(All amounts in U.S. dollars.
Per share information based on diluted
shares outstanding unless otherwise noted.)
TORONTO, Oct. 20, 2015 /CNW/ - Celestica Inc. (NYSE,
TSX: CLS), a global leader in the delivery of end-to-end product
lifecycle solutions, today announced financial results for the
third quarter ended September 30, 2015.
Third Quarter 2015 Highlights
- Revenue: $1.41 billion, within
our guidance range of $1.4 billion to $1.5
billion (announced July 23,
2015), relatively flat compared to the third quarter of
2014
- Revenue from our diversified end market represented 30% of
total revenue, compared to 29% for the third quarter of 2014
- Operating margin (non-IFRS): 3.8%, compared to 3.9% for the
third quarter of 2014
- Adjusted EPS (non-IFRS): $0.22
per share ($0.30 per share had we
excluded an $0.08 per share income
tax expense resulting from taxable foreign exchange impacts),
compared to $0.26 per share for the
third quarter of 2014. Had we excluded this income tax expense of
$0.08 per share, adjusted EPS
(non-IFRS) would have been within our guidance range of
$0.28 to $0.34 per share (announced
July 23, 2015).
- IFRS EPS: $0.08 per share
(negatively impacted by the $0.08 per
share income tax expense discussed above), compared to $0.19 per share for the third quarter of
2014
- ROIC (non-IFRS): 20.9%, compared to 21.3% for the third quarter
of 2014
- Free cash flow (non-IFRS): $12.8
million, compared to $92.7
million for the third quarter of 2014
"Despite a challenging end market environment, Celestica
delivered higher operating margin and return on invested capital
compared to the second quarter of this year, based on our ongoing
focus on continuous improvement and disciplined cost
management," said Robert
Mionis, Celestica's President and Chief Executive
Officer.
"Overall, we remain focused on our strategic objectives of
expanding our business into more profitable markets leveraging our
leadership in higher reliability applications, as well as driving
continued improvements across our entire business in the areas of
quality, profitability and free cash flow generation."
Third Quarter and Year-to-Date Summary
|
Three months
ended
September 30
|
|
Nine months
ended
September 30
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
Revenue (in
millions)...........................................................................
|
$
|
1,423.1
|
|
|
$
|
1,408.5
|
|
|
$
|
4,207.0
|
|
|
$
|
4,124.3
|
|
|
|
|
|
|
|
|
|
IFRS net earnings (in
millions)(i).......................................................
|
$
|
34.4
|
|
|
$
|
10.9
|
|
|
$
|
112.6
|
|
|
$
|
54.8
|
|
IFRS EPS
(i)............................................................................................
|
$
|
0.19
|
|
|
$
|
0.08
|
|
|
$
|
0.62
|
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
Adjusted net earnings
(non-IFRS) (in millions) (i)
(ii)......................
|
$
|
47.2
|
|
|
$
|
31.4
|
|
|
$
|
139.2
|
|
|
$
|
106.1
|
|
Adjusted EPS
(non-IFRS)(i)
(ii).............................................................
|
$
|
0.26
|
|
|
$
|
0.22
|
|
|
$
|
0.77
|
|
|
$
|
0.65
|
|
Non-IFRS return on
invested capital
(ROIC)(ii)................................
|
21.3
|
%
|
|
20.9
|
%
|
|
19.0
|
%
|
|
19.1
|
%
|
Non-IFRS operating
margin(ii)............................................................
|
3.9
|
%
|
|
3.8
|
%
|
|
3.5
|
%
|
|
3.4
|
%
|
i.
|
International
Financial Reporting Standards (IFRS) EPS and adjusted EPS
(non-IFRS) for the three and nine months ended September 30, 2015,
respectively, reflect an $0.08 per share income tax expense related
to taxable foreign exchange impacts arising from the weakening of
the Malaysian ringgit and Chinese renminbi relative to the U.S.
dollar, $0.04 of which were deferred tax costs related to
period-end revaluations of non-monetary balance sheet items. See
note 11 to our September 30, 2015 unaudited interim condensed
consolidated financial statements. IFRS EPS for the third quarter
of 2015 included an aggregate charge of $0.15 (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
July 23, 2015 of an aggregate charge of between $0.10 and
$0.16 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
|
|
Q3
|
Communications...................................................
|
40%
|
|
40%
|
|
40%
|
|
40%
|
|
40%
|
|
40%
|
|
40%
|
|
41%
|
Consumer...............................................................
|
6%
|
|
5%
|
|
5%
|
|
3%
|
|
5%
|
|
3%
|
|
3%
|
|
3%
|
Diversified(i).............................................................
|
28%
|
|
28%
|
|
29%
|
|
27%
|
|
28%
|
|
28%
|
|
28%
|
|
30%
|
Servers.....................................................................
|
10%
|
|
10%
|
|
9%
|
|
10%
|
|
9%
|
|
11%
|
|
10%
|
|
8%
|
Storage.....................................................................
|
16%
|
|
17%
|
|
17%
|
|
20%
|
|
18%
|
|
18%
|
|
19%
|
|
18%
|
Revenue
(in billions)..............................................
|
$1.31
|
|
$1.47
|
|
$1.42
|
|
$1.42
|
|
$5.63
|
|
$1.30
|
|
$1.42
|
|
$1.41
|
i.
|
Our diversified end
market is comprised of aerospace and defense, industrial,
healthcare, energy, and semiconductor equipment.
|
Fourth Quarter 2015 Outlook
For the fourth quarter ending December 31, 2015, we
anticipate revenue to be in the range of $1.375 billion to $1.475 billion, and non-IFRS
adjusted net earnings per share to be in the range of $0.27 to $0.33. We expect a negative $0.06 to $0.12 per
share (pre-tax) aggregate impact on net earnings on an IFRS basis
for employee stock-based compensation expense and amortization of
intangible assets (excluding computer software).
Third Quarter 2015 Webcast
Management will host its third quarter 2015 results conference
call today at 5:00 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, the expected timing of ramping our solar programs in
Asia, 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 (as defined
herein), including the impact of the Term Loan (as defined herein),
on our liquidity, future operations and financial condition; 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"); and, if the Toronto Real
Property Transactions are completed, our ability to secure on
commercially acceptable terms an alternate site for our existing
Toronto manufacturing operations
and the expected transition costs for such relocation. 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; the potential that conditions to closing the Toronto
Real Property Transactions may not be satisfied on a timely basis
or at all; and, if the Toronto Real Property Transactions are
completed, our ability to secure on commercially acceptable terms
an alternate site for our existing Toronto manufacturing operations, and the
costs, timing and/or execution of such relocation proving to be
other than anticipated. 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 filed with, and subsequent reports on Form 6-K furnished
to, 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,
forward-looking statements speak only as of the date on which they
are made and 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 them 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
September 30
|
|
Nine months ended
September 30
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
|
|
% of
revenue
|
|
|
% of
revenue
|
|
|
% of
revenue
|
|
|
% of
revenue
|
IFRS
revenue......................................................................
|
$
|
1,423.1
|
|
|
|
$
|
1,408.5
|
|
|
|
$
|
4,207.0
|
|
|
|
$
|
4,124.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS gross
profit...............................................................
|
$
|
105.6
|
|
7.4%
|
|
$
|
101.1
|
|
7.2%
|
|
$
|
300.9
|
|
7.2%
|
|
$
|
289.8
|
|
7.0%
|
|
Employee stock-based
compensation
expense.....................................................................
|
|
3.1
|
|
|
|
|
4.6
|
|
|
|
|
10.4
|
|
|
|
|
12.0
|
|
|
Non-IFRS adjusted
gross profit.....................................
|
$
|
108.7
|
|
7.6%
|
|
$
|
105.7
|
|
7.5%
|
|
$
|
311.3
|
|
7.4%
|
|
$
|
301.8
|
|
7.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS
SG&A..........................................................................
|
$
|
48.8
|
|
3.4%
|
|
$
|
50.2
|
|
3.6%
|
|
$
|
157.4
|
|
3.7%
|
|
$
|
155.7
|
|
3.8%
|
|
Employee stock-based
compensation
expense.....................................................................
|
|
(2.1)
|
|
|
|
|
(3.6)
|
|
|
|
|
(12.1)
|
|
|
|
|
(14.8)
|
|
|
Non-IFRS adjusted
SG&A................................................
|
$
|
46.7
|
|
3.3%
|
|
$
|
46.6
|
|
3.3%
|
|
$
|
145.3
|
|
3.5%
|
|
$
|
140.9
|
|
3.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS earnings
before income taxes.............................
|
$
|
42.2
|
|
|
|
$
|
29.3
|
|
|
|
$
|
118.9
|
|
|
|
$
|
85.3
|
|
|
|
Finance
costs............................................................
|
|
0.7
|
|
|
|
|
2.1
|
|
|
|
|
2.1
|
|
|
|
|
3.7
|
|
|
|
Employee stock-based
compensation
expense......................................................................
|
|
5.2
|
|
|
|
|
8.2
|
|
|
|
|
22.5
|
|
|
|
|
26.8
|
|
|
|
Amortization of
intangible assets
(excluding computer
software)..............................
|
|
1.6
|
|
|
|
|
1.5
|
|
|
|
|
4.8
|
|
|
|
|
4.5
|
|
|
|
Restructuring and
other charges (recoveries)....
|
|
6.1
|
|
|
|
|
11.9
|
|
|
|
|
(0.3)
|
|
|
|
|
21.5
|
|
|
Non-IFRS operating
earnings (adjusted
EBIAT)
(1)............................................................................
|
$
|
55.8
|
|
3.9%
|
|
$
|
53.0
|
|
3.8%
|
|
$
|
148.0
|
|
3.5%
|
|
$
|
141.8
|
|
3.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS net
earnings.............................................................
|
$
|
34.4
|
|
2.4%
|
|
$
|
10.9
|
|
0.8%
|
|
$
|
112.6
|
|
2.7%
|
|
$
|
54.8
|
|
1.3%
|
|
Employee stock-based
compensation
expense......................................................................
|
|
5.2
|
|
|
|
|
8.2
|
|
|
|
|
22.5
|
|
|
|
|
26.8
|
|
|
|
Amortization of
intangible assets (excluding
computer
software)..................................................
|
|
1.6
|
|
|
|
|
1.5
|
|
|
|
|
4.8
|
|
|
|
|
4.5
|
|
|
|
Restructuring and
other charges (recoveries)....
|
|
6.1
|
|
|
|
|
11.9
|
|
|
|
|
(0.3)
|
|
|
|
|
21.5
|
|
|
|
Adjustments for taxes
(2)........................................
|
|
(0.1)
|
|
|
|
|
(1.1)
|
|
|
|
|
(0.4)
|
|
|
|
|
(1.5)
|
|
|
Non-IFRS adjusted
net earnings....................................
|
$
|
47.2
|
|
|
|
$
|
31.4
|
|
|
|
$
|
139.2
|
|
|
|
$
|
106.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average # of
shares (in millions)........
|
|
179.6
|
|
|
|
|
145.3
|
|
|
|
|
181.3
|
|
|
|
|
162.1
|
|
|
|
IFRS earnings per
share........................................
|
$
|
0.19
|
|
|
|
$
|
0.08
|
|
|
|
$
|
0.62
|
|
|
|
$
|
0.34
|
|
|
|
Non-IFRS adjusted net
earnings per share........
|
$
|
0.26
|
|
|
|
$
|
0.22
|
|
|
|
$
|
0.77
|
|
|
|
$
|
0.65
|
|
|
# of shares
outstanding at period end (in millions)....
|
176.7
|
|
|
|
143.0
|
|
|
|
176.7
|
|
|
|
143.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS cash provided
by operations................................
|
$
|
103.1
|
|
|
|
$
|
24.8
|
|
|
|
$
|
163.5
|
|
|
|
$
|
104.3
|
|
|
|
Purchase of property,
plant and equipment,
net of sales
proceeds..............................................
|
|
(9.6)
|
|
|
|
|
(13.8)
|
|
|
|
|
(44.1)
|
|
|
|
|
(44.6)
|
|
|
|
Deposit on
anticipated sale of real property.......
|
|
—
|
|
|
|
|
11.2
|
|
|
|
|
—
|
|
|
|
|
11.2
|
|
|
|
Advances to solar
supplier....................................
|
|
—
|
|
|
|
|
(7.3)
|
|
|
|
|
—
|
|
|
|
|
(28.3)
|
|
|
|
Finance costs
paid..................................................
|
|
(0.8)
|
|
|
|
|
(2.1)
|
|
|
|
|
(2.0)
|
|
|
|
|
(5.4)
|
|
|
Non-IFRS free cash
flow (3)...........................................
|
$
|
92.7
|
|
|
|
$
|
12.8
|
|
|
|
$
|
117.4
|
|
|
|
$
|
37.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS ROIC %
(4).........................................................
|
21.3%
|
|
|
|
20.9%
|
|
|
|
19.0%
|
|
|
|
19.1%
|
|
|
(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
management considers not to be reflective of 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 the
sale of certain surplus equipment and property), advances to a
solar supplier for its capital expenditures, and finance costs
paid. Non-IFRS free cash flow also includes the cash deposit we
received in the third quarter of 2015 upon execution of the
agreement to sell our Toronto real property (see note 7 to our
September 30, 2015 unaudited interim condensed consolidated
financial statements).
|
|
|
(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, by quantifying how well we generate earnings
relative to the capital we have invested in our business. 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 four-point average to
calculate average non-IFRS net invested capital for the nine-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
September 30
|
|
Nine months
ended
September 30
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
Non-IFRS operating
earnings (adjusted EBIAT)..............................
|
$
|
55.8
|
|
|
$
|
53.0
|
|
|
$
|
148.0
|
|
|
$
|
141.8
|
|
Multiplier...................................................................................................
|
4
|
|
|
4
|
|
|
1.333
|
|
|
1.333
|
|
Annualized non-IFRS
adjusted
EBIAT................................................
|
$
|
223.2
|
|
|
$
|
212.0
|
|
|
$
|
197.3
|
|
|
$
|
189.0
|
|
|
|
|
|
|
|
|
|
|
|
Average non-IFRS net
invested capital for the period.....................
|
$
|
1,046.7
|
|
|
$
|
1,014.1
|
|
|
$
|
1,036.2
|
|
|
$
|
989.5
|
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS ROIC %
(1)............................................................................
|
21.3%
|
|
|
20.9
|
%
|
|
19.0
|
%
|
|
19.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
December 31
2014
|
|
March 31
2015
|
|
June 30
2015
|
|
September 30
2015
|
Non-IFRS net invested
capital consists of:
|
|
|
|
|
|
|
|
|
|
Total
assets..............................................................................................
|
$
|
2,583.6
|
|
|
$
|
2,579.3
|
|
|
$
|
2,624.7
|
|
|
$
|
2,603.6
|
|
Less:
cash................................................................................................
|
565.0
|
|
|
569.2
|
|
|
496.8
|
|
|
495.7
|
|
Less: accounts
payable, accrued and other current liabilities,
provisions and income taxes
payable.................................................
|
1,054.3
|
|
|
1,044.8
|
|
|
1,122.3
|
|
|
1,085.3
|
|
Non-IFRS net invested
capital at period end
(1)................................
|
$
|
964.3
|
|
|
$
|
965.3
|
|
|
$
|
1,005.6
|
|
|
$
|
1,022.6
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
2013
|
|
March 31
2014
|
|
June 30
2014
|
|
September 30
2014
|
Non-IFRS net invested
capital consists of:
|
|
|
|
|
|
|
|
|
|
Total
assets..............................................................................................
|
$
|
2,638.9
|
|
|
$
|
2,590.7
|
|
|
$
|
2,673.3
|
|
|
$
|
2,666.3
|
|
Less:
cash.................................................................................................
|
544.3
|
|
|
489.2
|
|
|
519.1
|
|
|
578.2
|
|
Less: accounts
payable, accrued and other current liabilities,
provisions and income taxes
payable..................................................
|
1,109.2
|
|
|
1,035.7
|
|
|
1,077.2
|
|
|
1,071.7
|
|
Non-IFRS net invested
capital at period end
(1)................................
|
$
|
985.4
|
|
|
$
|
1,065.8
|
|
|
$
|
1,077.0
|
|
|
$
|
1,016.4
|
|
(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, by quantifying how well we generate earnings
relative to the capital we have invested in our business. 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 four-point average to calculate average non-IFRS net invested
capital for the nine-month period. There is no comparable measure
under IFRS.
|
GUIDANCE SUMMARY
|
Q3 2015
Guidance
|
|
Q3 2015 Actual
(1)
|
|
Q4 2015 Guidance
(2)
|
IFRS revenue
(in billions)...................................................................
|
$1.4 to
$1.5
|
|
$1.41
|
|
$1.375 to
$1.475
|
Non-IFRS adjusted EPS
(diluted)
(1)................................................
|
$0.28 to
$0.34
|
|
$0.22
|
|
$0.27 to
$0.33
|
(1)
|
Our adjusted EPS
(non-IFRS) for the third quarter of 2015 would have been $0.30 per
share, within our guidance range, had we excluded an income tax
expense of $0.08 per share resulting from taxable foreign exchange
impacts (discussed above). See also note 11 to our September 30,
2015 unaudited interim condensed consolidated financial
statements.
|
|
|
(2)
|
For the fourth
quarter of 2015, we expect a negative $0.06 to $0.12 per share
(pre-tax) aggregate impact on net earnings on an IFRS basis for
employee stock-based compensation expense and amortization of
intangible assets (excluding computer software).
|
CELESTICA
INC.
|
|
CONDENSED
CONSOLIDATED BALANCE SHEET
|
(in millions of
U.S. dollars)
|
(unaudited)
|
|
|
|
|
|
December 31
2014
|
|
September 30
2015
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
|
Cash and cash
equivalents (note
12).......................................................................................................
|
$
|
565.0
|
|
|
$
|
495.7
|
|
|
Accounts receivable
(note
5).......................................................................................................................
|
|
693.5
|
|
|
|
643.7
|
|
|
Inventories (note
6).......................................................................................................................................
|
|
719.0
|
|
|
|
848.7
|
|
|
Income taxes
receivable..............................................................................................................................
|
|
11.4
|
|
|
|
12.3
|
|
|
Assets classified as
held-for-sale.............................................................................................................
|
|
28.3
|
|
|
|
27.6
|
|
|
Other current assets
(note
4)......................................................................................................................
|
|
87.0
|
|
|
|
63.8
|
|
Total current
assets.............................................................................................................................................
|
2,104.2
|
|
|
2,091.8
|
|
|
|
|
|
Property, plant and
equipment (note
7)............................................................................................................
|
312.4
|
|
|
324.6
|
|
Goodwill..................................................................................................................................................................
|
19.5
|
|
|
19.5
|
|
Intangible
assets..................................................................................................................................................
|
35.2
|
|
|
31.7
|
|
Deferred income
taxes........................................................................................................................................
|
37.3
|
|
|
44.5
|
|
Other non-current
assets (note
4).....................................................................................................................
|
75.0
|
|
|
91.5
|
|
Total
assets...........................................................................................................................................................
|
$
|
2,583.6
|
|
|
$
|
2,603.6
|
|
|
|
|
|
Liabilities and
Equity
|
|
|
|
Current
liabilities:
|
|
|
|
|
Borrowings under
revolving credit facilities (note
8)...............................................................................
|
$
|
—
|
|
|
$
|
25.0
|
|
|
Current portion of
long-term debt and finance lease obligations (notes 4 &
8)................................
|
|
—
|
|
|
|
27.8
|
|
|
Accounts
payable..........................................................................................................................................
|
|
730.9
|
|
|
|
767.5
|
|
|
Accrued and other
current
liabilities..........................................................................................................
|
|
259.6
|
|
|
|
268.5
|
|
|
Income taxes
payable...................................................................................................................................
|
|
14.5
|
|
|
|
27.6
|
|
|
Current portion of
provisions.......................................................................................................................
|
|
49.3
|
|
|
|
21.7
|
|
Total current
liabilities..........................................................................................................................................
|
1,054.3
|
|
|
1,138.1
|
|
|
|
|
|
Long-term debt and
finance lease obligations (notes 4 &
8).......................................................................
|
—
|
|
|
231.2
|
|
Pension and
non-pension post-employment benefit
obligations...............................................................
|
99.2
|
|
|
87.8
|
|
Provisions and other
non-current
liabilities.....................................................................................................
|
18.1
|
|
|
28.7
|
|
Deferred income
taxes.........................................................................................................................................
|
17.1
|
|
|
31.5
|
|
Total
liabilities........................................................................................................................................................
|
1,188.7
|
|
|
1,517.3
|
|
|
|
|
|
Equity:
|
|
|
|
|
Capital stock (note
9)....................................................................................................................................
|
2,609.5
|
|
|
2,089.4
|
|
|
Treasury stock (note
9).................................................................................................................................
|
(21.4)
|
|
|
(13.6)
|
|
|
Contributed
surplus......................................................................................................................................
|
677.1
|
|
|
842.0
|
|
|
Deficit...............................................................................................................................................................
|
(1,845.3)
|
|
|
(1,790.5)
|
|
|
Accumulated other
comprehensive
loss..................................................................................................
|
(25.0)
|
|
|
(41.0)
|
|
Total
equity.............................................................................................................................................................
|
1,394.9
|
|
|
1,086.3
|
|
Total liabilities and
equity....................................................................................................................................
|
$
|
2,583.6
|
|
|
$
|
2,603.6
|
|
|
|
|
|
|
|
|
|
Contingencies (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
September 30
|
|
Nine months
ended
September 30
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
Revenue.................................................................................................................
|
$
|
1,423.1
|
|
|
$
|
1,408.5
|
|
|
$
|
4,207.0
|
|
|
$
|
4,124.3
|
|
Cost of sales (note
6)..........................................................................................
|
1,317.5
|
|
|
1,307.4
|
|
|
3,906.1
|
|
|
3,834.5
|
|
Gross
profit............................................................................................................
|
105.6
|
|
|
101.1
|
|
|
300.9
|
|
|
289.8
|
|
Selling, general and
administrative expenses
(SG&A).................................
|
48.8
|
|
|
50.2
|
|
|
157.4
|
|
|
155.7
|
|
Research and
development...............................................................................
|
5.2
|
|
|
5.3
|
|
|
14.7
|
|
|
16.7
|
|
Amortization of
intangible
assets......................................................................
|
2.6
|
|
|
2.3
|
|
|
8.1
|
|
|
6.9
|
|
Other charges
(recoveries)
(note 10)...............................................................
|
6.1
|
|
|
11.9
|
|
|
(0.3)
|
|
|
21.5
|
|
Earnings from
operations...................................................................................
|
42.9
|
|
|
31.4
|
|
|
121.0
|
|
|
89.0
|
|
Finance
costs........................................................................................................
|
0.7
|
|
|
2.1
|
|
|
2.1
|
|
|
3.7
|
|
Earnings before
income
taxes...........................................................................
|
42.2
|
|
|
29.3
|
|
|
118.9
|
|
|
85.3
|
|
Income tax expense
(recovery) (note 11):
|
|
|
|
|
|
|
|
|
Current............................................................................................................
|
7.9
|
|
|
10.9
|
|
|
5.7
|
|
|
24.0
|
|
|
Deferred..........................................................................................................
|
(0.1)
|
|
|
7.5
|
|
|
0.6
|
|
|
6.5
|
|
|
7.8
|
|
|
18.4
|
|
|
6.3
|
|
|
30.5
|
|
Net earnings for the
period.................................................................................
|
$
|
34.4
|
|
|
$
|
10.9
|
|
|
$
|
112.6
|
|
|
$
|
54.8
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share....................................................................................
|
$
|
0.19
|
|
|
$
|
0.08
|
|
|
$
|
0.63
|
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share.................................................................................
|
$
|
0.19
|
|
|
$
|
0.08
|
|
|
$
|
0.62
|
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
Shares used in
computing per share amounts (in millions):
|
|
|
|
|
|
|
|
|
Basic................................................................................................................
|
177.5
|
|
|
143.0
|
|
|
179.3
|
|
|
160.1
|
|
|
Diluted.............................................................................................................
|
179.6
|
|
|
145.3
|
|
|
181.3
|
|
|
162.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these unaudited interim condensed
consolidated financial statements.
|
|
|
|
|
CELESTICA
INC.
|
|
|
|
|
CONDENSED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(LOSS)
|
(in millions of
U.S. dollars)
|
(unaudited)
|
|
|
|
|
|
Three months
ended
September 30
|
|
Nine months
ended
September 30
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
Net earnings for the
period....................................................................................
|
$
|
34.4
|
|
|
$
|
10.9
|
|
|
$
|
112.6
|
|
|
$
|
54.8
|
|
Other comprehensive
income (loss), net of tax:
|
|
|
|
|
|
|
|
|
Items that will not
be reclassified to net earnings:
|
|
|
|
|
|
|
|
|
|
Actuarial gains on
pension and non-pension post-employment
benefit plans (note
10).............................................................................
|
2.3
|
|
|
—
|
|
|
2.3
|
|
|
—
|
|
|
Items that may be
reclassified to net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation
differences for foreign operations....................
|
(5.0)
|
|
|
0.4
|
|
|
(5.4)
|
|
|
(1.4)
|
|
|
|
Changes from
derivatives designated as
hedges.............................
|
(4.2)
|
|
|
(14.9)
|
|
|
6.6
|
|
|
(14.6)
|
|
Total comprehensive
income (loss) for the
period............................................
|
$
|
27.5
|
|
|
$
|
(3.6)
|
|
|
$
|
116.1
|
|
|
$
|
38.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 9)
|
|
Treasury
stock (note 9)
|
|
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 9):
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital
stock............................................
|
17.2
|
|
|
—
|
|
|
(9.8)
|
|
|
—
|
|
|
—
|
|
|
7.4
|
|
|
Repurchase of capital
stock for cancellation..........
|
(100.1)
|
|
|
—
|
|
|
34.2
|
|
|
—
|
|
|
—
|
|
|
(65.9)
|
|
|
Purchase of treasury
stock......................
|
—
|
|
|
(23.9)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23.9)
|
|
|
Stock-based
compensation and other......
|
—
|
|
|
11.0
|
|
|
12.9
|
|
|
—
|
|
|
—
|
|
|
23.9
|
|
Total
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the
period......................
|
—
|
|
|
—
|
|
|
—
|
|
|
112.6
|
|
|
—
|
|
|
112.6
|
|
|
Other comprehensive
income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gains on
pension and non-pension
post-employment plans (note 10)......................
|
—
|
|
|
—
|
|
|
—
|
|
|
2.3
|
|
|
—
|
|
|
2.3
|
|
|
|
Currency translation
differences for foreign
operations...............................................................
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5.4)
|
|
|
(5.4)
|
|
|
|
Changes from
derivatives designated as
hedges.....................................................................
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.6
|
|
|
6.6
|
|
Balance -- September
30, 2014.........................................
|
$
|
2,629.1
|
|
|
$
|
(24.9)
|
|
|
$
|
719.0
|
|
|
$
|
(1,850.5)
|
|
|
$
|
(13.1)
|
|
|
$
|
1,459.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance -- January 1,
2015..................................................
|
$
|
2,609.5
|
|
|
$
|
(21.4)
|
|
|
$
|
677.1
|
|
|
$
|
(1,845.3)
|
|
|
$
|
(25.0)
|
|
|
$
|
1,394.9
|
|
Capital
transactions (note 9):
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital
stock..............................................
|
8.1
|
|
|
—
|
|
|
(5.0)
|
|
|
—
|
|
|
—
|
|
|
3.1
|
|
|
Repurchase of capital
stock for cancellation............
|
(528.2)
|
|
|
—
|
|
|
157.8
|
|
|
—
|
|
|
—
|
|
|
(370.4)
|
|
|
Purchase of treasury
stock...........................................
|
—
|
|
|
(8.2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8.2)
|
|
|
Stock-based
compensation and other.......................
|
—
|
|
|
16.0
|
|
|
12.1
|
|
|
—
|
|
|
—
|
|
|
28.1
|
|
Total
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the
period...........................................
|
—
|
|
|
—
|
|
|
—
|
|
|
54.8
|
|
|
—
|
|
|
54.8
|
|
|
Other comprehensive
income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation
differences for foreign
operations.................................................................
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.4)
|
|
|
(1.4)
|
|
|
|
Changes from
derivatives designated as
hedges.......................................................................
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14.6)
|
|
|
(14.6)
|
|
Balance -- September
30, 2015...........................................
|
$
|
2,089.4
|
|
|
$
|
(13.6)
|
|
|
$
|
842.0
|
|
|
$
|
(1,790.5)
|
|
|
$
|
(41.0)
|
|
|
$
|
1,086.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Accumulated other
comprehensive income (loss) is net of tax.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
September 30
|
|
Nine months
ended
September 30
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
Cash provided by
(used in):
|
|
|
|
|
|
|
|
Operating
activities:
|
|
|
|
|
|
|
|
Net earnings for the
period...........................................................................................
|
$
|
34.4
|
|
|
$
|
10.9
|
|
|
$
|
112.6
|
|
|
$
|
54.8
|
|
Adjustments to net
earnings for items not affecting cash:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization...............................................................................
|
17.3
|
|
|
17.0
|
|
|
50.9
|
|
|
50.5
|
|
|
Equity-settled
stock-based
compensation..........................................................
|
5.2
|
|
|
8.2
|
|
|
22.5
|
|
|
26.8
|
|
|
Other charges
(recoveries).....................................................................................
|
6.4
|
|
|
(0.3)
|
|
|
6.3
|
|
|
3.7
|
|
|
Finance
costs............................................................................................................
|
0.7
|
|
|
2.1
|
|
|
2.1
|
|
|
3.7
|
|
|
Income tax
expense.................................................................................................
|
7.8
|
|
|
18.4
|
|
|
6.3
|
|
|
30.5
|
|
Other..................................................................................................................................
|
2.3
|
|
|
(0.2)
|
|
|
(12.4)
|
|
|
(8.8)
|
|
Changes in non-cash
working capital items:
|
|
|
|
|
|
|
|
|
Accounts
receivable.................................................................................................
|
50.4
|
|
|
26.1
|
|
|
(36.3)
|
|
|
49.8
|
|
|
Inventories..................................................................................................................
|
6.7
|
|
|
(30.6)
|
|
|
42.0
|
|
|
(129.7)
|
|
|
Other current
assets................................................................................................
|
1.6
|
|
|
41.0
|
|
|
5.0
|
|
|
40.7
|
|
|
Accounts payable,
accrued and other current liabilities and
provisions........
|
(24.8)
|
|
|
(63.1)
|
|
|
(15.9)
|
|
|
(5.3)
|
|
Non-cash working
capital
changes.............................................................................
|
33.9
|
|
|
(26.6)
|
|
|
(5.2)
|
|
|
(44.5)
|
|
Net income taxes
paid...................................................................................................
|
(4.9)
|
|
|
(4.7)
|
|
|
(19.6)
|
|
|
(12.4)
|
|
Net cash provided by
operating
activities...................................................................
|
103.1
|
|
|
24.8
|
|
|
163.5
|
|
|
104.3
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
Purchase of computer
software and property, plant and equipment
(a)..............
|
(9.7)
|
|
|
(15.6)
|
|
|
(44.7)
|
|
|
(46.8)
|
|
Proceeds from sale of
assets......................................................................................
|
0.1
|
|
|
1.8
|
|
|
0.6
|
|
|
2.2
|
|
Deposit on
anticipated sale of real property (note
7)...............................................
|
—
|
|
|
11.2
|
|
|
—
|
|
|
11.2
|
|
Advances to solar
supplier (note
4).............................................................................
|
—
|
|
|
(7.3)
|
|
|
—
|
|
|
(28.3)
|
|
Net cash used in
investing
activities...........................................................................
|
(9.6)
|
|
|
(9.9)
|
|
|
(44.1)
|
|
|
(61.7)
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
Borrowings under
revolving credit facilities and term loan (note
8)......................
|
—
|
|
|
—
|
|
|
—
|
|
|
275.0
|
|
Repayments under term
loan (note
8)........................................................................
|
—
|
|
|
(6.2)
|
|
|
—
|
|
|
(6.2)
|
|
Issuance of capital
stock (note
9)................................................................................
|
1.1
|
|
|
0.5
|
|
|
7.4
|
|
|
3.1
|
|
Repurchase of capital
stock for cancellation (note
9)..............................................
|
(10.8)
|
|
|
—
|
|
|
(67.0)
|
|
|
(370.2)
|
|
Purchase of treasury
stock (note
9).............................................................................
|
(23.9)
|
|
|
(8.2)
|
|
|
(23.9)
|
|
|
(8.2)
|
|
Finance costs
paid.........................................................................................................
|
(0.8)
|
|
|
(2.1)
|
|
|
(2.0)
|
|
|
(5.4)
|
|
Net cash used in
financing
activities..........................................................................
|
(34.4)
|
|
|
(16.0)
|
|
|
(85.5)
|
|
|
(111.9)
|
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash and cash
equivalents.........................................
|
59.1
|
|
|
(1.1)
|
|
|
33.9
|
|
|
(69.3)
|
|
Cash and cash
equivalents, beginning of
period.....................................................
|
519.1
|
|
|
496.8
|
|
|
544.3
|
|
|
565.0
|
|
Cash and cash
equivalents, end of
period................................................................
|
$
|
578.2
|
|
|
$
|
495.7
|
|
|
$
|
578.2
|
|
|
$
|
495.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Additional
equipment of $8.9 and $17.1 was acquired through a finance lease in
the third quarter and first nine months of 2015, respectively. 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 September 30, 2015
and our financial performance, comprehensive income (loss) and cash
flows for the three and nine months ended September 30,
2015.
The unaudited interim condensed consolidated financial
statements were authorized for issuance by our board of directors
on October 20, 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 third 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. The IASB recently confirmed a one-year deferral of
this standard, which will now be effective January 1, 2018 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
September 30
|
|
Nine months
ended
September 30
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
Communications................................................................................................
|
|
40%
|
|
|
41%
|
|
|
40%
|
|
40%
|
Consumer............................................................................................................
|
|
5%
|
|
|
3%
|
|
|
5%
|
|
3%
|
Diversified............................................................................................................
|
|
29%
|
|
|
30%
|
|
|
28%
|
|
29%
|
Servers.................................................................................................................
|
|
9%
|
|
|
8%
|
|
|
10%
|
|
10%
|
Storage.................................................................................................................
|
|
17%
|
|
|
18%
|
|
|
17%
|
|
18%
|
Customers:
For the third quarter and first nine months of 2015, we had two
customers that individually represented more than 10% of total
revenue (third quarter and first nine months of 2014 — three
customers).
4. SOLAR INVESTMENTS
In March 2015, we entered into a
supply agreement with an Asian-based 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. This agreement has
an initial term of three and a half years, subject to automatic
renewal for successive one-year terms unless either party provides
a notice of intent not to renew. As of September 30, 2015, we had advanced $28.3 of this amount, which we have recorded as
other current assets of $18.0 and
other non-current assets of $10.3 in
our balance sheet as of September 30,
2015. The remaining committed cash amounts are scheduled to
be advanced during the fourth quarter of 2015, and all such cash
advances are scheduled to be repaid by this supplier through
quarterly repayment installments starting in the fourth quarter of
2015 and continuing through the end of 2017.
In April 2015, we entered into a
five-year agreement to lease manufacturing equipment valued at up
to $20.0 to be used in our solar
operations in Asia. As of
September 30, 2015, we recorded lease
obligations totaling $17.1,
consisting of short-term obligations of $2.8 and long-term obligations of $14.3, 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. See note 8.
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 September 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 September 30, 2015, we had sold $50.0 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 $0.5 and $4.7 for
the third quarter and first nine months of 2015, respectively
(third quarter and first nine months of 2014 — $0.7 and $5.5,
respectively). We regularly review our estimates and assumptions
used to value our inventory through analysis of historical
performance.
7. SALE AGREEMENT WITH RESPECT TO REAL PROPERTY IN
TORONTO
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. If the transaction is
completed, the purchase price will be approximately $137 million Canadian dollars ($102.0 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.
Upon execution of the Property Sale Agreement, the Property
Purchaser paid us a cash deposit of $15
million Canadian dollars ($11.2 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 currently anticipated to occur within approximately two years,
the Property Purchaser is to pay us an additional $53.5 million Canadian dollars in cash
($39.8 at period-end exchange rates).
The balance of the purchase price is to be satisfied upon closing
by an interest-free, first-ranking mortgage in the amount of
$68.5 million Canadian dollars
($51.0 at period-end exchange rates)
to be registered on title to the property and having a term of two
years from the closing date. We have recorded the cash deposit in
other non-current liabilities on our consolidated balance sheet and
as cash provided by investing activities in our consolidated
statement of cash flows.
As part of the Property Sale Agreement, we have agreed, upon
closing, to enter into an interim lease for our existing corporate
head 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), which is to be
followed by a longer-term lease for Celestica's new corporate
headquarters, on commercially reasonable arm's-length terms. 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. Given the
interest in the transaction by a related party, our board of
directors formed a Special Committee, consisting solely of
independent directors, which retained its own independent legal
counsel, to review and supervise a competitive bidding process. The
Special Committee, after considering, among other factors, that the
purchase price for the property exceeded the valuation
provided by an independent appraiser, determined that the Property
Purchaser's transaction terms are in the best interests of
Celestica. Our board of directors, at a meeting where Mr. Schwartz
was not present, approved the transaction based on the unanimous
recommendation of the Special Committee.
8. 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) 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 limit of $300.0), and to
extend the maturity of the entire facility to May 2020. We funded the SIB using the proceeds of
the Term Loan, $25.0 drawn on the
revolving portion of the credit facility (the Revolving Facility),
and $75.0 of available cash on hand.
See note 9. At September 30, 2015, $268.8 was outstanding under the credit facility
(December 31, 2014 — no amounts outstanding), comprised of
$25.0 under the Revolving Facility
and $243.8 under the Term Loan.
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 the 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.
The following table sets forth, for the periods indicated, our
long-term debt and finance lease obligations:
|
December 31
2014
|
|
September 30
2015
|
Term
loan.........................................................................................................................................................
|
$
|
—
|
|
|
$
|
243.8
|
|
Less: unamortized
debt issuance
costs....................................................................................................
|
—
|
|
|
(1.9)
|
|
|
—
|
|
|
241.9
|
|
Finance lease
obligations.............................................................................................................................
|
—
|
|
|
17.1
|
|
|
—
|
|
|
259.0
|
|
Less: current portion
of long-term debt and finance lease
obligations................................................
|
—
|
|
|
27.8
|
|
Long-term debt and
finance lease
obligations..........................................................................................
|
$
|
—
|
|
|
$
|
231.2
|
|
We incurred debt issuance costs of $2.1 in the second quarter of 2015 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.
The Term Loan requires quarterly principal repayments until its
maturity. At September 30, 2015, the mandatory principal
repayments of the Term Loan were as follows:
Years ending December
31
|
Amount
|
2015.....................................................................................................................................................................
|
$
|
|
6.3
|
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. Prepayments on
the Term Loan are also required in specified circumstances. Repaid
amounts on the Term Loan may not be re-borrowed.
At September 30, 2015, we were in compliance with all
applicable restrictive and financial covenants under the credit
facility. Commitment fees paid in the third quarter and first
nine months of 2015 were $0.3 and
$0.9, respectively (third quarter and
first nine months of 2014 — $0.5 and
$1.5, respectively). At
September 30, 2015, we had $28.1
(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 September 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.
9. 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
from time to time pursuant to substantial issuer bids, including
the SIB 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 third quarter of
2014, we completed a PSR under the 2013 NCIB and repurchased and
cancelled 1.4 million subordinate voting shares for $17.0 (funded in the second quarter of 2014). In
addition, we paid $3.4 (including
transaction fees) during the third quarter of 2014 to repurchase
and cancel 0.3 million subordinate voting shares under the 2013
NCIB at a weighted average price of $10.70 per share. During the first nine months of
2014, we paid an aggregate of $59.6
(including transaction fees) to repurchase and cancel a total of
5.5 million subordinate voting shares under the 2013 NCIB at a
weighted average price of $10.82 per
share, including the repurchase and cancellation of 4.0 million
subordinate voting shares under two PSRs for $44.1 ($27.1 paid
in the first quarter of 2014 and $17.0 paid in the second quarter of 2014).
On September 9, 2014, the TSX
accepted our notice to launch a new NCIB (the 2014 NCIB), which
allowed 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. During the third
quarter of 2014, we paid $7.4
(including transaction fees) to repurchase and cancel 0.7 million
subordinate voting shares under the 2014 NCIB, at a weighted
average price of $10.56 per share. At
September 30, 2014, we recorded a
liability of $8.7, representing the
estimated cash required to repurchase 0.9 million subordinate
voting shares available for purchase under an ASPP we entered into
with a broker. We did not repurchase any shares under the 2014 NCIB
in the third quarter of 2015. During the first nine months of 2015,
we repurchased and cancelled a total of 6.1 million subordinate
voting shares for $69.8 (including
transaction fees) under the 2014 NCIB, including under a PSR for
which we had funded $50.0 in
December 2014, at a weighted average
price of $11.46. The 2014 NCIB
expired in September 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 $0.9 in transaction-related costs. We funded the
share repurchases with the proceeds of the Term Loan, $25.0 drawn on the Revolving Facility, and
$75.0 of cash on hand. See note
8.
We grant share unit awards to employees under our stock-based
compensation plans. Under one of 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 our other
stock-based compensation plan, we may (at the time of grant)
authorize the grantee to settle awards in either cash or
subordinate voting shares (absent such permitted election, grants
will be settled in subordinate voting shares, which we may purchase
in the open market or issue 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. During the third quarter of 2015,
we paid $8.2 (including transaction
fees) for the trustee's purchase of 0.7 million subordinate voting
shares in the open market (outside of any NCIB period) for our
stock-based compensation plans (third quarter of 2014 —
$23.9 paid to purchase 2.2 million
subordinate voting shares). We did not purchase any subordinate
voting shares in the open market to satisfy delivery requirements
under our stock-based compensation plans during the first half of
either 2015 or 2014. At September 30, 2015, the trustee held
1.2 million subordinate voting shares for this purpose, having a
value of $13.6 (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 nine months ended
September 30, 2015:
Number of awards
(in millions)
|
|
Options
|
|
RSUs
|
|
PSUs
(i)
|
|
|
|
|
|
|
|
Outstanding at
December 31,
2014............................................................................................
|
|
3.3
|
|
|
3.4
|
|
|
6.1
|
|
Granted
(i).........................................................................................................................................
|
|
0.3
|
|
|
2.2
|
|
|
2.1
|
|
Exercised or settled
(ii)...................................................................................................................
|
|
(0.4)
|
|
|
(1.4)
|
|
|
(0.5)
|
|
Forfeited or
expired.........................................................................................................................
|
|
(0.2)
|
|
|
(0.1)
|
|
|
(1.5)
|
|
Outstanding at
September 30,
2015...........................................................................................
|
|
3.0
|
|
|
4.1
|
|
|
6.2
|
|
|
|
|
|
|
|
|
Weighted-average
grant date fair value of options and share units
granted......................
|
|
$
|
4.68
|
|
|
$
|
11.03
|
|
|
$
|
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 September 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 or third quarters of
2015.
|
|
|
(ii)
|
During the third
quarter and first nine months of 2015, we received cash proceeds of
$0.5 and $3.1, respectively (third quarter and first nine months of
2014 — $1.1 and $7.4, respectively) relating to the exercise of
vested employee stock options.
|
At September 30, 2015, 1.2 million (December 31, 2014 — 1.1 million) DSUs were
outstanding.
For the third quarter and first nine months of 2015, we recorded
employee stock-based compensation expense (excluding DSU expense)
of $8.2 and $26.8, respectively (third quarter and first nine
months of 2014 — $5.2 and
$22.5, respectively), and DSU expense
(recorded through SG&A) of $0.5
and $1.5, respectively (third quarter
and first nine months of 2014 — $0.4
and $1.4, respectively). Employee
stock-based compensation expense varies from period-to-period. The
portion of such expense that relates to performance-based
compensation generally varies depending on the level of achievement
of pre-determined performance goals and financial targets.
10. OTHER CHARGES (RECOVERIES)
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
Restructuring
(a)................................................................................
|
$
|
(0.3)
|
|
|
$
|
12.0
|
|
|
$
|
—
|
|
|
$
|
21.8
|
|
Pension obligation
settlement loss (gain) (b).............................
|
6.4
|
|
|
(0.1)
|
|
|
6.4
|
|
|
(0.3)
|
|
Other
(c)...............................................................................................
|
—
|
|
|
—
|
|
|
(6.7)
|
|
|
—
|
|
|
$
|
6.1
|
|
|
$
|
11.9
|
|
|
$
|
(0.3)
|
|
|
$
|
21.5
|
|
(a) Restructuring:
During the third quarter and first nine months of 2015, we
recorded restructuring charges of $12.0 and $21.8,
respectively (third quarter and first nine months of 2014 —
recoveries of $0.3 and nil,
respectively) to consolidate certain of our sites and reduce our
workforce. During the third quarter of 2015, we recorded
restructuring charges of $12.0,
primarily employee termination costs in certain under-utilized
manufacturing sites in higher cost locations. For the first nine
months of 2015, we recorded cash charges of $17.8, primarily employee termination costs and
non-cash charges of $4.0, primarily
to write down certain equipment to recoverable amounts. The
year-to-date charges include costs associated with the
consolidation of two of our semiconductor sites into a single
location during the second quarter of 2015. In an effort to reduce
the cost structure and improve the margin performance of that
business, our actions resulted in a reduction in the related
workforce and a write down of certain equipment. The remainder of
the restructuring actions for the nine months ended September 30, 2015 consisted primarily of
employee headcount reductions we implemented in various
geographies. Our restructuring provision at September 30, 2015
was $13.5 (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) Pension obligation settlement loss:
In August 2014, we liquidated the
asset portfolio for the defined benefit component of a pension plan
for certain Canadian employees, following which substantially all
of the proceeds were used to purchase annuities from insurance
companies for plan participants. The purchase of the annuities
resulted in the insurance companies assuming responsibility for
payment of the defined benefit pension benefits under the plan, and
the employer substantially eliminating financial risk in respect of
these obligations. We re-measured the pension assets and
liabilities immediately before the purchase of the annuities, and
in the third quarter of 2014 recorded a net re-measurement
actuarial gain of $2.3 in other
comprehensive income that was subsequently reclassified to deficit.
The purchase of the annuities also resulted in a non-cash
settlement loss of $6.4 which we
recorded in other charges during the third quarter of 2014 in our
consolidated statement of operations. For accounting purposes, on a
gross-basis, we reduced the value of our pension assets by
$149.8, and the value of our pension
liabilities by $143.4 as of the date
of the annuity purchase.
(c) Other:
In the first nine months 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,
relating to certain purchases we had made in prior periods.
11. 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.
Our income tax expense of $18.4
for the third quarter of 2015 and $30.5 for the first nine months of 2015 was
negatively impacted by taxable foreign exchange impacts arising
from the weakening of the Malaysian ringgit and Chinese renminbi
relative to the U.S. dollar (our functional currency), which
resulted in an income tax expense of $12.3 and $13.6 for
the third quarter and first nine months of 2015, respectively. Of
the $12.3 income tax expense
attributable to taxable foreign exchange impacts in the third
quarter of 2015, $6.5 were deferred tax costs related to the
revaluation of non-monetary balances (primarily capital assets and
inventory on-hand) from historical average exchange rates to the
current period-end exchange rates, while the remaining $5.8 were primarily cash costs resulting
from increased local currency taxable profits that arose as a
result of translating our U.S. dollar functional currency results
to local currency for Chinese and Malaysian tax reporting
purposes.
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 13 regarding income tax contingencies.
12. 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 under 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
|
|
September 30
2015
|
Cash.......................................................................................................................................................
|
$
|
397.2
|
|
|
$
|
430.1
|
|
Cash
equivalents.................................................................................................................................
|
167.8
|
|
|
65.6
|
|
|
$
|
565.0
|
|
|
$
|
495.7
|
|
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 September 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 8. Our borrowings under this
facility, which at September 30, 2015
totalled $268.8, 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, including income tax expense, incurred in
local currencies by our subsidiaries. Although our functional
currency is the U.S. dollar, currency risk on our income tax
expense arises as we are generally required to file our tax returns
in the local currency for each particular country in which we have
operations. We attempt to mitigate currency risk through a hedging
program using forecasts of our anticipated future cash flows and
balance sheet exposures denominated in foreign currencies. While
our hedging program is designed to mitigate currency risk vis-à-vis
the U.S. dollar, we remain subject to taxable foreign exchange
impacts in our translated local currency financial results relevant
for tax reporting purposes.
Our major currency exposures at September 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 from the
table below. The local currency amounts have been converted to U.S.
dollar equivalents using the spot rates at September 30,
2015.
|
Canadian
dollar
|
|
Euro
|
|
Thai
baht
|
Cash and cash
equivalents..........................................................................................................
|
$
|
7.8
|
|
|
$
|
8.2
|
|
|
$
|
0.6
|
|
Account receivable
and other financial
assets.........................................................................
|
8.7
|
|
|
23.0
|
|
|
0.2
|
|
Accounts payable and
certain accrued and other liabilities and
provisions.......................
|
(42.0)
|
|
|
(12.2)
|
|
|
(14.9)
|
|
Net financial assets
(liabilities)....................................................................................................
|
$
|
(25.5)
|
|
|
$
|
19.0
|
|
|
$
|
(14.1)
|
|
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 September 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
|
|
Thai
baht
|
|
Increase
(decrease)
|
1%
Strengthening
|
|
|
|
|
|
|
Net
earnings...........................................................................................................................
|
$
|
1.1
|
|
|
$
|
(0.2)
|
|
|
$
|
—
|
|
|
Other comprehensive
income.............................................................................................
|
|
1.3
|
|
|
|
0.1
|
|
|
|
0.8
|
|
1%
Weakening
|
|
|
|
|
|
|
Net
earnings...........................................................................................................................
|
(1.1)
|
|
|
0.2
|
|
|
—
|
|
|
Other comprehensive
income.............................................................................................
|
(1.3)
|
|
|
(0.1)
|
|
|
(0.8)
|
|
At September 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.................................................................................
|
$
|
284.6
|
|
|
$
|
0.79
|
|
|
15
|
|
$
|
(16.0)
|
|
Thai
baht.............................................................................................
|
109.7
|
|
|
0.03
|
|
|
12
|
|
(9.2)
|
|
Malaysian
ringgit...............................................................................
|
58.9
|
|
|
0.27
|
|
|
12
|
|
(10.6)
|
|
Mexican
peso.....................................................................................
|
24.2
|
|
|
0.06
|
|
|
15
|
|
(2.1)
|
|
British
pound......................................................................................
|
127.8
|
|
|
1.54
|
|
|
4
|
|
2.2
|
|
Chinese
renminbi..............................................................................
|
76.3
|
|
|
0.16
|
|
|
12
|
|
(0.6)
|
|
Euro......................................................................................................
|
49.2
|
|
|
1.12
|
|
|
12
|
|
(0.1)
|
|
Romanian
leu.....................................................................................
|
14.8
|
|
|
0.26
|
|
|
12
|
|
(0.1)
|
|
Singapore
dollar................................................................................
|
21.5
|
|
|
0.74
|
|
|
12
|
|
(1.1)
|
|
Other....................................................................................................
|
4.8
|
|
|
|
|
4
|
|
(0.2)
|
|
Total.....................................................................................................
|
$
|
771.8
|
|
|
|
|
|
|
$
|
(37.8)
|
|
At September 30, 2015, the fair value of the outstanding
contracts was a net unrealized loss of $37.8 (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 September 30, 2015 was not
significant, is recognized immediately in our consolidated
statement of operations. At September 30, 2015, we recorded
$2.8 of derivative assets in other
current assets, and $40.6 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.
13. 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. On July
28, 2015, the District Court held a settlement approval
hearing at which it granted final approval to the settlement. The
time for any person to appeal from the District Court's order
approving the settlement has expired without any such appeal having
been filed. The settlement payment to the plaintiffs was paid by
our liability insurance carriers.
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 settlement 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 $15 to $19 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 $31 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 $25 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 September 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.
SOURCE Celestica Inc.