Celestica Announces Third Quarter Financial Results

 

January 1
2010 

September 30
2010 

December 31
2010 
Decrease in pension asset (included in other non-current assets).....          $ 89.8         $ 98.1         $ 104.3
Increase in retirement benefit obligations...........................................                40.6               30.9               48.1
          $ 130.4         $ 129.0         $ 152.4

Employee benefit expense for the three and nine months ended September 30, 2010 and the year ended December 31, 2010 was lower under IFRS compared to GAAP by $0.8, $5.8 and $6.7 (including the impact of related foreign exchange gains or losses on the net pension liabilities recorded on transition), respectively, as the employee benefit expense under IFRS excludes the impact of the above actuarial losses and vested prior service credits that we recorded directly through deficit on the Transition Date.  Under IFRS, we elected to recognize actuarial gains and losses incurred after the Transition Date of $28.3 ($28.7 less $0.4 of taxes) through other comprehensive income (OCI) and deficit for the year ended December 31, 2010.

(b) Restructuring provision:

In accordance with GAAP, we discounted significant restructuring provisions using the discount rate at the time of initial measurement and we recorded no adjustments to reflect subsequent changes in discount rates.  Under IFRS, we remeasure our provisions each reporting period using the current period pre-tax discount rates. On the Transition Date, we increased the restructuring provision liability by $1.3 to reflect the impact of then current discount rates. For the three months ended September 30, 2010, IFRS net earnings were lower than GAAP net earnings by $0.1, and for the nine months ended September 30, 2010 and the year ended December 31, 2010, IFRS net earnings were higher than GAAP net earnings by $0.2 and $0.4, respectively, to reflect changes in discount rates during the period.

In addition, IFRS defers the recognition of restructuring charges until the plans are implemented or announced to employees.  During the third quarter of 2010, we announced certain restructuring actions which we previously recorded under GAAP in the second quarter of 2010.  As a result, in the third quarter of 2010, we increased our restructuring charges under IFRS compared to GAAP by $14.7.  Under GAAP, our restructuring charges included $0.5 and $10.7 for actions not yet announced at September 30, 2010 and December 31, 2010, respectively, which we reversed under IFRS and expect to action during 2011.  There were no restructuring adjustments related to unannounced actions at the Transition Date. Our restructuring provision at January 1, 2010 was $45.3 (December 31, 2010 -- $20.0) under IFRS.

(c) Income taxes:

Under IFRS, we recognized net deferred income tax assets for temporary differences arising from inter-company transfers of property and equipment and to reflect the tax effect of revaluing foreign currency denominated non-monetary balances, which were not required under GAAP.  We also recorded the deferred income tax effects of the other IFRS adjustments.

(d) Business combinations:

Under IFRS, acquisition-related transaction costs are expensed as incurred.  As a result of transaction costs associated with our two acquisitions in 2010, IFRS net earnings for the three and nine months ended September 30, 2010 and the year ended December 31, 2010 were lower than GAAP net earnings by $0.6, $1.0 and $1.0, respectively. Under GAAP, these costs were capitalized as part of the purchase price allocation.  IFRS also requires that obligations for contingent consideration be recorded at fair value at the acquisition date.  Under GAAP, contingent consideration is only recorded when the amounts are reasonably estimable and the outcome is certain. For one acquisition in 2010, we recorded additional goodwill of $4.5 under IFRS, with a corresponding increase to other non-current provisions on the acquisition date.  Subsequent changes in the fair value of the contingent consideration from the date of acquisition to the settlement date are generally recorded in the consolidated statement of operations.  At December 31, 2010, the fair value of the contingent consideration increased to $4.6 due to changes in foreign exchange rates.

(e) Cumulative currency translation adjustment:

Under IFRS, we elected to clear our cumulative currency translation balance to zero through equity on the Transition Date.  We eliminated $46.9 of cumulative currency translation gains from OCI and reduced our deficit upon transition to IFRS. Total equity was not affected.

Other adjustments and reclassifications:

(f) Stock-based compensation:

Under GAAP, each grant was treated as a single arrangement and compensation expense was determined at the time of grant and amortized over the vesting period, generally three to four years, on a straight-line basis.  IFRS requires a separate calculation of compensation expense for awards that vest in installments.  Under IFRS, compensation expense differs from GAAP based on the changing fair values used for each installment and the timing of recognizing compensation expense. Generally this results in accelerated expense recognition under IFRS.  On the Transition Date, we recognized additional compensation expense of $11.7 which increased our deficit with a corresponding offset to contributed surplus. Total equity was not affected. Under IFRS as compared to GAAP, stock-based compensation expense for the three and nine months ended September 30, 2010 and year ended December 31, 2010 decreased by $0.1, $0.8 and $0.4, respectively.

(g) Assets held-for-sale:

Under IFRS, we classified assets held-for-sale separately on the consolidated balance sheet.  Under GAAP, assets held-for-sale were included with property, plant and equipment and long-term assets on the consolidated balance sheet.  On the Transition Date, we reclassified assets held-for-sale of $22.8 to a separate line item.  Total equity was not affected by this reclassification.  At December 31, 2010, we had $35.5 in assets held-for-sale.

Cash flow:

The adoption of IFRS did not significantly impact our cash flows compared to GAAP.  Under IFRS, we reclassified $0.8 and $13.7 of finance costs paid from operating activities to financing activities for the three and nine months ended September 30, 2010, respectively ($15.0 -- year ended December 31, 2010). These costs were primarily for interest paid on our Notes prior to redemption in March 2010. There were no changes to overall net cash flows.

4. ACQUISITIONS

In June 2011, we acquired the semiconductor equipment contract manufacturing operations of Brooks Automation, Inc. We acquired certain assets located in Portland, Oregon and the shares of China -based Brooks Automation Limited.  The operations specialize in manufacturing complex mechanical equipment and providing systems integration services to some of the world's largest semiconductor equipment manufacturers.

The final purchase price was $80.5 , net of cash acquired, which we financed from cash on hand and $45.0 from our revolving credit facility.  Details of the final purchase price allocation, using estimated fair values, are as follows:

Current assets, net of cash acquired........        $ 49.9
Capital and other long-term assets...........               1.5
Customer intangible assets.......................              12.5
Goodwill....................................................              33.8
Current liabilities.......................................              (17.2)
        $ 80.5

We finalized the purchase price allocation in the third quarter of 2011, including the fair value of our customer intangible and other assets. We increased the purchase price to reflect a $2.5 working capital adjustment which we paid in August 2011 . Through this acquisition, we established an entry into the semiconductor capital equipment market, added capabilities to and diversified our industrial service offering, and acquired an experienced design and engineering workforce we can leverage with our existing customers. We expect approximately one-third of the goodwill will be tax deductible. We have expensed a total of $0.6 in acquisition-related transaction costs through other charges since the acquisition. These operations have not contributed significantly to our overall consolidated results of operations since the acquisition in late June 2011 .

Pro forma disclosure: Revenue and earnings for the combined companies for the current reporting period would not have been materially different had the acquisition occurred at the beginning of the year.

In January 2010 , we acquired Scotland -based Invec Solutions Limited (Invec). Invec provides warranty management, repair and parts management services to companies in the information technology and consumer electronics markets.  In August 2010 , we completed the acquisition of Austrian-based Allied Panels Entwicklungs-und Produktions GmbH (Allied Panels), a medical engineering and manufacturing service provider that offers concept-to-full-production solutions in medical devices with a core focus on the diagnostic and imaging market.  The total purchase price for these two acquisitions was $18.3 and was financed with cash.  The purchase price for Allied Panels is subject to adjustment for contingent consideration totaling up to 7.1 million Euros (approximately $9.6 at current exchange rates, of which $4.5 was included in goodwill on the acquisition date), if specific pre-determined financial targets are achieved through fiscal year 2012.  We continue to monitor this contingency each quarter.  Subsequent changes in the fair value of the contingent liability are recorded in our consolidated statement of operations.

5. SEGMENT AND CUSTOMER REPORTING

End markets:

The following table indicates revenue by end market as a percentage of total revenue. Our revenue fluctuates from period-to-period depending on numerous factors, including but not limited to: seasonality of business, the mix and complexity of the products or services we provide, the level of business and program wins or losses from new, existing and disengaging customers, the phasing in or out of programs, and changes in customer demand.  We expect that the pace of technological change, the frequency of OEMs transferring business among EMS competitors and the constantly changing dynamics of the global economy will also continue to impact our business from period-to-period.

  Three mont hs end e d

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