10-KPeriod: FY2004

CELESTICA INC Annual Report, Year Ended Dec 31, 2004

Filed March 21, 2005For Securities:CLS

Summary

Celestica Inc. reported significant revenue growth in 2004, increasing by 31% to $8.8 billion, a recovery from the 2003 downturn which saw revenues drop by 19%. This growth was driven by new business wins, acquisitions, and improved end-market conditions. However, despite the revenue increase, the company continued to experience substantial net losses, with the loss for 2004 widening significantly to $854.1 million, largely due to substantial impairment charges ($912.6 million in total), including goodwill and long-lived assets, and a large charge to establish a valuation allowance against deferred tax assets. The company is actively undergoing restructuring initiatives, aiming to improve capacity utilization and operational efficiency by shifting production to lower-cost geographies. While revenue from customers outside the top ten has increased, the company remains significantly dependent on its largest customers, with its top ten customers accounting for 65% of revenue in 2004.

Key Highlights

  • 1Revenue increased by 31% to $8.8 billion in 2004, a strong rebound from the previous year's decline.
  • 2Despite revenue growth, net loss for 2004 widened to $854.1 million due to significant impairment charges and tax valuation allowances.
  • 3The company is undergoing significant restructuring, including plant closures and workforce reductions, to improve efficiency and shift operations to lower-cost regions.
  • 4Customer diversification has improved, with revenue from non-top 10 customers increasing, although top customers still represent a substantial portion of revenue (65% in 2004).
  • 5Gross margin showed improvement in 2004 to 4.6% (5.3% excluding certain charges), driven by higher volumes, improved operating efficiency, and restructuring benefits.
  • 6SG&A expenses as a percentage of revenue decreased to 3.8% in 2004 from 4.1% in 2003, reflecting cost management efforts.
  • 7The company ended 2004 with $968.8 million in cash and cash equivalents, demonstrating continued liquidity despite operational challenges.

Frequently Asked Questions

In 2004, Celestica reported revenue of $8.8 billion, a 31% increase from 2003. However, the company incurred a significant net loss of $854.1 million, a substantial increase from the $266.7 million loss in 2003. This widened loss was primarily driven by $912.6 million in impairment and other charges, including goodwill and long-lived asset impairments, a write-down for uncollectible receivables and inventory related to a specific customer, and a large valuation allowance for deferred tax assets.

Celestica faces challenges related to the highly competitive EMS industry, customer concentration, rapid technological change, and managing its global operations. Strategically, the company is focused on improving operating margins and efficiency through restructuring initiatives, consolidating facilities, shifting production to lower-cost geographies, and expanding its service offerings to a more diversified customer base across various end markets.

While Celestica remains dependent on its key customers, it has made progress in diversifying its customer base. The revenue from its top ten customers decreased as a percentage of total revenue from 73% in 2003 to 65% in 2004. Concurrently, revenue from customers outside the top ten increased, reflecting the company's strategy to expand into new end markets such as aerospace and defense, automotive, and industrial.

Celestica has undertaken multiple restructuring plans since 2001 to rebalance its global manufacturing network and reduce excess capacity, particularly in higher-cost regions. These plans have involved workforce reductions and facility consolidations. While these initiatives aim to improve operating efficiency and margins, they have also resulted in significant restructuring charges. In 2004, benefits from prior restructuring efforts contributed approximately $136 million to cost savings, primarily in cost of sales.