(All amounts in U.S. dollars.
Per share information based on diluted
shares outstanding unless otherwise noted.)
TORONTO, Jan. 27, 2016 /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
fourth quarter and fiscal year ended December 31, 2015.
Fourth Quarter 2015 Highlights
- Revenue: $1.515 billion, above
our previously provided guidance range of $1.375 billion to $1.475 billion, increased 8%
sequentially and 6% compared to the fourth quarter of 2014
- Revenue from our diversified end market represented 30% of
total revenue, compared to 27% for the fourth quarter of 2014
- Operating margin (non-IFRS): 3.5%, compared to 3.6% for the
fourth quarter of 2014
- Adjusted EPS (non-IFRS): $0.27
per share, at the low end of our previously provided guidance range
of $0.27 to $0.33 per share, compared
to $0.23 per share for the fourth
quarter of 2014. Q4 2015 adjusted EPS was negatively impacted by
higher than expected costs incurred in connection with the
expansion of our solar business and increased income tax
expense
- IFRS EPS: $0.08 per share,
compared to a loss of $0.03 per share
for the fourth quarter of 2014
- ROIC (non-IFRS): 21.4%, compared to 20.8% for the fourth
quarter of 2014
- Free cash flow (non-IFRS): $76.0
million, compared to $60.0
million for the fourth quarter of 2014
Fiscal Year 2015 Highlights
- Revenue: $5.6 billion, flat
compared to 2014
- Revenue from our diversified end market grew 4% to represent
29% of total revenue, compared to 28% for 2014
- Operating margin (non-IFRS): 3.5%, consistent with 2014
- Adjusted EPS (non-IFRS): $0.92
per share (which included an $0.08
per share income tax expense resulting from taxable foreign
exchange impacts), compared to $1.00
per share for 2014
- IFRS EPS: $0.42 per share,
compared to $0.60 per share for
2014
- ROIC (non-IFRS): 19.8%, compared to 19.5% for 2014
- Free cash flow (non-IFRS): $113.2
million, compared to $177.4
million for 2014
- Repurchased and cancelled an aggregate of 32.4 million
subordinate voting shares for $420
million through a substantial issuer bid and a Normal Course
Issuer Bid; such repurchases represented approximately 18.6% of the
total multiple voting shares and subordinate voting shares issued
and outstanding at January 1,
2015
"Celestica delivered revenue above our guidance range in the
fourth quarter of 2015, driven primarily by strength in our storage
and server markets," said Rob
Mionis, Celestica's President and Chief Executive Officer.
"We also achieved year-over-year improvements in free cash flow and
return on invested capital."
"Despite a challenging environment, we reported solid financial
and operating results for 2015, while continuing to invest in the
business and returning over $400
million to shareholders through share repurchases during the
year."
"We are entering 2016 with a strong foundation and a focus on
accelerating our strategy to deliver profitable growth for the
company, and to increase customer and shareholder value."
Fourth Quarter and Fiscal Year 2015 Summary
|
Three months
ended
December 31
|
|
Year
ended December
31
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
Revenue (in
millions)................................................................
|
$
|
1,424.3
|
|
|
$
|
1,514.9
|
|
|
$
|
5,631.3
|
|
|
$
|
5,639.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS net earnings
(loss) (in
millions)(i).................................
|
$
|
(4.4)
|
|
|
$
|
12.1
|
|
|
$
|
108.2
|
|
|
$
|
66.9
|
|
IFRS earnings (loss)
per share
(i)...........................................
|
$
|
(0.03)
|
|
|
$
|
0.08
|
|
|
$
|
0.60
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS adjusted net
earnings (in millions) (i) (ii)..............
|
$
|
40.3
|
|
|
$
|
38.9
|
|
|
$
|
179.5
|
|
|
$
|
145.0
|
|
Non-IFRS adjusted
EPS(i)
(ii)....................................................
|
$
|
0.23
|
|
|
$
|
0.27
|
|
|
$
|
1.00
|
|
|
$
|
0.92
|
|
Non-IFRS return on
invested capital
(ROIC)(ii)......................
|
20.8
|
%
|
|
21.4
|
%
|
|
19.5
|
%
|
|
19.8
|
%
|
Non-IFRS operating
margin(ii)..................................................
|
3.6
|
%
|
|
3.5
|
%
|
|
3.5
|
%
|
|
3.5
|
%
|
i.
|
International
Financial Reporting Standards (IFRS) net earnings for the fourth
quarter and fiscal year 2015 included a non-cash impairment charge
of $12.2 million, or $0.08 per share, on certain of our property,
plant and equipment. IFRS net earnings and adjusted net earnings
(non-IFRS) for fiscal year 2015 included a $12.2 million, or $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. See note 12 to our
December 31, 2015 unaudited interim condensed consolidated
financial statements. IFRS net loss for the fourth quarter of 2014
and IFRS net earnings for fiscal year 2014 included a non-cash
goodwill impairment charge of $40.8 million, or $0.23 per share,
related to our semiconductor business.
|
|
|
|
IFRS EPS for the
fourth quarter of 2015 included an aggregate charge of $0.08
(pre-tax) per share for employee stock-based compensation expense
and amortization of intangible assets (excluding computer
software). This aggregate charge is within the range we provided on
October 20, 2015 of an aggregate charge of between $0.06 and
$0.12 per share for these items (see the tables in Schedule 1
attached hereto for per-item charges).
|
|
|
|
In addition, IFRS EPS
and non-IFRS adjusted EPS for the fourth quarter and fiscal year
2015 were positively impacted by the reduction of our weighted
average number of shares as a result of our share repurchases and
cancellations in 2015, as noted above.
|
|
|
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
|
|
Q4
|
|
FY
|
Communications...............
|
40%
|
|
40%
|
|
40%
|
|
40%
|
|
40%
|
|
40%
|
|
40%
|
|
41%
|
|
38%
|
|
40%
|
Consumer..........................
|
6%
|
|
5%
|
|
5%
|
|
3%
|
|
5%
|
|
3%
|
|
3%
|
|
3%
|
|
3%
|
|
3%
|
Diversified(i)........................
|
28%
|
|
28%
|
|
29%
|
|
27%
|
|
28%
|
|
28%
|
|
28%
|
|
30%
|
|
30%
|
|
29%
|
Servers................................
|
10%
|
|
10%
|
|
9%
|
|
10%
|
|
9%
|
|
11%
|
|
10%
|
|
8%
|
|
10%
|
|
10%
|
Storage................................
|
16%
|
|
17%
|
|
17%
|
|
20%
|
|
18%
|
|
18%
|
|
19%
|
|
18%
|
|
19%
|
|
18%
|
Revenue
(in billions).........
|
$1.31
|
|
$1.47
|
|
$1.42
|
|
$1.42
|
|
$5.63
|
|
$1.30
|
|
$1.42
|
|
$1.41
|
|
$1.51
|
|
$5.64
|
i.
|
Our diversified end
market is comprised of aerospace and defense, industrial,
healthcare, energy, and semiconductor equipment.
|
First Quarter 2016 Outlook
For the first quarter ending March 31, 2016, we anticipate
revenue to be in the range of $1.3 billion
to $1.4 billion, and non-IFRS adjusted net earnings per
share to be in the range of $0.19 to
$0.25 (excluding any impact from taxable foreign exchange).
We expect a negative $0.05 to $0.10
per share (pre-tax) aggregate impact on net earnings on an IFRS
basis for employee stock-based compensation expense, amortization
of intangible assets (excluding computer software) and
restructuring charges.
Fourth Quarter 2015 Webcast
Management will host its fourth quarter 2015 results conference
call today at 5:00 p.m. Eastern Standard
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 anticipated 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; the possibility of future
impairment of property, plant and equipment, goodwill or intangible
assets; the expected timing of ramping our solar programs in
Asia, and the timing and extent of
the expected recovery of our cash advances made to a particular
solar cell supplier; 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 transition costs for such expected 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 issues 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 and solar businesses;
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, defending
our tax positions, and obtaining, renewing 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 and solar businesses; 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. 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, except as required by applicable law.
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 our securities 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 gains or losses 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
December 31
|
|
Year ended
December 31
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
|
|
|
% of
revenue
|
|
|
|
% of
revenue
|
|
|
|
% of
revenue
|
|
|
|
% of
revenue
|
IFRS
revenue........................................................................
|
$
|
1,424.3
|
|
|
$
|
1,514.9
|
|
|
$
|
5,631.3
|
|
|
$
|
5,639.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS gross
profit.................................................................
|
$
|
104.5
|
7.3%
|
|
$
|
101.3
|
6.7%
|
|
$
|
405.4
|
7.2%
|
|
$
|
391.1
|
6.9%
|
|
Employee stock-based
compensation
expense........................................................................
|
|
3.0
|
|
|
|
4.3
|
|
|
|
13.4
|
|
|
|
16.3
|
|
Non-IFRS adjusted
gross profit.......................................
|
$
|
107.5
|
7.5%
|
|
$
|
105.6
|
7.0%
|
|
$
|
418.8
|
7.4%
|
|
$
|
407.4
|
7.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS
SG&A............................................................................
|
$
|
52.9
|
3.7%
|
|
$
|
51.8
|
3.4%
|
|
$
|
210.3
|
3.7%
|
|
$
|
207.5
|
3.7%
|
|
Employee stock-based
compensation
expense........
|
|
(2.9)
|
|
|
|
(6.5)
|
|
|
|
(15.0)
|
|
|
|
(21.3)
|
|
Non-IFRS adjusted
SG&A..................................................
|
$
|
50.0
|
3.5%
|
|
$
|
45.3
|
3.0%
|
|
$
|
195.3
|
3.5%
|
|
$
|
186.2
|
3.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS earnings
before income taxes...............................
|
$
|
5.7
|
|
|
$
|
23.8
|
|
|
$
|
124.6
|
|
|
$
|
109.1
|
|
|
Finance
costs..............................................................
|
|
1.0
|
|
|
|
2.6
|
|
|
|
3.1
|
|
|
|
6.3
|
|
|
Employee stock-based
compensation
expense........................................................................
|
|
5.9
|
|
|
|
10.8
|
|
|
|
28.4
|
|
|
|
37.6
|
|
|
Amortization of
intangible assets
(excluding computer
software)................................
|
|
1.5
|
|
|
|
1.5
|
|
|
|
6.3
|
|
|
|
6.0
|
|
|
Impairment,
restructuring and other charges.......
|
|
37.4
|
|
|
|
14.3
|
|
|
|
37.1
|
|
|
|
35.8
|
|
Non-IFRS operating
earnings (adjusted
EBIAT)
(1)..............................................................................
|
$
|
51.5
|
3.6%
|
|
$
|
53.0
|
3.5%
|
|
$
|
199.5
|
3.5%
|
|
$
|
194.8
|
3.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS net earnings
(loss)....................................................
|
$
|
(4.4)
|
(0.3)%
|
|
$
|
12.1
|
0.8%
|
|
$
|
108.2
|
1.9%
|
|
$
|
66.9
|
1.2%
|
|
Employee stock-based
compensation
expense........................................................................
|
|
5.9
|
|
|
|
10.8
|
|
|
|
28.4
|
|
|
|
37.6
|
|
|
Amortization of
intangible assets
(excluding computer
software)................................
|
|
1.5
|
|
|
|
1.5
|
|
|
|
6.3
|
|
|
|
6.0
|
|
|
Impairment,
restructuring and other charges.......
|
|
37.4
|
|
|
|
14.3
|
|
|
|
37.1
|
|
|
|
35.8
|
|
|
Adjustments for taxes
(2)..........................................
|
|
(0.1)
|
|
|
|
0.2
|
|
|
|
(0.5)
|
|
|
|
(1.3)
|
|
Non-IFRS adjusted
net earnings......................................
|
$
|
40.3
|
|
|
$
|
38.9
|
|
|
$
|
179.5
|
|
|
$
|
145.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average # of
shares (in millions)
used for IFRS earnings (loss) per share...............
|
|
175.6
|
|
|
|
145.2
|
|
|
|
180.4
|
|
|
|
157.9
|
|
|
IFRS earnings (loss)
per share...............................
|
$
|
(0.03)
|
|
|
$
|
0.08
|
|
|
$
|
0.60
|
|
|
$
|
0.42
|
|
|
Weighted average # of
shares (in millions)
used for non-IFRS adjusted earnings per
share
*..........................................................................
|
|
177.6
|
|
|
|
145.2
|
|
|
|
180.4
|
|
|
|
157.9
|
|
|
Non-IFRS adjusted net
earnings per share.........
|
$
|
0.23
|
|
|
$
|
0.27
|
|
|
$
|
1.00
|
|
|
$
|
0.92
|
|
# of shares
outstanding at period end
(in
millions)...........................................................................
|
174.6
|
|
|
143.5
|
|
|
174.6
|
|
|
143.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS cash provided
by operations..................................
|
$
|
78.0
|
|
|
$
|
92.0
|
|
|
$
|
241.5
|
|
|
$
|
196.3
|
|
|
Purchase of property,
plant and equipment,
net of sales
proceeds................................................
|
|
(15.8)
|
|
|
|
(15.4)
|
|
|
|
(59.9)
|
|
|
|
(60.0)
|
|
|
Deposit on
anticipated sale of real property.........
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11.2
|
|
|
Net repayments from
(advances to) solar
supplier...
|
|
—
|
|
|
|
1.8
|
|
|
|
—
|
|
|
|
(26.5)
|
|
|
Finance costs
paid.....................................................
|
|
(2.2)
|
|
|
|
(2.4)
|
|
|
|
(4.2)
|
|
|
|
(7.8)
|
|
Non-IFRS free cash
flow
(3)..............................................
|
$
|
60.0
|
|
|
$
|
76.0
|
|
|
$
|
177.4
|
|
|
$
|
113.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS ROIC %
(4)...........................................................
|
20.8%
|
|
|
21.4%
|
|
|
19.5%
|
|
|
19.8%
|
|
*
|
Non‑IFRS adjusted net
earnings per share is calculated by dividing non‑IFRS adjusted net
earnings by the number of diluted weighted average shares
outstanding. Because we reported a net loss on an IFRS basis in the
fourth quarter of 2014, the calculation of IFRS diluted weighted
average shares outstanding for such period excludes
2.0 million shares underlying stock‑based awards that were in
the money as at December 31, 2014, as the effect of these shares
would be anti‑dilutive. We included the dilutive effects of these
shares in the calculation of the weighted average number of shares
outstanding used to calculate non‑IFRS adjusted net earnings
(per diluted share) for the fourth quarter of 2014, because
their effects were dilutive in relation to
this measure.
|
|
|
(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 our securities, 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 (or
repayments from) 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
December 31, 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 five-point average to
calculate average non-IFRS net invested capital for the year. 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
December 31
|
|
Year
ended December
31
|
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
Non-IFRS operating
earnings (adjusted
EBIAT)............................................................
|
|
$
|
51.5
|
|
$
|
53.0
|
|
$
|
199.5
|
|
$
|
194.8
|
Multiplier.................................................................................................................................
|
|
|
4
|
|
|
4
|
|
|
1
|
|
|
1
|
Annualized non-IFRS
adjusted
EBIAT..............................................................................
|
|
$
|
206.0
|
|
$
|
212.0
|
|
$
|
199.5
|
|
$
|
194.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average non-IFRS net
invested capital for the
period...................................................
|
|
$
|
990.4
|
|
$
|
992.5
|
|
$
|
1,021.8
|
|
$
|
984.0
|
|
|
|
|
|
|
|
|
|
Non-IFRS ROIC %
(1).........................................................................................................
|
|
20.8%
|
|
21.4%
|
|
19.5%
|
|
19.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
2014
|
|
March 31
2015
|
|
June 30
2015
|
|
September 30
2015
|
|
December 31
2015
|
Non-IFRS net invested
capital consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets.......................................................................................
|
$
|
2,583.6
|
|
$
|
2,579.3
|
|
$
|
2,624.7
|
|
$
|
2,603.6
|
|
$
|
2,612.0
|
Less:
cash.........................................................................................
|
565.0
|
|
569.2
|
|
496.8
|
|
495.7
|
|
545.3
|
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
|
|
1,104.3
|
Non-IFRS net invested
capital at period end (1).........................
|
$
|
964.3
|
|
$
|
965.3
|
|
$
|
1,005.6
|
|
$
|
1,022.6
|
|
$
|
962.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
2013
|
|
March 31
2014
|
|
June 30
2014
|
|
September 30
2014
|
|
December 31
2014
|
Non-IFRS net invested
capital consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets.......................................................................................
|
$
|
2,638.9
|
|
$
|
2,590.7
|
|
$
|
2,673.3
|
|
$
|
2,666.3
|
|
$
|
2,583.6
|
Less:
cash..........................................................................................
|
544.3
|
|
489.2
|
|
519.1
|
|
578.2
|
|
565.0
|
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
|
|
1,054.3
|
Non-IFRS net invested
capital at period end (1).........................
|
$
|
985.4
|
|
$
|
1,065.8
|
|
$
|
1,077.0
|
|
$
|
1,016.4
|
|
$
|
964.3
|
(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 five-point average to calculate average non-IFRS net invested
capital for the year. There is no comparable measure
under IFRS.
|
GUIDANCE SUMMARY
|
Q4 2015
Guidance
|
|
Q4 2015
Actual
|
|
Q1 2016 Guidance
(1)
|
IFRS revenue
(in billions).................................................................
|
$1.375 to
$1.475
|
|
$1.51
|
|
$1.3 to
$1.4
|
Non-IFRS adjusted EPS
(diluted)...................................................
|
$0.27 to
$0.33
|
|
$0.27
|
|
$0.19 to
$0.25
|
(1)
|
Our guidance on
Non-IFRS adjusted EPS (diluted) excludes any impact from taxable
foreign exchange. For the first quarter of 2016, we anticipate a
negative $0.05 to $0.10 per share (pre-tax) aggregate impact on net
earnings on an IFRS basis for employee stock-based compensation
expense, amortization of intangible assets (excluding computer
software) and restructuring charges.
|
|
CELESTICA
INC.
|
|
|
|
CONDENSED
CONSOLIDATED BALANCE SHEET
|
|
(in millions of
U.S. dollars)
|
|
(unaudited)
|
|
|
|
|
|
December 31
2014
|
|
December 31
2015
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents (note
13)............................................................................................................
|
$
|
565.0
|
|
$
|
545.3
|
|
Accounts receivable
(note
5)............................................................................................................................
|
|
693.5
|
|
|
681.0
|
|
Inventories (note
6).............................................................................................................................................
|
|
719.0
|
|
|
794.6
|
|
Income taxes
receivable....................................................................................................................................
|
|
11.4
|
|
|
10.4
|
|
Assets classified as
held-for-sale..................................................................................................................
|
|
28.3
|
|
|
27.4
|
|
Other current assets
(note
4)...........................................................................................................................
|
|
87.0
|
|
|
65.3
|
Total current
assets...................................................................................................................................................
|
2,104.2
|
|
2,124.0
|
|
|
|
|
|
|
Property, plant and
equipment (note
7)..................................................................................................................
|
312.4
|
|
314.6
|
Goodwill.......................................................................................................................................................................
|
19.5
|
|
19.5
|
Intangible
assets........................................................................................................................................................
|
35.2
|
|
30.4
|
Deferred income
taxes..............................................................................................................................................
|
37.3
|
|
40.1
|
Other non-current
assets (notes 4 &
10)...............................................................................................................
|
75.0
|
|
83.4
|
Total
assets.................................................................................................................................................................
|
$
|
2,583.6
|
|
$
|
2,612.0
|
|
|
|
|
|
|
Liabilities and
Equity
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Current portion of
borrowings under credit facility and finance lease obligations
(notes 4 & 8)........
|
$
|
—
|
|
$
|
29.1
|
|
Accounts
payable................................................................................................................................................
|
|
730.9
|
|
|
801.4
|
|
Accrued and other
current
liabilities................................................................................................................
|
|
259.6
|
|
|
257.7
|
|
Income taxes
payable........................................................................................................................................
|
|
14.5
|
|
|
25.0
|
|
Current portion of
provisions............................................................................................................................
|
|
49.3
|
|
|
20.2
|
Total current
liabilities...............................................................................................................................................
|
1,054.3
|
|
1,133.4
|
|
|
|
|
|
|
Long-term portion of
borrowings under credit facility and finance lease obligations
(notes 4 & 8)...........
|
—
|
|
250.6
|
Pension and
non-pension post-employment benefit obligations (note
10)...................................................
|
99.2
|
|
83.2
|
Provisions and other
non-current
liabilities..........................................................................................................
|
18.1
|
|
28.0
|
Deferred income
taxes..............................................................................................................................................
|
17.1
|
|
25.8
|
Total
liabilities.............................................................................................................................................................
|
1,188.7
|
|
1,521.0
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
Capital stock (note
9).........................................................................................................................................
|
|
2,609.5
|
|
|
2,093.9
|
|
Treasury stock (note
9)......................................................................................................................................
|
|
(21.4)
|
|
|
(31.4)
|
|
Contributed
surplus...........................................................................................................................................
|
|
677.1
|
|
|
846.7
|
|
Deficit....................................................................................................................................................................
|
|
(1,845.3)
|
|
|
(1,785.4)
|
|
Accumulated other
comprehensive
loss.......................................................................................................
|
|
(25.0)
|
|
|
(32.8)
|
Total
equity...................................................................................................................................................................
|
1,394.9
|
|
1,091.0
|
Total liabilities and
equity.........................................................................................................................................
|
$
|
2,583.6
|
|
$
|
2,612.0
|
|
|
|
|
|
|
Contingencies (note
14)
|
|
|
|
|
|
|
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 December
31
|
|
Year ended December 31
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
Revenue.............................................................................................................
|
$
|
1,424.3
|
|
$
|
1,514.9
|
|
$
|
5,631.3
|
|
$
|
5,639.2
|
Cost of sales (note
6)......................................................................................
|
1,319.8
|
|
1,413.6
|
|
5,225.9
|
|
5,248.1
|
Gross
profit........................................................................................................
|
104.5
|
|
101.3
|
|
405.4
|
|
391.1
|
Selling, general and
administrative expenses
(SG&A)............................
|
52.9
|
|
51.8
|
|
210.3
|
|
207.5
|
Research and
development..........................................................................
|
5.0
|
|
6.5
|
|
19.7
|
|
23.2
|
Amortization of
intangible
assets.................................................................
|
2.5
|
|
2.3
|
|
10.6
|
|
9.2
|
Other charges
(note 11).................................................................................
|
37.4
|
|
14.3
|
|
37.1
|
|
35.8
|
Earnings from
operations.............................................................................
|
6.7
|
|
26.4
|
|
127.7
|
|
115.4
|
Finance
costs...................................................................................................
|
1.0
|
|
2.6
|
|
3.1
|
|
6.3
|
Earnings before
income
taxes.....................................................................
|
5.7
|
|
23.8
|
|
124.6
|
|
109.1
|
Income tax expense
(recovery) (note 12):
|
|
|
|
|
|
|
|
|
Current......................................................................................................
|
4.0
|
|
14.7
|
|
9.7
|
|
38.7
|
|
Deferred....................................................................................................
|
6.1
|
|
(3.0)
|
|
6.7
|
|
3.5
|
|
10.1
|
|
11.7
|
|
16.4
|
|
42.2
|
Net earnings (loss)
for the
period...............................................................
|
$
|
(4.4)
|
|
$
|
12.1
|
|
$
|
108.2
|
|
$
|
66.9
|
|
|
|
|
|
|
|
|
Basic earnings (loss)
per
share.................................................................
|
$
|
(0.03)
|
|
$
|
0.08
|
|
$
|
0.61
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
Diluted earnings
(loss) per
share..............................................................
|
$
|
(0.03)
|
|
$
|
0.08
|
|
$
|
0.60
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
Shares used in
computing per share amounts (in millions):
|
|
|
|
|
|
|
|
|
Basic.........................................................................................................
|
175.6
|
|
143.1
|
|
178.4
|
|
155.8
|
|
Diluted......................................................................................................
|
175.6
|
|
145.2
|
|
180.4
|
|
157.9
|
|
|
|
|
|
|
|
|
|
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 December
31
|
|
Year ended December 31
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
Net earnings (loss)
for the
period.....................................................................................
|
$
|
(4.4)
|
|
$
|
12.1
|
|
$
|
108.2
|
|
$
|
66.9
|
Other comprehensive
income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that will not
be reclassified to net earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gains
(losses) on pension and non-pension post-employment
benefit plans (notes 10 &
11(c)).........................................................................
|
|
9.6
|
|
|
(7.0)
|
|
|
11.9
|
|
|
(7.0)
|
|
Items that may be
reclassified to net earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation
differences for foreign
operations................................
|
|
(4.6)
|
|
|
(0.3)
|
|
|
(10.0)
|
|
|
(1.7)
|
|
|
Changes from
derivatives designated as
hedges.........................................
|
|
(7.3)
|
|
|
8.5
|
|
|
(0.7)
|
|
|
(6.1)
|
Total comprehensive
income (loss) for the
period........................................................
|
$
|
(6.7)
|
|
$
|
13.3
|
|
$
|
109.4
|
|
$
|
52.1
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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...................................................
|
20.1
|
|
—
|
|
(12.3)
|
|
—
|
|
—
|
|
7.8
|
|
Repurchase of capital
stock for
cancellation
(b)....................................................................
|
(122.6)
|
|
—
|
|
(8.2)
|
|
—
|
|
—
|
|
(130.8)
|
|
Purchase of treasury
stock................................................
|
—
|
|
(23.9)
|
|
—
|
|
—
|
|
—
|
|
(23.9)
|
|
Stock-based
compensation and other............................
|
—
|
|
14.5
|
|
15.9
|
|
—
|
|
—
|
|
30.4
|
Total
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for
2014.........................................................
|
—
|
|
—
|
|
—
|
|
108.2
|
|
—
|
|
108.2
|
|
Other comprehensive
income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gains on
pension and non-pension
post-employment benefit plans (notes 10 &
11(c))..............................................................................
|
—
|
|
—
|
|
—
|
|
11.9
|
|
—
|
|
11.9
|
|
|
Currency translation
differences for foreign
operations.....................................................................
|
—
|
|
—
|
|
—
|
|
—
|
|
(10.0)
|
|
(10.0)
|
|
|
Changes from
derivatives designated as
hedges...........................................................................
|
—
|
|
—
|
|
—
|
|
—
|
|
(0.7)
|
|
(0.7)
|
Balance -- December
31, 2014................................................
|
$
|
2,609.5
|
|
$
|
(21.4)
|
|
$
|
677.1
|
|
$
|
(1,845.3)
|
|
$
|
(25.0)
|
|
$
|
1,394.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
transactions (note 9):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital
stock...................................................
|
12.6
|
|
—
|
|
(8.7)
|
|
—
|
|
—
|
|
3.9
|
|
Repurchase of capital
stock for cancellation.................
|
(528.2)
|
|
—
|
|
157.8
|
|
—
|
|
—
|
|
(370.4)
|
|
Purchase of treasury
stock................................................
|
—
|
|
(28.9)
|
|
—
|
|
—
|
|
—
|
|
(28.9)
|
|
Stock-based
compensation and other............................
|
—
|
|
18.9
|
|
20.5
|
|
—
|
|
—
|
|
39.4
|
Total
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for
2015.........................................................
|
—
|
|
—
|
|
—
|
|
66.9
|
|
—
|
|
66.9
|
|
Other comprehensive
loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses on
pension and non-
pension post-employment benefit plans
(note
10).........................................................................
|
—
|
|
—
|
|
—
|
|
(7.0)
|
|
—
|
|
(7.0)
|
|
|
Currency translation
differences for foreign
operations.....................................................................
|
—
|
|
—
|
|
—
|
|
—
|
|
(1.7)
|
|
(1.7)
|
|
|
Changes from
derivatives designated as
hedges...........................................................................
|
—
|
|
—
|
|
—
|
|
—
|
|
(6.1)
|
|
(6.1)
|
Balance -- December
31, 2015................................................
|
$
|
2,093.9
|
|
$
|
(31.4)
|
|
$
|
846.7
|
|
$
|
(1,785.4)
|
|
$
|
(32.8)
|
|
$
|
1,091.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Accumulated other
comprehensive loss is net of tax.
|
|
(b) Includes $50.0
prepayment under a program share repurchase. See note 9.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 December
31
|
|
Year
ended December
31
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
Cash provided by
(used in):
|
|
|
|
|
|
|
|
Operating
activities:
|
|
|
|
|
|
|
|
Net earnings (loss)
for the
period..............................................................................
|
$
|
(4.4)
|
|
$
|
12.1
|
|
$
|
108.2
|
|
$
|
66.9
|
Adjustments to net
earnings (loss) for items not affecting cash:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization............................................................................
|
17.8
|
|
17.8
|
|
68.7
|
|
68.3
|
|
Equity-settled
stock-based
compensation.......................................................
|
5.9
|
|
10.8
|
|
28.4
|
|
37.6
|
|
Other
charges.........................................................................................................
|
40.8
|
|
12.6
|
|
47.1
|
|
16.3
|
|
Finance
costs.........................................................................................................
|
1.0
|
|
2.6
|
|
3.1
|
|
6.3
|
|
Income tax
expense..............................................................................................
|
10.1
|
|
11.7
|
|
16.4
|
|
42.2
|
Other................................................................................................................................
|
(2.3)
|
|
(8.7)
|
|
(14.7)
|
|
(17.5)
|
Changes in non-cash
working capital items:
|
|
|
|
|
|
|
|
|
Accounts
receivable..............................................................................................
|
(3.1)
|
|
(37.3)
|
|
(39.4)
|
|
12.5
|
|
Inventories...............................................................................................................
|
56.2
|
|
54.1
|
|
98.2
|
|
(75.6)
|
|
Other current
assets.............................................................................................
|
(23.9)
|
|
(2.5)
|
|
(18.9)
|
|
38.2
|
|
Accounts payable,
accrued and other current liabilities and
provisions.....
|
(15.7)
|
|
34.1
|
|
(31.6)
|
|
28.8
|
Non-cash working
capital
changes...........................................................................
|
13.5
|
|
48.4
|
|
8.3
|
|
3.9
|
Net income taxes
paid..................................................................................................
|
(4.4)
|
|
(15.3)
|
|
(24.0)
|
|
(27.7)
|
Net cash provided by
operating
activities.................................................................
|
78.0
|
|
92.0
|
|
241.5
|
|
196.3
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
Purchase of computer
software and property, plant and equipment
(a)............
|
(16.6)
|
|
(16.0)
|
|
(61.3)
|
|
(62.8)
|
Proceeds from sale of
assets....................................................................................
|
0.8
|
|
0.6
|
|
1.4
|
|
2.8
|
Deposit on
anticipated sale of real property (note
7).............................................
|
—
|
|
—
|
|
—
|
|
11.2
|
Advances to solar
supplier (note
4)...........................................................................
|
—
|
|
(1.2)
|
|
—
|
|
(29.5)
|
Repayments from solar
supplier (note
4)................................................................
|
—
|
|
3.0
|
|
—
|
|
3.0
|
Net cash used in
investing
activities.........................................................................
|
(15.8)
|
|
(13.6)
|
|
(59.9)
|
|
(75.3)
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
Borrowings under
credit facility (note
8)....................................................................
|
—
|
|
—
|
|
—
|
|
275.0
|
Repayments under
credit facility (note
8).................................................................
|
—
|
|
(6.3)
|
|
—
|
|
(12.5)
|
Issuance of capital
stock (note
9)..............................................................................
|
0.4
|
|
0.8
|
|
7.8
|
|
3.9
|
Repurchase of capital
stock for cancellation (note
9)............................................
|
(73.6)
|
|
(0.2)
|
|
(140.6)
|
|
(370.4)
|
Purchase of treasury
stock (note
9)...........................................................................
|
—
|
|
(20.7)
|
|
(23.9)
|
|
(28.9)
|
Finance costs
paid........................................................................................................
|
(2.2)
|
|
(2.4)
|
|
(4.2)
|
|
(7.8)
|
Net cash used in
financing
activities.........................................................................
|
(75.4)
|
|
(28.8)
|
|
(160.9)
|
|
(140.7)
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash and cash
equivalents........................................
|
(13.2)
|
|
49.6
|
|
20.7
|
|
(19.7)
|
Cash and cash
equivalents, beginning of
period...................................................
|
578.2
|
|
495.7
|
|
544.3
|
|
565.0
|
Cash and cash
equivalents, end of
period..............................................................
|
$
|
565.0
|
|
$
|
545.3
|
|
$
|
565.0
|
|
$
|
545.3
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Additional
equipment of $1.9 and $19.0 was acquired through a finance lease in
the fourth quarter and full year 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 December 31, 2015
and our financial performance, comprehensive income (loss) and cash
flows for the three months and year ended December 31,
2015.
These unaudited interim condensed consolidated financial
statements were authorized for issuance by our board of directors
on January 27, 2016.
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 amounts of our cash generating units (CGUs, as defined
below), which includes estimating future growth, profitability and
discount rates, and the fair value of our real property; 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 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 could be a site, a group of sites, or a
line of business.
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 fourth 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.
In January 2016, the IASB issued
IFRS 16, Leases, which brings most leases on-balance sheet
for lessees under a single model, eliminating the distinction
between operating and finance leases. IFRS 16 supersedes IAS 17,
Leases, and related interpretations and is effective for
periods beginning on or after January 1,
2019, with earlier adoption permitted if IFRS 15, Revenue
from Contracts with Customers, has also been applied. 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, and the execution of our programs and services,
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
December 31
|
|
Year ended
December 31
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
Communications................................................................
|
40
|
%
|
|
38
|
%
|
|
40
|
%
|
|
40%
|
Consumer............................................................................
|
3
|
%
|
|
3
|
%
|
|
5
|
%
|
|
3%
|
Diversified............................................................................
|
27
|
%
|
|
30
|
%
|
|
28
|
%
|
|
29%
|
Servers.................................................................................
|
10
|
%
|
|
10
|
%
|
|
9
|
%
|
|
10%
|
Storage.................................................................................
|
20
|
%
|
|
19
|
%
|
|
18
|
%
|
|
18%
|
Customers:
For the fourth quarter and full year 2015, we had three
customers that individually represented more than 10% of total
revenue (fourth quarter and full year 2014 — three
customers).
4. SOLAR INVESTMENTS
In March 2015, we entered into a
supply agreement with an Asia-based solar cell supplier (Solar
Supplier) that includes a commitment by us to provide cash advances
to help this supplier expand its manufacturing operations into
Malaysia. Based on our current estimates, we are required to
provide up to $31.0 of such cash
advances. This supply agreement has an initial term of three and a
half years, and is subject to automatic renewal for successive
one-year terms unless either party provides a notice of intent not
to renew. 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. As
of December 31, 2015, we advanced a
total of $29.5 under this agreement.
We received cash repayments of $3.0
from the supplier in the fourth quarter of 2015. As of December 31, 2015, $26.5 remains recoverable from this supplier,
which we have recorded as other current assets of $17.0 and other non-current assets of
$9.5 on our consolidated balance
sheet.
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
December 31, 2015, we recorded lease
obligations totaling $19.0,
consisting of short-term obligations of $4.1 and long-term obligations of $14.9, related to the manufacturing equipment we
received as of such date. Our lease payments are due quarterly,
commencing 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 December 31, 2015. The
term of this agreement has been annually extended in recent years
for additional one-year periods (and is currently extendable to
November 2017 under specified
circumstances), but may be terminated earlier as provided in the
agreement. At December 31, 2015, our accounts receivable
balance excluded $50.0 of accounts
receivable sold 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 recoveries of $0.9 and net inventory provisions of $3.8 for the fourth quarter and full year 2015,
respectively (fourth quarter and full year 2014 — net inventory
provisions of $0.3 and $5.8, 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 ($98.5 at year-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 the then-prevailing exchange rate),
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 from the execution date of the Property
Sale Agreement, the Property Purchaser is to pay us an additional
$53.5 million Canadian dollars in
cash ($38.5 at year-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
($49.3 at year-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
the expected time period 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 were 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 (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 (Revolving Facility), and
$75.0 of available cash on hand. See
note 9. During 2015, we made two scheduled quarterly principal
repayments totaling $12.5 under the
Term Loan. At December 31, 2015, $262.5 was outstanding under the credit facility
(December 31, 2014 — no amounts outstanding), comprised of
$25.0 under the Revolving Facility
and $237.5 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 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 our borrowings under the
Revolving Facility, Term Loan, and finance lease obligations as of
December 31, 2015 (December 31, 2014 — nil):
|
December 31
2015
|
Borrowings under the
Revolving
Facility..........................................................................................................
|
$
|
25.0
|
Term
Loan.............................................................................................................................................................
|
237.5
|
Total borrowings
under credit
facility................................................................................................................
|
262.5
|
Less: unamortized
debt issuance
costs.........................................................................................................
|
(1.8)
|
Finance lease
obligations (note
4)...................................................................................................................
|
19.0
|
|
$
|
279.7
|
Comprised
of:.......................................................................................................................................................
|
|
|
Current portion of
borrowings under credit facility and finance lease
obligations..................................
|
$
|
29.1
|
Long-term portion of
borrowings under credit facility and finance lease
obligations.............................
|
250.6
|
|
$
|
279.7
|
We incurred debt issuance costs of $2.1 in 2015 in connection with the amendment of
the credit facility, which we recorded as an offset against the
proceeds from the Term Loan. Such costs are deferred and amortized
over the term of the Term Loan using the effective interest rate
method.
The $25.0 we borrowed under the
Revolving Facility is due upon maturity of the facility in May
2020. We are permitted to repay amounts prior to
maturity.
The Term Loan requires quarterly principal repayments until its
maturity. At December 31, 2015, the mandatory principal
repayments of the Term Loan were as follows:
Years ending December
31
|
Amount
|
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 voluntary prepayments of the Term Loan,
subject to certain terms and conditions. Prepayments on the Term
Loan are also required under certain circumstances. Repaid amounts
on the Term Loan may not be re-borrowed.
At December 31, 2015, we were in compliance with all
restrictive and financial covenants under the credit
facility. Commitment fees paid in the fourth quarter and full
year 2015 were $0.4 and $1.3, respectively (fourth quarter and full year
2014 — $0.5 and $2.0, respectively). At December 31, 2015,
we had $27.2 (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 December 31,
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
Share repurchases:
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 self-imposed 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 2014, we paid
$59.6 (including transaction fees) to
repurchase and cancel 5.5 million subordinate voting shares at a
weighted average price of $10.82 per
share under the 2013 NCIB, including 4.0 million subordinate voting
shares repurchased under two PSRs and 0.9 million subordinate
voting shares repurchased under an ASPP completed during the term
of the 2013 NCIB. The maximum number of subordinate voting shares
we were permitted to repurchase for cancellation under the 2013
NCIB was reduced by 0.3 million subordinate voting shares we
purchased in the open market during the term of the 2013 NCIB to
satisfy obligations under our stock-based compensation plans.
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 subordinate voting
and multiple voting shares outstanding at the time of launch) in
the open market or as otherwise permitted, subject to the normal
terms and limitations of such bids. The 2014 NCIB expired in
September 2015. During 2015, prior to
its expiry, we repurchased and cancelled a total of 6.1 million
subordinate voting shares for $69.8
(including transaction fees) under the 2014 NCIB, at a weighted
average price of $11.46 per share,
including 4.4 million subordinate voting shares repurchased under a
$50.0 PSR we funded in December 2014. We completed the share repurchases
under this PSR on January 28, 2015 at
a weighted average price of $11.38
per share. During 2014, we paid $31.0
(including transaction fees) to repurchase and cancel 2.9 million
subordinate voting shares under the 2014 NCIB at a weighted average
price of $10.53 per share. The
maximum number of subordinate voting shares we were permitted to
repurchase for cancellation under the 2014 NCIB was reduced by 0.5
million subordinate voting shares we purchased in the open market
during the term of the 2014 NCIB to satisfy obligations under our
stock-based compensation plans.
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.
Stock-based compensation:
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 2015, we purchased 2.5
million (2014 — 2.2 million) subordinate voting shares in the open
market through a trustee for $28.9
(2014 — $23.9) (including transaction
fees) to satisfy delivery requirements under our stock-based
compensation plans. At December 31, 2015, the trustee held 2.8
million subordinate voting shares for this purpose, having a value
of $31.4 (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 year ended
December 31, 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)...........................................................................................................
|
|
(0.5)
|
|
(2.0)
|
|
(0.5)
|
Forfeited or
expired..................................................................................................................
|
|
(0.2)
|
|
(0.1)
|
|
(2.2)
|
Outstanding at
December 31,
2015.....................................................................................
|
|
2.9
|
|
3.5
|
|
5.5
|
|
|
|
|
|
|
|
Weighted-average
grant date fair value of options and share units
granted................
|
|
$
|
4.68
|
|
$
|
11.49
|
|
$
|
13.06
|
(i)
|
During 2015, we
granted 2.1 million (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
December 31, 2015 (representing the maximum potential payout)
depending on the level of achievement of the relevant performance
conditions.
|
|
|
(ii)
|
During the fourth
quarter and full year 2015, we received cash proceeds of $0.8 and
$3.9, respectively (fourth quarter and full year 2014 — $0.4 and
$7.8, respectively) relating to the exercise of vested employee
stock options.
|
At December 31, 2015, 1.3 million (December 31, 2014 — 1.1 million) DSUs were
outstanding.
For the fourth quarter and full year 2015, we recorded aggregate
employee stock-based compensation expense (excluding DSU expense)
through cost of sales and SG&A of $10.8 and $37.6,
respectively (fourth quarter and full year 2014 — $5.9 and $28.4,
respectively), and DSU expense (recorded through SG&A) of
$0.4 and $1.9, respectively (fourth quarter and full year
2014 — $0.5 and $1.9, respectively). Employee stock-based
compensation expense varies from period-to-period. The portion of
such expense that relates to performance-based compensation varies
depending on the level of achievement of pre-determined performance
goals and financial targets.
Weighted average number of shares outstanding:
The weighted average number of shares used for the diluted per
share calculations include the effect of stock-based compensation
awards, if dilutive. For the fourth quarter of 2014, we excluded
the effect of 2.0 million such awards as they were anti-dilutive
due to the loss reported in that period.
10. PENSION AND NON-PENSION POST-EMPLOYMENT BENEFIT
PLANS
We provide pension and non-pension post-employment defined
benefit plans for our employees. Our obligations are determined
based on actuarial valuations. We recognize actuarial gains or
losses arising from pension and non-pension post-employment defined
benefit plans in other comprehensive income (loss) and we
subsequently reclassify the amounts to deficit. For 2015, we
recognized $7.0 of net actuarial
loss, net of tax (2014 — $11.9 of net
actuarial gains, net of tax). We used a measurement date of
December 31, 2015 for the accounting
valuation of our pension and non-pension post-employment defined
benefit plans.
Also see note 11(c).
11. OTHER CHARGES
|
Three months ended
December 31
|
|
Year ended
December 31
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
Restructuring
(a)................................................................................
|
$
|
(2.1)
|
|
$
|
2.1
|
|
$
|
(2.1)
|
|
$
|
23.9
|
Asset impairment
(b).........................................................................
|
40.8
|
|
12.2
|
|
40.8
|
|
12.2
|
Pension obligation
settlement loss (gain) (c)..............................
|
—
|
|
—
|
|
6.4
|
|
(0.3)
|
Other
(d)...............................................................................................
|
(1.3)
|
|
—
|
|
(8.0)
|
|
—
|
|
$
|
37.4
|
|
$
|
14.3
|
|
$
|
37.1
|
|
$
|
35.8
|
(a) Restructuring:
We perform ongoing evaluations of our business, operational
efficiency and cost structure, and implement restructuring actions
as we deem necessary. As a result of our most recent evaluation, we
recorded restructuring charges of $23.9 during 2015 (including $2.1 in the fourth quarter of 2015) to
consolidate certain of our sites and to reduce our workforce. Our
cash restructuring charges of $19.5
were primarily for employee termination costs, and our non-cash
charges of $4.4 were primarily to
write down certain equipment to recoverable amounts. Our
restructuring charges for 2015 included headcount reductions at
various sites, including reductions at under-utilized manufacturing
sites in higher cost locations, as well as costs associated with
the consolidation of two of our semiconductor sites into a single
location. In an effort to reduce the cost structure and improve the
margin performance of our semiconductor business, our actions
resulted in a reduction in the related workforce and a write down
of certain equipment. Our restructuring provision at
December 31, 2015 was $10.7
(December 31, 2014 — $1.9) comprised primarily of employee termination
costs which we expect to pay by the end of March 2016. In 2014, we recorded a net reversal
of $2.1 primarily to adjust for
reduced payments in relation to a site that was part of a previous
restructuring action.
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 number of employees to be terminated and
the timing of such terminations, 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 use and which are
available for sale. We recognize an impairment loss for assets
whose carrying amount exceeds their respective fair values less
costs to sell as determined by such independent 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) Annual impairment assessment:
We conduct our annual impairment assessment of goodwill,
intangible assets and property, plant and equipment in the fourth
quarter of each year (which corresponds to our annual planning
cycle), and whenever events or changes in circumstances indicate
that the carrying amount of an asset, CGU or a group of CGUs may
not be recoverable. We recognize an impairment loss when the
carrying amount of an asset, CGU or a group of CGUs exceeds its
recoverable amount, which is measured as the greater of its
value‑in‑use and its fair value less costs to sell. Prior to our
2015 annual impairment assessment, we did not identify any
triggering event during the course of 2015 indicating that the
carrying amount of our assets and CGUs may not be recoverable. For
our 2015 annual impairment assessment of goodwill, intangible
assets and property, plant and equipment, we used cash flow
projections based primarily on our plan for the following year and,
to a lesser extent, on our three‑year strategic plan and other
financial projections. Our plan for the following year is primarily
based on financial projections submitted by our subsidiaries in the
fourth quarter of each year, together with inputs from our customer
teams, and is subjected to in‑depth reviews performed by various
levels of management as part of our annual planning cycle. The plan
for the following year was approved by management and presented to
our Board of Directors in December 2015.
Upon completion of our 2015 annual impairment assessment of
goodwill, intangible assets and property, plant and equipment, we
determined that the recoverable amount of our assets and CGUs,
other than our Japan and Spain
CGUs, exceeded their respective carrying values and no impairment
existed for such assets and CGUs as of December 31, 2015. Our
CGUs in each of Japan and
Spain incurred losses in 2015,
primarily due to reduced customer demand and the challenging market
conditions we experienced in these CGUs during the year. Primarily
as a result of management's assessment of the continued negative
impact of these factors on the profitability of these two CGUs, we
reduced the future cash flow projections for these two CGUs in the
fourth quarter of 2015, and recorded non-cash impairment charges
totaling $12.2, comprised of
$6.5 and $5.7, against the property, plant and equipment
of our CGUs in Japan and
Spain, respectively. After
recording the impairment charges, the carrying value of the
property, plant and equipment held by each such CGU was reduced to
approximate the fair market value of the real property held at each
respective CGU at the end of 2015. No goodwill or intangible assets
were attributable to either of these CGUs in 2015.
In the fourth quarter of 2014, we performed our annual
impairment assessment of goodwill, intangible assets and property,
plant and equipment. We recorded non‑cash impairment charges of
$40.8 against the goodwill of
our semiconductor business, primarily due to the reduction at that
time of our long-term cash flow projections for this CGU as a
result of volatility in customer demand, operational inefficiencies
and commercial challenges associated with a particular customer,
and the costs, terms, timing and challenges of ramping new sites
and programs.
We determined the recoverable amount of our CGUs based primarily
on their expected value‑in‑use. The process of determining the
recoverable amount of a CGU is subjective and requires management
to exercise significant judgment in estimating future growth,
profitability, and discount rates, among other factors. The
assumptions used in our 2015 annual impairment assessment were
determined based on past experiences adjusted for expected changes
in future conditions. Where applicable, we worked with independent
brokers to obtain market prices to estimate our real property
values. For our 2015 assessment, we used cash flow projections
ranging from 3 years to 10 years (2014 — 2 to
9 years; 2013 — 3 to 10 years) for our CGUs, in line
with the remaining useful lives of the CGUs' essential assets. We
generally used our weighted‑average cost of capital of
approximately 8% (2014 — approximately 10%; 2013 —
approximately 12%) to discount our cash flows. For our
semiconductor CGU, which is subject to heightened risk and
volatilities (as a result of the factors discussed above), we
applied a discount rate of 17% to our cash flow projections for
this CGU (2014 and 2013 — 17%) to reflect management's
assessment of increased risk inherent in these cash flows. Despite
the decrease in our overall weighted‑average cost of capital and
new business awarded to this CGU in the past two years, we
maintained the 17% discount rate for our 2015 annual analysis for
the semiconductor CGU in recognition of the challenges faced by
this CGU during these two years.
Our goodwill of $19.5 at
December 31, 2015 and 2014 was
entirely attributable to our semiconductor CGU. For purposes of our
2015 impairment assessment, we assumed revenue growth for our
semiconductor CGU in future years at an average compound annual
growth rate of 9% over an 8-year period (2014 — 10% over a 9-year
period), representing the remaining life of the CGU's most
significant customer contract. We believe that this growth rate is
supported by the level of new business awarded in recent years, the
expectation of future new business awards, and anticipated overall
demand improvement in the semiconductor market based on certain
market trend analyses published by external sources. We also
assumed that the average annual margins for this CGU over the
projection period will be slightly lower than our overall margin
performance for the company in 2015, consistent with the average
annual margins we assumed for our 2014 impairment analysis, despite
the margin improvements we achieved in this CGU in 2015.
As part of our annual impairment assessment, we perform
sensitivity analyses for our semiconductor CGUs in order to
identify the impact of changes in key assumptions, including
projected growth rates, profitability, and discount rates. For our
2015 annual impairment analysis, we did not identify any key
assumptions where a reasonably possible change would result in
material impairments to this CGU.
Impairment assessments inherently involve judgment as to
assumptions about expected future cash flows and the impact of
market conditions on those assumptions. Future events and changing
market conditions may impact our assumptions as to prices, costs or
other factors that may result in changes in our estimates of future
cash flows. Failure to realize the assumed revenues at an
appropriate profit margin or failure to improve the financial
results of a CGU could result in additional impairment losses in
the CGU in future periods.
(c) 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.
(d) Other:
In 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.
12. 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 $42.2
for 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 a net income tax expense of
$12.2 of the $42.2 income tax expense recorded for 2015. Of
the $12.2 net income tax expense
attributable to taxable foreign exchange impacts in 2015, $4.5
consisted of 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 year-end
exchange rates, while the remaining $7.7 consisted primarily of 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.
There was no net tax impact associated with either the
$12.2 non-cash impairment to
property, plant and equipment we recorded in the fourth quarter of
2015, or the $40.8 non-cash goodwill
impairment charge we recorded in the fourth quarter of 2014.
See note 14 regarding income tax contingencies.
13. 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 as it bears interest at a
variable market rate. The carrying value of the outstanding cash
advances receivable from the Solar Supplier approximates their fair
value due to their relatively short term to maturity. 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
|
|
December 31
2015
|
Cash.......................................................................................................................................................
|
$
|
397.2
|
|
$
|
476.1
|
Cash
equivalents.................................................................................................................................
|
167.8
|
|
69.2
|
|
$
|
565.0
|
|
$
|
545.3
|
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 December 31, 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 specified margins. See note 8. Our borrowings under
this facility, which at December 31, 2015 totalled
$262.5 (December 31, 2014 — no amounts outstanding),
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 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 December 31, 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 spot rates at December 31, 2015.
|
Canadian
dollar
|
|
Euro
|
|
Thai
baht
|
Cash and cash
equivalents...............................................................................................
|
$
|
4.0
|
|
$
|
5.5
|
|
$
|
1.0
|
Accounts receivable
and other financial
assets.............................................................
|
1.1
|
|
27.3
|
|
0.2
|
Accounts payable and
certain accrued and other liabilities and
provisions..............
|
(34.7)
|
|
(15.1)
|
|
(14.8)
|
Net financial assets
(liabilities)..........................................................................................
|
$
|
(29.6)
|
|
$
|
17.7
|
|
$
|
(13.6)
|
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 such non-functional
currencies is summarized in the following table as at
December 31, 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....................................................................................................................
|
$
|
1.2
|
|
$
|
(0.2)
|
|
$
|
0.1
|
|
Other comprehensive
income.....................................................................................
|
|
1.2
|
|
|
0.1
|
|
|
0.7
|
1%
Weakening
|
|
|
|
|
|
|
Net
earnings...................................................................................................................
|
(1.2)
|
|
0.2
|
|
(0.1)
|
|
Other comprehensive
income.....................................................................................
|
(1.1)
|
|
(0.1)
|
|
(0.7)
|
At December 31, 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................................................................................
|
$
|
279.6
|
|
$
|
0.76
|
|
14
|
|
$
|
(13.7)
|
Thai
baht.............................................................................................
|
98.4
|
|
0.03
|
|
12
|
|
(4.4)
|
Malaysian
ringgit...............................................................................
|
73.7
|
|
0.25
|
|
12
|
|
(4.1)
|
Mexican
peso....................................................................................
|
27.6
|
|
0.06
|
|
14
|
|
(1.4)
|
British
pound.....................................................................................
|
129.0
|
|
1.50
|
|
4
|
|
1.3
|
Chinese
renminbi.............................................................................
|
74.6
|
|
0.15
|
|
12
|
|
(1.0)
|
Euro.....................................................................................................
|
52.9
|
|
1.11
|
|
12
|
|
0.3
|
Romanian
leu....................................................................................
|
14.7
|
|
0.25
|
|
12
|
|
(0.5)
|
Singapore
dollar................................................................................
|
21.2
|
|
0.72
|
|
12
|
|
(0.5)
|
Other....................................................................................................
|
5.0
|
|
|
|
4
|
|
—
|
Total.....................................................................................................
|
$
|
776.7
|
|
|
|
|
|
$
|
(24.0)
|
At December 31, 2015, the fair value of the outstanding
contracts was a net unrealized loss of $24.0 (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 December 31, 2015 was not
significant, is recognized immediately in our consolidated
statement of operations. At December 31, 2015, we recorded
$2.8 of derivative assets in other
current assets, and $26.8 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.
14. 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 for 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 alleged
violations of United States federal securities laws and sought
unspecified damages. They alleged 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. 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 were 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 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 were initiated 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
dealt with the limitation period issue. The Supreme Court of
Canada heard the appeal on
February 9, 2015. The Supreme Court
of Canada released its decision on
December 4, 2015, allowing the
defendants' appeal and holding that the statutory claims of the
plaintiff and the class under the Ontario Securities Act are barred
by the applicable limitation period. In an earlier decision dated
February 14, 2014, the Ontario
Superior Court of Justice denied certification of the plaintiffs'
common law claims. No party appealed that decision. We will be
seeking our costs of the Supreme Court proceedings and the
proceedings below. It is too early to assess the quantum of costs
that may be awarded, if any. The Canadian plaintiff has initiated a
second motion to certify its common law claims, even though those
claims were denied certification in February
2014. We believe that the February
2014 decision is final and binding and that any attempt to
re-open certification of the common law claims is without
merit. 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 $14 to $18 at year-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 $29 at
year-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 $24 at
year-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 year-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 were accrued as at
December 31, 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.