies, and these policies may not be successful. Moreover,
despite progress in developing its legal system, China does not have a
comprehensive and highly developed system of laws, particularly as it relates to
foreign investment activities and foreign trade. Enforcement of existing and
future laws and contracts is uncertain, and implementation and interpretation of
such laws may be inconsistent. As the Chinese legal system develops, new laws
and changes to existing laws may adversely affect foreign operations in China.
While Hong Kong has had a long history of promoting foreign investment, its
incorporation into China means that the uncertainty related to China and its
policies may now also affect Hong Kong. Thailand and Indonesia have also had a
long history of promoting foreign investment but have experienced economic and
political turmoil and a significant devaluation of their currencies in the
recent past. There is a risk that this period of economic and political turmoil may result in
the reversal of current policies encouraging foreign investment and trade,
restrictions on the transfer of funds overseas, employee turnover, labor unrest,
or other domestic economic
problems that could adversely affect us.
9
OUR RECENT CAPACITY REDUCTION ACTIVITIES AND MANUFACTURING RESTRUCTURING
PROGRAMS MAY IMPACT OUR ABILITY TO MEET THE GROWTH NEEDS OF OUR CUSTOMERS
With the significant and severe weakness in technology end markets over the
past two years, we have experienced poor asset utilization and responded by
significantly reducing our manufacturing infrastructure. If our customers were
to experience sharp and unforecasted improvements in demand, the removal of this
infrastructure could potentially impact customer satisfaction and limit our
ability to grow if we are not able to respond to higher volumes required by our
customers.
WE FACE FINANCIAL RISKS DUE TO FOREIGN CURRENCY FLUCTUATIONS
The principal currenciescurrency in which we conduct our operations areis U.S. dollars,dollars.
However, some of our subsidiaries transact business in foreign currencies, such
as Canadian dollars, Mexican pesos, British pounds sterling, Euros, Singapore
dollars, Japanese yen, Brazilian realreais, and the Thai baht. We may sometimes
enter into hedging transactions to minimize our exposure to foreign currency and
interest rate risks. Our current hedging activity is designed to reduce the
variability of our foreign currency costs and consists of contracts to purchase
or sell these foreign currencies at future dates. In general, these contracts
extend for periods of less than 1819 months. Our hedging transactions may not
successfully minimize foreign currency risk.
INTEREST RATE DECREASES WILL REDUCE INTEREST INCOME ON OUR PORTFOLIO OF CASH
EQUIVALENTS AND SHORT-TERM INVESTMENTS
The primary objective of our investment activities is to preserve principal
while, at the same time, maximize yields without significantly increasing risk.
To achieve this objective, we maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including both government and
corporate obligations, certificates of deposit, and money market funds. If
interest rates, and therefore interest income, were to fall significantly, there
may be a material adverse impact on our financial results.
WE DEPEND ON HIGHLY SKILLED PERSONNEL
RecruitingThe recruitment of personnel for the EMS industry is highly competitive. We
believe that our future success will depend, in part, on our ability to continue
to attract and retain highly skilled executive, technical, and management
personnel. We generally do not have employment or non-competition agreements
with our employees. To date we have been successful in recruiting and retaining
executive, managerial, and technical personnel. However, the loss of services of
certain of these employees could have a material adverse effect on us.
WE ARE IN A HIGHLY COMPETITIVE INDUSTRY
We are in a highly competitive industry. We compete against numerous
domestic and foreign companies. ThreeTwo of our competitors, Flextronics
International Sanmina-SCI Corporation and Solectron Corporation, each have annual revenuesrevenue in excess of
$10.0 billion.$12.0 billion for fiscal 2002 and one of our competitors, Sanmina-SCI
Corporation, has revenue in excess of $8.0 billion for fiscal 2002. We also face
indirect competition from the manufacturing operations of our current and
prospective customers, which continually evaluate the merits of manufacturing
products internally rather than using EMS providers. Some of our competitors
have more geographically diversified international operations, a greater
production presence in lower cost geographies as well as substantially greater
manufacturing, financial, procurement, research and development, and marketing
resources than we have. These competitors may create alliances and rapidly
acquire significant market share. Accordingly, our current or potential
competitors may develop or acquire services comparable or superior to those we
develop, combine or merge to form significant competitors, 8
or adapt more quickly
than we will to new technologies, evolving industry trends and changing customer
requirements. Competition couldhas caused and may continue to cause price reductions,
reduced profits, or losses or loss of market share, any of which could materially and
adversely affect us. We may not be able to compete successfully against current
and future competitors, and the competitive pressures that we face may
materially adversely affect us. The EMS industry has been experiencing an
increase in excess manufacturing capacity. This has and will continue to exert
additional pressures on pricing for components and services, thereby increasing
the competitive pressures in the EMS industry. Excess capacity will limit the
industries ability to attain economics of scale and other synergies.
10
WE DEPEND ON THE CONTINUING TREND OF OUTSOURCING BY OEMS
Future growth in our revenue depends on new outsourcing opportunities in
which we assume additional manufacturing and supply chain management
responsibilities from OEMs. To the extent that these opportunities are not
available, either because OEMs decide to perform these functions internally or
because they use other EMS providers, our future growth will be limited.
WE MAY BE UNABLE TO KEEP PACE WITH PROCESS AND TEST DEVELOPMENT CHANGETECHNOLOGY CHANGES
We continue to evaluate the advantages and feasibility of new manufacturing
processes. Our future success will depend in part upon our ability to develop
and to market manufacturing services which meet changing customer needs, to
maintain technological leadership, and to successfully anticipate or respond to
technological changes in production and manufacturing processes in
cost-effective and timely ways. Our process andmanufacturing processes, test development
efforts, and design capabilities may not be successful.
OUR CUSTOMERS MAY BE ADVERSELY AFFECTED BY RAPID TECHNOLOGICAL CHANGE
Our customers compete in markets that are characterized by rapidly changing
technology, evolving industry standards, and continuous improvements in products
and services. These conditions frequently result in short product life cycles.
Our success will depend largely on the success achieved by our customers in
developing and marketing their products. If technologies or standards supported
by our customers' products become obsolete or fail to gain widespread commercial
acceptance, our business could be materially adversely affected.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY
We believe that certain of our proprietary intellectual property rights and
information give us a competitive advantage. Accordingly, we have taken, and
intend to continue to take, appropriate steps to protect this proprietary
information. These steps include signing non-disclosure agreements with
customers, suppliers, employees, and other parties and implementing rigid
security measures. Our protection measures may not be sufficient to prevent the
misappropriation or unauthorized disclosure of our property or information.
There is also a risk that infringement claims may be brought against us or
our customers in the future. If someone does successfully assert an infringement
claim, we may be required to spend significant time and money to develop a
manufacturing process that does not infringe upon the rights of such other
person or to obtain licenses for the technology, process or information from the
owner. We may not be successful in such development or any such licenses may not
be available on commercially acceptable terms, if at all. In addition, any
litigation could be lengthy and costly and could adversely affect us even if we
are successful in such litigation.
WE ARE SUBJECT TO THE RISK OF INCREASED INCOME TAXES
Our business operations are carried on in a number of countries, including
countries where:
- tax incentives have been extended to encourage foreign investment; or
- income tax rates are low.
We develop our tax position based upon the anticipated nature and conduct of
our business and our understanding of the tax laws, ofadministrative practices and judicial decisions
now in effect in the various countries in which we have assets or conduct activities. However, our tax position isbusiness, all
of which are subject to review and possible challenge by taxing authorities and to possible changes
in law, which may havechange or differing interpretations, possibly with
retroactive effect. We cannot determine in advance the
extent to which some jurisdictions may require us to pay taxes or make payments
in lieu of taxes.
9
effects.
OUR COMPLIANCE WITH ENVIRONMENTAL LAWS COULD BE COSTLY
Like others in similar businesses, we are subject to extensive environmental
laws and regulations in numerous jurisdictions. Our environmental policies and
practices have been designed to ensure compliance with these laws and
regulations consistent with local practice. Future developments and increasingly
stringent regulation could require us to makeincur additional expenditures relating
to environmental matters at any of the facilities. Achieving and maintaining
compliance with present, changing, and changing future environmental laws could restrict
our ability to modify or expand our facilities or continue production. This
compliance could also require us to acquire costly equipment or to incur other
significant expenses.
11
Some of our operating sites have a history of industrial use. Soil and
groundwater contamination have occurred at some of our facilities. Certain
environmental laws impose liability for the costs of removal or remediation of
hazardous or toxic substances on an owner, occupier or operator of real estate,
even if such person or company was not aware of or responsible for the presence
of such substances. In addition, in some countries in which we have operations,
any person or company who arranges for the disposal or treatment of hazardous or
toxic substances at a disposal or treatment facility may be liable for the costs
of removal or remediation of such substances at such facility, whether or not
the person or company owns or operates the facility. From time to time we
investigate, remediate, and monitor soil and groundwater contamination at
certain of our operating sites. In certain instances where soil or groundwater
contamination existed prior to our ownership or occupation of a site, landlords
or former owners have contractually retained responsibility and liability for
the contamination and its remediation. However, failure of such former owners or
landlords to perform, as the result of financial inability or otherwise, could
result in our company being required to remediate such contamination.
Except for facilities we acquired in the Omni transaction, we obtained
Phase I or similar environmental assessments, or reviewed recent assessments
initiated by others, for most of the manufacturing facilities that we own or
lease at the time we either acquired or leased such facilities. Typically, these
assessments include general inspections without soil sampling or groundwater
analysis. Where contamination is suspected, usually Phase II intrusive environmental
assessments (including soil and/or groundwater testing) are usually performed.
TheThese assessments have not revealed any environmental liability that we believe,
based on current information, we believe will have a material adverse effect on us, in part
because of the contractual retention of liability for some contamination and its
remediation by landlords and former owners. Our assessments may not reveal all
environmental liabilities and current assessments are not available for all
facilities. Consequently, there may be material environmental liabilities of
which we are not aware of.aware. In addition, ongoing clean up and containment operations
may not be adequate for purposes of future laws. The conditions of our
properties could be affected in the future by the conditions of the land or
operations in the vicinity of the properties (such as the presence of
underground storage tanks). These developments and others (such as increasingly
stringent environmental laws, increasingly strict enforcement of environmental
laws by governmental authorities, or claims for damage to property or injury to
persons resulting from the environmental, health, or safety impact of our
operations) may cause us to incur significant costs and liabilities that could
have a material adverse effect on us.
OUR LOAN AGREEMENTS CONTAIN RESTRICTIVE COVENANTS
Certain of our outstanding loan agreements contain financial and operating
covenants that limit our management's discretion with respect to certain
business matters. Among other things, these covenants restrict our ability and
our subsidiaries' ability to incur additional debt, create liens or other
encumbrances, make certain payments (including dividends) and investments,change the nature of our business, sell or otherwise dispose of
assets, and merge or consolidate with other entities.
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Future sales of our subordinate voting shares in the public market, or the
issuance of subordinate voting shares upon the exercise of stock options or
otherwise, could adversely affect the market price of the subordinate voting
shares.
As of March 1, 2002,February 28, 2003, we had 190,826,868189,102,903 subordinate voting shares and
39,065,950 multiple voting shares outstanding. All of the subordinate voting
shares are freely transferable without restriction or further
10
registration under
the U.S. Securities Act, except for shares held by our affiliates (as defined in
the U.S. Securities Act). Shares held by our affiliates include all of the
multiple voting shares and 3,976,2363,483,238 subordinate voting shares held by Onex. An
affiliate may not sell shares in the United States unless the sale is registered
under the U.S. Securities Act or an exemption from registration is available.
Rule 144 adopted under the U.S. Securities Act permits our affiliates to sell
our shares in the United States subject to volume limitations and requirements
relating to manner of sale, notice of sale and availability of current public
information with respect to Celestica.
In addition, as of March 1, 2002,February 28, 2003, there were approximately 28,620,00033,497,000
subordinate voting shares reserved for issuance under our employee share
purchase and option plans and for director compensation,
12
including outstanding options to purchase approximately 23,756,00025,536,000 shares. The
issuances and/or sale of such shares could adversely affect the market price of
the subordinate voting shares.
OUR COMPANY IS CONTROLLED BY ONEX CORPORATION
Onex owns, directly or indirectly, all of the outstanding multiple voting
shares and less than 1% of the outstanding subordinate voting shares. The number
of shares owned by Onex, together with those shares Onex has the right to vote,
represent 84.0%84% of the voting interest in Celestica and approximately 2% of the
outstanding subordinate voting shares. Accordingly, Onex exercises a controlling
influence over our business and affairs and has the power to determine all
matters submitted to a vote of our shareholders where our shares vote together
as a single class. Onex has the power to elect our directors and to approve
significant corporate transactions such as certain amendments to our articles of
incorporation, mergers, amalgamations, plans of arrangement, and the sale of all
or substantially all of our assets. Onex'sOnex' voting power could have the effect of
deterring or preventing a change in control of our company that might otherwise
be beneficial to our other shareholders. Under our revolving credit facilities,
if Onex ceases to control Celestica and if our shares cease to be widely held
("widely held" meaning that no one person owns more than 20% of the votes), our
lenders could demand repayment. Gerald W. Schwartz, the Chairman, President and
Chief Executive Officer of Onex and one of our directors, owns shares with a
majority of the voting rights of the shares of Onex. Mr. Schwartz, therefore,
effectively controls our affairs. For additional information about our principal
shareholders, please turn to Item 7(A), "Major Shareholders."
In private placements outside of the United States, certain subsidiaries of
Onex have offered exchangeable debentures due 2025 that are exchangeable and
redeemable under certain circumstances during their 25-year term for 9,214,320
subordinate voting shares. In addition, 1,757,467 subordinate voting shares may
be delivered, at the option of Onex or certain persons related to Onex, to
satisfy the obligations of such persons under equity forward agreements. If the
issuers of the exchangeable debentures elect or the party to the equity forward
agreements elects to deliver solely subordinate voting shares and no cash upon
the exchange or redemption, or at maturity or acceleration, of the debentures or
the settlement of the equity forward agreement, as the case may be, the number
of shares owned by Onex, together with those shares Onex has the right to vote,
would, if such delivery had occurred on March 1, 2002,February 28, 2003, represent in the
aggregate 78% of the voting interest in our company.
POTENTIAL VOLATILITY OF SHARE PRICE
The markets for our subordinate voting shares are highly volatile. The
trading price of subordinate voting shares could fluctuate widely in response
to:
- Quarterlyquarterly variations in our operations and financial results;
- Announcementsannouncements by us or our competitors of technological innovations, new
products, new contracts or acquisitions;
- Changeschanges in our prices or the prices of our competitors' products and
services;
- Changeschanges in our product mix;
- Changeschanges in our growth rate as a whole or for a particular portion of our
business;
- Generalgeneral conditions in the EMS industry; and
- Systemicsystemic fluctuations in the stock markets.
11
The stock markets have fluctuated widely in the past. The securities of many
technology companies, including companies in the EMS industry, have experienced
extreme price and volume fluctuations, which often have been unrelated to the
companies' operating performance. These broad market fluctuations may adversely
affect the market price of the subordinate voting shares.
13
POTENTIAL UNENFORCEABILITY OF CIVIL LIABILITIES AND JUDGMENTS
We are incorporated under the laws of the Province of Ontario, Canada. Most
of our directors, controlling persons and officers and certain of the experts
named in this Annual Report are residents of Canada.
Also, a substantial portion of our assets and the assets of these persons are
located outside of the United States. As a result, it may be difficult for
shareholders to initiate a lawsuit within the United States against these
non-U.S. residents, or to enforce, judgments in the United States against us or these personsU.S., judgments which are obtained in
a U.S. court.court against us or these persons. It may also be difficult for
shareholders to enforce a U.S. judgment in Canada or to succeed in a lawsuitCanadian
court, in Canadaa lawsuit based only on U.S. securities laws.
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
Celestica was incorporated in Ontario, Canada under the name Celestica
International Holdings Inc. on September 27, 1996. Since that date, we have
amended our articles of incorporation on various occasions principally to modify
our corporate name and our share capital. Our legal name and commercial name is
Celestica Inc. We are a corporation domiciled in the Province of Ontario, Canada
and operate under the Ontario Business Corporations Act. Our principal executive
offices are located at 12 Concorde Place,1150 Eglinton Avenue East, Toronto, Ontario, Canada
M3C 3R81H7 and our telephone number is (416) 448-5800. Our webWeb site is
http://www.celestica.com. Information on our webWeb site is not incorporated by
reference in this Annual Report.
We are a leading providerworld leader in the delivery of innovative electronics
manufacturing services. We operate a highly sophisticated global manufacturing
network with operations in Asia, Europe, and the Americas, providing a broad
range of services to OEMs worldwide, with revenue for the year ended December 31, 2001leading OEMs. A recognized leader in excess of
$10.0 billion. We provide a wide variety of productsquality, technology,
and services to our
customers, including the high-volume manufacture of complex PCAs and the full
system assembly of final products. In addition, we are a leading-edge provider
of design, repair and engineering services, supply chain management, Celestica provides competitive advantage to
customers by improving time-to-market, scalability, and power
products. We operate facilities in North America, Europe, Asia and Latin
America.manufacturing
efficiency.
As an important IBM manufacturing unit, Celestica provided manufacturing
services to IBM for more than 75 years. In 1993, we began providing EMS services
to non-IBM customers. In October 1996, Celestica was purchased from IBM by an
investor group, led by Onex, which included our management.
OUR ACQUISITIONS
In 2001, we completed the following acquisitions, significantly enhancing
our geographic reach, expanding our customer base of leading OEMs and broadening
our service offering capabilities:
- Excel Electronics, Inc. enhanced our prototype service offering in the
southern United States;
- certain manufacturing assets of Motorola Inc. in Mt. Pleasant, Iowa and
Dublin, Ireland expanded our business relationship with Motorola;
- certain assets relating to a repair business of N.K. Techno Co. Ltd.
expanded our presence in Japan;
- certain assets from Avaya Inc. in Little Rock, Arkansas, Denver, Colorado
and Saumur, France positioned us as Avaya's primary outsourcing partner in
the area of printed circuit board systems assembly, test, repair and
supply chain management for a broad range of their telecommunications
products;
- Sagem CR s.r.o. in the Czech Republic enhanced our presence in central
Europe and positioned us as Sagem's primary EMS provider;
- Primetech Electronics Inc. provided us with additional high complexity
manufacturing capability and an expanded global customer base;
12
- certain assets from Lucent Technologies Inc. in Columbus, Ohio and
Oklahoma City, Oklahoma positioned us as the leading EMS provider for
Lucent's North American switching, access and wireless networking systems
products; and
- Omni Industries Limited significantly enhanced our EMS presence in Asia.
In 2001, we also established a greenfield operation in Singapore. We
continue to seek strategic acquisitions and greenfield opportunities.
A listing of our acquisitions since 19971998 is included in note (1) to the
Selected Financial Data table, see Item 3, "Key Information -- Selected
Financial Data."
In 2002, we completed the acquisition of:
- certain manufacturing assets of NEC Corporation in Miyagi and Yamanashi,
Japan; and
- certain assets from Corvis Corporation in the United States.
In connection with these acquisitions, we also entered into supply
agreements. The aggregate purchase price for these acquisitions was
$111.0 million.
Certain information concerning capital expenditures, including acquisitions
and financing activities, is set forth in Notesnotes 3, 9, 10, 11, and 20 to the
Consolidated Financial Statements in Item 18.18, and Item 5, "Operating and
Financial Review and Prospects -- Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Certain information concerning our divestiture activities, such as
restructuring, is set forth in note 13 to the Consolidated Financial Statements
in Item 18, in Item 4, "Information on the Company -- Description of Property,"
and Item 5, "Operating and Financial Review and Prospects -- Management's
Discussion and Analysis of Financial Condition and Results of Operations."
B. BUSINESS OVERVIEW
Our goal is to be the "partner of choice" in EMS. We believe we are uniquely
positioned to achieve this goal given our position as one of the major EMS
providers worldwide and our widely recognized skills in our core areas of
competency. The Company's strategy is to (i) maintain our leadership position in
the areas of
14
technology, quality, and supply chain management, (ii) develop profitable,
strategic relationships with industry leaders, (iii) continually expand the
range of the services we provide to OEMs, (iv) diversify our customer base,
serving a wide variety of end-markets,end markets, (v) selectively pursue strategic
acquisitions, and (vi) steadily improve our operating margins. We believe that
the successful implementation of this strategy will allow us to achieve superior
financial performance and enhance shareholder value.
We have operations in the United States, Canada, Mexico, United Kingdom,
Ireland, Italy, Thailand, China, Hong Kong, Czech Republic, Brazil, Singapore,
MalaysiaAmericas, Europe, and Japan.Asia. We provide a wide
variety of products and services to our customers, including the manufacture,
assembly, and test of complex printed circuit assemblies, or PCAs, and the full
system assembly of final products. In addition, we provide a broad range of EMS
services from product design to worldwide distribution and after-sales support.
Celestica targets industry leadingindustry-leading OEMs primarily in the computerinformation
technology and communications sectors. Celestica supplies products and services
to over 75 OEMs, including such industry leaders as Avaya Inc., Cisco Systems Inc., Dell
Computer Corporation, EMC Corporation, Fujitsu, Hewlett-Packard Company,
International Business Machines Corporation, Lucent Technologies Inc.,
Motorola Inc., NEC Corporation and Sun Microsystems Inc.100 OEMs. In the aggregate, our top ten customers represented 84%over 80%
of revenue in 2001.2002. The products we manufacture can be found in a wide array of
end-products,end products, including: cell phones and pagers, electronic metering devices,
hubs and switches, LAN and WAN networking cards, laser printers, mainframe
computers, mass storage devices, medical products, modems, multimedia
peripherals, PBX switches, personal computers, PDAs, photonic devices, routers,
scalable processors, servers, switching products, token ring products, video
broadcasting equipment, wireless base stations, wireless loop systems, and
workstations.
Our principal competitive advantages are our advanced capabilities and
leadership in the areas of technology, quality and supply chain management. We
are an industry leader in a wide range of advanced manufacturing technologies,
using established and emerging process technologies. Our state-of-the-art
manufacturing facilities are organized as customer focused factories, which have
dedicated manufacturing lines and customer teams. This approach enhances
customer satisfaction and manufacturing flexibility. We believe our test
capabilities are among the best in the industry and enable us to produce highly
reliable products, including products that are critical to the functioning of
our customers' products and systems. Our size, geographic reach, and leading
expertise in supply chain management allow us to purchase materials effectively
and to deliver products to customers faster, thereby reducing overall product
costs and reducing the time to market.
We believe that our highly skilled workforce gives us a distinct competitive
advantage. Through innovative compensation and broad-based employee stock
ownership, we have developed a unique entrepreneurial, participative and
team-based culture.
We employ over 2,800 engineers.
13
ELECTRONICS MANUFACTURING SERVICES INDUSTRY
OVERVIEW
The EMS industry is comprised of companies that provide a range of
manufacturing services to OEMs. The industry (i) has experienced rapid growth in
the past and has potential for strong growth in the future as the market for
technology,outsourcing, as a whole, grows, (ii) is highly fragmented and (iii) is poised
for continuing consolidation due to the advantages of scale and geographic
diversity. In 2001, four2002, two EMS providers -- Celestica, Sanmina-SCI Corporation, Flextronics International and Solectron
Corporation -- each achieved total revenue in excess of $10.0$12.0 billion, and two
EMS providers -- Celestica and Sanmina-SCI Corporation -- each achieved total
revenue in excess of $8.0 billion.
We see numerous industry vectors that are fueling continued growth in the EMS industry. These
include the growingcontinuing trend of information technology and communications
companies in North America to outsource their electronics manufacturing and to divest their
manufacturing assets,assets; OEMs in Europe and Japan increasingly executingexecute an electronics
manufacturing outsourcing strategy; the increasing adoption of an outsourcing
strategy by the industrial, medical, military, and consumer electronics
industries; and OEMs increasingly looking to the EMS industry to reduce their
overall cost of goods sold and to provide full-system solutionsa full range of services including
design, system build, order fulfillment, reverse logistics, and distribution.
Weother related
manufacturing and customer support services.
In the current weak economic environment, the industry is dealing with the
challenges of low utilization rates and the shifting of more production and
manufacturing infrastructure to lower cost geographies. However, we believe that
as the trend to outsourcing continues, OEMs will increasingly outsource more complex productsof
their manufacturing and services.related services to EMS providers. This trend will favor
larger EMS providers that have clear advantages of scale, financial strength,
geographic diversity, technology and quality,leading supply chain capabilities, and is expected to
lead to a sustained period of consolidation in the EMS industry.
The EMS industry is highly diverse, with providers serving OEMs in a broad
range of industry segments. The computer and communications sectors are the
largest industry opportunities for EMS companies primarily due to rapidly
changing product technologies and shortening product life cycles. These industry
dynamics have caused many computer and communications OEMs to outsource design,
assembly, test and worldwide distribution functions to their EMS partners.15
EVOLUTION OF THE EMS INDUSTRY
Historically, OEMs were fully integrated. They invested heavily in
manufacturing assets, establishing facilities around the world to support the
manufacture, service and distribution of their products. Since the 1970s, the
EMS market has evolved significantly. In the early stages of development of the
EMS industry, EMS companies acted as subcontractors and performed simple
material assembly functions mainly on a consignment basis for
OEMs. Accordingly, the relationship between OEMs and EMS providers tended
originally to be transactional in nature.
Significant advancements in manufacturing process technology in the 1980s
enabled EMS companies to provide cost savings to OEMs while at the same time
increasing the quality of their products. Furthermore, as the capabilities of
EMS companies expanded, an increasing number of OEMs adopted and became
increasingly reliant upon manufacturing outsourcing strategies. In recent years,
large sophisticated EMS companies have further expanded their capabilities to
include providing services in support of their OEM customers, ranging from
design to advanced manufacturing, final distribution and after-sales support.
For the services they provide, the larger EMS companies generally have a lower
cost structure, superior technological know-how and more advanced manufacturing
processes relative to most of the OEM customers they serve. In this environment,
OEMs have begun increasingly to outsource front-end design functions as well as
back-end full system assembly, product test, test development, order fulfilmentfulfillment
and distribution functions.
By outsourcing EMStheir manufacturing and related services, OEMs are able to
focus on their core competencies, including product development, sales,
marketing and customer service, while leveraging the expertise of EMS providers
for design, procurement, assembly and test operations, and supply chain
management. As a result, larger, more sophisticated EMS providers have
established strong strategic relationships with many of their OEM customers.
The Company believes that the principal reasons OEMs establish relationships
with EMS providers include the following:
DECREASE TIME TO MARKET. Electronics products are experiencing increasingly
shorter product life cycles, requiring OEMs to continually reduce the time
required to bring products to market. OEMs can significantly improve product
development cycles and enhance time to market by benefittingbenefiting from the expertise
and
14
infrastructure of EMS providers. This includes capabilities relating to
design, quick-turn prototype development and rapid ramp-up of new products to
high volume production, with the critical support of worldwide supply chain
management.
REDUCE OPERATING COSTS AND INVESTED CAPITAL. As electronics products have
become more technically advanced, the manufacturing process has become
increasingly automated, requiring greater levels of investment in capital
equipment. EMS companies enable OEMs to gain access to advanced manufacturing
facilities, supply chain management and engineering capabilities, additional
capacity, greater flexibility for both product ramp-up and changeover, and the
economies of scale which EMS companies provide. As a result, OEMs can reduce
overall operating costs, working capital and capital investment requirements.
FOCUS RESOURCES ON CORE COMPETENCIES. The electronics industry is
experiencing greater levels of competition and rapid technological change. In
this environment, many OEMs are seeking to focus on their core competencies of
product development, sales, marketing and customer service, and to outsource
design, manufacturing and related requirements to their EMS partners.
ACCESS LEADING MANUFACTURING TECHNOLOGIES. Electronics products and
electronics manufacturing technology have become increasingly sophisticated and
complex, making it difficult for many OEMs to maintain the necessary
technological expertise and focus required to efficiently manufacture products
internally. By working closely with EMS providers, OEMs gain access to high
quality manufacturing expertise and capabilities in the areas of advanced
process, interconnect and test technologies.
UTILIZE EMS COMPANIES' PROCUREMENT, INVENTORY MANAGEMENT AND LOGISTICS
EXPERTISE. OEMs who manufacture internally are faced with greater complexities
in planning, procurement and inventory management due to frequent design
changes, short product life cycles and product demand fluctuations. OEMs can
address
16
these complexities by outsourcing to EMS providers whichthat (i) possess
sophisticated supply chain management capabilities, and (ii) can leverage
significant component procurement advantages to lower product costs.
IMPROVE ACCESS TO GLOBAL MARKETS. OEMs are generally increasing their
international activities in an effort to expand sales through access to foreign
markets. EMS companies with worldwide capabilities are able to offer such
OEMs global manufacturing solutions, to meet local content requirements,
distribute products efficiently around the world and lower costs.
KEY SUCCESS FACTORS
Celestica believes that the following are the key success factors for EMS
providers seeking to establish and expand relationships with leading OEMs:
SOPHISTICATED TECHNOLOGICAL CAPABILITIES. The desire among OEMs to increase
product performance, functionality and quality is driving a requirement for
increasingly complex assembly and test technologies. EMS companies whichthat possess
sophisticated skills in manufacturing technology, and whichthat continually innovate
and develop advanced assembly and test techniques, provide a competitive
advantage to their OEM customers. We believe that as the trend to outsourcing
continues, OEMs will increasingly outsource more complex products.
LARGE-SCALE AND FLEXIBLE PRODUCTION CAPACITY. Increasingly, leading
OEMs are seeking to outsource large-scale manufacturing programs. Generally
those EMS providers that can meet the volume and sensitive time-to-market
requirements associated with these programs will be able to exploit these
opportunities. EMS providers must be of a certain scale and diversity to be
awarded large-scale programs, as OEMs are often seeking partners with the
resources to support simultaneous product launches in multiple geographic
markets.
GLOBAL SUPPLY CHAIN MANAGEMENT SKILLS. EMS providers must possess the
skills required to optimize many aspects of the OEM's global supply chain, from
managing a sophisticated supplier base, component selection and cost-effective
procurement to inventory management and rapid distribution direct to end-customers.end
customers. Therefore, EMS providers who lack the sophisticated material resource
planning and information technology systems necessary to effectively optimize
the supply chain will be significantly disadvantaged in the marketplace.
15
BROAD SERVICE OFFERING. In order to establish strategic relationships with
OEM customers, EMS companies must be able to effectively provide a broad
portfolio of services. These services include front-end product design and
design for manufacturability, component selection and procurement, quick-turn
prototyping, PCA test, product assurance and failure analysis, andas well as
back-end functions such as full system assembly, order fulfilment,fulfillment, worldwide
distribution and after-sales support, including repair services. The complex
nature of certain services such as front-end design and testing requirerequires a
significant investment in highly trained engineering personnel.
GLOBAL PRESENCE.COMPETITIVE COSTS. EMS companies with global plant networks can simplify
and shorten an OEM's supply chain, and significantly reduce the time it takes to
bring products to market. Additionally,market, and significantly reduce the total cost of an OEM's
product. EMS providers are locatingthat have significant capability in lower-costlower cost regions
such as Mexico, Asia, and Central Europe in order to complement their
offerings by providingcan provide lower cost manufacturing
solutions to their OEM customers
for certain price-sensitive applications.customers. As a result of these trends, many large
OEMs are beginningtend to work with a smaller number of EMS providers that, as worldwide
suppliers, can meet their needs in multiple geographic markets.markets at the lowest
cost.
MARKET CONSOLIDATION
The Company believes that larger EMS providers whichthat possess the above-noted
attributes will be well positioned to take advantage of anticipated growth in
the EMS industry.future outsourcing
trend. Conversely, the Company believes that smaller providers who seek to serve
leading OEMs, and compete directly with larger EMS providers, will generally be
disadvantaged due to a lack of scale and their difficulty in meeting OEM
requirements relating to technology, capacity, supply chain management, broad
service offerings, and global manufacturing capabilities.capabilities, and competitive costs.
The EMS industry has experienced an increase incontinues to experience large-scale acquisition activity, in recent years,
primarily through the sale of facilities and manufacturing operations from
OEMs to larger EMS providers. OEMs have tended to award these
17
opportunities to larger EMS providers that possess the capital, management
expertise and advanced systems required to integrate the acquired business
effectively as the acquiror in most cases becomes an important supplier to the
OEM post-acquisition. For the EMS provider, these acquisitions have been driven
by the need for additional capacity or capability, a desire to enter new
geographic or product markets and services, or a desire to establish or further
develop a customer relationship with a particular OEM.
Given this environment, Celestica believes that the EMS industry may
experience significant consolidation, driven by the continued trend among
OEMs to outsource large-volume programs to leading EMS providers, the continued
disposition of OEM manufacturing assets to these companies and acquisition
activity among EMS businesses themselves.
CELESTICA'S STRATEGY
Celestica's goal is to be the "partner of choice" in EMS. To achieve this
goal, Celestica works closely with OEM customers to proactively identify and
fulfill each of their requirements, and exceed their expectations in areas such
as price, delivery, quality, reliability and serviceability. By deploying the
following strategy, we believe that Celestica will maximize customer
satisfaction, and achieve superior financial performance, and enhance shareholder
value:
LEVERAGE LEADERSHIP IN TECHNOLOGY, QUALITY AND SUPPLY CHAIN MANAGEMENT. We
are committed to maintaining our leadership position in the areas of technology,
quality and supply chain management. Our modern plants and leading technological
capabilities enable us to produce complex and highly sophisticated products to
meet the rigorous demands of our OEM customers. The Company's Customer Gateway
Centre strategy provides customer access to the Company's broad base of
services, capabilities, skills, geographic coverage and larger production
facilities. Our commitment to quality in all aspects of our business allows us
to deliver consistently reliable products to our OEM customers. The systems and
processes associated with our leadership in supply chain management enable us to
rapidly ramp operations to meet customer needs, flexibly shift capacity in
response to product demand fluctuations, and effectively distribute products
directly to end-customers.end customers. We often work closely with many suppliers to
influence component design for the benefit of OEM customers. We have been
recognized through numerous customer and industry achievement awards.
DEVELOP AND ENHANCE RELATIONSHIPS WITH LEADING OEMS. Celestica seeks
profitable, strategic relationships with industry leaders in the computerinformation
technology and communications sectors. To this end, we pursue opportunities
which
16
exploit our competitive advantages in the areas of technology, quality and
supply chain management. This strategy has allowed us to establish strong
manufacturing relationships with OEMs such as Avaya, Cisco Systems, Dell, EMC,
Fujitsu-ICL, Hewlett-Packard, IBM, Lucent Technologies, Motorola, NEC, Nortel
Networks and Sun Microsystems.leading OEMs. We are also committed to further
diversification of our customer base and to expanding our global presence as
required by our customers.
BROADEN SERVICE OFFERINGS. We continually expand the breadth and depth of
the services we provide to OEMs. Although we traditionally offered our services
in connection with the production of higher-end and more complex products, we
have significantly broadened our offering of services to facilitate the
manufacture of a broader spectrum of products and to support the full product
lines of leading OEMs. In the past few years, we have acquired additional
capabilities in prototyping and PCA design, embedded system design, full system
assembly and repair services. We will continue to broaden our design services
capabilities in order to increase the value of services to our customers.
Furthermore, we will continue to establish in key locations in order to better
serve customers' requirements. We will expand our capabilities and service
offerings on a global basis as required by our customers.
DIVERSIFY END-MARKETS.END MARKETS. Celestica has a diversified customer base whose
products serve the communications, server, storage and other, workstation and
personal computer industries. In 2001,2002, revenue by end-market users was as
follows: communications -- 36%45%; servers -- 31%26%; storage and other -- 18%22%; and
workstations and personal computer -- 15%7%. Celestica targets industry-leading
OEMs, primarily in the information technology and communications sectors. In
addition to this, Celestica's strategy is to mitigate
risk byincludes increasing its diversification
across end-markets.other end markets, such as aerospace, military, industrial, medical,
consumer, and automotive, to reduce the risk of reliance on certain sectors.
18
SELECTIVELY PURSUE STRATEGIC ACQUISITIONS. Celestica has completed numerous
acquisitions. We will continue selectively to seek acquisition opportunities in
order to (i) further develop strategic relationships with leading OEMs,
(ii) expand our capacity and capability, (iii) diversify into new market
sectors, (iv) broaden our service offerings, and (v) optimize our global
positioning. Celestica has developed and deployed a comprehensive integration
strategy whichthat includes establishing a common culture at all locations with
broad-based workforce participation, providing a single marketing "face" to
customers worldwide, deploying common information technology platforms,
leveraging global procurement and transferring best practices among operations
worldwide.
INCREASE OPERATING EFFICIENCY. InWhile operating margins were relatively
stable for the past we have improved ourtwo years, operating margins each year since 1998. Despitefell in 2002 as a difficult market environment in 2001, we
were able to maintain our operating margins at the same level as 2000. These
margins are measured by Celestica as (i) net earnings before interest, income
taxes, amortizationresult of
intangible assets, integration costs related to
acquisitionsrevenue declines and other charges, divided by (ii) revenue.weaker facilities utilization. Management is committed to
applying our proven strategies and processes to enhance margins in our newly
acquired operations around the
world. Additionally, we are executing our plan to improve overall financial
margins by (i) optimizing the allocation of production
withincompleting our worldwide network of facilities based on cost and technological
complexities,restructuring program, (ii) leveraging corporate
procurement capabilities to lower materials costs, (iii) increasing utilization
of recently acquired facilities to take advantage of significant operating leverage,
(iv) deploying corporate cost reduction and productivity enhancement initiatives
on a global basis, (v) consistently applying best practices among our operations
worldwide, and (vi) compensating our employees based in part on the achievement
of earnings targets. In addition, we will continue our intensive focus on
maximizing asset turnover which, combined with the margin enhancements described
above, we believe will increase our return on invested capital.
CELESTICA'S BUSINESS
EMS SERVICES
Celestica is positioned as a value-added provider within the EMS industry
with a full spectrum of products and services to capitalize on the extensive
technological know-how and intellectual capital within Celestica. We believe
that our ability to deliver this wide spectrum of services to our OEM customers
provides us with a competitive advantage over EMS providers focused in few
service areas. Celestica offers a full range of manufacturing services including
those discussed below.
17
SUPPLY CHAIN MANAGEMENT. We utilize our fully integrated enterprise
resource planning and supply chain management system to enable us to optimize
materials management from supplier to end-customer.end customer. Effective management of the
supply chain is critical to the success of OEMs as it directly impacts the time
required to deliver product to market and the capital requirements associated
with carrying inventory.
DESIGN. Celestica's design team works with OEM product developers in the
early stages of product development. The design team uses advanced design tools
to enable new product ideas to progress from electrical and ASIC design, to
simulation and physical layout to design for manufacturability. Electronic
linkages between the customer, the design group, and the manufacturing group at
Celestica help to ensure that new designs are released rapidly, smoothly, and
cohesively into production.
PROTOTYPING. Prototyping is a critical stage in the development of new
products which is enhanced by linkagelinkages between OEM and EMS engineers.
Celestica's prototyping and new product introduction centers, referred to as
"Customer Gateway Centres," are strategically located, enabling us to provide a
quick response to customer demands facilitating greater collaboration between
our engineers and those customers, and providing a seamless entry to our larger
manufacturing facilities.
PRODUCT ASSEMBLY AND TEST. We use sophisticated technology in the assembly
and testing of our products, and have continually made significant investments
in developing new assembly and test process techniques and improving product
quality, reducing cost, and improving delivery time to customers. Celestica
works independently and with customers and suppliers to develop leading assembly
and test technologies.
FULL SYSTEM ASSEMBLY. Celestica provides full system assembly services to
OEMs. These services require sophisticated logistics capabilities to rapidly
procure components, assemble products, perform complex testing, and distribute
products to customers around the world. Celestica's full system assembly
services involve combining a wide range of sub-assemblies (including PCA) and
employing advanced test techniques to various sub-assemblies and final-endfinal end
products. Increasingly, OEMs require custom build-to-order system solutions with
19
very short lead times. We are focused on exploiting this trend through our
advanced supply chain management capabilities.
PRODUCT ASSURANCE. We believe we are one of the few EMS companies thatCelestica provides product assurance to our OEM
customers. Celestica's product assurance team performs product life testing and
full circuit characterization to ensure that designs meet or exceed required
specifications. Celestica is accredited as a National Testing Laboratory capable
of testing to international standards (E.G., Canadian Standards Association and
Underwriters Laboratories). Celestica believes that this service allows
customers to attain product certification significantly faster than is customary
in the EMS industry.
FAILURE ANALYSIS. Celestica's extensive failure analysis capabilities
concentrate on identifying the root cause of failures and determining corrective
action. Root causecauses of failures typically relatesrelate to inherent component defects
or design robustness deficiencies. Products are subjected to various
environmental extremes, including temperature, humidity, vibration, voltage, and
rate of use, and field conditions are simulated in failure analysis laboratories
which also employ advanced electron microscopes, spectrometers, and other
advanced equipment. We are proficient in discovering failures before products
are shipped and, more importantly, our highly qualified engineers are very pro-activepro
active in working in partnership with suppliers and customers to implement
resolutions.
PACKAGING AND GLOBAL DISTRIBUTION.FULFILLMENT. Celestica designs and tests packaging of
products for bulk shipment or single end-customer use. We have a sophisticated
integrated system for managing complex international order fulfilment,fulfillment, allowing
us to ship worldwide and, in many cases, directly to the OEMs' end-customers.end customers.
AFTER-SALES SUPPORT. Celestica offers a wide range of after-sales support
services. This support can be individualized to meet each customer's
requirements and includes field failure analysis, product upgrades, repair, and
engineering change management.
18
QUALITY MANAGEMENT
One of our strengths has been our ability to consistently deliver high
quality services and products. Celestica has an extensive quality management
system that focuses on continual process improvement and achieving high customer
satisfaction. Celestica employs a variety of advanced statistical engineering
techniques and other tools to assist in improving product and service quality.
All of our principal facilities are ISO certified to ISO 9001 or ISO 9002
standards and our environmental management systems at our Toronto, Little Rock,
Fort Collins, Denver, Foothill Ranch, Columbus, Oklahoma City, Chippewa Falls,
Mt. Pleasant, United Kingdom, Ireland, France and Italian facilities and somestandards. Most of our Asian, Mexican and Czechprincipal facilities are also certified to the ISO 14001
(environmental) standards.
We believe that our success is directly linked to high customer
satisfaction. As such, a portion of the compensation of employees is based on
the results of extensive customer satisfaction surveys conducted on Celestica's
behalf by an independent consultant.
GEOGRAPHIES
In 2001,2002, approximately 68%56% of Celestica's products were delivered to
customersrevenue was produced in North
America. Celestica produces products in the United States,
Canada, Mexico, United Kingdom, Ireland, Italy, Thailand, China, Hong Kong,
Czech Republic, Brazil, Singapore, Malaysia and Japan. Facilities in the
Americas,Asia and Europe and Asia generated approximately 62%, 29%23% and 9%21%,
respectively, of Celestica's revenue in 2001.2002. A listing of our principal
locations is included in Item 4, "Information on the Company -- Description of
Property." We are focused on expanding our worldwide
resources and capability. Additionally, wecapability in lower
cost geographies. We believe that locating in lower cost geographic regions such
as Central Europe and South AmericaAsia complements our service offerings by providing lower
cost manufacturing solutions to our OEM customers for certain price-sensitive
applications.
Certain information concerning geographic segments is set forth in Notenote 20
to the Consolidated Financial Statements in Item 18.
SALES AND MARKETING
Sales and marketing at Celestica is an integrated processset of processes designed
to provide a single "face" to the customer worldwide. Celestica's coordination
of efforts with key global accountscustomers has been enhanced by the creation of
customer-focused units each headed by a group general manager to oversee the
entire relationship with such customers. We have a global network comprised of
direct sales people, customer service representatives, operational and project managers, and global
account
executives, and supply chain management, as well as our senior executives.
Celestica's
20
sales resources are directed at multiple management and staff levels within
target accounts. We also use independent sales representatives in certain geographic
areas. Sales offices are located in proximity to key OEMs.customers and
markets.
Celestica has adopted a focused marketing approach targeted at creating
profitable, strategic relationships with leading OEMs primarily in the
computerinformation technology and communicationcommunications sectors. To this end, we are selective as to the nature and
type of business we pursue in order to position ourselves as a value-added
provider within the EMS industry.
CUSTOMERS
Celestica targets industry-leading customers primarily in the computerinformation
technology and communications sectors. Celestica supplies products and services
to over 75100 OEMs, including such industry leaders as Avaya Inc., Cisco
Systems Inc., Dell Computer Corporation, EMC Fujitsu,Corporation, Hewlett-Packard
Corporation, IBM Corporation, Lucent Technologies Inc., Motorola Inc., NEC
Corporation, and Sun Microsystems.Microsystems Inc.
During 2002, Celestica's electronics products can be foundthree largest customers, IBM Corporation, Sun
Microsystems Inc., and Lucent Technologies Inc., each represented in a wide arrayexcess of
end-products, including: cell phones10% of total revenue and pagers, hubs and switches, LAN and WAN
networking cards, laser printers, mainframe computers, mass storage devices,
medical products, modems, multimedia peripherals, PBX switches, personal
computers, PDAs, photonic devices, routers, scalable processors, servers,
switching products, token ring products, video broadcasting equipment, wireless
base stations, wireless loop systems and workstations.in the aggregate represented 48% of total revenue.
During 2001, Celestica's three largest customers, IBM Corporation, Sun
Microsystems Inc., and Lucent Technologies Inc., each represented in excess of
10% of total revenue and in the aggregate represented 55% of total revenue.
During 2000, Celestica's twonext seven largest customers IBM and Sun Microsystems, each represented in excess of 10%
of total revenue and in the aggregate represented 46% of total revenue.
Celestica's next five largest customers
19
represented approximately 24%37% of
Celestica's total revenue in 20012002 (compared with 32%29% for the next fiveseven largest
customers in 2000)2001).
We generally enter into supply arrangements in connection with our
acquisition of facilities from OEMs. These arrangements generally govern the
conduct of business between the parties relating to, among other things, the
manufacture of products which were previously produced at that facility by the
seller itself. Such arrangements, which in certain instances contain limited
overhead contribution provisions or limited revenue or product volume
guarantees, are for short-term periods (fromrange from one to three years).five years. There can be no assurance that these
arrangements will be renewed. As a result of the weak economic environment,
these supply agreements have been affected by order cancellations and
rescheduling as our customers' base-business volumes have decreased.
TECHNOLOGY AND RESEARCH AND DEVELOPMENT
We use advanced technology in the assembly and testing of the products we
manufacture. We believe that our processes and skills are among the most
sophisticated in the industry, which provides us with advantages over many of
our smaller and less sophisticated competitors.
Our customer-focused factories include predominantly SMT lines, which are highly flexible and are continually
reconfigured to meet customer-specific product requirements. In addition to expertise in conventional SMT technology, Celestica has
extensive capabilities across a broad range of specialized assembly process
technologies, including chip on board, chip scale packaging, flip chip attach,
tape automated bonding, wire bonding, multi-chip module, ball grid array, micro
ball grid array, tape ball grid array, and column grid array. We also work with
a wide range of substrate types from thin flexible printed circuit boards to
highly complex, dense multilayer boards.
Our assembly capabilities are complemented by advanced test capabilities.
Technologies include high speed functional testing, burn-in, vibration, radio
frequency, in-circuit, and in-situ dynamic thermal cycling stress testing. We
believe that our inspection technology, which includes X-ray laminography,
three-dimensional laser paste volumetric inspection, and scanning electron
microscopy, is among the most sophisticated in the EMS industry. Furthermore,
Celestica employs internally-developed automated robotic technology to perform
in-process repair.
Our ongoing research and development activities include the development of
processes and test technologies as well as some focused product development.
Celestica is pro-activeproactive in developing manufacturing techniques which take
advantage of the latest component and product designs and packaging. For
example, NASA selected Celestica to work with engineers in our jet propulsion
laboratory to evaluate the robustness, quality and reliability of chip scale
size packaging for use on space vehicles. Furthermore, weWe often
work with industry groups to advance the state of technology in the industry.
SUPPLY CHAIN MANAGEMENT
Celestica has strong relationships with a broad range of suppliers. We use
electronic data interchange with our key suppliers and ensuresensure speed of supply
through the use of automated receiving and full-service distribution
capabilities. During 2002, Celestica procured and managed over $8$6.0 billion in
materials and related services. We
21
view this size of procurement as an important competitive advantage as it
enhances our ability to obtain better pricing, influence component packaging and
design, and obtain supply of components in constrained markets.
We utilize two fully integrated enterprise systems which provide
comprehensive information on our logistics, financial and engineering support
functions. One system is used in Asia, Brazil, and Europe and the other system
is common throughout the rest of Celestica.Celestica's operations. These systems provide
management with the data required to manage the logistical complexities of the
business. These systems are augmented by and integrated with other applications
such as shop floor controls, component database management and design tools.
We employ a strategy of risk minimization relative to our inventory and
generally order materials and components only to the extent necessary to satisfy
existing customer orders. Celestica has implemented specific inventory
management strategies with certain suppliers such as "line-side stocking""supplier managed
inventory" (pulling inventory at the production line on an as-needed basis) and
"real-time component pricing" (the ability to obtain the advantage of the most
recent price change in component pricing) designed to minimize the risk to us of
cost fluctuations. In 20
providing contract manufacturing services to our
customers, we are largely protected from the risk of fluctuations in inventory
costs, as these costs are generally passed through to customers.
Almost all of the products manufactured or assembled by Celestica require
one or more components, one or more of which may be ordered from a sole-source
supplier, and
most full system assemblies require one or more components that are ordered from
a sole-source supplier. Some of these components arecould be rationed in response to supply
shortages. We attempt to ensure continuity of supply of these components. In
cases where unanticipated customer demand or supply shortages occur, we attempt
to arrange for alternative sources of supply, where available, or to defer
planned production in response to the anticipated unavailability of the critical
components. In some cases, supply shortages will substantially curtail
production of all full system assemblies using a particular component. In
addition, at various times there have been industry-wide shortages of electronic
components. There can be no assurance that such shortages, or future
fluctuations in material cost, will not have a material adverse effect on our
results of operations, business, prospects and financial condition.
INTELLECTUAL PROPERTY
We hold licenses to various technologies which we acquired in connection
with acquisitions from Fujitsu-ICL, Hewlett-Packard, IBM Madge NetworksCorporation, NEC
Corporation, and other companies. We believe that we have secured access to all
required technology that we are currently using inis material to the current conduct of our business.
Technology developed under IBM's ownership for use by us in our current
business is licensed to us by IBM pursuant to a "know-how" license acquired in
connection with the acquisition of Celestica, which allows us to employ this
technology at no further cost. Also, as part of the acquisition, we entered into
a patent license agreement with IBM to provide us with the use of IBM patents
relevant to the operation of our business. The license fee generally is fixed
for products manufactured in Canada and is payable over the initial term of the
agreement. We are negotiating an extension to the original agreement which
expired on December 31, 2001.
We regard our manufacturing processes and certain designs as proprietary
trade secrets and confidential information. We rely largely upon a combination
of trade secret laws, non-disclosure agreements with our customers and suppliers
and our internal security systems, confidentiality procedures, and employee
confidentiality agreements to maintain the trade secrecy of our designs and
manufacturing processes. Although we take steps to protect our trade secrets,
there can be no assurance that misappropriation will not occur.
Celestica currently has a limited number of patents and patent applications
pending. However, we believe that the rapid pace of technological change makes
patent protection less significant than such factors as the knowledge and
experience of management and personnel and our ability to develop, enhance, and
market manufacturing services.
We license some technology from third parties which we use in providing
manufacturing services to our customers. We believe that such licenses are
generally available on commercial terms from a number of licensors. Generally,
the agreements governing such technology grant to Celestica non-exclusive,
worldwide licenses with respect to the subject technology and terminate upon a
material breach by Celestica.Celestica of the terms of the licensing agreement.
COMPETITION
The EMS industry is comprised of a large number of domestic and foreign
companies, of which fourtwo companies, Celestica, Sanmina-SCI Corporation, Flextronics International and Solectron
Corporation, each had annual revenue in excess of $10.0$12.0 billion for fiscal year 2002
and two companies, Celestica and Sanmina-SCI Corporation, each had revenue in
2001.excess of $8.0 billion for fiscal year 2002. We also face competition from
current and prospective customers which evaluate our capabilities against the
merits of manufacturing products internally. We compete with different
22
companies depending on the type of service or geographic area. Certain of our
competitors may have greater manufacturing, financial, research and development,
and marketing resources than we do. We believe that the primary basis of
competition in our targeted markets is manufacturing technology, quality,
responsiveness, the provision of value addedvalue-added services, and price. To remain
competitive, we believe we must continue to provide technologically advanced
manufacturing services, maintain quality levels, offer flexible delivery
schedules, deliver finished products on a reliable basis, and compete favorably
on the basis of price.
21
HUMAN RESOURCES
As of March 1,December 31, 2002, we employ over 40,000 permanent and temporary
(contract) employees worldwide. A significant percentage of our permanent
employees have post-secondary education and more than 2,800 are engineers. The
only Celestica employees that are unionized are certain of our employees in the
United Kingdom, Italy, Mexico, U.S. and Brazil. Given the variable nature of our project flow
and the quick response time required by our customers, it is critical that we be
able to quickly ramp-up and ramp-down our production to maximize efficiency. To
achieve this, our strategy has been to employ a skilled temporary labor force,
as required.
Culturally, Celestica is team-oriented, values-driven, empowerment-based,
dynamic, and results-oriented, with an overriding sensitivity to customer
service and quality at all levels. This environment is a critical factor for us
to be able to fully utilize the intellectual capital of our employees. We have
never experienced a work stoppage or strike. We believe that our employee
relations are good. Certain of our employees in the United Kingdom, France,
Italy, Mexico, U.S., Japan and Brazil are represented by unions.
ENVIRONMENTAL MATTERS
Celestica is subject to extensive environmental, health, and safety laws and
regulations, including measures relating to the release, use, storage,
treatment, transportation, discharge, disposal, and remediation of contaminants,
hazardous substances and wastes, as well as practices and procedures applicable
to the construction and operation of our plants. We believe that we are in
compliance in all material respects with current environmental laws. However,
there can be no assurance that we will not experience difficulties with our
efforts to maintain material compliance at our facilities, or to comply either
with currently applicable environmental laws or environmental laws as they
change in the future, or that our continued compliance efforts (or failure to
comply with applicable requirements) will not have a material adverse effect on
our results of operations, business, prospects, and financial condition. Our
need to comply with present and changing future environmental laws could
restrict our ability to modify or expand our facilities or continue production
and could require us to acquire costly equipment or to incur other significant
expense.
Some of our operating sites have a history of industrial use. As is typical
for such businesses, soil and groundwater contamination has occurred. We from
time to time investigate, remediate and monitor soil and groundwater
contamination at certain of our operating sites.
Except for the facilities we acquired in the Omni transaction, Phase I
or similar environmental assessments (which involve general inspections without
soil sampling or ground water analysis) were obtained for most of the
manufacturing facilities leased or owned by Celestica in connection with our
acquisition or lease of such facilities. Where contamination is suspected,
usually Phase II intrusive environmental assessments (including soil and/or groundwater
testing) are usually performed. We expect to conduct such environmental
assessments in respect of future property acquisitions where consistent with
local practice. These environmental assessments have not revealed any
environmental liability that we believe, based on current information, we believe will have
a material adverse effect on our results of operations, business, prospects or
financial condition, nor are we aware that we have any such material
environmental liability, in part because of the contractual retention of
liability for some contamination and its remediation by landlords and former
owners at some sites. It is possible that our assessments do not reveal all
environmental liabilities or that there are material environmental liabilities
of which we are not presently aware or that future changes in law or enforcement
standards will cause us to incur significant costs or liabilities in the future.
BACKLOG
Although we obtain firm purchase orders from our customers, OEM customers
typically do not make firm orders for delivery of products more than 30 to
90 days in advance. We do not believe that the backlog of
23
expected product sales covered by firm purchase orders is a meaningful measure
of future sales, since orders may be rescheduled or canceled.
22
SEASONALITY
Historically, CelesticaWith a significant exposure to information technology and communications
infrastructure products, the Company has experienced some seasonal variationhistorically seen a level of
seasonality in its quarterly revenue withpatterns. This seasonality has generally
resulted in lower volumes in the Company's first quarter, gradually increasing
throughout the year, culminating in higher revenue typically being highest in the fourth quarterquarter.
Seasonality is also reflective of the mix and lowest incomplexity of the first quarter. See Item 5, "Operatingproducts
manufactured. As a result of the current weak and Financial Reviewuncertain economic
environment, it is difficult to predict the extent and Prospects -- Management's Discussion and Analysisimpact of Financial Condition and
Results of Operations."seasonality on
our business.
GLOSSARY
ASIC.............................. "Application specific integrated circuit." A device which
combines several functions into one silicon chip, allowing a
reduction in space and power consumption.
Ball grid array................... A silicon chip packaging technique that provides high
interconnection density at a low cost, high thermal
electrical performance, high reliability and high card
assembly yields. This technology uses an array of solder
balls to connect the silicon chip to the printed circuit
board.
Chip on board..................... A generic term for the use of unpackaged or "bare" silicon
that is attached to the surface of the printed circuit
board. The "bare" silicon is often sealed with an epoxy to
strengthen reliability. Chip on board allows for space
savings as well as faster signal processing speeds. Examples
of chip on board are flip chip attach, tape automated
bonding and wire bonded chips.
Consignment....................... An outsourcing method in which the outsourcing company
provides most or all of the materials required for the
products, and the EMS provider supplies only the
manufacturing service.
EMS............................... Electronics manufacturing services.
Flip chip attach.................. A type of chip on board that involves attaching the "bare"
silicon directly to the printed circuit board using solder.
Full system assembly.............. The assembly of a variety of PCAs and other
subassemblies/components into a final product, such as a
server, workstation or personal computer. Full system
assembly typically includes the testing and distribution of
the final product.
In-circuit test................... One of the first electrical tests performed on completed
PCAs, where small portions of the PCAs can be individually
tested down to the silicon chip level.
In-situ dynamic thermal cycling
stress testing.................. The electrical testing of PCAs while varying temperature, in
an effort to uncover potential defects in assembly and
electronics components.
Interconnect technology........... The series of techniques used to electrically connect
silicon chips, substrates and other electronics components
together to create a functional product.
LAN............................... "Local area network." Multiple computers linked together to
facilitate shared communications in a local or office
environment.
Multi-chip module................. A packaging technique that combines multiple silicon chips
together into a single functional device.
OEM............................... Original equipment manufacturer.
PBX switch........................ "Private branch exchange switch." A switch used in a
telephone system consisting of central office trunks, a
switchboard and extension telephones which may be
interconnected with the trunks or with each other through
the
24
switchboard and associated equipment. These switches are
typically used within a single company, office or building.
PDAs.............................. "Personal Digital Assistant." A small form factor portable
computing device.
23
PCAs.............................. "Printed circuit assemblies." Printed circuit boards which
are populated with various electronics components to form
functional products.
Photonic devices.................. Communications equipment used in an optical network
utilizing fiber optic technology for the transmission of
information.PDA............................... "Personal Digital Assistant." A small form factor portable
computing device.
Scalable processor................ A processor system that allows for the combination of
multiple microprocessors together to provide significantly
higher processing power and speed.
Scanning electron microscope...... A device providing magnification of a material's surface up
to 40,000 times and allowing in-depth surface analysis.
SMT............................... "Surface mount technology." A manufactured technology for
attaching electronics components directly onto the surface
of printed circuit boards.
Substrate......................... Also referred to as a "printed circuit board" or "board." A
substrate acts as a carrier to provide very dense wiring
between silicon chips. A substrate can take the form of
ceramic, plastic, film or fibreglass sheets with embedded
copper wiring.
Tape automated bonding............ A type of chip on board that involves attaching "bare"
silicon through a mass bonding method. The silicon possesses
gold- or tin-plated copper lead frames which are mounted
directly to the printed circuit board.
Tape ball grid array.............. A ball grid array silicon chip which is packaged on a thin
tape/film carrier.
Three-dimensional laser paste
volumetric inspection.............inspection........... An inspection system that uses a laser light source and a
camera for image capture in a controlled process. It is used
to measure the volume of solder paste that has been screened
onto a printed circuit board in order to ensure solder
quality.
Token ring........................ A type of LAN technology.
Turnkey........................... An outsourcing method that turns over to the EMS provider
all aspects of manufacturing, including the procurement of
materials.
WAN............................... "Wide area network." A communications network that covers a
wide geographic area, such as a province, state or country.
Wire bonding...................... A method of attaching a "bare" silicon chip on a board. This
process involves ultrasonically bonding fine aluminum wire
(the size of a human hair) from the silicon chip to the PCB.
This procedure is often performed in a clean room
environment.
Wireless base stations............ A base station transmitter used in digital cellular
telephone networks. This is the electrical communication
device that links a cellular telephone to the telephone
network.
Wireless loop system.............. A system providing wireless communications between the
telephone network box on a residential street and all of the
homes in the neighborhood, eliminating buried telephone
cable to homes. This system can also be used in an office
campus environment.
X-ray laminography................ An inspection process used for examining the quality of
solder joints in an array package like ball grid array and
column grid array. The technique is very similar to that of
a CAT scan in the medical industry. The assembly is x-rayed
in slices down through the solder joints, and the images are
compared to a known good image for solder quality.
2425
C. ORGANIZATIONAL STRUCTURE
We conduct our business through subsidiaries operating on a worldwide basis.
The following chart identifies our principal operatingcompanies are considered significant subsidiaries and each of whichthem
is wholly-owned.
DESCRIPTION OF ORGANIZATIONAL CHART
Celestica
Inc.
(Ontario)
Celestica Celestica Celestica (U.S.) Celestica Omni Industries Celestica Celestica de
International Inc. Montreal Inc. Inc. (Delaware) Europe Inc. Limited Hong Kong Monterrey
(Ontario) (Canada) (Ontario) (Singapore) Limited S.A. de C.V.
(Hong Kong) (Mexico)
Celestica Celestica Celestica
Corporation (UK) Holdings Italia S.r.l.
(Delaware) Limited (Italy)
(United Kingdom)
Celestica Limited
(United Kingdom)
wholly-owned:
Celestica (U.S.) Inc., a Delaware corporation.
Celestica Corporation, a Delaware corporation.
Celestica Europe Inc., an Ontario corporation.
Celestica Hong Kong Limited, a Hong Kong corporation.
Celestica Liquidity Management Hungary Limited Liability Company, a
Hungarian corporation.
D. DESCRIPTION OF PROPERTY
The following table sets forth summary information with respect tosummarizes our principal facilities allas of whichFebruary 28,
2003. Our facilities are used to manufacture printed circuit boards, assemble
final systems and configuration, and for EMSother related manufacturing and
customer support activities.
MANUFACTURING
FACILITY SQUARE FOOTAGE OWNED/LEASED
- -------- -------------- -------------
(in thousands)
Toronto, Ontario............................................ 888 Owned
Montreal, Quebec............................................ 180 Owned
Oklahoma City, Oklahoma..................................... 723Oklahoma(1).................................. 430 Leased
Denver, Colorado............................................ 300 Leased
Columbus, Ohio.............................................. 476 Owned
Little Rock, Arkansas....................................... 424 Owned
Foothill Ranch, California.................................. 237 Leased
Fort Collins, Colorado...................................... 200 Leased
Rochester, Minnesota........................................Minnesota(1)..................................... 200 Leased
Chippewa Falls, Wisconsin................................... 153127 Owned
Salem, New Hampshire........................................ 112139 Leased
San Jose, California........................................ 131 Leased
Dallas, Texas............................................... 69 Leased
Mt. Pleasant, Iowa.......................................... 69 Leased
Milwaukie, Oregon........................................... 61 Leased
Chelmsford, Massachusetts...................................Massachusetts(1)................................ 37 Leased
Raleigh, North Carolina..................................... 26 Leased
Austin, Texas............................................... 51 Leased
Kidsgrove, England.......................................... 375 Owned
Telford, England............................................ 50 Owned
Vimercate, Italy............................................ 550 Owned
Santa Palombo, Italy........................................ 150 Owned
Dublin, Ireland............................................. 210 Owned
Saumur, France.............................................. 142 Owned
Rajecko, Czech Republic..................................... 170 Owned
Kladno, Czech Republic...................................... 166 Owned
Monterrey, Mexico........................................... 214 Leased
Monterrey, Mexico........................................... 214113 Owned
Queretaro, Mexico........................................... 77 Leased
Jaguariuna, Brazil.......................................... 142 Leased
Shanghai, China............................................. 273 Owned
Dongguan, China............................................. 172 Leased
China(2).................................................... 208 Owned/Leased
Shatin, Hong Kong........................................... 82 Leased
Indonesia(3)(4)............................................. 46 Owned/Leased
Johor Bahru, Malaysia(3).................................... 491 Leased
2526
MANUFACTURING
FACILITY SQUARE FOOTAGE OWNED/LEASED
- -------- -------------- -------------
(in thousands)
Mexico (2).................................................. 152 Leased
Monterrey, Mexico........................................... 113 Owned
Jaguariuna, Brazil.......................................... 142 Leased
Shanghai, China............................................. 383 Owned
Dongguan, China............................................. 172 Leased
China (3)................................................... 122 Owned/Leased
Shatin, Hong Kong........................................... 123 Leased
Indonesia (3)............................................... 48 Owned/Leased
Johor Bahru, Malaysia....................................... 546 Leased
Kulim, Malaysia............................................. 310324 Owned
Malaysia (2)................................................ 101 Owned/Malaysia.................................................... 40 Leased
Singapore................................................... 307298 Leased
Singapore................................................... 31665 Owned
Laem Chabang, Thailand...................................... 422 Leased
Japan(2).................................................... 566 Owned/Leased
Rayong, Thailand............................................ 13241 Leased
- ------------
(1) As part of our restructuring plans, we have announced that we will close
this site by the end of 2003.
(2) This represents three facilities.
(3) This represents two facilities.
(4) As part of our restructuring plans, we have announced that we will close one
of the two sites by the end of 2003.
Celestica's principal executive office is located at 12 Concorde Place,1150 Eglinton Avenue
East, Toronto, Ontario M3C 3R8. We own a 330,000 square foot facility adjacent to our
Toronto, Ontario facility.1H7. All of our principal facilities are ISO
certified to ISO 9001 or ISO 9002 standards and our environmental management systems at our
Toronto, Little Rock, Fort Collins, Denver, Foothill Ranch, Columbus, Oklahoma
City, Chippewa Falls, Mt. Pleasant, United Kingdom, Ireland, France and Italian
facilities and somestandards. Most of our Asian, Mexican and Czechprincipal facilities
are also certified to the ISO 14001 (environmental) standards.
The leases for our leased facilities expire between 20022003 and 2016.2056. Celestica
currently expects to be able to extend the terms of expiring leases or to find
replacement facilities on reasonable terms.
As part of our restructuring plans, we have consolidated facilities and
changed our strategic focus as to the number and geography of sites. We are
rationalizing our footprint worldwide to increase the percentage of our
facilities in lower cost geographies. See Item 5, "Operating and Financial
Review and Prospects -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Operating Results" for additional
information concerning our restructurings.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CELESTICA SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS IN ITEM 18. ALL DOLLAR AMOUNTS ARE EXPRESSED IN
U.S. DOLLARS.
CERTAIN STATEMENTS CONTAINED IN THE FOLLOWING MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, INCLUDING, WITHOUT
LIMITATION, STATEMENTS CONTAINING THE WORDS BELIEVES, ANTICIPATES, ESTIMATES,
EXPECTS, AND WORDS OF SIMILAR IMPORT, CONSTITUTE FORWARD-LOOKING STATEMENTS.
FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE
RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. AMONGTHESE RISKS AND
UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO: THE KEY
FACTORS THAT COULD CAUSE SUCH DIFFERENCES ARE:CHALLENGES OF EFFECTIVELY
MANAGING OUR OPERATIONS DURING UNCERTAIN ECONOMIC CONDITIONS; THE LEVELCHALLENGE OF
OVERALL GROWTH IN
THE ELECTRONICS MANUFACTURING SERVICES (EMS) INDUSTRY;RESPONDING TO LOWER-THAN-EXPECTED CUSTOMER DEMAND; COMPONENT CONSTRAINTS; OUR VARIABILITYTHE EFFECTS OF OPERATING RESULTS
AMONG PERIODS;PRICE
COMPETITION AND OTHER BUSINESS AND COMPETITIVE FACTORS GENERALLY AFFECTING THE
EMS INDUSTRY; OUR DEPENDENCE ON THE COMPUTERINFORMATION TECHNOLOGY AND COMMUNICATIONS
INDUSTRIES; OUR DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS;CUSTOMERS AND OURON INDUSTRIES
AFFECTED BY RAPID TECHNOLOGICAL CHANGE; COMPONENT CONSTRAINTS; VARIABILITY OF
OPERATING RESULTS AMONG PERIODS; AND THE ABILITY TO MANAGE EXPANSION, CONSOLIDATIONOUR RESTRUCTURING AND
THE INTEGRATIONSHIFT OF ACQUIRED BUSINESSES.PRODUCTION TO LOWER COST GEOGRAPHIES. THESE AND OTHER RISKS AND
UNCERTAINTIES AND FACTORS ARE DISCUSSED IN THE COMPANY'S FILINGS WITH SEDAR AND THE
U.S. SECURITIES AND EXCHANGE COMMISSION.
GENERALTHIS ANNUAL REPORT. SEE ITEM 3, "KEY
INFORMATION -- RISK FACTORS."
WE DISCLAIM ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.
OVERVIEW
Celestica is a leading provider ofworld leader in providing electronics manufacturing services
to OEMs worldwide with 2001 revenue of $10.0 billion.in the information technology and communications industries. Celestica
provides a wide variety of products and services to its customers, including the
high-volume manufacture of complex PCAsprinted circuit board assemblies and the full
27
system assembly of final products. In addition, the Company is a leading-edge
provider of design, repair and engineering services, supply chain management and
power products. Celestica operates facilities in North America,the Americas, Europe Asia and Latin America.
26
Asia.
2002 was a challenging year as the information technology and communications
end markets remained weak. Revenue for 2002 was $8.3 billion, down 17% from
$10.0 billion for 2001. The reduced demand for Celestica's products and services
contributed to the decrease in revenue and margins for 2002. Revenue from
existing customers decreased for the second consecutive year.
Historically, acquisitions have contributed significantly to the Company's
growth, with 2001 being the most active year for acquisitions, in terms of the
number of acquisitions closed and the total purchase price. Growth from
acquisitions in 2002, however, was minimal. Celestica continues to evaluate
acquisition opportunities and anticipates that acquisitions will continue to
contribute to its future growth.
In 2001, the Company announced its first restructuring plan in response to
the weakened end markets. The continued downturn into 2002 resulted in the
Company announcing further restructuring actions, which it expects to complete
by the end of 2003. The restructurings were focused on consolidating facilities
and increasing capacity in lower cost geographies. The Company expects that it
will have a better-balanced manufacturing footprint when all of the planned
restructuring actions, including those announced in January 2003, are completed.
See "-- Recent Developments."
In the fourth quarter of 2002, Celestica recorded impairment losses totaling
$285.4 million, in connection with its annual impairment tests of goodwill and
long-lived assets, based on factors and conditions at the time the assessments
were performed. Conditions in the marketplace deteriorated significantly from
January 1, 2002, when the Company completed its evaluation of the transitional
goodwill impairment, as required by the new goodwill standards. Future
impairment tests may result in additional impairment charges.
In 2002, management focused on reducing working capital, and increased its
cash balance to its highest level in the Company's history. Cash earned from
operations in 2002 fully funded the Company's 2002 acquisitions of
$111.0 million, repayment of $130.0 million of subordinated debt, the repurchase
of $32.5 million in capital stock and the repurchase of convertible debt for an
aggregate purchase price of $100.3 million.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Celestica prepares its financial statements in accordance with generally
accepted accounting principles which are generally accepted(GAAP) in Canada with a reconciliation to accounting principles generally accepted in the United
States GAAP, as disclosed in Notenote 22 to the 2001 Consolidated Financial Statements.
ACQUISITIONS
A significant portionThe preparation of Celestica's growth has been generated by
strengtheningfinancial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Significant accounting policies and methods used in
preparation of the financial statements are described in note 2 to the
Consolidated Financial Statements. The Company evaluates its customer relationshipsestimates and
increasingassumptions on a regular basis, based on historical experience and other
relevant factors. Significant estimates are used in determining, but not limited
to, the breadthallowance for doubtful accounts, inventory valuation, income tax
valuation allowances, the fair value of reporting units for purposes of goodwill
impairment tests, the useful lives and valuation of intangible assets, and
restructuring charges. Actual results could differ materially from those
estimates and assumptions.
REVENUE RECOGNITION:
Celestica derives most of its service offerings through facility and business acquisitions.
2000 ACQUISITIONS:
In February and May, 2000, the Company acquired certain assetsrevenue from the
Enterprise Systems Group and Microelectronics Division of IBM in Rochester,
Minnesota and Vimercate and Santa Palomba, Italy, respectively, for a total
purchase price of $470.0 million.OEM customers. The purchase price, including capital assets,
working capital and intangible assets, was financed with cash on hand. The
Company signed two three-year strategic supply agreements with IBM to provide a
complete range of electronics manufacturing services. The Rochester, Minnesota
operation provides printed circuit board assembly and test services. The
Vimercate operation provides printed circuit board assembly services and the
Santa Palomba operation provides system assembly services. Approximately 1,800
employees joined Celestica from the IBM acquisition.
In June 2000, Celestica acquired NDB Industrial Ltda., NEC Corporation's
wholly-owned manufacturing subsidiary in Brazil. The Company signed a five-year
supply agreement to manufacture NEC communications network equipment for the
Brazilian market. Approximately 680 employees joined Celestica. This acquisition
enhanced the Company's presence in South America and put Celestica in a
leadership position with communications and internet infrastructure customers.
In August 2000, the Company acquired Bull Electronics Inc., the North American
contract manufacturing operation of Groupe Bull of France. In November 2000,
Celestica acquired NEC Technologies (UK) Ltd., in Telford, UK. The aggregate
price for these three acquisitions in 2000 was $169.8 million. In 2000,
Celestica also established a greenfield operation in Singapore.
2001 ASSET ACQUISITIONS:
In February 2001, Celestica acquired certain manufacturing assets in Dublin,
Ireland and Mt. Pleasant, Iowa from Motorola Inc. and signed supply agreements
for two and three years, respectively. This acquisition expanded the Company's
business relationship with Motorola, a leading telecom wireless customer. In
March 2001, Celestica acquired certain assets relating to N.K.
Techno Co. Ltd's repair business, which expanded the Company's presence in
Japan, and established a greenfield operation in Shanghai. In May 2001,
Celestica acquired certain assets from Avaya Inc. in Little Rock, Arkansas and
Denver, Colorado and in August 2001, acquired certain assets in Saumur, France.
The Company signed a five-year supply agreement with Avaya which positioned
Celestica as Avaya's primary outsourcing partner in the area of printed circuit
board, system assembly, test, repair and supply chain management for a broad
range of its telecommunications products. In August 2001, Celestica acquired
certain assets in Columbus, Ohio and Oklahoma City, Oklahoma from Lucent
Technologies Inc. The Company signed a five-year supply agreement with Lucent,
which positions Celestica as the leading EMS provider for Lucent's North
American switching, access and wireless networking systems products.
The aggregate price for these asset acquisitions in 2001 of $834.1 million
was financed with cash.
2001 BUSINESS COMBINATIONS:
In January 2001, Celestica acquired Excel Electronics, Inc. through a merger
with Celestica (U.S.) Inc. which enhanced the Company's prototype service
offering in the southern region of the United States. In June 2001, Celestica
acquired Sagem CR s.r.o., in the Czech Republic, from Sagem SA, of France, which
enhanced the Company's presence in central Europe and positioned Celestica as
Sagem's primary EMS provider. In August 2001, Celestica acquired Primetech
Electronics Inc. (Primetech), an electronics manufacturer in Canada. This
acquisition provided Celestica with additional high complexity manufacturing
capability and an expanded global customer base. The purchase price for
Primetech was financed primarily with
27
the issuance of 3.4 million subordinate voting shares and the issuance of
options to purchase 0.3 million subordinate voting shares of the Company.
In October 2001, Celestica acquired Omni Industries Limited (Omni). Omni is
an EMS provider, headquartered in Singapore, with locations in Singapore,
Malaysia, China, Indonesia and Thailand and has approximately 9,000 employees.
Omni provides printed circuit board assembly and system assembly services, as
well as other related supply chain services including plastic injection molding
and distribution. Omni manufactures products for industry leading OEMs in the
PC, storage and communications sectors. The acquisition significantly enhanced
Celestica's EMS presence in Asia. The purchase price of Omni of $865.8 million
was financed with the issuance of 9.2 million subordinate voting shares and the
issuance of options to purchase 0.3 million subordinate voting shares of the
Company and $479.5 million in cash.
The aggregate purchase price for these business combinations in 2001 was
$1,093.3 million, of which $526.3 million was financed with cash.
The Company is in the process of obtaining third-party valuations of certain
assets for the Primetech and Omni acquisitions. The fair value allocations of
the purchase price are subject to refinement and could result in adjustments
between goodwill and other net assets.
Consistent with its past practices and as a normal course of business,
Celestica may at any time be engaged in ongoing discussions with respect to
several possible acquisitions of widely varying sizes, including small single
facility acquisitions, significant multiple facility acquisitions and corporate
acquisitions. Celestica has identified several possible acquisitions that would
enhance its global operations, increase its penetration in several industries
and establish strategic relationships with new customers. There can be no
assurance that any of these discussions will result in a definitive purchase
agreement and, if they do, what the terms or timing of any agreement would be.
Celestica expects to continue any current discussions and actively pursue other
acquisition opportunities.
A. OPERATING RESULTS
Celestica's revenue and margins can vary from period to period as a result
of the level of business volumes, seasonality of demand, component supply
availability and the timing of acquisitions. There is no certainty that the
historical pace of Celestica's acquisitions will continue in the future.
Celestica's contractual
agreements with its key customers generally provide a framework for its overall
relationship with the customer. Celestica recognizes product revenue upon
shipment to the customer as performance has occurred, all customer specified
acceptance criteria have been tested and met, and the earnings process is
considered complete. Actual production volumes are based on purchase orders for
the delivery of products. These orders typically do not commit to firm
production schedules for more than 30 to 90 days in advance. Celestica minimizes
its risk relative to its inventory by ordering materials and components only to
the extent necessary to satisfy existing customer orders. Celestica is largely
protected from the risk of inventory cost fluctuations as these costs are
generally passed through to customers.
28
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Celestica records an allowance for doubtful accounts related to accounts
receivable that are considered to be impaired. The allowance is based on the
Company's knowledge of the financial condition of its customers, the aging of
the receivables, current business environment, customer and industry
concentrations, and historical experience. A change to these factors could
impact the estimated allowance and the provision for bad debts recorded in
selling, general and administrative expenses.
INVENTORY VALUATION:
Celestica values its inventory on a first-in, first-out basis at the lower
of cost and replacement cost for production parts, and at the lower of cost and
net realizable value for work in progress and finished goods. Celestica
regularly adjusts its inventory valuation based on shrinkage and management's
estimates of net realizable value, taking into consideration factors such as
inventory aging, future demand for the inventory, and the nature of the
contractual agreements with customers and suppliers, including the ability to
return inventory to them. A change to these assumptions could impact the
valuation of inventory and have a resulting impact on margins.
INCOME TAX VALUATION ALLOWANCE:
Celestica records a valuation allowance against deferred income tax assets
when management believes it is more likely than not that some portion or all of
the deferred income tax assets will not be realized. Management considers
factors such as the reversal of deferred income tax liabilities, projected
future taxable income, the character of the income tax asset and tax planning
strategies. A change to these factors could impact the estimated valuation
allowance and income tax expense.
GOODWILL:
Celestica performs its annual goodwill impairment tests in the fourth
quarter of each year, and more frequently if events or changes in circumstances
indicate that an impairment loss may have been incurred. Impairment is tested at
the reporting unit level by comparing the reporting unit's carrying amount to
its fair value. The fair values of the reporting units are estimated using a
combination of a market approach and discounted cash flows. The process of
determining fair values is subjective and requires management to exercise
judgment in making assumptions about future results, including revenue and cash
flow projections at the reporting unit level, and discount rates. Celestica
recorded an impairment loss in the fourth quarter of 2002. Future goodwill
impairment tests may result in further impairment charges.
INTANGIBLE ASSETS:
Celestica performs its annual impairment tests on long-lived assets in the
fourth quarter of each year, and more frequently if events or changes in
circumstances indicate that an impairment loss may have been incurred. Celestica
estimates the useful lives of intangible assets based on the nature of the
asset, historical experience and the terms of any related supply contracts. The
valuation of intangible assets is based on the amount of future net cash flows
these assets are estimated to generate. Revenue and expense projections are
based on management's estimates, including estimates of current and future
industry conditions. A significant change to these assumptions could impact the
estimated useful lives or valuation of intangible assets resulting in a change
to amortization expense and impairment charges.
RESTRUCTURING CHARGES:
Celestica recorded restructuring charges in 2001 and 2002, relating to
facility consolidations and workforce reductions. These charges are recorded
based on detailed plans approved and committed to by management. The
restructuring charges include employee severance and benefit costs, costs
related to leased facilities that will be abandoned or subleased, owned
facilities which are no longer used and will be held for disposition, cost of
leased equipment that will be abandoned, impairment of owned equipment that will
be held for disposition, and impairment of related intangible assets, primarily
intellectual property. The recognition of these charges requires management to
make certain judgments and estimates regarding the nature, timing and amount
29
associated with these plans. The estimates of future liability may change,
requiring additional restructuring charges or a reduction of the liabilities
already recorded. At the end of each reporting period, the Company evaluates the
appropriateness of the remaining accrued balances.
RECENT ACQUISITIONS
A significant portion of Celestica's growth in prior years was generated by
strengthening its customer relationships and increasing the breadth of its
service offerings through asset and business acquisitions. The Company focused
on investing strategically in acquisitions that better positioned the Company
for future outsourcing opportunities. Celestica's most active year for
acquisitions was 2001. The historical pace of Celestica's acquisitions did not
continue in 2002 and may not continue in the future.
As a result of the continued downturn in the economy, some of the sites
acquired in prior years have been impacted by the Company's latest round of
restructuring. Supply agreements entered into in connection with certain
acquisitions were also affected by order cancellations and reschedulings as
base-business volumes have decreased. See discussion below in "-- Results of
Operations."
2001 ASSET ACQUISITIONS:
In February 2001, Celestica acquired certain manufacturing assets in Dublin,
Ireland and Mt. Pleasant, Iowa from Motorola Inc. and signed supply agreements.
In March 2001, Celestica acquired certain assets relating to N.K.
Techno Co. Ltd.'s repair business, which expanded the Company's presence in
Japan, and established a greenfield operation in Shanghai. In May 2001,
Celestica acquired certain assets from Avaya Inc. in Little Rock, Arkansas and
Denver, Colorado, and, in August 2001, acquired certain assets in Saumur,
France. The Company signed a five-year supply agreement with Avaya. In
August 2001, Celestica acquired certain assets in Columbus, Ohio and Oklahoma
City, Oklahoma from Lucent Technologies Inc. and signed a five-year supply
agreement. The aggregate purchase price for these asset acquisitions in 2001 of
$834.1 million was financed with cash.
2001 BUSINESS COMBINATIONS:
In January 2001, Celestica acquired Excel Electronics, Inc. through a merger
with Celestica (U.S.) Inc., which enhanced the Company's prototype service
offering in the southern region of the United States. In June 2001, Celestica
acquired Sagem CR s.r.o., in the Czech Republic, from Sagem SA, of France, which
enhanced the Company's presence in central Europe. In August 2001, Celestica
acquired Primetech Electronics Inc. (Primetech), an EMS provider in Canada. The
purchase price for Primetech was financed primarily with the issuance of
3.4 million subordinate voting shares and the issuance of options to purchase
0.3 million subordinate voting shares of the Company.
In October 2001, Celestica acquired Omni Industries Limited (Omni). Omni is
an EMS provider, headquartered in Singapore, with locations in Singapore,
Malaysia, China, Indonesia and Thailand, and had approximately 9,000 employees
at the date of acquisition. Omni provides printed circuit board assembly and
system assembly services, as well as other related supply chain services
including plastic injection molding and distribution. Omni manufactures products
for industry-leading OEMs in the PC, storage and communications sectors. The
acquisition significantly enhanced Celestica's EMS presence in Asia. The
purchase price for Omni of $865.8 million was financed with the issuance of
9.2 million subordinate voting shares and the issuance of options to purchase
0.3 million subordinate voting shares of the Company, and $479.5 million in
cash.
The aggregate purchase price for these business combinations in 2001 was
$1,093.3 million, of which $526.3 million was financed with cash.
2002 ASSET ACQUISITIONS:
In March 2002, the Company acquired certain assets located in Miyagi and
Yamanashi, Japan from NEC Corporation. The Company signed a five-year supply
agreement to provide a complete range of electronics manufacturing services for
a broad range of NEC's optical backbone and broadband access equipment. In
August 2002, the Company acquired certain assets from Corvis Corporation in the
United States. The Company
30
signed a multi-year supply agreement with Corvis, which positioned Celestica as
the exclusive manufacturer of Corvis' terrestrial optical networking products
and sub-sea terminating equipment. The aggregate purchase price for these
acquisitions in 2002 of $111.0 million was financed with cash and allocated to
the net assets acquired, based on their relative fair values at the date of
acquisition.
Celestica may at any time be engaged in ongoing discussions with respect to
several possible acquisitions of widely-varying sizes, including small single
facility acquisitions, significant multiple facility acquisitions and corporate
acquisitions. Celestica has identified several possible acquisitions that would
enhance its global operations, increase its penetration in several industries
and establish strategic relationships with new customers. There can be no
assurance that any of these discussions will result in a definitive purchase
agreement and, if they do, what the terms or timing of any agreement would be.
Celestica expects to continue any current discussions and actively pursue other
acquisition opportunities.
A. OPERATING RESULTS
Celestica's annual and quarterly operating results are primarily affected byvary from period to
period as a result of the level and timing of customer orders, fluctuations in
materials and other costs and the relative mix of value addvalue-add products and
services. The level and timing of customers' orders will vary due to customers'
attempts to balance their inventory, changes in their manufacturing strategies,
variation in demand for their products and general economic conditions.
Celestica's annual and quarterly operating results are also affected by capacity
utilization, geographic manufacturing mix and other factors, including price
competition, manufacturing effectiveness and efficiency, the degree of
automation used in the assembly process, the ability to manage labour, inventory
and capital assets effectively, the timing of expenditures in anticipation of
increasedforecasted sales levels, the timing of acquisitions and related integration
costs, customer product delivery requirements, and shortages of components or labour. Historically, Celestica has experienced some seasonal
variation in revenue, with revenue typically being highest in the fourth quarterlabour
and lowest in the first quarter. In 2001, weakother factors. Weak end-market conditions began to emerge in early to
mid-2001 and have continued to weaken for the telecommunicationscommunications and information
technology industriesindustries. This resulted in customers rescheduling andor canceling
orders. This hasorders which negatively impacted Celestica's results of operations.
28
The table below sets forth certain operating data expressed as a percentage
of revenue for the years indicated:
YEAR ENDED DECEMBER 31
--------------------------------
1999------------------------------------------
2000 2001 2002
-------- -------- --------
Revenue.....................................................Revenue.............................................. 100.0% 100.0% 100.0%
Cost of sales............................................... 92.8sales........................................ 92.9 92.9 93.3
----- ----- -----
Gross profit................................................ 7.2profit......................................... 7.1 7.1 6.7
Selling, general and administrative expenses................ 3.8expenses......... 3.3 3.4 3.6
Amortization of goodwill and intangible assets........................... 1.0assets....... 1.0 1.3 1.2
Integration costs related to acquisitions...................acquisitions............ 0.2 0.2 0.2
Other charges...............................................charges........................................ 0.0 0.0 2.7 8.2
----- ----- -----
Operating income (loss)..................................... 2.2.............................. 2.6 (0.5) (6.5)
Interest expense (income), net.............................. 0.2income, net................................. (0.2) (0.1) (0.0)
----- ----- -----
Earnings (loss) before income taxes......................... 2.0taxes.................. 2.8 (0.4) (6.5)
Income taxes................................................ 0.7taxes (recovery).............................. 0.7 0.0 (1.1)
----- ----- -----
Net earnings (loss)......................................... 1.3%.................................. 2.1% (0.4)% (5.4)%
===== ===== =====
ADJUSTED NET EARNINGS
AsREVENUE
Revenue decreased 17%, to $8,271.6 million in 2002 from $10,004.4 million in
2001, primarily due to a reduction in base-business volumes as a result of the
significant numberprolonged weakened end-market conditions. Excess capacity in the EMS industry
also put pressure on pricing for components and services, thereby reducing
revenue. The visibility of end-market conditions remains limited.
31
Celestica manages its operations on a geographic basis. The three reporting
segments are the Americas, Europe and Asia. Revenue from the Americas operations
decreased 27%, to $4,640.8 million in 2002 from $6,334.6 million in 2001.
Revenue from European operations decreased 40%, to $1,786.5 million in 2002 from
$3,001.3 million in 2001. The Americas and European operations have been hardest
hit by customer cancellations and delays of orders because of the downturn in
end-market demand for their products, as well as the customers' demands for
lower product manufacturing costs. As a result, the Company has initiated
restructuring actions to reduce the manufacturing capacity in these geographies,
which includes downsizing and closure of manufacturing facilities. The
restructuring actions also include transferring programs from higher cost
geographies to lower cost geographies. Revenue from Asian operations increased
113%, to $2,109.7 million in 2002 from $991.1 million in 2001. The increase in
revenue from Asian operations is primarily due to acquisitions made by Celestica overand an increase
in base-business volumes. The effect of the past few years, management of Celestica uses adjusted net earnings as a
measure of operating performance on an enterprise-wide basis. Adjusted net
earnings exclude the effects of acquisition-related charges (most significantly,
amortization of intangible assets and integration costs related to
acquisitions), other charges (most significantly, restructuring costs2002 acquisitions and the write-downshifting
of goodwill and intangible assets) andprogram activities from other geographies are expected to increase revenue in
the related income tax effect
of these adjustments. Adjusted net earnings is not a measure of performance
under Canadian GAAP or U.S. GAAP. Adjusted net earnings should not be consideredAsian operations in isolation or as a substitute for net earnings (loss) prepared in accordance
with Canadian GAAP or U.S. GAAP or as a measure of operating performance or
profitability. Adjusted net earnings does not have a standardized meaning
prescribed by GAAP and is not necessarily comparable to similar measures
presented by other companies. The following table reconciles net earnings (loss)
to adjusted net earnings:
YEAR ENDED DECEMBER 31
--------------------------------
1999 2000 2001
-------- -------- --------
(in millions)
Net earnings (loss)......................................... $ 68.4 $206.7 $(39.8)
Amortization of intangible assets........................... 55.6 88.9 125.0
Integration costs related to acquisitions................... 9.6 16.1 22.8
Other charges............................................... -- -- 273.1
Income tax effect of above.................................. (10.6) (7.6) (60.5)
------ ------ ------
Adjusted net earnings....................................... $123.0 $304.1 $320.6
====== ====== ======
As a percentage of revenue................................ 2.3% 3.1% 3.2%
====== ====== ======
REVENUE2003.
Revenue increased 3%, to $10,004.4 million in 2001 from $9,752.1 million in
2000. Acquisition revenue grew by 14%, offset by an 11% decline in base businessbase-business
volumes. The acquisition growth was a result of strategic acquisitions in the
communications industry, primarily in the U.S. and Asia. The Company defines
acquisition revenue as revenue from businesses acquired in the preceding
12 months. OrganicBase-business revenue
declined in 2001 due to the softening of end-markets.
The visibility of future end-market conditions is limited.
29
end markets. Revenue from the Americas
operations decreased 3%, to $6,334.6 million in 2001 from $6,542.7 million in
2000, primarily due to continued end-market softening which was partially offset
by acquisitions. Revenue from European operations increased 6%, to
$3,001.3 million in 2001 from $2,823.3 million in 2000, due to the flow through
of the IBM acquisition from 2000, and from the 2001 acquisitions, partially
offset by the general industry downturn. Revenue from Asian operations increased
14%, to $991.1 million in 2001 from $871.6 million in 2000, primarily due to the
Omni acquisition offset in part by the general industry downturn.
Inter-segment revenue in 2001 was $322.6 million, compared to
$485.5 million in 2000. We expect thatThe following represents the Americas and Asian operations will
benefit in the future from the flow through of the 2001 acquisitions.
Revenue from customers in the communications industry in 2001 was 36%end-market industries as a percentage of
revenue compared to 31% and 25% of revenue in 2000 and 1999, respectively.
Revenue from customers in the server-related business in 2001 was 31% compared
to 33% and 25% of revenue in 2000 and 1999, respectively. Revenue in the
communications industry benefited from our recent acquisitions.
Revenue increased 84%, to $9,752.1 million in 2000 from $5,297.2 million in
1999. This increase resulted from growth achieved both organically and through
strategic acquisitions. This growth was driven by customers in the
communications and server industries. Organic revenue growth in 2000 was 50% and
represented approximately 59% of the total year-over-year growth. Organic growth
came from growth in existing business and new customers across all geographic
segments. The IBM acquisition accounted for the majority of the acquisition
growth in 2000. Revenue from the Americas operations grew 82%, to
$6,542.7 million in 2000 from $3,587.5 million in 1999. Revenue from European
operations grew 155%, to $2,823.3 million in 2000 from $1,108.6 million in 1999.
The Italian facilities generated over half of Europe's increase from the prior
year, with the remainder due to an overall increase in Europe's base business.
Revenue from Asian operations increased 23%, to $871.6 million in 2000 from
$710.2 million in 1999. Inter-segment revenue in 2000 was $485.5 million,
compared to $109.1 million in 1999.indicated periods:
YEAR ENDED DECEMBER 31
------------------------------------------
2000 2001 2002
-------- -------- --------
Communications........................ 31% 36% 45%
Servers............................... 33% 31% 26%
Storage and other..................... 14% 18% 22%
Workstations and PCs.................. 22% 15% 7%
The following customers represented more than 10% of total revenue for each
of the indicated years:periods:
1999YEAR ENDED DECEMBER 31
------------------------------------------
2000 2001 --------- --------- ---------2002
-------- -------- --------
Sun Microsystems....................................Microsystems...................... X X X
IBM.................................................IBM................................... X X X
Lucent Technologies.................................Technologies................... X
Hewlett-Packard..................................... X
Cisco Systems....................................... X
Celestica's top-fivetop five customers represented in the aggregate 67%66% of total
revenue in 20012002, compared to 67% in 2001 and 69% in 2000 and 68% in 1999.2000. The Company is
dependent upon continued revenue from its top customers. There can be no
assurance that revenue from these or any other customers will not increase or
decrease as a percentage of total revenue either individually or as a group. Any
material decrease in revenue from these or other customers could have a material
adverse effect on the Company's results of operations. See notes 17
(concentration of risk) and 19 to the Consolidated Financial Statements.
GROSS PROFIT
Gross profit decreased 22%, to $555.8 million in 2002 from $712.5 million in
2001. Gross margin decreased to 6.7% in 2002 from 7.1% in 2001. Gross margins
decreased 0.4% from prior year, primarily due to the significant reduction in
business volumes and industry pricing pressures. The European operations were
most adversely affected as they were operating at lower levels of utilization
and higher fixed costs for the year. The volume reductions tended to impact
higher value-added products, disproportionately, further adversely affecting
32
the European margins. In addition, costs for the European operations were higher
than expected due to delays in transferring programs, the slower pace of
restructuring and some process scrap and related inventory issues, in the latter
part of the year. The margin declines in the European operations were offset
partially by improved margins in the Americas and Asian operations. The Americas
improved its operating efficiencies, had higher value-added product mix and
benefited from restructuring actions. Asian margins improved on higher volumes
and utilization rates.
Gross profit increased 4%, to $712.5 million in 2001 from $688.0 million in
2000. Gross margin was 7.1% in 2001, consistent with 2000. Margins were
maintained due to continued focus on costs and supply chain initiatives, and the
benefits of the 2001 restructuring actions.
Gross profit increased 80%, to $688.0 million in 2000 from $382.5 million in
1999. Gross margin decreased to 7.1% in 2000 from 7.2% in 1999. Gross margin
decreased as a result of a change in product mix and start-up costs for new
programs, particularly in Mexico.
For the foreseeable future, the Company's gross margin is expected to depend
primarily on product mix, production efficiencies, utilization of manufacturing capacity,
geographic manufacturing mix, start-up activity, new product introductions,
and pricing within the electronics industry.industry, cost structure at individual sites and
other factors. Over time, gross margins at individual sites and for the Company
as a whole are expected to fluctuate. Changes in product mix, additional
costs associated with new product
30
introductions and price erosion within the electronics industry could adversely
affect the Company's gross margin. Also, the availability of labour and raw
materials, which are subject to lead time and other constraints, could possibly
limit the Company's revenue growth.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses decreased 13%, to
$298.5 million (3.6% of revenue) in 2002 from $341.4 million (3.4% of revenue)
in 2001. SG&A as a percentage of revenue increased as certain elements of
expenses were fixed over this period. The decrease in SG&A, on an absolute
basis, reflects the benefits from the Company's restructuring programs and a
reduction in discretionary spending, which more than offset the increase in
expenses due to operations acquired in the latter part of 2001 and in 2002.
SG&A increased 5%, to $341.4 million (3.4% of revenue) in 2001 from
$326.1 million (3.3% of revenue) in 2000. The increase in expenses was primarily
due to operations acquired during 2000 and 2001.
SG&A increased 61%, in 2000 to $326.1 million (3.3% of revenue) from
$202.2 million (3.8% of revenue) in 1999. The increase in expenses was a result
of increased staffing levels and higher selling, marketing and administrative
costs to support sales growth, as well as the impact of expenses incurred by
operations acquired during 1999 and 2000.
Research and development costs decreasedincreased to $18.2 million (0.2% of revenue)
in 2002, compared to $17.1 million (0.2% of revenue) in 2001 compared toand $19.5 million
(0.2% of revenue) in 2000 and $19.7 million
(0.4% of revenue) in 1999.2000.
AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS
AND AMORTIZATION
Amortization of goodwill and intangible assets decreased 23%, to
$95.9 million in 2002 from $125.0 million in 2001. Effective January 1, 2002,
the Company fully adopted the new accounting standards for goodwill and
discontinued amortization of all goodwill effective that date. Amortization of
goodwill for 2001 was $39.2 million. See "-- Recent Accounting Developments."
The decrease in amortization is the result of this change in accounting for
goodwill, offset in part by the amortization of intangible assets arising from
the 2001 and 2002 acquisitions. See note 2(q)(ii) to the Consolidated Financial
Statements for the impact of the change in policy on net earnings (loss) and per
share calculations.
Amortization of goodwill and intangible assets increased 41%, to
$125.0 million in 2001 from $88.9 million in 2000. ThisThe increase is attributable
to the goodwill and intangible assets arising from the 2000 and 2001
acquisitions.
Amortization of intangible assets increased 60%, to $88.9 million in 2000
from $55.6 million in 1999. This increase is attributable to the intangible
assets arising from the 1999 and 2000 acquisitions, with the largest portion
relating to the IBM and NEC acquisitions.
At December 2001, intangible assets represented 23% of Celestica's total
assets compared to 10% at December 2000. The increase is due principally to the
Omni acquisition.
Effective July 1, 2001, the Company adopted the new accounting standards for
"Business Combinations" and "Goodwill and Other Intangible Assets" as they
relate to acquisitions consummated after June 30, 2001. Accordingly, the
goodwill related to the acquisitions of Primetech and Omni has not been
amortized. Effective January 1, 2002, amortization will be discontinued for all
other goodwill. Amortization expense in 2001 related to goodwill was
$39.2 million. See "-- Recent Accounting Developments."
INTEGRATION COSTS RELATED TO ACQUISITIONS
Integration costs related to acquisitions represent one-time costs incurred
within 12 months of the acquisition date, such as the costs of implementing
compatible information technology systems in newly acquired operations,
establishing new processes related to marketing and distribution processes to
accommodate new customers, and salaries of personnel directly involved with
integration activities. All of the integration costs incurred related to newly
acquired facilities, and not to the Company's existing operations.
Integration costs were $21.1 million in 2002, compared to $22.8 million in
2001 compared toand $16.1 million in 2000 and $9.6 million in 1999.2000. The integration costs incurred in 20012002 primarily
relate to the completion of the IBM acquisition from 2000Lucent, NEC Japan and the Avaya and
MotorolaOmni acquisitions.
Integration costs vary from period to period due to the timing of
acquisitions and related integration activities.
Celestica expects to incur
additional integration costs in 2002 as it completes the integration of its 2001
acquisitions. Celestica will incur future additional integration costs as the
Company continues to make acquisitions as part of its growth strategy.33
OTHER CHARGES
OtherIn 2002, Celestica incurred $677.8 million in other charges, are non-recurring items or items that are unusual in nature.
In 2001, Celestica incurredcompared to
$273.1 million in other charges. $237.0 million
relates to restructuring, of which approximately 40% is non-cash. The remainder
of $36.1 million relates to a non-cash charge to write-down the carrying value
of certain assets, primarily goodwill and intangible assets.
31
The Company has been impacted by numerous order reductions, reschedulings
and cancellations since the beginning of fiscal 2001, which the Company believes
is consistent with the EMS industry in general. The Company has taken
restructuring actions to resolve surpluses as a result2001.
YEAR ENDED
DECEMBER 31
-------------------------
2001 2002
-------- --------
(in millions)
2001 restructuring.......................................... $237.0 $ 1.9
2002 restructuring.......................................... -- 383.5
2002 goodwill impairment.................................... -- 203.7
Other impairment............................................ 36.1 81.7
Deferred financing costs and debt redemption fees........... -- 9.6
Gain on sale of surplus land................................ -- (2.6)
------ ------
$273.1 $677.8
====== ======
Further details of the end-market
slowdown.
These restructuring actions include facility consolidations and workforce
reductions. Employee terminations were made across all geographic regions with
the majority being manufacturing and plant employees. The Company took a
non-cash charge to write-down certain long-lived assets across all geographic
regions, which became impaired as a result of the rationalization of facilities.
These asset impairments relate to goodwill and other intangible assets,
machinery and equipment, buildings and improvements. The restructuring charge
includes a number of estimates and assumptions based on information available at
the time andcharges are subject to change.
A further description of these charges is included in Notenote 13 to the
Consolidated Financial Statements.
As of December 31, 2002, the Company had announced two restructuring plans
in response to the economic climate. These actions, which included reducing the
workforce, consolidating facilities and changing the strategic focus of the
number and geography of sites, were largely intended to align the Company's
capacity and infrastructure to anticipated customer demand, as well as to
rationalize its footprint worldwide. The 2001 restructuring plan amounted to
$237.0 million. The 2002 restructuring plan amounted to $383.5 million. Cash
outlays are funded from cash on hand. In January 2003, the Company announced a
restructuring to further reduce its manufacturing capacity. See "-- Recent
Developments."
The Company has and expects to continue to benefit from the restructuring
measures taken in 2001 and 2002 through
margin improvements and reduced operating costs incosts. The Company has
completed the upcoming year.major components of the 2001 restructuring plan, except for
certain long-term lease and other contractual obligations. The Company expects
to complete the major components of the 2002 restructuring plan by the end of
2002. Cash outlays are funded from cash on hand.
Celestica did not incur2003, except for certain long-term lease and other contractual obligations. The
Company continues to evaluate its cost structure relative to its revenue levels
and has announced that it will take additional restructuring charges in 2000 or 1999.2003.
See "-- Recent Developments."
In the fourth quarter of 2002, the Company recorded a non-cash charge
against goodwill of $203.7 million, in connection with its annual impairment
assessments of goodwill. An independent third-party valuation confirmed the fair
value of the reporting units and the impairment assessment. In the fourth
quarter of 2002, the Company also recorded a non-cash charge of $81.7 million,
primarily against intangible assets. In 2001, the Company recorded a non-cash
charge of $36.1 million, primarily against goodwill and intangible assets. See
note 7 to the Consolidated Financial Statements.
The Company may continue to experience goodwill and intangible asset
impairment charges in the future as a result of adverse changes in the
electronics industry, customer demand and other market conditions, which may
have a material adverse effect on the Company's financial condition.
INTEREST INCOME, NET
Interest income net of interest expense,in 2002 amounted to $17.2 million, compared to
$27.7 million in 2001, and 2000 amounted to
$7.9 million and $19.0 million, respectively. The Company incurred net interest
expense of $10.7$36.8 million in 1999.2000. Interest income decreased in 2001for
2002 compared to 20002001, primarily due to the Company earning lower interest rates on its cash balance. In
2001 and 2000, the Company earned interestbalances.
Interest income on its cash balance which more
thanwas offset theby interest expense incurred on the Company's Senior
Subordinated Notes.Notes and debt facilities, which has decreased from $19.8 million
in 2001 to $16.1 million in 2002, due to the redemption of the Senior
Subordinated Notes in August 2002. Interest expense is expected to decrease for
2003 as a result of the full-year effect of the redemption.
34
INCOME TAXES
The Company's income tax recovery in 20012002 was $2.1$91.2 million, reflecting an effective
tax recovery rate of 5%17%. This is compared to an income tax expenserecovery of
$69.2$2.1 million in 2000,2001, reflecting an effective tax recovery rate of 25%, and an income
tax expense of $36.0 million in 1999, reflecting an effective tax rate of 34%5%.
The Company's effective tax rate decreased from 24% to 17% inis the second
quarter of 2001 as a result of the mix and volume of
business in lower tax jurisdictions within Europe and Asia. These lower tax
rates include tax holidays and tax incentives that Celestica has negotiated with
the respective tax authorities which expire between 20022004 and 2012. The 2001 effective tax
ratebenefit arising from these incentives is impacted byapproximately $24.9 million, or $0.11
diluted per share for 2002 and $9.6 million, or $0.04 diluted per share for
2001. The Company expects the occurrence of losses in the third and fourth quarters, which are
tax benefited at a lower tax rate. Notwithstanding the anomaly created by these
losses in determining the year-to-date tax rate, the Company's current tax rate of 17% is expected to continue for the
foreseeable future.
Celesticafuture based on the anticipated nature and conduct of its business
and the tax laws, administrative practices and judicial decisions now in effect
in the countries in which the Company has recognized aassets or conducts business, all of
which are subject to change or differing interpretation, possibly with
retroactive effects.
The net deferred income tax asset as at December 31, 20012002 of $102.8$274.3 million
comparedarises from available income tax losses and future income tax deductions. The
Company's ability to $83.5 million at December 31, 2000. The net asset
relates to the recognition of net operatinguse these income tax losses and future income tax
deductions availableis dependent upon the operations of the Company in the tax
jurisdictions in which such losses or deductions arose. Management records a
valuation allowance against deferred income tax assets when management believes
it is more likely than not that some portion or all of the deferred income tax
assets will not be realized. Based on the reversal of deferred income tax
liabilities, projected future taxable income, the character of the income tax
asset and tax planning strategies, management has determined that a valuation
allowance of $76.6 million is required in respect of its deferred income tax
assets as at December 31, 2002. No valuation allowance was required for the
deferred income tax assets as at December 31, 2001. In order to reducefully utilize
the net deferred income tax assets of $274.3 million, the Company will need to
generate future years'taxable income of approximately $741.0 million. Based on the
Company's current projection of taxable income for the periods in which the
deferred income tax purposes.
Celestica's current projections demonstrateassets are deductible, it is more likely than not that itthe
Company will generate sufficient
taxable income in the future to realize the benefit of thesethe net deferred income tax assets in the carry-forward periods. A portion of the net operating losses have
an indefinite carry forward period. The other portion will expire over a 20-year
period commencing in 2005.
32
as at
December 31, 2002.
UNAUDITED QUARTERLY FINANCIAL HIGHLIGHTS
2001 20002002
----------------------------------------- -----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------- --------
(in millions, except per share amounts)
Revenue........................Revenue................................. $2,692.6 $2,660.7 $2,203.0 $2,448.2 $1,612.3 $2,091.9 $2,600.1 $3,447.8
EBIAT(1)....................... $ 104.3 $ 105.8 $ 70.1 $ 90.9 $ 52.6 $ 72.3 $ 98.4 $ 138.6
%(1)........................... 3.9% 4.0% 3.2% 3.7% 3.3% 3.5% 3.8% 4.0%$2,151.5 $2,249.2 $1,958.9 $1,911.9
Cost of Sales........................... $2,499.3 $2,468.5 $2,053.5 $2,270.7 $1,999.4 $2,087.2 $1,827.6 $1,801.6
Gross Profit %.......................... 7.2% 7.2% 6.8% 7.3% 7.1% 7.2% 6.7% 5.8%
Net earnings (loss)................................. $ 54.8 $ 15.8 $ (38.7) $ (71.8) $ 26.139.7 $ 41.440.4 $ 55.7(90.6) $ 83.5
Adjusted net earnings(2)....... $ 87.3 $ 93.1 $ 64.7 $ 75.5 $ 39.5 $ 63.7 $ 83.9 $ 117.0
%.............................. 3.2% 3.5% 2.9% 3.1% 2.4% 3.0% 3.2% 3.4%(434.7)
Weighted average # of shares outstanding
(in millions)
-- basic...................basic............................ 203.6 207.0 218.1 227.1 190.1 202.7 203.0 203.2229.8 230.2 230.1 229.0
-- diluted(3)(5)...........diluted.......................... 223.1 225.5 218.1 227.1 199.5 211.9 220.0 222.6
Basic earnings236.8 236.0 230.1 229.0
Earnings (loss) per share........................share
-- basic............................ $ 0.25 $ 0.06 $ (0.20) $ (0.33) $ 0.140.15 $ 0.200.16 $ 0.26(0.40) $ 0.39
Diluted earnings (loss) per
share(3)(5)..................(1.90)
-- diluted.......................... $ 0.25 $ 0.06 $ (0.20) $ (0.33) $ 0.130.15 $ 0.200.15 $ 0.25(0.40) $ 0.38
Diluted adjusted earnings per
share(4)(5).................. $ 0.39 $ 0.41 $ 0.27 $ 0.31 $ 0.20 $ 0.30 $ 0.38 $ 0.53(1.90)
- -------------
(1) Earnings before interest, amortization of intangible assets, income taxes,
integration costs related to acquisitions and other charges, which is also
referred to as our operating margins.
(2) Net earnings (loss) adjusted for amortization of intangible assets,
integration costs related to acquisitions and other charges, net of related
income taxes. Adjusted net earnings is not a GAAP measure.
See "-- Adjusted
net earnings."
(3) ForCapital Resources" for information regarding the thirdimpact of foreign
currency fluctuations on the Company.
B. LIQUIDITY AND CAPITAL RESOURCES
In 2002, operating activities provided Celestica with $982.8 million in
cash, compared to $1,290.5 million in 2001. Cash was generated from earnings and
fourth quarter of 2001, excludes the effect of options and
convertible debt as they are anti-dilutivea reduction in working capital, primarily inventory, due to improved inventory
management, and the loss.
(4) For purposescollection of calculating diluted adjusted earnings per shareaccounts receivable. The Company will continue
to focus on improving working capital management. Cash generated from operations
was sufficient to fully fund the Company's investing and financing activities
for 2002.
35
Investing activities for 2002 included capital expenditures of
$151.4 million, and asset acquisitions of $111.0 million, offset in part by
proceeds from the thirdsale of the Company's Columbus, Ohio facility and fourth quarterfrom the
sale-leaseback of 2001,machinery and equipment.
In 2002, Celestica redeemed the weighted average numberentire $130.0 million of shares
outstanding Senior
Subordinated Notes which were due in millions was 235.72006 and 244.5, respectively.
(5) Shares outstanding and per share amounts for 2000 have been restated to
reflectpaid the treasury stock method, retroactively applied. See "-- Recent
Accounting Developments."
CONVERTIBLE DEBT
In August 2000, Celestica issuedcontractual premium of
5.25%, or $6.9 million, on redemption. The Company also reduced the leverage on
its balance sheet by repurchasing Liquid Yield Option-TM- Notes (LYONs) in the
open market. These LYONs, withhaving a principal amount at maturity of
$1,813.6$222.9 million, payable August 1, 2020.were repurchased at an average price of $450.10 per LYON, for a
total of $100.3 million. A gain of $6.7 million, net of taxes of $3.9 million,
was recorded. See further details in note 10 to the Consolidated Financial
Statements. The Company received gross proceedsmay, from time to time, purchase additional LYONs in the
open market. Subsequent to year-end, the board of $862.9directors authorized the
Company to spend up to an additional $100.0 million to repurchase LYONs, at
management's discretion. This is in addition to the amounts authorized in
October 2002, of which $48.0 million remains available for future purchases. The
amount and incurred $12.5timing of future purchases cannot be determined at this time.
In July 2002, Celestica filed a Normal Course Issuer Bid to repurchase up to
9.6 million in underwriting commissions, net of
tax of $6.9 million. No interest is payable on the LYONs and the issue price of
the LYONs represents a yield to maturity of 3.75%. The LYONs are subordinated in
right of payment to all existing and future senior indebtedness of the Company.
The LYONs are convertible at any time at the option of the holder, unless
previously redeemed or repurchased, into 5.6748 subordinate voting shares, for each $1,000 principal amountcancellation, over a period from
August 1, 2002 to July 30, 2003. The shares will be purchased at maturity. Holdersthe market
price at the time of purchase. The number of shares to be repurchased during any
30-day period may requirenot exceed 2% of the outstanding subordinate voting shares. A
copy of our Notice relating to the Normal Course Issuer Bid may be obtained from
Celestica, without charge, by contacting the Company's Investor Relations
Department at clsir@celestica.com. In 2002, the Company to
repurchase all or a portion of their LYONs on August 2, 2005, August 1, 2010 and
August 1, 2015 and the Company may redeem the LYONs at any time on or after
August 1, 2005 (and, under certain circumstances, before that date). The Company
is required to offer to repurchase the LYONs if there is a change in control or
a delisting event. Generally, the redemption or repurchase price is equal to the
accreted value of the LYONs. The Company may elect to pay the principal amount
at maturity of the LYONs, or the repurchase price that is payable in certain
circumstances, in cash orrepurchased 2.0 million
subordinate voting shares or any combination thereof.
The Company has recorded the LYONs as an equity instrument pursuant to
Canadian GAAP. The LYONs are bifurcated intoat a principal equity component
(representing the present valueweighted average price of the notes) and an option component
(representing the value$16.23 per share. All
of the conversion features of the notes). The principal
equity component is accreted over the 20-year term through periodic charges to
retained earnings. Under U.S. GAAP, the LYONs are classified as a long-term
liability and, accordingly, the accrued yieldthese transactions were funded with cash on the LYONs during any period (at
3.75% per year) is classified as interest expense for that period.
33
To calculate basic earnings (loss) per share for Canadian GAAP, the
accretion of the convertible debt is deducted from net earnings (loss) for the
period to determine earnings available to shareholders.
B. LIQUIDITY AND CAPITAL RESOURCEShand.
In 2001, operating activities provided Celestica with $1,290.5 million in
cash principally from earnings and a reduction in working capital. The primary
factors contributing to the positive cash flow for the year waswere the reduction
of inventory due to better inventory management, strong accounts receivable
collections and the sale of $400.0 million in accounts receivable under a
revolving facility, which is available until September 2004 offset by a decrease in accounts payable and accrued
liabilities. Investing activities in 2001 included capital expenditures of
$199.3 million and $1,299.7 million for acquisitions. See "-- Recent
Acquisitions." CelesticaThe Company fully funded the cash portion of its 2001 acquisitions with cash from
operations and will continue to focus on improving
working capital management.operations. The Company's 2001 financing activities included the issuance in May
of 12.0 million subordinate voting shares for gross proceeds of $714.0 million
less expenses and underwriting commissions of $10.0 million
(pre-tax) and the repayment of $56.0 million of debt acquired in connection with the
acquisition of Omni.
ForCAPITAL RESOURCES
During the year, endedCelestica amended its credit facilities. At December 31,
2000, Celestica's operating activities
utilized $85.1 million in cash. Investing activities in 2000 included capital
expenditures of $282.8 million and $634.7 million for acquisitions. In
March 2000, Celestica issued 16.6 million subordinate voting shares for gross
proceeds of $757.4 million less expenses and underwriting commissions of
$26.8 million (pre-tax). In August 2000, Celestica completed2002, the LYONs offering,
raising gross proceeds of $862.9 million less underwriting commissions of
$19.4 million (pre-tax).
CAPITAL RESOURCES
Celestica hasCompany had two $250.0 million and onecredit facilities: a $500.0 million unsecured,four-year
revolving term credit facilities totalling $1.0 billion, each provided byfacility and a syndicate of
lenders$350.0 million revolving term credit
facility which expire in 2005 and are available until2004, respectively. The Company elected to
cancel its third credit facility which was originally entered into in
July 2003, April 2004 and July 2005,
respectively.1998. The credit facilities permit Celestica and certain designated
subsidiaries to borrow funds directly for general corporate purposes (including
acquisitions) at floating rates. Under the credit facilities: Celestica is
required to maintain certain financial ratios; its ability and that of certain
of its subsidiaries to grant security interests, dispose of assets, change the
nature of its business or enter into business combinations, is restricted; and,
a change in control is an event of default. No borrowings were outstanding under
the revolving credit facilities at December 31, 2001.
Effective April 19, 2002, the maturity of one of the $250.02002.
Celestica and certain subsidiaries have uncommitted bank facilities which
total $47.1 million credit
facilities has been extended from April 2004 to April 2005. Concurrent with this
extension, Celestica elected to reduce the facility to $210.0 million from
$250.0 million.
In addition, there is an incurrence covenant contained in Celestica's Senior
Subordinated Notes due 2006. This covenant is based on Celestica's fixed charge
coverage ratio, as defined in the indenture governing the Senior Subordinated
Notes. Celestica was in compliance with this debt covenant as at December 31,
2001.
A subsidiary of the Company has secured loan facilities of which
$13.0 million was outstanding at December 31, 2001. The weighted average
interest rates on these facilities in 2001 was 4.4%. The loansthat are denominated
in Singapore dollars and are repayable through quarterly payments.available for operating requirements.
Celestica believes that cash flow from operating activities, together with
cash on hand and borrowings available under its credit facilities, will be
sufficient to fund currently anticipated working capital, planned capital
spending and debt service requirements for the next 12 months. The Company
expects capital spending for 20022003 to be approximately $170.0 millionin the range of 1.5% to $220.0 million.2.0% of revenue.
At December 31, 2001,2002, Celestica had committed $21.0$30.3 million in capital
expenditures. In addition, Celestica regularly reviews acquisition
opportunities, and therefore, may therefore require additional debt or equity financing.
The Company has an arrangement to sell up to $400.0 million in accounts
receivable under a revolving facility which is available until September 2004.
As of year-end, the Company generated cash from the sale of
36
$320.5 million in accounts receivable. The terms of the arrangement provide that
the purchaser may elect not to purchase receivables if Celestica's credit rating
falls below a specified threshold. Celestica's credit rating is significantly
above that threshold.
Celestica prices the majority of its products in U.S. dollars, and the
majority of its material costs are also denominated in U.S. dollars. However, a
significant portion of its non-material costs (including payroll, facilities
costs, and costs of locally sourced supplies and inventory) are denominated in
various currencies. As a result, Celestica may experience transaction and
translation gains or losses because of currency fluctuations. The Company has an
exchange risk management policy in place to control its hedging programs and
does not enter into speculative trades. At
34
December 31, 2001,2002, Celestica had
forward foreign exchange contracts covering various currencies in an aggregate
notional amount of $704.8$669.1 million with expiry dates up to May 2003.March 2004, except for
one contract for $10.6 million that expires in January 2006. The fair value of
these contracts at December 31, 2001,2002, was an unrealized lossgain of $7.4$18.9 million.
Celestica's current hedging activity is designed to reduce the variability of
its foreign currency costs and generally involves entering into contracts to
selltrade U.S. dollars to purchasefor Canadian dollars, British pounds sterling, Mexican pesos,
euros, ThailandThai baht, Singapore dollars, Brazilian reais, Japanese yen and Czech
koruna at future dates. In general, these contracts extend for periods of less
than 1819 months. Celestica may, from time to time, enter into additional hedging
transactions to minimize its exposure to foreign currency and interest rate
risks. There can be no assurance that such hedging transactions, if entered
into, will be successful. See note 2(n) to the Consolidated Financial
Statements.
As at December 31, 2001,2002, the Company has contractual obligations that
require future payments as follows:
TOTAL 2002 2003 2004 2005 2006 2007 THEREAFTER
-------- -------- -------- -------- -------- -------- ----------
(in millions)
Long-term debt............................ $147.4debt......................... $ 10.06.9 $ 4.52.7 $ 1.32.5 $ 0.7 $130.61.5 $ 0.30.1 $ 0.1 $--
Operating leases and license
commitments............................. 359.4 104.1 81.3 38.0 26.4 20.4 89.2leases....................... 338.3 106.5 59.5 38.9 23.0 18.9 91.5
TheAs at December 31, 2002, the Company has a convertible instrumentinstruments, the LYONs,
with aan outstanding principal amount at maturity of $1,813.6$1,590.6 million payable
August 1, 2020. Holders of the instruments have the option to require Celestica
to repurchase their LYONs on August 2, 2005, at a price of $572.82 per LYON, or
a total of $911.1 million. The Company may elect to settle its repurchase
obligation in cash or shares, or any combination thereof. See further details in
Notenote 10 to the Consolidated Financial Statements.
Under the terms of an existing real estate lease which expires in 2004,
Celestica has the right to acquire the real estate at a purchase price equal to
the lease balance which currently is approximately $37.3 million. In the event
that the lease is not renewed, subject to certain conditions, Celestica may
choose to market and complete the sale of the real estate on behalf of the
lessor. If the highest offer received is less than the lease balance, Celestica
would pay the lessor the lease balance less the gross sale proceeds, subject to
a maximum of $31.5 million. In the event that no acceptable offers are received,
Celestica would pay the lessor $31.5 million and return the property to the
lessor. Alternatively, Celestica may choose to acquire the real estate at the
expiration for a price equal to the then current lease balance. The future lease
payments under this lease are included in the total operating lease commitments.
As at December 31, 2001,2002, the Company has commitments that expire as follows:
TOTAL 2002 2003 2004 2005 2006 2007 THEREAFTER
-------- -------- -------- -------- -------- -------- ----------
(in millions)
Foreign currency contracts................ $704.8 $654.0 $50.8 $-- $--contracts............. $669.1 $621.5 $ 39.6 $ 5.3 $ 2.7 $-- $--
Letters of credit, letters of guarantee
and guarantees.......... 24.1 24.1surety and performance bonds..... 61.2 37.6 1.0 16.9 -- -- -- -- --3.9 1.8
RECENT DEVELOPMENT
On March 31, 2002,The Company has also provided routine indemnifications, whose terms range in
duration and often are not explicitly defined. These guarantees may include
indemnifications against adverse effects due to changes in tax laws and patent
infringements by third parties. The maximum amounts from these indemnifications
cannot be reasonably estimated. In some cases, the Company purchasedhas recourse against
other parties to mitigate its risk of loss
37
from NEC Corporation certain
manufacturing assets in Miyagi and Yamanashi, Japan.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affectthese guarantees. Historically, the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Significant estimates are used in determining the allowance for doubtful
accounts, inventory valuation and the useful lives of intangible assets. Actual
results could differ materially from those estimates and assumptions.
Celestica records an allowance for doubtful accounts for estimated credit
losses based on customer and industry concentrations and the Company's knowledge
of the financial condition of its customers. A changeCompany has not made significant
payments relating to these factors could
impactindemnifications.
The Company expenses management related fees charged by its parent company.
Management believes that the estimated allowance.
Celestica valuesfees charged are reasonable in relation to the
services provided. See note 15 to the Consolidated Financial Statements.
RECENT DEVELOPMENTS
In January 2003, the Company made the following announcements:
In response to the continued limited visibility in end markets, the Company
plans to further reduce its inventorymanufacturing capacity. The reduction in capacity
will result in a pre-tax restructuring charge of between $50.0 million and
$70.0 million, to be recorded during 2003, of which approximately 80% will be
cash costs.
The Company has, from time to time, purchased LYONs on a first-in, first-out basisthe open market. The
Company has been authorized by the board of directors to spend up to an
additional $100.0 million to repurchase LYONs, at management's discretion. This
is in addition to the loweramounts authorized in October 2002, of cost and replacement costwhich
$48.0 million remains available for production parts and at the lower of cost and
net realizable value for work in progress and finished goods. Celestica adjusts
its inventory valuation based on estimates of net realizable value and
shrinkage. A change to these assumptions could impact the valuation of
inventory.
Celestica's estimate of the useful life of intangible assets reflects the
periods in which the projected future net cash flows are generated. A
significant change in the projected future net cash flows could impact the
estimated useful life.
35
purchases.
RECENT ACCOUNTING DEVELOPMENTS
EARNINGS PER SHARE:
As a result of the new Canadian Institute of Chartered Accountants (CICA)
Handbook Section 3500 "Earnings per share," the Company was required to
retroactively use the treasury stock method for calculating diluted earnings per
share. This change results in an earnings per share calculation which is
consistent with United States GAAP. Previously reported diluted earnings per
share have been restated to reflect this change.
BUSINESS COMBINATIONS, GOODWILL AND GOODWILL:OTHER INTANGIBLE ASSETS:
In September 2001, the CICA issued Handbook Sections 1581, "Business
Combinations" and 3062, "Goodwill and Other Intangible Assets." The newFASB issued
similar standards mandate the purchase method of accounting for business combinationsin July 2001. See notes 2(q)(ii) and require
that goodwill no longer be amortized but instead be tested for impairment at
least annually. The standards also specify criteria that intangible assets must
meet to be recognized and reported apart from goodwill. The standards require
that the value of the shares issued in a business combination be measured using
the average share price for a reasonable period before and after the date the
terms of the acquisition are agreed to and announced. Previously, the
consummation date was used to value the shares issued in a business combination.
The new standards are substantially consistent with United States GAAP.
Effective July 1, 2001 and for the remainder of the fiscal year, goodwill
acquired in business combinations completed after June 30, 2001, was not
amortized. In addition, the criteria for recognition of intangible assets apart
from goodwill and the valuation of the shares issued in a business combination
has been applied to business combinations completed after June 30, 2001.
Upon full adoption of the standards beginning January 1, 2002, the Company
will discontinue amortization of all existing goodwill, evaluate existing
intangible assets and make any necessary reclassifications in order to conform
with the new criteria for recognition of intangible assets apart from goodwill
and will test for impairment in accordance with the new standards.
In connection with Section 3062's transitional goodwill impairment
evaluation, the Company is required to assess whether goodwill is impaired as of
January 1, 2002. The Company has up to six months to determine the fair value of
its reporting units and compare that22(k) to the carrying amounts of the reporting
units. To the extent a reporting unit's carrying amount exceeds its fair value,
the Company must perform a second step to measure the amount of impairment in a
manner similar to a purchase price allocation. This second step is to be
completed no later than December 31, 2002. The change to assessing fair value by
reporting unit could result in an impairment charge. Any transitional impairment
will be recognized as an effect of a change in accounting principle and will be
charged to opening retained earnings as of January 1, 2002.
As of December 31, 2001, the Company had unamortized goodwill of
$1,128.8 million and unamortized other intangible assets including intellectual
property of $427.2 million, all of which are subject to the transitional
provisions of Sections 1581 and 3062. Amortization expense related to goodwill
was $39.2 million for 2001. Because of the extensive effort required to comply
with the remaining provisions of Sections 1581 and 3062, the Company has not
estimated the impact of these provisions on its financial statements, beyond
discontinuing goodwill amortization.Consolidated
Financial Statements.
STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS:
In December 2001, the CICA issued Handbook Section 3870, which establishes
standards for the recognition, measurement, and disclosure of stock-based
compensation and other stock-based payments made in exchange for goods and
services provided by employees and non-employees. The standard requires that a
fair value based method of accounting be applied to all stock-based payments to
non-employees and to employee awards that are direct awards of stock, that call
for settlement in cash or other assets or are stock appreciation rights that
call for settlement by the issuance of equity instruments. However, the new
standard permits the Company to continue its existing policy of recording no
compensation cost on the grant of stock options to employees. Consideration paid
by employees on the exercise of stock options is recorded as share capital. The
standard is effective for the Company's fiscal year beginningEffective January 1, 2002, for awards granted on or after that date. The Company's current accounting
policies are consistent withthe Company adopted the new standard.
36
CICA Handbook
Section 3870. See note 2(q)(iii) to the Consolidated Financial Statements.
FOREIGN CURRENCY TRANSLATION AND HEDGING RELATIONSHIPS:
CICA Handbook Section 1650 has been amended to eliminate the deferral and
amortization of foreign currency translation gains and losses on long-lived
monetary items, effectiveIn January 1, 2002, with retroactive restatement of prior
periods. The Company is not impacted by this change. The CICA issued Accounting
Guideline AcG-13, which establishes criteria for hedge accounting effective for
the Company's 2003 fiscal year. The Company has complied with the requirements
of AcG-13 and has determined that all of its current hedges will continue to
qualify for hedge accounting when the guideline becomes effective.
TRANSFER OF RECEIVABLES:
In March 2001, the CICA issued Accounting Guideline AcG-12, which applies to
transfers of receivables after June 30, 2001. AcG-12 requires that transfers of
receivables in which the transferor surrenders control over the assets, be
accounted for as a saleAcG-13. See note 2(r)
to the extent that consideration other than beneficial
interests in the transferred assets, are received in exchange. The Company's
current accounting policies are consistent with the new standard.Consolidated Financial Statements.
IMPAIRMENT OF LONG-LIVED ASSETS:
In August 2001, FASB approved SFAS No. 143, "Accounting for Asset Retirement
Obligations" and in October 2001, FASB issued StatementSFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets,Assets." which retainsIn December 2002, the fundamental
provisions ofCICA issued
standards similar to SFAS 121No. 144. See notes 22(k) and 2(r) to the Consolidated
Financial Statements.
COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES:
In July 2002, FASB issued SFAS No. 146, "Accounting for recognizing and measuring impairment losses of
long-lived assets other than goodwill. Statement 144 also broadens the
definition of discontinued operations to include all distinguishable components
of an entity that will be eliminated from ongoing operations. This Statement isCosts Associated
with Exit or Disposal Activities," effective for exit or disposal activities
that are initiated after December 31, 2002. See note 22(k) to the Company's fiscal year commencingConsolidated
Financial Statements.
GUARANTEES:
In November 2002, FASB issued FIN 45, "Guarantor's Accounting and Disclosure
Requirements." In December 2002, the CICA approved AcG-14 which harmonizes
Canadian GAAP to the disclosure requirements of FIN 45. See notes 22(k)
and 2(r) to the Consolidated Financial Statements.
CONSOLIDATION OF VARIABLE INTEREST ENTITIES:
In January 1, 2002,2003, FASB issued FIN 46, "Consolidation of Variable Interest
Entities." See note 22(k) to be
applied prospectively. In August 2001, SFAS 143 "Accounting for Asset Retirement
Obligations" was approved and requires that the fair value of an asset
retirement obligation be recorded as a liability, at fair value, in the period
in which the Company incurs the obligation. SFAS 143 is effective for the
Company's fiscal year commencing January 1, 2003. The Company expects the
adoption of these standards will have no material impact on its financial
position, results of operations or cash flows.Consolidated Financial Statements.
38
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
Certain information concerning research and development and intellectual
property is set forth in "-- Operating Results -- Selling, general and
administrative expenses" and in Item 4, "Information of the Company -- Business
Overview -- Celestica's Business -- Technology and Research and Development."
D. TREND INFORMATION
During the last year,past two years, economic growth slowed and, in some regions of
the world, the economy contracted. As a result,The demand for technology products fell
significantly and Celestica's customers experienced commensurately reduced
demand for their products. In turn, Celestica experienced reduced demand for electronicsthe
manufacturing services. However, this downturn in demand was offset
partially by an increase on the part of Celestica's customers to outsource their
manufacturing.services that we provide. In 2002,2003, the economic environment
continues to be uncertain, and Celestica continues to experience poorlimited
visibility for customerin end-market demand. Given the difficult economic environment,
Celestica has been focussedfocused on re-aligning capacity to match current levels of
product demand, generating increased levels of cash flow, and improving
operating efficiencies, including the reduction of
inventory levels. Celestica intendsefficiencies. We intend to continue these activities in 2002.2003. There
continues to be a significant number of outsourcing opportunities and Celestica
is well positioned to participate further in the trend towards increasing levels
of electronicsincreased
outsourcing by OEMs. If, however, economic conditions were to deteriorate
significantly beyond current expectations, Celestica would likely continue
reducing capacity to match reduced levels of demand.
37
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
Each director of Celestica is elected by the shareholders to serve until the
next annual meeting or until a successor is elected or appointed. Executive
officers of Celestica are appointed annually and serve at the discretion of the
board of directors. The following table sets forth certain information regarding
the directors and senior officers of Celestica.
NAME AGE POSITION WITH CELESTICA
- ---- -------- -----------------------------------------------------------------------------------
EUGENEEugene V. POLISTUK................ 55Polistuk................... 56 Chairman of the Board, Chief Executive Officer, and Director
ANTHONYRobert L. Crandall................... 67 Director
William A. Etherington............... 61 Director
Richard S. Love...................... 65 Director
Roger L. Martin...................... 46 Director
Anthony R. Melman.................... 55 Director
Michio Naruto........................ 67 Director
Gerald W. Schwartz................... 61 Director
Charles W. Szuluk.................... 60 Nominee to Board of Directors
Don Tapscott......................... 55 Director
J. Marvin M(a)Gee.................... 50 President and Chief Operating Officer
Anthony P. PUPPI.................. 44Puppi..................... 45 Executive Vice President, Chief Financial Officer and
General Manager, Global Services
and Director
ROBERT L. CRANDALL................ 66 Director
WILLIAM A. ETHERINGTON............ 60 Director
MARK L. HILSON.................... 44 Director
RICHARD S. LOVE................... 64 Director
ROGER L. MARTIN................... 45 Director
ANTHONY R. MELMAN................. 54 Director
MICHIO NARUTO..................... 66 Director
GERALD W. SCHWARTZ................ 60 Director
DON TAPSCOTT...................... 54 Director
J. MARVIN M(A)GEE................. 49 President and Chief Operating Officer
R. THOMAS TROPEA.................. 49Thomas Tropea..................... 50 Vice Chair, Global Customer Units and Worldwide Marketing
and Business Development
ANDREW G. GORT.................... 49 ExecutiveStephen W. Delaney................... 43 President, Americas
N.K. Quek............................ 55 President, Asia
Peter J. Bar......................... 45 Vice President Global Supply Chain Management
ALASTAIR KELLY.................... 57 Executive Vice President,and Corporate Development
ARTHURController
Arthur P. CIMENTO................. 44Cimento.................... 45 Senior Vice President, Corporate Strategies
LISA J. COLNETT................... 44 SeniorElizabeth L. DelBianco............... 43 Vice President, Worldwide Process ManagementGeneral Counsel, and ChiefSecretary
39
NAME AGE POSITION WITH CELESTICA
- ---- -------- ------------------------------------------------------------
Iain S. Kennedy...................... 41 Group Executive, Global Supply Chain and Information
Officer
STEPHEN DELANEY................... 42 Senior Vice President, U.S., Celestica Corporation
IAINTechnology
Donald S. KENNEDY................... 40 Senior Vice President, Integration
DONALD S. MCCREESH................ 53McCreesh................... 54 Senior Vice President, Human Resources
DANIELPaul Nicoletti....................... 35 Vice President and Corporate Treasurer
Daniel P. SHEA.................... 45 Senior Vice PresidentShea....................... 46 Group Executive and Chief Technology Officer
RAHUL SURI........................ 37Rahul Suri........................... 38 Senior Vice President, Mergers and Acquisitions
PETER J. BAR...................... 44Corporate Development
F. Graham Thouret.................... 48 Senior Vice President, and Corporate Controller
ELIZABETH L. DELBIANCO............ 42 Vice President, General Counsel and Secretary
F. GRAHAM THOURET................. 47 Vice President and Corporate TreasurerFinance
The following is a brief biography of each of Celestica's directors and
senior officers:
EUGENE V. POLISTUK is the founder, Chairman of the Board of Directors and
Chief Executive Officer of Celestica. He has been the Chief Executive Officer of
Celestica since its establishment in 1994, and was Celestica's President until
February 2001. Since 1986, Mr. Polistuk has been instrumental in charting
Celestica's transformation and executing the company's successful evolution from
its early history as an operating unit ofwith IBM, to a standalone company, to a
$10.0 billion public company
and leader in the electronics manufacturing services industry. Previously,
Mr. Polistuk spent 25 years with IBM Canada, where, over the course of his
career, 38
he managed all key functional areas of the business. Mr. Polistuk holds a
Bachelor of Applied Science degree in Electrical Engineering from the University
of Toronto and an Honorary Doctorate in Engineering from Ryerson University in
2001. In 1994, he was
presented with the "2T5 Meritorious Service Medal" in recognition of his
meritorious service in and for the profession, by his peers in the University of
Toronto Engineering Alumni Association. He has beenAnd more recently, in 2002,
Mr. Polistuk was inducted by the recipientUniversity of ELECTRONIC BUSINESS' Outstanding CEO award,Toronto into its Engineering Hall
of Distinction for his contributions to engineering and most recently,
undersociety. Mr. Polistuk's leadership, Celestica has been recognized as the number one
ranking company on BUSINESSWEEK'S 2001 Info Tech 100 list, and as CANADIAN
BUSINESS' Company of the Year in the publication's 2001 Tech 100 issue.
ANTHONY P. PUPPI has been the Chief Financial Officer of Celestica since its
establishment and a director of Celestica since October 1996. He was appointed
Executive Vice President in October 1999 and General Manager, Global Services in
January 2001. Mr. Puppi is responsible for Celestica's global financial
activities, as well as a number of global services businesses, including design,
repair and power systems. From 1980 to 1992, he held positions of increasing
financial management responsibility with IBM Canada. Mr. PuppiPolistuk
holds a Bachelor of Business AdministrationApplied Science degree in FinanceElectrical Engineering from the
University of Toronto and a MasterDoctor of Business
Administration degreeEngineering (Hon.) from York University in Ontario.Ryerson
University.
ROBERT L. CRANDALL is the retired Chairman of the Board and Chief Executive
Officer of AMR Corporation/ American Airlines Inc. Mr. Crandall has been a
director of Celestica since July 1998.1998 and was appointed Lead Director in
December 2002. He is also a director of Allied World
Assurance Company, Anixter International Inc., the
Halliburton Company and i2 Technologies Inc. He also serves on the International
Advisory Board of American International Group, Inc. Mr. Crandall holds a
Bachelor of Science degree from the University of Rhode Island and a Master of
Business Administration degree from the Wharton School of the University of
Pennsylvania.
WILLIAM A. ETHERINGTON is a corporate director serving on the boards of
Celestica Inc. (since October 2001), Canadian Imperial Bank of Commerce,
Dofasco Inc., MDS Inc. and AT&T Canada. He is the former Senior Vice President
and Group Executive, Sales and Distribution, IBM Corporation and Chairman,
President and Chief Executive Officer of IBM World Trade Corporation. Mr. Etherington has been
a director of Celestica since October 2001. After
joining IBM Canada in 1964, Mr. Etherington ran successively larger portions of
the company's business in Canada, Latin America, Europe and from the corporate
office in Armonk, New York. He retired from IBM after a 37-year career.
Mr. Etherington holds a Bachelor of Science degree in Electrical Engineering and
a Doctor of Laws (Hon.) Degree
from the University of Western Ontario.
MARK L. HILSON is a Vice President of Onex and has acted as a director of
Celestica since October 1996. Mr. Hilson joined Onex in 1988 and was appointed
Vice President in 1993. Prior to 1988, he was an associate in the Mergers &
Acquisitions Group at Merrill Lynch. Mr. Hilson is also a director of Magnatrax
Corporation, Unitive Inc., Vincor International Inc. and a governor of Wilfrid
Laurier University and the Shaw Festival. Mr. Hilson holds an Honours Bachelor
of Business Administration (gold medallist) from Wilfrid Laurier University and
a Master of Business Administration (George F. Baker Scholar) from the Harvard
University Graduate School of Business Administration.
RICHARD S. LOVE is a former Vice President of Hewlett-Packard and a former
General Manager of the Computer Order Fulfillment and Manufacturing Group for
Hewlett-Packard's Computer Systems Organization. Mr. Love has been a director of
Celestica since July 1998. From 1962 until 1997, he held positions of increasing
responsibility with Hewlett-Packard, becoming Vice President in 1992. He is a
former director of HMT Technology Corporation (electronics manufacturing) and
the Information Technology Industry Council. Mr. Love holds a Bachelor of
Science degree in Business Administration and Technology from Oregon State
University and a Master of Business Administration degree from Fairleigh
Dickinson University.
ROGER L. MARTIN is Dean and Professor of Strategy at the University of
Toronto's Joseph L. Rotman
School of Management at the University of Toronto and has been a director of
Celestica since July 1998. Mr. Martin was formerly a director of Monitor
Company, a Cambridge, Massachusetts based consulting firm, and is Chair of the
Ontario Task Force on Competitiveness, Productivity, and Economic Progress.
Mr. Martin also serves as a director foron the board of The Thomson Corporation,
Ontario SuperBuild Corporation,serves on the Canadian Film Centreadvisory boards of Butterfield & Robinson and Social Capital
Partners, is a founder of E-magine and serves as a trustee of theThe Hospital for
Sick Children. Mr. Martin holds aan AB degree (cum laude) from Harvard College
and a Master of Business Administration degree from the Harvard University
Graduate School of Business Administration.
40
ANTHONY R. MELMAN is a Vice President of Onex and has been a director of
Celestica since October 1996. Dr. Melman joined Onex in 1984 and is actively
involved in negotiating acquisitions, divestitures, and the
39
financing thereof.1984. He serves on the boards of
various Onex subsidiaries. From 1977 to 1984, heDr. Melman was Senior Vice
President of Canadian Imperial Bank of Commerce, responsible forin charge of worldwide merchant
banking, project financing, acquisitions and other specialized financing
activities. Prior to emigrating to Canada in 1977, Dr. Melmanhe had extensive merchant
banking experience in South Africa and the United Kingdom.U.K. Dr. Melman is also a director of
The Baycrest Centre Foundation, The Baycrest Centre for Geriatric Care, the
University of Toronto Asset Management Corporation, and a member of the Board of
Governors of Mount Sinai Hospital. He is also Chair of Fundraising for the
Pediatric Oncology Group of Ontario (POGO). Dr. Melman holds a Bachelor of
Science degree in Chemical Engineering from the University of The Witwatersrand,
a Master of Business Administration (gold medallist)medalist) from University of Cape Town University
and a Ph.D. in Finance from the University of The Witwatersrand.
MICHIO NARUTO is the Chairman of Celestica Japan KK,had been Chairman of the Board of ICL plc,Fujitsu Services (formerly
ICL) since 2002. He has been special representative of Fujitsu Ltd.since June 2000
and was Vice Chairman of Fujitsu until April 2000. Mr. Naruto is currently
Chairman of Toyota Info
Technology Center.InfoTechnology Center, a subsidiary of Toyota Motor
Corporation. He has been a director of Celestica since October 2001. Mr. Naruto
joined Fujitsu Limited in February 1962. In 1981, when Fujitsuthe company entered into
athe technology agreement with ICL, he held the position of General Manager,
Business Administration of International Operations. He was appointed to the
board of Fujitsu Limited in 1985, in charge of International Operations. Later
his responsibility in Fujitsu covered the ICL Business Group; Legal and Industry
Relations; and, External Affairs and Export Control. In his current capacity, he
attends various international conferences as special representative of Fujitsu
and also takes a role as chairman of Fujitsu Research Institute. Mr. Naruto
holds a Bachelor of Laws degree from the University of Tokyo.
GERALD W. SCHWARTZ is the Chairman of the Board, President and Chief
Executive Officer of Onex Corporation and has been a director of Celestica since
July 1998. Prior to founding Onex in 1983, Mr. Schwartz was a co-founder (in
1977) of CanWest Capital Corp.,what is now CanWest Global Communications Corp. He is a director of
Onex, The Bank of Nova Scotia, LSG/Sky Chefs,Phoenix Entertainment Corp. and Vincor
International Inc., and Phoenix Pictures Inc.Chairman of Loews Cineplex Entertainment Corp.
Mr. Schwartz is also Vice Chairman and Membermember of the Executive Committee of
Mount Sinai Hospital, and is a director, governor or trustee of a number of
other organizations, including Junior Achievement of Toronto, Canadian Council
of Christians and Jews, and The Board of Associates of the Harvard Business School.
Mr. SchwartzSchool
and The Simon Wiesenthal Center. He holds a Bachelor of Commerce degree and a
Bachelor of Laws degree from the University of Manitoba, a Master of Business
Administration degree from the Harvard University Graduate School of Business
Administration, and a Doctor of Laws (Hon.) from St. Francis Xavier University.
CHARLES W. SZULUK, formerly an officer of The Ford Motor Company, was
President of Visteon Automotive Systems, and a Group Vice President. From 1988
until 1999, he held positions of increasing responsibility with Ford, including
General Manager, Electronics Division, and Vice President, Process Leadership
and Information Systems. He retired from Ford in 1999. Prior to joining Ford, he
spent 24 years with IBM Corporation in a variety of management and executive
management positions. Mr. Szuluk holds a Bachelor of Science degree in Chemical
Engineering from the University of Massachusetts and attended Union College of
New York in Advanced Graduate Studies.
DON TAPSCOTT is an internationally sought afterrespected authority, consultant and
speaker on business strategy and organizational transformation. He is the author
of several widely read books on the application of technology in business.
Mr. Tapscott is the co-founder of Digital 4Sight, a company that researches and
designs new business models for Global 2000 organizations, presidentPresident of New Paradigm Learning Corporation Chairman of Maptuit,-- a business
strategy and education company he founded in 1992, and an adjunct Professor of
Management at the University of Toronto's Joseph L. Rotman School of Management.
He is also a founding member of the Committee of Advisers of the
Business and Economic Roundtable on
Addiction and Mental Health.Health, and a fellow of the World Economic Forum.
Mr. Tapscott has been a director of Celestica since September 1998. He holds a
Bachelor of Science degree in Psychology and Statistics, and a Master of
Education degree, specializing in Research Methodology, as well as a Doctor of
Laws (Hon.) from the University of Alberta.
J. MARVIN M(A)GEE has been the President and Chief Operating Officer of
Celestica since February 2001 and was2001. Prior to that, he held the position of Executive
Vice President, Worldwide Operations fromsince October 1999 to February 2001 and was1999. He joined the Company
in January 1997, as Senior Vice President, Canada from January 1997 until October 1999.Canadian Operations. Mr. M(a)Gee
joinedcurrently has
41
responsibility for global manufacturing operations. Before joining Celestica,
Mr. M(a)Gee spent 18 years with IBM Canada in
1979 and, over the course of his career, haswhere he held a number of executive
positions with IBM Canada'sin manufacturing and development, operations, with assignments in Canada and the
United States. Mr. M(a)Gee holds a Bachelor of Science degree in Mechanical
Engineering from the University of New Brunswick and a Master of Business
Administration degree from McMaster University.
ANTHONY P. PUPPI has been the Chief Financial Officer of Celestica since its
establishment and was a director of Celestica from October 1996 to April 2002.
He was appointed Executive Vice President in October 1999 and General Manager,
Global Services in January 2001. Mr. Puppi is responsible for Celestica's global
financial activities, as well as a number of global services businesses,
including design, repair, power systems, and plastics. From 1980 to 1992, he
held positions of increasing financial management responsibility with IBM
Canada. Mr. Puppi holds a Bachelor of Business Administration degree in Finance
and a Master of Business Administration degree from York University in Ontario.
R. THOMAS TROPEA has been Vice Chair, Global Customer Units and Worldwide
Marketing and Business Development of Celestica since February 2001 and2001. Prior to
that, he was the Executive Vice President, Worldwide Marketing and Business
Development fromsince October 1999, to February 2001andand was Senior Vice President of Marketing and
Business Development from August 1998 to October 1999. Mr. Tropea has
responsibility for global marketing and business development. He joined
Celestica after an extensive career with Northern Telecom and has over 18 years
of experience in the telecommunications industry in North America and Europe,
working in critical 40
areas such as sales, finance, business development, investor
relations, and manufacturing operations. Mr. Tropea holds a Master of Business
Administration degree from the University of Toronto and a Bachelor of Commerce
degree from Carleton University in Ottawa, Ontario.
ANDREW G. GORTUniversity.
STEPHEN W. DELANEY has been the ExecutivePresident, Americas of Celestica since
September 2002. He is responsible for Celestica's operations in North and South
America. Prior to that, Mr. Delaney was Senior Vice President, Supply Chain ManagementU.S. East
Operations since February 2001January 2002, and was Senior Vice President, U.S. Central
Operations from May 2001 to January 2002. Before joining Celestica, Mr. Delaney
was the vice president and general manager of Interior and Exterior Systems
Business at Visteon, where he was responsible for a division with 25 plants and
25,000 employees spanning North and South America, Europe, and Asia. Prior to
joining Visteon in 1997, as vice president of Supply, Mr. Delaney held executive
and senior management roles in the operations of AlliedSignal's Electronic
Systems business, Ford's Electronics Division, and IBM's Telecommunications
division. Mr. Delaney holds a Masters degree in Business Administration from
Duke University in North Carolina and a Bachelor of Science degree in Industrial
Engineering from Iowa State University.
N. K. QUEK has been the President, Asia of Celestica since September 2002.
He is responsible for Celestica's operations in China, Hong Kong, Indonesia,
Japan, Malaysia, Singapore, and Thailand. Prior to that, Mr. Quek was Senior
Vice President, Asia Operations. Before joining Celestica in 1999, he was the
Senior Vice President of Celestica from
October 1996 until February 2001. He is responsibleAsia Operations for global supply chain
management, which includes Celestica's worldwide procurement procedures.IMS. Mr. Gort joined IBM Canada in 1969Quek has over 25 years
direct high-tech experience and, over the course of his career, has held
various managerial rolespositions at Intel, Seagate, National Semi-conductor, GE, SCI Systems and
Siemens in new products, materials, planning, office systemsoperations, repair services, process engineering, quality assurance,
and manufacturing products.power. Mr. GortQuek holds a Bachelor degree in Management Studies from the
Management Institute of Singapore.
PETER J. BAR has been Vice President and Corporate Controller of Celestica
since February 1999. He joined Celestica in March 1998, as Vice President,
Finance -- Power Systems. Prior to joining Celestica, Mr. Bar was the Director
of Finance for the Personal Systems Group of IBM Canada. During his 14-year
career in the information technology industry, he has served in several senior
management positions for both IBM Canada, and IBM's headquarters in Armonk,
New York. Mr. Bar holds a Bachelor of Arts degree in
Economics and a Master of Business AdministrationCommerce degree from the University of
Toronto.
ALASTAIR KELLY has been the Executive Vice President, Corporate Development
since October 1999 and was the Senior Vice President, Celestica Europe from
January 1997 until October 1999. Mr. Kelly joined Design to Distribution Limited
in 1994 and, over the course of his career, has had experience in the computer,
telecommunications and electronics manufacturing sectors. Mr. Kelly holds a
Master of Arts degree in Psychology from Aberdeen UniversityToronto and a Doctor of
Science degree from Salford University.Chartered Accountants designation.
ARTHUR P. CIMENTO joined Celestica in September 1999 as Senior Vice
President, Corporate Strategies. Prior to joining Celestica, he was at
McKinsey & Co., a leading international management consulting firm, with a
client portfolio focused on electronics operations. Mr. Cimento joined McKinsey
in 1988, was elected a Principal in 1993, and held leadership positions in
McKinsey's Operations and Electronics practices. Before joining McKinsey,
Mr. Cimento held management positions in several engineering services firms. He
is a director of the San Francisco Chamber of Commerce. Mr. Cimento holds both a
Bachelor of Science and a Master of Science degree in Mechanical Engineering
from the Massachusetts Institute of Technology.
LISA J. COLNETT has been a Senior Vice President of Celestica since
October 1996. In her current role as Senior Vice-President, Worldwide Process
Management, and Chief Information Officer, she is responsible for key corporate
functions, including IT. Prior to that, Ms. Colnett headed the Memory Division
of Celestica. Ms. Colnett joined IBM Canada in 1981 and, over the course of her
career, has had experience in materials logistics, cost engineering, site
logistics and manufacturing management. Ms. Colnett holds a Bachelor of Business
Administration degree from the University of Western Ontario.
STEPHEN DELANEY42
ELIZABETH L. DELBIANCO joined Celestica Inc. in May 2001 and is a Senior Vice President
responsible for Celestica's U.S. East operations. Prior to joining Celestica,
Mr. Delaney was the Vice President and general manager of Interior and Exterior
Systems Business at Visteon, responsible for a division with 25 plants and
25,000 people in North and South America, Europe and Asia. Prior to joining
Visteon in 1997February 1998, as Vice
President, of Supply, Mr. Delaney held executive and
senior management roles in the operations of AlliedSignal's Electronic Systems
business, Ford's Electronics Division, and IBM's Telecommunications division.
Mr. Delaney holds a Masters degree in Business Administration from Duke
University in North Carolina and a Bachelor of Science degree in Industrial
Engineering from Iowa State University.
IAIN S. KENNEDY has been a Senior Vice President of Celestica since
October 1996. He currently is responsible for Celestica's integration of
acquisitions and South America. Prior to that, he was Senior Vice President,
Mergers and Acquisitions from 1996 through 2000. He began his career with
IBM Canada in 1984 and, over the course of his career, has held a number of key
management positions in areas of the business including: supply chain,
manufacturing operations, business development and information technology as
chief information officer. Mr. Kennedy holds a Bachelor of Science degree in
Computer Science from the University of Western Ontario and a Master of Business
Administration (Ivey Scholar) degree from the Richard Ivey School of Business,
University of Western Ontario.
DONALD S. MCCREESH joined Celestica in August 1999 as Senior Vice President,
Human Resources. Prior to joining Celestica, he was the Executive Vice President
of Human Resources at the Canadian Imperial Bank of Commerce (CIBC). Prior to
joining CIBC in 1997, Mr. McCreesh was at Northern Telecom, where he held a
number of senior human resource management positions. Mr. McCreesh holds both a
Bachelor of Psychology and a Master of Business Administration degree from
McMaster University.
DANIEL P. SHEA has been a Senior Vice President of Celestica since
October 1996 and has been Chief Technology Officer since March 1998. He is also
the General Manager, Hewlett-Packard Global Account and
41
previously was President, Power Systems Division of Celestica where he was
responsible for all aspects of Celestica's power systems business. Mr. Shea
joined IBM Canada in 1980 and, over the course of his career, has held a number
of engineering management roles, such as quality, reliability, procurement and
power systems. Mr. Shea holds a Bachelor of Applied Science degree in Electrical
Engineering from the University of Toronto.
RAHUL SURI has been the Senior Vice President, Mergers and Acquisitions,
since July 2000. He is responsible for Celestica's corporate mergers and
acquisitions activities. Prior to joining Celestica, Mr. Suri was a Managing
Director in the M&A Group at BMO Nesbitt Burns Investment Banking. Prior to
that, he was a partner at the Canadian law firm Davies Ward Phillips &
Vineberg LLP. Mr. Suri was also a visiting professor at Queen's University Law
School, Ontario for several years, where he taught corporate law and mergers and
acquisitions. In 1992, Mr. Suri served as an adviser to the Chairman and the
Executive Director of the Ontario Securities and Exchange Commission on policy
and legal matters. Mr. Suri holds a Master of Arts degree in Law from Cambridge
University, England.
PETER J. BAR has been Vice PresidentCounsel, and Corporate Controller of Celestica
since February 1999. Mr. Bar joined Celestica in March 1998 as the
Vice President, Finance-Power Systems. From 1984 to 1998, Mr. Bar held positions
of increasing responsibility with the finance group at IBM Canada. Mr. Bar holds
a Bachelor of Commerce degree from the University of Toronto and a Chartered
Accountant designation.
ELIZABETH L. DELBIANCO has been Vice President and General Counsel of
Celestica since February 1998.Secretary. She has overall responsibilityis responsible for the
legal affairs of Celestica on a global basis, including all aspects of
regulatory compliance and is also the Corporate Secretary.corporate governance. Ms. DelBianco came to Celestica
following a 13-year career as a senior corporate legal advisor in the
telecommunications industry. Ms. DelBianco holds a Bachelor of Arts degree from
the University of Toronto, a Bachelor of Laws degree from Queen's University,
and a Master of Business Administration degree from the University of Western
Ontario. She is admitted to practice in Ontario and New York.
IAIN S. KENNEDY has been a Senior Vice President of Celestica since 1996. He
currently is responsible for Celestica's global supply chain management (SCM)
and information technology (IT) organizations. As such, Mr. Kennedy is
responsible for maintaining industry-leading SCM and IT performance, while
continuing to deploy a competitive operational strategy across all functions and
regions of the Company's sophisticated global manufacturing network. Previously,
he was responsible for the integration of new acquisitions as well as
South American operations from October 2000 until November 2002. Prior to that
he led Celestica's Mergers and Acquisitions team from 1996 through
September 2000. Mr. Kennedy joined IBM Canada in 1984, and, over the course of
his career, has held a number of senior management positions in key areas of the
business, including supply chain management, manufacturing operations, business
development, and information technology as chief information officer from 1996
to 1998. Mr. Kennedy holds a Bachelor of Science degree in Computer Science from
the University of Western Ontario and a Master of Business Administration (Ivey
Scholar) degree from the Richard Ivey School of Business, University of Western
Ontario. Ms. DelBiancoIn 1998, he was the recipient of Canada's Top 40 Under 40-TM- award in
recognition of attaining a significant level of success before the age of 40.
DONALD S. MCCREESH joined Celestica in August 1999 as Senior Vice President,
Human Resources. Prior to joining Celestica, he was the Executive Vice President
of Human Resources at the Canadian Imperial Bank of Commerce (CIBC), one of
North America's leading financial institutions. In 1988 he joined Northern
Telecom, a global leader in telephony, data, wireless and wireline solutions for
the Internet. There he held a number of senior human resource management
positions. In 1993, he was named Senior Vice President, Human Resources, where
he oversaw all global human resource operations for Nortel. Mr. McCreesh holds
both a Bachelor of Psychology and a Master of Business Administration degree
from McMaster University.
PAUL NICOLETTI has been Vice President and Corporate Treasurer since
September 2002. He is qualifiedresponsible for all corporate finance and treasury-related
matters, in addition to practice
lawglobal tax and investor relations. Previously, he was
Vice President, Global Financial Operations since February 2001, where he led
the regional financial organizations on a global basis. Prior to that, since
August 1999, he was Vice President, Finance and was responsible for all
financial aspects of Celestica's Canadian and Mexico EMS operations.
Mr. Nicoletti joined IBM in 1989, and, over the course of his career, has held a
number of senior financial roles in business development, planning, accounting,
pricing, and financial strategies. He was responsible for leading all financial
strategies and due diligence relating to the divestiture of Celestica from IBM.
Mr. Nicoletti holds a Bachelor of Arts degree from the University of Western
Ontario and New York.a Masters of Business Administration degree from York University.
DANIEL P. SHEA has been a Senior Vice President of Celestica since
October 1996, and has been the company's Chief Technology Officer since
March 1998. In his current role as Group Executive and Chief Technology Officer,
Mr. Shea is responsible for all activities including sales, business
development, operations, and profit and loss associated with his global
accounts, as well as all aspects of the Company's technology development.
Mr. Shea joined IBM Canada in 1980, and, over the course of his career, has held
a number of engineering management roles including quality, reliability,
procurement, development and power systems. Mr. Shea holds a Bachelor of Applied
Science degree in Electrical Engineering from the University of Toronto.
RAHUL SURI has been a Senior Vice President of Celestica since July 2000. In
his current role as Senior Vice President, Corporate Development, he is
responsible for global mergers and acquisitions, as well as for pursuing,
developing and implementing strategic corporate development opportunities with
new and existing customers and partners. Mr. Suri has more than 13 years of
mergers and acquisitions and corporate development experience. Prior to joining
Celestica, he held a range of senior positions in the mergers and acquisitions
field, including managing director of the M&A group at BMO Nesbitt Burns
Investment Banking, and Partner at
43
Davies Ward Phillips & Vineberg, a leading M&A law firm. Mr. Suri was also a
visiting professor at Queen's University Law School, Ontario for three years,
where he taught advanced corporate law and mergers and acquisitions. In 1992, he
served as policy advisor to the chairman and the executive director of the
Ontario Securities Commission on policy and legal matters. Mr. Suri has a Master
of Arts degree in law from Cambridge University, England. He is also a qualified
barrister and solicitor in the Province of Ontario.
F. GRAHAM THOURET has been a Senior Vice President of Celestica since
September 2002. He is currently responsible for the Company's global finance
organization. Prior to that, Mr. Thouret was Vice President and Corporate
Treasurer of Celestica since October 1997. Prior to that,Before joining Celestica, he served
as Vice Presidentvice president and Treasurertreasurer of Dominion Textile Inc., a public company with
international manufacturing and marketing operations. Mr. Thouret has also held
senior management positions in the oil and gas industry (Gulf Canada) and
investment banking.banking (Burns Fry). Mr. Thouret holds a Bachelor of Engineering
(Honours) degree from McGill University and a Master of Science degree in
Management from the Massachusetts Institute of Technology.
There are no family relationships among any of the foregoing persons, and
there are no arrangements or understandings with any person pursuant to which
any of our directors or members of senior management were selected.
B. COMPENSATION
AGGREGATE COMPENSATION OF DIRECTORS AND OFFICERS
Directors who are not officers or employees of Celestica or Onex receive
compensation for their services as directors. These directors receive an annual
retainer fee of $25,000 and a fee of $2,500 for each meeting attended.of the Board of
Directors attended and each meeting attended of a committee of the Board of
Directors of which the Director is a member. Meetings of directors are expected
to occur at least quarterly. In lieu of receiving such retainer and attendance
fees in cash, these directors may elect, at the time they are first elected or
appointed to Celestica's boardBoard of directors,Directors, to receive their fees in
subordinate voting shares. Directors who joined the Board of Directors at or
about the time of Celestica's initial public offering receive an annual retainer
and per meeting fee of 2,860 and 286 subordinate voting shares respectively.
Under the Directors' Compensation Plan adopted in July 2001, the number of
shares to be paid to other eligible directors in lieu of cash is calculated, in
the case of meeting fees, by dividing the cash fee that would otherwise be
payable by the closing price of subordinate voting shares on the NYSE on the
date of the meeting, and, in the case of annual retainer fees, by dividing the
cash amount that would otherwise be payable quarterly by the closing price of
subordinate voting shares on the NYSE on the last day of the quarter. Each
director has the right to elect to defer payment of his fees. Grants of
subordinate voting shares for such purposesdirector compensation may not exceed an aggregate
of 500,000 subordinate voting shares. The aggregate compensation paid in 20012002 by
the CompanyCelestica to our directors in their capacity as directors was $50,000$60,000 and the
right to receive, in the aggregate 18,482.41for 2002, 19,286 subordinate voting shares.shares
(an aggregate of 77,830 subordinate voting shares from the initial public
offering through 2002). The delivery of these shares was deferred until the
respective directors cease to be directors of Celestica. See "-- Long-Term Incentive Plan."
42
Mr. Crandall, in his
capacity as Chairman of the Executive Committee, also receives an annual grant
of 10,000 Performance Units convertible into subordinate voting shares upon his
retirement from the Board.Board of Directors.
In 2001, each of the2002, eligible directors waswere issued options to acquire 20,00010,000
subordinate voting shares pursuant to the Long-Term Incentive Plan. 80,000
options were issuedPlan, at an
exercise price of $44.23 and 40,000 options were
issued at an exercise price of $35.95.US$32.40.
44
As of March 1, 2002,February 28, 2003, senior officers and directors as a group held
options to purchase a total of the following numbers of subordinate voting
shares at the purchase price per share indicated below:
NUMBER OF
SUBORDINATE PURCHASE PRICE
VOTING SHARES PER SHARE
- ------------- --------------
710,379210,000 $ 0.925
596,737 $ 5.00
399,190483,690 $ 8.75
69,700 $ 7.50
373,880293,880 C$ 18.90
30,000 $ 12.345
23,00028,600 C$ 20.625
80,000 C$ 31.85
70,000 $ 22.97
542,000486,000 C$ 57.845
60,000 $ 39.03
100,000 C$ 60.00
276,000251,000 C$ 86.50
62,00059,000 $ 56.1875
25,000 C$ 73.50
100,000 $ 50.00
526,400480,200 C$ 66.06
144,000149,000 $ 41.89
5,000 $ 40.06
40,000 C$ 34.50
40,000 $ 23.41
40,000 C$ 72.60
40,000 $ 48.69
40,000 C$ 66.78
40,000 $ 44.23
40,000 $ 35.95
50,000 $ 13.10
145,000 $ 18.66
482,000 C$ 29.11
3,000 C$ 23.29
10,000 $ 32.40
These options expire at various dates from November 4, 2005 through
December 4, 2011.18, 2012. See Item 6(E), "-- Share Ownership -- Share Purchase and Option Plans"
below. See Notenote 11 to the Consolidated Financial Statements in Item 18
for further information about options.
43
REMUNERATION OF NAMED EXECUTIVE OFFICERS
The following table sets forth the compensation of the Chief Executive
Officer of Celestica and the four other most highly compensated executive
officers of Celestica during the year ended December 31, 20012002 (collectively, the
"Named Executive Officers") for services rendered in all capacities during our
two most recently completed financial years.
45
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION AWARDS
--------------
ANNUAL COMPENSATION(1)------------------------------ -------------------
SECURITIES ------------------------------- UNDER OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS GRANTED(2) COMPENSATION(3)
- --------------------------- -------- -------- --------- ---------------------- ------------------- ---------------
($) ($) (#) ($)
Eugene V. Polistuk................................. 2001Polistuk...................... 2002 700,000 -- 150,000 210,737645,161
Chairman of the Board and Chief 2001 700,000 -- 150,000 225,962
Executive Officer 2000 550,000 1,300,000 100,000 193,029
J. Marvin M(a)Gee.................................. 2001 516,250Gee....................... 2002 525,000 -- 135,000 57,773110,000 31,589
President and Chief Operating Officer 2000 360,000 510,000 40,000 31,8092001 516,250 -- 135,000 61,947
Anthony P. Puppi...................................Puppi........................ 2002 400,000 -- 60,000 117,608
Executive Vice President, Chief 2001 400,000 -- 59,000 51,822
Executive Vice President, Chief55,565
Financial Officer 2000 370,000 524,000 35,000 47,121 and General Manager,
Global Services
R. Thomas Tropea................................... 2001Tropea........................ 2002 400,000 -- 59,000 10,20045,000 11,500
Vice Chair, Global Customer Units and 2001 400,000 -- 59,000 10,200
Worldwide 2000 350,000 495,000 35,000 5,100 Marketing and Business
Development
Stephen Delaney(4).................................W. Delaney...................... 2002 333,750 -- 75,000(4) 7,000
President, Americas 2001 204,694 150,000(5) 140,000(6) 154,500(7)
Senior Vice President, U.S., Celestica
Corporation204,694(5) 150,000(6) 140,000(7) 154,500(8)
- -------------------------
(1) Excludes perquisites and other personal benefits because such compensation
did not exceed 10% of the total annual salary and bonus for any of the Named
Executive Officers.
(2) See table under "Options Granted During Year Ended December 31, 20012002 to
Named Executive Officers."
(3) Represents amounts set aside to provide benefits under Celestica's pension
plans (see "--" -- Pension Plans").
(4) Includes 25,000 options granted to Mr. Delaney on October 1, 2002 when he
assumed responsibility for the Americas.
(5) Mr. Delaney joined Celestica in May 2001. The amount specified represents
Mr. Delaney's salary from his date of hire to the end of the year.
(5)(6) Represents the amount Celestica agreed to pay to Mr. Delaney at his date of
hire as a bonus for the year ended December 31, 2001.
(6)(7) Includes 100,000 options granted to Mr. Delaney upon joining Celestica.
(7)(8) Includes $150,000 paid to Mr. Delaney at his date of hire.
44
upon joining Celestica.
OPTIONS GRANTED DURING YEAR ENDED DECEMBER 31, 20012002 TO NAMED EXECUTIVE
OFFICERS
The following table sets out options to purchase subordinate voting shares
granted by the CorporationCompany to the Named Executive Officers during the year ended
December 31, 2001.2002.
SUBORDINATE MARKET VALUE OF
SUBORDINATEVOTING SHARES % OF SUBORDINATE
VOTING SHARES TOTAL OPTIONS SUBORDINATE VOTING SHARES
UNDER OPTIONS GRANTED TO EXERCISESHARES ON THE
NAME GRANTED(1) EMPLOYEES IN 2002 EXERCISE PRICE DATE OF GRANTED EMPLOYEES PRICE GRANT
NAME (1) (#) IN 2001 ($/SHARE) ($/SHARE) EXPIRATION DATE
- ---- ------------- ------------------ -------------- ---------- --------------- ---------------------------------- -----------------
(#) ($/share) ($/share)
Eugene V. Polistuk..................Polistuk... 150,000 1.89%3.9% C$66.0629.11 C$66.0629.11 December 4, 20113, 2012
J. Marvin M(a)Gee................... 25,000 0.32%Gee.... 110,000 2.8% C$73.5029.11 C$73.50 March 1, 2011
110,000 1.39% C$66.06 C$66.0629.11 December 4, 20113, 2012
Anthony P. Puppi.................... 59,000 0.75%Puppi..... 60,000 1.5% C$66.0629.11 C$66.0629.11 December 4, 20113, 2012
R. Thomas Tropea.................... 59,000 0.75%Tropea..... 45,000 1.2% U.S.$41.8918.66 U.S.$41.8918.66 December 4, 20113, 2012
Stephen Delaney..................... 100,000 1.26%W. Delaney... 25,000 0.6% U.S.$50.0013.10 U.S.$50.00 April 20, 2011
40,000 0.51%13.10 October 1, 2012
50,000 1.3% U.S.$41.8918.66 U.S.$41.8918.66 December 4, 20113, 2012
- -------------------------
(1) Options vest in four equal annual instalments.installments.
46
OPTIONS EXERCISED DURING MOST RECENTLY COMPLETED FINANCIAL YEAR AND VALUE OF
OPTIONS AT DECEMBER 31, 20012002 FOR NAMED EXECUTIVE OFFICERS
The following table sets out certain information with respect to options to
purchase subordinate voting shares that were exercised by Named Executive
Officers during the year ended December 31, 20012002 and with respect to subordinate
voting shares under option to the Named Executive Officers as at December 31,
2001.2002.
SUBORDINATE VALUE OF UNEXERCISED
VOTING SHARES AGGREGATE
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUESUBORDINATE VOTING AGGREGATE DECEMBER 31, 20012002 DECEMBER 31, 2001(2)2002(2)
SHARES ACQUIRED VALUE --------------------------------- ---------------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLEEXERCISABLE(3) UNEXERCISABLE(3) EXERCISABLE(3) UNEXERCISABLE(3)
- ---- ------------------ ----------- -------------- ----------- ------------------------- ----------------------------------------- -------------- ----------------
Eugene V. Polistuk...................... 44,607 $1,563,921 390,267/405,566(3) $9,828,562/$3,769,418Polistuk..... -- -- 598,333 347,500 $2,738,230 --
J. Marvin M(a)Gee.......................Gee...... -- -- 155,212/235,920(3) $3,672,565/252,382 248,750 $1,226,996 962,551 --
Anthony P. Puppi........................ 42,567 $1,701,264 126,395/161,170(3) $2,595,020/Puppi....... 14,869 $139,769 193,446 139,250 $1,367,221 483,210 --
R. Thomas Tropea........................Tropea....... -- -- 183,664/213,526(4) $4,474,479/271,302 170,888 $2,998,853 998,053 $249,513
Stephen Delaney.........................W. Delaney..... -- -- 35,000 180,000 -- /140,000(4) -- / --$ 25,000
- -------------------------
(1) Based on the closing price of the underlying shares on The New York Stock
Exchange on the date of exercise of the options.
(2) Based on the closing price of the subordinate voting shares on The New York
Stock Exchange on December 31, 20012002 of $40.39.$14.10.
(3) Options granted under the ESPO Plans and the Long-Term Incentive Plan.
(4) Options granted under the Long-Term Incentive Plan.Exercisable options include options that vested January 1, 2003.
PENSION PLANS
Messrs. Polistuk, Puppi and M(a)Gee each participate in Celestica's
non-contributory pension plan (the "Canadian Pension Plan"). The Canadian
Pension Plan has a defined benefit and a defined contribution portion and
provides for a maximum of 30 years' service and retirement eligibility at the
earlier of 30 years' service or age 55. Mr. M(a)Gee is enrolled in the defined contribution portion of the Canadian
Pension Plan. Messrs. Polistuk and Puppi participate only in the defined benefit
portion of the Canadian Pension Plan. Messrs. Polistuk, Puppi and M(a)GeeThey also participate in an unregistered
supplementary pension plan (the "Supplementary Plan") that provides benefits
equal to the difference between the benefits determined in accordance with the
formula set out in the Canadian Pension Plan and Canada Customs and Revenue
Agency maximum pension benefits.
Mr. M(a)Gee participates only in the defined contribution portion of the
Canadian Pension Plan. The defined contribution portion of the Canadian Pension
Plan allows employees to choose how Celestica contributions are invested on
their behalf within a range of investment options provided by third party fund
45
managers. Celestica's contributions to this plan on behalf of an employee range
from 3% of earnings to a maximum of 6.75% of earnings based on the number of
years of service. Retirement benefits depend upon the performance of the
investment options chosen. The following table sets forth the estimated aggregate annual benefits
payable underCelestica currently contributes 6% of earnings
annually on behalf of Mr. MaGee.
Messrs. Polistuk and Puppi participate only in the defined benefit portion
of the Canadian Pension Plan and the
Supplementary Plan for Messrs. Polistuk and Puppi.
CANADA PENSION PLAN TABLE(1)(2)
15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
EARNINGS AVERAGE ($) OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE
- -------------------- ---------- ---------- ---------- ---------- ----------
300,000.......................................... $30,000 $40,000 $ 65,000 $ 95,000 $ 95,000
400,000.......................................... $39,000 $52,000 $ 84,000 $124,000 $124,000
500,000.......................................... $48,000 $64,000 $103,000 $153,000 $153,000
600,000.......................................... $57,000 $76,000 $123,000 $181,000 $181,000
- ------------
(1) This table assumes total of retirement age and years of service is greater
than or equal to 80.
(2) All amounts shown are converted into U.S. dollars from Canadian dollars at
an exchange rate of U.S.$1.00 = C$1.5911.Plan. The benefit provided under the defined benefit portion of the Canadian
Pension Plan for each of the officers who participate in thethis plan is equal to
the benefit entitlement accrued under the relevant IBM plan prior to
October 22, 1996, the date Celestica was divested from IBM, plus the benefits
earned under the Canadian Pension Plan since that date. The terms of the
Canadian Pension Plan, which were accepted by certain employees when they
transferred to Celestica, mirrored those of the IBM pension plan in place at the
time of divestiture. The Plan is of a modified career average design with
benefits based on a three-year earnings average to December 31 of a designated
base year (the "Base Year"). In 2002, the Base Year was updated to December 31,
2001 and may be updated from time to time until December 31, 2009. The formula
for calculating benefits for the period after October 22, 1996 is the greater of
1.2% of earnings (salary and bonus) or 0.9% of earnings up to the yearly maximum
pensionable earnings ("YMPE") level, plus 1.45% of earnings above the YMPE. The
defined benefit portion of the Canadian Pension Plan is of a modified career average design with pre-1999 benefits based
on the three-year earnings average at December 31, 1998. The defined benefit
portion of the Canadian Pension Plan also provides for
supplementary early retirement benefits from the date of early retirement to age
65.
The following table sets forth the estimated aggregate annual benefits
payable under the defined benefit portion of the Canadian Pension Plan and the
Supplementary Plan based on average earnings and years of service.
47
CANADIAN PENSION PLAN TABLE(1)(2)
YEARS OF SERVICE
-----------------------------------------
EARNINGS AVERAGE 20 25 30 35
- ---------------- -------- -------- -------- --------
$ 400,000 $113,000 $142,000 $170,000 $170,000
$ 600,000 $171,000 $214,000 $257,000 $257,000
$ 800,000 $229,000 $287,000 $344,000 $344,000
$1,000,000 $287,000 $359,000 $431,000 $431,000
$1,200,000 $345,000 $432,000 $518,000 $518,000
$1,400,000 $403,000 $504,000 $605,000 $605,000
$1,600,000 $461,000 $577,000 $692,000 $692,000
$1,800,000 $519,000 $649,000 $779,000 $779,000
- ------------
(1) This table assumes total of retirement age and years of service is greater
than or equal to 80.
(2) All amounts are shown converted into U.S. dollars from Canadian dollars at
an exchange rate of US$1.00 = C$1.4880.
As at December 31, 2001,2002, Messrs. Polistuk and Puppi had completed 3334 and
2223 years of service, respectively.
During the year ended December 31, 2001,2002, Celestica set asideaccrued an aggregate amount of
$321,303$749,574 to provide pension benefits for Messrs. Polistuk, Puppi and M(a)Gee
pursuant to the Canadian Pension Plan. No other amounts were set aside or
accrued by Celestica during the year ended December 31, 20012002 for the purpose of
providing pension, retirement or similar benefits for Messrs. Polistuk, Puppi
and M(a)Gee pursuant to any other plans.
Messrs. Tropea and Delaney participate in the "U.S. Plan." The U.S. Plan
qualifies as a deferred salary arrangement under section 401 of the Internal
Revenue Code (United States). Under the U.S. Plan, participating employees may
defer a portion of their pre-tax earnings not to exceed 15%20% of their total
compensation. Celestica at its discretion, may make contributions for the benefit of eligible
employees.
During the year ended December 31, 2001,2002, Celestica contributed $14,700$18,500 to
the U.S. Plan for the benefit of Messrs. Tropea and Delaney. Except as described
above, no other amounts were set aside or accrued by Celestica during the year
ended December 31, 20012002 for the purpose of providing pension, retirement or
similar benefits for Mr. Tropea.Messrs. Tropea and Delaney.
EMPLOYMENT AGREEMENTS
Messrs. Polistuk and Puppi each entered into an employment agreement with
Celestica as of October 22, 1996. Mr. Tropea entered into an employment
agreement with Celestica as of June 30, 1998. Each agreement provides for the
executive's base salary and for benefits in accordance with Celestica's
established benefit plans for employees from time to time. Each agreement
provides for the executive to receive an amount equivalent to 36 months' salary
if Celestica terminates the executive's employment, other than for cause,
subject to reduction if the executive earns replacement earnings during such
period from other sources.
46
INDEMNIFICATION AGREEMENTS
Celestica and certain of our subsidiaries have entered into indemnification
agreements with certain of the directors and officers of Celestica and our
subsidiaries. These agreements generally provide that Celestica or the
subsidiary of Celestica which is a party to the agreement, as applicable, will
indemnify the director or officer in question (including his or her heirs and
legal representatives) against all costs, charges and expenses incurred by him
or her in respect of any civil, criminal or administrative action or proceeding
to which he or she is made a party by reason of being or having been a director
or officer of such corporation or a subsidiary thereof, provided that (a) he or
she has acted honestly and in good faith with a view to the best interests of
the corporation, and (b) in the case of a criminal or administrative proceeding
that is enforced by a monetary penalty, he or she had reasonable grounds for
believing that his or her conduct was lawful.
48
C. BOARD PRACTICES
Members of the Board of Directors are elected until the next annual meeting
or until their successors are elected or appointed.
Except for the right to receive deferred compensation (see Item 6(B),
"Compensation"), no director is entitled to benefits from Celestica when they
cease to serve as a director.
BOARD COMMITTEES
The Board of Directors has established threefour standing committees, of three
directors, each with a
specific mandate. The Executive Committee includes a majority of unrelatedindependent
directors. The Audit Committee, Compensation Committee, Nominating and CompensationCorporate
Governance Committee are each composed of unrelatedindependent directors.
EXECUTIVE COMMITTEE
Subject to the limitations set out in subsection 127(3) of the BUSINESS
CORPORATIONS ACTBusiness
Corporations Act (Ontario), the Board of Directors has delegated to the
Executive Committee the powers to consider and approve certain matters relating
to the management of Celestica subject to any regulations or restrictions that
may from time to time be made or imposed upon the Executive Committee by the
Board of Directors. The members of the Executive Committee are Mr. Crandall,
Mr. Melman and Mr. Polistuk.Polistuk, the majority of whom are independent.
AUDIT COMMITTEE
The Audit Committee which consists of Mr. Crandall, Mr. Etherington, Mr. Love,
Mr. Martin and Mr. Melman,
selectsTapscott, all of whom are independent directors. The Audit
Committee has a well-defined mandate which, among other things, sets out its
relationship with, and engages, on behalf of Celestica, the independent public accountants
to audit Celestica's annual financial statements, and reviews and approves the
planned scopeexpectations of, the annual audit.external auditors, including the
establishment of the independence of the external auditors and approval of any
non-audit mandates of the external auditor; the engagement, evaluation,
remuneration and termination of the external auditor; its relationship with, and
expectations of, the internal auditor function and its oversight of internal
control; and the disclosure of financial and related information. The Audit
Committee has direct communication channels with the internal and external
auditors to discuss and review specific issues and has the authority to retain
such independent advisors as it may consider appropriate. The Audit Committee
annually reviews and approves the mandate and plan of the internal audit
department. The Audit Committee's duties include the responsibility for
reviewing financial statements with management and the auditors, monitoring the
integrity of the
Celestica's management information systems and internal control
procedures, and reviewing the adequacy of the Celestica's processes for identifying
and managing risk.
49
COMPENSATION COMMITTEE
The Compensation Committee approves Celestica's executive compensation
policies and establishes remuneration levels of Celestica's executive officers
and performs such functions as provided for under Celestica's employee benefit
programs and executive compensation programs.
The Compensation Committee consists of Mr. Crandall, Mr. Etherington,
Mr. Love, Mr. Melman and Mr. Tapscott, and Mr. Etherington, all of whom are unrelated to Celestica. John Walter was a memberindependent directors. It
is the responsibility of the Compensation Committee until his retirement fromto define and communicate
compensation policy and principles that reflect and support the Company's
strategic direction, business goals and desired culture. The mandate of the
Compensation Committee includes the following: review and recommend to the Board
of Directors in June, 2001.the Company's compensation strategy, including plan design,
performance targets and program administration; recommend to the Board of
Directors the compensation of the Chief Executive Officer based on the Board of
Directors' assessment of the annual performance of the Chief Executive Officer;
review and recommend to the Board of Directors the compensation of the Named
Executive Officers and other senior managers whose compensation is subject to
review by the Board of Directors; review the Company's succession plans for key
executive positions; and review and approve material changes to the Company's
organizational structure and human resource policies.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The Nominating and Corporate Governance Committee consists of Mr. Walter is
also unrelatedCrandall,
Mr. Etherington, Mr. Love, Mr. Melman and Mr. Tapscott, all of whom are
independent directors. The Nominating and Corporate Governance Committee
recommends to Celestica.
47
the Board the criteria for selecting candidates for nomination to
the Board and the individuals to be nominated for election by the shareholders.
The Committee's mandate includes making recommendations to the Board relating to
the Company's approach to corporate governance, developing the Company's
corporate governance guidelines, assessing the performance of the Chief
Executive Officer relative to corporate goals and objectives established by the
Committee, and assessing the effectiveness of the Board of Directors and its
committees.
D. EMPLOYEES
Celestica has over 40,000 permanent and temporary (contract) employees
worldwide as of December 31, 2001.2002. The following table sets forth information
concerning our employees by geographic location:
NUMBER OF EMPLOYEES
------------------------------
DATE AMERICAS EUROPE ASIA
- ---- -------- -------- --------
December 31, 1999........................................... 10,600 3,000 4,900
December 31, 2000........................................... 16,000 6,000 7,000
December 31, 2001........................................... 17,500 7,500 15,000
December 31, 2002........................................... 14,500 6,000 19,500
During the year ended December 31, 2001,2002, approximately 9,00010,000 temporary
(contract) employees were engaged by Celestica worldwide. During the year ended
December 31, 2001,2002, approximately 9,7004,600 employees, including temporary (contract)
employees, were terminated as a result of restructuring actions announced during
the year. See Notenote 13 to the Consolidated Financial Statements in Item 18
for further information on the restructuring.
Certain information concerning employees is set forth in Item 4,
"Information on the Company -- Business Overview -- Human Resources."
50
E. SHARE OWNERSHIP
The following table sets forth certain information concerning the direct and
beneficial ownership of shares of Celestica at March 1, 2002February 28, 2003 by each
director who holds shares and each of the Named Executive Officers and all
directors and executive officers of Celestica as a group. Unless otherwise
noted, the address of each of the shareholders named below is Celestica's
principal executive office. In this table, multiple voting shares are referred
to as "MVS" and, subordinate voting shares are referred to as "SVS."SVS", and Celestica's
Liquid Yield Option-TM- Notes due 2020 are referred to as "LYONs."
MARCH 1, 2002
------------------------------------------------
PERCENTAGE OF CLASS/PERCENTAGE
PERCENTAGE ALL PERCENTAGE OF VOTING
NAME OF BENEFICIAL OWNER(1) VOTING SHARES OF CLASS EQUITY SHARES VOTING POWER
- --------------------------- --------------- -------------- -------------------------------------------- ---------- ---------------- ----------------
Eugene V. Polistuk................................... 512,826Polistuk(2)..................... 720,892 SVS */* *
Anthony P. Puppi..................................... 235,401 SVS */* *
Robert L. Crandall................................... 80,000Crandall(3)..................... 110,000 SVS */* * *
15,130 LYONs (4) * * *
William E. Etherington............................... 10,000Etherington(5)................. 16,250 SVS */* *
Mark L. Hilson(2)(3)................................. 438,792 SVS */* *
Richard S. Love...................................... 75,000Love(6)........................ 105,000 SVS */* * *
Roger L. Martin...................................... 43,000Martin(7)........................ 73,000 SVS */* * *
Anthony R. Melman(2)(4)..............................Melman(8)(9)................... 450,000 SVS */* * *
Gerald W. Schwartz(2)(5).............................Schwartz(8)(10)................. 39,065,950 MVS 100.0%/17.0% 83.7%
4,136,228 17.1% 83.8%
3,671,982 SVS 2.2%/1.8%1.9% 1.6% *
Don Tapscott......................................... 63,000Tapscott(11).......................... 93,000 SVS */* * *
J. Marvin M(a)Gee.................................... 205,212Gee......................... 308,632 SVS */* * *
Anthony P. Puppi.......................... 293,667 SVS * * *
R. Thomas Tropea..................................... 263,664Tropea.......................... 351,302 SVS */* * *
Stephen Delaney...................................... 1,400W. Delaney........................ 61,657 SVS */* * *
All directors and executive officers as a
group
(24(22 persons)(2)(3)(4)(5)(6)...........................(7)(8)(9)(10)(11)(12).... 39,065,950 MVS 100.0%/17.0% 83.7%
6,828,779 17.1% 83.8%
7,280,453 SVS 3.6%/3.0%3.8% 3.2% *
Total percentage of all equity shares
and total percentage of voting
power....................... 20.0% 84.2%power................................. 20.3% 84.4%
- ------------
* Less than 1%.
(1) As used in this table, "beneficial ownership" means sole or shared power to
vote or direct the voting of the security, or the sole or shared investment
power with respect to a security (I.E., the power to dispose, or direct a
disposition, of a security). A person is deemed
48
at any date to have
"beneficial ownership" of any security that such person has a right to
acquire within 60 days of such date. Certain shares subject to options
granted pursuant to management investment plans of Onex are included as
owned beneficially by named individuals, although the exercise of these
options is subject to Onex meeting certain financial targets. More than one
person may be deemed to have beneficial ownership of the same securities.
Unless otherwise indicated,(2) Includes 598,333 subordinate voting shares subject to exercisable options.
(3) Includes 100,000 subordinate voting shares subject to exercisable options.
(4) Each LYON is convertible into 5.6748 subordinate voting shares at the address for each shareholder is:
c/o Celestica Inc., 12 Concorde Place, Toronto, Ontario M3C 3R8.
(2)option
of the holder.
(5) Includes 6,250 subordinate voting shares subject to exercisable options.
(6) Includes 100,000 subordinate voting shares subject to exercisable options.
(7) Includes 73,000 subordinate voting shares subject to exercisable options.
(8) The address of such shareholders is: c/o Onex Corporation, 161 Bay Street,
P.O. Box 700, Toronto, Ontario, Canada M5J 2S1.
(3) Includes 20,000 subordinate voting shares beneficially owned by
Mr. Hilson's spouse (as to which Mr. Hilson disclaims beneficial ownership),
26,000 subordinate voting shares beneficially owned by a trust the
beneficiaries of which are members of Mr. Hilson's family (as to which
Mr. Hilson disclaims beneficial ownership) and 277,326 subordinate voting
shares owned by Onex which are subject to options granted to Mr. Hilson
pursuant to certain management investment plans of Onex.
(4)(9) Includes 274,588 subordinate voting shares owned by Onex which are subject
to options granted to Mr. Melman pursuant to certain management investment
plans of Onex.
(5)(10) Includes 159,992188,744 subordinate voting shares owned by a company controlled by
Mr. Schwartz and all of the shares of Celestica beneficially owned by Onex,
of which 1,077,500 subordinate voting shares are subject to options granted
to Mr. Schwartz pursuant to certain management incentive plans of Onex.
Mr. Schwartz, a director of Celestica, is the Chairman of the Board,
President and Chief Executive Officer of Onex, and controls Onex through his
ownership of shares, with a majority of the voting rights attaching to all
shares of Onex. Accordingly, Mr. Schwartz may be deemed to be the beneficial
owner of shares of Celestica beneficially owned by Onex.
(6)51
(11) Includes 479,50093,000 subordinate voting shares subject to exercisable options.
(12) Includes 425,200 subordinate voting shares held by Towers Perrin Share Plan
Services, in trust for Celestica Employee Nominee Corporation as agent for
and on behalf of individual Celestica executives, pursuant to the provisions
of Celestica employee benefit plans, and 535,186666,437 subordinate voting shares
which are subject to options.
MVS and SVS have different voting rights. See Item 10, "Additional
Information -- Memorandum and Articles of Incorporation -- Multiple Voting
Shares and Subordinate Voting Shares.Incorporation."
SHARE PURCHASE AND OPTION PLANS
We have issued subordinate voting shares and have granted options to acquire
subordinate voting shares for the benefit of certain of our employees and
executives pursuant to various employee share purchase and option plans in
effect prior to our initial public offering (the "ESPO Plans"). No further
options or subordinate voting shares (other than pursuant to outstanding
options) may be issued under these ESPO Plans.
Pursuant to the ESPO Plans, employees and executives of Celestica were
offered the opportunity to purchase subordinate voting shares and, in connection
with such purchase, receive options to acquire an additional number of
subordinate voting shares based on the number of subordinate voting shares
acquired by them under the ESPO Plans (on average, approximately 1.435 options
for each subordinate voting share acquired under the ESPO Plans). In each case,
the exercise price for the options is equal to the price per share paid for the
corresponding subordinate voting shares acquired under the ESPO Plans.
Upon the completion of Celestica's initial public offering, certain options
became exercisable. The balance of the options issued under the ESPO Plans vest
over a period of five years beginning December 31, 1998. All options granted
under the ESPO Plans were fully vested as of December 31, 2002. All subordinate
voting shares acquired by employees under the ESPO Plans are held either by the
employee, or by Towers Perrin Share Plan Services in trust for Celestica
Employee Nominee Corporation as agent for and on behalf of such employees.
As at March 1, 2002,February 28, 2003, approximately 7,0004,500 persons held options to acquire
an aggregate of approximately 23,756,00025,536,000 subordinate voting shares. Most of
these options were issued pursuant to the ESPO and LTIP Plans. The following
table sets forth information with respect to options outstanding as at
March 1, 2002.
49
February 28, 2003.
OUTSTANDING OPTIONS
NUMBER OF
SUBORDINATE
VOTING SHARES
BENEFICIAL HOLDERS UNDER OPTION EXERCISE PRICE YEAR OF ISSUANCE DATE OF EXPIRY
- ------------------ ------------- ------------------- -------------------- ------------------------------------ ------------------ ------------------
Executive Officers (15 persons in total)....... 710,379...... 210,000 $0.925 June 13, 1996 June 13, 2006
596,737 $5.00 During 1997 April 8, 2007(1)
302,890 $7.50 - $8.752007
387,390 $7.50-$8.75 During 1997 and October 22, 1997
1998 April 29, 2008 to July 3, 2008
403,880 $12.345/472,480 C$18.90 January 1,18.90-$22.97 During 1999 January 1, 2009 23,000 C$20.625 February 11, 1999 February 11, 2009
80,000 C$31.85 July 2, 1999 July 2, 2009
70,000 $22.97 September 20, 1999to
September 20, 2009
602,000546,000 $39.03/C$57.845 December 7, 1999 December 7, 2009
100,000 C$105,000 $40.06-C$60.00 May 26,During 2000 February 1, 2010
to May 26, 2010
338,000310,000 $56.1875/C$86.50 December 5, 2000 December 5, 2010
25,000 C$73.50 March 1, 2001 March 1, 2011
100,000 $50.00 April 20, 2001 April 20, 2011
670,400629,200 $41.89/C$66.06 December 4, 2001 December 4, 2011
680,000 $13.10-C$29.11 During 2002 October 1, 2012 to
December 18, 2012
Directors who are not Executive Officers..........Officers...... 166,000 $8.75 During 1998 July 7, 2008
80,000 $23.41/C$34.50 July 7, 1999 July 7, 2009
80,000 $48.69/C$72.60 July 7, 2000 July 7, 2010
80,000 $44.23/C$66.78 July 7, 2001 July 7, 2011
40,000 $35.95 October 22, 2001 October 22, 2011
10,000 $32.40 April 21, 2002 April 21, 2012
52
NUMBER OF
SUBORDINATE
VOTING SHARES
BENEFICIAL HOLDERS UNDER OPTION EXERCISE PRICE YEAR OF ISSUANCE DATE OF EXPIRY
- ------------------ ------------- ----------------- ------------------ ------------------
All other Celestica Employees (other than IMS)IMS
and Primetech) (more than 6,0004,000 persons in
total)..... 3,741,079...................................... 3,108,372 $5.00 During 1997 April 8, 2007(2)
767,864 $7.50 - C$2007(1)
621,985 $7.50-C$14.05 During 1998 April 29, 2008 to
November 9, 2008
715,295 $13.69 - C$726,945 $13.69-C$21.45 January 1, 1999 to January 1, 2009 to
March 17, 1999 March 17, 2009
2,198,1752,162,075 $39.03/C$57.845 December 7, 1999 December 7, 2009
615,055 $13.65 - C$577,705 $13.65-C$53.75 During 1999 January 1, 2009 to
December 31, 2009
1,118,289 $40.06 - C$1,040,416 $40.06-C$123.65 During 2000 January 1, 2010 to
December 31, 2010
2,478,8552,332,290 $56.1875/C$86.50 December 5, 2000 December 5, 2010
1,388,050 $49.00 - C$1,223,292 $49.00-C$108.45 During 2001 January 1, 2011 to
December 31, 2011
5,613,0205,286,348 $41.89/C$66.06 December 4, 2001 December 4, 2011
94,600 $40.76 - C$451,976 $13.10-C$70.81 January 1,During 2002 to January 1, 2012 to
MarchDecember 31, 2012
2,713,228 $18.66/C$29.11 December 3, 2002 December 3, 2012
48,150 $11.76-C$18.12 January 1, 2002 March2003 to January 1, 20122013 to
February 28, 2003 February 28, 2013
IMS Employees................. 953,562(3) $0.925 - 13.31(4)Employees(2)(3)........................... 509,434 $0.925-$13.31 December 30, 1998 June 13, 2006 to
December 18, 2008
Primetech Employees(5)........Employees(4)........................ 31,793 C$47.73 June 29, 1998 June 29, 2003
60,05358,821 C$65.91 July 14, 1999 July 14, 2004
96,25093,500 C$97.73 - C$97.73-C$111.36 February 15, 2000 to February 15, 2005
to June 15, 2000 to June 15, 2005
32,56031,735 C$45.45 - C$45.45-C$67.05 January 10, 2001 to January 10, 2006
to March 16, 2001 to March 16, 2006
- ----------------------------
(1) Except for 10,140157,035 options which expire on November 4, 2005.
(2) Except for 289,740 options which expire on November 4, 2005.
(3) Represents options outstanding under certain stock option plans that were
assumed by Celestica on December 30, 1998.
(4)(3) The original exercise price for these options was based on the NASDAQ market
price of IMS common stock at the date of issuance.
(5)(4) Represents options outstanding under certain stock option plans that were
assumed by Celestica on August 3, 2001.
50
Our compensation philosophy is predicated on the belief that broadly-based
employee participation in share ownership is critical to maintain a common
entrepreneurial culture and motivation throughout our operational units, and
across functional and geographic boundaries. Accordingly, prior to the
completion of our initial public offering, we established the Long-Term
Incentive Plan and the Employee Share Ownership Plan.
LONG-TERM INCENTIVE PLAN
Under the Long-Term Incentive Plan (the "Plan"), the board of directors of
Celestica may in its discretion grant from time to time stock options,
performance shares, performance share units and stock appreciation rights
("SARs") to directors, permanent employees and consultants ("eligible
participants") of Celestica, our subsidiaries and other companies or
partnerships in which Celestica has a significant investment
("affiliated entities").
Under the Plan, up to 23,000,00029,000,000 subordinate voting shares of Celestica may
be issued from treasury. At the annual special meeting of Celestica shareholders
held April 17, 2002, shareholders approved an increase to the number of
subordinate voting shares that may be issued from treasury under the Plan to
29,000,000. The number of subordinate voting shares which may be
issued from treasury under the Plan to directors is limited to 2,000,000. In
addition, Celestica may satisfy obligations under the Plan by acquiring
subordinate voting shares in the market. The LTIPPlan limits the number of
subordinate voting shares which may be reserved for issuance to insiders or any
one participant pursuant to options or rights granted pursuant to the Plan,
together with subordinate voting shares reserved for issuance under any other
employee-related plan of Celestica or options for services granted by Celestica,
to 10% and 5%, respectively, of the aggregate issued and outstanding subordinate
voting shares and multiple voting shares of Celestica.
53
The exercise price for any stock option issued under the Plan will not be
less than the market price of the subordinate voting shares on the day preceding
the date of grant, except that options to acquire subordinate voting shares were
issued to directors and an officer substantially concurrently with the
completion of the initial public offering with an exercise price equal to the
initial public offering price ($8.75). Options issued under the Plan may be
exercised during a period determined under the Plan, which may not exceed ten
years. The Plan also provides that, unless otherwise determined by the board of
directors, options will terminate within specified time periods following the
termination of employment of an eligible participant with Celestica or our
affiliated entities. The exercise of options may be subject to vesting
conditions, including specific time schedules for vesting and performance-based
conditions such as share price and financial results. The grant to, or exercise
of options by, an eligible participant may also be subject to certain share
ownership requirements.
Celestica may arrange for financial assistance, by way of loans or
otherwise, to eligible participants to acquire subordinate voting shares upon
the exercise of options under the Plan, on such terms and conditions as the
board of directors determines.
Under the Plan, eligible participants may be granted SARs, a right to
receive a cash amount equal to the difference between the market price of the
subordinate voting shares at the time of the grant and the market price of such
shares at the time of exercise of the SAR. Such amounts may also be payable by
the issuance of subordinate voting shares. SARs may be granted under the Plan on
a one-for-one or other basis in tandem with option grants, in which case it may
be a term of the option and the SAR that the exercise of one results in the
cancellation of the other. The exercise of SARs may also be subject to
conditions similar to those which may be imposed on the exercise of stock
options.
Upon the issuance of performance units, eligible participants will be
entitled to receive grants of subordinate voting shares, with such shares to be
issued at the then market price of subordinate voting shares. The issue of such
shares may be subject to vesting requirements similar to those described above
with respect to the exercisability of options and SARs, including such time or
performance-based conditions as may be determined by the board of directors in
its discretion. The number of subordinate voting shares which may be issued from
the treasury of Celestica under the performance unit program is limited to
2,000,000 and the number of subordinate voting shares which may be issued
pursuant to the performance unit program to any one person shall not exceed 1%
of the aggregate issued and outstanding subordinate voting shares and multiple
voting shares of Celestica.
51
The interests of any participant under the Plan or in any option, rights or
performance unit shall not be transferable by him or her except to a spouse or a
personal holding company or family trust controlled by the participant, the
shareholders or beneficiaries of which, as the case may be, are any combination
of the participant, the participant's spouse, the participant's minor children
and the participant's minor grandchildren, subject to applicable stock exchange
rules.
The Plan, or the terms of any option, SAR or performance unit granted
thereunder, can be amended by the board of directors, subject to obtaining any
required regulatory approvals and participant and shareholder approval where so
required. Participation in the Plan by eligible participants is not a condition
of employment of an eligible participant. Celestica may appoint a trustee or
administrator to perform certain functions under the Plan and the board of
directors may delegate its rights and duties under the Plan to a committee of
the board of directors or one or more specified officers.
EMPLOYEE SHARE OWNERSHIP PLAN
The purpose of the Employee Share Ownership Plan ("ESOP") is to enable
eligible employees and directors ("Eligible Participants") of Celestica to
acquire subordinate voting shares, so as to encourage continued employee
interest in the operation, growth and development of Celestica, as well as to
provide an additional investment opportunity to employees and directors. The
ESOP enables Eligible Participants to acquire subordinate voting shares from
shares acquired by an administrator in the market. Under the ESOP, an Eligible
Participant who is an employee may elect to contribute an amount by deduction
from each regular payroll, representing no more than 10% of his or her
compensation. A participant who is a director may elect to designate all or a
portion of his or her cash retainer fees, meeting fees, committee or similar
fees as a contribution under the ESOP. Celestica will contribute 25% of the
amount of the contributions of employees, up to a maximum total for each
contribution of 1% of the employee's compensation for the relevant payroll
period. Unless otherwise determined by Celestica, no Celestica contribution
shall be made for contributions by directors. The ESOP provides for vesting
conditions relating to shares acquired under the ESOP using Celestica
54
contributions. Under the ESOP, following each payroll period, an administrator
acquires in the market subordinate voting shares for the purposes of satisfying
purchases by Eligible Participants under the ESOP, using funds contributed by
employees and Celestica. The ESOP also provides that participation in the Plan
by Eligible Participants is not a condition of employment of an Eligible
Participant.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
The following table sets forth certain information concerning the direct and
beneficial ownership of the shares of Celestica at March 1, 2002February 28, 2003 by each
person known to Celestica to own beneficially, directly or indirectly, 5% or
more of the subordinate voting shares or the multiple voting shares. Unless otherwise
noted, the address of each of the shareholders named below is our principal
executive office. In this
table, multiple voting shares are referred to as "MVS" and subordinate voting
shares are referred to as "SVS."
MARCH 1, 2002
------------------------------------------------PERCENTAGE PERCENTAGE OF CLASS/ALL PERCENTAGE OF
NAME OF BENEFICIAL OWNER(1) VOTINGTYPE OF OWNERSHIP NUMBER OF SHARES OF CLASS EQUITY SHARES VOTING POWER
- --------------------------- --------------- -------------- -------------------------------- --------------------- ---------------- ----------------- ----------------
Onex Corporation(2)(3)(4)............................... Direct and Indirect 39,065,950 MVS 100.0%/17.0% 83.7%
3,976,236 17.1% 83.8%
3,483,238 SVS 2.1%/1.7%1.8% 1.5% *
Gerald W. Schwartz(2)(4)(5)............................. Direct and Indirect 39,065,950 MVS 100.0%/17.0% 83.7%
4,136,228 17.1% 83.8%
Toronto, Ontario... 3,671,982 SVS 2.2%/1.8%1.9% 1.6% *
Total percentage of all equity shares and total percentage of voting
power....................... 18.8% 84.0%
AIM Management Group Inc.(6)(7)...................... 21,620,297 SVS 11.3%/9.4% 1.9%
Janus Capital Corporation(8)(9)...................... 9,947,680 SVS 5.2%/4.3% *power............................................................... 20.3% 84.4%
- ------------
* Less than 1%.
52
(1) As used in this table, "beneficial ownership" means sole or shared power to
vote or direct the voting of the security, or the sole or shared investment
power with respect to a security (I.E., the power to dispose, or direct a
disposition, of a security). A person is deemed at any date to have
"beneficial ownership" of any security that such person has a right to
acquire within 60 days of such date. Certain shares subject to options
granted pursuant to management investment plans of Onex are included as
owned beneficially by named individuals, although the exercise of these
options is subject to Onex meeting certain financial targets. More than one person may be deemed to
have beneficial ownership of the same securities.
(2) The address of such shareholders is: c/o Onex Corporation, 161 Bay Street,
P.O. Box 700, Toronto, Ontario, Canada M5J 2S1.
(3) Includes 11,635,958 multiple voting shares held by wholly-owned subsidiaries
of Onex, 1,909,9801,540,734 subordinate voting shares held by Towers Perrin Share
Plan Services in trust for Celestica
Employee Nominee Corporation as agent for and on behalf of certain
executives and employees of Celestica pursuant to certain of Celestica's
employee share purchase and option plans, 33,754 subordinate voting shares
representing an undivided interest of approximately 10.2% in 330,872
subordinate voting shares, and 404,128280,376 subordinate voting shares directly or
indirectly held by certain officers of Onex which Onex has the right to
vote.
Of these shares, 9,214,320 subordinate voting shares may be delivered, at
the issuer's option, upon the exercise or redemption, or at maturity or
acceleration, of exchangeable debentures due 2025 issued by a subsidiarycertain
subsidiaries of Onex. In addition,Onex and 1,757,467 subordinate voting shares may be
delivered, at the option of Onex or certain persons related to Onex, to
satisfy the obligations of such persons under equity forward agreements. If
a debenture is exercised or an equity forward agreement is settled and the
issuer does
not electof the debenture or, in the party tocase of an equity forward agreementsagreement, Onex
does not elect to satisfy its obligationobligations in cash rather than delivering
subordinate voting shares, if the issuer or the party to the equity forward agreements,Onex, as the case may be, does
not havehold a sufficient number of subordinate voting shares to satisfy theits
obligations, the requisite number of multiple voting shares held by such
person will immediately be converted into subordinate voting shares, which
shares
will be delivered to satisfy such obligations.
The shares Onex owns and the shares Onex has the right to vote represent in
the aggregate 84.0%84% of the voting power of all Celestica shares. If the issuer
of the exchangeable debentures due 2025 or the party to the equity forward
agreement,agreements, as the case may be, elects to deliver solely subordinate voting
shares and no cash upon the exchange or redemption, or at maturity or
acceleration, of the debentures or at the settlement of the equity forward
agreement, as the case may be, the number of shares thatowned by Onex, owns and thetogether
with those shares Onex has the right to vote, would, if the shares were deliveredsuch delivery had
occurred on March 1, 2002,February 28, 2003, represent in the aggregate 78% of the voting
power of all Celestica shares.interest in our company.
(4) Multiple voting shares and subordinate voting shares have different voting
rights. Information concerning voting rights is set forth in Item 10,
"Additional Information -- Memorandum and Articles of
Incorporation -- Multiple Voting Shares and Subordinate Voting Shares."
(5) Includes 159,992188,744 subordinate voting shares owned by a company controlled by
Mr. Schwartz and all of the shares of Celestica beneficially owned by Onex,
or in respect of which Onex exercises control andor direction, of which
1,077,500 subordinate voting shares are subject to options granted to
Mr. Schwartz pursuant to certain management incentive plans of Onex.
Mr. Schwartz is a director of Celestica and the Chairman of the Board,
President and Chief Executive Officer of Onex. HeOnex, and controls Onex through his
ownership of shares with a majority of the voting rights attaching to all
shares of Onex. Accordingly, Mr. Schwartz may be deemed to be the beneficial
owner of shares ofthe Celestica beneficiallyshares owned by Onex.
(6) The address of such shareholder is: 11 Greenway Plaza, Suite 100, Houston,
Texas 77046.
(7) The information concerning this shareholder's ownership of subordinate
voting shares was obtained from the shareholder's Schedule 13G filed with
the Securities and Exchange Commission on February 6, 2002.
(8) The address of such shareholder is: 100 Fillmore Street, Denver, Colorado
80206-4923.
(9) The information concerning this shareholder's ownership of subordinate
voting shares was obtained from the shareholder's Schedule 13G filed with
the Securities and Exchange Commission on February 8, 2002.55
HOLDERS
On March 1, 2002,February 28, 2003, there were approximately 1,5491,777 holders of record of
subordinate voting shares, of which approximately 337410 holders, holding
approximately 44%46% of the outstanding subordinate voting shares, were resident in
the United States.
On March 1, 2002, there was one holder of record of the Senior Subordinated
Notes; the holder of record was in the United States.
On March 1, 2002,February 28, 2003, there was one holder of record of the Liquid Yield
Option-TM- Notes due 2020; the holder of record was in the United States.
53
B. RELATED PARTY TRANSACTIONS
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Celestica and Onex are parties to a Management Services Agreementan agreement under which Onex has agreed
to provide management, administrative,certain strategic planning, financial and support services to
Celestica of such nature as Celestica may reasonably request from time to time
having regard to Onex's experience, expertise and personnel or the personnel of
its subsidiaries, as the case may be. Celestica has agreed to pay Onex certain
fees under the Management Services
Agreementagreement equal to $2.0 million per year adjusted for changes in
the Canadian consumer price index. The Management Services Agreementagreement also provides that if Celestica
uses Onex management personnel to provide investment banking or financial advice
in connection with any acquisition, Onex will be entitled to receive fees
consistent in the determination of the board of directors of Celestica with fees
typically paid for financial advice in such circumstances to investment bankers
or other expert advisors at arm's-length to Celestica. The Management Services Agreementagreement has a term
of five years, commencing July 7, 1998, with automatic renewal for successive
one-year periods thereafter, subject to termination on 12 months' prior written
notice at any time after the initial five-year term by the directors of
Celestica who are independent of Celestica and Onex, and provided that in any
event the Management Services Agreement,agreement, and the rights of Onex to receive fees (other than accrued
and unpaid fees), will terminate 30 days after the first day upon which Onex
ceases to hold at least one multiple voting share. During 2001,2002, Celestica paid
to Onex management fees of approximately $2.1$2.2 million.
INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS
As at March 1, 2002,February 28, 2003, Celestica had guaranteed $4,401,372$4,128,012 aggregate
indebtedness of certain officers and employees of Celestica incurred in
connection with the purchase of subordinate voting shares. The following table
sets forth details of such guarantees by Celestica of indebtedness of the
directors and officers of Celestica.
INDEBTEDNESS OF SENIOR OFFICERS UNDER SECURITIES PURCHASE PROGRAMS
LARGEST AMOUNT AMOUNT
OUTSTANDING DURING OUTSTANDING AS AT
NAME AND PRINCIPAL POSITION DURING 2001(1) MARCH 1, 2002(1) FEBRUARY 28, 2003(1)(2)
- --------------------------- -------------- --------------------------------------- -------------------------
J. Marvin M(a)Gee........................................... $155,391 $155,391$ 166,618 $ 166,618
President and Chief Operating Officer
R. Thomas Tropea............................................ $407,396 $407,396$ 436,828 $ 436,828
Vice Chair, Global Customer Units and Worldwide Marketing
and Business Development
Alastair Kelly.............................................. $134,805 nil
Executive Vice President, Corporate Development
Daniel P. Shea.............................................. $280,998 $280,998
Senior Vice President$ 301,299 $ 301,299
Group Executive and Chief Technology Officer
Rahul Suri.................................................. $957,108 $957,108$ 1,026,254 $ 1,026,254
Senior Vice President, Mergers and Acquisitions
F. Graham Thouret........................................... $ 97,383 nil
Vice President and Corporate Treasurer
Peter J. Bar................................................ $ 92,957 nil
Vice President and Corporate ControllerDevelopment
- ------------
(1) All amounts shown are converted into U.S. dollars from Canadian dollars at
an exchange rate of U.S.$1.00 = C$1.5955 and from British pounds sterling at
an exchange rate of $1.00 = L0.7047.1.4880.
(2) All guaranteed amounts incur interest at a rate equal to certain commercial
banks' prime lending rates. The security for each of the guaranteed amounts
is the purchased subordinate voting shares.
5456
No securities were purchased by any director or officer during 20012002 with the
financial assistance of Celestica. No director, officer or employee was indebted
to Celestica other than in connection with securities purchase programs during
the year ended December 31, 2001.2002.
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See Item 18, "Financial Statements."
LITIGATION
We are not a party to any legal proceedings which, if decided adversely,
could reasonably be expected to have a material adverse effect on the results of
operations, business, prospects or financial condition of Celestica.
DIVIDEND POLICY
We have not declared or paid any dividends to our shareholders. We will
retain earnings for general corporate purposes to promote future growth; as
such, the board of directors does not anticipate paying any dividends for the
foreseeable future. Celestica's board of directors will review this policy from
time to time, having regard to our financial condition, financing requirements
and other relevant factors.
In addition, our Senior Subordinated Notes due 2006
include a covenant restricting our ability to pay dividends, and our credit
facilities contain financial covenants that may indirectly restrict our ability
to pay dividends.
B. SIGNIFICANT CHANGES
See Note 21 ofnote 23 to the Consolidated Financial Statements in Item 18
for information on significant changes.
ITEM 9. THE OFFER AND LISTING
A. OFFER AND LISTING DETAILS
MARKET INFORMATION
The subordinate voting shares are listed on The New York Stock Exchange (the
"NYSE") and The Toronto Stock Exchange (the "TSE""TSX"). The market price range and
trading volume of the subordinate voting shares on the NYSE and the TSETSX for the
periods indicated are set forth in the following tables, which have been
restated to reflect the effect of the 1999 two-for-one stock split on a
retroactive basis. In the following tables, subordinate voting shares are
defined as "SVS."
THE ANNUAL HIGH AND LOW MARKET PRICES FOR THE FOURFIVE MOST RECENT FISCAL YEARS(1)YEARS
NYSE
-----------------------------------------------------------------
HIGH LOW VOLUME
-------- --------------- -----------
Price(Price per Subordinate
Voting ShareSVS)
Year ended December 31, 1998 (from June 30, 1998)...........(1)........ $13.75 $ 5.19 22,165,800
Year ended December 31, 1999................................ 57.00 12.06 115,803,800
Year ended December 31, 1999................................ 57.00 12.06 115,803,8002000................................ 87.00 35.50 314,486,100
Year ended December 31, 2000................................ 87.00 35.50 314,486,1002001................................ 76.40 20.69 602,213,700
Year ended December 31, 2001................................ 76.40 20.69 602,213,7002002................................ 47.08 9.89 544,914,800
- ------------
(1) The SVS began trading on June 30, 1998.
57
TSE
---------------------------------TSX
--------------------------------
HIGH LOW VOLUME
-------- --------------- -----------
Price(Price per Subordinate
Voting ShareSVS)
Year ended December 31, 1998 (from June 30, 1998)...........(1)........ C$ 21.13 C$ 8.00 33,833,130
Year ended December 31, 1999................................ 82.75 18.40 142,584,064
Year ended December 31, 2000................................ 128.25 51.05 202,303,300
Year ended December 31, 2001................................ 114.00 32.42 323,130,318
Year ended December 31, 2002................................ 75.05 15.78 328,786,676
- ------------
(1) The subordinate voting sharesSVS began trading on June 30, 1998.
55
THE HIGH AND LOW MARKET PRICES FOR EACH FULL FISCAL QUARTER FOR THE TWO MOST
RECENT FISCAL YEARS
NYSE
-----------------------------------------------------------------
HIGH LOW VOLUME
-------- --------------- -----------
Price(Price per Subordinate
Voting ShareSVS)
Year ended December 31, 20002001
First quarter............................................. $60.06 $37.56 75,117,400$76.40 $25.80 143,622,000
Second quarter............................................ 54.56 38.00 39,642,50063.25 24.00 166,006,300
Third quarter............................................. 84.00 48.69 80,355,20050.94 20.69 148,784,400
Fourth quarter............................................ 84.50 46.50 119,371,00048.40 25.41 143,801,000
Year ended December 31, 20012002
First quarter............................................. $76.40 $25.80 143,622,000$47.08 $31.50 141,144,200
Second quarter............................................ 63.25 24.00 166,006,30036.98 21.14 127,727,400
Third quarter............................................. 50.94 20.69 148,784,40026.70 12.95 153,867,600
Fourth quarter............................................ 48.40 25.41 143,801,00019.28 9.89 122,175,600
TSE
---------------------------------TSX
--------------------------------
HIGH LOW VOLUME
-------- --------------- -----------
Price(Price per Subordinate
Voting ShareSVS)
Year ended December 31, 2000
First quarter............................................. C$ 87.40 C$54.00 61,429,900
Second quarter............................................ 79.90 57.85 41,617,200
Third quarter............................................. 123.65 72.60 43,279,500
Fourth quarter............................................ 128.00 70.80 55,976,600
Year ended December 31, 2001
First quarter............................................. C$114.00 C$40.75 85,670,137
Second quarter............................................ 97.50 37.55 81,722,757
Third quarter............................................. 78.10 32.42 65,423,337
Fourth quarter............................................ 76.50 40.12 90,314,087
Year ended December 31, 2002
First quarter............................................. C$ 75.05 C$49.85 74,912,318
Second quarter............................................ 58.98 32.00 67,102,498
Third quarter............................................. 41.45 20.60 92,428,385
Fourth quarter............................................ 29.99 15.78 94,343,475
THE HIGH AND LOW MARKET PRICES FOR EACH MONTH FOR THE MOST RECENT
SIX MONTHS
NYSE
--------------------------------
HIGH LOW VOLUME
-------- -------- ----------
Price------- -----------
(Price per Subordinate
Voting ShareSVS)
October 2001................................................ $40.50 $25.41 59,375,3002002................................................ $15.08 $ 9.89 57,744,300
November 2001............................................... 43.25 33.45 40,140,7002002............................................... 18.75 13.07 37,332,900
December 2001............................................... 48.40 38.57 44,285,0002002............................................... 19.28 13.38 27,098,400
January 2002................................................ 47.08 39.82 44,725,4002003................................................ 17.52 11.26 44,389,300
February 2002............................................... 42.75 32.64 48,792,0002003............................................... 12.40 10.31 27,387,400
March 2002.................................................. 41.60 32.52 47,626,8002003.................................................. 13.67 11.24 23,280,100
5658
TSETSX
--------------------------------
HIGH LOW VOLUME
-------- -------- ----------
Price------- -----------
(Price per Subordinate
Voting ShareSVS)
October 2001................................................2002................................................ C$64.2023.50 C$40.12 38,411,31615.78 40,853,685
November 2001............................................... 68.60 53.12 27,479,0852002............................................... 29.45 20.51 30,695,160
December 2001............................................... 76.50 60.76 24,423,6862002............................................... 29.99 20.80 22,794,630
January 2002................................................ 75.05 63.60 22,554,6392003................................................ 27.24 17.25 41,242,030
February 2002............................................... 67.85 52.20 23,792,1552003............................................... 18.73 15.77 28,779,217
March 2002.................................................. 65.50 51.89 28,565,5242003.................................................. 20.23 16.52 27,584,270
TheCelestica's Liquid Yield Option-TM- Notes due 2020, or LYONs, are listed on
the NYSE. Liquid Yield Option-TM- Notes is a trademark of Merrill
Lynch & Co., Inc. The market price range of the LYONs on the NYSE for the
periods indicated are set forth in the following tables.
THE ANNUAL HIGH AND LOW MARKET PRICES FOR THE LYONS FOR THE TWOTHREE MOST
RECENT FISCAL YEARS
NYSE
-------------------
HIGH LOW
-------- --------
Year ended December 31, 2000 (from August 1, 2000)(1)....... $55.83 $40.05
Year ended December 31, 2001................................ 53.74 34.56
Year ended December 31, 2002................................ 46.00 33.00
- ------------
(1) The LYONs began trading on August 1, 2000.
THE HIGH AND LOW MARKET PRICES FOR THE LYONS FOR EACH FULL FISCAL QUARTER
FOR THE TWO MOST RECENT FISCAL YEARS
NYSE
-------------------
HIGH LOW
-------- --------
Year ended December 31, 2000 (from August 1, 2000)(1)2001
First quarter............................................. $53.74 $35.48
Second quarter............................................ 48.82 34.56
Third quarter............................................. $55.83 $48.7544.24 35.82
Fourth quarter............................................ 55.24 40.0544.72 36.51
Year ended December 31, 20012002
First quarter............................................. $53.74 $35.48$41.00 $35.25
Second quarter............................................ 48.82 34.5646.00 34.00
Third quarter............................................. 44.24 35.8240.50 33.00
Fourth quarter............................................ 44.72 36.5144.50 39.25
- ------------
(1) The LYONs began trading on August 1, 2000.
THE HIGH AND LOW MARKET PRICES FOR THE LYONS FOR EACH MONTH FOR THE MOST
RECENT SIX MONTHS
NYSE
-------------------
HIGH LOW
-------- --------
October 2001................................................ $41.41 $36.512002................................................ $40.50 $40.50
November 2001............................................... 42.60 40.552002............................................... 42.00 39.25
December 2001............................................... 44.72 42.222002............................................... 44.50 42.13
January 2002................................................ 53.74 34.562003................................................ 44.00 42.25
February 2002............................................... 44.83 41.732003............................................... 48.25 42.25
March 2002.................................................. 44.68 41.732003.................................................. 48.63 48.00
B. PLAN OF DISTRIBUTION
Not applicable.
5759
C. MARKETS
The subordinate voting shares are listed on the NYSE and the TSE.TSX.
Celestica's 10 1/2% Senior Subordinated Notes due 2006 are eligible for
trading on the Private Offerings, Resales and Trading through Automated Linkages
(PORTAL) market. The Senior Subordinated Notes are not listed on any securities
exchange or quoted through NASDAQ. We have not been able to obtain information
as to the sales prices of the Senior Subordinated Notes.
Celestica's Liquid Yield Option-TM- Notes (LYONs) due 2020LYONs are listed on the NYSE. In Canada, the LYONs are offered
on a private placement basis through Merrill Lynch Pierce, Fenner & Smith IncorporatedCo., Inc. and its
affiliates. Liquid
Yield Option-TM- Notes is a trademark of Merrill Lynch & Co., Inc.
D. SELLING SHAREHOLDERS
Not applicable.
E. DILUTION
Not applicable.
F. EXPENSE OF THE ISSUE
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
Not applicable.
B. MEMORANDUM AND ARTICLES OF INCORPORATION
ANNUAL AND SPECIAL MEETINGS OF SHAREHOLDERS
The BUSINESS CORPORATIONS ACTBusiness Corporations Act (Ontario), or the OBCA, requires Celestica to
call an annual shareholders' meeting not later than 15 months after holding the
last preceding annual meeting and permits Celestica to call a special
shareholders' meeting at any time. In addition, in accordance with the OBCA, the
holders of not less than 5% of Celestica's shares carrying the right to vote at
a meeting sought to be held may requisition our directors to call a special
shareholders' meeting for the purposes stated in the requisition. Celestica is
required to mail a notice of meeting and management information circular to
registered shareholders not less than 21 days and not more than 50 days prior to
the date of any annual or special shareholders' meeting. These materials also
are filed with Canadian securities regulatory authorities and the SEC. Our
by-laws provide that a quorum of two shareholders in person or represented by
proxy holding or representing by proxy not less than 35% of Celestica's issued
shares carrying the right to vote at the meeting is required to transact
business at a shareholders' meeting. Shareholders, and their duly appointed
proxies and corporate representatives, as well as our auditors, are entitled to
be admitted to our annual and special shareholders' meetings.
ARTICLES OF INCORPORATION
Celestica's articles of incorporation do not place any restrictions on
Celestica's objects and purposes.
CERTAIN POWERS OF DIRECTORS
The OBCA requires that every director who is a party to a material contract
or transaction or a proposed material contract or transaction with a company, or
who is a director or officer of, or has a material interest in, any person who
is a party to a material contract or transaction or a proposed material contract
or transaction with the company, shall disclose in writing to the company or
request to have entered in the minutes of the meetings of directors the nature
and extent of his or her interest, and shall refrain from voting in respect of
the 58
material contract or transaction or proposed material contract or
transaction unless the contract or transaction is:
(a) an arrangement by way of security for money lent to or obligations
undertaken by the director for the benefit of the corporation or an
affiliate;
60
(b) one relating primarily to his or her remuneration as a director,
officer, employee or agent of the corporation or an affiliate;
(c) one for indemnity of or insurance for directors as contemplated under
the OBCA; or
(d) one with an affiliate.
However, a director who is prohibited by the OBCA from voting on a material
contract or proposed material contract may be counted in determining whether a
quorum is present for the purpose of the resolution, if the director disclosed
his or her interest in accordance with the OBCA and the contract or transaction
was reasonable and fair to the corporation at the time it was approved.
Celestica's by-laws provide that the directors shall from time to time
determine by resolution the remuneration to be paid to the directors, which
shall be in addition to the salary paid to any officer or employee of Celestica
who is also a director. The directors may also by resolution award special
remuneration to any director in undertaking any special services on Celestica's
behalf other than the normal work ordinarily required of a director of
Celestica. The by-laws provide that confirmation of any such resolution by
Celestica's shareholders is not required.
The by-laws provide that the directors may:
(a) borrow money upon the credit of Celestica;
(b) limit or increase the amount to be borrowed;
(c) issue, reissue, sell or pledge bonds, debentures, notes or other
securities or debt obligations of Celestica;
(d) issue, sell or pledge such bonds, debentures, notes or other securities
or debt obligations for such sums and at such prices as may be deemed
expedient; and
(e) mortgage, hypothecate, charge, pledge or otherwise create a security
interest in all or any currently owned or subsequently acquired real and
personal, movable and immovable, property of Celestica, and Celestica's
undertaking and rights to secure any such bonds, debentures, notes or
other securities or debt obligations, or to secure any of Celestica's
present or future borrowing, liability or obligation.
The directors may, by resolution, amend or repeal any by-laws that regulate
the business or affairs of Celestica. The OBCA requires the directors to submit
any such amendment or repeal to Celestica's shareholders at the next meeting of
shareholders, and the shareholders may confirm, reject or amend the amendment or
repeal.
ELIGIBILITY TO SERVE AS A DIRECTOR
The by-laws provide that every director shall be an individual 18 or more
years of age, and that no one who is of unsound mind and has been so found by a
court in Canada or elsewhere or who has the status of a bankrupt shall be a
director. There is no provision of the articles of incorporation or by-laws
imposing a requirement for retirement or non-retirement of directors under an
age limit requirement. The OBCA requires that a majority of the directors of
Celestica be resident Canadians.
The OBCA provides that unless the articles of a corporation otherwise
provide, a director of a corporation is not required to hold shares issued by
the corporation. There is no provision in the articles of incorporation imposing
a requirement that a director hold any shares issued by Celestica.
59
AUTHORIZED CAPITAL OF CELESTICA
Celestica's authorized capital consists of an unlimited number of preference
shares issuable in series, an unlimited number of subordinate voting sharesThe rights and an unlimited number of multiple voting shares.
MULTIPLE VOTING SHARES AND SUBORDINATE VOTING SHARES
VOTING RIGHTS
The holders ofpreferences attaching to our subordinate voting shares and
multiple voting shares are entitled to notice of and to attend all meetings of shareholders and to vote at
all such meetings together as a single class, except in respect of matters where
only the holders of shares of one class or series of shares are entitled to vote
separately pursuant to applicable law. The subordinate voting shares carry one
vote per share and the multiple voting shares carry 25 votes per share.
Generally, all matters to be voted on by shareholders must be approved by a
simple majority (or,described in the casesection entitled "Description of
electionCapital Stock" of directors, by a plurality,our registration statement on Form F-3 (Reg. No. 333-69278),
filed with the SEC on September 12, 2001. The rights and preferences attaching
to our LYONs are described in the casesection entitled "Description of an amalgamation or amendments toLYONs" of our
Rule 424(b) prospectus, filed with the articlesSEC on July 26, 2000, as part of Celestica,our
registration statement on Form F-3 (Reg. No. 333-12338), filed with the SEC on
July 24, 2000. Those sections are hereby incorporated by two-thirds) of the votes cast in respect of multiple voting shares and
subordinate voting shares held by persons present in person or by proxy, voting
together as a single class. The holders of multiple voting shares are entitled
to one vote per share held at meetings of holders of multiple voting shares at
which they are entitled to vote separately as a class.
DIVIDENDS
The subordinate voting shares and the multiple voting shares are entitled to
share ratably, as a single class, in any dividends declared by the board of
directors of Celestica, subject to any preferential rights of any outstanding
preference shares in respect of the payment of dividends. Dividends consisting
of subordinate voting shares and multiple voting shares may be paid only as
follows: (i) subordinate voting shares may be paid only to holders of
subordinate voting shares, and multiple voting shares may be paid only to
holders of multiple voting shares; and (ii) proportionally with respect to each
outstanding subordinate voting share and multiple voting share.
CONVERSION
Each multiple voting share is convertible at any time at the option of the
holder thereofreference into one subordinate voting share.
Multiple voting shares will be converted automatically into subordinate
voting shares upon any transfer thereof, except (i) a transfer to Onex or any
affiliate of Onex or (ii) a transfer of 100% of the outstanding multiple voting
shares to a purchaser who also has offered to purchase all of the outstanding
subordinate voting shares for a per share consideration identical to, and
otherwise on the same terms as, that offered for the multiple voting shares, and
the multiple voting shares held by such purchaser thereafter shall be subject to
the provisions relating to conversion as if all references to Onex were
references to such purchaser. In addition, if (i) any holder of any multiple
voting shares ceases to be an affiliate of Onex or (ii) Onex and its affiliates
cease to have the right, in all cases, to exercise the votes attached to, or to
direct the voting of, any of the multiple voting shares held by Onex and its
affiliates, such multiple voting shares shall convert automatically into
subordinate voting shares on a one-for-one basis. For these purposes,
(i) "Onex" includes any successor corporation resulting from an amalgamation,
merger, arrangement, sale of all or substantially all of its assets, or other
business combination or reorganization involving Onex, provided that such
successor corporation beneficially owns directly or indirectly all multiple
voting shares beneficially owned directly or indirectly by Onex immediately
prior to such transaction and is controlled by the same person or persons as
controlled Onex prior to the consummation of such transaction; (ii) a
corporation shall be deemed to be a subsidiary of another corporation if, but
only if, (a) it is controlled by that other, or that other and one or more
corporations each of which is controlled by that other, or two or more
corporations each of which is controlled by that other, or (b) it is a
subsidiary of a corporation that is that other's subsidiary; (iii) "affiliate"
means a subsidiary of Onex or a corporation controlled by the same person or
company that controls Onex; and (iv) "control" means beneficial ownership of, or
control or direction over, securities carrying more than 50% of the votes that
may be cast to elect directors if those votes, if cast, could elect more than
50% of the directors. For these purposes, a person is deemed to beneficially own
any security which is beneficially owned by a corporation controlled by such
person.
60
In addition, if at any time the number of outstanding multiple voting shares
shall represent less than 5% of the aggregate number of the outstanding multiple
voting shares and subordinate voting shares, all of the outstanding multiple
voting shares shall be automatically converted at such time into subordinate
voting shares on a one-for-one basis.
Onex, which owns all of the outstanding multiple voting shares, has entered
into an agreement with Computershare Trust Company of Canada, as trustee for the
benefit of the holders of the subordinate voting shares, that has the effect of
preventing transactions that otherwise would deprive the holders of subordinate
voting shares of rights under applicable provincial take-over bid legislation to
which they would have been entitled in the event of a take-over bid for the
multiple voting shares if the multiple voting shares had been subordinate voting
shares.
MODIFICATION, SUBDIVISION AND CONSOLIDATION
Any modification to the provisions attaching to either the subordinate
voting shares or the multiple voting shares requires the separate affirmative
vote of two-thirds of the votes cast by the holders of subordinate voting shares
and multiple voting shares, respectively, voting as separate classes. The
Company may not subdivide or consolidate the subordinate voting shares or the
multiple voting shares without at the same time proportionally subdividing or
consolidating the shares of the other class.
CREATION OF OTHER VOTING SHARES
The Company may not create any class or series of shares or issue any shares
of any class or series (other than subordinate voting shares) having the right
to vote generally on all matters that may be submitted to a vote of shareholders
(except matters for which applicable law requires the approval of holders of
another class or series of shares voting separately as a class or series)
without the separate affirmative vote of two-thirds of the votes cast by the
holders of the subordinate voting shares and the multiple voting shares,
respectively, voting as separate classes.
RIGHTS ON DISSOLUTION
With respect to a distribution of assets in the event of a liquidation,
dissolution or winding-up of Celestica, whether voluntary or involuntary, or any
other distribution of the assets of Celestica for the purposes of winding up our
affairs, holders of subordinate voting shares and multiple voting shares will
share ratably as a single class in assets available for distribution to holders
of subordinate voting shares and multiple voting shares after payment in full of
the amounts required to be paid to holders of preference shares, if any.
OTHER RIGHTS
Neither the subordinate voting shares nor the multiple voting shares are
redeemable, nor do the holders of such shares have pre-emptive rights to
purchase additional shares.
All of the outstanding subordinate voting shares and all of the outstanding
multiple voting shares will be fully paid and non-assessable.
PREFERENCE SHARES
The articles of Celestica permit the issuance of preference shares in
series, without further approval of shareholders. The number of preference
shares of each series and the designation, rights, privileges, restrictions and
conditions attaching to the shares of each series, including, without
limitation, any voting rights (other than general voting rights), any rights to
receive dividends or any terms of redemption, shall be determined by the board
of directors. The holders of the preference shares are entitled to dividends in
priority to the holders of multiple voting shares, the subordinate voting shares
or other shares ranking junior to the preference shares. With respect to a
distribution of assets in the event of a liquidation, dissolution or winding-up
of Celestica, whether voluntary or involuntary, or any other distribution of the
assets of Celestica for the purposes of winding up our affairs, the preference
shares rank in priority to the multiple voting shares, the subordinate voting
shares and any other shares ranking junior to the preference shares.this
Annual Report.
61
Additional information concerning the rights and limitations of shareholders
found in Celestica's articles of incorporation is hereby incorporated by
reference to our registration statement on Form F-4 (Reg. No. 333-9636).
C. MATERIAL CONTRACTS
The following table summarizes each material contract, other than contracts
entered into in the ordinary course of business, to which Celestica or any
member of Celestica's group is a party, for the two years immediately preceding
the publication of this Annual Report:
APPROXIMATE
DATE PARTIES TYPE TERMS AND CONDITIONS CONSIDERATION
- -------------------------- -------------------------- ------------------- ------------------------------ ------------------------ -------------- ----------------------------------- -------------
February 9, 2000, amended Celestica, Celestica Quota (Share) Celestica and Celestica $335 million
February 28, 2000 and Europe Inc., IBM Purchase Agreement Europe Inc. acquired all
May 31, 2000 Italia S.p.A. and IBM the voting stock of WCE
Semea Servizi Italia S.R.L.
Finanziari S.p.A.
June 22, 2000 Celestica and NEC do Acquisition Celestica acquired all the $123 million
Brasil S.A. Agreement shares of NDB
Industrial Ltda.
December 5, 200019, 2001, Celestica Corporation Asset Purchase Celestica Corporation and $70acquired $200 million
Celestica Ireland Limited, Agreement Celestica Ireland Limited
Motorola, Inc. and acquired certain assets
Motorola B.V. from Motorola, Inc. and
Motorola B.V. in Dublin,
Ireland and Mt. Pleasant,
Iowa
February 19, 2001, amended Celestica Corporation and Asset Purchase Celestica Corporation $200 million May 4, 2001 and Avaya, Inc. Agreement acquired certain assets from Avaya in
Denver, Colorado and Little Rock,
Arkansas
May 31, 2001 Celestica and Primetech Arrangement Celestica acquired all of the $179 million
Electronics Inc. Agreement the shares of Primetech
Electronics Inc.
June 15, 2001 Celestica and Omni Industries Limited Merger Agreement Celestica acquired all of the $865 million
theIndustries Limited Agreement shares of Omni Industries Limited
July 24, 2001 Celestica Corporation and Asset Purchase Celestica Corporation acquired $570 million
and Lucent Technologies Inc. Agreements acquired certain assets from Lucent in
Technologies Inc. Columbus, Ohio and Oklahoma City,
Oklahoma
March 31, 2002 Celestica and NEC Stock Purchase Celestica acquired all the business $105 million
Corporation Agreement operations of NEC Miyagi and NEC
Yamanashi
D. EXCHANGE CONTROLS
Canada has no system of exchange controls. There are no Canadian
restrictions on the repatriation of capital or earnings of a Canadian public
company to non-resident investors. There are no laws of Canada or exchange
restrictions affecting the remittance of dividends, interest, royalties or
similar payments to non-resident holders of Celestica's securities, except as
described under Item 10(E), "-- Taxation," below.
E. TAXATION
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material Canadian federal income tax
considerations generally applicable to a person (a "U.S. Holder") who acquires
subordinate voting shares and who, for purposes of the INCOME TAX ACTIncome Tax Act (Canada)
(the "Canadian Tax Act") and the CANADA-UNITED STATES INCOME TAX CONVENTIONCanada-United States Income Tax Convention
(1980) (the "Tax Treaty"), at all relevant times is resident in the
United States and is neither resident nor deemed to be resident in Canada, deals
at arm's length and is not affiliated with the Company, holds such subordinate
voting
62
shares as capital property, and does not use or hold, and is not deemed
to use or hold, the subordinate voting shares in carrying on business in Canada.
Special rules, which are not discussed in this summary, may apply to a
U.S. Holder that is a financial institution (as defined in the Canadian
Tax Act), or is an insurer that carries on an insurance business in Canada and
elsewhere.
This summary is based on the current provisions of the Tax Treaty, the
Canadian Tax Act and the regulations thereunder, all specific proposals to amend
the Canadian Tax Act or the regulations publicly announced by the Minister of
Finance (Canada) prior to March 1, 2002,February 28, 2003, and Celestica's understanding of
the current published administrative practices of the Canada Customs and Revenue
Agency.
This summary is not exhaustive of all possible Canadian federal income tax
considerations and, except as mentioned above, does not take into account or
anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account the tax legislation
or considerations of any province or territory of Canada or any jurisdiction
other than Canada.Canada, which may differ significantly from the considerations
described in this summary.
62
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, NOR
SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER, AND
NO REPRESENTATION WITH RESPECT TO THE CANADIAN FEDERAL INCOME TAX CONSEQUENCES
TO ANY PARTICULAR HOLDER IS MADE. CONSEQUENTLY, U.S. HOLDERS OF SUBORDINATE
VOTING SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE INCOME
TAX CONSEQUENCES TO THEM HAVING REGARD TO THEIR PARTICULAR CIRCUMSTANCES.
All amounts relevant in computing a U.S. Holder's liability under the
Canadian Tax Act are to be computed in Canadian dollars.
TAXATION OF DIVIDENDS
By virtue of the Canadian Tax Act and the Tax Treaty, dividends (including
stock dividends) on subordinate voting shares paid or credited or deemed to be
paid or credited to a U.S. Holder who is the beneficial owner of such dividend
will be subject to Canadian non-resident withholding tax at the rate of 15% of
the gross amount of such dividends. Under the Tax Treaty, the rate of
withholding tax on dividends is reduced to 5% if that U.S. Holder is a company
that beneficially owns at least 10% of the voting stock of Celestica. Moreover,
under the Tax Treaty, dividends paid to certain religious, scientific, literary,
educational or charitable organizations and certain pension organizations that
are resident in, and generally exempt from tax in, the U.S., generally are
exempt from Canadian non-resident withholding tax. Provided that certain
administrative procedures are observed by such an organization, Celestica would
not be required to withhold such tax from dividends paid or credited to such
organization.
DISPOSITION OF SUBORDINATE VOTING SHARES
A U.S. Holder will not be subject to tax under the Canadian Tax Act in
respect of any capital gain realized on the disposition or deemed disposition of
subordinate voting shares unless the subordinate voting shares constitute or are
deemed to constitute "taxable Canadian property" (as defined in the Canadian
Tax Act) (other than treaty-protected property, as defined in the Canadian
Tax Act) at the time of such disposition. Shares of a corporation resident in
Canada that are listed on a prescribed stock exchange for purposes of the
Canadian Tax Act will be "taxable Canadian property" under the Canadian Tax Act
if, at any time during the five-year period immediately preceding the
disposition or deemed disposition of the share, the non-resident, persons with
whom the non-resident did not deal at arm's length, or the non-resident together
with such persons owned 25% or more of the issued shares of any class or series
of shares of the corporation that issued the shares. For this purpose, a person
is considered to own any shares in respect of which the person has or had an
option or other interest therein. Provided they are listed on
a prescribed stock exchange for purposes of the Canadian Tax Act, subordinate
voting shares acquired by a U.S. Holder generally will not be taxable Canadian
property to a U.S. Holder unless the foregoing 25% ownership threshold applies
to the U.S. Holder with respect to Celestica. Even if the subordinate voting
shares are taxable Canadian property to a U.S. Holder, they generally will be
treaty-protected property if the value of such shares at the time of disposition
is not derived principally from "real property" (as defined in the Canadian
Tax Act)real property situated in Canada. Consequently,
any gain realized by the U.S. Holder upon the disposition of the subordinate
voting shares generally will be exempt from tax under the Canadian Tax Act.
63
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material United States federal income
tax consequences to United States Holders (as defined below) of subordinate
voting shares. A United States Holder is a citizen or resident of the
United States, a corporation or partnership or limited liability company created
or organized in or under the laws of the United States or of any political
subdivision thereof, an estate, the income of which is includible in gross
income for U.S. federal income tax purposes regardless of its source, or a
trust, if either (i) a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
U.S. persons have the authority to control all substantial decisions of the
trust, or (ii) the trust has made an election under applicable U.S. Treasury
regulations to be treated as a U.S. Person.United States person. This summary is for general
information purposes only. It does not purport to be a comprehensive description
of all of the tax considerations that may be relevant to your decision to
purchase, hold or dispose of subordinate voting shares. This summary considers
only United States Holders who will own subordinate voting shares as capital
assets within the meaning of Section 1221 of the Internal Revenue Code of 1986,
as amended (the "Internal Revenue Code"). In this context, the term "capital
assets" means, in general, assets held for investment by a
63
taxpayer. Material aspects of U.S. federal income tax relevant to
non-United States Holders are also discussed below.
This discussion is based on current provisions of the Internal Revenue Code,
current and proposed Treasury regulations promulgated thereunder and
administrative and judicial decisions as of March 1, 2002,February 28, 2003, all of which are
subject to change, possibly on a retroactive basis. This discussion does not
address all aspects of U.S. federal income taxation that may be relevant to any
particular United States Holder based on the United States Holder's individual
circumstances. In particular, this discussion does not address the potential
application of the alternative minimum tax or U.S. federal income tax
consequences to United States Holders who are subject to special treatment,
including taxpayers who are broker-dealers or insurance companies, taxpayers who
have elected mark-to-market accounting, individual retirement and other
tax-deferred accounts, tax-exempt organizations, financial institutions or
"financial services entities," taxpayers who hold subordinate voting shares as
part of a straddle, "hedge" or "conversion transaction" with other investments,
taxpayers owning directly, indirectly or by attribution at least 10% of the
voting power of our share capital, and taxpayers whose functional currency (as
defined in Section 985 of the Internal Revenue Code) is not the U.S. dollar.
This discussion does not address any aspect of U.S. federal gift or estate
tax or state, local or non-U.S. tax laws. Additionally, the discussion does not
consider the tax treatment of persons who hold subordinate voting shares through
a partnership or other pass-through entity. For U.S. federal income tax
purposes, income earned through a foreign or domestic partnership or similar
entity is generally attributed to its owners. You are advised to consult your
own tax advisor with respect to the specific tax consequences to you of
purchasing, holding or disposing of the subordinate voting shares.
TAXATION OF DIVIDENDS PAID ON SUBORDINATE VOTING SHARES
In the event that Celestica pays a dividend, and subject to the discussion
of the passive foreign investment company (PFIC) rules below, a United States
Holder will be required to include in gross income as ordinary income the amount
of any distribution paid on subordinate voting shares, including any Canadian
taxes withheld from the amount paid, on the date the distribution is received,
to the extent that the distribution is paid out of our current or accumulated
earnings and profits as determined for U.S. federal income tax purposes. In
addition, distributions of the Company's current or accumulated earnings and
profits will be foreign source passive income for U.S. foreign tax credit
purposes and will not qualify for the dividends-received deduction available to
corporations. Distributions in excess of such earnings and profits will be
applied against and will reduce the United States Holder's tax basis in the
subordinate voting shares and, to the extent in excess of such basis, will be
treated as capital gain.
Distributions of current or accumulated earnings and profits paid in
Canadian dollars to a United States Holder will be includible in the income of
the United States Holder in a dollar amount calculated by reference to the
exchange rate on the date the distribution is received. A United States Holder
who receives a distribution of Canadian dollars and converts the Canadian
dollars into U.S. dollars subsequent to receipt will have foreign exchange gain
or loss based on any appreciation or depreciation in the value of the Canadian
dollar against the U.S. dollar. Such gain or loss will generally be ordinary
income and loss and will generally be U.S. source gain or 64
loss for U.S. foreign
tax credit purposes. United States Holders should consult their own tax advisors
regarding the treatment of a foreign currency gain or loss.
United States Holders will generally have the option of claiming the amount
of any Canadian income taxes withheld either as a deduction from gross income or
as a dollar-for-dollar credit against their U.S. federal income tax liability,
subject to specified conditions and limitations. Individuals who do not claim
itemized deductions, but instead utilize the standard deduction, may not claim a
deduction for the amount of the Canadian income taxes withheld, but these
individuals generally may still claim a credit against their U.S. federal income
tax liability. The amount of foreign income taxes that may be claimed as a
credit in any year is subject to complex limitations and restrictions, which
must be determined on an individual basis by each shareholder. The total amount
of allowable foreign tax credits in any year cannot exceed the pre-credit
U.S. tax liability for the year attributable to foreign source taxable income. A
United States Holder will be denied a foreign tax credit with respect to
Canadian income tax withheld from dividends received on subordinate voting
shares to the extent that he or she has not held the subordinate voting shares
for at least 16 days of the 30-day period
64
beginning on the date which is 15 days before the ex-dividend date or to the
extent that he or she is under an obligation to make related payments with
respect to substantially similar or related property. Instead, a deduction may
be allowed. Any days during which a United States Holder has substantially
diminished his or her risk of loss on his or her subordinate voting shares are
not counted toward meeting the 16-day holding period.
TAXATION OF DISPOSITION OF SUBORDINATE VOTING SHARES
Subject to the discussion of the PFIC rules below, upon the sale, exchange
or other disposition of subordinate voting shares, a United States Holder will
recognize capital gain or loss in an amount equal to the difference between his
or her adjusted tax basis in his or her shares and the amount realized on the
disposition. A United States Holder's adjusted tax basis in the subordinate
voting shares will generally be the initial cost, but may be adjusted for
various reasons including the receipt by such United States Holder of a
distribution that was not made up wholly of earning and profits as described
above under the heading "Taxation of Dividends Paid on Subordinate Voting
Shares." A United States Holder that uses the cash method of accounting
calculates the dollar value of the proceeds received on the sale date as of the
date that the sale settles, while a United States Holder who uses the accrual
method of accounting is required to calculate the value of the proceeds of the
sale as of the "trade date," unless he or she has elected to use the settlement
date to determine his or her proceeds of sale. Capital gain from the sale,
exchange or other disposition of shares held more than one year is long-term
capital gain and is eligible for a maximum 20% rate of taxation for
non-corporate taxpayers. Special rules (and generally lower maximum rates) apply
to non-corporate taxpayers in lower tax brackets. Further preferential tax
treatment may be available for non-corporate taxpayers who dispose of
subordinate voting shares held for over five years. Gain or loss recognized by a
United States Holder on a sale, exchange or other disposition of subordinate
voting shares generally will be treated as U.S. source income or loss for
U.S. foreign tax credit purposes. The deductibility of a capital loss recognized
on the sale, exchange or other disposition of subordinate voting shares is
subject to limitations. A United States Holder who receives foreign currency
upon disposition of subordinate voting shares and converts the foreign currency
into U.S. dollars subsequent to receipt will have foreign exchange gain or loss
based on any appreciation or depreciation in the value of the foreign currency
against the U.S. dollar. United States Holders should consult their own tax
advisors regarding the treatment of a foreign currency gain or loss.
TAX CONSEQUENCES IF WE ARE A PASSIVE FOREIGN INVESTMENT COMPANY
A non-U.S. corporation will be a PFIC if, in general, either (i) 75% or more
of its gross income in a taxable year, including the pro rata share of the gross
income of any U.S. or foreign company in which it is considered to own 25% or
more of the shares by value, is passive income or (ii) 50% or more of its assets
in a taxable year, averaged over the year and ordinarily determined based on
fair market value and including the pro rata share of the assets of any company
in which it is considered to own 25% or more of the shares by value, are held
for the production of, or produce, passive income. Passive income includes
amounts derived by reason of the temporary investment of funds raised in a
public offering. If we were a PFIC and a United States Holder did not make an
65
election to treat the company as a "qualified electing fund" and did not make a
mark-to-market election, each as described below, then:
- Excessexcess distributions by Celestica to a United States Holder would be taxed
in a special way. "Excess distributions" are amounts received by a
United States Holder with respect to subordinate voting shares in any
taxable year that exceed 125% of the average distributions received by the
United States Holder from the company in the shorter of either the three
previous years or his or her holding period for his or her shares before
the present taxable year. Excess distributions must be allocated ratably
to each day that a United States Holder has held subordinate voting
shares. A United States Holder must include amounts allocated to the
current taxable year and to any non-PFIC years in his or her gross income
as ordinary income for that year. A United States Holder must pay tax on
amounts allocated to each prior taxable PFIC year at the highest rate in
effect for that year on ordinary income and the tax is subject to an
interest charge at the rate applicable to deficiencies for income tax.tax;
- Thethe entire amount of gain that is realized by a United States Holder upon
the sale or other disposition of shares will also be considered an excess
distribution and will be subject to tax as described above.above; and
65
- Aa United States Holder's tax basis in shares that were acquired from a
decedent will not receive a step-up to fair market value as of the date of
the decedent's death but instead will be equal to the decedent's tax
basis, if lower.
The special PFIC rules will not apply to a United States Holder if the
United States Holder makes an election to treat the company as a "qualified
electing fund" in the first taxable year in which he or she owns subordinate
voting shares and if we comply with reporting requirements. Instead, a
shareholder of a qualified electing fund is required for each taxable year to
include in income a pro rata share of the ordinary earnings of the qualified
electing fund as ordinary income and a pro rata share of the net capital gain of
the qualified electing fund as long-term capital gain, subject to a separate
election to defer payment of taxes, which deferral is subject to an interest
charge. We have agreed to supply United States Holders with the information
needed to report income and gain pursuant to this election in the event that we
are classified as a PFIC. The election is made on a shareholder-by-shareholder
basis and may be revoked only with the consent of the Internal Revenue Service.
A shareholder makes the election by attaching a completed IRS Form 8621,
including the PFIC annual information statement, to a timely filed U.S. federal
income tax return. Even if an election is not made, a shareholder in a PFIC who
is a United States Holder must file a completed IRS Form 8621 every year.
A United States Holder who owns PFIC shares that are publicly traded could
elect to mark the shares to market annually, recognizing as ordinary income or
loss each year an amount equal to the difference as of the close of the taxable
year between the fair market value of the PFIC shares and the United States
Holder's adjusted tax basis in the PFIC shares. If the mark-to-market election
were made, then the rules set forth above would not apply for periods covered by
the election. The subordinate voting shares would be treated as publicly traded
for purposes of the mark-to-market election and, therefore, such election would
be made if Celestica were classified as a PFIC. A mark-to-market election is,
however, subject to complex and specific rules and requirements, and
United States Holders are strongly urged to consult their tax advisors
concerning this election if we are classified as a PFIC.
We believe that we will not be a PFIC for 2002.2003. Based on our current
business plan, we do not expect to become a PFIC in the foreseeable future.
These conclusions rest at least in part on factual issues, including a
determination as to value of assets and projections as to our revenue. We cannot
assure you that our actual revenues, including our revenues for the remainder of
2002,2003, will be as projected or that a determination as to non-PFIC status would
not be challenged by the Internal Revenue Service. Moreover, the tests for
determining PFIC status are applied annually, and it is difficult to make
accurate predictions of future income and assets, which are relevant to the
determination as to whether we will be a PFIC in the future. A United States
Holder who holds subordinate voting shares during a period in which we are a
PFIC will be subject to the PFIC rules, even if we cease to be a PFIC, unless he
or she has made a qualifying electing fund election. If we were determined to be
a PFIC with respect to a year in which we had not thought that we would be so
treated, the information needed to enable United States Holders to make a
qualifying electing fund election would not have been provided. United States
Holders are strongly urged to consult their tax advisors about the PFIC rules,
66
including the consequences to them of making a mark-to-market or qualifying
electing fund elections with respect to subordinate voting shares in the event
that we are treated as a PFIC.
TAX CONSEQUENCES FOR NON-UNITED STATES HOLDERS OF SUBORDINATE VOTING SHARES
Except as described in "Information Reporting and Back-up Withholding"
below, a non-United States Holder of subordinate voting shares will not be
subject to U.S. federal income or withholding tax on the payment of dividends
on, and the proceeds from the disposition of, subordinate voting shares unless:
- the item is effectively connected with the conduct by the
non-United States Holder of a trade or business in the United States and,
in the case of a resident of a country that has an income treaty with the
United States, such item is attributable to a permanent establishment in
the United States;
- the non-United States Holder is an individual who holds the subordinate
voting shares as a capital asset and is present in the United States for
183 days or more in the taxable year of the disposition and does not
qualify for an exemption; or
66
- the non-United States Holder is subject to tax pursuant to the provisions
of U.S. tax law applicable to U.S. expatriates.
INFORMATION REPORTING AND BACK-UP WITHHOLDING
United States Holders generally are subject to information reporting
requirements and back-up withholding at a current rate of 30% (which rate will
be reduced over the next four years in accordance with recently enacted tax
legislation) with respect to dividends paid in the United States and on proceeds
paid from the disposition of shares, unless the United States Holder (i) is a
corporation or comes within certain other exempt categories and demonstrates
this fact when so required, or (ii) provides a correct taxpayer identification
number, certifies that it is not subject to backup withholdings, and otherwise
complies with applicable requirements of the backup withholding rules.
Non-United States Holders generally are not subject to information reporting
or back-up withholding with respect to dividends paid on or upon the disposition
of shares, provided in some instances that the non-United States Holder provides
a taxpayer identification number, certifies to his foreign status or otherwise
establishes an exemption.
The amount of any back-up withholding will be allowed as a credit against
U.S. federal income tax liability and may entitle the Holder to a refund,
provided that required information is furnished to the Internal Revenue Service.
F. DIVIDENDS AND PAYING AGENTS
Not applicable.
G. STATEMENT BY EXPERTS
Not applicable.
H. DOCUMENTS ON DISPLAY
Any statement in this Annual Report about any of our contracts or other
documents is not necessarily complete. If the contract or document is filed as
an exhibit to this Annual Report, the contract or document is deemed to modify
our description. You must review the exhibits themselves for a complete
description of the contract or document.
You may review a copy of our filings with the SEC, including exhibits and
schedules filed with this Annual Report, at the SEC's public reference
facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may also obtain copies of such materials from the
Public Reference Section of the SEC, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. You may call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. The SEC
maintains a 67
Web siteweb-site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC. We began to file electronically with the SEC in
November 2000.
You may read and copy any reports, statements or other information that we
file with the SEC at the addresses indicated above and you may also access some
of them electronically at the Web siteweb-site set forth above. These SEC filings are
also available to the public from commercial document retrieval services.
We also file reports, statements and other information with the Canadian
Securities Administrators, or the CSAs, and these can be accessed electronically
at the CSAs' System for Electronic Document Analysis and Retrieval web-site
at
http:(http://www.sedar.com.)
I. SUBSIDIARY INFORMATION
Not applicable.
67
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
EXCHANGE RATE RISK
Celestica has entered into foreign currency contracts to hedge foreign
currency risk. These financial instruments include, to varying degrees, elements
of market risk in excess of amounts recognized in the balance sheets. As at
December 31, 2001,2002, Celestica had outstanding foreign exchange contracts to selltrade
U.S. $379.5$282.7 million in exchange for Canadian dollars over a period of 1715 months
at a weighted average exchange rate of U.S.$0.65,0.64. Celestica also had forward
contracts to trade U.S. $56.6$10.6 million in exchange for Canadian dollars over a
period of 37 months at a weighted average exchange rate of U.S. $0.63. In
addition, Celestica had exchange contracts to trade U.S. $36.4 million in
exchange for British pounds sterling over a 15-month13-month period at a weighted
average exchange rate of U.S. $1.40,$1.45, U.S. $46.3$37.1 million in exchange for Mexican
pesos over a period of 12 months at a weighted average rate of exchange of
U.S. $0.10, U.S. $191.8$168.7 million in exchange for Euros over a 15-month period at
a weighted average exchange rate of U.S. $0.88,$0.93, U.S. $24.2$27.6 million in exchange
for Thai bahtSingapore dollars over a 12-month period at a weighted average exchange rate
of U.S. $0.02$0.57, 64.5 million Brazilian reais in exchange for U.S. dollars over a
1-month period at a weighted average exchange rate of U.S. $0.30,
U.S. $40.7 million in exchange for Japanese yen over a 1-month period at a
weighted average exchange rate of U.S. $0.01, and U.S. $6.4$11.9 million in exchange
for Czech koruna over a 12-month period at a weighted average exchange rate of
U.S. $0.03. The table below provides information about Celestica's foreign
currency contracts. The table presents the notional amounts and weighted average
exchange rates by expected (contractual) maturity dates. These notional amounts
generally are used to calculate the contractual payments to be exchanged under
the contracts. At December 31, 2001,2002, these contracts had a fair value liabilityunrealized
gain of U.S. $7.4$18.9 million.
DECEMBER 31, 2001
----------------------------------------------------------
EXPECTED MATURITY DATE
--------------------------------------------------------------------------------------------------------------------------- FAIR VALUE
2002 2003 2004 2005 2006 THEREAFTER TOTAL GAIN (LOSS)
-------- -------- -------- -------- ---------- -------- -----------------------
FORWARD EXCHANGE AGREEMENTS
Receive C$/Pay U.S.$
Contract amount.................................. $346.0 $33.5 $-- $379.5 $(10.9)amount (in millions)....... $261.0 $24.3 $5.3 $2.7 $ -- $293.3 $(2.9)
Average exchange rate............................rate............... $ 0.650.64 $ 0.63 $0.63 $0.63
Receive THB/Pay U.S.$
0.65Contract amount (in millions)....... $ 34.3 -- -- -- -- $ 34.3 $(0.4)
Average exchange rate............... $ 0.02
Receive L/Pay U.S.$
Contract amount..................................amount (in millions)....... $ 52.534.7 $ 4.11.7 -- -- -- $ 56.636.4 $ 1.43.5
Average exchange rate............................rate............... $ 1.40 $1.371.45 $ 1.401.52
Receive Mexican Pesos/Pay U.S.$
Contract amount...amount (in millions)....... $ 46.337.1 -- -- -- -- $ 46.3 $ 2.237.1 $(1.5)
Average exchange rate............................ $ 0.10rate............... $ 0.10
Receive Euro/Pay U.S.$
Contract amount.................................. $178.6 $13.2amount (in millions)....... $155.1 $13.6 -- $191.8 $ (0.6)-- -- $168.7 $19.5
Average exchange rate............................rate............... $ 0.88 $0.880.93 $ 0.880.99
Receive Baht/Singapore$/Pay U.S.$
Contract amount.............amount (in millions)....... $ 24.227.6 -- -- -- -- $ 24.2 $ 0.2
Average exchange rate............................ $ 0.02 $ 0.02
Receive Koruna/Pay U.S.$ Contract amount........... $ 6.4 -- -- $ 6.427.6 $ 0.3
Average exchange rate............................rate............... $ 0.03 0.57
Sell Reais/Receive U.S.$
0.03
------ ----- ------ ------ ------
Total.......................................... $654.0 $50.8 $-- $704.8Contract amount (in millions)....... $ (7.4)
====== ===== ====== ====== ======19.1 -- -- -- -- $ 19.1 $ 0.8
Average exchange rate............... $ 0.30
Receive Yen/Pay U.S.$
Contract amount (in millions)....... $ 40.7 -- -- -- -- $ 40.7 $(1.1)
Average exchange rate............... $ 0.01
68
INTEREST RATE RISK
Celestica's existing debt is predominantly at fixed rates. The table below
provides information about Celestica's financial instruments that are sensitive
to changes in interest rates.
EXPECTED MATURITY DATE
-----------------------------------------------------------------------------------------
2002----------------------------------------------------------------- FAIR VALUE
2003 2004 2005 2006 THEREAFTER TOTAL FAIR VALUE
--------GAIN (LOSS)
-------- -------- -------- -------- ---------- -------- ----------
(U.S.$ in millions)-----------
Long-term debt
Subordinate debt...................... Receive Koruna/Pay U.S.$
0Contract amount (in millions)....... $ 011.9 -- -- -- -- $ 011.9 $ 0 $130.00.7
Average exchange rate............... $ 0 $130.0 $136.5
Fixed rate.......................... 10.5% 10.5% 10.5% 10.5% 10.5%
All other obligations (including
capital leases)..................... 10.0 4.5 1.3 0.7 0.6 0.3 17.4 17.40.03
------- ------ ----- ----- ------ ------ ------ ------ ------ ------ ------ -----------
Total............................. $621.5 $39.6 $5.3 $2.7 $ 10.0 $ 4.5 $ 1.3 $ 0.7 $130.6 $ 0.3 $147.4 $153.9-- $669.1 $18.9
======= ====== ===== ===== ====== ====== ====== ====== ====== ====== ====== ===========
INTEREST RATE RISK
Celestica's existing debt is comprised of capital lease commitments
amounting to $6.9 million, which are not sensitive to changes in interest rates.
CONVERTIBLE DEBT (LYONS)
WeAs of December 31, 2002, we have issued convertible debtinstruments, with aan
outstanding principal amount at maturity of $1.8$1.6 billion, payable August 1,
2020. At March 1, 2002, weWe were not exposed to interest rate risk on this debt because (i) the
issue price represents a fixed yield to maturity, (ii) the principal payable at
maturity is fixed and (iii) the conversion ratio into subordinate voting shares
of Celestica is fixed.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
69
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
None.
ITEM 15. [RESERVED]CONTROLS AND PROCEDURES
Based on their evaluation of Celestica's disclosure controls and procedures
as of a date within 90 days of the filing of this Annual Report, the Chief
Executive Officer and Chief Financial Officer have concluded that such controls
and procedures are effective.
There were no significant changes in Celestica's internal controls or in
other factors that could significantly affect such controls subsequent to the
date of their evaluation.
ITEM 16. [RESERVED]
7069
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
The following financial statements have been filed as part of this Annual
Report:
PAGE
--------
Auditors' Report............................................ F-2
Comments by Auditors for U.S. Readers on Canada-U.S.
Reporting Difference...................................... F-3
Consolidated Balance Sheets as at December 31, 20002001 and
2001......................................................2002...................................................... F-4
Consolidated Statements of Earnings (Loss) for the years
ended December 31, 1999, 2000, 2001 and 2001....................2002.................... F-5
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 2000, 2001 and 2001..............2002.............. F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 2000, 2001 and 2001..........................2002.......................... F-7
Notes to the Consolidated Financial Statements.............. F-8
ITEM 19. EXHIBITS
The following exhibits have been filed as part of this Annual Report:
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1. Articles of Incorporation and by-lawsBylaws as currently in effect:
1.1 Certificate and Articles of Incorporation(1)
1.2 Certificate and Articles of Amendment effective October 22,
1996(1)
1.3 Certificate and Articles of Amendment effective January 24,
1997(1)
1.4 Certificate and Articles of Amendment effective October 8,
1997(1)
1.5 Certificate and Articles of Amendment effective April 29,
1998(2)
1.6 Articles of Amendment effective June 26, 1998(3)
1.7 Restated Articles of Incorporation effective June 26,
1998(3)
1.8 Restated Articles of Incorporation effective November 20,
2001
1.9 Bylaw No. 1(4)
1.91.10 Bylaw No. 2(1)
2. Instruments defining rights of holders of equity or debt
securities:
2.1 See Certificate and Articles of Incorporation and amendments
thereto identified above.
2.2 Form of Subordinate Voting Share Certificate(5)
2.3 Indenture, dated as of November 18, 1996, by and among
Celestica International Inc., Celestica, Inc., Celestica
Corporation and The Chase Manhattan Bank, as Trustee
(including forms of the Outstanding Notes and Exchange
Notes)(6)
2.4 Guarantee Agreement, dated as of November 18, 1996, between
Celestica, Inc. and The Chase Manhattan Bank, as Trustee(6)
2.5 Guarantee Agreement, dated as of November 18, 1996, between
Celestica Corporation and The Chase Manhattan Bank, as
Trustee(6)
71
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.6 Supplemental Indenture, dated as of July 7, 1998, among
Celestica International Inc., Celestica Inc. and The Chase
Manhattan Bank, as Trustee(3)
2.7 Supplemental Indenture, dated as of May 26, 2000, between
Celestica Inc. and The Chase Manhattan Bank, as Trustee(7)
2.8 Indenture, dated as of August 1, 2000, between
Celestica Inc. and The Chase Manhattan Bank, as Trustee
(including a form of the Outstanding Notes)(8)
2.10(6)
2.4 Second Amended and Restated Credit Agreement, dated as of
June 8,
2001,December 17, 2002, between Celestica Inc., the
subsidiaries of Celestica Inc., specified therein as
Designated Subsidiaries, The Bank of Nova Scotia, as
Administrative Agent, The BankCIBC World Markets, as Joint Lead
Arranger and Syndication Agent, RBC Capital Markets, as
Joint Lead Arranger and Co-Documentation Agent, Banc of
Nova Scotia,America Securities LLC, as Canadian FacilityJoint Lead Arranger and
Co-Documentation Agent, The Bank of Nova Scotia, as U.S. Facility Agent, The Bank of
Nova Scotia, as U.K. Facility Agent,and the financial institutions
named in Schedule A as Canadian lenders, the
financial institutions named in Schedule B as U.S. lenders,
and the financial institutions named in Schedule C as
U.K. lenders(9)
2.11lenders
70
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.5 Amended and Restated Revolving Term Credit Agreement, dated
as of June 8, 2001, between Celestica Inc., the subsidiaries
of Celestica Inc., specified therein as Designated
Subsidiaries, The Bank of Nova Scotia, as Administrative
Agent, The Bank of Nova Scotia, as Canadian Facility Agent,
The Bank of Nova Scotia, as U.S. Facility Agent, The Bank of
Nova Scotia, as U.K. Facility Agent, the financial
institutions named in Schedule A as Canadian lenders, the
financial institutions named in Schedule B as U.S. lenders,
and the financial institutions named in Schedule C as
U.K. lenders(9)
2.12 Four Year Revolving Term Credit
Agreement, dated as of July 31, 2001,December 17, 2002, among
Celestica Inc. and Celestica International Inc., as
Borrowers, The Bank of Nova Scotia, as Administrative
Agent, and the financial institutions named therein, as
Lenders(9)Lenders
3. Certain Contracts:
3.1 Management Services Agreement, dated as of July 7, 1998,
among Celestica Inc., Celestica North America Inc. and
Onex Corporation(5)
3.2 Quota (Share) Purchase Agreement, dated February 9, 2000,
between Celestica Inc., Celestica Europe Inc., IBM
Italia S.p.A. and IBM Semea Servizi Finanziari S.p.A.(4)*
3.3 Quota Purchase Agreement, dated June 22, 2000, between NEC
do Brasil S.A. and Celestica Inc.(4)*
3.4 Amended and Restated Asset Purchase Agreement, dated as of
December 5, 2000, between Celestica Corporation, Celestica
Ireland Limited, Motorola, Inc. and Motorola B.V.(4)*
3.5 Asset Purchase Agreement, dated as of February 19, 2001, by
and between Avaya Inc. and Celestica Corporation(4)*
3.63.3 Amendment No. 1 to the Asset Purchase Agreement, dated as of
May 4, 2001, by and between Avaya Inc. and Celestica
Corporation(4)
3.73.4 Arrangement Agreement, dated as of May 31, 2001, between
Celestica Inc. and Primetech Electronics Inc.
3.8(7)*
3.5 Merger Agreement, dated as of June 15, 2001, between Omni
Industries Limited and Celestica Inc.
3.9(7)*
3.6 Asset Purchase Agreement, dated as of July 24, 2001, between
Lucent Technologies Inc. and Celestica Corporation*Corporation(7)*
3.103.7 Asset Purchase Agreement, dated as of July 24, 2001, between
Lucent Technologies Inc. and Celestica Corporation*Corporation(7)*
3.8 Stock Purchase Agreement, dated January 28, 2002, between
NEC Corporation, NEC Miyagi, Ltd.,
NEC Yamanashi, Ltd., 1325091 Ontario Inc., and
Celestica Inc.*
72
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.11*
3.9 Employment Agreement, dated as of October 22, 1996, by and
between Celestica, Inc. and Eugene V. Polistuk(1)
3.123.10 Employment Agreement, dated as of October 22, 1996, by and
between Celestica, Inc. and Anthony P. Puppi(1)
3.133.11 Employment Agreement, dated as of October 22, 1996, by and
between Celestica, Inc. and Daniel P. Shea(1)
3.14 Employment Agreement, dated as of October 22, 1996, by and
between Celestica, Inc. and Douglas C. McDougall(1)
3.153.12 Employment Agreement, dated as of June 30, 1998, by and
between Celestica Inc. and R. Thomas Tropea(10)
3.16 Celestica, Inc. -- Celestica Retirement Plan (Canada)(2)
3.17Tropea(8)
3.13 D2D Employee Share Purchase and Option Plan (1997)(2)
3.183.14 Celestica 1997 U.K. Approved Share Option Scheme(1)
3.193.15 1998 U.S. Executive Share Purchase and Option Plan(11)Plan(9)
8.1 Subsidiaries of Registrant
99.1 Certification required by Section 906 of the
Sarbanes-Oxley Act of 2002***
- ------------
* Request for confidential treatment granted. Confidential portions of this
document have been redacted and filed separately with the Securities and
Exchange Commission.
** Confidential treatment requested. Confidential portions of thethis document
have been redacted and filed separately with the Securities and Exchange
Commission.
*** Pursuant to Commission Release No. 33-8212, this certification will be
treated as "accompanying" this Annual Report on Form 20-F and not "filed" as
part of such report for purposes of Section 18 of the Exchange Act, or
otherwise subject to the liability of Section 18 of the Exchange Act, and
this certification will not be incorporated by reference into any filing
under the Securities Act, or the Exchange Act, except to the extent that the
registrant specifically incorporates it by reference.
(1) Incorporated by reference to the Registration Statement on Form F-1 of
Celestica Inc. filed on April 29, 1998 (Registration No. 333-8700).
(2) Incorporated by reference to Amendment No. 1 to the Registration Statement
on Form F-1 of Celestica Inc. filed on June 1, 1998 (Registration
No. 333-8700).
71
(3) Incorporated by reference to the Registration Statement on Form F-1 of
Celestica Inc. filed on February 16, 1999 (Registration No. 333-10030).
(4) Incorporated by reference to the Annual Report on Form 20-F of
Celestica Inc. filed on May 22, 2001.
(5) Incorporated by reference to Amendment No. 3 to the Registration Statement
on Form F-1 of Celestica Inc. filed on June 25, 1998 (Registration
No. 333-8700).
(6) Incorporated by reference to Amendment No. 1 to the Registration Statement
on Form F-4 of Celestica International Inc. filed on March 5, 1997
(Registration No. 333-6308).
(7) Incorporated by reference to the Registration Statement on Form F-3 of
Celestica Inc. filed on July 11, 2000 (Registration No. 333-12272).
(8) Incorporated by reference to the Current Report on Form 6-K of
Celestica Inc. for the month of August, 2000.
(9)(7) Incorporated by reference to the Registration StatementAnnual Report on Form F-320-F of
Celestica Inc. filed on September 10, 2001 (Registration No. 333-69278).
(10)May 3, 2002.
(8) Incorporated by reference to the Annual Report on Form 20-F of
Celestica Inc. filed on May 18, 2000.
(11)(9) Incorporated by reference to the Registration Statement on Form S-8 of
Celestica Inc. filed on October 8, 1998 (Registration No. 333-9500).
7372
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
CELESTICA INC.
By: /s/ ELIZABETH L. DELBIANCO
------------------------------------------------------------------------------------------
Name: Elizabeth L. DelBianco
VICE-PRESIDENT, GENERAL COUNSEL AND SECRETARYTitle: Vice President & General Counsel
Date: - , 2002
S-1April 21, 2003
73
CERTIFICATIONS
I, Eugene V. Polistuk, certify that:
1. I have reviewed this annual report on Form 20-F of Celestica Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 21, 2003 /s/ EUGENE V. POLISTUK
-------------------------------------------------------
Eugene V. Polistuk
Chairman of the Board and
Chief Executive Officer
74
CERTIFICATIONS
I, Anthony P. Puppi, certify that:
1. I have reviewed this annual report on Form 20-F of Celestica Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 21, 2003 /s/ ANTHONY P. PUPPI
-------------------------------------------------------
Anthony P. Puppi
Executive Vice President, Chief Financial Officer
and General Manager, Global Services
75
Consolidated Financial Statements of
CELESTICA INC.
Years ended December 31, 1999, 2000, 2001 and 20012002
(in millions of U.S. dollars)
F-1
AUDITORS' REPORT
To the Board of Directors of
CELESTICA INC.Celestica Inc.
We have audited the consolidated balance sheets of Celestica Inc. as at
December 31, 20002001 and 20012002 and the consolidated statements of earnings (loss),
shareholders' equity and cash flows for each of the years in the three year
period ended December 31, 2001.2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
With respect to the consolidated financial statements for each of the years
in the two year period ended December 31, 2001, weWe conducted our audits in accordance with Canadian generally accepted
auditing standards and United States
generally accepted auditing standards. With respect to the consolidated
financial statements for the year ended December 31, 1999, we conducted our
audit in accordance with Canadian generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
20002001 and 20012002 and the results of its operations and its cash flows for each of
the years in the three year period ended December 31, 20012002 in accordance with
Canadian generally accepted accounting principles.
Toronto, Canada /s/ KPMG LLP
JANUARY 21, 2002 CHARTERED ACCOUNTANTS
Toronto, Canada /s/ KPMG LLP
January 21, 2003 Chartered Accountants
F-2
COMMENTS BY AUDITORS FOR U.S. READERS ON
CANADA-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when there is a
change in accounting principles that havehas a material effect on the comparability
of the Company's financial statements, such as the changechanges described in
note 2(n)2(q) to the financial statements relating to the adoption by the Company of
CICA Handbook Section 1581 -- Business Combinations, and CICA Handbook
Section 3062 -- Goodwill and Other Intangible Assets, as required for goodwill
and intangible assets resulting from business combinations consummated after
June 30, 2001.CICA Handbook
Section 3870 -- Stock-based Compensation and Other Stock-based Payments. Our
report to the shareholdersBoard of Directors of Celestica Inc. dated January 21, 20022003 is
expressed in accordance with Canadian reporting standards which do not require a
reference to such a changechanges in accounting principles in the auditors' report when
the change is properly accounted for and adequately disclosed in the financial
statements.
Toronto, Canada /s/ KPMG LLP
JANUARY 21, 2002 CHARTERED ACCOUNTANTS
Toronto, Canada /s/ KPMG LLP
January 21, 2003 Chartered Accountants
F-3
CELESTICA INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS OF U.S. DOLLARS)
AS AT DECEMBER 31
-------------------
2000----------------------
2001 2002
-------- --------
ASSETS
Current assets:
Cash and short-term investments........................... $ 883.8 $1,342.8 $1,851.0
Accounts receivable (note 4).............................. 1,785.7 1,054.1 785.9
Inventories (note 5)...................................... 1,664.3 1,372.7 775.6
Prepaid and other assets.................................. 138.8 177.3 115.1
Deferred income taxes..................................... 48.4 49.7 36.9
-------- --------
4,521.0 3,996.6 3,564.5
Capital assets (note 6)..................................... 633.4 915.1 727.8
Goodwill from business combinations (note 7)................ 1,128.8 948.0
Intangible assets (note 7).................................. 578.3 1,556.0427.2 211.9
Other assets (note 8)....................................... 205.3 165.2 354.6
-------- --------
$5,938.0 $6,632.9 $5,806.8
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $1,730.4 $1,198.3 $ 947.2
Accrued liabilities....................................... 466.3 405.7 475.4
Income taxes payable...................................... 52.6 21.0 24.5
Deferred income taxes..................................... 7.7 21.8 21.5
Current portion of long-term debt (note 9)................ 1.4 10.0 2.7
-------- --------
2,258.4 1,656.8 1,471.3
Long-term debt (note 9)..................................... 130.6 137.4 4.2
Accrued post-retirementpension and post-employment benefits (note 16).................. 38.1...... 47.3 77.2
Deferred income taxes....................................... 38.6 41.5 46.2
Other long-term liabilities................................. 3.04.3 4.3
-------- --------
2,468.7 1,887.3 1,603.2
Shareholders' equity........................................ 3,469.3 4,745.6 4,203.6
-------- --------
$5,938.0 $6,632.9 $5,806.8
======== ========
Commitments, contingencies and contingenciesguarantees (note 18)
Subsequent event (note 21)
Canadian and United States accounting policy differences (note 22)
Subsequent events (note 23)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
CELESTICA INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31
-------------------------------
1999 2000 2001 --------2002
-------- --------- --------
Revenue..................................................... $5,297.2 $9,752.1 $10,004.4 $8,271.6
Cost of sales............................................... 4,914.7 9,064.1 9,291.9 --------7,715.8
-------- --------- --------
Gross profit................................................ 382.5 688.0 712.5 555.8
Selling, general and administrative expenses................ 202.2 326.1 341.4 298.5
Amortization of goodwill and intangible assets (note 7).................. 55.6..... 88.9 125.0 95.9
Integration costs related to acquisitions (note 3).......... 9.6 16.1 22.8 21.1
Other charges (note 13)..................................... -- -- 273.1 --------677.8
-------- --------- 267.4--------
431.1 762.3 --------1,093.3
-------- --------- --------
Operating income (loss)..................................... 115.1 256.9 (49.8) (537.5)
Interest on long-term debt.................................. 17.3 17.8 19.8 16.1
Interest income, net........................................ (6.6) (36.8) (27.7) --------(17.2)
-------- --------- --------
Earnings (loss) before income taxes......................... 104.4 275.9 (41.9) --------(536.4)
-------- --------- --------
Income taxes (note 14):
Current................................................... 30.7Current expense........................................... 80.1 25.8 16.6
Deferred (recovery)....................................... 5.3 (10.9) (27.9) --------(107.8)
-------- --------- 36.0--------
69.2 (2.1) --------(91.2)
-------- --------- --------
Net earnings (loss)......................................... $ 68.4 $ 206.7 $ (39.8) ========$ (445.2)
======== ========= ========
Basic earnings (loss) per share (note 12)................... $ 0.41 $ 1.01 $ (0.26) $ (1.98)
Diluted earnings (loss) per share (notes 2, 12)............. $ 0.40 $ 0.98 $ (0.26) $ (1.98)
Weighted average number of shares outstanding (note 12)
Basic (in millions)....................................... 167.2 199.8 213.9 229.8
Diluted (in millions) (note 2)............................ 171.2 211.8 213.9 229.8
Net earnings (loss) in accordance with U.S. GAAP
(note 22)................................................. $ 66.5 $ 197.4 $ (51.3) $ (494.9)
Basic earnings (loss) per share, in accordance with
U.S. GAAP (note 22)....................................... $ 0.40 $ 0.99 $ (0.24) $ (2.15)
Diluted earnings (loss) per share, in accordance with
U.S. GAAP (note 22)....................................... $ 0.39 $ 0.96 $ (0.24) $ (2.15)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
CELESTICA INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN MILLIONS OF U.S. DOLLARS)
FOREIGN
CONVERTIBLE RETAINED CURRENCY TOTAL
DEBT CAPITAL STOCK CONTRIBUTED EARNINGS TRANSLATION SHAREHOLDERS'
(NOTE 10) (NOTE 11) SURPLUS (DEFICIT) ADJUSTMENT EQUITY
----------- ------------- ----------- --------- ----------- -------------
Balance -- December 31, 1998...............1999......... $-- $1,646.1 -$- $ 912.1 $(52.2) $(0.6) $ 859.3
Shares issued, net......................... -- 734.0 -- -- 734.0
Currency translation....................... -- -- -- (3.5) (3.5)
Net earnings for the year.................. -- -- 68.4 -- 68.4
------ -------- ------ ----- --------
Balance -- December 31, 1999............... -- 1,646.1 16.2 (4.1) 1,658.2$(4.1) $1,658.2
Convertible debt issued, net...............net......... 850.4 -- -- -- -- 850.4
Convertible debt accretion, net of
tax.....tax................................ 10.1 -- -- (5.4) -- 4.7
Shares issued, net.........................net................... -- 749.3 -- -- -- 749.3
Net earnings for the year..................year............ -- -- -- 206.7 -- 206.7
------------- -------- ---------- ------- ----- --------
Balance -- December 31, 2000...............2000......... 860.5 2,395.4 -- 217.5 (4.1) 3,469.3
Convertible debt accretion, net of
tax.....tax................................ 26.3 -- -- (15.0) -- 11.3
Shares issued, net.........................net................... -- 1,303.6 -- -- -- 1,303.6
Currency translation.......................translation................. -- -- -- -- 1.2 1.2
Net loss for the year......................year................ -- -- -- (39.8) -- (39.8)
------------- -------- ---------- ------- ----- --------
Balance -- December 31, 2001............... $886.8 $3,699.0 $162.7 $(2.9) $4,745.6
======2001......... 886.8 3,699.0 -- 162.7 (2.9) 4,745.6
Convertible debt accretion, net of
tax................................ 28.7 -- -- (17.5) -- 11.2
Repurchase of convertible debt
(note 10).......................... (110.9) -- -- 6.7 -- (104.2)
Shares issued, net................... -- 8.5 -- -- -- 8.5
Repurchase of shares (note 11)....... -- (36.9) 5.8 (1.4) -- (32.5)
Currency translation................. -- -- -- -- 20.2 20.2
Net loss for the year................ -- -- -- (445.2) -- (445.2)
------- -------- ---- ------- ----- --------
Balance -- December 31, 2002......... $ 804.6 $3,670.6 $5.8 $(294.7) $17.3 $4,203.6
======= ======== ========== ======= ===== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
CELESTICA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS OF U.S. DOLLARS)
YEAR ENDED DECEMBER 31
-------------------------------
1999 2000 2001 --------2002
-------- --------- --------
CASH PROVIDED BY (USED IN):
OPERATIONS:
Net earnings (loss)......................................... $ 68.4....................................... $ 206.7 $ (39.8) $ (445.2)
Items not affecting cash:
Depreciation and amortization............................. 126.5amortization........................... 212.5 319.5 311.0
Deferred income taxes..................................... 5.3taxes................................... (10.9) (27.9) (107.8)
Restructuring charges (note 13)......................... -- 98.6 194.5
Other charges (note 13).................................................................... -- -- 134.7
Other..................................................... (2.9)36.1 292.1
Other................................................... (4.4) 1.7 -------(6.1)
-------- --------- --------
Cash from earnings.......................................... 197.3earnings........................................ 403.9 388.2 -------238.5
-------- --------- --------
Changes in non-cash working capital items:
Accounts receivable....................................... (227.7)receivable..................................... (995.3) 887.2 Inventories............................................... (265.0)297.4
Inventories............................................. (656.7) 822.5 623.9
Other assets.............................................. 1.7assets............................................ (94.7) 45.7 26.1
Accounts payable and accrued liabilities.................. 194.6liabilities................ 1,230.4 (854.0) (202.7)
Income taxes payable...................................... 4.7payable.................................... 27.3 0.9 -------(0.4)
-------- --------- --------
Non-cash working capital changes.......................... (291.7) (489.0) 902.3 -------744.3
-------- --------- --------
Cash provided by (used in) operations..................... (94.4)operations....................... (85.1) 1,290.5 -------982.8
-------- --------- --------
INVESTING:
Acquisitions, net of cash acquired........................ (64.8) (634.7) (1,299.7) (111.0)
Purchase of capital assets................................ (211.8) (282.8) (199.3) (151.4)
Proceeds on sale of capital assets........................ -- -- 71.6
Other..................................................... (0.6) (59.5) 1.4 -------(0.7)
-------- --------- --------
Cash used in investing activities........................... (277.2) (977.0) (1,497.6) -------(191.5)
-------- --------- --------
FINANCING:
Bank indebtedness......................................... -- (8.6) (2.8) (1.6)
Repayments of long-term debt.............................. (10.0) (2.2) (56.0) (146.5)
Debt redemption fees (note 9)............................. -- -- (6.9)
Deferred financing costs.................................. (1.5) (0.1) (3.9) (2.6)
Issuance of convertible debt.............................. 862.9 -- 862.9 --
Convertible debt issue costs, pre-tax..................... -- (19.4) -- --
Repurchase of convertible debt (note 10).................. -- -- (100.3)
Issuance of share capital................................. 758.2 766.6 737.7 7.4
Share issue costs, pre-tax................................ (34.3) (26.8) (10.0) --
Repurchase of capital stock (note 11)..................... -- -- (32.5)
Other..................................................... (1.0) 2.0 1.1 -------(0.1)
-------- --------- --------
Cash provided by (used in) financing activities....................... 711.4activities............. 1,574.4 666.1 -------(283.1)
-------- --------- --------
Increase in cash............................................ 339.8 512.3 459.0 508.2
Cash, beginning of year..................................... 31.7 371.5 883.8 -------1,342.8
-------- --------- --------
Cash, end of year........................................... $ 371.5 $ 883.8 $ 1,342.8 =======$1,851.0
======== ========= Supplemental information
Paid during the year:
Interest.................................................. $ 17.2 $ 15.9 $ 20.7
Taxes..................................................... $ 26.1 $ 55.0 $ 89.0
Non-cash financing activities:
Convertible debt accretion, net of tax (note 10).......... $ -- $ 5.4 $ 15.0
Shares issued for acquisitions............................ $ -- $ -- $ 567.0========
Cash is comprised of cash and short-term investments.
Supplemental cash flow information (note 21)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
1. NATURE OF BUSINESS:
The primary operations of the Company include providing a full range of
electronics manufacturing services including design, prototyping, assembly,
testing, product assurance, supply chain management, worldwide distribution
and after-sales service to its customers primarily in the computerinformation
technology and communications industries. The Company has operations in the
Americas, Europe and Asia.
The Company's accounting policies are in accordance with accounting
principles generally accepted in Canada and, except as outlined in note 22,
are, in all material respects, in accordance with accounting principles
generally accepted in the United States.States (U.S. GAAP).
2. SIGNIFICANT ACCOUNTING POLICIES:
(A)(a) PRINCIPLES OF CONSOLIDATION:
These consolidated financial statements include the accounts of the
Company and its subsidiaries. The results of subsidiaries acquired during
the year are consolidated from their respective dates of acquisition. The
Company's business combinations are accounted for using the purchase
method. Inter-company transactions and balances are eliminated on
consolidation.
(B)(b) USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses
during the reporting period. Significant estimates are used in
determining, but not limited to, the allowance for doubtful accounts,
inventory valuation, income tax valuation allowances, restructuring
charges, the useful lives and valuation of intangible assets and the fair
values of reporting units for purposes of goodwill impairment tests.
Actual results could differ materially from those estimates and
assumptions.
(c) REVENUE:
Revenue is comprised of product sales and service revenue earned from
engineering, design and repair services. Revenue from product sales is
recognized upon shipment of the goods. Service revenue is recognized as
services are performed.
(C)(d) CASH AND SHORT-TERM INVESTMENTS:
Cash and short-term investments include cash on account, demand deposits
and short-term investments with original maturities of less than three
months.
(D)(e) ALLOWANCE FOR DOUBTFUL ACCOUNTS:
The Company evaluates the collectibility of accounts receivable and
records an allowance for doubtful accounts, which reduces the receivables
to the amount management reasonably believes will be collected. A
specific allowance is recorded against customer receivables that are
considered to be impaired based on the Company's knowledge of the
financial condition of its customers. In determining the amount of the
allowance, the following factors are considered: the length of time the
receivables have been outstanding, customer and industry concentrations,
current business environment, and historical experience.
(f) INVENTORIES:
Inventories are valued on a first-in, first-out basis at the lower of
cost and replacement cost for production parts, and at the lower of cost
and net realizable value for work in progress and finished goods. Cost
includes materials and an application of relevant manufacturing
value-add. (E)In determining the net realizable value, the Company considers
factors such as shrinkage, the aging and future demand of the inventory,
past experience with specific customers, and the ability to redistribute
inventory to other programs or return inventory to suppliers.
F-8
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(g) CAPITAL ASSETS:
Capital assets are carried at cost and amortized over their estimated
useful lives on a straight-line basis. Estimated useful lives for the
principal asset categories are as follows:
Buildings..............................................Buildings................................................... 25 years
Buildings/leasehold improvements.......................improvements............................ Up to 25 years or term of lease
Office equipment.......................................equipment............................................ 5 years
Machinery and equipment................................equipment..................................... 5 years
Software...............................................Software.................................................... 1 to 510 years
(F) INTANGIBLE ASSETS:
Intangible assets are comprised of goodwill, intellectual property
including process technology, and other intangible assets. Goodwill
acquired in business combinations with acquisition dates prior(h) GOODWILL FROM BUSINESS COMBINATIONS:
Prior to July 1, 2001, and other intangible assets areall goodwill was amortized on a straight-line
basis over 10 years and intellectual property over 5 years. Goodwill acquired in business combinations
subsequent to June 30, 2001, has not been amortized. Effective
January 1, 2002, the Company discontinued amortization of all existing
goodwill. These changes are a result of new accounting standards issued
in 2001 which are summarized in note 2(q)(ii) -- Changes in accounting
policies.
Upon adopting these standards on January 1, 2002, the Company is required
to evaluate goodwill annually or whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
Impairment is tested at the reporting unit level by comparing the
reporting unit's carrying amount to its fair value. The fair values of
the reporting units are estimated using a combination of a market
approach and discounted cash flows. To the extent a reporting unit's
carrying amount exceeds its fair value, an impairment of goodwill exists.
Impairment is measured by comparing the fair value of goodwill,
determined in a manner similar to a purchase price allocation, to its
carrying amount. The Company conducted its annual goodwill assessment in
the fourth quarter of 2002 and recorded an impairment charge. See
notes 7 -- Goodwill and intangible assets and 13(c) -- Other charges.
Prior to 2002, the Company assessed the recoverability of goodwill by
comparing its carrying amount to its projected future net cash flows as
described under note 2(j) -- Impairment of long-lived assets.
(i) INTANGIBLE ASSETS:
Intangible assets are comprised of intellectual property and other
intangible assets. Intellectual property assets consist primarily of
certain non-patented intellectual property and process technology, and
are amortized but will be tested for impairment annually. See
note 2(n).
(G)on a straight-line basis over their estimated useful lives,
to a maximum of 5 years. Other intangible assets consist primarily of
customer relationships and contract intangibles, and represent the excess
of cost over the fair value of tangible assets and intellectual property
acquired in asset acquisitions. Other intangible assets are amortized on
a straight-line basis over their estimated useful lives, to a maximum of
10 years.
(j) IMPAIRMENT OF LONG-LIVED ASSETS:
The Company reviews long-livedcapital and intangible assets for impairment on a
regular basis or whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of capital
assets is
assessed by comparison ofcomparing the carrying amount to the projected future net
cash flows the long-lived assets are expected to generate. The Company
assesses the recoverability of enterprise level goodwill by
determining whether the unamortized goodwill balance can be recovered
through undiscounted projected future net cash flows of the acquired
operation. Anhas recorded impairment charges in the value of intellectual property2001 and other
intangible assets is assessed based on projected future net cash flows.2002. See
note 2(n).
F-8
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(H)13(d) -- Other charges.
(k) PENSION AND NON-PENSION, POST-RETIREMENTPOST-EMPLOYMENT BENEFITS:
The Company accrues its obligations under employee benefit plans and the
related costs, net of plan assets. The cost of pensions and other
retirementpost-employment benefits earned by employees is actuarially determined
using the projected benefit method pro-rated on service, and management's
best estimate of expected plan investment performance, salary escalation,
compensation levels at time of retirement, retirement ages of employees
and expected health care costs. Changes in these assumptions could impact
future pension expense. For the purpose of calculating the expected
return on plan assets, those assets are valued at fair value. Past service
costs arising from plan amendments are amortized on a straight-line basis
over the average remaining service period of employees active at the date
of amendment. The net actuarial
gain (loss) isActuarial gains or losses exceeding 10% of a plan's
accumulated benefit obligations or the fair market value of the plan
assets at the beginning of the year are amortized over the average
remaining service period of active employees. The average remaining
service period of active employees covered by the pension plans is
14 years for 20002001 and 2001.11 years for 2002. The average remaining service
period of active employees covered by the other retirementpost-employment benefit
plans is 21 years for 20002001 and 2001.
(I)23 years for 2002. Curtailment gains or
losses may arise from significant changes to a plan. Curtailment gains
are offset against unrecognized losses and any excess gains and all
curtailment losses are recorded in the period in which the curtailment
occurs.
F-9
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Pension assets are recorded as Other assets while pension liabilities are
recorded as Accrued pension and post-employment benefits.
(l) DEFERRED FINANCING COSTS:
Costs relating to long-term debt are deferred in other assets and
amortized over the term of the related debt andor debt facilities.
(J)(m) INCOME TAXES:
The Company uses the asset and liability method of accounting for income
taxes. Deferred income tax assets and liabilities are recognized for
future income tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities,
and their respective tax bases. When necessary, aA valuation allowance is recorded to
reduce deferred income tax assets to an amount for which realizationthat, in the opinion of
management, is more likely than not.not to be realized. The effect of changes
in tax rates is recognized in the period in which the rate change occurs.
(K)(n) FOREIGN CURRENCY TRANSLATION AND HEDGING:
The functional currency of the majority of the Company's subsidiaries is
the United States dollar. For such subsidiaries, monetary assets and
liabilities denominated in foreign currencies are translated into
U.S. dollars at the year-end rate of exchange. Non-monetary assets and
liabilities denominated in foreign currencies are translated at historic
rates, and revenue and expenses are translated at average exchange rates
prevailing during the month of the transaction. Exchange gains or losses
are reflected in the consolidated statements of earnings (loss).
The accounts of the Company's self-sustaining foreign operations for
which the functional currency is other than the U.S. dollar, are
translated into U.S. dollars using the current rate method. Assets and
liabilities are translated at the year-end exchange rate, and revenue and
expenses are translated at average exchange rates.rates prevailing during the
month of the transaction. Gains and losses arising from the translation
of financial statements of foreign operations are deferred in the
"foreign currency translation adjustment" account included as a separate
component of shareholders' equity.
The Company enters into forward exchange contracts to hedge the cash flow
risk associated with certain firm purchase commitments and forecasted
transactions in foreign currencies and foreign-currency denominated
balances. The Company does not enter into derivatives for speculative
purposes.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk management objective
and strategy for undertaking various hedge transactions. This process
includes linking all derivatives to specific assets and liabilities on
the balance sheet or to specific firm commitments or forecasted
transactions. The Company also formally assesses, both at the hedge's
inception and at the end of each quarter, whether the derivatives that
are used in hedged transactions are highly effective in offsetting
changes in cash flows of hedged items.
Gains and losses on hedges of firm commitments are included in the cost
of the hedged transactionstransaction when they occur. Gains and losses on hedges of
forecasted transactions are recognized in earnings in the same period and
the same line item as the underlying hedged transaction. Foreign exchange
translation gains and losses on forward contracts used to hedge
foreign-currency denominated amounts are accrued on the balance sheet as
current assets or current liabilities and are recognized currently in the
income statement, offsetting the respective translation gains or losses
on the foreign-currency denominated amounts. The Company does not
enter into derivatives for speculative purposes.
(L)forward premium or
discount is amortized over the term of the forward contract. Gains and
losses on hedged forecasted transactions are recognized in earnings
immediately when the hedge is no longer effective or the forecasted
transactions are no longer expected.
(o) RESEARCH AND DEVELOPMENT:
The Company annually incurs costs on activities that relaterelating to research and development activities
which are expensed as incurred unless development costs meet certain
criteria for capitalization. Total research and development costs
recorded in selling, general and administrative expenses for 20012002 were
$17.1 (2000$18.2 (2001 -- $19.5; 1999$17.1; 2000 -- $19.7)$19.5). No amounts have been capitalized.
(M) USE OF ESTIMATES:(p) RESTRUCTURING CHARGES:
The preparationCompany records restructuring charges relating to employee
terminations, contractual lease obligations and other exit costs, based
on detailed plans approved and committed to by management. The
recognition of financial statements in conformity with generally
accepted accounting principlesthese charges requires management to make estimatescertain
judgments regarding the nature, timing and assumptions that affectamount associated with the
reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Significant estimates are used in
determining the allowance for doubtful accounts, inventory valuation and
the useful lives of intangible assets. Actual results could differ
materially from those estimates and assumptions.
F-9planned restructuring activities, including
F-10
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(N)2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
estimating sublease income and the net recovery of equipment to be
disposed of. At the end of each reporting period, the Company evaluates
the appropriateness of the remaining accrued balances.
(q) CHANGES IN ACCOUNTING POLICIES:
(i) Earnings per share:
As a result ofEffective 2001, the Company retroactively applied the new Canadian
Institute of Chartered Accountants (CICA) Handbook Section 3500,
"Earnings per share," which requires the Company is required to
retroactively use of the treasury stock
method for calculating diluted earnings per share. This change results in anThe diluted earnings
per share calculation whichincludes employee stock options and the conversion
of convertible debt instruments, if dilutive. The new standard is
consistent with United StatesU.S. GAAP. Previously reported diluted earnings per
share have been restated to reflect this change. See
note 12 -- Earnings (loss) per share and weighted average shares
outstanding.
(ii) Business combinations, goodwill and goodwill:other intangible assets:
In September 2001, the CICA issued Handbook Sections 1581, "Business
Combinations" and 3062, "Goodwill and Other Intangible Assets." The new
standards mandate the purchase method of accounting for business
combinations and require that goodwill no longer be amortized, but
instead be tested for impairment at least annually. The standards also
specify criteria that intangible assets must meet to be recognized and
reported apart from goodwill. The standards require that the value of
the shares issued in a business combination be measured using the
average share price for a reasonable period before and after the date
the terms of the acquisition are agreed to and announced. Previously,
the consummation date was used to value the shares issued in a business
combination. The new standards are substantially consistent with
United StatesU.S. GAAP.
Effective July 1, 2001, and for the remainder of the fiscal year, goodwill acquired in business combinations
completed after June 30, 2001, washas not been amortized. In addition, the
new criteria for recognition of intangible assets apart from goodwill
and the valuation of the shares issued in a business combination hashave
been applied to business combinations completed after June 30, 2001.
Upon full adoptionThe Company has fully adopted these new standards as of the standards beginning January 1, 2002,
the
Company will discontinueand discontinued amortization of all existing goodwill, evaluategoodwill. The Company also
evaluated existing intangible assets, including estimates of remaining
lives, and make any necessary reclassifications in
orderhas reclassified $9.1 from intellectual property to goodwill,
as of January 1, 2002, to conform with the new criteria for recognitioncriteria.
Section 3062 requires the completion of intangible
assets apart from goodwill and will test for impairment in accordance
with the new standards.
In connection with Section 3062'sa transitional goodwill
impairment evaluation the Company is required to assess whether goodwill is
impaired as of January 1, 2002. The Company has up towithin six months to
determine the fair value of its reporting units and compare that toadoption. Impairment is
identified by comparing the carrying amounts of the Company's reporting
units.units with their fair values. To the extent a reporting unit's carrying
amount exceeds its fair value, the Companyimpairment of goodwill must perform a second
step to measurebe
recorded by December 31, 2002. The impairment of goodwill is measured by
comparing the amountfair value of impairmentgoodwill, determined in a manner similar to
a purchase price allocation. This second step isallocation, to be completed no later
than December 31, 2002.its carrying amount. Any transitional
impairment will bewould have been recognized as an effect of a change in
accounting principle and will bewould have been charged to opening retained
earnings as of January 1, 2002. AsThe Company completed the transitional
goodwill impairment assessment, and determined that no impairment
existed as of December 31, 2001,the date of adoption.
Effective January 1, 2002, the Company had unamortized goodwill of
$1,128.8$1,137.9 which is no longer amortized. This change in accounting policy
was not applied retroactively and unamortized other intangible assets including intellectual property
of $427.2, all of which are subject to the transitional provisions of
Sections 1581 and 3062. Amortization expense related to goodwill was
$39.2amounts presented for 2001. Because of the extensive effort required to comply with
the remaining provisions of Sections 1581 and 3062, the Company hasprior years
have not estimatedbeen restated for this change. The following table shows the
impact of these provisions on its financial statements,
beyond discontinuing goodwill amortization.
(O) RECENTLY ISSUEDthis change as if the policy had been applied retroactively to
2001 and 2000:
YEAR ENDED DECEMBER 31
------------------------------
2000 2001 2002
-------- -------- --------
Net earnings (loss) as reported............................. $206.7 $(39.8) $(445.2)
Add back: goodwill amortization............................. 39.1 39.2 --
------ ------ -------
Net earnings (loss) before goodwill amortization............ $245.8 $ (0.6) $(445.2)
====== ====== =======
Basic earnings (loss) per share:
As reported............................................... $ 1.01 $(0.26) $ (1.98)
Before goodwill amortization.............................. $ 1.20 $(0.07) $ (1.98)
Diluted earnings (loss) per share:
As reported............................................... $ 0.98 $(0.26) $ (1.98)
Before goodwill amortization.............................. $ 1.16 $(0.07) $ (1.98)
F-11
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING PRONOUNCEMENTS:POLICIES: (CONTINUED)
(iii) Stock-based compensation and other stock-based payments:
In December 2001,Effective January 1, 2002, the Company adopted the new CICA issued Handbook
Section 3870, which
establishes standards for the recognition, measurement, and disclosure of
stock-based compensation and other stock-based payments made in exchange
for goods and services provided by employees and non-employees. The
standard requires that a fair value based method of
accounting be applied to all stock-based payments to non-employees and
to employee awards that
are direct awards of stock that call for settlement in cash or other
assets or are stock appreciation rights that call for settlement by the
issuance of equity instruments.to employees. However, the new standard
permits the Company to continue its existing policy of recording no
compensation cost on the grant of stock options to employees. Consideration paid by
employees onwith the
exerciseaddition of pro forma information. The standard requires the disclosure
of pro forma net earnings and earnings per share information as if the
Company had accounted for employee stock options is recorded as share capital.under the fair value
method. The Company has applied the pro forma disclosure provisions of
the new standard is effective for the Company's fiscal year beginning
January 1, 2002 forto awards granted on or after that date.January 1, 2002. The
pro forma effect of awards granted prior to January 1, 2002, has not
been included.
The fair value of the options issued by the Company during 2002 was
determined using the Black-Scholes option pricing model. The Company
used the following weighted average assumptions: risk-free rate of
5.14%; dividend yield of 0%; a volatility factor of the expected market
price of the Company's current accounting policies are consistent withshares of 70%; and, an expected option life of
5 years. The weighted-average grant date fair value of options issued
during the new standard.year was $12.02 per share. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to
income over the vesting period, on a straight-line basis. For the year
ended December 31, 2002, the Company's pro forma net loss is $447.4,
pro forma basic loss per share is $1.99 and pro forma diluted loss per
share is $1.99. See note 11(c) for a description of the stock option
plans.
(r) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
(i) Foreign currency translation and hedging relationships:
Effective January 1, 2002, the CICA Handbookamended Section 1650 has been amended to eliminate
the deferral and amortization of foreign currency translation gains and
losses on long-lived monetary items, effective January 1, 2002, with retroactive restatement of
prior periods. The Company iswas not impacted by this change. The CICA
issued Accounting Guideline AcG-13 which establishes criteria for hedge
accounting effective for the Company's 20032004 fiscal year. The Company has
complied withreviewed the requirements of AcG-13 and has determined that all of its
current hedges will continue to qualify for hedge accounting when the
guideline becomes effective.
F-10(ii) Impairment or disposal of long-lived assets:
In December 2002, the CICA issued Handbook Section 3063, "Impairment or
Disposal of Long-Lived Assets" and revised Section 3475, "Disposal of
Long-Lived Assets and Discontinued Operations." These sections supersede
the write-down and disposal provisions of Section 3061, "Property, Plant
and Equipment" and Section 3475, "Discontinued Operations." The new
standards are consistent with U.S. GAAP. Section 3063 establishes
standards for recognizing, measuring and disclosing impairment of
long-lived assets held-for-use. An impairment is recognized when the
carrying amount of an asset to be held and used, exceeds the projected
future net cash flows expected from its use and disposal, and is
measured as the amount by which the carrying amount of the asset exceeds
its fair value. Section 3475 provides specific criteria for and requires
separate classification for assets held-for-sale and for these assets to
be measured at the lower of their carrying amounts or fair value, less
costs to sell. Section 3475 also broadens the definition of discontinued
operations to include all distinguishable components of an entity that
will be eliminated from operations. Section 3063 is effective for the
Company's 2004 fiscal year, however, early application is permitted.
Revised Section 3475 is applicable to disposal activities committed to
by the Company after May 1, 2003, however, early application is
permitted. The Company expects that the adoption of these standards will
have no material impact on its financial position, results of operations
or cash flows.
(iii) Guarantees:
In December 2002, the CICA approved Accounting Guideline AcG-14 which
requires certain disclosures of obligations under guarantees, effective
for the Company's first quarter of 2003. The guideline is generally
consistent with the disclosure requirements for guarantees under
U.S. GAAP. The guideline does not apply to product warranties or the
measurement requirements under U.S. GAAP. The Company has disclosed its
guarantees under U.S. GAAP in note 22(k). The Company expects that the
adoption of this guideline will have no material impact on its financial
position, results of operations or cash flows.
F-12
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS:
2000 ACQUISITIONS:
(A) IBM:
In February and May, 2000, the Company acquired certain assets from the
Enterprise Systems Group and Microelectronics Division of IBM in
Rochester, Minnesota and Vimercate and Santa Palomba, Italy,
respectively. The total purchase price of $470.0 was financed with cash.
(B) OTHER ACQUISITIONS:
In June 2000, the Company acquired 100% of the issued and outstanding
shares of NDB Industrial Ltda. in Brazil from NEC Corporation. In
August 2000, the Company acquired 100% of the issued and outstanding
shares of Bull Electronics Inc. in Lowell, Massachusetts from Groupe
Bull. In November 2000, the Company acquired 100% of the issued and
outstanding shares of NEC Technologies (UK) Ltd. in Telford, U.K. from
NEC Corporation. The total purchase price for these acquisitions of
$169.8 was financed with cash.
Details of the net assets acquired in these acquisitions, at fair value,
are as follows:
OTHER
IBM ACQUISITIONS
----------- ------------
Current assets.............................................. $ 301.1 $ 86.5
Capital assets.............................................. 98.2 35.1
Other long-term assets...................................... 2.3 --
Goodwill and intellectual property.......................... 213.9 74.1
Other intangible assets..................................... 12.2 --
Liabilities assumed......................................... (157.7) (25.9)
------- ------
Net assets acquired......................................... $ 470.0 $169.8
======= ======
Other intangible assets represent the excess of purchase price over the
fair value of tangible assets and intellectual property acquired in asset
acquisitions.
2001 ACQUISITIONS:
(C)(a) ASSET ACQUISITIONS:
In February 2001, the Company acquired certain assets located in Dublin,
Ireland and Mt. Pleasant, Iowa from Motorola Inc. In March 2001, the
Company acquired certain assets of a repair facility in Japan from N.K.
Techno Co., Ltd. In May 2001, the Company acquired certain assets in
Littlerock,Little Rock, Arkansas and Denver, Colorado from Avaya Inc., and in
August 2001, acquired certain assets in Saumur, France. In August 2001,
the Company acquired certain assets in Columbus, Ohio and Oklahoma City,
Oklahoma from Lucent Technologies Inc. The total purchase price for these
acquisitions of $834.1 was financed with cash and was allocated to the
net assets acquired, including intangible assets of $195.7, based on
their relative fair values at the date of acquisition.
(D)(b) BUSINESS COMBINATIONS:
Omni:
In October 2001, the Company acquired Omni Industries Limited (Omni), an
electronics manufacturerEMS provider headquartered in Singapore. This acquisition significantly
enhanced the Company's presence in Asia. The purchase price of $865.8 was
financed with the issuance of 9.2 million subordinate voting shares and
the issuance of options to purchase 0.3 million subordinate voting shares
of the Company, and $479.5 in cash. The goodwill recorded for Omni is not
tax deductible.
The Company is in the process of
obtaining third-party valuations of certain assets. The fair value
allocation of the purchase price is subject to refinement.
Other business combinations:
In January 2001, the Company acquired Excel Electronics, Inc. through a
merger with Celestica (US) Inc., a subsidiary of the Company. This
acquisition expanded the Company's presence in the southern United
States. In
June 2001, the Company acquired Sagem CR s.r.o., in the Czech Republic,
from Sagem SA, of France, which positions Celestica as Sagem's
primary EMS provider.France. In August 2001, the Company acquired Primetech
Electronics Inc. (Primetech), an electronics manufacturerEMS provider in Canada. This
acquisition provided the Company with additional high complexity
manufacturing capability and an expanded global customer
F-11
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
base. The purchase
price of Primetech was financed primarily with the issuance of
3.4 million subordinate voting shares and the issuance of options to
purchase 0.3 million subordinate voting shares of the Company.
The Company is in the process of obtaining third-party valuations of
certain assets. The fair value allocation of the purchase price is
subject to refinement.
The value of the shares issued in the Primetech and Omni acquisitions was
determined based on the average market price of the shares for a
reasonable period before, and after the date the terms of the
acquisitions were agreed to and announced.
In 2002, the Company completed the valuations of certain assets relating
to its 2001 business combinations, resulting in changes to the fair-value
allocations of the purchase prices. Details of the final net assets
acquired in these business combinations, at fair value, are as follows:
OTHER BUSINESS
OMNI COMBINATIONS
---------------------- --------------
Current assets.............................................. $ 255.2260.7 $ 63.2
Capital assets.............................................. 91.8 46.3
Other long-term assets...................................... 4.1 0.1
Goodwill.................................................... 764.4 135.5777.5 136.2
Intellectual property....................................... 50.034.5 10.0
Liabilities assumed......................................... (299.7) (27.6)(302.8) (28.3)
------- ------
Net assets acquired......................................... $ 865.8 $227.5
======= ======
Financed by:
Cash......................................................Cash........................................................ $ 479.5 $ 46.8
Issuance of shares and options............................options.............................. 386.3 180.7
------- ------
$ 865.8 $227.5
======= ======
2002 ACQUISITIONS:
(c) ASSET ACQUISITIONS:
In March 2002, the Company acquired certain assets located in Miyagi and
Yamanashi, Japan from NEC Corporation. In August 2002, the Company
acquired certain assets from Corvis Corporation in the United States. The
aggregate purchase price for these acquisitions of $111.0 was financed
with cash and allocated to the net assets acquired, including intangible
assets of $49.4,
F-13
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS: (CONTINUED)
based on their relative fair values at the date of acquisition. The
weighted-average useful life of these intangible assets is approximately
six years.
Integration costs related to acquisitions:
The Company incurred costs of $22.8$21.1 in 2001 (20002002 (2001 -- $16.1; 1999$22.8;
2000 -- $9.6)$16.1) relating to the establishment of business processes,
infrastructure and information systems for acquired operations. None of
the integration costs incurred related to existing operations.
The Company's 2002 restructuring actions have impacted some of the sites
acquired in prior years. These actions have included workforce reductions
and facility consolidations and closures. See note 13(b) -- Other
charges.
4. ACCOUNTS RECEIVABLE:
Accounts receivable are net of an allowance for doubtful accounts of $74.6$62.4
at December 31, 2001 (20002002 (2001 -- $40.7)$74.6).
5. INVENTORIES:
2000 2001 2002
------------ ------------
Raw materials............................................... $1,298.5 $ 903.6 $ 479.8
Work in progress............................................ 215.2 220.6 101.0
Finished goods.............................................. 150.6 248.5 194.8
-------- --------
$1,664.3 $1,372.7 $ 775.6
======== ========
6. CAPITAL ASSETS:
2000
------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
------------ ------------ ------------
Land........................................................ $ 18.0 $-- $ 18.0
Buildings................................................... 131.9 8.7 123.2
Buildings/leasehold improvements............................ 42.8 9.1 33.7
Office equipment............................................ 64.5 25.4 39.1
Machinery and equipment..................................... 510.2 152.4 357.8
Software.................................................... 76.9 15.3 61.6
------ ------ ------
$844.3 $210.9 $633.4
====== ====== ======
F-12
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
2001
------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
------------ ------------ ------------
Land........................................................ $ 53.3 $-- $ 53.3
Buildings................................................... 258.8 17.4 241.4
Buildings/leasehold improvements............................ 66.0 24.8 41.2
Office equipment............................................ 86.8 40.2 46.6
Machinery and equipment..................................... 727.2 291.2 436.0
Software.................................................... 136.6 40.0 96.6
-------- ------ ------
$1,328.7 $413.6 $915.1
======== ====== ======
The above amounts include $13.3 (2000 -- $8.1) of assets under capital lease
and accumulated amortization of $6.8 (2000 -- $6.1) related thereto.
Depreciation and rental expense for the year ended December 31, 2001 was
$192.8 (2000 -- $121.9; 1999 -- $69.5) and $79.8 (2000 -- $46.7;
1999 -- $21.1), respectively.
7. INTANGIBLE ASSETS:
20002002
------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
------------ ------------ ------------
Goodwill.................................................... $434.1 $104.0 $330.1
Other intangible assets..................................... 100.9 27.7 73.2
Intellectual property....................................... 250.1 75.1 175.0Land........................................................ $ 66.0 $-- $ 66.0
Buildings................................................... 192.3 24.6 167.7
Buildings/leasehold improvements............................ 64.4 33.8 30.6
Office equipment............................................ 102.1 55.3 46.8
Machinery and equipment..................................... 618.2 319.2 299.0
Software.................................................... 202.9 85.2 117.7
-------- ------ ------
------
$785.1 $206.8 $578.3
======$1,245.9 $518.1 $727.8
======== ====== ======
2001
------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
------------ ------------ ------------
Goodwill.................................................... $1,261.1 $132.3 $1,128.8
Other intangible assets..................................... 209.3 26.8 182.5
Intellectual property....................................... 388.6 143.9 244.7
-------- ------ --------
$1,859.0 $303.0 $1,556.0
======== ====== ========
Other intangibleThe above amounts include $17.1 (2001 -- $13.3) of assets representunder capital
lease and accumulated amortization of $4.0 (2001 -- $6.8) related thereto.
Depreciation and rental expense for the excess of cost over the fair value of
tangible assetsyear ended December 31, 2002 was
$212.4 (2001 -- $192.8; 2000 -- $121.9) and intellectual property acquired in asset acquisitions.
The intellectual property primarily represents the cost of certain
non-patented intellectual property and process technology.
Amortization expense is as follows:
YEAR ENDED DECEMBER 31
------------------------------------------
1999 2000 2001
------------ ------------ ------------
Amortization of goodwill.................................... $31.1 $39.1 $ 39.2
Amortization of other intangible assets..................... 8.3 10.7 17.0
Amortization of intellectual property....................... 16.2 39.1 68.8
----- ----- ------
$55.6 $88.9 $125.0
===== ===== ======
F-13$117.3 (2001 -- $79.8;
2000 -- $46.7), respectively.
F-14
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
7. GOODWILL FROM BUSINESS COMBINATIONS AND INTANGIBLE ASSETS:
GOODWILL FROM BUSINESS COMBINATIONS:
The following table details the changes in goodwill by reporting segment for
the year ended December 31, 2002:
DECEMBER 31, RECLASS POST CLOSING IMPAIRMENT DECEMBER 31,
2001 (A) (B) (C) 2002
------------- -------- ------------ ----------- -------------
Americas.......................................... $ 243.2 $ 1.8 $(2.1) $(127.2) $115.7
Europe............................................ 68.3 6.2 2.0 (76.5) --
Asia.............................................. 817.3 1.1 13.9 -- 832.3
-------- ----- ----- ------- ------
$1,128.8 $ 9.1 $13.8 $(203.7) $948.0
======== ===== ===== ======= ======
---------------
(a) The Company reclassed $9.1 from intellectual property to goodwill as of
January 1, 2002, to conform with the new goodwill standards. See
note 2(q)(ii).
(b) The Company completed the valuations of certain assets relating to its
2001 business combinations. This resulted in changes to the fair-value
allocation of the purchase price, and thus goodwill.
(c) During the fourth quarter of 2002, the Company performed its annual
goodwill impairment test in accordance with the new goodwill standards,
Section 3062. See note 2(q)(ii). Prolonged declines in the information
technology and communications end markets contributed to an impairment of
goodwill in the fourth quarter as estimated fair values of the reporting
units fell below their respective carrying values. The Company obtained
independent valuations to support the fair values of its reporting units.
The fair values of the reporting units were estimated using a combination
of a market approach and discounted cash flows. Revenue and expense
projections used in determining the fair value of the reporting units
were based on management's estimates, including estimates of current and
future industry conditions. Cash flows were discounted using a weighted
average cost of capital. The Company recorded a goodwill impairment of
$203.7. See note 13(c) -- Other charges.
INTANGIBLE ASSETS:
2001
------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
------------ ------------ ------------
Intellectual property....................................... $388.6 $143.9 $244.7
Other intangible assets..................................... 209.3 26.8 182.5
------ ------ ------
$597.9 $170.7 $427.2
====== ====== ======
2002
------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
------------ ------------ ------------
Intellectual property....................................... $194.5 $118.9 $ 75.6
Other intangible assets..................................... 177.8 41.5 136.3
------ ------ ------
$372.3 $160.4 $211.9
====== ====== ======
F-15
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
7. GOODWILL FROM BUSINESS COMBINATIONS AND INTANGIBLE ASSETS: (CONTINUED)
The following table details the changes in intangible assets for the year
ended December 31, 2002:
ACQUISITIONS/
DECEMBER 31, RECLASS POST CLOSING IMPAIRMENT DECEMBER 31,
2001 AMORTIZATION (A) (B) (C) 2002
------------- ------------ -------- ------------- ----------- -------------
Intellectual property.............. $244.7 $(72.0) $(9.1) $ 8.5 $ (96.5) $ 75.6
Other intangible assets............ 182.5 (23.9) -- 25.4 (47.7) 136.3
------ ------ ----- ----- ------- ------
$427.2 $(95.9) $(9.1) $33.9 $(144.2) $211.9
====== ====== ===== ===== ======= ======
---------------
(a) The Company reclassed $9.1 from intellectual property to goodwill as of
January 1, 2002, to conform with the new goodwill standards. See
note 2(q)(ii).
(b) Intangible assets increased during the year due to acquisitions, offset
partially by post closing adjustments.
(c) In the fourth quarter of 2002, the Company recorded an impairment charge
totaling $144.2 to write-down intellectual property and other intangible
assets, primarily in the Americas and European segments. The Company
recorded $75.2 as restructuring charges primarily for intellectual
property impaired due to the closure or consolidation of the related
manufacturing facilities. An additional charge of $69.0 was recorded as
"Other charges -- other impairment" to write-down certain intellectual
property, and customer relationships and contracts that were impaired, in
connection with the regular recoverability review of intangible assets.
The impairment was measured as the excess of the carrying amount over the
projected future net cash flows that these assets were expected to
generate. See notes 13(b) and (d) -- Other charges.
Amortization expense is as follows:
YEAR ENDED DECEMBER 31
------------------------------------------
2000 2001 2002
------------ ------------ ------------
Amortization of goodwill.................................... $39.1 $ 39.2 $--
Amortization of intellectual property....................... 39.1 68.8 72.0
Amortization of other intangible assets..................... 10.7 17.0 23.9
----- ------ -----
$88.9 $125.0 $95.9
===== ====== =====
Effective January 1, 2002, the Company discontinued amortization of all
goodwill. See note 2(q)(ii) -- Changes in accounting policies.
The Company estimates its future amortization expense as follows, based on
existing intangible asset balances:
2003........................................................ $46.8
2004........................................................ 43.0
2005........................................................ 35.1
2006........................................................ 27.0
2007........................................................ 16.3
Thereafter.................................................. 43.7
8. OTHER ASSETS:
2000 2001 2002
------------ ------------
Deferred pension (note 16).................................. $ 25.828.4 $ 28.431.2
Deferred income taxes....................................... 81.5 116.4 305.1
Commodity taxes recoverable................................. 78.3 10.7 10.9
Other....................................................... 19.7 9.7 7.4
------ ------
$205.3 $165.2 $354.6
====== ======
Amortization of deferred financing costs for the year ended December 31,
20012002, was $1.7 (2000$2.7 (2001 -- $1.7; 19992000 -- $1.5)$1.7).
F-16
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
9. LONG-TERM DEBT:
2000 2001 2002
------------ ------------
Global, unsecured, revolving credit facility due 2003 (a)... $-- $--
Global, unsecured,Unsecured, revolving credit facility due 2004 (b).............. -- --
Unsecured, revolving credit facility due 2005 (c)....................... -- --
Senior Subordinated Notes due 2006 (d)...................... 130.0 130.0--
Other (e)................................................... 2.0 17.4 6.9
------ ------
132.0-----
147.4 6.9
Less current portion........................................ 1.4 10.0 2.7
------ ------
$130.6-----
$137.4 $ 4.2
====== ===========
---------------
(a) Concurrently with the initial public offering on July 7, 1998, the
Company entered into a global, unsecured, revolving credit facility
providing up to $250.0 of borrowings. The credit facility permitspermitted the
Company and certain designated subsidiaries to borrow funds for general
corporate purposes (including acquisitions). Borrowings under the
facility bear interest at LIBOR plus a margin and are repayable in
July 2003. There were no borrowings on this facility during 2000 and
2001.2001 or 2002.
Commitment fees in 20012002 were $0.4.$0.6. The Company elected to cancel this
facility in December 2002.
(b) In February 2000,December 2002, the Company renewedextended its second global, unsecured, revolving
credit facility providing upfrom April 2004 to December 2004. Concurrent with this
extension, the Company increased the facility from $250.0 of borrowings includingto $350.0. The
facility includes a swing line$25.0 swing-line facility that provides for
short-term borrowings up to a maximum of seven days. The credit facility
permits the Company and certain designated subsidiaries to borrow funds
for general corporate purposes (including acquisitions). The revolving facility is repayable in
April 2004. Borrowings under
the facility bear interest at LIBOR plus a margin except that borrowings
under the swing lineswing-line facility bearsbear interest at a base rate. There were no
borrowings on this facility during 2000 and 2001.2001 or 2002. Commitment fees in 20012002
were $0.6.$2.6.
(c) In July 2001, the Company entered into an unsecured, revolving credit
facility providing up to $500.0 of borrowings including a swing line$75.0
swing-line facility that provides for short-term borrowings up to a
maximum of seven days. The credit facility permits the Company and
certain designated subsidiaries to borrow funds for general corporate
purposes (including acquisitions). The revolving facility is repayable in
July 2005. Borrowings under the facility bear interest at LIBOR plus a
margin except that borrowings under the swing lineswing-line facility bear interest
at a base rate. There were no borrowings on this facility in 2001.2001 or
2002. Commitment fees in 20012002 were $0.5.$1.5.
(d) TheIn August 2002, the Company redeemed the entire $130.0 of outstanding
10.5% Senior Subordinated Notes bear interest at 10.5%, are unsecured and
are subordinated to the paymenta premium of all senior debt of the Company. The
Senior Subordinated Notes may be redeemed at various premiums above face
value.5.25%. See note 13(e).
(e) Other long-term debt includes secured loan facilities of one of the
Company's subsidiaries of which $13.0 iswas outstanding at December 31,
2001.2001, and capital lease obligations. All secured loans were repaid during
2002. The weighted average interest rate on these facilities in 2001 was
4.4%. The loans arewere denominated in Singapore Dollars and are repayable
through quarterly payments. There were no commitment fees for 2001.2001 or
2002. The balance as at December 31, 2002, relates to capital lease
obligations.
As at December 31, 2001,2002, principal repayments due within each of the next
five years on all long-term debt are as follows:
2002........................................................ $ 10.0
2003........................................................ 4.5$2.7
2004........................................................ 1.32.5
2005........................................................ 0.71.5
2006........................................................ 130.6
Thereafter.................................................. 0.30.1
2007........................................................ 0.1
F-14
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
The unsecured, revolving credit facilities have restrictive covenants
relating to debt incurrence and sale of assets and also contain financial
covenants, that indirectly restrictrequire the Company's abilityCompany to pay
dividends.maintain certain financial ratios. A
change of control is an event of default. The Company's
Senior Subordinated Notes due 2006 include a covenant restricting the
Company's ability to pay dividends.
10. CONVERTIBLE DEBT:
In August 2000, Celestica issued Liquid Yield Option-TM- Notes (LYONs) with
a principal amount at maturity of $1,813.6, payable August 1, 2020. The
Company received gross proceeds of $862.9 and incurred $12.5 in underwriting
commissions, net of tax of $6.9. No interest is payable on the LYONs and the
issue price of the LYONs represents a yield to maturity of 3.75%. The LYONs
are subordinated in right of payment to all existing and future senior
indebtedness of the Company.
F-17
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
10. CONVERTIBLE DEBT: (CONTINUED)
The LYONs are convertible at any time at the option of the holder, unless
previously redeemed or repurchased, into 5.6748 subordinate voting shares
for each one thousand dollars principal amount at maturity. Holders may
require the Company to repurchase all or a portion of their LYONs on
August 2, 2005, August 1, 2010, and August 1, 2015, and the Company may
redeem the LYONs at any time on or after August 1, 2005 (and, under certain
circumstances, before that date). The Company is required to offer to
repurchase the LYONs if there is a change in control or a delisting event.
Generally, the redemption or repurchase price is equal to the accreted value
of the LYONs. The Company may elect to pay the principal amount at maturity
of the LYONs or the repurchase price that is payable in certain
circumstances, in cash or subordinate voting shares, or any combination
thereof.
Pursuant to Canadian generally accepted accounting principles, the LYONs are
recorded as an equity instrument and bifurcated into a principal equity
component (representing the present value of the notes) and an option
component (representing the value of the conversion features of the notes).
The principal equity component is accreted over the 20-year term through
periodic charges to retained earnings.
During 2002, the Company paid $100.3 to repurchase LYONs with a principal
amount at maturity of $222.9. The Company recognized a gain on the
repurchase of these LYONs. The gain of $6.7, net of tax of $3.9, is recorded
in retained earnings and apportioned between the principal equity and option
components, based on their relative fair values compared to their carrying
values. Consistent with the treatment of the periodic accretion charges, the
gain on the principal equity component has been included in the calculation
of basic and diluted earnings (loss) per share. See note 12.
11. CAPITAL STOCK:
(A)(a) AUTHORIZED:
An unlimited number of subordinate voting shares, which entitle the
holder to one vote per share, and an unlimited number of multiple voting
shares, which entitle the holder to twenty-five votes per share. Except
as otherwise required by law, the subordinate voting shares and multiple
voting shares vote together as a single class on all matters submitted to
a vote of shareholders, including the election of directors. The holders
of the subordinate voting shares and multiple voting shares are entitled
to share ratably, as a single class, in any dividends declared subject to
any preferential rights of any outstanding preferred shares in respect of
the payment of dividends. Each multiple voting share is convertible at
any time at the option of the holder thereof into one subordinate voting
share. The Company is also authorized to issue an unlimited number of
preferred shares, issuable in series.
(B)(b) ISSUED AND OUTSTANDING:
TOTAL
SUBORDINATE
AND MULTIPLE
SUBORDINATE MULTIPLE VOTING SHARES SHARES TO
NUMBER OF SHARES (IN MILLIONS) VOTING SHARES VOTING SHARES OUTSTANDING BE ISSUED
------------------------------ -------------- -------------- -------------- -------------
Balance December 31, 1999........................... 146.3 39.1 185.4 0.5
Equity offering (i)................................. 16.6 -- 16.6 --
Other share issuances (ii).......................... 1.3 -- 1.3 --
Issued as consideration for acquisitions (iii)...... 0.1 -- 0.1 (0.1)
----- ---- ----- ----
Balance December 31, 2000........................... 164.3 39.1 203.4 0.4
Equity offering (iv)................................(i)................................. 12.0 -- 12.0 --
Other share issuances (v)...........................(ii).......................... 1.1 -- 1.1 --
Issued as consideration for acquisitions (vi).......(iii)...... 13.2 -- 13.2 0.1
----- ---- ----- ----
Balance December 31, 2001........................... 190.6 39.1 229.7 0.5
Repurchase of shares (iv)........................... (2.0) -- (2.0) --
Other share issuances (v)........................... 0.9 -- 0.9 --
----- ---- ----- ----
Balance December 31, 2002........................... 189.5 39.1 228.6 0.5
===== ==== ===== ====
F-15F-18
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
11. CAPITAL STOCK: (CONTINUED)
SUBORDINATE MULTIPLE SHARES TO TOTAL
AMOUNT VOTING SHARES VOTING SHARES BE ISSUED AMOUNT
------ -------------- -------------- ------------- -------------
Balance December 31, 1999........................... $1,504.52000........................... $2,254.9 $138.8 $ 2.8 $1,646.11.7 $2,395.4
Equity offering, net of issue costs (i)............. 740.1 -- -- 740.1
Other share issuances (ii).......................... 9.2 -- -- 9.2
Issued as consideration for acquisitions (iii)...... 1.1 -- (1.1) --
-------- ------ ----- --------
Balance December 31, 2000........................... 2,254.9 138.8 1.7 2,395.4
Equity offering, net of issue costs (iv)............ 707.4 -- -- 707.4
Other share issuances (v)...........................(ii).......................... 29.2 -- -- 29.2
Issued as consideration for acquisitions (vi).......(iii)...... 562.8 -- 4.2 567.0
-------- ------ ----- --------
Balance December 31, 2001........................... $3,554.33,554.3 138.8 5.9 3,699.0
Repurchase of shares (iv)........................... (36.9) -- -- (36.9)
Other share issuances (v)........................... 8.5 -- -- 8.5
-------- ------ ----- --------
Balance December 31, 2002........................... $3,525.9 $138.8 $ 5.9 $3,699.0$3,670.6
======== ====== ===== ========
20002001 CAPITAL TRANSACTIONS:
(i) In March 2000, the Company issued 16.6 million subordinate voting
shares for gross cash proceeds of $757.4 and incurred $17.3 in share
issue costs, net of tax of $9.5.
(ii) During 2000, pursuant to employee share purchase and option plans
and LTIP awards, the Company issued 1.3 million subordinate voting
shares as a result of the exercise of options for cash of $9.2.
(iii) During 2000, the Company issued 0.1 million of reserved shares at
an ascribed value of $1.1 for $0.2 cash. As at December 31, 2000,
0.4 million subordinate voting shares remain reserved for issuance
at an ascribed value of $1.7.
2001 CAPITAL TRANSACTIONS:
(iv) In May 2001, the Company issued 12.0 million subordinate voting
shares for gross cash proceeds of $714.0 and incurred $6.6 in share
issuance costs, net of tax of $3.4.
(v)(ii) During 2001, pursuant to employee share purchase and option plans
and LTIP awards, the Company issued 1.1 million subordinate voting
shares as a result of the exercise of employee stock options for cash of
$23.7 and recorded a tax benefit of $5.5.
(vi)(iii) In 2001, the Company issued 12.7 million subordinate voting shares,
as consideration for acquisitions, for an ascribed value of $558.5
and reserved 0.6 million shares at an ascribed value of $8.5.
During 2001, the Company issued 0.5 million of reserved shares at
an ascribed value of $4.3. As at December 31, 2001, 0.5 million
subordinate voting shares remain reserved for issuance at an
ascribed value of $5.9.
(C)2002 CAPITAL TRANSACTIONS:
(iv) In July 2002, the Company filed a Normal Course Issuer Bid to
repurchase over the next 12 months, at its discretion, up to 5% of
the total outstanding shares, or 9.6 million subordinate voting
shares, for cancellation. During 2002, the Company repurchased
2.0 million subordinate voting shares at a weighted average price
of $16.23 per share.
(v) During 2002, the Company issued 0.9 million subordinate voting
shares, primarily as a result of the exercise of employee stock
options, for $7.4 and recorded a tax benefit of $1.1.
(c) STOCK OPTION PLANS:
(I) LONG-TERM INCENTIVE PLAN(i) Long-Term Incentive Plan (LTIP):
The Company established the LTIP prior to the closing of its initial public offering.
Under this plan, the Company may grant stock options, performance
shares, performance share units and stock appreciation rights to
directors, permanent employees and consultants ("eligible participants")
of the Company, its subsidiaries and other companies or partnerships in
which the Company has a significant investment. Under the LTIP, up to
23.029.0 million subordinate voting shares may be issued from treasury.
Options are granted at prices equal to the market value of the day prior
to the date of the grant and are exercisable during a period not to
exceed ten years from such date.
(II) EMPLOYEE SHARE PURCHASE AND OPTION PLANS(ii) Employee Share Purchase and Option Plans (ESPO):
The Company has ESPO plans that were available to certain of its
employees and executives. As a result of the establishment of the LTIP,
no further options or shares may be issued under the ESPO plans. Pursuant to the
ESPO plans, employees and executives of the Company were offered the
opportunity to purchase, at prices equal to market value, subordinate
voting shares and, in connection with such purchase, receive options to
acquire an additional number of subordinate voting shares based on the
number of subordinate voting shares acquired by them under the ESPO
plans. The exercise price for the options is equal to the price per
share paid for the corresponding subordinate voting shares acquired
under the ESPO plans.
F-16F-19
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
11. CAPITAL STOCK: (CONTINUED)
Stock option transactions were as follows:
WEIGHTED AVERAGE
NUMBER OF OPTIONS (IN MILLIONS) SHARES EXERCISE PRICE
------------------------------- -------- ----------------
Outstanding at December 31, 1998............................ 11.5 $ 5.41
Granted..................................................... 5.2 $30.05
Exercised................................................... (1.7) $ 8.25
Cancelled................................................... (0.4) $ 7.37
-----
Outstanding at December 31, 1999............................ 14.6 $14.84
Granted..................................................... 4.2 $55.40
Exercised................................................... (1.4) $ 6.85
Cancelled................................................... (0.2) $ 7.33
---------
Outstanding at December 31, 2000............................ 17.2 $25.16
Granted/assumed............................................. 8.5 $42.54
Exercised................................................... (1.6) $14.89
Cancelled................................................... (0.2) $23.36
---------
Outstanding at December 31, 2001............................ 23.9 $31.67
=====
Cash consideration received on options exercised............ $23.7
=====Granted..................................................... 3.9 $19.93
Exercised................................................... (0.9) $ 7.42
Cancelled................................................... (0.8) $41.49
----
Outstanding at December 31, 2002............................ 26.1 $30.51
====
Shares reserved for issuance upon exercise of stock options
or awards (in millions)................................... 28.8
=====33.9
====
The following options were outstanding as at December 31, 2001:2002:
WEIGHTED WEIGHTED
RANGE OF OUTSTANDING WEIGHTED AVERAGE EXERCISABLE WEIGHTED AVERAGE REMAINING
PLAN EXERCISE PRICES OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE LIFE
---- --------------- -------------- -------------- -------------- --------------------------- ---------------- ------------- ---------------- ----------
(in millions) (in millions) (years)
ESPO................. $ 5.00$5.00 - $ 7.50 5.34.6 $ 5.34 3.94.6 $ 5.42 65.34 5
LTIP................. $ 8.75$8.75 - $13.69 1.7 $12.16 0.9 $11.96 71.6 $12.09 1.2 $12.02 6
$13.10 - $25.75 3.6 $18.58 -- -- 10
$24.18 - $24.18 0.8 $24.18 0.40.6 $24.18 87
$24.91 - $36.89 0.8 $30.58$54.15 1.4 $41.16 0.4 $41.16 9
$32.22 - $44.38 0.3 $37.91 -- -- 10
$39.03 - $39.03 2.92.8 $39.03 1.42.1 $39.03 87
$41.89 - $41.89 6.46.1 $41.89 -- -- 10
$44.23 - $54.15 0.6 $49.46 -- --1.5 $41.89 9
$55.40 - $60.06 4.1$56.19 3.9 $55.96 1.02.0 $55.96 9
$73.04 - $74.90 0.1 $73.42 -- -- 98
Other................ $ 0.93$0.93 - $13.31 1.00.8 $ 5.73 0.95.50 0.8 $ 5.67 55.50 4
Other................ $29.73 - $72.84 0.2 $46.28 -- -- 50.2 $46.28 4
---- 23.9----
26.1 13.4
==== ====
F-17F-20
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
12. EARNINGS (LOSS) PER SHARE:SHARE AND WEIGHTED AVERAGE SHARES OUTSTANDING:
The following table sets forth the calculation of basic and diluted earnings
(loss) per share:
YEAR ENDED DECEMBER 31
------------------------------------------
1999 2000 2001 2002
------------ ------------ ------------
Numerator:
Net earnings (loss)....................................... $ 68.4 $206.7 $(39.8) $(445.2)
Convertible debt accretion, net of tax.................... -- (5.4) (15.0) (17.5)
Gain on repurchase of convertible debt, net of tax(1)..... -- -- 8.3
------ ------ -------------
Earnings (loss) available to common shareholders.......... $ 68.4 $201.3 $(54.8) $(454.4)
Denominator:
Weighted average shares -- basic (in millions)............ 167.2 199.8 213.9 229.8
Effect of dilutive securities (in millions):
Employee stock options(1)options(2)............................... 4.0 7.8 -- --
Convertible debt........................................ 4.2 -- 4.2 --
------ ------ -------------
Weighted average shares -- diluted (in millions)(2)(3)....... 171.2 211.8 213.9 229.8
Earnings (loss) per share:
Basic..................................................... $ 0.41 $ 1.01 $(0.26) Diluted................................................... $ 0.40(1.98)
Diluted................................................... $ 0.98 $(0.26) $ (1.98)
---------------
(1) For 19992002, the gain on the principal equity component of the convertible
debt repurchase of $8.3 is included in the calculation of basic and
diluted loss per share. See note 10.
(2) For 2000, excludes the effect of 3.4 million and 3.3 million "out of the money" options
respectively, as they are anti-dilutive.
(2)(3) For 2001 and 2002, excludes the effect of all options and convertible
debt as they are anti-dilutive due to the loss.
13. OTHER CHARGES:
YEAR ENDED DECEMBER 31
------------------------------------------
1999 2000 2001 2002
------------ ------------ ------------
Restructuring2001 restructuring (a)........................................... $--...................................... $-- $237.0 Other$ 1.9
2002 restructuring (b)......................................................................................... -- -- 383.5
2002 goodwill impairment (c)................................ -- -- 203.7
Other impairment (d)........................................ -- 36.1 81.7
Deferred financing costs and debt redemption fees (e)....... -- -- 9.6
Gain on sale of surplus land................................ -- -- (2.6)
------ ------ ------
$-- $-- $273.1 ======$677.8
====== ====== ---------------======
(a) Restructuring:2001 RESTRUCTURING:
The Company recorded a pre-tax restructuring charge of $237.0 in 2001, in
response to a slowing end market.markets. The Company's restructuring plan focused
on facility consolidations and a workforce reduction. The following table
details the components of the 2001 restructuring charge:charge and the
adjustments in 2002, as the Company executed its plan:
YEAR ENDED DECEMBER 31
------------------------------------------
1999 2000 2001 2002
------------ ------------ ------------
Employee termination costs.................................. $-- $-- $ 90.7 $(4.1)
Lease and other contractual obligations..................... -- -- 35.3 11.4
Facility exit costs and other............................... -- -- 12.4 (2.7)
Asset impairment (non-cash)................................. -- -- 98.6 (2.7)
------ ------ ------
$-------
$-- $237.0 $ 1.9
====== ====== ===========
F-18F-21
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
13. OTHER CHARGES: (CONTINUED)
The following table details the activity inthrough the accrued
restructuring liability:
LEASE
EMPLOYEE AND
EMPLOYEE OTHER FACILITY
EXIT
TERMINATION CONTRACTUAL EXIT COSTS AND
COSTS OBLIGATIONS AND OTHER TOTAL
------------ ------------ ------------------------- ------------
Balance at January 1, 2001............................. $-- $-- -$- $--
Provision.............................................. 90.7 35.3 12.4 138.42002............................. $ 39.5 $ 33.7 $ 9.5 $ 82.7
Cash payment........................................... (51.2) (1.6) (2.9) (55.7)payments.......................................... (35.4) (13.0) (6.8) (55.2)
Adjustments............................................ (4.1) 11.4 (2.7) 4.6
------ ----------- ----- ------
Balance at December 31, 2001...........................2002........................... $-- $ 39.5 $33.732.1 $-- $ 9.5 $ 82.732.1
====== =========== ===== ======
Employee terminations were made across all geographic regions of the
Company with the majority pertaining to manufacturing and plant
employees. A total of 12,04111,925 employees have been identifiedterminated relating to
be
terminated,the 2001 restructuring plan. The adjustment to lease and other
contractual obligations relates primarily to changes in estimates and
revised timing of which 9,711 employees were terminated during 2001. The
remaining termination costs are expected to be paid out during 2002.sublease recoveries.
The non-cash charges for asset impairment reflectsreflected the write-down of
certain long-lived assets across all geographic regions that have become
impaired as a result of the rationalization of facilities. The asset
impairments relate to goodwill and intangible assets, machinery and
equipment, buildings and improvements. The assets were written down to
their recoverable amounts using estimated cash flows.
The Company expects to completehas completed the major components of the 2001 restructuring
plan, by the end of 2002, except for certain long-term lease and other contractual
obligations.
(b) Other:2002 RESTRUCTURING:
In 2001,response to the prolonged difficult end-market conditions, the Company
announced a new restructuring plan for the consolidation of facilities
and a workforce reduction. The Company recorded a non-cashpre-tax restructuring
charge of $36.1. This is
comprised of a write-down$383.5. The following table details the components of the carrying value of certain assets,
primarily goodwill and intangible assets.
14. INCOME TAXES:2002
restructuring charge:
YEAR ENDED DECEMBER 31
------------------------------------------
1999---------------------------------------
2000 2001 ------------ ------------ ------------2002
----------- ----------- -----------
Income (loss) before tax:
Canadian operations....................................... $ 84.8 $179.4 $ 34.7
Foreign operations........................................ 19.6 96.5 (76.6)Employee termination costs.................................. $-- $-- $128.8
Lease and other contractual obligations..................... -- -- 51.7
Facility exit costs and other............................... -- -- 8.5
Asset impairment (non-cash)................................. -- -- 194.5
------ ------ ------
$104.4 $275.9 $(41.9)
====== ====== ======
Current income tax expense:
Canadian operations....................................... $ 25.4 $ 51.2 $ 17.2
Foreign operations........................................ 5.3 28.9 8.6
------ ------ ------
$ 30.7 $ 80.1 $ 25.8
====== ====== ======
Deferred income tax expense (recovery):
Canadian operations....................................... $ 14.4 $ 33.0 $ (5.4)
Foreign operations........................................ (9.1) (43.9) (22.5)
------ ------ ------
$ 5.3 $(10.9) $(27.9)$-- $-- $383.5
====== ====== ======
F-19The following table details the activity through the accrued
restructuring liability:
LEASE
EMPLOYEE AND OTHER FACILITY
TERMINATION CONTRACTUAL EXIT COSTS
COSTS OBLIGATIONS AND OTHER TOTAL
----------- ----------- ----------- -----------
Balance at January 1, 2002................................ $-- $-- $-- $--
Provision................................................. 128.8 51.7 8.5 189.0
Cash payments............................................. (41.7) (1.7) (0.7) (44.1)
------ ----- ----- ------
Balance at December 31, 2002.............................. $ 87.1 $50.0 $ 7.8 $144.9
====== ===== ===== ======
Employee terminations were made primarily in the Americas with the
majority pertaining to manufacturing and plant employees. A total of
5,900 employees have been identified to be terminated, of which 2,410
employees were terminated during 2002. The remaining termination costs
are expected to be paid out during 2003.
F-22
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
13. OTHER CHARGES: (CONTINUED)
The non-cash charges for 2002 for asset impairment reflect the write-down
of certain long-lived assets primarily in the Americas that have become
impaired as a result of the rationalization of facilities. The asset
impairments relate to intangible assets, machinery and equipment,
buildings and improvements. The assets were written down to their
recoverable amounts using estimated cash flows.
The Company expects to complete the major components of the 2002
restructuring plan by the end of 2003, except for certain long-term lease
and other contractual obligations.
(c) 2002 GOODWILL IMPAIRMENT:
In 2002, the Company recorded a non-cash charge against goodwill of
$203.7, in connection with its annual impairment assessment as described
in notes 2(h) and 7.
(d) OTHER IMPAIRMENT:
In 2002, the Company recorded a non-cash charge of $81.7, in connection
with its annual impairment assessment of long-lived assets, comprised
primarily of a write-down of intangible assets.
In 2001, the Company recorded a non-cash charge of $36.1, in connection
with its annual impairment assessment of long-lived assets comprised
primarily of a write-down of goodwill and intangible assets.
(e) DEFERRED FINANCING COSTS AND DEBT REDEMPTION FEES:
In 2002, the Company paid a premium associated with the redemption of the
Senior Subordinated Notes and expensed related deferred financing costs.
See note 9(d).
14. INCOME TAXES:
YEAR ENDED DECEMBER 31
------------------------------------------
2000 2001 2002
------------ ------------ ------------
Earnings (loss) before income tax:
Canadian operations....................................... $179.4 $ 34.7 $(190.1)
Foreign operations........................................ 96.5 (76.6) (346.3)
------ ------ -------
$275.9 $(41.9) $(536.4)
====== ====== =======
Current income tax expense (recovery):
Canadian operations....................................... $ 51.2 $ 17.2 $ (4.6)
Foreign operations........................................ 28.9 8.6 21.2
------ ------ -------
$ 80.1 $ 25.8 $ 16.6
====== ====== =======
Deferred income tax expense (recovery):
Canadian operations....................................... $ 33.0 $ (5.4) $ (15.2)
Foreign operations........................................ (43.9) (22.5) (92.6)
------ ------ -------
$(10.9) $(27.9) $(107.8)
====== ====== =======
F-23
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
14. INCOME TAXES: (CONTINUED)
The overall income tax provision differs from the provision computed at the
statutory rate as follows:
YEAR ENDED DECEMBER 31
------------------------------------------
1999 2000 2001 2002
------------ ------------ ------------
Combined Canadian federal and provincial income tax rate.... 44.6% 44.0% 42.1% 38.6%
------ ------ -------------
Income taxes (recovery) based on earnings (loss) before
income taxes at statutory rates........................... $ 46.6 $121.4 $(17.7) $(207.1)
Increase (decrease) resulting from:
Manufacturing and processing deduction.................... (8.1) (17.7) (5.0) 5.8
Foreign income taxed at lower rates....................... (11.4) (43.9) (2.9) (19.2)
Amortization and write-down of non-deductible costs...................... 9.5goodwill and
intangible assets....................................... 8.9 15.4 44.2
Other, including large corporations tax................... (0.6) 0.5 8.1 8.5
Change in valuation allowance............................. -- -- 76.6
------ ------ -------------
Income tax expense (recovery)............................. $ 36.0............................... $ 69.2 $ (2.1) $ (91.2)
====== ====== =============
Deferred income taxes are recognized for future income tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities, and their tax bases. Deferred income tax
assets and liabilities are comprised of the following as at December 31,
20002001 and 2001:2002:
2000 2001 ------------ ------------2002
----------- -----------
Deferred income tax assets:
Income tax effect of net operating losses carried forward.................................................forward..... $ 52.5 $ 51.9 $162.9
Accounting provisions not currently deductible............ 21.6 63.534.4 43.9
Capital, intangible and other assets...................... 6.7 17.0 143.9
Share issue and convertible debt issue costs.............. 23.0 17.2 9.5
Restructuring accruals.................................... 29.1 53.2
Other..................................................... 1.8 4.5 5.2
------ ------
154.1 418.6
Valuation allowance....................................... -- (76.6)
------ ------
Total deferred income tax assets................................... 105.6assets............................ 154.1 ====== ======342.0
------ ------
Deferred income tax liabilities:
Capital, intangible and other assets...................... (12.4) (37.7) (54.2)
Deferred pension asset.................................... (8.9) (9.1) (10.0)
Other..................................................... (0.8) (4.5) (3.5)
------ ------
Total deferred income tax liabilities.............................. (22.1)liabilities....................... (51.3) (67.7)
------ ------
Deferred income tax asset, net.............................. $ 83.5 $102.8 $274.3
====== ======
The net deferred income tax asset arises from available income tax losses
and future income tax deductions. The Company's ability to use these income
tax losses and future income tax deductions is dependent upon the operations
of the Company in the tax jurisdictions in which such losses or deductions
arose. The Company records a valuation allowance against deferred income tax
assets when management believes it is more likely than not that some portion
or all of the deferred income tax assets will not be realized. Based on the
reversal of deferred income tax liabilities, projected future taxable
income, the character of the income tax asset and tax planning strategies,
the Company has determined that a valuation allowance of $76.6 is required
in respect of its deferred income tax assets as at December 31, 2002. No
valuation allowance was required for the deferred income tax assets as at
December 31, 2001. In order to fully utilize the net deferred income tax
assets of $274.3, the Company will need to generate future taxable income of
approximately $741.0. Based on the Company's current projection of taxable
income for the periods in which the deferred income tax assets are
deductible, it is more likely than not that the Company will realize the
benefit of the net deferred income tax assets as at December 31, 2002.
F-24
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
14. INCOME TAXES: (CONTINUED)
Celestica intends to indefinitely re-invest income from all of its foreign
subsidiaries. The aggregate amount of undistributed
earnings of Celestica's foreign subsidiaries for which no deferred income
tax liability has been recorded is approximately $283.4 as at December 31,
2002.
Celestica has been granted tax incentives, including tax holidays, for its
Czech Republic, China, Malaysia, Thailand and Singapore subsidiaries. The
tax benefit arising from these incentives is approximately $24.9, or $0.11
diluted per share for 2002, $9.6, or $0.04 diluted per share for 2001, and
$15.8, or $0.07 diluted per share for 2000. These tax incentives expire
between 20022004 and 2012, and are subject to certain conditions with which the
Company expects to comply.
As at December 31, 2001,2002, the Company had $340.0operating losses of non-capital (net
operating) losses,$589.9; a
portion of the income tax benefits of which havethese losses has been recognized inon
the financial statements. A portion of these losses have an indefinite
carryforward period. The other portion of these losses will expire over a
20-year period commencing in 2005.
The Company also has net capital losses amounting to $11.5, and has
recognized the benefit of these losses in the financial statements.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or allsummary of the deferred
tax assets will not be realized. The ultimate realizationoperating loss carryforwards by
year of deferred tax
assetsexpiry is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, the character of the tax asset and tax planning
strategies in making this assessment. In order to fully realize the deferred
tax assets, the Company will need to generate future taxable income of
approximately $295.0. Based upon projections of future taxable income over
the periods in which the deferred tax assets are deductible, management
believes that it is more likely than not that the Company will realize the
benefits of these assets.
F-20
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)as follows:
YEAR OF EXPIRY AMOUNT
-------------- --------
2005........................................................ $ 0.1
2006........................................................ 1.7
2007........................................................ 131.6
2008........................................................ 3.2
2009........................................................ 7.4
2010-2022................................................... 176.5
Indefinite.................................................. 269.4
------
$589.9
======
15. RELATED PARTY TRANSACTIONS:
In 2001,2002, the Company expensed acquisition and management related fees of $2.1 (2000$2.2 (2001 -- $2.1;
19992000 -- $2.0)$2.1) and capitalized acquisition related fees of $Nil
(2000(2001 -- $0.5; 1999$Nil; 2000 -- $Nil)$0.5) charged by its parent company. Management
believes that the fees charged were reasonable in relation to the services
provided.
16. PENSION AND NON-PENSION POST-RETIREMENTPOST-EMPLOYMENT BENEFIT PLANS:
The Company provides various pension and non-pension post-retirementpost-employment benefit plans
for its employees. Non-pension post-retirement benefits are available
to all Company retirees. ThePension benefits include medical, surgical,
hospitalization coverage,traditional pension plans, as
well as supplemental health, dental and group life
insurance.pension plans. Certain employees participate in defined
benefit plans; all other employees participate in defined contribution
plans. The following information is provided with respect to the defined
contribution plans:
YEAR ENDED DECEMBER 31
------------------------------------------
1999 2000 2001
------------ ------------ ------------
Period cost, plans providing pension benefits............... $8.6 $12.8 $18.9
==== ===== =====
For theMaximum pension retirement benefits for employees participating in
defined benefit pension plans actuarial estimates are based on
projections of employees' compensation levels at the time of retirement.
Maximum retirement benefits are based upon the employees' best three consecutive
years' pensionable earnings. Non-pension post-employment benefits are
available to retired and terminated employees. The Company has funded the plans over the past
four yearsbenefits include
termination benefits, medical, surgical, hospitalization coverage,
supplemental health, dental and group life insurance.
The Company's pension funding policy is to contribute amounts sufficient to
meet minimum local statutory funding requirements that are based on
actuarial calculations to maintain the planscalculations. The Company may make additional discretionary
contributions based on a fully
funded basis.actuarial assessments. The most recent statutory
pension actuarial valuations were completed as at March and April 20002000. In
2002, actuarial reviews of all defined benefit plans were completed.
Contributions made by the Company to support ongoing plan obligations have
been included in the deferred asset or liability accounts on the
consolidated balance sheet. Contributions to pension fund assets are
invested primarily in fixed income and equity securities and assets are
valued at market value.
The Company's non-pension post-employment benefits are currently unfunded.
The most recent actuarial valuation for non-pension, post-employment
benefits was completed in January 2001.2002. The Company accrues the expected
costs of providing non-pension, post-retirementpost-employment benefits during the periods
in which the employees render service.
The estimated present value of accrued plan benefits and the estimated
market value of the net assets available to provide for these benefits at
December 31, 2000 and 2001 are as follows:
PENSION PLANS OTHER BENEFIT PLANS
--------------------------- ---------------------------
2000 2001 2000 2001
------------ ------------ ------------ ------------
Plan assets, at fair value................................. $188.6 $174.5 $-- $--
Projected benefit obligations.............................. 170.3 179.1 47.7 56.4
------ ------ ------ ------
Excess (deficit) of plan assets over projected benefit
obligations.............................................. 18.3 (4.6) (47.7) (56.4)
Unamortized past service costs............................. -- -- 4.3 4.1
Unrecognized net loss from past experience and effects of
changes in assumptions................................... 9.7 33.6 5.3 5.0
Foreign currency exchange rate changes..................... (2.2) (0.6) -- --
------ ------ ------ ------
Deferred amount............................................ $ 25.8 $ 28.4 $(38.1) $(47.3)
====== ====== ====== ======
The Company has one pension plan with accumulated benefit obligations in
excess of plan assets. This plan has an accumulated benefit obligation of
$114.2 and plan assets of $95.1.
The Company continues to make contributions to support ongoing plan
obligations; these contributions have been included in the deferred pension
amount on the consolidated balance sheets.
F-21F-25
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
Pension fund assets consist primarily of fixed income and equity securities,
valued at market value.16. PENSION AND NON-PENSION POST-EMPLOYMENT BENEFIT PLANS: (CONTINUED)
The following information is provided ontable provides a summary of the estimated financial position
of the Company's pension fund assets:
PENSION PLANS
---------------------------
2000 2001
------------ ------------
Opening plan assets......................................... $191.1 $188.6
Actual return on plan assets................................ 1.5 (13.1)
Foreign currency exchange rate changes...................... (11.1) (8.0)
Contributions by employees.................................. 2.1 2.1
Contributions by employer................................... 7.5 10.1
Benefits paid............................................... (2.5) (5.2)
------ ------
$188.6 $174.5
====== ======
Vested benefit obligations.................................. $100.6 $174.6
====== ======
Accumulated benefit obligations............................. $143.2 $174.6
====== ======
There are no assets recorded for the otherand non-pension post-employment benefit plans.
Projected benefit obligations are outlined below:
PENSION PLANS OTHER BENEFIT PLANS
--------------------------- ---------------------------
2000 2001 2000 2001
------------ ------------ ------------ ------------
Opening projected benefit obligations...................... $147.3 $170.3 $17.5 $47.7
Service cost............................................... 7.5 8.6 1.5 7.6
Interest cost.............................................. 10.6 11.3 1.5 2.0
Benefits paid.............................................. (2.5) (5.2) (0.2) (3.8)
Actuarial gains and losses................................. 7.3 -- 0.4 4.6
Plan amendments............................................ -- 1.9 0.7 --
Acquisitions............................................... -- -- 26.3 1.1
Changes in assumptions..................................... 7.4 (1.9) 0.5 (1.4)
Foreign currency exchange rate changes..................... (7.3) (5.9) (0.5) (1.4)
------ ------ ----- -----
$170.3 $179.1 $47.7 $56.4
====== ====== ===== =====
Net plan expense is outlined below:plans:
PENSION PLANS OTHER BENEFIT PLANS
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
--------------------------------- ---------------------------------
1999------------------------- -------------------------
2001 2002 2001 2002
----------- ----------- ----------- -----------
Plan assets, beginning of year.............................. $188.6 $174.5 $-- $--
Employer contributions.................................... 10.1 13.5 3.8 6.1
Actual return on assets................................... (13.1) (21.9) -- --
Voluntary employee contributions.......................... 2.1 4.6 -- 0.1
Effect of acquisitions.................................... -- 4.8 -- --
Benefits paid............................................. (5.2) (10.5) (3.8) (6.2)
Foreign currency exchange rate changes...................... (8.0) 9.9 -- --
------ ------ ------ ------
Plan assets, end of year.................................... $174.5 $174.9 $-- $--
====== ====== ====== ======
PENSION PLANS OTHER BENEFIT PLANS
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
------------------------- -------------------------
2001 2002 2001 2002
----------- ----------- ----------- -----------
Accrued benefit obligations (ABO), beginning of year........ $170.3 $179.1 $ 47.7 $ 56.4
Reclassification of supplemental plan..................... -- 4.9 -- (4.9)
Service cost.............................................. 8.6 7.2 7.6 9.7
Interest cost............................................. 11.3 12.5 2.0 2.5
Voluntary employee contributions.......................... 2.1 4.6 -- 0.1
Actuarial (gains) / losses................................ (1.9) 14.0 3.2 8.2
Plan amendments........................................... 1.9 -- -- (0.3)
Effect of acquisitions.................................... -- 22.8 1.1 0.9
Effect of curtailments.................................... -- 1.3 -- (1.1)
Benefits paid............................................. (5.2) (10.5) (3.8) (6.2)
Foreign currency exchange rate changes.................... (8.0) 14.6 (1.4) 0.1
------ ------ ------ ------
Accrued benefit obligations, end of year.................... $179.1 $250.5 $ 56.4 $ 65.4
====== ====== ====== ======
Deficit of plan assets over accrued benefit obligations..... $ (4.6) $(75.6) $(56.4) $(65.4)
Unrecognized actuarial losses............................... 33.0 87.3 9.1 7.7
------ ------ ------ ------
Deferred (accrued) pension cost............................. $ 28.4 $ 11.7 $(47.3) $(57.7)
====== ====== ====== ======
The following table reconciles the deferred (accrued) pension balances to
that reported as of December 31, 2002:
OTHER
PENSION BENEFIT
PLANS PLANS TOTAL
------------ ------------ ------------
Accrued pension and post-employment benefits................ $(19.5) $(57.7) $(77.2)
Deferred pension assets (note 8)............................ 31.2 -- 31.2
------ ------ ------
$ 11.7 $(57.7) $(46.0)
====== ====== ======
F-26
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
16. PENSION AND NON-PENSION POST-EMPLOYMENT BENEFIT PLANS: (CONTINUED)
PENSION PLANS OTHER BENEFIT PLANS
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
------------------------------------------ ------------------------------------------
2000 2001 19992002 2000 2001 --------- --------- --------- --------- --------- ---------2002
------------ ------------ ------------ ------------ ------------ ------------
Plan cost:Net plan expense:
Service cost -- benefits earned....................... $ 6.5cost................ $ 7.5 $ 8.6 $ 1.27.2 $ 1.5 $ 7.6 $ 9.7
Interest cost on projected benefit obligations........ 9.0cost............... 10.6 11.3 1.112.5 1.5 2.0 Actual2.5
Expected return on plan assets.......................... (30.0) (1.5) 13.1 -- -- --
Amortization of past service costs.................... -- 2.4 (5.8)assets... (13.9) (14.0) (13.7) -- -- --
Net amortization and deferral......................... 18.6 (15.0) (21.4) 1.4of
actuarial
(gains)/losses............ (0.2) (0.1) 1.6 0.3 0.8 --------- --------- --------- --------- --------- ---------0.5
------ ------ ------ ------ ------ ------
4.0 5.8 7.6 3.3 10.4 12.7
Defined contribution pension
plan expense................ 12.8 18.9 21.9 -- -- --
Curtailment loss.............. -- -- 2.9 -- -- 1.7
------ ------ ------ ------ ------ ------
Total......................... $ 4.116.8 $ 4.024.7 $ 5.8 $ 3.732.4 $ 3.3 $ 10.4 ========= ========= ========= ========= ========= =========$ 14.4
====== ====== ====== ====== ====== ======
PENSION PLANS OTHER BENEFIT PLANS
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
------------------------------------------ ------------------------------------------
2000 2001 2002 2000 2001 2002
------------ ------------ ------------ ------------ ------------ ------------
Actuarial assumptions
(percentages):
Weighted average discount rate
for projected benefit
obligations......................................... 6.0 -obligations................. 6.5 6.5 - 7.0 5.8 - 7.8 6.5 - 8.0 7.0 - 8.0 7.0 - 7.86.2 5.5 7.5 7.3 6.9
Weighted average rate of
compensation increase........ 3.5 -increase....... 4.0 4.5 4.0 4.5 4.5 4.5 4.55.0
Weighted average expected
long-term rate of return on
plan assets.........................................assets................. 7.4 7.5 7.3 - 7.5 7.3 - 7.8 -- -- --
Healthcare cost trend rate............................rate.... -- -- -- 5.0 6.4 10.5
OTHER BENEFIT PLANS
YEAR ENDED DECEMBER 31
---------------------------
2001 2002
------------ ------------
Sensitivity re: healthcare trend rate for non-pension,
post-employment benefits:
1% Increase
Effect on ABO............................................. $ 5.1 - 7.4 5.1 - 6.8 3.5 - 8.0$ 5.3
Effect on service cost and interest cost.................. 0.9 1.2
1% Decrease
Effect on ABO............................................. (4.0) (4.2)
Effect on service cost and interest cost.................. (0.7) (1.0)
A one-percentage point increaseIn 2002, the Company assumed net pension liabilities relating to an
acquisition in Japan from NEC Corporation. Regulatory funding restrictions
preclude the Company from fully funding the plan. The plan has an
accumulated benefit obligation of $31.3 in excess of its plan assets of
$6.8. At the time of closing the acquisition, the Company received amounts
to cover the unfunded liabilities.
The Company has a pension plan with an accumulated benefit obligation of
$123.2 that is in excess of plan assets of $83.7.
The Company has a supplemental retirement plan that has an accumulated
benefit obligation of $8.7 and decrease inno plan assets. In 2002, the assumed healthcare cost
trend rate would increase by $0.9 and decrease by $0.7 the service cost and
increase by $5.1 and decrease by $4.0 the accumulated obligation forplan was
reclassified from other benefit plans forto pension plans.
In 2002, the year ended December 31, 2001.
F-22Company incurred net curtailment losses due to the
rationalization of facilities. These losses are included as restructuring
charges in note 13(b).
F-27
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
17. FINANCIAL INSTRUMENTS:
FAIR VALUES:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
(a) The carrying amounts of cash, short-term investments, accounts
receivable, accounts payable and accrued liabilities approximate fair
value due to the short-term nature of these instruments.
(b) TheIn 2001, the fair valuesvalue of the Company's long-term debt, including the current
portion thereof, isSenior Subordinated Notes was
estimated based on the current trading value, where available, or with
reference to similarly traded instruments with similar terms.
(c) The fair values of foreign currency contract obligations are estimated
based on the current trading value, as quoted by brokers active in these
markets.
The carrying amounts and fair values of the Company's financial instruments,
where there are differences at December 31, 20002001, and 2001,2002, are as follows:
DECEMBER 31, 20002001 DECEMBER 31, 20012002
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ ------------
Senior Subordinated Notes and other long-term debt......... $130.0 $135.2 $143.0 $149.5 $ 6.9 $ 6.9
Foreign currency contracts -- asset (liability)............ -- 7.5(7.4) -- (7.4)18.9
DERIVATIVES AND HEDGING ACTIVITIES:
The Company has entered into foreign currency contracts to hedge foreign
currency risk relating to cash flow and cash position exposures. The
Company's forward exchange contracts do not subject the Company to risk from
exchange rate movements because gains and losses on such contracts offset
losses and gains on transactionsexposures being hedged. The counterparties to the
contracts are multinational commercial banks, and therefore, the credit risk
of counterparty non-performance is remote.low. As at December 31, 2001,2002, the Company
had outstandingforward foreign exchange contracts to sell $379.5trade $282.7 in U.S. dollars in
exchange for Canadian dollars over a period of 1715 months at a weighted
average exchange rate of U.S. $0.65.$0.64. The Company also had forward contracts
to trade $10.6 in exchange for Canadian dollars over a period of 37 months
at a weighted average exchange rate of U.S. $0.63. In addition, the Company
had exchange contracts to sell
$191.8trade $168.7 in exchange for euros over a period
of 15 months at a weighted average exchange rate of U.S. $0.88, $56.6$0.93, $36.4 in
exchange for British pounds sterling over a period of 1513 months at a
weighted average exchange rate of U.S. $1.40, $46.3$1.45, $37.1 in exchange for Mexican
pesos over a period of 12 months at a weighted average exchange rate of
U.S. $0.10, $24.2$27.6 in exchange for Thailand bahtSingapore dollars over a period of
12 months at a weighted average exchange rate of U.S. $0.02$0.57, 64.5 Brazilian
reais in exchange for U.S. dollars over a period of 1 month at a weighted
average exchange rate of U.S. $0.30, $40.7 in exchange for Japanese yen over
a period of 1 month at a weighted average exchange rate of U.S. $0.01, and
$6.4$11.9 in exchange for Czech koruna over a period of 12 months at a weighted
average exchange rate of U.S. $0.03. At December 31, 2001,2002, these contracts
had a fair valuefair-value asset of $18.9 (2001 -- liability of $7.4
(2000 -- asset of $7.5)$7.4).
CONCENTRATION OF RISK:
The Company is a turnkey manufacturer of sophisticated electronics for
original equipment manufacturers engaged in the electronics manufacturing
industry.
Financial instruments that potentially subject the Company to concentrations
of credit risk are primarily inventory repurchase obligations of customers,
accounts receivable and cash equivalents. The Company performs ongoing
credit evaluations of its customers' financial conditions. In certain
instances, the Company obtains letters of credit from its customers. The
Company considers its concentrations of credit risk in determining its
estimates of reserves for potential credit losses. The Company maintains
cash and cash equivalents in high quality short-term investments or on
deposit with major financial institutions.
18. COMMITMENTS, CONTINGENCIES AND CONTINGENCIES:GUARANTEES:
The Company has operating leases and license commitments that require future payments as follows:
OPERATING
LICENSE
LEASES
COMMITMENTS TOTAL
------------ ------------- ---------------------
2002........................................................ $103.5 $0.6 $104.1
2003........................................................ 81.3 -- 81.3$106.5
2004........................................................ 38.0 -- 38.059.5
2005........................................................ 26.4 -- 26.438.9
2006........................................................ 20.4 -- 20.423.0
2007........................................................ 18.9
Thereafter.................................................. 89.2 -- 89.291.5
F-23F-28
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
18. COMMITMENTS, CONTINGENCIES AND GUARANTEES: (CONTINUED)
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, 2002, these liabilities, including guarantees of employee share
purchase loans, amounted to $24.1$61.2 (2001 -- $24.1).
In addition to the above guarantees, the Company has also provided routine
indemnifications, whose terms range in duration and often are not explicitly
defined. These guarantees may include indemnifications against adverse
effects due to changes in tax laws and patent infringements by third
parties. The maximum amounts from these indemnifications cannot be
reasonably estimated. In some cases, the Company has recourse against other
parties to mitigate its risk of loss from these guarantees. Historically,
the Company has not made significant payments relating to these
indemnifications.
Under the terms of an existing real estate lease, which expires in 2004,
Celestica has the right to acquire the real estate at December 31, 2001 (2000 -- $12.0).a purchase price equal
to the lease balance, which currently is approximately $37.3. In the event
that the lease is not renewed, subject to certain conditions, Celestica may
choose to market and complete the sale of the real estate on behalf of the
lessor. If the highest offer received is less than the lease balance,
Celestica would pay the lessor the lease balance less the gross sale
proceeds, subject to a maximum of $31.5. In the event that no acceptable
offers are received, Celestica would pay the lessor $31.5 and return the
property to the lessor. Alternatively, Celestica may choose to acquire the
real estate at the expiration for a price equal to the then current lease
balance. The future lease payments under this lease are included in the
total operating lease commitments.
In the normal course of operations the Company may be subject to litigation
and claims from customers, suppliers and former employees. Management
believes that adequate provisions have been recorded in the accounts where
required. Although it is not possible to estimate the extent of potential
costs, if any, management believes that the ultimate resolution of such
contingencies would not have a material adverse effect on the financial
position of the Company.
19. SIGNIFICANT CUSTOMERS:
During 2002, three customers individually comprised 17%, 16% and 15% of
total revenue across all geographic segments. At December 31, 2002, one
customer represented 28% of total accounts receivable.
During 2001, three customers individually comprised 23%, 21% and 11% of
total revenue across all geographic segments. At December 31, 2001, two
customers represented 14% and 26% of total accounts receivable.
During 2000, two customers individually comprised 25% and 21% of total
revenue across all geographic segments. At December 31, 2000, two customers
represented 21% and 26% of total accounts receivable.
During 1999, three customers individually comprised 25%, 18% and 12% of
total revenue across all geographic segments. At December 31, 1999, two
customers represented 14% and 15% of total accounts receivable.
20. SEGMENTED INFORMATION:
The Company's operations fall into one dominant industry segment, the
electronics manufacturing services industry. The Company manages its
operations, and accordingly determines its operating segments, on a
geographic basis. The performance of geographic operating segments is
monitored based on EBIAT (earnings before interest, income taxes,
amortization of goodwill and intangible assets, integration costs related to
acquisitions and other charges). The Company monitors enterprise-wide performance based
on adjusted net earnings, which is calculated as net earnings (loss) before
amortization of intangible assets, integration costs related to acquisitions
and other charges, net of related income taxes. Inter-segment transactions are reflected at
market value.
The following is a breakdown of: revenue; EBIAT, adjusted net earnings
(which is after income taxes); capital expenditures; total assets;
intangible assets; and capital assets by operating segment. Certain
comparative information has been restated to reflect changes in the
management of operating segments.reporting segment:
YEAR ENDED DECEMBER 31
------------------------------------------
1999 2000 2001 2002
------------ ------------ ------------
REVENUE
Americas.................................................... $3,587.5 $6,542.7 $ 6,334.6 $4,640.8
Europe...................................................... 1,108.6 2,823.3 3,001.3 1,786.5
Asia........................................................ 710.2 871.6 991.1 2,109.7
Elimination of inter-segment revenue........................ (109.1) (485.5) (322.6) --------(265.4)
-------- --------- $5,297.2--------
$9,752.1 $10,004.4 $8,271.6
======== ========= ======== =========
YEAR ENDED DECEMBER 31
------------------------------------------
1999 2000 2001
------------ ------------ ------------
EBIAT
Americas.................................................... $114.2 $200.1 $ 192.9
Europe...................................................... 42.8 121.1 128.5
Asia........................................................ 23.3 40.7 49.7
------ ------ -------
180.3 361.9 371.1
Interest, net............................................... (10.7) 19.0 7.9
Amortization of intangible assets........................... (55.6) (88.9) (125.0)
Integration costs related to acquisitions................... (9.6) (16.1) (22.8)
Other charges............................................... -- -- (273.1)
------ ------ -------
Earnings (loss) before income taxes......................... $104.4 $275.9 $ (41.9)
====== ====== =======
Adjusted net earnings....................................... $123.0 $304.1 $ 320.6
====== ====== =======
F-24F-29
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
20. SEGMENTED INFORMATION: (CONTINUED)
YEAR ENDED DECEMBER 31
------------------------------------------
1999EBIAT 2000 2001 2002
----- ------------ ------------ ------------
Americas.................................................... $200.1 $ 192.9 $ 157.7
Europe...................................................... 121.1 128.5 (11.5)
Asia........................................................ 40.7 49.7 111.1
------ ------- -------
361.9 371.1 257.3
Interest, net............................................... 19.0 7.9 1.1
Amortization of goodwill and intangible assets.............. (88.9) (125.0) (95.9)
Integration costs related to acquisitions................... (16.1) (22.8) (21.1)
Other charges............................................... -- (273.1) (677.8)
------ ------- -------
Earnings (loss) before income taxes......................... $275.9 $ (41.9) $(536.4)
====== ======= =======
YEAR ENDED DECEMBER 31
------------------------------------------
2000 2001 2002
------------ ------------ ------------
CAPITAL EXPENDITURES
Americas.................................................... $138.0 $154.0 $107.9 $ 90.0
Europe...................................................... 29.1 86.9 55.4 28.0
Asia........................................................ 44.7 41.9 36.0 33.4
------ ------ ------
$211.8 $282.8 $199.3 $151.4
====== ====== ======
AS AT DECEMBER 31
---------------------------
2000 2001 2002
------------ ------------
TOTAL ASSETS
Americas.................................................... $3,444.6 $3,408.2 $2,894.1
Europe...................................................... 1,904.7 1,626.3 1,047.6
Asia........................................................ 588.7 1,598.4 1,865.1
-------- --------
$5,938.0 $6,632.9 ======== ========
INTANGIBLE ASSETS
Americas.................................................... $ 307.8 $ 516.4
Europe...................................................... 196.6 165.6
Asia........................................................ 73.9 874.0
-------- --------
$ 578.3 $1,556.0$5,806.8
======== ========
CAPITAL ASSETS
Americas.................................................... $ 327.0468.0 $ 468.0281.1
Europe...................................................... 216.0 279.1 231.9
Asia........................................................ 90.4 168.0 214.8
-------- --------
$ 633.4915.1 $ 915.1727.8
======== ========
The following table details the Company's external revenue allocated by
manufacturing location among foreign countries exceeding 10%:
YEAR ENDED DECEMBER 31
------------------------------------------
1999 2000 2001 2002
------------ ------------ ------------
REVENUE
Canada...................................................... 43% 28% 20% 15%
United States............................................... 22% 30% 35% 37%
Italy....................................................... -- 10% 13% 13%
United Kingdom.............................................. 19% 17% 11% --
21. SUBSEQUENT EVENT:
In January 2002, the Company entered into an agreement with NEC Corporation
to purchase certain manufacturing assets in Miyagi and Yamanashi, Japan.
This acquisition is expected to close in the first quarter of 2002.
F-25F-30
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
21. SUPPLEMENTAL CASH FLOW INFORMATION:
YEAR ENDED DECEMBER 31
------------------------------------------
2000 2001 2002
------------ ------------ ------------
Paid during the year:
Interest.................................................. $15.9 $ 20.7 $22.0
Taxes..................................................... $55.0 $ 89.0 $25.5
Non-cash financing activities:
Convertible debt accretion, net of tax.................... $ 5.4 $ 15.0 $17.5
Shares issued for acquisitions............................ $-- $567.0 $--
22. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES:
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles ("GAAP")(GAAP) as applied
in Canada. The significant differences between Canadian and United StatesU.S. GAAP, and
their effect on the consolidated financial statements of the Company are
described below:
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS):
The following table reconciles net earnings (loss) as reported in the
accompanying consolidated statements of earnings (loss) to net earnings
(loss) that would have been reported had the consolidated financial
statements been prepared in accordance with United StatesU.S. GAAP:
YEAR ENDED DECEMBER 31
------------------------------------------
1999 2000 2001 2002
------------ ------------ ------------
Net earnings (loss) in accordance with Canadian GAAP........ $68.4 $206.7 $(39.8) $(445.2)
Compensation expense (a).................................... (1.9) (2.5) (3.2) (3.8)
Interest expense on convertible debt, net of tax of $9.5
(2000 -- $3.8) (b)........................................ --........ (6.8) (17.7) (27.8)
Gain on repurchase of convertible debt, net of tax (b)...... -- -- 8.4
Other charges, net of tax (c).......................................................................... -- -- (2.7) (26.5)
Gain on foreign exchange contract, net of tax of $3.6 (d)... --........... -- 12.1 -------
------ ------ -------
Net earnings (loss) in accordance with United States GAAP... $66.5U.S. GAAP............ $197.4 $(51.3) $(494.9)
Other comprehensive income:income (loss):
Cumulative effect of a change in accounting policy, net of
tax of $1.9 (e)........................................... --................................................... -- 5.6 --
Net lossgain (loss) on derivatives designated as hedges, net of
tax of
$3.2 (e)..................................................................................................... -- -- (11.7) 21.8
Minimum pension liability, net of tax of $6.4 (f).............................. -- -- (14.9) (23.6)
Foreign currency translation adjustment..................... (3.5) -- 1.2 -----20.2
------ ------ -------
Comprehensive income (loss) in accordance with United States
GAAP...................................................... $63.0U.S. GAAP.... $197.4 $(71.1) =====$(476.5)
====== ====== =======
The following table sets forthdetails the computation of United StatesU.S. GAAP basic and diluted
earnings (loss) per share:
YEAR ENDED DECEMBER 31
------------------------------------------
1999 2000 2001 2002
------------ ------------ ------------
Earnings (loss) available to shareholders -- basic.......... $ 66.5 $197.4 $(51.3) Add:$(494.9)
Add back: Interest expense on convertible debt, net of tax.......tax
(if dilutive)............................................. 6.8 -- 6.8 17.7--
------ ------ -------------
Earnings (loss) available to shareholders -- diluted........ $ 66.5 $204.2 $(33.6)$(51.3) $(494.9)
====== ====== =======
Weighted average shares -- basic (in millions).............. 167.2 199.8 213.9 229.8
Weighted average shares -- diluted (in millions)(1)......... 171.2 211.8 213.9 229.8
Basic earnings (loss) per share............................. $ 0.400.99 $(0.24) $ 0.99 $(0.24)(2.15)
Diluted earnings (loss) per share........................... $ 0.39 $ 0.96 $(0.24) ---------------$ (2.15)
-------------------
(1) For 2001 and 2002, excludes the effect of options and convertible debt
as they are anti-dilutive due to the loss.
F-26F-31
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
22. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES: (CONTINUED)
The cumulative effect of these adjustments on shareholders' equity of the
Company is as follows:
AS AT DECEMBER 31
------------------------------------------
1999 2000 2001 2002
------------ ------------ ------------
Shareholders' equity in accordance with Canadian GAAP....... $1,658.2 $3,469.3 $4,745.6 $4,203.6
Compensation expense (a).................................... (8.1) (10.6) (13.8) (17.6)
Capital stock (a)........................................... 6.1 8.6 11.8 15.6
Interest expense on convertible debt, net of tax (b)........ -- (6.8) (24.5) (52.3)
Convertible debt (b)........................................ -- (860.5) (886.8) (804.6)
Convertible debt accretion, net of tax (b).................. -- 5.4 20.4 37.9
Gain on repurchase of convertible debt for Canadian GAAP
(b)....................................................... -- -- (6.7)
Gain on repurchase of convertible debt for U.S. GAAP (b).... -- -- 8.4
Other charges (c)........................................... -- -- (2.7) (29.2)
Gain on foreign exchange contract, net of tax (d)........... -- --12.1 12.1
Net lossgain (loss) on cash flow hedges (e)................................................. -- -- (6.1) 15.7
Minimum pension liability, net of tax (f)................... -- -- (14.9) (38.5)
-------- -------- --------
Shareholders' equity in accordance with United States
GAAP...................................................... $1,656.2U.S. GAAP........... $2,605.4 $3,841.1 $3,344.4
======== ======== ========
---------------
(a) In 1998, the Company amended the vesting provisions of 6.2 million
employee stock options issued in 1997 and 1998. Under the previous
vesting provisions, such options vested based on the achievement of
earnings targets. A portion of these options now vest over a specified
time period and the balance vested on completion of the initial public
offering in 1998. Under United StatesU.S. GAAP, this amendment required a new
measurement date for purposes of accounting for compensation expense,
resulting in a charge equal to the aggregate difference between the fair
value of the underlying subordinate voting shares at the date of the
amendment and the exercise price for such options. As a result, under
United StatesU.S. GAAP the Company has and will recordrecorded an aggregate $15.6 non-cash stock
compensation charge to be reflected in earnings and capital stock over the
vesting period as follows: 1998 -- $4.2; 1999 -- $1.9; 2000 -- $2.5;
2001 -- $3.2; 2002 -- $3.8. No similar charge is required to be recorded
by the Company under Canadian GAAP.
(b) Under Canadian GAAP, the Company recorded the convertible debt as an
equity instrument and recorded accretion charges to retained earnings.
Under United StatesU.S. GAAP, the convertible debt was recorded as a long-term
liability and, accordingly, the Company recorded the accretion charges
and amortization of debt issue costs to interest expense.expense of $27.8, net of
tax of $13.9 (2001 -- $17.7, net of tax of $9.5; 2000 -- $6.8, net of tax
of $3.8).
In 2002, the Company reported a gain on the repurchase of a portion of
convertible debt. Under Canadian GAAP, the gain is recorded to retained
earnings. Under U.S. GAAP, the Company records the gain through income of
$8.4, net of $4.2 in taxes.
(c) In 2001,2002, the Company recorded a chargeimpairment charges to write-down goodwill,certain
assets, primarily intangible assets, which was measured using
undiscounted cash flows. United StatesU.S. GAAP requires the use of discounted cash
flows, resulting in an additional charge of $2.7.$26.5, net of tax of $2.0
(2001 -- $2.7).
(d) In 2001, the Company entered into a forward exchange contract to hedge
the cash portion of the purchase price for the Omni acquisition. The
transaction does not qualify for hedge accounting treatment under SFAS
No. 133 which specifically precludes hedges of forecasted business
combinations. As a result, the gain on the exchange contract of $15.7,
less tax of $3.6, is recognized in income for United StatesU.S. GAAP. For Canadian
GAAP, the gain on the contract was included in the cost of the
acquisition, resulting in a goodwill value that is $15.7 lower for
Canadian GAAP than United StatesU.S. GAAP.
(e) The Financial Accounting Standards Board (FASB) has issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
and SFAS No. 138 which amends SFAS No. 133. SFAS No. 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging
activities. The standard requires that all derivatives be recorded on the
balance sheet at fair value. The Company has implemented SFAS No. 133
effective for 2001 for purposes of the United StatesU.S. GAAP reconciliation. The
Company enters into forward exchange contracts to hedge certain
forecasted cash flows. The contracts are for periods consistent with the
forecasted transactions. All relationships between hedging instruments
and hedged items, as well as risk management objectives and strategies,
are documented. Changes in the spot value of the foreign currency
contracts that are designated, effective and qualify as cash flow hedges
of forecasted transactions are reported in accumulated other
comprehensive income and are reclassified into the same component of
earnings and in the same period as the hedged transaction is recognized.
Accordingly, on January 1, 2001, the Company recorded an asset in the
amount of $7.5 (less $1.9 in taxes) and a corresponding credit to other
comprehensive income as a cumulative effect, type adjustment to reflect
the initial
F-32
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
22. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES: (CONTINUED)
mark-to-market on the foreign currency contracts pursuant to United StatesU.S. GAAP.
At December 31, 2001, the Company has recorded a liability of $7.4 and a
corresponding gross adjustment of $14.9 (less $3.2 in taxes) to other
comprehensive income and earnings. At December 31, 2002, the Company has
recorded thean asset of $18.9 (less $3.2 in taxes) and a corresponding adjustmentsgain
of $26.3 (less $4.5 in taxes) to other comprehensive income and earnings.
It is expected that $7.0$18.8 of net lossesgains reported in accumulated other
comprehensive income will be reclassified into earnings during the
period ended December 31, 2002.2003.
Under Canadian GAAP, the derivative instruments are not marked to market
and the related, off-balance sheet gains and losses are recognized in
earnings in the same period as the hedged transactions.
(f) Under United StatesU.S. GAAP, the Company is required to record an additional minimum
pension liability for onethree of its plans to reflect the excess of the
accumulated benefit obligations over the fair value of the plan assets.
Other comprehensive income has been charged with $23.6, net of tax of
$12.0 (2001 -- one plan for $14.9, net of tax of $6.4.$6.4). No such
adjustments are required under Canadian GAAP.
F-27
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
OTHER DISCLOSURES REQUIRED UNDER UNITED STATESU.S. GAAP:
(a) Stock based(g) Stock-based compensation:
TheUnder U.S. GAAP, the Company measures compensation costs related to stock
options granted to employees using the intrinsic value method as
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees" as permitted by SFAS No. 123. However, SFAS No. 123 does
require the disclosure of pro forma net earnings (loss) and earnings
(loss) per share information as if the Company had accounted for its
employee stock options under the fair valuefair-value method prescribed by SFAS
No. 123. Accordingly, the fair value
of the options issued was determined using the Black-Scholes option
pricing model with the following assumptions: risk-free rate of 5.4%
(2000 -- 5.4%; 1999 -- 5%), dividend yield of 0%, a volatility factor of
the expected market price of the Company's shares of 70% (2000 -- 70%;
1999 -- 47%); and a weighted-average expected option life of 7.5 years in
2001 (2000 -- 7.5 years; 1999 -- 5 years). The weighted-average grant
date fair values of options issued in 2001 was $34.31 per share
(2000 -- $40.49 per share; 1999 -- $10.24 per share). For purposes of
pro forma disclosures, the estimated fair value of the options is amortized to income
over the vesting period. Forperiod, on a straight-line basis, and was determined
using the year ended
December 31, 2001,Black-Scholes option pricing model with the Company's United States GAAP pro forma loss is
$97.1 and basic loss per share is $0.45 (2000 -- earnings of $176.2 and
$0.88 per share; 1999 -- earnings of $52.3 and $0.31 per share).
(b) Accumulated other comprehensive income (loss):following weighted
average assumptions:
YEAR ENDED DECEMBER 31
------------------------------------------
1999 2000 2001 2002
------------ ------------ ------------
Risk-free rate.............................................. 5.4% 5.4% 5.1%
Dividend yield.............................................. 0.0% 0.0% 0.0%
Volatility factor of the expected market price of the
Company's shares.......................................... 70.0% 70.0% 70.0%
Expected option life (in years)............................. 7.5 7.5 5.0
Weighted-average grant date fair values of options issued... $40.49 $34.31 $12.02
The pro forma disclosure for U.S. GAAP is as follows:
YEAR ENDED DECEMBER 31
------------------------------------------
2000 2001 2002
------------ ------------ ------------
Net earnings (loss) in accordance with U.S. GAAP, as
reported.................................................. $197.4 $(51.3) $(494.9)
Deduct: Stock-based compensation costs using fair-value
method, net of tax........................................ (21.2) (45.8) (87.7)
------ ------ -------
Pro forma net earnings (loss) in accordance with
U.S. GAAP................................................. $176.2 $(97.1) $(582.6)
====== ====== =======
Earnings (loss) per share:
Basic -- as reported...................................... $ 0.99 $(0.24) $ (2.15)
Basic -- pro forma........................................ $ 0.88 $(0.45) $ (2.54)
Diluted -- as reported.................................... $ 0.96 $(0.24) $ (2.15)
Diluted -- pro forma...................................... $ 0.86 $(0.45) $ (2.54)
F-33
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
22. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES: (CONTINUED)
(h) Accumulated other comprehensive loss:
YEAR ENDED DECEMBER 31
------------------------------------------
2000 2001 2002
------------ ------------ ------------
Opening balance of accumulated net gain on cash flow
hedges.................................................... $-- $-- $--$ (6.1)
Cumulative effect of a change in accounting policy, net of
tax (e)................................................ --................................................... -- 5.6 --
Net lossgain (loss) on derivatives designated as hedges (e)............ --..... -- (11.7) -----21.8
----- ------ ------
Closing balance of accumulated net loss on cash
flow hedges............................................... --balance............................................. -- (6.1) 15.7
Opening balance of foreign currency translation account..... (0.6) (4.1) (4.1)
Foreign currency translation gain (loss).................... (3.5) -- 1.2
----- ----- ------
Closing balance of foreign currency translation account..... (4.1) (4.1) (2.9)
Foreign currency translation gain........................... -- 1.2 20.2
----- ------ ------
Closing balance............................................. (4.1) (2.9) 17.3
Opening balance of minimum pension liability................ -- -- (14.9)
Minimum pension liability, net of tax (f)................... -- (14.9) (23.6)
----- ------ ------
Closing balance............................................. -- (14.9) (38.5)
----- ----------- ------
Accumulated other comprehensive loss........................ $(4.1) $(4.1) $(23.9) $ (5.5)
===== =========== ======
(c)(i) Under United StatesU.S. GAAP, the subtotal "cash from earnings" would be excluded
from the consolidated statements of cash flows.
(d)(j) Warranty liability:
The Company records a liability for future warranty costs based on
management's best estimate of probable claims under its product
warranties. The accrual is based on the terms of the warranty, which vary
by customer and product, and historical experience. The Company regularly
evaluates the appropriateness of the remaining accrual.
The following table details the changes in the warranty liability:
Balance at January 1, 2002.................................. $18.1
Accrual in excess of claims incurred........................ 5.6
-----
Balance at December 31, 2002................................ $23.7
=====
(k) New United States accounting pronouncements:
In July 2001, the FASB issued StatementSFAS No. 141, "Business Combinations"Combinations," and
StatementSFAS No. 142, "Goodwill and Intangible Assets."Assets" which the Company fully
adopted effective January 1, 2002. These statements are substantially
consistent with CICA Sections 1581 and 3062 (refer to note 2(n)2(q)) except
that, under United StatesU.S. GAAP, any transitional impairment charge iswould have been
recognized in earnings as a cumulative effect of a change in accounting
principle. Under Canadian GAAP, the cumulative adjustment iswould have been
recognized in opening retained earnings. In October 2001, FASB issued Statement No. 144 "Accounting forThere was no impact to the
Impairment or Disposal of Long-Lived Assets," which retains the
fundamental provisions of SFAS 121 for recognizing and measuringCompany as no transitional impairment losses of long-lived assets other than goodwill. Statement 144
also broadens the definition of discontinued operations to include all
distinguishable components of an entity that will be eliminated from
ongoing operations. This Statement is effective for the Company's fiscal
year commencing January 1, 2002, to be applied prospectively.charges were recognized.
In August 2001, SFAS No. 143, "Accounting for Asset Retirement
Obligations" was approved and requires that the fair value of an asset
retirement obligation be recorded as a liability, at fair value, in the
period in which the Company incurs the obligation. SFAS No. 143 is
effective for the Company's fiscal year commencing January 1, 2003. The
Company expects the adoption of these standardsthis standard will have no material
impact on its financial position, results of operations or cash flows.
F-28In October 2001, FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which retains the fundamental
provisions of SFAS No. 121 for recognizing and measuring impairment
losses of long-lived assets other than goodwill. SFAS No. 144 also
broadens the definition of discontinued operations to include all
distinguishable components of an entity that will be eliminated from
ongoing operations. The Company prospectively adopted SFAS No. 144
effective January 1, 2002.
In May 2002, FASB issued SFAS No. 145, "Rescission of FASB Nos. 4, 44 and
64, Amendment of FASB No. 13 and Technical Corrections." SFAS No. 145
requires that certain gains and losses from extinguishment of debt no
longer qualify as extraordinary. The Company has early adopted SFAS
No. 145 commencing January 1, 2002.
F-34
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
[EXHIBIT INDEX]22. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES: (CONTINUED)
In July 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 recognizes the liability
for an exit or disposal activity only when the costs are incurred and can
be measured at fair value. Currently, a commitment to an exit or disposal
plan is sufficient to record the majority of the costs. SFAS No. 146 is
effective for exit or disposal activities initiated after December 31,
2002. The Company expects the adoption of this standard will not have a
material impact on its existing restructuring plans as these plans were
initiated under an exit plan that meets the criteria of Emerging Issues
Task Force No. 94-3.
In November 2002, FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45), which requires certain
disclosures of obligations under guarantees. The disclosure requirements
of FIN 45 are effective for the Company's year ended December 31, 2002.
Effective for 2003, FIN 45 also requires the recognition of a liability
by a guarantor at the inception of certain guarantees entered into or
modified after December 31, 2002, based on the fair value of the
guarantee. The Company has adopted the disclosure requirements in its
2002 consolidated financial statements. See notes 18 and 22(j). The
Company has not determined the impact of the measurement requirements of
FIN 45.
In January 2003, FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46). The consolidation provisions of FIN
46 are effective for all newly created entities created after
January 31, 2003, and are applicable to existing entities as of the
Company's third quarter beginning July 1, 2003. It is possible that the
Company's variable interests in the real estate assets subject to the
lease arrangement disclosed in note 18 will be subject to the
consolidation provisions of FIN 46. The Company has not determined the
impact, however, any difference between the asset and liability on
initial measurement would be accounted for as a cumulative effect of
change in accounting policy in the 2003 statement of earnings. Refer to
note 18.
23. SUBSEQUENT EVENTS:
In January 2003, the Company made the following announcements:
In response to the continued limited visibility in end markets, the Company
plans to further reduce its manufacturing capacity. The reduction in
capacity will result in a pre-tax restructuring charge of between $50.0 and
$70.0, to be recorded during 2003.
The Company has, from time to time, purchased LYONs on the open market. The
Company has been authorized by the board of directors to spend up to an
additional $100.0 to repurchase LYONs, at management's discretion. This is
in addition to the amounts authorized in October 2002, of which $48.0
remains available for future purchases.
24. COMPARATIVE INFORMATION:
The Company has reclassified certain prior year information to conform to
the current year's presentation.
F-35
EXHIBIT
NUMBER DESCRIPTIONExhibit Index
Exhibit
Number Description
- ------- -------------------- -----------------------------------------------------------------
1. Articles of Incorporation and by-lawsBylaws as currently in effect:
1.1 Certificate and Articles of Incorporation(1)
1.2 Certificate and Articles of Amendment effective October 22, 1996(1)
1.3 Certificate and Articles of Amendment effective January 24, 1997(1)
1.4 Certificate and Articles of Amendment effective October 8, 1997(1)
1.5 Certificate and Articles of Amendment effective April 29, 1998(2)
1.6 Articles of Amendment effective June 26, 1998(3)
1.7 Restated Articles of Incorporation effective June 26, 1998(3)
1.8 Restated Articles of Incorporation effective November 20, 2001
1.9 Bylaw No. 1(4)
1.91.10 Bylaw No. 2(1)
2. Instruments defining rights of holders of equity or debt securities:
2.1 See Certificate and Articles of Incorporation and amendments
thereto identified above.
2.2 Form of Subordinate Voting Share Certificate(5)
2.3 Indenture, dated as of November 18, 1996, by and among
Celestica International Inc., Celestica, Inc., Celestica
Corporation and The Chase Manhattan Bank, as Trustee
(including forms of the Outstanding Notes and Exchange
Notes)(6)
2.4 Guarantee Agreement, dated as of November 18, 1996, between
Celestica, Inc. and The Chase Manhattan Bank, as Trustee(6)
2.5 Guarantee Agreement, dated as of November 18, 1996, between
Celestica Corporation and The Chase Manhattan Bank, as
Trustee(6)
2.6 Supplemental Indenture, dated as of July 7, 1998, among
Celestica International Inc., Celestica Inc. and The Chase
Manhattan Bank, as Trustee(3)
2.7 Supplemental Indenture, dated as of May 26, 2000, between
Celestica Inc. and The Chase Manhattan Bank, as Trustee(7)
2.8 Indenture, dated as of August 1, 2000, between Celestica Inc. and
The Chase Manhattan Bank, as Trustee (including formsa form of the
Outstanding Notes)(8)
2.10(6)
2.4 Second Amended and Restated Credit Agreement, dated as of July 8,
2001,December
17, 2002, between Celestica Inc., the subsidiaries of Celestica
Inc., specified therein as Designated Subsidiaries, The Bank of Nova
Scotia, as Administrative Agent, The Bank of Nova Scotia, as
Canadian Facility Agent, TheCIBC World Markets, as Joint Lead Arranger
and Syndication Agent, RBC Capital Markets, as Joint Lead Arranger
and Co-Documentation Agent, Bank of Nova Scotia,America Securities LLC, as U.S. FacilityJoint
Lead Arranger and Co-Documentation Agent, The Bank of
Nova Scotia, as U.K. Facility Agent,and the financial
institutions named in Schedule A as Canadian lenders
the
financial institutions named in Schedule B as U.S. lenders,
and the financial institutions named in Schedule C as
U.K. lenders(9)
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.112.5 Amended and Restated Revolving Term Credit Agreement, dated
as of June 8, 2001, between Celestica Inc., the subsidiaries
of Celestica Inc., specified therein as Designated
Subsidiaries, The Bank of Nova Scotia, as Administrative
Agent, The Bank of Nova Scotia, as Canadian Facility Agent,
The Bank of Nova Scotia, as U.S. Facility Agent, The Bank of
Nova Scotia, as U.K. Facility Agent, the financial
institutions named in Schedule A as Canadian lenders, the
financial institutions named in Schedule B as U.S. lenders,
and the financial institutions named in Schedule C as
U.K. lenders(9)
2.12 Four Year Revolving Term Credit Agreement,
dated as of July 31, 2001,December 17, 2002, among Celestica Inc. and Celestica
International Inc., as Borrowers, The Bank of Nova Scotia, as
Administrative Agent, and the financial institutions named therein,
as Lenders.(9)Lenders
3. Certain Contracts:
3.1 Management Services Agreement, dated as of July 7, 1998, among
Celestica Inc., Celestica North America Inc. and Onex Corporation(5)
3.2 Quota (Share) Purchase Agreement, dated February 9, 2000,
between Celestica Inc., Celestica Europe Inc., IBM
Italia S.p.A. and IBM Semea Servizi Finanziari S.p.A.(4)*
3.3 Quota Purchase Agreement, dated June 22, 2000, between NEC
do Brasil S.A. and Celestica Inc.(4)*
3.4 Amended and Restated Asset Purchase Agreement, dated as of
December 5, 2000, between Celestica Corporation, Celestica
Ireland Limited, Motorola, Inc. and Motorola B.V.(4)*
3.5 Asset Purchase Agreement, dated as of February 19, 2001, by and
between Avaya Inc. and Celestica Corporation(4)*
3.63.3 Amendment No. 1 to the Asset Purchase Agreement, dated as of May 4,
2001, by and between Avaya Inc. and Celestica Corporation(4)
Exhibit
Number Description
- --------- -----------------------------------------------------------------
3.4 Arrangement Agreement, dated as of
May 4, 2001, by and between Avaya Inc. and Celestica
Corporation(4)
3.7 Arrangement Agreement, dated May 31, 2001, between Celestica
Inc. and Primetech Electronics Inc.
3.8(7)*
3.5 Merger Agreement, dated as of June 15, 2001, between Omni Industries
Limited and Celestica Inc.
3.9(7)*
3.6 Asset Purchase Agreement, dated as of July 24, 2001, between Lucent
Technologies Inc. and Celestica Corporation*Corporation(7)*
3.103.7 Asset Purchase Agreement, dated as of July 24, 2001, between Lucent
Technologies Inc. and Celestica Corporation*Corporation(7)*
3.113.8 Asset Purchase Agreement, dated January 8, 2002, between NEC
Corporation, NEC Miyagi, Ltd., NEC Yamanashi, Ltd., 1325091 Ontario
Inc., and Celestica Inc.**
3.9 Employment Agreement, dated as of October 22, 1996, by and between
Celestica, Inc. and Eugene V. Polistuk(1)
3.123.10 Employment Agreement, dated as of October 22, 1996, by and between
Celestica, Inc. and Anthony P. Puppi(1)
3.133.11 Employment Agreement, dated as of October 22, 1996, by and between
Celestica, Inc. and Daniel P. Shea(1)
3.14 Employment Agreement, dated as of October 22, 1996, by and
between Celestica, Inc. and Douglas C. McDougall(1)
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.153.12 Employment Agreement, dated as of June 30, 1998, by and between
Celestica Inc. and R. Thomas Tropea(10)
3.16 Celestica, Inc. -- Celestica Retirement Plan (Canada)(2)
3.17Tropea(8)
3.13 D2D Employee Share Purchase and Option Plan (1997)(2)
3.183.14 Celestica 1997 U.K. Approved Share Option Scheme(1)
3.193.15 1998 U.S. Executive Share Purchase and Option Plan(11)Plan(9)
8.1 Subsidiaries of Registrant
99.1 Certification required by Section 906 of the Sarbanes-Oxley
Act of 2002***
- -----------------------
* Request for confidential treatment granted. Confidential portions of
this document have been redacted and filed separately with the
Securities and Exchange Commission.
** Confidential treatment requested. Confidential portions of this
document have been redacted and filed separately with the Securities
and Exchange Commission.
*** Pursuant to Commission Release No. 33-8212, this certification will
be treated as "accompanying" this Annual Report on Form 20-F and not
"filed" as part of such report for purposes of Section 18 of the
Exchange Act, or otherwise subject to the liability of Section 18 of
the Exchange Act, and this certification will not be incorporated by
reference into any filing under the Securities Act, or the Exchange
Act, except to the extent that the registrant specifically incorporates
it by reference.
(1) Incorporated by reference to the Registration Statement on Form F-1 of
Celestica Inc. filed on April 29, 1998 (Registration No. 333-8700).
(2) Incorporated by reference to Amendment No. 1 to the Registration
Statement on Form F-1 of Celestica Inc. filed on June 1, 1998
(Registration No. 333-8700).
(3) Incorporated by reference to the Registration Statement on Form F-1 of
Celestica Inc. filed on February 16, 1999 (Registration No. 333-10030).
(4) Incorporated by reference to the Annual Report on Form 20-F of
Celestica Inc. filed on May 22, 2001.
(5) Incorporated by reference to Amendment No. 3 to the Registration
Statement on Form F-1 of Celestica Inc. filed on June 25, 1998
(Registration No. 333-8700).
(6) Incorporated by reference to Amendment No. 1 to the Registration Statement
on Form F-4 of Celestica International Inc.
filed on March 5, 1997 (Registration No. 333-6308).
(7) Incorporated by reference to the Registration Statement on Form F-3 of
Celestica Inc. filed on July 11, 2000 (Registration No. 333-12272).
(8) Incorporated by reference to the Current Report on Form 6-K of
Celestica Inc. for the month of August, 2000.
(9)(7) Incorporated by reference to the Registration StatementAnnual Report on Form F-320-F of
Celestica Inc. filed on September 10, 2001 (Registration No. 333-69278).
(10)May 3, 2002.
(8) Incorporated by reference to the Annual Report on Form 20-F of
Celestica Inc. filed on May 18, 2000.
(11)(9) Incorporated by reference to the Registration Statement on Form S-8 of
Celestica Inc. filed on October 8, 1998 (Registration No. 333-9500).