(All amounts in U.S. dollars.
Per share information based on diluted
shares outstanding unless otherwise noted.)
TORONTO, July 23, 2015 /PRNewswire/ - 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, 2015.
Second Quarter 2015 Highlights
- Revenue: $1.42 billion, within
our guidance range of $1.35 billion to $1.45
billion (announced April 21,
2015), increased 9% sequentially and decreased 4% compared
to the second quarter of 2014
- Revenue from our diversified end market represented 28% of
total revenue, consistent with the second quarter of 2014
- Operating margin (non-IFRS): 3.4%, compared to 3.5% for the
second quarter of 2014
- Adjusted EPS (non-IFRS): $0.25
per share, within our guidance range of $0.20 to $0.26 per share (announced April 21, 2015), consistent with the second
quarter of 2014
- IFRS EPS: $0.14 per share,
compared to $0.22 per share for the
second quarter of 2014
- ROIC (non-IFRS): 19.6%, compared to 19.0% for the second
quarter of 2014
- Repurchased and cancelled 26.3 million subordinate voting
shares for $350.0 million under a
substantial issuer bid, representing approximately 15.5% of the
total multiple voting shares and subordinate voting shares issued
and outstanding prior to its completion
- Free cash flow (non-IFRS): $2.4
million, compared to $40.9
million for the second quarter of 2014
"Celestica delivered a solid second quarter with revenue and
adjusted earnings per share above the midpoint of our guidance
range, driven primarily by strength in our communications, storage
and semiconductor markets as compared to last quarter," said
Craig Muhlhauser, Celestica's
President and Chief Executive Officer. "Through our continued focus
on profitable revenue growth, operational excellence and continuous
improvement, we also achieved sequential improvements in operating
margin and return on invested capital."
"As we look ahead to the second half of the year, we remain
focused on diversification and accelerating our growth, strong
operational execution, disciplined cost management and increasing
our asset velocity to drive customer and shareholder value."
Second Quarter and Year-to-Date Summary
|
Three months ended
June 30
|
|
Six months ended
June 30
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
Revenue (in
millions)...........................................................................
|
$
|
1,471.5
|
|
|
$
|
1,417.3
|
|
|
$
|
2,783.9
|
|
|
$
|
2,715.8
|
|
|
|
|
|
|
|
|
|
IFRS net earnings (in
millions)(i).......................................................
|
$
|
40.9
|
|
|
$
|
24.2
|
|
|
$
|
78.2
|
|
|
$
|
43.9
|
|
IFRS EPS
(i)............................................................................................
|
$
|
0.22
|
|
|
$
|
0.14
|
|
|
$
|
0.43
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
Adjusted net earnings
(non-IFRS) (in
millions)(ii)...........................
|
$
|
44.9
|
|
|
$
|
41.7
|
|
|
$
|
92.0
|
|
|
$
|
74.7
|
|
Adjusted EPS
(non-IFRS)(i)
(ii).............................................................
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.50
|
|
|
$
|
0.44
|
|
Non-IFRS return on
invested capital
(ROIC)(ii)................................
|
19.0
|
%
|
|
19.6
|
%
|
|
17.7
|
%
|
|
18.2
|
%
|
Non-IFRS operating
margin(ii)............................................................
|
3.5
|
%
|
|
3.4
|
%
|
|
3.3
|
%
|
|
3.3
|
%
|
i.
|
International
Financial Reporting Standards (IFRS) net earnings for the second
quarter of 2015 included an aggregate charge of $0.11 (pre-tax) per
share for employee stock-based compensation expense, amortization
of intangible assets (excluding computer software) and
restructuring charges. This aggregate charge is within the range we
provided on April 21, 2015 of an aggregate charge of between
$0.06 and $0.11 per share for these items (see the tables in
Schedule 1 attached hereto for per-item charges).
|
|
|
ii.
|
Non-IFRS measures do
not have any standardized meaning prescribed by IFRS and therefore
may not be comparable to similar measures presented by other public
companies that use IFRS or other generally accepted accounting
principles (GAAP). See "Non-IFRS Supplementary Information" below
for information on our rationale for the use of non-IFRS measures,
and Schedule 1 for, among other items, non-IFRS measures included
in this press release, as well as their definitions, uses, and a
reconciliation of non-IFRS to IFRS measures (where a comparable
IFRS measure exists).
|
End Markets by Quarter as a Percentage of Total
Revenue
|
2014
|
|
2015
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
FY
|
|
Q1
|
|
Q2
|
Communications..................................................................................
|
40%
|
|
40%
|
|
40%
|
|
40%
|
|
40%
|
|
40%
|
|
40%
|
Consumer..............................................................................................
|
6%
|
|
5%
|
|
5%
|
|
3%
|
|
5%
|
|
3%
|
|
3%
|
Diversified(i)...........................................................................................
|
28%
|
|
28%
|
|
29%
|
|
27%
|
|
28%
|
|
28%
|
|
28%
|
Servers...................................................................................................
|
10%
|
|
10%
|
|
9%
|
|
10%
|
|
9%
|
|
11%
|
|
10%
|
Storage...................................................................................................
|
16%
|
|
17%
|
|
17%
|
|
20%
|
|
18%
|
|
18%
|
|
19%
|
Revenue
(in billions)............................................................................
|
$1.31
|
|
$1.47
|
|
$1.42
|
|
$1.42
|
|
$5.63
|
|
$1.30
|
|
$1.42
|
i.
|
Our diversified end
market is comprised of aerospace and defense, industrial,
healthcare, energy, and semiconductor equipment.
|
Substantial Issuer Bid (SIB)
During the second quarter of 2015, we launched and completed a
$350 million SIB, pursuant to which
we repurchased and cancelled approximately 26.3 million subordinate
voting shares at a price of $13.30
per share, representing approximately 15.5% of the total multiple
voting shares and subordinate voting shares issued and outstanding
prior to completion of the SIB. We funded the SIB using a
combination of the net proceeds of a new $250 million non-revolving term loan (the Term
Loan), $25.0 million drawn on our
revolving credit facility, and available cash on hand.
Sale Agreement with respect to Real Property in Toronto
We also announced today that we have entered into an agreement
to sell our real property located in Toronto, Ontario, which includes the site of
Celestica's corporate headquarters and its Toronto manufacturing operations, to an
entity to be formed by a consortium of three real estate
developers. Subject to completion of the transaction, the
agreed purchase price is approximately $137
million Canadian dollars ($110.7
million at period-end exchange rates), exclusive of
taxes and subject to adjustment. The completion of the transaction
is subject to various conditions, including municipal approvals and
is anticipated to occur within approximately two years.
See our separate press release issued on July 23, 2015 for a description of the
transaction terms and the review process undertaken by a special
committee of our board of directors.
Third Quarter 2015 Outlook
For the third quarter ending September 30, 2015, we
anticipate revenue to be in the range of $1.4 billion to $1.5 billion, and non-IFRS
adjusted net earnings per share to be in the range of $0.28 to $0.34. We expect a negative $0.10 to $0.16 per share (pre-tax) aggregate
impact on net earnings on an IFRS basis for employee stock-based
compensation expense, amortization of intangible assets (excluding
computer software) and restructuring charges.
Second Quarter 2015 Webcast
Management will host its second quarter 2015 results conference
call today at 4:30 p.m. Eastern Daylight
Time. The webcast can be accessed at www.celestica.com.
Non-IFRS Supplementary Information
In addition to disclosing detailed operating results in
accordance with IFRS, Celestica provides supplementary non-IFRS
measures to consider in evaluating the company's operating
performance. 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. We
believe investors use both IFRS and non-IFRS measures to assess
past, current and future decisions associated with our priorities
and our allocation of capital, as well as to analyze how our
business operates in, or responds to, swings in economic cycles or
to other events that impact our core operations. See Schedule 1 -
Supplementary Non-IFRS Measures for, among other items, non-IFRS
measures provided herein, non-IFRS definitions, and a
reconciliation of non-IFRS to IFRS measures (where a comparable
IFRS measure exists).
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 complex challenges. For
further information about Celestica, visit our website at
www.celestica.com. Our securities filings can also be accessed at
www.sedar.com and www.sec.gov.
Cautionary Note Regarding Forward-looking Statements
This news release contains forward-looking statements related
to our future growth; trends in the electronics manufacturing
services (EMS) industry; our financial or operational results
including our quarterly revenue and earnings guidance; the impact
of acquisitions and program wins or losses on our financial results
and working capital requirements; anticipated expenses,
restructuring actions and charges, capital expenditures and/or
benefits; our expected tax and litigation outcomes; our cash flows,
financial targets and priorities; changes in our mix of revenue by
end market; our ability to diversify and grow our customer base and
develop new capabilities; the effect of the global economic
environment on customer demand; expected investments in our solar
business and the timing and extent of expected recovery of cash
advances to a particular solar cell supplier; the impact of the
financing of the SIB, including the impact of the Term Loan, on our
liquidity, future operations and financial condition; and the
timing and terms of the sale of our real property in Toronto and related transactions, including
the expected lease of our corporate head office (collectively, the
"Toronto Real Property Transactions"). Such forward-looking
statements may, without limitation, be preceded by, followed by, or
include words such as "believes", "expects", "anticipates",
"estimates", "intends", "plans", "continues",
"project", "potential",
"possible",
"contemplate",
"seek", or similar expressions, or may
employ such future or conditional verbs as "may", "might", "will",
"could", "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
applicable Canadian securities laws.
Forward-looking statements are provided for the purpose of
assisting readers in understanding management's current
expectations and plans relating to the future. Readers are
cautioned that such information may not be appropriate for other
purposes. Forward-looking statements are not guarantees of future
performance and are subject to risks that could cause actual
results to differ materially from conclusions, forecasts or
projections expressed in such statements, including, among others,
risks related to: our customers' ability to compete and succeed in
the marketplace with the services we provide and the products we
manufacture; price and other competitive factors generally
affecting the EMS industry; managing our operations and our working
capital performance during uncertain market and economic
conditions; responding to changes in demand, rapidly evolving and
changing technologies, and changes in our customers' business and
outsourcing strategies, including the insourcing of programs;
customer concentration and the challenges of diversifying our
customer base and replacing revenue from completed or lost
programs, or customer disengagements; changing commodity, material
and component costs, as well as labor costs and conditions;
disruptions to our operations, or those of our customers, component
suppliers or logistics partners, including as a result of global or
local events outside our control; retaining or expanding our
business due to execution problems relating to the ramping of new
programs or new offerings; the incurrence of future impairment
charges; recruiting or retaining skilled personnel; current or
future litigation and/or governmental actions; successfully
resolving commercial and operational challenges, and improving
financial results, in our semiconductor business; delays in the
delivery and availability of components, services and materials;
non-performance by counterparties; our financial exposure to
foreign currency volatility; our dependence on industries affected
by rapid technological change; the variability of revenue and
operating results; managing our global operations and supply chain;
increasing income taxes, tax audits, and defending our tax
positions or meeting the conditions of tax incentives and credits;
completing restructuring actions, including achieving the
anticipated benefits therefrom, and integrating any acquisitions;
computer viruses, malware, hacking attempts or outages that may
disrupt our operations; any failure to adequately protect our
intellectual property or the intellectual property of others;
compliance with applicable laws, regulations and social
responsibility initiatives; our having sufficient financial
resources and working capital following completion of the SIB and
consummation of the Term Loan to fund currently anticipated
financial obligations and to pursue desirable business
opportunities; and the potential that conditions to closing the
Toronto Real Property Transactions may not be satisfied on a timely
basis or at all. The foregoing and other material risks and
uncertainties are discussed in our public filings at
www.sedar.com and www.sec.gov, including in our MD&A, our
Annual Report on Form 20-F and subsequent reports on Form 6-K filed
with or furnished to (as applicable) the U.S. Securities and
Exchange Commission, and our Annual Information Form filed with the
Canadian Securities Administrators.
Our revenue, earnings and other financial guidance, as
contained in this press release, are based on various assumptions,
many of which involve factors that are beyond our control. The
material assumptions include those related to the following:
production schedules from our customers, which generally 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; the stability of
general economic and market conditions, currency exchange rates,
and interest rates; our pricing, the competitive environment and
contract terms and conditions; supplier performance, pricing and
terms; compliance by third parties with their contractual
obligations, the accuracy of their representations and warranties,
and the performance of their covenants; the costs and availability
of components, materials, services, plant and capital equipment,
labor, energy and transportation; operational and financial matters
including the extent, timing and costs of replacing revenue from
completed or lost programs, or customer disengagements;
technological developments; overall demand improvement in the
semiconductor industry, revenue growth and improved
financial results in our semiconductor business; the timing,
execution and effect of restructuring actions; our having
sufficient financial resources and working capital following
completion of the SIB and consummation of the Term Loan to fund our
currently anticipated financial obligations and to pursue desirable
business opportunities; and our ability to diversify our customer
base and develop new capabilities. While management believes these
assumptions to be reasonable under the current circumstances, they
may prove to be inaccurate. 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.
All forward-looking statements attributable to us are
expressly qualified by these cautionary statements.
Schedule 1
Supplementary Non-IFRS Measures
Our non-IFRS measures herein include adjusted gross profit,
adjusted gross margin (adjusted gross profit as a percentage of
revenue), adjusted selling, general and administrative expenses
(SG&A), adjusted SG&A as a percentage of revenue, operating
earnings (adjusted EBIAT), operating margin (adjusted EBIAT as a
percentage of revenue), adjusted net earnings, adjusted net
earnings per share, net invested capital, return on invested
capital (ROIC), and free cash flow. Adjusted EBIAT, net invested
capital, ROIC and free cash flow are further described in the
tables below. In calculating these non-IFRS financial measures,
management excludes the following items, where applicable: employee
stock-based compensation expense, amortization of intangible assets
(excluding computer software), restructuring and other charges, net
of recoveries (most significantly restructuring charges), the
write-down of goodwill, intangible assets and property, plant and
equipment, and gains or losses related to the repurchase of shares
or debt, net of tax adjustments and significant deferred tax
write-offs or recoveries associated with restructuring actions or
restructured sites.
We believe the non-IFRS measures we present herein are useful,
as they enable investors to evaluate and compare our results from
operations and cash resources generated from our business in a more
consistent manner (by excluding specific items that we do not
consider to be reflective of our ongoing operating results) and
provide an analysis of operating results using the same measures
our chief operating decision makers use to measure performance. The
non-IFRS financial measures that can be reconciled to IFRS measures
result largely from management's determination that the facts and
circumstances surrounding the excluded charges or recoveries are
not indicative of the ordinary course of our ongoing operation of
our business.
Non-IFRS measures do not have any standardized meaning
prescribed by IFRS and may not be comparable to similar measures
presented by other public companies that use IFRS, or who report
under U.S. GAAP and use non-U.S. GAAP measures to describe similar
operating metrics. Non-IFRS measures are not measures of
performance under IFRS and should not be considered in isolation or
as a substitute for any standardized measure under IFRS. The most
significant limitation to management's use of non-IFRS financial
measures is that the charges or credits excluded from the non-IFRS
measures are nonetheless charges or credits that are recognized
under IFRS and that have an economic impact on the company.
Management compensates for these limitations primarily by issuing
IFRS results to show a complete picture of the company's
performance, and reconciling non-IFRS results back to IFRS results
where a comparable IFRS measure exists.
The economic substance of these exclusions and management's
rationale for excluding these from non-IFRS financial measures is
provided below:
Employee stock-based compensation expense, which represents the
estimated fair value of stock options, restricted share units and
performance share 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 employee stock-based
compensation expense from their core operating results, who may
have different granting patterns and types of equity awards, and
who may use different valuation assumptions than we do, including
those competitors who use U.S. GAAP and non-U.S. GAAP measures to
present similar metrics.
Amortization charges (excluding computer software) consist
of non-cash charges against intangible assets that are impacted by
the timing and magnitude of acquired businesses. Amortization of
intangible assets varies among our competitors, and we believe that
excluding these charges permits a better comparison of core
operating results with those of our competitors who also generally
exclude amortization charges.
Restructuring and other charges, net of recoveries, include
costs relating to employee severance, lease terminations, site
closings and consolidations, write-downs of owned property and
equipment which are no longer used and are available for sale,
reductions in infrastructure and acquisition-related transaction
costs. We exclude restructuring and other charges, net of
recoveries, because we believe that they are not directly related
to ongoing operating results and do not reflect expected future
operating expenses after completion of these activities. We
believe these exclusions permit a better comparison of our core
operating results with those of our competitors who also generally
exclude these charges, net of recoveries, in assessing operating
performance.
Impairment charges, which consist of non-cash charges against
goodwill, intangible assets and property, plant and equipment,
result primarily when the carrying value of these assets exceeds
their recoverable amount. Our competitors may record impairment
charges at different times. 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 charges
in assessing operating performance.
Gains or losses related to the repurchase of shares or debt are
excluded, as we believe that these gains or losses do not reflect
core operating performance and vary significantly among those of
our competitors who also generally exclude these charges or
recoveries in assessing operating performance.
Significant deferred tax write-offs or recoveries associated
with restructuring actions or restructured sites are excluded, as
we believe that these write-offs or recoveries do not reflect core
operating performance and vary significantly among those of our
competitors who also generally exclude these charges or recoveries
in assessing operating performance.
The following table sets forth, for the periods indicated, the
various non-IFRS measures discussed above, and a reconciliation of
IFRS to non-IFRS measures, where a comparable IFRS measure exists
(in millions, except percentages and per
share amounts):
|
Three months ended
June 30
|
|
Six months ended
June 30
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
|
|
% of
revenue
|
|
|
% of
revenue
|
|
|
% of
revenue
|
|
|
% of
revenue
|
IFRS
Revenue......................................................................
|
$
|
1,471.5
|
|
|
|
$
|
1,417.3
|
|
|
|
$
|
2,783.9
|
|
|
|
$
|
2,715.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS gross
profit................................................................
|
$
|
104.9
|
|
7.1%
|
|
$
|
97.3
|
|
6.9%
|
|
$
|
195.3
|
|
7.0%
|
|
$
|
188.7
|
|
6.9%
|
|
Employee stock-based
compensation
expense.......................................................................
|
|
3.1
|
|
|
|
|
3.0
|
|
|
|
|
7.3
|
|
|
|
|
7.4
|
|
|
Non-IFRS adjusted
gross profit......................................
|
$
|
108.0
|
|
7.3%
|
|
$
|
100.3
|
|
7.1%
|
|
$
|
202.6
|
|
7.3%
|
|
$
|
196.1
|
|
7.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS
SG&A...........................................................................
|
$
|
53.6
|
|
3.6%
|
|
$
|
50.1
|
|
3.5%
|
|
$
|
108.6
|
|
3.9%
|
|
$
|
105.5
|
|
3.9%
|
|
Employee stock-based
compensation
expense.......................................................................
|
|
(3.3)
|
|
|
|
|
(4.1)
|
|
|
|
|
(10.0)
|
|
|
|
|
(11.2)
|
|
|
Non-IFRS adjusted
SG&A.................................................
|
$
|
50.3
|
|
3.4%
|
|
$
|
46.0
|
|
3.2%
|
|
$
|
98.6
|
|
3.5%
|
|
$
|
94.3
|
|
3.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS earnings
before income taxes..............................
|
$
|
46.0
|
|
|
|
$
|
29.3
|
|
|
|
$
|
76.7
|
|
|
|
$
|
56.0
|
|
|
|
Finance
costs.............................................................
|
|
0.9
|
|
|
|
|
1.1
|
|
|
|
|
1.4
|
|
|
|
|
1.6
|
|
|
|
Employee stock-based
compensation
expense.......................................................................
|
|
6.4
|
|
|
|
|
7.1
|
|
|
|
|
17.3
|
|
|
|
|
18.6
|
|
|
|
Amortization of
intangible assets (excluding
computer
software)...................................................
|
|
1.6
|
|
|
|
|
1.5
|
|
|
|
|
3.2
|
|
|
|
|
3.0
|
|
|
|
Restructuring and
other charges (recoveries).....
|
|
(3.9)
|
|
|
|
|
9.3
|
|
|
|
|
(6.4)
|
|
|
|
|
9.6
|
|
|
Non-IFRS operating
earnings (adjusted
EBIAT)(1)..............................................................................
|
$
|
51.0
|
|
3.5%
|
|
$
|
48.3
|
|
3.4%
|
|
$
|
92.2
|
|
3.3%
|
|
$
|
88.8
|
|
3.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS net
earnings...............................................................
|
$
|
40.9
|
|
2.8%
|
|
$
|
24.2
|
|
1.7%
|
|
$
|
78.2
|
|
2.8%
|
|
$
|
43.9
|
|
1.6%
|
|
Employee stock-based
compensation
expense.......................................................................
|
|
6.4
|
|
|
|
|
7.1
|
|
|
|
|
17.3
|
|
|
|
|
18.6
|
|
|
|
Amortization of
intangible assets (excluding
computer
software)...................................................
|
|
1.6
|
|
|
|
|
1.5
|
|
|
|
|
3.2
|
|
|
|
|
3.0
|
|
|
|
Restructuring and
other charges (recoveries).....
|
|
(3.9)
|
|
|
|
|
9.3
|
|
|
|
|
(6.4)
|
|
|
|
|
9.6
|
|
|
|
Adjustments for taxes
(2).........................................
|
|
(0.1)
|
|
|
|
|
(0.4)
|
|
|
|
|
(0.3)
|
|
|
|
|
(0.4)
|
|
|
Non-IFRS adjusted
net earnings.....................................
|
$
|
44.9
|
|
|
|
$
|
41.7
|
|
|
|
$
|
92.0
|
|
|
|
$
|
74.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average # of
shares (in millions).........
|
|
182.0
|
|
|
|
|
166.9
|
|
|
|
|
182.2
|
|
|
|
|
170.7
|
|
|
|
IFRS earnings per
share.........................................
|
$
|
0.22
|
|
|
|
$
|
0.14
|
|
|
|
$
|
0.43
|
|
|
|
$
|
0.26
|
|
|
|
Non-IFRS adjusted net
earnings per share.........
|
$
|
0.25
|
|
|
|
$
|
0.25
|
|
|
|
$
|
0.50
|
|
|
|
$
|
0.44
|
|
|
# of shares
outstanding at period end (in millions).....
|
178.8
|
|
|
|
142.9
|
|
|
|
178.8
|
|
|
|
142.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS cash provided
by operations.................................
|
$
|
62.2
|
|
|
|
$
|
44.4
|
|
|
|
$
|
60.4
|
|
|
|
$
|
79.5
|
|
|
|
Purchase of property,
plant and equipment,
net of sales
proceeds...............................................
|
|
(20.7)
|
|
|
|
|
(18.2)
|
|
|
|
|
(34.5)
|
|
|
|
|
(30.8)
|
|
|
|
Advances to solar
supplier......................................
|
|
—
|
|
|
|
|
(21.0)
|
|
|
|
|
—
|
|
|
|
|
(21.0)
|
|
|
|
Finance costs
paid....................................................
|
|
(0.6)
|
|
|
|
|
(2.8)
|
|
|
|
|
(1.2)
|
|
|
|
|
(3.3)
|
|
|
Non-IFRS free cash
flow
(3).............................................
|
$
|
40.9
|
|
|
|
$
|
2.4
|
|
|
|
$
|
24.7
|
|
|
|
$
|
24.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS ROIC %
(4)..........................................................
|
19.0%
|
|
|
|
19.6%
|
|
|
|
17.7%
|
|
|
|
18.2%
|
|
|
(1)
|
Management uses
non-IFRS operating earnings (adjusted EBIAT) as a measure to assess
our operational performance related to our core operations.
Non-IFRS adjusted EBIAT is defined as earnings before finance costs
(consisting of interest and fees related to our credit facilities
and accounts receivable sales program), amortization of intangible
assets (excluding computer software) and income taxes.
Non-IFRS adjusted EBIAT also excludes, in periods where such
charges have been recorded, employee stock-based compensation
expense, restructuring and other charges (net of recoveries), gains
or losses related to the repurchase of shares or debt, and
impairment charges.
|
|
|
(2)
|
The adjustments for
taxes, as applicable, represent the tax effects on the non-IFRS
adjustments and significant deferred tax write-offs or recoveries
associated with restructuring actions or restructured sites that we
believe do not impact our core operating performance.
|
|
|
(3)
|
Management uses
non-IFRS free cash flow as a measure, in addition to IFRS cash flow
from operations, to assess our operational cash flow performance.
We believe non-IFRS free cash flow provides another level of
transparency to our liquidity. Non-IFRS free cash flow is defined
as cash provided by or used in operating activities after the
purchase of property, plant and equipment (net of proceeds from
sale of certain surplus equipment and property), advances to a
solar supplier for its capital expenditures, and finance costs
paid.
|
|
|
(4)
|
Management uses
non-IFRS ROIC as a measure to assess the effectiveness of the
invested capital we use to build products or provide services to
our customers. Our non-IFRS ROIC measure reflects non-IFRS
operating earnings, working capital management and asset
utilization. Non-IFRS ROIC is calculated by dividing non-IFRS
adjusted EBIAT by average non-IFRS net invested capital. Net
invested capital (calculated in the table below) is a non-IFRS
measure and consists of the following IFRS measures: total assets
less cash, accounts payable, accrued and other current liabilities
and provisions, and income taxes payable. We use a two-point
average to calculate average non-IFRS net invested capital for the
quarter and a three-point average to calculate average non-IFRS net
invested capital for the six-month period. There is no comparable
measure under IFRS.
|
The following table sets forth, for the periods indicated, our
calculation of non-IFRS ROIC % (in millions, except ROIC
%):
|
|
|
Three months ended
June 30
|
|
Six months ended
June 30
|
|
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
Non-IFRS operating
earnings (adjusted
EBIAT)..................................................................
|
$
|
51.0
|
|
|
$
|
48.3
|
|
|
$
|
92.2
|
|
|
$
|
88.8
|
|
Multiplier.......................................................................................................................................
|
4
|
|
|
4
|
|
|
2
|
|
|
2
|
|
Annualized non-IFRS
adjusted
EBIAT....................................................................................
|
$
|
204.0
|
|
|
$
|
193.2
|
|
|
$
|
184.4
|
|
|
$
|
177.6
|
|
|
|
|
|
|
|
|
|
|
|
Average non-IFRS net
invested capital for the
period..........................................................
|
$
|
1,071.4
|
|
|
$
|
985.5
|
|
|
$
|
1,042.7
|
|
|
$
|
978.4
|
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS ROIC %
(1).................................................................................................................
|
19.0
|
%
|
|
19.6
|
%
|
|
17.7
|
%
|
|
18.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
2014
|
|
March 31
2015
|
|
June 30
2015
|
Non-IFRS net invested
capital consists of:
|
|
|
|
|
|
|
|
|
|
Total
assets.........................................................................................................................................................................
|
|
$
|
2,583.6
|
|
|
$
|
2,579.3
|
|
|
$
|
2,624.7
|
|
Less:
cash...........................................................................................................................................................................
|
|
565.0
|
|
|
569.2
|
|
|
496.8
|
|
Less: accounts
payable, accrued and other current liabilities, provisions and
income taxes payable.............
|
|
1,054.3
|
|
|
1,044.8
|
|
|
1,122.3
|
|
Non-IFRS net invested
capital at period end
(1)...........................................................................................................
|
|
$
|
964.3
|
|
|
$
|
965.3
|
|
|
$
|
1,005.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
2013
|
|
March 31
2014
|
|
June 30
2014
|
Non-IFRS net invested
capital consists of:
|
|
|
|
|
|
|
|
|
|
Total
assets.........................................................................................................................................................................
|
|
$
|
2,638.9
|
|
|
$
|
2,590.7
|
|
|
$
|
2,673.3
|
|
Less:
cash...........................................................................................................................................................................
|
|
544.3
|
|
|
489.2
|
|
|
519.1
|
|
Less: accounts
payable, accrued and other current liabilities, provisions and
income taxes payable.............
|
|
1,109.2
|
|
|
1,035.7
|
|
|
1,077.2
|
|
Non-IFRS net invested
capital at period end
(1)...........................................................................................................
|
|
$
|
985.4
|
|
|
$
|
1,065.8
|
|
|
$
|
1,077.0
|
|
(1)
|
Management uses
non-IFRS ROIC as a measure to assess the effectiveness of the
invested capital we use to build products or provide services to
our customers. Our non-IFRS ROIC measure reflects non-IFRS
operating earnings, working capital management and asset
utilization. Non-IFRS ROIC is calculated by dividing non-IFRS
adjusted EBIAT by average non-IFRS net invested capital. Net
invested capital is a non-IFRS measure and consists of the
following IFRS measures: total assets less cash, accounts payable,
accrued and other current liabilities and provisions, and income
taxes payable. We use a two-point average to calculate average
non-IFRS net invested capital for the quarter and a three-point
average to calculate average non-IFRS net invested capital for the
six-month period. There is no comparable measure
under IFRS.
|
GUIDANCE SUMMARY
|
Q2 2015
Guidance
|
|
Q2 2015
Actual
|
|
Q3 2015 Guidance
(1)
|
IFRS revenue
(in billions)...................................................................
|
$1.35 to
$1.45
|
|
$1.42
|
|
$1.4 to
$1.5
|
Non-IFRS adjusted EPS
(diluted).....................................................
|
$0.20 to
$0.26
|
|
$0.25
|
|
$0.28 to
$0.34
|
(1)
|
We expect a negative
$0.10 to $0.16 per share (pre-tax) aggregate impact on net earnings
on an IFRS basis for employee stock-based compensation expense,
amortization of intangible assets (excluding computer software) and
restructuring charges.
|
CELESTICA
INC.
|
|
|
|
|
|
CONDENSED
CONSOLIDATED BALANCE SHEET
|
(in millions of
U.S. dollars)
|
(unaudited)
|
|
|
|
|
|
|
December 31
2014
|
|
|
June 30
2015
|
Assets
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash and cash
equivalents (note
11)......................................................................................................
|
$
|
565.0
|
|
|
$
|
496.8
|
|
Accounts receivable
(note
5)......................................................................................................................
|
693.5
|
|
|
669.8
|
|
Inventories (note
6)......................................................................................................................................
|
719.0
|
|
|
818.1
|
|
Income taxes
receivable.............................................................................................................................
|
11.4
|
|
|
12.7
|
|
Assets classified as
held-for-sale............................................................................................................
|
28.3
|
|
|
29.1
|
|
Other current assets
(note
4).....................................................................................................................
|
87.0
|
|
|
101.9
|
Total current
assets............................................................................................................................................
|
2,104.2
|
|
|
2,128.4
|
|
|
|
|
|
Property, plant and
equipment..........................................................................................................................
|
312.4
|
|
|
314.7
|
Goodwill.................................................................................................................................................................
|
19.5
|
|
|
19.5
|
Intangible
assets.................................................................................................................................................
|
35.2
|
|
|
32.3
|
Deferred income
taxes.......................................................................................................................................
|
37.3
|
|
|
41.3
|
Other non-current
assets (note
4)....................................................................................................................
|
75.0
|
|
|
88.5
|
Total
assets..........................................................................................................................................................
|
$
|
2,583.6
|
|
|
$
|
2,624.7
|
|
|
|
|
|
Liabilities and
Equity
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Borrowings under
revolving credit facilities (note
7).............................................................................
|
$
|
—
|
|
|
$
|
25.0
|
|
Current portion of
long-term debt and finance lease obligations (notes 4 &
7)..............................
|
—
|
|
|
26.0
|
|
Accounts
payable.........................................................................................................................................
|
730.9
|
|
|
803.9
|
|
Accrued and other
current
liabilities.........................................................................................................
|
259.6
|
|
|
250.4
|
|
Income taxes
payable.................................................................................................................................
|
14.5
|
|
|
21.6
|
|
Current portion of
provisions.....................................................................................................................
|
49.3
|
|
|
46.4
|
Total current
liabilities.........................................................................................................................................
|
1,054.3
|
|
|
1,173.3
|
|
|
|
|
|
Long-term debt and
finance lease obligations (notes 4 &
7)......................................................................
|
—
|
|
|
230.4
|
Pension and
non-pension post-employment benefit
obligations..............................................................
|
99.2
|
|
|
93.7
|
Provisions and other
non-current
liabilities....................................................................................................
|
18.1
|
|
|
17.6
|
Deferred income
taxes........................................................................................................................................
|
17.1
|
|
|
21.2
|
Total
liabilities.......................................................................................................................................................
|
1,188.7
|
|
|
1,536.2
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
Capital stock (note
8)...................................................................................................................................
|
2,609.5
|
|
|
2,088.7
|
|
Treasury stock (note
8)................................................................................................................................
|
(21.4)
|
|
|
(5.6)
|
|
Contributed
surplus.....................................................................................................................................
|
677.1
|
|
|
833.3
|
|
Deficit..............................................................................................................................................................
|
(1,845.3)
|
|
|
(1,801.4)
|
|
Accumulated other
comprehensive
loss.................................................................................................
|
(25.0)
|
|
|
(26.5)
|
Total
equity............................................................................................................................................................
|
1,394.9
|
|
|
1,088.5
|
Total liabilities and
equity...................................................................................................................................
|
$
|
2,583.6
|
|
|
$
|
2,624.7
|
|
|
|
|
|
|
|
Contingencies (note
12), Subsequent event (note 13)
|
The accompanying
notes are an integral part of these unaudited interim condensed
consolidated financial statements.
|
CELESTICA
INC.
|
|
|
|
|
CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
|
(in millions of
U.S. dollars, except per share amounts)
|
(unaudited)
|
|
|
|
|
|
Three months
ended
|
|
Six months
ended
|
|
June
30
|
|
June
30
|
|
2014
|
|
|
2015
|
|
2014
|
|
|
2015
|
Revenue.....................................................................................................................
|
$
|
1,471.5
|
|
|
$
|
1,417.3
|
|
$
|
2,783.9
|
|
|
$
|
2,715.8
|
Cost of sales (note
6)..............................................................................................
|
1,366.6
|
|
|
1,320.0
|
|
2,588.6
|
|
|
2,527.1
|
Gross
profit................................................................................................................
|
104.9
|
|
|
97.3
|
|
195.3
|
|
|
188.7
|
Selling, general and
administrative expenses
(SG&A).....................................
|
53.6
|
|
|
50.1
|
|
108.6
|
|
|
105.5
|
Research and
development...................................................................................
|
5.6
|
|
|
5.2
|
|
9.5
|
|
|
11.4
|
Amortization of
intangible
assets..........................................................................
|
2.7
|
|
|
2.3
|
|
5.5
|
|
|
4.6
|
Other charges
(recoveries)
(note 9)......................................................................
|
(3.9)
|
|
|
9.3
|
|
(6.4)
|
|
|
9.6
|
Earnings from
operations.......................................................................................
|
46.9
|
|
|
30.4
|
|
78.1
|
|
|
57.6
|
Finance
costs............................................................................................................
|
0.9
|
|
|
1.1
|
|
1.4
|
|
|
1.6
|
Earnings before
income
taxes...............................................................................
|
46.0
|
|
|
29.3
|
|
76.7
|
|
|
56.0
|
Income tax expense
(recovery) (note 10):
|
|
|
|
|
|
|
|
|
|
|
Current................................................................................................................
|
7.7
|
|
|
7.7
|
|
(2.2)
|
|
|
13.1
|
|
Deferred.............................................................................................................
|
(2.6)
|
|
|
(2.6)
|
|
0.7
|
|
|
(1.0)
|
|
5.1
|
|
|
5.1
|
|
(1.5)
|
|
|
12.1
|
Net earnings for the
period.....................................................................................
|
$
|
40.9
|
|
|
$
|
24.2
|
|
$
|
78.2
|
|
|
$
|
43.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share.......................................................................................
|
$
|
0.23
|
|
|
$
|
0.15
|
|
$
|
0.43
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share....................................................................................
|
$
|
0.22
|
|
|
$
|
0.14
|
|
$
|
0.43
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in
computing per share amounts (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic...................................................................................................................
|
|
179.6
|
|
|
|
164.9
|
|
|
180.2
|
|
|
|
168.6
|
|
Diluted................................................................................................................
|
|
182.0
|
|
|
|
166.9
|
|
|
182.2
|
|
|
|
170.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these unaudited interim condensed
consolidated financial statements.
|
CELESTICA
INC.
|
|
|
|
|
|
CONDENSED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|
(in millions of
U.S. dollars)
|
(unaudited)
|
|
|
|
|
|
|
Three months
ended
|
|
|
Six months
ended
|
|
June
30
|
|
|
June
30
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
Net earnings for the
period.................................................................................................
|
$
|
40.9
|
|
|
$
|
24.2
|
|
|
$
|
78.2
|
|
|
$
|
43.9
|
Other comprehensive
income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may be
reclassified to net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation
differences for foreign
operations.................................
|
|
(0.3)
|
|
|
|
0.2
|
|
|
|
(0.4)
|
|
|
|
(1.8)
|
|
|
Changes from
derivatives designated as
hedges..........................................
|
|
7.2
|
|
|
|
5.8
|
|
|
|
10.8
|
|
|
|
0.3
|
Total comprehensive
income for the
period....................................................................
|
$
|
47.8
|
|
|
$
|
30.2
|
|
|
$
|
88.6
|
|
|
$
|
42.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these unaudited interim condensed
consolidated financial statements.
|
CELESTICA
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|
(in millions of
U.S. dollars)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
stock
(note
8)
|
|
Treasury
stock (note
8)
|
|
Contributed
surplus
|
|
Deficit
|
|
Accumulated
other
comprehensive
income
(loss)
(a)
|
|
Total
equity
|
Balance -- January 1,
2014.........................................................................
|
$
|
2,712.0
|
|
$
|
(12.0)
|
|
$
|
681.7
|
|
$
|
(1,965.4)
|
|
$
|
(14.3)
|
|
$
|
1,402.0
|
Capital
transactions (note 8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital
stock.....................................................................
|
|
15.6
|
|
|
—
|
|
|
(9.3)
|
|
|
—
|
|
|
—
|
|
|
6.3
|
|
Repurchase of capital
stock for cancellation (b)............................
|
|
(46.5)
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
(46.4)
|
|
Stock-based
compensation and
other.............................................
|
|
—
|
|
|
10.7
|
|
|
7.4
|
|
|
—
|
|
|
—
|
|
|
18.1
|
Total
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the
period.................................................................
|
|
—
|
|
|
—
|
|
|
—
|
|
|
78.2
|
|
|
—
|
|
|
78.2
|
|
Other comprehensive
income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation
differences for foreign operations........
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.4)
|
|
|
(0.4)
|
|
|
Changes from
derivatives designated as hedges.................
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10.8
|
|
|
10.8
|
Balance -- June 30,
2014............................................................................
|
$
|
2,681.1
|
|
$
|
(1.3)
|
|
$
|
679.9
|
|
$
|
(1,887.2)
|
|
$
|
(3.9)
|
|
$
|
1,468.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance -- January 1,
2015..........................................................................
|
$
|
2,609.5
|
|
$
|
(21.4)
|
|
$
|
677.1
|
|
$
|
(1,845.3)
|
|
$
|
(25.0)
|
|
$
|
1,394.9
|
Capital
transactions (note 8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital
stock......................................................................
|
|
7.4
|
|
|
—
|
|
|
(4.8)
|
|
|
—
|
|
|
—
|
|
|
2.6
|
|
Repurchase of capital
stock for
cancellation...................................
|
|
(528.2)
|
|
|
—
|
|
|
157.3
|
|
|
—
|
|
|
—
|
|
|
(370.9)
|
|
Stock-based
compensation and
other..............................................
|
|
—
|
|
|
15.8
|
|
|
3.7
|
|
|
—
|
|
|
—
|
|
|
19.5
|
Total
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the
period..................................................................
|
|
—
|
|
|
—
|
|
|
—
|
|
|
43.9
|
|
|
—
|
|
|
43.9
|
|
Other comprehensive
income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation
differences for foreign operations.........
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.8)
|
|
|
(1.8)
|
|
|
Changes from
derivatives designated as hedges..................
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
0.3
|
Balance -- June 30,
2015.............................................................................
|
$
|
2,088.7
|
|
$
|
(5.6)
|
|
$
|
833.3
|
|
$
|
(1,801.4)
|
|
$
|
(26.5)
|
|
$
|
1,088.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Accumulated other comprehensive income
(loss) is net of tax.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
Includes $17.0 prepayment related to
program share repurchases. See note 8.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these unaudited interim condensed
consolidated financial statements.
|
CELESTICA
INC.
|
|
|
|
|
|
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
|
(in millions of
U.S. dollars)
|
(unaudited)
|
|
|
|
|
|
|
Three months
ended
|
|
|
Six months
ended
|
|
June
30
|
|
|
June
30
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
Cash provided by
(used in):
|
|
|
|
|
|
|
|
|
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the
period.........................................................................................
|
$
|
40.9
|
|
|
$
|
24.2
|
|
|
$
|
78.2
|
|
|
$
|
43.9
|
Adjustments to net
earnings for items not affecting cash:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization...........................................................................
|
16.8
|
|
|
16.9
|
|
|
33.6
|
|
|
33.5
|
|
Equity-settled
stock-based
compensation......................................................
|
6.4
|
|
|
7.1
|
|
|
17.3
|
|
|
18.6
|
|
Other charges
(recoveries).................................................................................
|
—
|
|
|
4.0
|
|
|
(0.1)
|
|
|
4.0
|
|
Finance
costs........................................................................................................
|
0.9
|
|
|
1.1
|
|
|
1.4
|
|
|
1.6
|
|
Income tax expense
(recovery)...........................................................................
|
5.1
|
|
|
5.1
|
|
|
(1.5)
|
|
|
12.1
|
Other................................................................................................................................
|
(9.1)
|
|
|
(3.9)
|
|
|
(14.7)
|
|
|
(8.6)
|
Changes in non-cash
working capital items:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable..............................................................................................
|
(91.0)
|
|
|
(25.5)
|
|
|
(86.7)
|
|
|
23.7
|
|
Inventories..............................................................................................................
|
43.8
|
|
|
(64.2)
|
|
|
35.3
|
|
|
(99.1)
|
|
Other current
assets.............................................................................................
|
1.7
|
|
|
1.8
|
|
|
3.4
|
|
|
(0.3)
|
|
Accounts
payable, accrued and other current liabilities and
provisions.....
|
55.1
|
|
|
81.9
|
|
|
8.9
|
|
|
57.8
|
Non-cash working
capital
changes...........................................................................
|
9.6
|
|
|
(6.0)
|
|
|
(39.1)
|
|
|
(17.9)
|
Net income taxes
paid.................................................................................................
|
(8.4)
|
|
|
(4.1)
|
|
|
(14.7)
|
|
|
(7.7)
|
Net cash provided by
operating
activities.................................................................
|
62.2
|
|
|
44.4
|
|
|
60.4
|
|
|
79.5
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
Purchase of computer
software and property, plant and equipment
(a)............
|
(20.9)
|
|
|
(18.5)
|
|
|
(35.0)
|
|
|
(31.2)
|
Proceeds from sale of
assets....................................................................................
|
0.2
|
|
|
0.3
|
|
|
0.5
|
|
|
0.4
|
Advances to solar
supplier (note
4)...........................................................................
|
—
|
|
|
(21.0)
|
|
|
—
|
|
|
(21.0)
|
Net cash used in
investing
activities.........................................................................
|
(20.7)
|
|
|
(39.2)
|
|
|
(34.5)
|
|
|
(51.8)
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
Borrowings under
revolving credit facilities and term loan (note
7)....................
|
—
|
|
|
275.0
|
|
|
—
|
|
|
275.0
|
Issuance of capital
stock (note
8)..............................................................................
|
6.0
|
|
|
0.6
|
|
|
6.3
|
|
|
2.6
|
Repurchase of capital
stock for cancellation (note
8)............................................
|
(17.0)
|
|
|
(350.4)
|
|
|
(56.2)
|
|
|
(370.2)
|
Finance costs
paid.......................................................................................................
|
(0.6)
|
|
|
(2.8)
|
|
|
(1.2)
|
|
|
(3.3)
|
Net cash used in
financing
activities.........................................................................
|
(11.6)
|
|
|
(77.6)
|
|
|
(51.1)
|
|
|
(95.9)
|
|
|
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash and cash
equivalents.......................................
|
29.9
|
|
|
(72.4)
|
|
|
(25.2)
|
|
|
(68.2)
|
Cash and cash
equivalents, beginning of
period...................................................
|
489.2
|
|
|
569.2
|
|
|
544.3
|
|
|
565.0
|
Cash and cash
equivalents, end of
period..............................................................
|
$
|
519.1
|
|
|
$
|
496.8
|
|
|
$
|
519.1
|
|
|
$
|
496.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Additional
equipment of $8.2 was acquired through a finance lease. See note
4.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these unaudited interim condensed
consolidated financial statements.
|
CELESTICA INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions of U.S. dollars, except
percentages and per share amounts)
(unaudited)
1. REPORTING ENTITY
Celestica Inc. (Celestica) is incorporated in Canada with its corporate headquarters located
at 844 Don Mills Road, Toronto,
Ontario, M3C 1V7. Celestica's subordinate voting
shares are listed on the Toronto Stock Exchange (TSX) and the New
York Stock Exchange (NYSE).
Celestica delivers innovative supply chain solutions globally to
customers in the Communications (comprised of enterprise
communications and telecommunications), Consumer, Diversified
(comprised of aerospace and defense, industrial, healthcare,
energy, and semiconductor equipment), Servers, and Storage end
markets. Our product lifecycle offerings include a range of
services to our customers including design, engineering services,
supply chain management, new product introduction, component
sourcing, electronics manufacturing, assembly and test, complex
mechanical assembly, systems integration, precision machining,
order fulfillment, logistics and after-market repair and return
services.
2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING
POLICIES
Statement of compliance:
These unaudited interim condensed consolidated financial
statements have been prepared in accordance with International
Accounting Standard (IAS) 34, Interim Financial Reporting,
as issued by the International Accounting Standards Board (IASB)
and the accounting policies we have adopted in accordance with
International Financial Reporting Standards (IFRS). These unaudited
interim condensed consolidated financial statements reflect all
adjustments that are, in the opinion of management, necessary to
present fairly our financial position as at June 30, 2015 and
our financial performance, comprehensive income and cash flows for
the three and six months ended June 30, 2015.
The unaudited interim condensed consolidated financial
statements were authorized for issuance by our board of directors
on July 23, 2015.
Functional and presentation currency:
These unaudited interim condensed consolidated financial
statements are presented in U.S. dollars, which is also our
functional currency. Unless otherwise noted, all financial
information is presented in millions of U.S. dollars (except
percentages and per share amounts).
Use of estimates and judgments:
The preparation of financial statements in conformity with IFRS
requires management to make judgments, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets and liabilities, revenue and expenses, and the
related disclosures of contingent assets and liabilities. Actual
results could differ materially from these estimates and
assumptions. We review our estimates and underlying assumptions on
an ongoing basis and make revisions as determined necessary by
management. Revisions are recognized in the period in which the
estimates are revised and may impact future periods as well.
Key sources of estimation uncertainty and judgment: We
have applied significant estimates and assumptions in the following
areas which we believe could have a significant impact on our
reported results and financial position: our valuations of
inventory, assets held for sale and income taxes; the amount of our
restructuring charges or recoveries; the measurement of the
recoverable amount of our cash generating units (CGUs) (we define a
CGU as the smallest identifiable group of assets that cannot be
tested individually and that generates cash inflows that are
largely independent of the cash inflows from other assets or groups
of assets), which includes estimating future growth, profitability
and discount rates; our valuations of financial assets and
liabilities, pension and non-pension post-employment benefit costs,
employee stock-based compensation expense, provisions and
contingencies; and the allocation of the purchase price and other
valuations related to our business acquisitions.
We have also applied significant judgment in the following
areas: the determination of our CGUs and whether events or changes
in circumstances during the period are indicators that a review for
impairment should be conducted, and the timing of the recognition
of charges or recoveries associated with our restructuring
actions.
These unaudited interim condensed consolidated financial
statements are based upon accounting policies and estimates
consistent with those used and described in note 2 of our 2014
annual audited consolidated financial statements. There have been
no material changes to our significant accounting estimates and
assumptions or the judgments affecting the application of such
estimates and assumptions during the second quarter of 2015 from
those described in the notes to our 2014 annual audited
consolidated financial statements. The near-term economic
environment could also impact certain estimates necessary to
prepare our consolidated financial statements, in particular, the
estimates related to the recoverable amount used in our impairment
testing of our non-financial assets, and the discount rates applied
to our net pension and non-pension post-employment benefit assets
or liabilities.
Recently issued accounting pronouncements:
In May 2014, the IASB issued IFRS
15, Revenue from Contracts with Customers, which provides a
single, principles-based five-step model for revenue recognition to
be applied to all customer contracts, and requires enhanced
disclosures. This standard is effective January 1, 2017 and allows early adoption. We do
not intend to adopt this standard early and are currently
evaluating the anticipated impact of adopting this standard on our
consolidated financial statements.
In July 2014, the IASB issued a
final version of IFRS 9, Financial Instruments, which
replaces IAS 39, Financial Instruments: Recognition and
Measurement, and is effective for annual periods beginning on
or after January 1, 2018, with
earlier adoption permitted. The standard introduces a new model for
the classification and measurement of financial assets, a single
expected credit loss model for the measurement of the impairment of
financial assets, and a new model for hedge accounting that is
aligned with a company's risk management activities. We do not
intend to adopt this standard early and are currently evaluating
the anticipated impact of adopting this standard on our
consolidated financial statements.
3. SEGMENT AND CUSTOMER REPORTING
End markets:
The following table indicates revenue by end market as a
percentage of total revenue for the periods indicated. Our revenue
fluctuates from period-to-period depending on numerous factors,
including but not limited to: the mix and complexity of the
products or services we provide, the extent, timing and rate of new
program wins, follow-on business, program completions or losses,
the phasing in or out of programs, the success in the marketplace
of our customers' products, changes in customer demand, and the
seasonality of our business. We expect that the pace of
technological change, the frequency of customers transferring
business among EMS competitors, the level of outsourcing by
customers (including decisions to insource), and the dynamics of
the global economy will also continue to impact our business from
period-to-period.
|
Three months ended
June 30
|
|
Six months ended
June 30
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
Communications.................................................................................................
|
40%
|
|
40%
|
|
41%
|
|
40%
|
Consumer.............................................................................................................
|
5%
|
|
3%
|
|
5%
|
|
3%
|
Diversified.............................................................................................................
|
28%
|
|
28%
|
|
28%
|
|
28%
|
Servers..................................................................................................................
|
10%
|
|
10%
|
|
10%
|
|
10%
|
Storage..................................................................................................................
|
17%
|
|
19%
|
|
16%
|
|
19%
|
Customers:
For the second quarter and first half of 2015, we had three
customers that individually represented more than 10% of total
revenue (second quarter and first half of 2014 — three
customers).
4. SOLAR INVESTMENTS
In March 2015, we entered into a
multi-year supply agreement with a solar cell supplier that
includes a commitment by us to provide cash advances of up to
$36.0 to help this supplier expand
its manufacturing operations into Malaysia. As of June 30, 2015, we advanced $21.0 of this amount, which we have recorded as
other current assets of $13.5 and
other non-current assets of $7.5 in
our balance sheet as of June 30,
2015. We expect to advance the remaining committed cash
amounts during the second half of 2015 and expect to fully recover
all such cash advances from this supplier through quarterly
repayment installments starting in the fourth quarter of 2015,
through the end of 2017.
In April 2015, we entered into a
five-year agreement to lease manufacturing equipment valued at up
to $22 to be used in our solar
operations in Asia. As of
June 30, 2015, we recorded lease
obligations totaling $8.2, consisting
of short-term obligations of $1.0 and
long-term obligations of $7.2,
related to the manufacturing equipment we received as of such date.
Our lease payments are due quarterly and commence in January 2016. This lease qualifies as a finance
lease under IFRS.
5. ACCOUNTS RECEIVABLE
We have an accounts receivable sales agreement to sell up to
$250.0 at any one time in accounts
receivable on an uncommitted basis (subject to pre-determined
limits by customer) to three third-party banks. Each of these banks
had a Standard and Poor's long-term rating of BBB+ or above and
short-term rating of A-2 or above at June 30, 2015. The term
of this agreement has been annually extended in recent years for
additional one-year periods (and is currently extendable to
November 2016 under specified
circumstances), but may be terminated earlier as provided in the
agreement. At June 30, 2015, we had sold $55.0 of accounts receivable under this facility
(December 31, 2014 — $50.0). The accounts receivable sold are removed
from our consolidated balance sheet and reflected as cash provided
by operating activities in our consolidated statement of cash
flows. Upon sale, we assign the rights to the accounts receivable
to the banks. We continue to collect cash from our customers and
remit the cash to the banks when collected. We pay interest and
fees which we record in finance costs in our consolidated statement
of operations.
6. INVENTORIES
We record our inventory provisions and valuation recoveries in
cost of sales. We record inventory provisions to reflect
write-downs in the value of our inventory to net realizable value,
and valuation recoveries primarily to reflect realized gains on the
disposition of inventory previously written down to net realizable
value. We recorded net inventory provisions of $2.5 and $4.2 for
the second quarter and first half of 2015, respectively (second
quarter and first half of 2014 — $2.3
and $4.8, respectively). We regularly
review our estimates and assumptions used to value our inventory
through analysis of historical performance.
7. CREDIT FACILITIES AND LONG-TERM DEBT
Our $300.0 revolving credit
facility was scheduled to mature in October
2018. In order to fund a portion of our share repurchases
under the substantial issuer bid (the SIB) that we completed in
June 2015, we amended this facility
in May 2015 to add a non-revolving
term loan component (the Term Loan) in the amount of $250.0 (in addition to the previous revolving
credit $300.0 limit), and to extend
the maturity of the entire facility to May
2020. We funded the SIB using a combination of the Term
Loan, $25.0 drawn on our revolving
credit facility, and available cash on hand. See note 8.
This revolving portion of the facility (the Revolving Facility)
has an accordion feature that allows us to increase the
$300.0 limit by an additional
$150.0 on an uncommitted basis upon
satisfaction of certain terms and conditions. The Revolving
Facility also includes a $25.0 swing
line, subject to the overall credit limit, that provides for
short-term borrowings up to a maximum of seven days. The Revolving
Facility permits us and certain designated subsidiaries to borrow
funds for general corporate purposes, including acquisitions.
Borrowings under this Revolving Facility bear interest for the
period of the draw at various base rates selected by us consisting
of LIBOR, Prime, Base Rate Canada, and Base Rate (each as defined
in the amended credit agreement), plus a margin. The margin
for borrowings under the Revolving Facility ranges from 0.6% to
1.4% (except in the case of the LIBOR base rate, in which case, the
margin ranges from 1.6% to 2.4%), based on a specified financial
ratio based on indebtedness. The Term Loan bears interest at LIBOR
plus a margin ranging from 2.0% to 3.0% based on the same financial
ratio.
We are required to comply with certain restrictive covenants in
respect of the facility, including those relating to the
incurrence of senior ranking indebtedness, the sale of assets,
a change of control, and certain financial covenants related to
indebtedness and interest coverage. Certain of our assets are
pledged as security for borrowings under this facility. If an event
of a default occurs and is continuing, the administrative agent may
declare all advances on the facility to be immediately due and
payable and may cancel the lenders' commitments to make further
advances thereunder.
At June 30, 2015, $275.0 was
outstanding under the credit facility (December 31, 2014 — no
amounts outstanding), comprised of $25.0 drawn on the Revolving Facility, and the
$250.0 Term Loan. The Term Loan
requires quarterly principal repayments until its maturity. At
June 30, 2015, the mandatory
principal repayments of the Term Loan were as follows:
|
Amount
|
Years ending December
31
|
|
|
2015............................................................................................................................................................................
|
$
|
12.5
|
2016............................................................................................................................................................................
|
$
|
25.0
|
2017............................................................................................................................................................................
|
$
|
25.0
|
2018............................................................................................................................................................................
|
$
|
25.0
|
2019............................................................................................................................................................................
|
$
|
25.0
|
2020 (to maturity in
May
2020)...............................................................................................................................
|
$
|
137.5
|
We are permitted to make additional voluntary repayments of the
Term Loan, subject to certain terms and conditions. Repaid amounts
on the Term Loan may not be re-borrowed.
We incurred debt issuance costs of $2.1 in connection with the amendment of the
credit facility, which we recorded as an offset against the
proceeds from the Term Loan, and such costs are deferred and
amortized over the term of the Term Loan using the effective
interest rate method.
At June 30, 2015, we were in compliance with all applicable
restrictive and financial covenants required by our current credit
facility. Commitment fees paid in the second quarter and first
half of 2015 were $0.3 and
$0.6, respectively (second quarter
and first half of 2014 — $0.5 and
$1.0, respectively). At June 30,
2015, we had $26.8 (December 31,
2014 — $28.5) outstanding in letters
of credit under this facility.
We also have a total of $70.0 of
uncommitted bank overdraft facilities available for intraday and
overnight operating requirements. There were no amounts
outstanding under these overdraft facilities at June 30, 2015
or December 31, 2014.
The amounts we borrow and repay under these facilities can vary
significantly from month-to-month depending upon our working
capital and other cash requirements.
8. CAPITAL STOCK
We have repurchased subordinate voting shares in the open market
and otherwise for cancellation in recent years pursuant to normal
course issuer bids (NCIBs), which allow us to repurchase a limited
number of subordinate voting shares during a specified period, and
pursuant to substantial issuer bids, including most recently, the
SIB, as described below. As part of the NCIB process, we have
entered into Automatic Share Purchase Plans (ASPPs) with brokers,
that allow such brokers to purchase our subordinate voting shares
in the open market on our behalf, for cancellation under our NCIBs
(including during any applicable trading blackout periods). In
addition, we have entered into program share repurchases (PSRs) as
part of the NCIB process, pursuant to which we make a prepayment to
a broker in consideration for the right to receive a variable
number of subordinate voting shares upon such PSR's completion.
Under such PSRs, the price and number of subordinate voting shares
to be repurchased by us is determined based on a discount to the
volume weighted-average market price of our subordinate voting
shares during the term of the PSR, subject to certain terms and
conditions. The subordinate voting shares repurchased under any PSR
are cancelled upon completion of each PSR under the NCIB. The
maximum number of subordinate voting shares we are permitted to
repurchase for cancellation under each NCIB is reduced by the
number of subordinate voting shares we purchase in the open market
during the term of such NCIB to satisfy obligations under our
stock-based compensation plans.
In August 2014, we completed an
NCIB launched in August 2013 (the
2013 NCIB), which allowed us to repurchase, at our discretion, up
to approximately 9.8 million subordinate voting shares in the open
market, or as otherwise permitted. During the first quarter of
2014, we paid $12.1 (including
transaction fees) to repurchase and cancel 1.2 million subordinate
voting shares under the 2013 NCIB at a weighted average price of
$10.11 per share. In addition, we
completed two PSRs for $44.1
($27.1 paid in the first quarter of
2014 and $17.0 paid in the second
quarter of 2014), pursuant to which we repurchased and cancelled
4.0 million subordinate voting shares at a weighted average price
of $11.04 per share under the 2013
NCIB.
On September 9, 2014, the TSX
accepted our notice to launch a new NCIB (the 2014 NCIB), which
allows us to repurchase, at our discretion, until the earlier of
September 10, 2015 or the completion of purchases thereunder,
up to approximately 10.3 million subordinate voting shares
(representing approximately 5.8% of our total outstanding
subordinate voting and multiple voting shares at the time of
launch) in the open market or as otherwise permitted, subject to
the normal terms and limitations of such bids. In December 2014, the TSX accepted our notice to
amend the 2014 NCIB to permit the repurchase of our subordinate
voting shares thereunder through one or more PSRs. In connection
therewith, we paid $50.0 to a broker
in December 2014 under a PSR for the
right to receive a variable number of our subordinate voting shares
upon such PSR's completion. We completed this PSR on January 28, 2015, pursuant to which we
repurchased and cancelled 4.4 million subordinate voting shares at
a weighted average price of $11.38
per share. During the first quarter of 2015, subsequent to the
completion of this PSR, we paid $19.8
(including transaction fees) to repurchase and cancel an additional
1.7 million subordinate voting shares under the 2014 NCIB at a
weighted average price of $11.66 per
share. We did not repurchase any shares under the 2014 NCIB in the
second quarter of 2015.
In the second quarter of 2015, we launched and completed the
SIB, pursuant to which we repurchased and cancelled approximately
26.3 million subordinate voting shares at a price of $13.30 per share (for an aggregate purchase price
of $350.0), representing
approximately 15.5% of our total multiple voting shares and
subordinate voting shares issued and outstanding prior to
completion of the SIB. We also recorded $1.1 in transaction related costs. We funded the
share repurchases using a combination of the Term Loan,
$25.0 drawn on the Revolving
Facility, and cash on hand. See note 7.
We grant share unit awards to employees under our stock-based
compensation plans. We have the option to satisfy the delivery of
shares upon vesting of the awards by purchasing subordinate voting
shares in the open market or by settling such awards in cash. Under
one of these plans, we also have the option to satisfy the delivery
of shares by issuing new subordinate voting shares from treasury,
subject to certain limits. From time-to-time, we pay cash for the
purchase by a trustee of subordinate voting shares in the open
market to satisfy the delivery of shares upon vesting of awards.
For accounting purposes, we classify these shares as treasury stock
until they are delivered pursuant to the plans. We did not purchase
any subordinate voting shares in the open market to satisfy the
delivery requirements under our stock-based compensation plans
during the second quarters or the first six months of 2015 or 2014.
At June 30, 2015, the trustee held 0.5 million subordinate
voting shares for this purpose, having a value of $5.6 (December 31,
2014 — 2.0 million subordinate voting shares with a value of
$21.4).
The following table outlines the activities for stock-based
awards granted to employees (activities for deferred share units
(DSUs) issued to directors are excluded) for the six months ended
June 30, 2015:
Number of awards
(in millions)
|
|
Options
|
|
RSUs
|
|
PSUs
(i)
|
|
|
|
|
|
|
|
Outstanding at
December 31,
2014...............................................................................................
|
|
3.3
|
|
3.4
|
|
6.1
|
Granted
(i)...........................................................................................................................................
|
|
—
|
|
2.2
|
|
2.1
|
Exercised or settled
(ii).....................................................................................................................
|
|
(0.4)
|
|
(1.4)
|
|
(0.5)
|
Forfeited or
expired............................................................................................................................
|
|
(0.1)
|
|
(0.1)
|
|
(1.5)
|
Outstanding at June
30,
2015.........................................................................................................
|
|
2.8
|
|
4.1
|
|
6.2
|
|
|
|
|
|
|
|
Weighted-average
grant date fair value of options and share units
granted.........................
|
|
$
|
—
|
|
$
|
11.49
|
|
$
|
13.06
|
(i)
|
During the first
quarter of 2015, we granted 2.1 million (first quarter of 2014 —
2.6 million) performance share units (PSUs), of which 60% vest
based on the achievement of a market performance condition tied to
Total Shareholder Return (TSR), and the balance vest based on a
non-market performance condition based on pre-determined financial
targets. See note 2(n) of our 2014 annual audited consolidated
financial statements for a description of TSR. We estimated the
grant date fair value of the TSR-based PSUs using a Monte Carlo
simulation model. The grant date fair value of the non-TSR-based
PSUs is determined by the market value of our subordinate voting
shares at the time of grant and may be adjusted in subsequent
periods to reflect a change in the estimated level of achievement
related to the applicable performance condition. We expect to
settle these awards with subordinate voting shares purchased in the
open market by a trustee or issued from treasury. The number of
PSUs that will actually vest will vary from 0 to the amount set
forth in the table above as outstanding at June 30, 2015
(representing the maximum potential payout) depending on the level
of achievement of the relevant performance conditions. We did not
grant any PSUs during the second quarter of 2015.
|
|
|
(ii)
|
During the second
quarter and first half of 2015, we received cash proceeds of $0.6
and $2.6, respectively (second quarter and first half of 2014 —
$6.0 and $6.3, respectively) relating to the exercise of stock
options granted to employees.
|
At June 30, 2015, 1.2 million (December 31, 2014 — 1.1 million) DSUs were
outstanding.
For the second quarter and first half of 2015, we recorded
employee stock-based compensation expense (excluding DSUs) of
$7.1 and $18.6, respectively (second quarter and first
half of 2014 — $6.4 and $17.3, respectively), and DSU expense of
$0.5 and $1.0, respectively (second quarter and first half
of 2014 — $0.5 and $1.0, respectively). The amount of our employee
stock-based compensation expense varies from period-to-period. The
portion of our expense that relates to performance-based
compensation generally varies depending on the level of achievement
of pre-determined performance goals and financial targets.
9. OTHER CHARGES (RECOVERIES)
|
Three months ended
June 30
|
|
|
Six months ended
June 30
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
Restructuring
(a)................................................................................
|
$
|
0.3
|
|
|
$
|
9.5
|
|
|
$
|
0.3
|
|
|
$
|
9.8
|
Other
(b)...............................................................................................
|
(4.2)
|
|
|
(0.2)
|
|
|
(6.7)
|
|
|
(0.2)
|
|
$
|
(3.9)
|
|
|
$
|
9.3
|
|
|
$
|
(6.4)
|
|
|
$
|
9.6
|
(a) Restructuring:
During the second quarter and first half of 2015, we recorded
restructuring charges of $9.5 and
$9.8, respectively (second quarter
and first half of 2014 — $0.3 and
$0.3, respectively) to consolidate
certain of our sites and reduce our workforce. For the second
quarter of 2015, we recorded cash charges of $5.3, primarily employee termination costs and
non-cash charges of $4.2, primarily
to write down certain equipment to recoverable amounts. During the
quarter, we consolidated two of our semiconductor sites into a
single location to reduce the cost structure and improve the margin
performance of that business. The remainder of our restructuring
actions for the quarter consisted primarily of employee headcount
reductions we implemented in various geographies. Our restructuring
provision at June 30, 2015 was $4.9 (December 31,
2014 — $1.9) comprised
primarily of employee termination costs.
The recognition of restructuring charges requires us to make
certain judgments and estimates regarding the nature, timing and
amounts associated with our restructuring actions. Our major
assumptions include the timing and number of employees to be
terminated, the measurement of termination costs, the timing and
amount of lease obligations, and the timing of disposition and
estimated fair values of assets available for sale, as applicable.
We develop detailed plans and record termination costs for
employees informed of their termination. We engage independent
brokers to determine the estimated fair values less costs to sell
for assets we no longer used and which are available for sale. We
recognize an impairment loss for assets whose carrying amount
exceeds their respective fair value less costs to sell as
determined by the third-party brokers. We also record adjustments
to reflect actual proceeds on disposition of these assets. At the
end of each reporting period, we evaluate the appropriateness of
our restructuring charges and balances. Further adjustments may be
required to reflect actual experience or changes in estimates.
(b) Other:
In the second quarter and first half of 2014, other was
comprised primarily of recoveries of damages we received in
connection with the settlement of class action lawsuits in which we
were a plaintiff, related to certain purchases we made in prior
periods.
10. INCOME TAXES
Our effective income tax rate can vary significantly
quarter-to-quarter for various reasons, including the mix and
volume of business in lower tax jurisdictions within Europe and Asia, in jurisdictions with tax holidays and
tax incentives, and in jurisdictions for which no deferred income
tax assets have been recognized because management believed it was
not probable that future taxable profit would be available against
which tax losses and deductible temporary differences could be
utilized. Our effective income tax rate can also vary due to
the impact of restructuring charges, foreign exchange fluctuations,
operating losses, and changes in our provisions related to tax
uncertainties.
During the first quarter of 2014, Malaysian investment
authorities approved our request to revise certain required
conditions related to income tax incentives for one of our
Malaysian subsidiaries. The benefits of these tax incentives were
not previously recognized, as prior to this revision we had not
anticipated meeting the required conditions. As a result of this
approval, we recognized an income tax benefit of $14.1 in the first quarter of 2014 relating to
years 2010 through 2013.
See note 12 regarding income tax contingencies.
11. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Our financial assets are comprised primarily of cash and cash
equivalents, accounts receivable and derivatives used for hedging
purposes. Our financial liabilities are comprised primarily of
accounts payable, certain accrued and other liabilities and
provisions, the Term Loan, borrowings from the Revolving Facility,
and derivatives. We record the majority of our financial
liabilities at amortized cost except for derivative liabilities,
which we measure at fair value. We classify our term deposits
as held-to-maturity. We record our short-term investments in money
market funds at fair value, with changes recognized in our
consolidated statement of operations. The carrying value of the
Term Loan approximates its fair value.
We classify the financial assets and liabilities that we measure
at fair value based on the inputs used to determine fair value at
the measurement date. See note 20 of our 2014 annual audited
consolidated financial statements for details of the input levels
used and our fair value hierarchy at December 31, 2014. There have been no significant
changes to the source of our inputs since December 31, 2014.
Cash and cash equivalents are comprised of the following:
|
December 31
2014
|
|
June 30
2015
|
Cash.......................................................................................................................................................
|
$
|
397.2
|
|
$
|
409.3
|
Cash
equivalents.................................................................................................................................
|
167.8
|
|
87.5
|
|
$
|
565.0
|
|
$
|
496.8
|
Our current portfolio consists of bank deposits and certain
money market funds that primarily hold U.S. government securities.
The majority of our cash and cash equivalents is held with
financial institutions each of which had at June 30, 2015 a
Standard and Poor's short-term rating of A-1 or above.
Interest rate risk:
Borrowings under our credit facility bear interest at specified
rates plus a margin. See note 7. Our borrowings under this
facility, which at June 30, 2015
totalled $275.0, expose us to
interest rate risk due to potential increases to the specified
rates and margins.
Currency risk:
Due to the global nature of our operations, we are exposed to
exchange rate fluctuations on our financial instruments denominated
in various currencies. The majority of our currency risk is driven
by the operational costs incurred in local currencies by our
subsidiaries. We manage our currency risk through our hedging
program using forecasts of future cash flows and balance sheet
exposures denominated in foreign currencies.
Our major currency exposures at June 30, 2015 are
summarized in U.S. dollar equivalents in the following table. We
have included in this table only those items that we classify as
financial assets or liabilities and which were denominated in
non-functional currencies. In accordance with the IFRS financial
instruments standard, we have excluded items such as pension and
non-pension post-employment benefits and income taxes. The local
currency amounts have been converted to U.S. dollar equivalents
using the spot rates at June 30, 2015.
|
Canadian
dollar
|
|
|
Euro
|
|
|
Malaysian
ringgit
|
|
|
Thai
baht
|
Cash and cash
equivalents........................................................................................
|
$
|
5.4
|
|
|
$
|
5.2
|
|
|
$
|
1.2
|
|
|
$
|
0.6
|
Account receivable
and other financial
assets........................................................
|
5.2
|
|
|
17.4
|
|
|
0.1
|
|
|
0.2
|
Accounts payable and
certain accrued and other liabilities and
provisions......
|
(35.7)
|
|
|
(10.4)
|
|
|
(12.6)
|
|
|
(16.0)
|
Net financial assets
(liabilities)..................................................................................
|
$
|
(25.1)
|
|
|
$
|
12.2
|
|
|
$
|
(11.3)
|
|
|
$
|
(15.2)
|
Foreign currency risk sensitivity analysis:
The financial impact of a one-percentage point strengthening or
weakening of the following currencies against the U.S. dollar for
our financial instruments denominated in non-functional currencies
is summarized in the following table as at June 30, 2015. The
financial instruments impacted by a change in exchange rates
include our exposures to the above financial assets or liabilities
denominated in non-functional currencies and our foreign exchange
forward contracts.
|
Canadian
dollar
|
|
|
Euro
|
|
|
Malaysian
ringgit
|
|
|
Thai
baht
|
|
Increase
(decrease)
|
1%
Strengthening
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings..............................................................................................
|
$
|
1.2
|
|
|
$
|
(0.2)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other comprehensive
income...............................................................
|
|
1.4
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
1.0
|
1%
Weakening
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings.............................................................................................
|
|
(1.1)
|
|
|
|
0.2
|
|
|
|
—
|
|
|
|
—
|
|
Other comprehensive
income...............................................................
|
|
(1.4)
|
|
|
|
(0.1)
|
|
|
|
(0.5)
|
|
|
|
(1.0)
|
At June 30, 2015, we had forward exchange contracts to
trade U.S. dollars in exchange for the following
currencies:
Currency
|
Contract
amount in U.S.
dollars
|
|
|
Weighted
average exchange
rate
in U.S.
dollars
|
|
|
Maximum period in months
|
|
|
Fair
value gain
(loss)
|
Canadian
dollar.................................................................................
|
$
|
298.9
|
|
|
$
|
0.81
|
|
|
15
|
|
|
$
|
(2.3)
|
Thai
baht.............................................................................................
|
128.6
|
|
|
0.03
|
|
|
15
|
|
|
(3.5)
|
Malaysian
ringgit...............................................................................
|
75.2
|
|
|
0.28
|
|
|
13
|
|
|
(5.9)
|
Mexican
peso.....................................................................................
|
20.7
|
|
|
0.07
|
|
|
15
|
|
|
(1.6)
|
British
pound......................................................................................
|
117.7
|
|
|
1.53
|
|
|
4
|
|
|
(3.7)
|
Chinese
renminbi..............................................................................
|
91.3
|
|
|
0.16
|
|
|
12
|
|
|
1.3
|
Euro......................................................................................................
|
49.2
|
|
|
1.11
|
|
|
12
|
|
|
(0.8)
|
Romanian
leu.....................................................................................
|
14.3
|
|
|
0.26
|
|
|
12
|
|
|
(0.8)
|
Singapore
dollar................................................................................
|
21.5
|
|
|
0.75
|
|
|
12
|
|
|
(0.3)
|
Other....................................................................................................
|
5.5
|
|
|
|
|
4
|
|
|
—
|
Total.....................................................................................................
|
$
|
822.9
|
|
|
|
|
|
|
|
$
|
(17.6)
|
At June 30, 2015, the fair value of the outstanding
contracts was a net unrealized loss of $17.6 (December 31, 2014 — net unrealized
loss of $15.0). Changes in the
fair value of hedging derivatives to which we apply cash flow hedge
accounting, to the extent effective, are deferred in other
comprehensive income until the expenses or items being hedged are
recognized in our consolidated statement of operations. Any hedge
ineffectiveness, which at June 30, 2015 was not significant,
is recognized immediately in our consolidated statement of
operations. At June 30, 2015, we recorded $4.3 of derivative assets in other current
assets, and $21.9 of derivative
liabilities in accrued and other current and non-current
liabilities (December 31, 2014 —
$3.6 of derivative assets in other
current assets and $18.6 of
derivative liabilities in accrued and other current and non-current
liabilities). The unrealized gains or losses are a result of
fluctuations in foreign exchange rates between the date the
currency forward contracts were entered into and the valuation date
at period end.
12. CONTINGENCIES
Litigation
In the normal course of our operations, we may be subject to
lawsuits, investigations and other claims, including environmental,
labor, product, customer disputes and other
matters. Management believes that adequate provisions have
been recorded in the accounts where required. Although it is not
always possible to estimate the extent of potential costs, if any,
management believes that the ultimate resolution of all such
pending matters will not have a material adverse impact on our
financial performance, financial position or liquidity.
In 2007, securities class action lawsuits were commenced against
us and our former Chief Executive and Chief Financial Officers, in
the United States District Court of the Southern District of
New York by certain individuals, on behalf of themselves and
other unnamed purchasers of our stock, claiming that they were
purchasers of our stock during the period January 27, 2005 through January 30, 2007. The plaintiffs allege
violations of United States federal securities laws and seek
unspecified damages. They allege that during the purported period
we made statements concerning our actual and anticipated future
financial results that failed to disclose certain purportedly
material adverse information with respect to demand and inventory
in our Mexico operations and our
information technology and communications divisions. In an amended
complaint, the plaintiffs added one of our directors and Onex
Corporation as defendants. On October 14, 2010, the District
Court granted the defendants' motions to dismiss the consolidated
amended complaint in its entirety. The plaintiffs appealed to
the United States Court of Appeals
for the Second Circuit the dismissal of their claims against us,
and our former Chief Executive and Chief Financial Officers, but
not as to the other defendants. In a summary order dated
December 29, 2011, the Court of
Appeals reversed the District Court's dismissal of the consolidated
amended complaint and remanded the case to the District Court for
further proceedings. The discovery phase of the case has been
completed. Defendants moved for summary judgment dismissing the
case in its entirety, and plaintiffs moved for class certification
and for partial summary judgment on certain elements of their
claims. In an order dated February 21, 2014, the District
Court denied plaintiffs' motion for class certification because
they sought to include in their proposed class persons who
purchased Celestica stock in Canada. Plaintiffs renewed their motion for
class certification on April 23,
2014, removing Canadian stock purchasers from their proposed
class in accordance with the District Court's February 21 order. Defendants opposed plaintiffs'
renewed motion on May 5, 2014 on the
grounds that the plaintiffs are not adequate class representatives.
On August 20, 2014, the District
Court denied our motion for summary judgment. The District Court
also denied the majority of plaintiffs' motion for partial summary
judgment, but granted plaintiffs' motion on market
efficiency. The District Court also granted plaintiffs'
renewed class certification motion and certified plaintiffs'
revised class. On February 24, 2015,
the parties reached an agreement in principle to settle the U.S.
case, which was subsequently formalized in a Stipulation and
Agreement of Settlement dated April 17,
2015. On April 17, 2015, the
plaintiffs submitted the settlement to the District Court seeking
preliminary approval of the settlement and of the form of notice to
be issued to class members. On May 6,
2015, the District Court preliminarily approved the
settlement as fair, reasonable and adequate, and directed the
issuance of notice to class members. The settlement will not be
final until after a settlement approval hearing, which is scheduled
for July 28, 2015. It is anticipated
that the settlement amount will be covered by our liability
insurance. However, as the settlement remains subject to final
approval by the District Court, there can be no assurance that any
actual settlement or other disposition of the lawsuit will not be
in excess of amounts accrued or on terms less favorable to us than
the Stipulation and Agreement of Settlement, or that the actual
settlement or other disposition of the lawsuit will not have a
material adverse impact on our financial position or liquidity. If
the settlement is not consummated on terms acceptable to us, we
intend to continue to vigorously defend this lawsuit.
Parallel class proceedings remain against us and our former
Chief Executive and Chief Financial Officers in the Ontario
Superior Court of Justice. These proceedings are not affected by
the agreement in principle discussed above. On October 15, 2012, the Ontario Superior Court of
Justice granted limited aspects of the defendants' motion to
strike, but dismissed the defendants' limitation period argument.
The defendants' appeal of the limitation period issue was dismissed
on February 3, 2014 when the Court of Appeal for Ontario overturned its own prior decision on
the limitation period issue. On August 7,
2014, the defendants were granted leave to appeal the
decision to the Supreme Court of Canada, together with two other cases that
deal with the limitation period issue. The Supreme Court of
Canada heard the appeal on
February 9, 2015, and the decision is
under reserve. A possible outcome of the Supreme Court appeal would
be that the Canadian case is dismissed in its entirety. In a
decision dated February 19, 2014, the Ontario Superior Court
of Justice granted the plaintiffs leave to proceed with a statutory
claim under the Ontario Securities Act and certified the action as
a class proceeding on the claim that the defendants made
misrepresentations regarding the 2005 restructuring. The court
denied the plaintiffs leave and certification on the claims that
the defendants did not properly report Celestica's inventory and
revenue and that Celestica's financial statements did not comply
with Canadian GAAP. The court also denied certification of the
plaintiffs' common law claims. The action is at the discovery stage
and, depending on the outcome of the Supreme Court appeal, the
discoveries may resume. There have been some settlement discussions
among the parties to the Canadian proceedings. However, there can
be no assurance that such discussions will lead to a settlement, or
that any settlements or other dispositions of the Canadian lawsuit
will not be in excess of amounts covered by our liability insurance
policies. If the Supreme Court appeal does not result in a
dismissal of the Canadian action and/or settlement on terms
acceptable to us is not reached, we intend to continue to
vigorously defend the lawsuit. We believe the allegations in the
claim are without merit. However, there can be no assurance that
the outcome of the lawsuit will be favorable to us or that it will
not have a material adverse impact on our financial position or
liquidity. In addition, we may incur substantial litigation
expenses in defending the claim. As the matter is ongoing, we
cannot predict its duration or the resources required.
Income taxes
We are subject to tax audits globally by various tax authorities
of historical information, which could result in additional tax
expense in future periods relating to prior results. Reviews by tax
authorities generally focus on, but are not limited to, the
validity of our inter-company transactions, including financing and
transfer pricing policies which generally involve subjective areas
of taxation and a significant degree of judgment. If any of these
tax authorities are successful with their challenges, our income
tax expense may be adversely affected and we could also be subject
to interest and penalty charges.
Tax authorities in Canada have
taken the position that income reported by one of our Canadian
subsidiaries should have been materially higher in 2001 and 2002
and materially lower in 2003 and 2004 as a result of certain
inter-company transactions, and have imposed limitations on
benefits associated with favorable adjustments arising from
inter-company transactions and other adjustments. We have
appealed this decision with the Canadian tax authorities and have
sought assistance from the relevant Competent Authorities in
resolving the transfer pricing matter under relevant treaty
principles. We could be required to provide security up to an
estimated maximum range of $20 million to
$25 million Canadian dollars (approximately $16 to $20 at period-end exchange rates) in the
form of letters of credit to the tax authorities in connection with
the transfer pricing appeal, however, we do not believe that such
security will be required. If the tax authorities are successful
with their challenge, we estimate that the maximum net impact for
additional income taxes and interest charges associated with the
proposed limitations of the favorable adjustments could be
approximately $41 million Canadian
dollars (approximately $33 at
period-end exchange rates).
Canadian tax authorities have taken the position that certain
interest amounts deducted by one of our Canadian entities in 2002
through 2004 on historical debt instruments should be
re-characterized as capital losses. If the tax authorities are
successful with their challenge, we estimate that the maximum net
impact for additional income taxes and interest charges could be
approximately $33 million Canadian
dollars (approximately $27 at
period-end exchange rates). We have appealed this decision with the
Canadian tax authorities and have provided the requisite security
to the tax authorities, including a letter of credit in
January 2014 of $5 million Canadian dollars (approximately
$4 at period-end exchange rates), in
addition to amounts previously on account, in order to proceed with
the appeal. We believe that our asserted position is appropriate
and would be sustained upon full examination by the tax authorities
and, if necessary, upon consideration by the judicial courts. Our
position is supported by our Canadian legal tax advisors.
In the first quarter of 2015, we de-recognized the future
benefit of certain Brazilian tax losses, which were previously
recognized on the basis that these tax losses could be fully
utilized to offset unrealized foreign exchange gains on
inter-company debts that would become realized in the fiscal period
ending on the date of dissolution of our Brazilian subsidiary. Due
to the weakening of the Brazilian real against the U.S. dollar, the
unrealized foreign exchange gains had diminished to the point where
the tax cost to settle such inter-company debt was significantly
reduced. Accordingly, our Brazilian inter-company debts were
settled on April 7, 2015 triggering a
tax liability of $1 and the relevant
tax costs related to the foreign exchange gains have been accrued
as at June 30, 2015.
The successful pursuit of the assertions made by any taxing
authority related to the above noted tax audits or others could
result in our owing significant amounts of tax, interest and
possibly penalties. We believe we have substantial defenses to the
asserted positions and have adequately accrued for any probable
potential adverse tax impact. However, there can be no assurance as
to the final resolution of these claims and any resulting
proceedings. If these claims and any ensuing proceedings are
determined adversely to us, the amounts we may be required to pay
could be material, and could be in excess of amounts currently
accrued.
13. SUBSEQUENT EVENT
On July 23, 2015, we entered into
an agreement of purchase and sale (the Property Sale Agreement) to
sell our real property located in Toronto, Ontario, which includes the site of
our corporate headquarters and our Toronto manufacturing operations to a special
purpose entity (the Property Purchaser) to be formed by a
consortium of three real estate developers. Subject to completion
of the transaction, the agreed purchase price is approximately
$137 million Canadian dollars
($110.7 at period-end exchange
rates), exclusive of applicable taxes and subject to adjustment in
accordance with the terms of the Property Sale Agreement, including
for certain density bonuses and other adjustments in accordance
with usual commercial practice.
Pursuant to the terms of the Property Sale Agreement, the
Property Purchaser is to pay us a cash deposit of $15 million Canadian dollars ($12.1 at period-end exchange rates), which is
non-refundable except in limited circumstances. Upon closing, which
is subject to various conditions, including municipal approvals and
is anticipated to occur within approximately two years, the
Property Purchaser is to pay us an additional $53.5 million Canadian dollars in cash
($43.2 at period-end exchange rates).
The balance of the purchase price is to be satisfied on closing by
an interest-free, first-ranking mortgage in the amount of
$68.5 million Canadian dollars
($55.3 at period-end exchange rates)
to be registered on title to the property and having a term of two
years from the closing date. As part of the Property Sale
Agreement, we have agreed, upon closing, to enter into an interim
lease for our existing corporate office and manufacturing premises
on a portion of the real estate for an initial two-year term on a
rent-free basis (subject to certain payments including taxes and
utilities), to be followed by a longer-term lease for the new home
of Celestica's corporate headquarters on terms to be settled with
the Property Purchaser. There can be no assurance that this
transaction will be completed within two years, or at all.
Approximately 30% of the interests in the Property Purchaser are
to be held by a privately-held company in which Mr. Gerald Schwartz, a controlling shareholder and
director of Celestica, has a material interest. Mr. Schwartz also
has a non-voting interest in an entity which is to have an
approximate 25% interest in the Property Purchaser.
SOURCE Celestica Inc.