Celestica Announces Second Quarter Financial Results

July 27, 2012

TORONTO, Canada - Celestica Inc. (NYSE, TSX: CLS), a global leader in the delivery of end-to-end product lifecycle solutions, today announced financial results for the second quarter ended June 30, 2012.

“Celestica continued to generate cash and achieved solid returns on invested capital in the second quarter, despite the challenging demand environment and the beginning of the wind down of our Research in Motion (RIM) manufacturing business,” said Craig Muhlhauser, Celestica President and Chief Executive Officer.

“Our priorities continue to be further diversifying our customer base and developing new capabilities to increase the value we deliver to our customers, while taking measures to prepare for an increasingly difficult economic environment.”

“To further accelerate our revenue diversification, we are pleased to announce that we have entered into an agreement to acquire D&H Manufacturing Company (D&H), a leading manufacturer of precision machined components and assemblies. This acquisition will strengthen our complex mechanical and systems integration offering, and allows us to provide additional value to our customers in the diversified markets segment of our business. We expect the acquisition to close in the third quarter of 2012.”

                i.      International Financial Reporting Standards (IFRS) net earnings for the second quarter of 2012 included an aggregate charge of $0.03 (pre-tax) per share for stock-based compensation and amortization of intangible assets (excluding computer software). This is slightly below the range we provided on April 24, 2012 of a charge between $0.04 and $0.06 per share. Our IFRS net earnings for the second quarter of 2012 also included a $0.09 (pre-tax) per share charge for restructuring charges primarily related to the wind down of our manufacturing services for RIM. Compared to our guidance, adjusted net EPS (non-IFRS) of $0.22 for the second quarter of 2012 was negatively impacted by $0.02 per share reflecting higher than expected income taxes.

               ii.      Non-IFRS measures do not have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other companies using IFRS or other generally accepted accounting principles (GAAP).

See Schedule 1 for non-IFRS definitions and a reconciliation of non-IFRS to IFRS measures.

Second Quarter 2012 Highlights
• Revenue:  $1.74 billion, at the high end of our guidance of $1.65 to $1.75 billion (announced April 24, 2012)
• IFRS EPS:  $0.11 per share, compared to $0.21 per share for the same period last year
• Adjusted net EPS (non-IFRS):  $0.22 per share, within the range of our guidance of $0.20 to $0.26 per share (announced April 24, 2012)
• Free cash flow (non-IFRS):  $16.9 million, compared to $2.4 million for the same period last year
• Diversified end markets: 19% of total revenue, up from 13% of total revenue for the same period last year
• Repurchased 4.6 million subordinate voting shares for cancellation as part of our Normal Course Issuer Bid (NCIB)
• Recorded $20.1 million of restructuring charges primarily related to the wind down of our manufacturing services for RIM

End Markets by Quarter

The following table sets forth revenue by end market as a percentage of total revenue:

                i.      Our communications end market is comprised of enterprise communications and telecommunications, which we have combined for reporting purposes effective the first quarter of 2012. Prior period percentages were also combined.

               ii.      Our diversified end market is comprised of industrial, aerospace and defense, healthcare, green technology, semiconductor equipment and other.

Wind Down of Manufacturing Services for RIM
In June 2012, we announced that over the course of the third and fourth quarters of 2012 we will wind down our manufacturing services for RIM. For the second quarter of 2012, RIM represented 17% of total revenue (first quarter of 2012 and full year 2011 –– 19%). We expect to complete the majority of our manufacturing for RIM by the end of the third quarter of 2012. As a result, we expect our revenue from RIM to decrease to approximately 10% of total revenue for the third quarter of 2012. During the second quarter of 2012, we recorded restructuring charges of $20.1 million. This was comprised of charges related to the RIM wind down of $21.8 million (of which $9.1 million were cash charges) offset in part by reversals of certain prior unrelated restructuring charges totaling $1.7 million.

Due to the significance of RIM as a customer and in order to improve our margin performance, we will take additional restructuring actions in 2012 throughout our global network to reduce our overall cost structure. By the end of 2012, we expect to record total restructuring charges of between $40 million and $50 million, including the estimated $35 million we announced in June 2012. Of this amount, we recorded $20.1 million in the second quarter of 2012.
As a result of the wind down of our manufacturing services for RIM and the challenging demand outlook, we expect our revenue growth for fiscal 2012 will be negative and that we will no longer achieve (and now withdraw) our three-year compound annual revenue growth target of 6% to 8% and our annual operating margin target of 3.5% to 4.0% which we established at the beginning of 2010. We expect our operating margin for the second half of 2012 will be in the range of 2.5% and 3.0%. Despite our lower revenue expectations for 2012, we expect to achieve our annual ROIC and annual free cash flow targets for 2012. 

Celestica Share Repurchase Plan
During the second quarter of 2012, we paid $36.2 million to repurchase for cancellation 4.6 million subordinate voting shares. The share repurchases were part of our NCIB accepted by the Toronto Stock Exchange in February 2012. The number of subordinate voting shares we are permitted to repurchase for cancellation under the NCIB is reduced by the number of shares we purchase for equity-based compensation plans. At June 30, 2012, we can repurchase up to an additional 5.2 million subordinate voting shares, of which approximately 3 million are intended for cancellation.

Acquisition to strengthen capabilities in the Diversified Markets
We announced today that we have agreed to acquire D&H Manufacturing Company based in California, a leading manufacturer of precision machined components and assemblies, primarily for the semiconductor capital equipment market. The operations provide manufacturing and engineering services, coupled with dedicated capacity and equipment for prototype and quick-turn support to some of the world’s leading semiconductor capital equipment manufacturers. The business generates approximately $80 million in annual revenue and currently employs approximately 350 people.

"The acquisition further strengthens Celestica’s diversified markets offering and will allow us to provide our customers with additional capability in large scale and high quality precision machining,” said Craig Muhlhauser, Celestica President and Chief Executive Officer. “The D&H team brings extensive engineering and technical depth to Celestica that will complement our capabilities in complex mechanical and systems integration services.”

This acquisition supports our strategy to grow and diversify our revenue base in the industrial, aerospace and defense, semiconductor equipment, green technology and healthcare end markets. The purchase price is expected to be approximately $70 million and will be financed from our credit facility or cash on hand. The transaction is subject to customary conditions and is expected to close in the third quarter of 2012.

Third Quarter 2012 Outlook
For the third quarter ending September 30, 2012, we anticipate revenue to be in the range of $1.6 billion to $1.7 billion, and adjusted net earnings per share to be in the range of $0.17 to $0.23.  We expect a negative $0.08 to $0.14 per share (pre-tax) aggregate impact on an IFRS basis for the following items: stock-based compensation, amortization of intangible assets (excluding computer software) and restructuring charges.

Second Quarter Webcast
Management will host its second quarter results conference call today at 8:00 a.m. Eastern Daylight Time. The webcast can be accessed at www.celestica.com.

Supplementary Information
In addition to disclosing detailed results in accordance with IFRS, Celestica provides supplementary non-IFRS measures to consider in evaluating the company’s operating performance. See Schedule 1. Management uses adjusted net earnings and other non-IFRS measures to assess operating performance and the effective use and allocation of resources; to provide more meaningful period-to-period comparisons of operating results; to enhance investors’ understanding of the core operating results of Celestica’s business; and to set management incentive targets.

About Celestica
Celestica is dedicated to delivering end-to-end product lifecycle solutions to drive our customers’ success. Through our simplified global operations network and information technology platform, we are solid partners who deliver informed, flexible solutions that enable our customers to succeed in the markets they serve. Committed to providing a truly differentiated customer experience, our agile and adaptive employees share a proud history of demonstrated expertise and creativity that provides our customers with the ability to overcome any challenge. For further information on Celestica, visit its website at www.celestica.com. The company’s security filings can also be accessed at www.sedar.com and www.sec.gov.

Safe Harbour and Fair Disclosure Statement

This news release contains forward-looking statements related to our future growth; trends in our industry; our financial or operational results including our quarterly earnings and revenue guidance; the impact of the wind down of our manufacturing services for RIM on our financial targets and results and working capital requirements, and our anticipated expenses and restructuring charges related to such wind down and other actions; the acquisition of D&H, including our ability to close the transaction, the timing of closing, the purchase price and our funding thereof, and the impact of the acquisition on our diversified end markets; the impact of acquisitions and program wins or losses on our financial results and working capital requirements; anticipated expenses, capital expenditures or benefits; our expected tax outcomes; our cash flows, financial targets and priorities; our ability to diversify and grow our customer base and develop new capabilities; and the effect of the global economic environment on customer demand. Such forward-looking statements are predictive in nature and may be based on current expectations, forecasts or assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially from the forward-looking statements themselves.  Such forward-looking statements may, without limitation, be preceded by, followed by, or include words such as “believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans”, “continues”, or similar expressions, or may employ such future or conditional verbs as “may”, “will”, “should” or “would”, or may otherwise be indicated as forward-looking statements by grammatical construction, phrasing or context.  For those statements, we claim the protection of the safe harbor for forward looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995, and in applicable Canadian securities legislation. Forward looking statements are not guarantees of future performance. Readers should understand that the following important factors, among others, could affect our future results and could cause those results to differ materially from those expressed in such forward-looking statements: the challenges of effectively managing the wind down of our manufacturing services for RIM; the extent of the restructuring charges associated with the RIM wind down and other actions; our dependence on a limited number of customers and on our customers’ ability to compete and succeed in their marketplace for the products we manufacture; the effects of price competition and other business and competitive factors generally affecting the electronics manufacturing services (EMS) industry; the challenges of effectively managing our operations and our working capital performance during uncertain economic conditions, including responding to significant changes in demand from our customers, including RIM; the challenges of managing changing commodity costs as well as labor costs and conditions; disruptions to our operations, or those of our customers, component suppliers, or our logistics partners, resulting from local events including natural disasters, political instability, local labor conditions and social unrest, criminal activity and other risks present in the jurisdictions in which we operate; our inability to retain or expand our business due to execution problems relating to the ramping of new programs; the delays in the delivery and/or general availability of various components and materials used in our manufacturing process; the challenge of managing our financial exposure to foreign currency volatility; our dependence on industries affected by rapid technological change; variability of operating results among periods; our ability to successfully manage our international operations; increasing income taxes and our ability to successfully defend tax audits or meet the conditions of tax incentives; the completion of all our restructuring activities or integration of our acquisitions; the risk of potential non-performance by counterparties, including but not limited to financial institutions, customers and suppliers; and other matters relating to the D&H transaction, including closing conditions not being satisfied in a timely manner or at all, the purchase price varying from the expected amount, our inability to finance the transaction, and our inability to develop our capabilities in our diversified markets. These and other risks and uncertainties, as well as other information related to Celestica, are discussed herein and in our various public filings at www.sedar.com and www.sec.gov, including our Annual Report on Form 20-F and subsequent reports on Form 6-K filed with the U.S. Securities and Exchange Commission and our Annual Information Form filed with the Canadian securities regulators. Forward-looking statements are provided for the purpose of providing information about management’s current expectations and plans relating to the future.  Readers are cautioned that such information may not be appropriate for other purposes. Except as required by applicable law, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Our revenue, earnings and other financial guidance, as contained in this press release, is based on various assumptions which management believes are reasonable under the current circumstances, but may prove to be inaccurate, and many of which involve factors that are beyond the control of the company. The material assumptions may include the following: our ability to effectively manage the RIM wind down; forecasts from our customers, which range from 30 to 90 days and can fluctuate significantly in terms of volume and mix of products or services; the timing and execution of, and investments associated with, ramping new business; the success in the marketplace of our customers’ products; general economic and market conditions; currency exchange rates; pricing and competition; anticipated customer demand; supplier performance and pricing; commodity, labor, energy and transportation costs; operational and financial matters; technological developments; the timing and execution of our restructuring actions; and our ability to diversify our customer base and develop new capabilities. These assumptions and estimates are based on management’s current views with respect to current plans and events, and are and will be subject to the risks and uncertainties referred to above.  It is Celestica’s policy that our guidance is effective on the date given, and will only be updated through a public announcement. 

To view full financial details, please visit our Investor's Section.

Contacts: