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CELESTICA ANNOUNCES FOURTH QUARTER AND FY 2010 FINANCIAL RESULTS

Fourth Quarter 2010 Summary

  • Revenue of $1.88 billion, compared to $1.66 billion for the same period last year
  • GAAP net earnings of $25.6 million, or $0.11 per share, compared to GAAP net earnings of $31.1 million, or $0.13 per share, last year
  • Non-GAAP adjusted net earnings of $0.26 per share, compared to $0.21 per share last year
  • Non-GAAP return on invested capital of 29.5%, compared to 27.5% last year
  • Non-GAAP operating margin of 3.6%, compared to 3.6% last year
  • Inventory turns of 8.7x
  • Non-GAAP free cash flow of $31 million, cash on hand of $633 million
  • Company spent $103 million in the fourth quarter to repurchase 11.4 million shares for cancellation
  • First quarter of 2011 guidance: revenue of $1.725 billion to $1.875 billion, adjusted net earnings per share of $0.20 to $0.26.

TORONTO, Jan. 27 /PRNewswire-FirstCall/ – Celestica Inc. (NYSE, TSX: CLS), a global leader in the delivery of end-to-end product lifecycle solutions, today announced financial results for the fourth quarter and fiscal year ended December 31, 2010.

Fourth Quarter and FY 2010 Results

Adjusted net earnings for the quarter were $58.3 million, or $0.26 per share, compared to $49.5 million, or $0.21 per share, for the same period last year. The term adjusted net earnings is a non-GAAP measure defined as net earnings before stock-based compensation, amortization of intangible assets (excluding computer software), restructuring and other charges, and gains or losses related to the repurchase of shares or debt, net of tax adjustments and significant deferred tax write-offs or recoveries. Detailed GAAP financial statements and supplementary information related to adjusted net earnings and other non-GAAP measures appear at the end of this press release.

For fiscal year 2010, revenue was $6.5 billion, compared to $6.1 billion for fiscal year 2009. GAAP net earnings for 2010 were $80.8 million, or $0.35 per share, compared to $55.0 million, or $0.24 per share, for 2009. Adjusted net earnings for 2010 were $196.0 million, or $0.85 per share, compared to $158.5 million, or $0.69 per share, for 2009.

Fourth Quarter Results Compared to Guidance

"Celestica reported very strong financial results in the fourth quarter, highlighted by 21 per cent sequential revenue growth and the highest returns on invested capital since the company went public in 1998," said Craig Muhlhauser, President and Chief Executive Officer, Celestica. "Our focus continues to be on delivering value for our customers and building momentum for profitable growth in our target markets.

"The company begins 2011 well positioned to meet the complex supply chain requirements of our customers, with the opportunity to deliver continued revenue growth and steadily improving returns to our shareholders."

End Markets by Quarter*

  2009   2010
  First Quarte r Second Quarte r Third Qu arter Fourth Quart er Full
Year
  First Quarte r Sec ond Quarter T hird Quarter Fo urth Quarter Ful l
Year
Consumer ……………………….. 28% 21% 30% 31% 28%   28% 26% 24% 24% 25%
Enterprise Communications .. 22% 24% 22% 21% 22%   22% 24% 25% 24% 24%
Telecommunications …………. 18% 20% 12% 11% 15%   14% 13% 14% 12% 13%
Storage …………………………..   8% 12% 13% 13% 12%   14% 12% 12% 12% 12%
Servers ………………………….. 13% 12% 13% 14% 13%   12% 14% 13% 17% 14%
Industrial, Aerospace and Defense, and Healthcare … 11% 11% 10% 10% 10%   10% 11% 12% 11% 12%
                       
Revenue (in millions) ……….. $1,469.4 $1,402.2 $1,556.2 $1,664.4 $6,092.2   $1,518.1 $1,585.4 $1,546.5 $1,876.1 $6,526.1

*Starting with the fourth quarter of 2010, Celestica reclassified a customer program from the Consumer end market to the Enterprise Communications end market. Quarterly and full-year comparative percentages for 2009 and 2010 have been recalculated to conform to the current period’s presentation.

Celestica Share Repurchase Plan

Since the commencement of the program, the company has spent $140.6 million to repurchase for cancellation approximately 16.1 million shares, at an average price of $8.75. The total number of subordinate voting shares which may be repurchased for cancellation under the NCIB is reduced by the number of shares purchased for employee equity-based incentive programs. The company has purchased approximately 1.0 million shares for employee equity-based incentive programs since the NCIB began. At December 31, 2010, approximately 0.9 million shares remain eligible to be repurchased under the NCIB.

First Quarter of 2011 Outlook

Fourth Quarter Webcast
www.celestica.com

I FRS Reporting Commences First Quarter of 2011

The comparative financial information for each quarter of 2010, in the company’s 2011 quarterly financial statements, will be restated to reflect the adoption of IFRS, with effect from January 1, 2010.  Periods prior to January 1, 2010 will not be presented under IFRS.

On transition to IFRS, the company is impacted by various balance sheet adjustments that will be recorded against its opening shareholder’s equity at January 1, 2010. The most significant balance sheet adjustment relates to the accounting for actuarial losses arising from pension and post-retirement benefit plans. IFRS allows a company to recognize on its balance sheet, at the time of transition, its cumulative actuarial losses previously unrecognized under GAAP.  The adjustment impacts the balance sheet only and, in management’s view, better reflects the economic position of the company’s pension and post-retirement benefit plans than under GAAP. Under IFRS and as compared to GAAP, the company’s deferred pension assets will decrease by approximately $90 million and its pension liabilities will increase by approximately $40 million, with a corresponding adjustment against its opening shareholders’ equity for approximately $130 million.

The most significant impact of the GAAP to IFRS adjustments on the company’s income statement for 2010 relates to the timing of recording restructuring charges under IFRS.  Although the company has recorded all of its restructuring charges under GAAP, this included charges of approximately $11 million in 2010 for actions not yet announced as of December 31, 2010. These charges will be recognized for IFRS during the first half of 2011 when the actions are announced.

The company will disclose additional details of the expected IFRS impacts in its 2010 annual management’s discussion and analysis. The first quarter of 2011 interim financial statements will also contain reconciliations between IFRS and the amounts previously reported under GAAP.

Although Celestica is required to transition to IFRS, its major North American competitors will continue to report quarterly financial results under U.S. GAAP. However, IFRS is not expected to have any significant impact to the company’s non-GAAP financial metrics, which the company uses to allow investors to compare Celestica’s financial results with those of its major North American peer group.

Supplementary Information

Management uses adjusted net earnings and other non-GAAP 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

http://www.celestica.com http://www.sedar.com http://www.sec.gov

Safe Harbor and Fair Disclosure Statement
Th is news release contains forward-looking statements related to our future growth, trends in our industry, our financial or operational results including quarterly guidance and the impact of recent program wins on our financial results and anticipated expenses, benefits or payments, our financial or operational performance, our financial targets, and the effects of our conversion from Canadian GAAP to International Financial Reporting Standards. Such forward-looking statements are predictive in nature and may be based on current expectations, forecasts or assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially from the forward-looking statements themselves.  Such forward-looking statements may, without limitation, be preceded by, followed by, or include words such as "believes", "expects", "anticipates", "estimates", "intends", "plans", or similar expressions, or may employ such future or conditional verbs as "may", "will", "should" or "would", or may otherwise be indicated as forward-looking statements by grammatical construction, phrasing or context.  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 any applicable Canadian securities legislation. Forward-looking statements are not guarantees of future performance. You should understand that the following important factors could affect our future results and could cause those results to differ materially from those expressed in such forward-looking statements: the effects of price competition and other business and competitive factors generally affecting the electronics manufacturing services (EMS) industry, including changes in the trend for outsourcing; our dependence on a limited number of customers and end markets; variability of operating results among periods; the challenges of effectively managing our operations, including responding to significant changes in demand from our customers; the challenges of managing rising labor costs; our inability to retain or expand our business due to execution problems; the delays in the delivery and/or general availability of various components and materials used in our manufacturing process; our dependence on industries affected by rapid technological change; our ability to successfully manage our international operations; the challenge of managing our financial exposures to foreign currency volatility; and the risk of potential non-performance by counterparties, including but not limited to financial institutions, customers and suppliers.  These and other risks and uncertainties, as well as other information related to the company, are discussed in the Company’s 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.

As of its date, this press release contains any material information associated with the Company’s financial results for the fourth quarter and fiscal year ended December 31, 2010 and revenue, adjusted net earnings and GAAP net earnings guidance for the first quarter ending March 31, 2011.  Revenue and earnings guidance is reviewed by the Company’s Board of Directors.  Our revenue and earnings guidance 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: forecasts from our customers, which range from 30 to 90 days and can fluctuate significantly in terms of volume and mix of products; timing and investments associated with ramping new business; 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; and technological developments. These assumptions are based on management’s current views with respect to current plans and events, and are and will be subject to the risks and uncertainties referred to above.  It is Celestica’s policy that revenue and earnings guidance is effective on the date given, and will only be updated through a public announcement. 

Schedule 1

Supplementary Non-GAAP Measures

These non-GAAP measures do not have any standardized meaning prescribed by Canadian or U.S. GAAP and are not necessarily comparable to similar measures presented by other companies. Non-GAAP measures are not measures of performance under Canadian or U.S. GAAP and should not be considered in isolation or as a substitute for any standardized measure under Canadian or U.S. GAAP.  The most significant limitation to management’s use of non-GAAP financial measures is that the charges and expenses excluded from the non-GAAP measures are nonetheless charges that are recognized under GAAP and that have an economic impact on the company.  Management compensates for these limitations primarily by issuing GAAP results to show a complete picture of the company’s performance, and reconciling non-GAAP results back to GAAP.

The economic substance of these exclusions and management’s rationale for excluding these from non-GAAP financial measures is provided below:

Stock-based compensation, which represents the estimated fair value of stock options and restricted stock units granted to employees, is excluded because grant activities vary significantly from quarter-to-quarter in both quantity and fair value.  In addition, excluding this expense allows us to better compare core operating results with those of our competitors who also generally exclude stock-based compensation from their core operating results, who may have different granting patterns and types of equity awards, and who may use different option valuation assumptions than we do. Prior to the fourth quarter of 2009, the company only excluded stock options from its non-GAAP measures.  Comparables for prior periods reflect the exclusion of stock options and restricted stock units.

Restructuring and other charges, which consist primarily of employee severance, lease termination and facility exit costs associated with closing and consolidating manufacturing facilities and reductions in infrastructure, are excluded because such charges are not directly related to ongoing operating results and do not reflect expected future operating expenses after completion of these activities.  We believe that excluding these charges permits a better comparison of our core operating results with those of our competitors who also generally exclude these costs in assessing operating performance. 

Impairment charges, which consist of non-cash charges against goodwill and long-lived assets, result primarily when the carrying value of these assets exceeds their fair value.  These charges are excluded because they are generally non-recurring. In addition, our competitors may record impairment charges at different times and excluding these charges permits a better comparison of our core operating results with those of our competitors who also generally exclude these charges in assessing operating performance.

Gains or losses related to the repurchase of shares or debt are excluded as these gains or losses do not impact core operating performance and vary significantly among our competitors who also generally exclude these charges in assessing operating performance. 

Significant deferred tax write-offs or recoveries are excluded as these write-offs or recoveries do not impact core operating performance and vary significantly among our competitors who also generally exclude these charges in assessing operating performance.

The following table sets forth, for the periods indicated, a reconciliation of GAAP to non-GAAP measures (in millions, except per share amounts):

  Three months ended
December 31
Year ended
December 31
2009   2010 2009   2010
 
     
Revenue
 
GAAP gross profit
 
Non-GAAP gross profit
 
GAAP SG&A
 
Non-GAAP SG&A
 
GAAP earnings before income taxes
 
 
 
 
  12.3     8.9     12.3     8.9  
 
Non-GAAP operating earnings (EBIAT) (1)
 
GAAP net earnings
 
 
 
  12.3     8.9     12.3     8.9  
 
 
Non-GAAP adjusted net earnings

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