(All amounts in U.S. dollars.
Per share information based on diluted
shares outstanding unless otherwise noted.)
TORONTO, Oct. 21, 2014 /PRNewswire/ - Celestica Inc.
(NYSE, TSX: CLS), a global leader in the delivery of end-to-end
product lifecycle solutions, today announced financial results for
the third quarter ended September 30, 2014.
Third Quarter 2014 Highlights
- Revenue: $1.423 billion, within
the range of our guidance of $1.40 to $1.50
billion (announced July 24,
2014), decreased 5% compared to the third quarter of
2013
- Revenue from our diversified end market grew 7% from the third
quarter of 2013 to represent 29% of total revenue, up from 26% of
total revenue for the third quarter of 2013
- Operating margin (non-IFRS): 3.9%, compared to 3.2% for the
third quarter of 2013
- IFRS EPS: $0.19 per share,
compared to $0.31 per share for the
third quarter of 2013
- Adjusted EPS (non-IFRS): $0.26
per share, towards the high end of our guidance of $0.21 to $0.27 per share (announced July 24, 2014), compared to $0.22 per share for the third quarter of
2013
- ROIC (non-IFRS): 21.3%, compared to 19.8% for the third quarter
of 2013
- Free cash flow (non-IFRS): $92.7
million, compared to $10.4
million for the third quarter of 2013
- Repurchased and cancelled an aggregate of 1.7 million
subordinate voting shares for $20.4
million under our Normal Course Issuer Bid (NCIB) that was
completed in August 2014
- Launched a new NCIB (accepted by the Toronto Stock Exchange in
September 2014), pursuant to which
0.7 million subordinate voting shares were repurchased for
cancellation for $7.4 million
"Celestica delivered strong operating margin and free cash
flow performance in the third quarter driven primarily through our
continued focus on operational excellence and favorable program
mix," said Craig Muhlhauser,
Celestica's President and Chief Executive Officer.
"Despite overall demand softness in the third quarter, primarily
in our Communications end market, we improved our adjusted
operating margin and generated higher free cash flow compared to
the second quarter of this year, as well as to the same period of
2013. While we expect the overall business environment to remain
challenging in the near term, we remain committed to investing for
the future growth and profitability of Celestica while achieving
improvements in our margins, ROIC and free cash flow."
Third Quarter and Year-to-Date Summary
|
Three months
ended
September 30
|
|
Nine months
ended
September
30
|
|
2013
|
|
2014
|
|
2013
|
|
2014
|
Revenue (in
millions)..........................................................
|
$
|
1,491.9
|
|
|
$
|
1,423.1
|
|
|
$
|
4,359.4
|
|
|
$
|
4,207.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS net earnings (in
millions)(i).......................................
|
$
|
57.4
|
|
|
$
|
34.4
|
|
|
$
|
95.9
|
|
|
$
|
112.6
|
|
IFRS
EPS(i)............................................................................
|
$
|
0.31
|
|
|
$
|
0.19
|
|
|
$
|
0.52
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net earnings
(non-IFRS) (in millions)(ii) .........
|
$
|
41.5
|
|
|
$
|
47.2
|
|
|
$
|
110.1
|
|
|
$
|
139.2
|
|
Adjusted EPS
(non-IFRS)(ii)...............................................
|
$
|
0.22
|
|
|
$
|
0.26
|
|
|
$
|
0.59
|
|
|
$
|
0.77
|
|
Non-IFRS return on
invested capital (ROIC)(ii)...............
|
19.8
|
%
|
|
21.3
|
%
|
|
17.4
|
%
|
|
19.0
|
%
|
Non-IFRS operating
margin(ii)...........................................
|
3.2
|
%
|
|
3.9
|
%
|
|
2.9
|
%
|
|
3.5
|
%
|
i.
|
|
International
Financial Reporting Standards (IFRS) net earnings for the third
quarter of 2014 included an aggregate charge of $0.04 (pre-tax) per
share for employee stock-based compensation expense and
amortization of intangible assets (excluding computer software).
This is within the range we provided on July 24, 2014 of an
aggregate charge of between $0.03 and $0.07 per share for these
items (see the tables in Schedule 1 attached hereto for per-item
charges).
|
ii.
|
|
Non-IFRS measures do
not have any standardized meaning prescribed by IFRS and therefore
may not be comparable to similar measures presented by other public
companies that use IFRS or other generally accepted accounting
principles (GAAP). See "Non-IFRS Supplementary Information" below
for information on our rationale for the use of non-IFRS measures,
and Schedule 1 for, among other items, non-IFRS measures included
in this press release, as well as their definitions, uses, and a
reconciliation of non-IFRS to IFRS measures (where a comparable
IFRS measure exists).
|
End Markets by Quarter as a Percentage of Total
Revenue
|
2013
|
|
2014
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
FY
|
|
Q1
|
|
Q2
|
|
Q3
|
Communications......................
|
40%
|
|
42%
|
|
45%
|
|
41%
|
|
42%
|
|
40%
|
|
40%
|
|
40%
|
Consumer..................................
|
7%
|
|
7%
|
|
6%
|
|
6%
|
|
6%
|
|
6%
|
|
5%
|
|
5%
|
Diversified(i)...............................
|
24%
|
|
25%
|
|
26%
|
|
27%
|
|
25%
|
|
28%
|
|
28%
|
|
29%
|
Servers.......................................
|
16%
|
|
14%
|
|
9%
|
|
11%
|
|
13%
|
|
10%
|
|
10%
|
|
9%
|
Storage.......................................
|
13%
|
|
12%
|
|
14%
|
|
15%
|
|
14%
|
|
16%
|
|
17%
|
|
17%
|
Revenue
(in billions)...............
|
$1.37
|
|
$1.50
|
|
$1.49
|
|
$1.44
|
|
$5.80
|
|
$1.31
|
|
$1.47
|
|
$1.42
|
i.
|
|
Our diversified end
market is comprised of industrial, aerospace and defense,
healthcare, solar, green technology, semiconductor equipment and
other.
|
Normal Course Issuer Bids
During the third quarter of 2014, we paid $7.4 million, including transaction fees, to
repurchase for cancellation 0.7 million subordinate voting shares
under our new NCIB, which was accepted by the Toronto Stock
Exchange (TSX) in September 2014.
This NCIB allows us to repurchase, until the earlier of
September 10, 2015 or the completion of purchases thereunder,
up to approximately 10.3 million subordinate voting shares
(representing approximately 5.8% of our total outstanding
subordinate voting and multiple voting shares) in the open market
or as otherwise permitted, subject to the normal terms and
limitations of such bids. The maximum number of subordinate voting
shares we are permitted to repurchase for cancellation under the
NCIB will be reduced by the number of subordinate voting shares we
purchase during the term of the NCIB to satisfy obligations under
our stock-based compensation plans.
During the third quarter of 2014, pursuant to a previous NCIB
that was completed in August 2014, we
repurchased and cancelled an aggregate of 1.7 million subordinate
voting shares for $20.4 million,
including 1.4 million subordinate voting shares repurchased for
$17.0 million under a previously
disclosed program share repurchase funded in May 2014.
Fourth Quarter 2014 Outlook
For the fourth quarter ending December 31, 2014, we
anticipate revenue to be in the range of $1.375 to $1.475 billion, and non-IFRS adjusted
net earnings per share to be in the range of $0.21 to $0.27. We expect a negative $0.03 to $0.07 per share (pre-tax) aggregate
impact on net earnings on an IFRS basis for employee stock-based
compensation expense and amortization of intangible assets
(excluding computer software).
Third Quarter 2014 Webcast
Management will host its third quarter results conference call
today at 4:30 p.m. Eastern Daylight
Time. The webcast can be accessed at www.celestica.com.
Non-IFRS Supplementary Information
In addition to disclosing detailed operating results in
accordance with IFRS, Celestica provides supplementary non-IFRS
measures to consider in evaluating the company's operating
performance. Management uses adjusted net earnings and other
non-IFRS measures to assess operating performance and the effective
use and allocation of resources; to provide more meaningful
period-to-period comparisons of operating results; to enhance
investors' understanding of the core operating results of
Celestica's business; and to set management incentive targets. We
believe investors use both IFRS and non-IFRS measures to assess
past, current and future decisions associated with our priorities
and our allocation of capital, as well as to analyze how our
business operates in, or responds to, swings in economic cycles or
to other events that impact our core operations. See Schedule 1 -
Supplementary Non-IFRS Measures for, among other items, non-IFRS
measures provided herein, non-IFRS definitions, and a
reconciliation of non-IFRS to IFRS measures (where a comparable
IFRS measure exists).
About Celestica
Celestica is dedicated to delivering end-to-end product
lifecycle solutions to drive our customers' success. Through our
simplified global operations network and information technology
platform, we are solid partners who deliver informed, flexible
solutions that enable our customers to succeed in the markets they
serve. Committed to providing a truly differentiated customer
experience, our agile and adaptive employees share a proud history
of demonstrated expertise and creativity that provides our
customers with the ability to overcome complex challenges. For
further information about Celestica, visit our website at
www.celestica.com. Our securities filings can also be accessed at
www.sedar.com and www.sec.gov.
Safe Harbor and Fair Disclosure Statement
This news release contains forward-looking statements related
to our future growth; trends in the electronics manufacturing
services (EMS) industry; our financial or operational results
including our quarterly revenue and earnings guidance; the impact
of acquisitions and program wins or losses on our financial results
and working capital requirements; anticipated expenses, 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; and the number of subordinate voting shares and
price thereof we may repurchase under our NCIB. 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 products we manufacture; price and other
competitive factors generally affecting the EMS industry; managing
our operations and our working capital performance during uncertain
economic conditions; responding to rapid changes in demand and
changes in our customers' outsourcing strategies, including the
insourcing of programs; customer concentration and the challenges
of diversifying our customer base and replacing revenue from lost
programs or customer disengagements; changing commodity, material
and component costs, as well as labor costs and conditions;
disruptions to our operations, or those of our customers, component
suppliers or logistics partners, including as a result of global or
local events outside our control; retaining or expanding our
business due to execution problems relating to the ramping of new
programs; resolving commercial and operational challenges, and
achieving profitability, in our semiconductor business; delays in
the delivery and availability of components, services and
materials; non-performance by counterparties; our financial
exposure to foreign currency volatility; our dependence on
industries affected by rapid technological change; managing our
global operations and supply chain; increasing income taxes,
increased levels and scrutiny of tax audits globally, and defending
our tax positions or meeting the conditions of tax incentives and
credits; completing any restructuring actions and integrating any
acquisitions; computer viruses, malware, hacking attempts or
outages that may disrupt our operations; any U.S. government
shutdown or delay in the increase of the U.S. government debt
ceiling; and compliance with applicable laws, regulations and
social responsibility initiatives. These and other material risks
and uncertainties are discussed in our public filings at
www.sedar.com and www.sec.gov, including in our MD&A, our
Annual Report on Form 20-F and subsequent reports on Form 6-K filed
with or furnished to (as applicable) the U.S. Securities and
Exchange Commission, and our Annual Information Form filed with the
Canadian Securities Administrators.
Our revenue, earnings and other financial guidance, as
contained in this press release, are based on various assumptions,
many of which involve factors that are beyond our control. The
material assumptions include those related to the following:
production schedules from our customers, which generally range from
30 to 90 days and can fluctuate significantly in terms of volume
and mix of products or services; the timing and execution of, and
investments associated with, ramping new business; the success in
the marketplace of our customers' products; the stability of
general economic and market conditions, currency exchange rates,
and interest rates; our pricing, the competitive environment and
contract terms and conditions; supplier performance, pricing and
terms; compliance by third parties with their contractual
obligations, the accuracy of their representations and warranties,
and the performance of their covenants; components, materials,
services, plant and capital equipment, labor, energy and
transportation costs and availability; operational and financial
matters including the extent, timing and costs of replacing revenue
from lost programs or customer disengagements; technological
developments; overall demand improvement in the semiconductor
industry, and revenue growth in our semiconductor
business; the timing and execution of any restructuring
actions; and our ability to diversify our customer base and develop
new capabilities. While management believes these assumptions to be
reasonable under the current circumstances, they may prove to be
inaccurate. Except as required by applicable law, we disclaim any
intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise.
All forward-looking statements attributable to us are
expressly qualified by these cautionary statements.
Schedule 1
Supplementary Non-IFRS Measures
Our non-IFRS measures herein include adjusted gross profit,
adjusted gross margin (adjusted gross profit as a percentage of
revenue), adjusted selling, general and administrative expenses
(SG&A), adjusted SG&A as a percentage of revenue, operating
earnings (adjusted EBIAT), operating margin (adjusted EBIAT as a
percentage of revenue), adjusted net earnings, adjusted net
earnings per share, net invested capital, return on invested
capital (ROIC), and free cash flow. Adjusted EBIAT, net invested
capital, ROIC and free cash flow are further described in the
tables below. In calculating these non-IFRS financial measures,
management excludes the following items, as applicable: employee
stock-based compensation expense, amortization of intangible assets
(excluding computer software), restructuring and other charges, net
of recoveries (most significantly restructuring charges), the
write-down of goodwill, intangible assets and property, plant and
equipment, and gains or losses related to the repurchase of shares
or debt, net of tax adjustments and significant deferred tax
write-offs or recoveries associated with restructuring actions or
restructured sites.
We believe the non-IFRS measures we present herein are useful,
as they enable investors to evaluate and compare our results from
operations and cash resources generated from our business in a more
consistent manner (by excluding specific items that we do not
consider to be reflective of our ongoing operating results) and
provide an analysis of operating results using the same measures
our chief operating decision makers use to measure performance. The
non-IFRS financial measures that can be reconciled to IFRS measures
result largely from management's determination that the facts and
circumstances surrounding the excluded charges or recoveries are
not indicative of the ordinary course of our ongoing operation of
our business.
Non-IFRS measures do not have any standardized meaning
prescribed by IFRS and may not be comparable to similar measures
presented by other public companies that use IFRS, or who report
under U.S. GAAP and use non-U.S. GAAP measures to describe similar
operating metrics. Non-IFRS measures are not measures of
performance under IFRS and should not be considered in isolation or
as a substitute for any standardized measure under IFRS. The most
significant limitation to management's use of non-IFRS financial
measures is that the charges or credits excluded from the non-IFRS
measures are nonetheless charges or credits that are recognized
under IFRS and that have an economic impact on the company.
Management compensates for these limitations primarily by issuing
IFRS results to show a complete picture of the company's
performance, and reconciling non-IFRS results back to IFRS results
where a comparable IFRS measure exists.
The economic substance of these exclusions and management's
rationale for excluding these from non-IFRS financial measures is
provided below:
Employee stock-based compensation expense, which represents the
estimated fair value of stock options, restricted share units and
performance share units granted to employees, is excluded because
grant activities vary significantly from quarter-to-quarter in both
quantity and fair value. In addition, excluding this expense allows
us to better compare core operating results with those of our
competitors who also generally exclude employee stock-based
compensation expense from their core operating results, who may
have different granting patterns and types of equity awards, and
who may use different valuation assumptions than we do, including
those competitors who use U.S. GAAP and non-U.S. GAAP measures to
present similar metrics.
Amortization charges (excluding computer software) consist
of non-cash charges against intangible assets that are impacted by
the timing and magnitude of acquired businesses. Amortization of
intangible assets varies among our competitors, and we believe that
excluding these charges permits a better comparison of core
operating results with those of our competitors who also generally
exclude amortization charges.
Restructuring and other charges, net of recoveries, include
costs relating to employee severance, lease terminations, facility
closings and consolidations, write-downs of owned property and
equipment which are no longer used and are available for sale,
reductions in infrastructure and acquisition-related transaction
costs. We exclude restructuring and other charges, net of
recoveries, because we believe that they are not directly related
to ongoing operating results and do not reflect expected future
operating expenses after completion of these activities. We
believe these exclusions permit a better comparison of our core
operating results with those of our competitors who also generally
exclude these charges, net of recoveries, in assessing operating
performance.
Impairment charges, which consist of non-cash charges against
goodwill, intangible assets and property, plant and equipment,
result primarily when the carrying value of these assets exceeds
their recoverable amount. Our competitors may record impairment
charges at different times. We believe that excluding these charges
permits a better comparison of our core operating results with
those of our competitors who also generally exclude these charges
in assessing operating performance.
Gains or losses related to the repurchase of shares or debt are
excluded as these gains or losses do not impact core operating
performance and vary significantly among those of our competitors
who also generally exclude these charges or recoveries in assessing
operating performance.
Significant deferred tax write-offs or recoveries associated
with restructuring actions or restructured sites are excluded as
these write-offs or recoveries do not impact core operating
performance and vary significantly among those of our competitors
who also generally exclude these charges or recoveries in assessing
operating performance.
The following table sets forth, for the periods indicated, the
various non-IFRS measures discussed above, and a reconciliation of
IFRS to non-IFRS measures, where a comparable IFRS measure exists
(in millions, except percentages and per
share amounts):
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
|
2013
|
|
2014
|
|
2013
|
|
2014
|
|
|
|
% of
revenue
|
|
|
|
% of
revenue
|
|
|
|
% of
revenue
|
|
|
|
% of
revenue
|
IFRS
Revenue............................................................
|
$
|
1,491.9
|
|
|
|
$
|
1,423.1
|
|
|
|
$
|
4,359.4
|
|
|
|
$
|
4,207.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS gross
profit.......................................................
|
$
|
103.3
|
|
6.9%
|
|
$
|
105.6
|
|
7.4%
|
|
$
|
285.9
|
|
6.6%
|
|
$
|
300.9
|
|
7.2%
|
Employee stock-based
compensation expense..
|
3.1
|
|
|
|
3.1
|
|
|
|
9.4
|
|
|
|
10.4
|
|
|
Non-IFRS adjusted
gross profit..............................
|
$
|
106.4
|
|
7.1%
|
|
$
|
108.7
|
|
7.6%
|
|
$
|
295.3
|
|
6.8%
|
|
$
|
311.3
|
|
7.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS
SG&A.................................................................
|
$
|
56.8
|
|
3.8%
|
|
$
|
48.8
|
|
3.4%
|
|
$
|
166.1
|
|
3.8%
|
|
$
|
157.4
|
|
3.7%
|
Employee stock-based
compensation expense..
|
(3.4)
|
|
|
|
(2.1)
|
|
|
|
(13.2)
|
|
|
|
(12.1)
|
|
|
Non-IFRS adjusted
SG&A........................................
|
$
|
53.4
|
|
3.6%
|
|
$
|
46.7
|
|
3.3%
|
|
$
|
152.9
|
|
3.5%
|
|
$
|
145.3
|
|
3.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS earnings
before income taxes........................
|
$
|
63.2
|
|
|
|
$
|
42.2
|
|
|
|
$
|
109.9
|
|
|
|
$
|
118.9
|
|
|
Finance
costs..........................................................
|
0.6
|
|
|
|
0.7
|
|
|
|
2.1
|
|
|
|
2.1
|
|
|
Employee stock-based
compensation expense..
|
6.5
|
|
|
|
5.2
|
|
|
|
22.6
|
|
|
|
22.5
|
|
|
Amortization of
intangible assets (excluding
computer
software)..................................................
|
1.6
|
|
|
|
1.6
|
|
|
|
4.9
|
|
|
|
4.8
|
|
|
Restructuring and
other charges (recoveries).....
|
(24.2)
|
|
|
|
6.1
|
|
|
|
(13.5)
|
|
|
|
(0.3)
|
|
|
Non-IFRS operating
earnings (adjusted
EBIAT)
(1).......................................................................
|
$
|
47.7
|
|
3.2%
|
|
$
|
55.8
|
|
3.9%
|
|
$
|
126.0
|
|
2.9%
|
|
$
|
148.0
|
|
3.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS net
earnings......................................................
|
$
|
57.4
|
|
3.8%
|
|
$
|
34.4
|
|
2.4%
|
|
$
|
95.9
|
|
2.2%
|
|
$
|
112.6
|
|
2.7%
|
Employee stock-based
compensation expense..
|
6.5
|
|
|
|
5.2
|
|
|
|
22.6
|
|
|
|
22.5
|
|
|
Amortization of
intangible assets (excluding
computer
software)..................................................
|
1.6
|
|
|
|
1.6
|
|
|
|
4.9
|
|
|
|
4.8
|
|
|
Restructuring and
other charges (recoveries).....
|
(24.2)
|
|
|
|
6.1
|
|
|
|
(13.5)
|
|
|
|
(0.3)
|
|
|
Adjustments for taxes
(2)........................................
|
0.2
|
|
|
|
(0.1)
|
|
|
|
0.2
|
|
|
|
(0.4)
|
|
|
Non-IFRS adjusted
net earnings.............................
|
$
|
41.5
|
|
|
|
$
|
47.2
|
|
|
|
$
|
110.1
|
|
|
|
$
|
139.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average # of
shares (in millions).........
|
186.4
|
|
|
|
179.6
|
|
|
|
185.7
|
|
|
|
181.3
|
|
|
IFRS earnings per
share........................................
|
$
|
0.31
|
|
|
|
$
|
0.19
|
|
|
|
$
|
0.52
|
|
|
|
$
|
0.62
|
|
|
Non-IFRS adjusted net
earnings per share.........
|
$
|
0.22
|
|
|
|
$
|
0.26
|
|
|
|
$
|
0.59
|
|
|
|
$
|
0.77
|
|
|
# of shares
outstanding at period end (in
millions)........................................................................
|
182.9
|
|
|
|
176.7
|
|
|
|
182.9
|
|
|
|
176.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS cash provided
by operations.........................
|
$
|
27.4
|
|
|
|
$
|
103.1
|
|
|
|
$
|
115.3
|
|
|
|
$
|
163.5
|
|
|
Purchase of property,
plant and equipment,
net of sales
proceeds...............................................
|
(16.4)
|
|
|
|
(9.6)
|
|
|
|
(38.8)
|
|
|
|
(44.1)
|
|
|
Finance costs
paid...................................................
|
(0.6)
|
|
|
|
(0.8)
|
|
|
|
(2.1)
|
|
|
|
(2.0)
|
|
|
Non-IFRS free cash
flow (3).....................................
|
$
|
10.4
|
|
|
|
$
|
92.7
|
|
|
|
$
|
74.4
|
|
|
|
$
|
117.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS ROIC %
(4)..................................................
|
19.8
|
%
|
|
|
21.3
|
%
|
|
|
17.4
|
%
|
|
|
19.0
|
%
|
|
(1)
|
Management uses
non-IFRS adjusted EBIAT as a measure to assess our operational
performance related to our core operations. Non-IFRS adjusted EBIAT
is defined as earnings before finance costs (consisting of interest
and fees related to our credit facilities and accounts receivable
sales program), amortization of intangible assets (excluding
computer software) and income taxes. Non-IFRS adjusted EBIAT
also excludes, in periods where such charges have been recorded,
employee stock-based compensation expense, restructuring and other
charges (net of recoveries), gains or losses related to the
repurchase of shares or debt, and impairment charges.
|
|
|
(2)
|
The adjustments for
taxes, as applicable, represent the tax effects on the non-IFRS
adjustments and significant deferred tax write-offs or recoveries
associated with restructuring actions or restructured sites that we
believe do not impact our core operating performance.
|
|
|
(3)
|
Management uses
non-IFRS free cash flow as a measure, in addition to IFRS cash flow
from operations, to assess our operational cash flow performance.
We believe non-IFRS free cash flow provides another level of
transparency to our liquidity. Non-IFRS free cash flow is defined
as cash generated from or used in operating activities after the
purchase of property, plant and equipment (net of proceeds from
sale of certain surplus equipment and property) and finance costs
paid.
|
|
|
(4)
|
Management uses
non-IFRS ROIC as a measure to assess the effectiveness of the
invested capital we use to build products or provide services to
our customers. Our non-IFRS ROIC measure includes non-IFRS
operating margin, working capital management and asset utilization.
Non-IFRS ROIC is calculated by dividing non-IFRS adjusted EBIAT by
average non-IFRS net invested capital. Net invested capital
(calculated in the table below) is a non-IFRS measure and consists
of the following IFRS measures: total assets less cash, accounts
payable, accrued and other current liabilities and provisions, and
income taxes payable. We use a two-point average to calculate
average non-IFRS net invested capital for the quarter and a
four-point average to calculate average non-IFRS net invested
capital for the nine-month period. There is no comparable measure
under IFRS.
|
The following table sets forth, for the periods indicated, our
calculation of non-IFRS ROIC % (in millions, except ROIC
%):
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
|
2013
|
|
2014
|
|
2013
|
|
2014
|
Non-IFRS operating
earnings (adjusted EBIAT)...................
|
$
|
47.7
|
|
|
$
|
55.8
|
|
|
$
|
126.0
|
|
|
$
|
148.0
|
|
Multiplier........................................................................................
|
4
|
|
|
4
|
|
|
1.333
|
|
|
1.333
|
|
Annualized non-IFRS
adjusted EBIAT.....................................
|
$
|
190.8
|
|
|
$
|
223.2
|
|
|
$
|
168.0
|
|
|
$
|
197.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average non-IFRS net
invested capital for the period..........
|
$
|
963.7
|
|
|
$
|
1,046.7
|
|
|
$
|
964.5
|
|
|
$
|
1,036.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS ROIC %
(1)................................................................
|
19.8
|
%
|
|
21.3
|
%
|
|
17.4
|
%
|
|
19.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
2013
|
|
March 31
2014
|
|
June 30
2014
|
|
September 30
2014
|
Non-IFRS net invested
capital consists of:
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets.................................................................................
|
$
|
2,638.9
|
|
|
$
|
2,590.7
|
|
|
$
|
2,673.3
|
|
|
$
|
2,666.3
|
|
Less:
cash...................................................................................
|
544.3
|
|
|
489.2
|
|
|
519.1
|
|
|
578.2
|
|
Less: accounts
payable, accrued and other current
liabilities, provisions and income taxes
payable.................
|
1,109.2
|
|
|
1,035.7
|
|
|
1,077.2
|
|
|
1,071.7
|
|
Non-IFRS net invested
capital at period end (1)..................
|
$
|
985.4
|
|
|
$
|
1,065.8
|
|
|
$
|
1,077.0
|
|
|
$
|
1,016.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
2012
|
|
March 31
2013
|
|
June 30
2013
|
|
September 30
2013
|
Non-IFRS net invested
capital consists of:
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets................................................................................
|
$
|
2,658.8
|
|
|
$
|
2,643.4
|
|
|
$
|
2,705.5
|
|
|
$
|
2,714.4
|
|
Less:
cash...................................................................................
|
550.5
|
|
|
531.3
|
|
|
553.5
|
|
|
546.8
|
|
Less: accounts
payable, accrued and other current
liabilities, provisions and income taxes
payable.................
|
1,143.9
|
|
|
1,145.7
|
|
|
1,214.8
|
|
|
1,177.5
|
|
Non-IFRS net invested
capital at period end (1)..................
|
$
|
964.4
|
|
|
$
|
966.4
|
|
|
$
|
937.2
|
|
|
$
|
990.1
|
|
(1)
|
Management uses
non-IFRS ROIC as a measure to assess the effectiveness of the
invested capital we use to build products or provide services to
our customers. Our non-IFRS ROIC measure includes non-IFRS
operating margin, working capital management and asset utilization.
Non-IFRS ROIC is calculated by dividing non-IFRS adjusted EBIAT by
average non-IFRS net invested capital. Net invested capital is a
non-IFRS measure and consists of the following IFRS measures: total
assets less cash, accounts payable, accrued and other current
liabilities and provisions, and income taxes payable. We use a
two-point average to calculate average non-IFRS net invested
capital for the quarter and a four-point average to calculate
average non-IFRS net invested capital for the nine-month period.
There is no comparable measure under IFRS.
|
GUIDANCE SUMMARY
|
Q3 2014
Guidance
|
|
Q3 2014
Actual
|
|
Q4 2014 Guidance
(1)
|
IFRS revenue
(in billions)............................................
|
$1.40 to
$1.50
|
|
$1.42
|
|
$1.375 to
$1.475
|
Non-IFRS adjusted EPS
(diluted)..............................
|
$0.21 to
$0.27
|
|
$0.26
|
|
$0.21 to
$0.27
|
(1)
|
We expect a negative
$0.03 to $0.07 per share (pre-tax) aggregate impact on net earnings
on an IFRS basis for employee stock-based compensation expense and
amortization of intangible assets (excluding computer
software).
|
CELESTICA
INC.
CONDENSED
CONSOLIDATED BALANCE SHEET (in millions of U.S.
dollars) (unaudited)
|
|
|
|
|
|
December 31
2013
|
|
September 30
2014
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash and cash
equivalents (note
10)..........................................................
|
$
|
544.3
|
|
|
$
|
578.2
|
|
Accounts receivable
(note
4)..........................................................................
|
654.1
|
|
|
690.4
|
|
Inventories
(note 5)..........................................................................................
|
817.2
|
|
|
775.2
|
|
Income taxes
receivable.................................................................................
|
13.6
|
|
|
12.3
|
|
Assets classified as
held-for-sale................................................................
|
30.2
|
|
|
28.9
|
|
Other current
assets........................................................................................
|
61.1
|
|
|
64.0
|
|
Total current
assets.............................................................................................
|
2,120.5
|
|
|
2,149.0
|
|
|
|
|
|
|
|
Property, plant and
equipment...........................................................................
|
313.6
|
|
|
314.6
|
|
Goodwill..................................................................................................................
|
60.3
|
|
|
60.3
|
|
Intangible
assets..................................................................................................
|
44.2
|
|
|
37.4
|
|
Deferred income
taxes........................................................................................
|
45.3
|
|
|
50.4
|
|
Other non-current
assets (note
8(b))................................................................
|
55.0
|
|
|
54.6
|
|
Total
assets...........................................................................................................
|
$
|
2,638.9
|
|
|
$
|
2,666.3
|
|
|
|
|
|
|
|
Liabilities and
Equity
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts
payable..............................................................................................
|
$
|
770.7
|
|
|
$
|
781.4
|
|
Accrued and other
current
liabilities..............................................................
|
274.5
|
|
|
253.9
|
|
Income taxes
payable......................................................................................
|
30.6
|
|
|
15.5
|
|
Current portion of
provisions..........................................................................
|
33.4
|
|
|
20.9
|
|
Total current
liabilities.........................................................................................
|
1,109.2
|
|
|
1,071.7
|
|
|
|
|
|
|
|
Pension and
non-pension post-employment benefit
obligations..............
|
93.5
|
|
|
91.6
|
|
Provisions and other
non-current
liabilities...................................................
|
16.3
|
|
|
18.9
|
|
Deferred income
taxes.......................................................................................
|
17.9
|
|
|
24.5
|
|
Total
liabilities......................................................................................................
|
1,236.9
|
|
|
1,206.7
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
Capital stock
(note 7)......................................................................................
|
2,712.0
|
|
|
2,629.1
|
|
Treasury stock
(note 7)...................................................................................
|
(12.0)
|
|
|
(24.9)
|
|
Contributed
surplus........................................................................................
|
681.7
|
|
|
719.0
|
|
Deficit.................................................................................................................
|
(1,965.4)
|
|
|
(1,850.5)
|
|
Accumulated other
comprehensive
loss....................................................
|
(14.3)
|
|
|
(13.1)
|
|
Total
equity...........................................................................................................
|
1,402.0
|
|
|
1,459.6
|
|
Total liabilities and
equity..................................................................................
|
$
|
2,638.9
|
|
|
$
|
2,666.3
|
|
|
|
|
|
|
|
|
|
Contingencies (note
11)
|
|
|
|
|
|
|
|
|
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
|
|
Nine months
ended
|
|
September
30
|
|
September
30
|
|
2013
|
|
2014
|
|
2013
|
|
2014
|
Revenue..................................................................................................
|
$
|
1,491.9
|
|
|
$
|
1,423.1
|
|
|
$
|
4,359.4
|
|
|
$
|
4,207.0
|
|
Cost of sales (note
5)...........................................................................
|
1,388.6
|
|
|
1,317.5
|
|
|
4,073.5
|
|
|
3,906.1
|
|
Gross
profit.............................................................................................
|
103.3
|
|
|
105.6
|
|
|
285.9
|
|
|
300.9
|
|
Selling, general and
administrative expenses (SG&A).................
|
56.8
|
|
|
48.8
|
|
|
166.1
|
|
|
157.4
|
|
Research and
development...............................................................
|
4.2
|
|
|
5.2
|
|
|
11.9
|
|
|
14.7
|
|
Amortization of
intangible
assets......................................................
|
2.7
|
|
|
2.6
|
|
|
9.4
|
|
|
8.1
|
|
Other charges
(recoveries)
(note 8)..................................................
|
(24.2)
|
|
|
6.1
|
|
|
(13.5)
|
|
|
(0.3)
|
|
Earnings from
operations...................................................................
|
63.8
|
|
|
42.9
|
|
|
112.0
|
|
|
121.0
|
|
Finance
costs........................................................................................
|
0.6
|
|
|
0.7
|
|
|
2.1
|
|
|
2.1
|
|
Earnings before
income
taxes...........................................................
|
63.2
|
|
|
42.2
|
|
|
109.9
|
|
|
118.9
|
|
Income tax expense
(recovery) (note 9):
|
|
|
|
|
|
|
|
|
|
|
|
Current..................................................................................................
|
7.3
|
|
|
7.9
|
|
|
17.5
|
|
|
5.7
|
|
Deferred...............................................................................................
|
(1.5)
|
|
|
(0.1)
|
|
|
(3.5)
|
|
|
0.6
|
|
|
5.8
|
|
|
7.8
|
|
|
14.0
|
|
|
6.3
|
|
Net earnings for the
period................................................................
|
$
|
57.4
|
|
|
$
|
34.4
|
|
|
$
|
95.9
|
|
|
$
|
112.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share..................................................................
|
$
|
0.31
|
|
|
$
|
0.19
|
|
|
$
|
0.52
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share...............................................................
|
$
|
0.31
|
|
|
$
|
0.19
|
|
|
$
|
0.52
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in
computing per share amounts (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Basic....................................................................................................
|
184.0
|
|
|
177.5
|
|
|
183.9
|
|
|
179.3
|
|
Diluted.................................................................................................
|
186.4
|
|
|
179.6
|
|
|
185.7
|
|
|
181.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these unaudited interim condensed
consolidated financial statements.
|
CELESTICA
INC.
CONDENSED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in
millions of U.S. dollars) (unaudited)
|
|
|
|
|
|
Three months
ended
|
|
Nine months
ended
|
|
September
30
|
|
September
30
|
|
2013
|
|
2014
|
|
2013
|
|
2014
|
Net earnings for the
period....................................................................
|
$
|
57.4
|
|
|
$
|
34.4
|
|
|
$
|
95.9
|
|
|
$
|
112.6
|
|
Other comprehensive
income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
Items that will not
be reclassified to net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial
gains on pension plans (note
8)......................................
|
—
|
|
|
2.3
|
|
|
—
|
|
|
2.3
|
|
Items that may be
reclassified to net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation differences for foreign
operations...............
|
1.6
|
|
|
(5.0)
|
|
|
(2.3)
|
|
|
(5.4)
|
|
Changes from
derivatives designated as hedges........................
|
0.4
|
|
|
(4.2)
|
|
|
(8.2)
|
|
|
6.6
|
|
Total comprehensive
income for the
period.......................................
|
$
|
59.4
|
|
|
$
|
27.5
|
|
|
$
|
85.4
|
|
|
$
|
116.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 7)
|
|
Treasury
stock (note 7)
|
|
Contributed
surplus
|
|
Deficit
|
|
Accumulated
other
comprehensive
income (loss)
(a)
|
|
Total equity
|
Balance -- January 1,
2013.......................................
|
$
|
2,774.7
|
|
|
$
|
(18.3)
|
|
|
$
|
653.2
|
|
|
$
|
(2,091.0)
|
|
|
$
|
4.1
|
|
|
$
|
1,322.7
|
|
Capital
transactions (note 7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital
stock......................................
|
15.6
|
|
|
—
|
|
|
(9.5)
|
|
|
—
|
|
|
—
|
|
|
6.1
|
|
Repurchase of capital
stock for cancellation....
|
(40.2)
|
|
|
—
|
|
|
13.4
|
|
|
—
|
|
|
—
|
|
|
(26.8)
|
|
Purchase of treasury
stock...................................
|
—
|
|
|
(10.4)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10.4)
|
|
Stock-based
compensation and other..............
|
—
|
|
|
16.9
|
|
|
7.3
|
|
|
—
|
|
|
—
|
|
|
24.2
|
|
Total
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the
period..................................
|
—
|
|
|
—
|
|
|
—
|
|
|
95.9
|
|
|
—
|
|
|
95.9
|
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation
differences for foreign
operations....................................................
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.3)
|
|
|
(2.3)
|
|
Changes from
derivatives designated as
hedges.........................................................
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8.2)
|
|
|
(8.2)
|
|
Balance -- September
30, 2013..............................
|
$
|
2,750.1
|
|
|
$
|
(11.8)
|
|
|
$
|
664.4
|
|
|
$
|
(1,995.1)
|
|
|
$
|
(6.4)
|
|
|
$
|
1,401.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance -- January 1,
2014.......................................
|
$
|
2,712.0
|
|
|
$
|
(12.0)
|
|
|
$
|
681.7
|
|
|
$
|
(1,965.4)
|
|
|
$
|
(14.3)
|
|
|
$
|
1,402.0
|
|
Capital
transactions (note 7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital
stock......................................
|
17.2
|
|
|
—
|
|
|
(9.8)
|
|
|
—
|
|
|
—
|
|
|
7.4
|
|
Repurchase of capital
stock for cancellation........
|
(100.1)
|
|
|
—
|
|
|
34.2
|
|
|
—
|
|
|
—
|
|
|
(65.9)
|
|
Purchase of treasury
stock...................................
|
—
|
|
|
(23.9)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23.9)
|
|
Stock-based
compensation and other...............
|
—
|
|
|
11.0
|
|
|
12.9
|
|
|
—
|
|
|
—
|
|
|
23.9
|
|
Total
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the
period..................................
|
—
|
|
|
—
|
|
|
—
|
|
|
112.6
|
|
|
—
|
|
|
112.6
|
|
Other comprehensive
income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gains on
pension plans (note 8)........
|
—
|
|
|
—
|
|
|
—
|
|
|
2.3
|
|
|
—
|
|
|
2.3
|
|
Currency translation
differences for foreign
operations....................................................
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5.4)
|
|
|
(5.4)
|
|
Changes from
derivatives designated as
hedges.........................................................
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.6
|
|
|
6.6
|
|
Balance -- September
30, 2014..............................
|
$
|
2,629.1
|
|
|
$
|
(24.9)
|
|
|
$
|
719.0
|
|
|
$
|
(1,850.5)
|
|
|
$
|
(13.1)
|
|
|
$
|
1,459.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Accumulated other
comprehensive income (loss) is net of tax.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these unaudited interim condensed
consolidated financial statements.
|
|
CELESTICA
INC.
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS (in millions of U.S.
dollars) (unaudited)
|
|
|
|
|
|
Three months
ended
|
|
Nine months
ended
|
|
September
30
|
|
September
30
|
|
2013
|
|
2014
|
|
2013
|
|
2014
|
Cash provided by
(used in):
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the
period......................................................
|
$
|
57.4
|
|
|
$
|
34.4
|
|
|
$
|
95.9
|
|
|
$
|
112.6
|
|
Adjustments to net
earnings for items not affecting cash:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization.............................................
|
17.2
|
|
|
17.3
|
|
|
54.8
|
|
|
50.9
|
|
Equity-settled
stock-based compensation........................
|
6.5
|
|
|
5.2
|
|
|
22.6
|
|
|
22.5
|
|
Other charges
(recoveries) (note
8)....................................
|
(0.2)
|
|
|
6.4
|
|
|
0.7
|
|
|
6.3
|
|
Finance
costs..........................................................................
|
0.6
|
|
|
0.7
|
|
|
2.1
|
|
|
2.1
|
|
Income tax
expense...............................................................
|
5.8
|
|
|
7.8
|
|
|
14.0
|
|
|
6.3
|
|
Other.............................................................................................
|
1.1
|
|
|
2.3
|
|
|
(0.3)
|
|
|
(12.4)
|
|
Changes in non-cash
working capital items:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable...............................................................
|
25.1
|
|
|
50.4
|
|
|
47.1
|
|
|
(36.3)
|
|
Inventories...............................................................................
|
(40.7)
|
|
|
6.7
|
|
|
(136.1)
|
|
|
42.0
|
|
Other current
assets..............................................................
|
(1.9)
|
|
|
1.6
|
|
|
3.7
|
|
|
5.0
|
|
Accounts payable,
accrued and other current liabilities
and
provisions.........................................................................
|
(41.3)
|
|
|
(24.8)
|
|
|
25.4
|
|
|
(15.9)
|
|
Non-cash working
capital changes........................................
|
(58.8)
|
|
|
33.9
|
|
|
(59.9)
|
|
|
(5.2)
|
|
Net income taxes
paid...............................................................
|
(2.2)
|
|
|
(4.9)
|
|
|
(14.6)
|
|
|
(19.6)
|
|
Net cash provided by
operating activities..............................
|
27.4
|
|
|
103.1
|
|
|
115.3
|
|
|
163.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of computer
software and property, plant and
equipment....................................................................................
|
(16.6)
|
|
|
(9.7)
|
|
|
(41.7)
|
|
|
(44.7)
|
|
Proceeds from sale of
assets..................................................
|
0.2
|
|
|
0.1
|
|
|
2.9
|
|
|
0.6
|
|
Net cash used in
investing
activities.......................................
|
(16.4)
|
|
|
(9.6)
|
|
|
(38.8)
|
|
|
(44.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Repayments under
credit facilities (note 6)...........................
|
—
|
|
|
—
|
|
|
(55.0)
|
|
|
—
|
|
Issuance of capital
stock (note
7)............................................
|
1.7
|
|
|
1.1
|
|
|
6.1
|
|
|
7.4
|
|
Repurchase of capital
stock for cancellation (note 7)..........
|
(18.8)
|
|
|
(10.8)
|
|
|
(18.8)
|
|
|
(67.0)
|
|
Purchase of treasury
stock (note 7).........................................
|
—
|
|
|
(23.9)
|
|
|
(10.4)
|
|
|
(23.9)
|
|
Finance costs
paid.....................................................................
|
(0.6)
|
|
|
(0.8)
|
|
|
(2.1)
|
|
|
(2.0)
|
|
Net cash used in
financing
activities......................................
|
(17.7)
|
|
|
(34.4)
|
|
|
(80.2)
|
|
|
(85.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash and cash equivalents......
|
(6.7)
|
|
|
59.1
|
|
|
(3.7)
|
|
|
33.9
|
|
Cash and cash
equivalents, beginning of period.................
|
553.5
|
|
|
519.1
|
|
|
550.5
|
|
|
544.3
|
|
Cash and cash
equivalents, end of period............................
|
$
|
546.8
|
|
|
$
|
578.2
|
|
|
$
|
546.8
|
|
|
$
|
578.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 industrial, aerospace and defense, healthcare, solar,
green technology, semiconductor equipment and other), and
Enterprise Computing (comprised of servers and storage) end
markets. Our product lifecycle offerings include a range of
services to our customers including design, engineering services,
supply chain management, new product introduction, component
sourcing, electronics manufacturing, assembly and test, complex
mechanical assembly, systems integration, precision machining,
order fulfillment, logistics and after-market repair and return
services.
2. BASIS OF PREPARATION AND SIGNIFICANT
ACCOUNTING POLICIES
Statement of compliance:
These unaudited interim condensed consolidated financial
statements have been prepared in accordance with International
Accounting Standard (IAS) 34, Interim Financial Reporting,
as issued by the International Accounting Standards Board (IASB)
and the accounting policies we have adopted in accordance with
International Financial Reporting Standards (IFRS). These unaudited
interim condensed consolidated financial statements reflect all
adjustments that are, in the opinion of management, necessary to
present fairly our financial position as at September 30, 2014
and our financial performance, comprehensive income and cash flows
for the three and nine months ended September 30, 2014.
The unaudited interim condensed consolidated financial
statements were authorized for issuance by our board of directors
on October 21, 2014.
Functional and presentation currency:
These unaudited interim condensed consolidated financial
statements are presented in U.S. dollars, which is also our
functional currency. Unless otherwise noted, all financial
information is presented in millions of U.S. dollars (except
percentages and per share amounts).
Use of estimates and judgments:
The preparation of financial statements in conformity with IFRS
requires management to make judgments, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets and liabilities, revenue and expenses, and the
related disclosures of contingent assets and liabilities. Actual
results could differ materially from these estimates and
assumptions. We review our estimates and underlying assumptions on
an ongoing basis and make revisions as determined necessary by
management. Revisions are recognized in the period in which the
estimates are revised and may impact future periods as well.
Key sources of estimation uncertainty and judgment: We
have applied significant estimates and assumptions in the following
areas which we believe could have a significant impact on our
reported results and financial position: our valuations of
inventory, assets held for sale and income taxes; the amount of our
restructuring charges or recoveries; the measurement of the
recoverable amount of our cash generating units (CGUs), which we
define as a 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; our valuations
of financial assets and liabilities, pension and non-pension
post-employment benefit costs, stock-based compensation expense,
provisions and contingencies; and the allocation of the purchase
price and other valuations in connection with our business
acquisitions. The near-term economic environment could also impact
certain estimates necessary to prepare our consolidated financial
statements, in particular, 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.
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 2013
annual consolidated financial statements, except for the recently
adopted accounting pronouncements discussed below. There have been
no material changes to our significant accounting estimates and
assumptions or the judgments affecting the application of such
estimates and assumptions during the third quarter of 2014 from
those described in the notes to our 2013 annual consolidated
financial statements, except for the changes we made to the
estimates and assumptions used to determine our warranty
provisions. As a result of our most recent review, based
primarily on historical experience, we recorded a net credit of
$2.5 in cost of sales for the third
quarter of 2014.
Recently adopted accounting pronouncements:
Effective January 1, 2014, we
adopted IAS 32, Financial Instruments — Presentation
(revised) as issued by the IASB, which clarifies the
requirements for offsetting financial assets and liabilities. The
adoption of this standard did not have a material impact on our
unaudited interim condensed consolidated financial statements.
Effective January 1, 2014, we
adopted IFRIC Interpretation 21, Levies as issued by the
IASB, which clarifies when the liability for certain levies should
be recognized and requires retroactive adoption. The adoption of
this standard did not have a material impact on our unaudited
interim condensed consolidated financial statements.
Recently issued accounting pronouncements:
In May 2014, the IASB issued IFRS
15, Revenue from Contracts with Customers, which provides a
single, principles-based five-step model for revenue recognition to
be applied to all customer contracts, and requires enhanced
disclosures. This standard is effective January 1, 2017 and allows early adoption.
We do not intend to adopt this standard early and are currently
evaluating the anticipated impact of adopting this standard on our
consolidated financial statements.
In July 2014, the IASB issued a
final version of IFRS 9, Financial Instruments, which
replaces IAS 39, Financial Instruments: Recognition and
Measurement, and is effective for annual periods beginning on
or after January 1, 2018, with
earlier adoption permitted. The standard introduces a new model for
the classification and measurement of financial assets, a single
expected credit loss model for the measurement of the impairment of
financial assets, and a new model for hedge accounting that is
aligned with a company's risk management activities. We 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 seasonality of our business, the
mix and complexity of the products or services we provide, the
extent, timing and rate of new program wins, follow-on business or
program losses, the phasing in or out of customer programs, the
success in the marketplace of our customers' products, and changes
in customer demand. We expect that the pace of technological
change, the frequency of customers transferring business among EMS
competitors, the level of outsourcing by customers (including
decisions to insource), and the dynamics of the global economy will
also continue to impact our business from period-to-period.
|
Three months
ended
September 30
|
|
Nine months
ended
September 30
|
|
2013
|
|
2014
|
|
2013
|
|
2014
|
Communications.............................................................
|
45%
|
|
40%
|
|
42%
|
|
40%
|
Consumer.........................................................................
|
6%
|
|
5%
|
|
7%
|
|
5%
|
Diversified.........................................................................
|
26%
|
|
29%
|
|
25%
|
|
28%
|
Servers..............................................................................
|
9%
|
|
9%
|
|
13%
|
|
10%
|
Storage..............................................................................
|
14%
|
|
17%
|
|
13%
|
|
17%
|
Customers:
For the third quarter and first nine months of 2014, we had
three customers that individually represented more than 10% of
total revenue (third quarter and first nine months of 2013 —
two customers and one customer, respectively).
4. ACCOUNTS RECEIVABLE
In November 2012, we entered into
an agreement to sell up to $375.0 at
any one time in accounts receivable on an uncommitted basis
(subject to pre-determined limits by customer) to two third-party
banks. In November 2013, we amended
the agreement to reduce the overall capacity to $250.0 based upon our annual review of our
requirements under this agreement. Both banks had a Standard and
Poor's long-term rating of A and short-term rating of A-1 at
September 30, 2014. This agreement is renewable annually by
mutual consent and can be terminated at any time by the banks or
us. At September 30, 2014, we had sold $50.0 of accounts receivable under this facility
(December 31, 2013 — $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.
5. INVENTORIES
We record our inventory provisions and valuation recoveries in
cost of sales. We record inventory provisions to reflect
write-downs in the value of our inventory to net realizable value,
and valuation recoveries primarily to reflect realized gains on the
disposition of inventory previously written down to net realizable
value. We recorded net inventory provisions of $0.7 and $5.5 for
the third quarter and first nine months of 2014, respectively
(third quarter and first nine months of 2013 — $1.2 and $8.2,
respectively). We regularly review our estimates and assumptions
used to value our inventory through analysis of historical
performance.
6. CREDIT FACILITIES
We have a $400.0 revolving credit
facility that matures in January 2015. This facility
includes an accordion feature that allows us to increase this limit
by an additional $50.0, subject to
certain terms and conditions. We are required to comply with
certain restrictive covenants including those relating to debt
incurrence, the sale of assets, a change of control and certain
financial covenants related to indebtedness, interest coverage and
liquidity. Certain of our assets are pledged as security for
borrowings under this facility. The facility 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 credit facility permits us and certain
designated subsidiaries to borrow funds for general corporate
purposes (including acquisitions).
Borrowings under this facility bear interest for the period of
the draw at LIBOR or Prime rate plus a margin. These borrowings
have historically been outstanding for fewer than 90 days. In
December 2012, we completed a
substantial issuer bid to repurchase for cancellation $175.0 of our subordinate voting shares,
$55.0 of which were funded through
this facility, which we repaid in the first half of 2013. At
September 30, 2014, there were no amounts outstanding under
this facility (December 31, 2013 — no amounts outstanding),
and we were in compliance with all applicable restrictive and
financial covenants required by this facility. Commitment fees
paid in the third quarter and first nine months of 2014 were
$0.5 and $1.5, respectively. At September 30, 2014,
we had $34.3 (December 31, 2013
— $29.7) outstanding in letters of
credit under this facility.
We also have a total of $70.0 of
uncommitted bank overdraft facilities available for intraday and
overnight operating requirements. There were no amounts
outstanding under these overdraft facilities at September 30,
2014 (December 31, 2013 — no amounts outstanding).
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.
7. CAPITAL STOCK
In August 2014, we completed our
previous Normal Course Issuer Bid (NCIB) that allowed us to
repurchase, at our discretion, up to approximately 9.8 million
subordinate voting shares in the open market. The maximum number of
subordinate voting shares we were permitted to repurchase for
cancellation under this NCIB was reduced by the number of
subordinate voting shares purchased during the term of the NCIB to
satisfy obligations under our stock-based compensation plans (an
aggregate of 0.3 million subordinate voting shares were purchased
for this purpose during the term of this NCIB). During the third
quarter of 2014, we completed a program share repurchase (PSR)
under this NCIB and repurchased 1.4 million subordinate voting
shares (as described below). Under this NCIB, we also paid
$3.4 (including transaction fees) to
repurchase and cancel an additional 0.3 million subordinate voting
shares at a weighted average price of $10.70 per share during the third quarter of
2014. During the first nine months of 2014, we paid $59.6 (including transaction fees) to repurchase
and cancel a total of 5.5 million subordinate voting shares at a
weighted average price of $10.82 per
share under this NCIB, including 4.0 million subordinate voting
shares repurchased under the two PSRs described below. During the
third quarter of 2013, under this NCIB, we paid $18.8 (including transaction fees) to repurchase
and cancel 1.7 million subordinate voting shares at a weighted
average price of $10.96 per share. We
did not repurchase any subordinate voting shares for cancellation
in the first half of 2013. During the term of this NCIB, we
repurchased and cancelled, in the aggregate, 9.6 million
subordinate voting shares, which represented substantially all of
the subordinate voting shares we were permitted to repurchase
thereunder under TSX rules.
On February 11, 2014, the TSX
accepted our notice to amend our previous NCIB in order to permit
the repurchase of our subordinate voting shares under one or more
PSRs during the term of such NCIB. Under each PSR, the price and
the number of subordinate voting shares repurchased by us was
determined based on a discount to the volume weighted-average
market price of our subordinate voting shares during the term of
such PSR, subject to certain terms and conditions. The subordinate
voting shares repurchased under each PSR are cancelled upon
completion of such PSR, as part of this NCIB. We paid
$27.1 to a broker in February 2014 under an initial PSR for the right
to receive a variable number of our subordinate voting shares upon
such PSR's completion. Pursuant to this PSR, which we completed on
May 23, 2014, we repurchased and
cancelled 2.6 million subordinate voting shares at a weighted
average price of $10.43 per share. In
May 2014, after the completion of the
initial PSR, we entered into a new PSR and paid $17.0 to a broker for the right to receive an
additional variable number of subordinate voting shares for
cancellation upon such PSR's completion. We completed this PSR on
July 22, 2014 pursuant to which we
repurchased and cancelled 1.4 million subordinate voting shares at
a weighted average price of $12.17
per share.
On September 9, 2014, the TSX
accepted our notice to launch a new NCIB. This new NCIB allows us
to repurchase, at our discretion, until the earlier of
September 10, 2015 or the completion of purchases thereunder,
up to approximately 10.3 million subordinate voting shares
(representing approximately 5.8% of our total outstanding
subordinate voting and multiple voting shares) in the open market
or as otherwise permitted, subject to the normal terms and
limitations of such bids. The maximum number of subordinate voting
shares we are permitted to repurchase for cancellation under the
NCIB will be reduced by the number of subordinate voting shares
purchased during the term of the NCIB to satisfy obligations under
our stock-based compensation plans. In September 2014, we also entered into an Automatic
Share Purchase Plan (ASPP) with a broker that allows the broker to
purchase, on our behalf, up to 1.4 million of our subordinate
voting shares (for cancellation under the new NCIB) at any time
through October 24, 2014, including
during any applicable trading blackout periods. During the third
quarter of 2014, we paid $7.4,
including transaction fees, to repurchase for cancellation 0.7
million subordinate voting shares under this new NCIB, including
0.5 million subordinate voting shares purchased under the ASPP, at
a weighted average price of $10.56
per share. At September 30, 2014, we
also recorded a liability of $8.7,
representing the estimated cash required to repurchase the
remaining 0.9 million subordinate voting shares available for
purchase under the ASPP.
We grant share unit awards to employees under our stock-based
compensation plans. We have the option to satisfy the delivery of
shares upon vesting of the awards by purchasing subordinate voting
shares in the open market or by settling such awards in cash. Under
one of these plans, we also have the option to satisfy the delivery
of shares by issuing new subordinate voting shares from treasury,
subject to certain limits. From time-to-time, we pay cash for the
purchase by a trustee of subordinate voting shares in the open
market to satisfy the delivery of shares upon vesting of awards.
For accounting purposes, we classify these shares as treasury stock
until they are delivered pursuant to the plans. During the third
quarter of 2014, we paid $23.9
(including transaction fees) for the trustee's purchase of 2.2
million subordinate voting shares in the open market (outside of
any NCIB period) for our stock-based compensation plans. We did not
purchase any subordinate voting shares for such purpose in the
first half of 2014 or the third quarter of 2013. During the first
half of 2013, we paid $10.4
(including transaction fees) for the trustee's purchase of 1.05
million subordinate voting shares in the open market for our
stock-based compensation plans. At September 30, 2014, the
trustee held 2.3 million subordinate voting shares with a value of
$24.9 (December 31, 2013 — 1.3 million subordinate
voting shares with a value of $12.0).
The following table outlines the activities for stock-based
awards granted to employees (activities for deferred share units
(DSUs) issued to directors are excluded) for the nine months ended
September 30, 2014:
Number of awards
(in millions)
|
|
Options
|
|
RSUs
|
|
PSUs
(i)
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31,
2013................................................................................
|
|
5.3
|
|
|
3.5
|
|
|
5.4
|
Granted
(i).............................................................................................................................
|
|
—
|
|
|
2.1
|
|
|
2.6
|
Exercised or settled
(ii).......................................................................................................
|
|
(1.1)
|
|
|
(1.4)
|
|
|
(0.5)
|
Forfeited/expired..................................................................................................................
|
|
(0.7)
|
|
|
(0.1)
|
|
|
(1.4)
|
Outstanding at
September 30,
2014...............................................................................
|
|
3.5
|
|
|
4.1
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
Weighted-average
grant date fair value of options and share units
granted..........
|
|
$
|
—
|
|
$
|
9.32
|
|
$
|
9.30
|
|
|
|
|
|
|
|
|
|
|
(i)
|
During the first
quarter of 2014, we granted 2.6 million (first quarter of 2013 —
2.1 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. See note 2(n) of our 2013 annual
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. The number of PSUs that
will actually vest will vary from 0 to the amount set forth in the
table above depending on the achievement of pre-determined
performance goals and financial targets.
|
|
|
(ii)
|
During the third
quarter and first nine months of 2014, we received cash proceeds of
$1.1 and $7.4, respectively (third quarter and first nine months of
2013 — $1.7 and $6.1, respectively) relating to the exercise of
stock options granted to employees.
|
At September 30, 2014, 1.1 million DSUs were outstanding
and fully vested.
For the third quarter and first nine months of 2014, we recorded
employee stock-based compensation expense (excluding DSUs) of
$5.2 and $22.5, respectively (third quarter and first nine
months of 2013 — $6.5 and
$22.6, respectively), and DSU expense
of $0.4 and $1.4, respectively (third quarter and first nine
months of 2013 — $0.5 and
$1.3, respectively). The amount of
our employee stock-based compensation expense varies from
period-to-period. The portion of our expense that relates to
performance-based compensation generally varies depending on the
level of achievement of pre-determined performance goals and
financial targets.
8. OTHER CHARGES (RECOVERIES)
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
|
2013
|
|
2014
|
|
2013
|
|
2014
|
Restructuring
(a)...............................................................
|
$
|
(0.2)
|
|
$
|
(0.3)
|
|
$
|
10.5
|
|
$
|
—
|
Pension obligation
settlement loss (b)........................
|
—
|
|
6.4
|
|
—
|
|
6.4
|
Other
(c)..............................................................................
|
(24.0)
|
|
—
|
|
(24.0)
|
|
(6.7)
|
|
$
|
(24.2)
|
|
$
|
6.1
|
|
$
|
(13.5)
|
|
$
|
(0.3)
|
(a) Restructuring:
Our net restructuring charges are comprised of the
following:
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
|
2013
|
|
2014
|
|
2013
|
|
2014
|
Cash charges
(recoveries).............................................
|
$
|
—
|
|
$
|
(0.3)
|
|
$
|
9.8
|
|
$
|
0.1
|
Non-cash charges
(recoveries).....................................
|
(0.2)
|
|
—
|
|
0.7
|
|
(0.1)
|
|
$
|
(0.2)
|
|
$
|
(0.3)
|
|
$
|
10.5
|
|
$
|
—
|
Due to our disengagement from BlackBerry Limited in 2012 and in
response to a challenging demand environment, we implemented
restructuring actions during 2013 throughout our global network
intended to streamline and simplify our business and to reduce our
overall cost structure and improve margin performance. Although
these restructuring actions were completed by the end of 2013,
certain payments in connection therewith are expected to be made
throughout 2014. At September 30, 2014, our remaining
restructuring provision was $5.7
(December 31, 2013 — $18.0) comprised primarily of employee
termination costs and contractual lease obligations.
The recognition of our restructuring charges required us to make
certain judgments and estimates regarding the nature, timing and
amounts associated with these restructuring actions. Our major
assumptions included the timing and number of employees to be
terminated, the measurement of termination costs, and the timing of
disposition and estimated fair values of assets available for sale.
We developed a detailed plan and recorded termination costs for
employees informed of their termination. We engaged independent
brokers to determine the estimated fair values less costs to sell
for assets we no longer used and which were available for sale. We
recognized an impairment loss for assets whose carrying amount
exceeded their respective fair value less costs to sell as
determined by the third-party brokers. We also recorded adjustments
to reflect actual proceeds on disposition of these assets. At the
end of each reporting period, we evaluate the appropriateness of
our restructuring charges and balances. Further adjustments may be
required to reflect actual experience or changes in estimates.
(b) Pension obligation settlement
loss:
In August 2014, we liquidated the
asset portfolio for the defined benefit component of a pension plan
for certain Canadian employees, following which substantially all
of the proceeds were used to purchase annuities from insurance
companies for those 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 eliminating significant financial risk in respect of
these obligations. We re-measured the pension assets and
liabilities immediately before the purchase of the annuities, and
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 on our
consolidated statement of operations. For accounting purposes, on a
gross-basis, we reduced the value of our pension assets by
$149.8, and the value of our pension
liabilities by $143.4 as of the date
of the annuity purchase.
(c) Other:
Other is comprised primarily of the recoveries of damages we
received in the first nine months of 2014 in connection with the
settlement of class action lawsuits in which we were a plaintiff,
related to certain purchases we made in prior periods. In
July 2013, we received similar
recoveries of damages in the amount of $24.0.
9. INCOME TAXES
Our effective income tax rate can vary significantly
quarter-to-quarter for various reasons, including the mix and
volume of business in lower tax jurisdictions within Europe and Asia, in jurisdictions with tax holidays and
tax incentives, and in jurisdictions for which no deferred income
tax assets have been recognized because management believed it was
not probable that future taxable profit would be available against
which tax losses and deductible temporary differences could be
utilized. Our effective income tax rate can also vary due to
the impact of restructuring charges, foreign exchange fluctuations,
operating losses, and changes in our provisions related to tax
uncertainties.
During the first quarter of 2014, Malaysian investment
authorities concluded their evaluation, and approved our request to
revise certain required conditions related to income tax incentives
for one of our Malaysian subsidiaries. The benefits of these tax
incentives were not previously recognized, as prior to this
revision we had not anticipated meeting the required conditions. As
a result of this approval, we recognized an income tax benefit of
$14.1 in the first quarter of 2014
relating to years 2010 through 2013.
See note 11 regarding income tax contingencies.
10. 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, 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.
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 2013 annual consolidated
financial statements for details of the input levels used and our
fair value hierarchy at December 31,
2013. There have been no significant changes to the source
of our inputs since December 31,
2013.
Cash and cash equivalents are comprised of the following:
|
December 31
2013
|
|
September 30
2014
|
Cash...................................................................................................
|
$
|
294.3
|
|
$
|
419.5
|
Cash
equivalents.............................................................................
|
250.0
|
|
158.7
|
|
$
|
544.3
|
|
$
|
578.2
|
Our current portfolio consists of bank deposits and certain
money market funds that primarily hold U.S. government securities.
The majority of our cash and cash equivalents is held with
financial institutions each of which had at September 30, 2014
a Standard and Poor's short-term rating of A-1 or above.
Currency risk:
Due to the global nature of our operations, we are exposed to
exchange rate fluctuations on our financial instruments denominated
in various currencies. The majority of our currency risk is driven
by the operational costs incurred in local currencies by our
subsidiaries. We manage our currency risk through our hedging
program using forecasts of future cash flows and balance sheet
exposures denominated in foreign currencies.
Our major currency exposures at September 30, 2014 are
summarized in U.S. dollar equivalents in the following table. We
have included in this table only those items that we classify as
financial assets or liabilities and which were denominated in
non-functional currencies. In accordance with the IFRS financial
instruments standard, we have excluded items such as pension and
non-pension post-employment benefits and income taxes. The local
currency amounts have been converted to U.S. dollar equivalents
using the spot rates at September 30, 2014.
|
Canadian
dollar
|
|
Euro
|
|
Malaysian
ringgit
|
|
Thai
baht
|
Cash and cash
equivalents............................................................................................
|
$
|
5.9
|
|
$
|
4.7
|
|
$
|
1.7
|
|
$
|
0.5
|
Account receivable
and other financial
assets............................................................
|
2.8
|
|
18.3
|
|
0.4
|
|
0.2
|
Accounts payable and
certain accrued and other liabilities and
provisions..........
|
(31.2)
|
|
(7.5)
|
|
(16.4)
|
|
(21.3)
|
Net financial assets
(liabilities)......................................................................................
|
$
|
(22.5)
|
|
$
|
15.5
|
|
$
|
(14.3)
|
|
$
|
(20.6)
|
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 non-functional currencies
is summarized in the following table as at September 30, 2014.
The financial instruments impacted by a change in exchange rates
include our exposures to the above financial assets or liabilities
denominated in non-functional currencies and our foreign exchange
forward contracts.
|
Canadian
dollar
|
|
Euro
|
|
Malaysian
ringgit
|
|
Thai
baht
|
|
Increase
(decrease)
|
|
|
|
|
|
|
|
|
|
1%
Strengthening
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings............................................................................
|
$
|
1.0
|
|
$
|
—
|
|
$
|
(0.1)
|
|
$
|
—
|
Other comprehensive
income..............................................
|
0.8
|
|
—
|
|
0.8
|
|
1.2
|
1%
Weakening
|
|
|
|
|
|
|
|
|
|
Net
earnings............................................................................
|
(1.0)
|
|
—
|
|
0.1
|
|
—
|
Other comprehensive
income..............................................
|
(0.8)
|
|
—
|
|
(0.8)
|
|
(1.2)
|
At September 30, 2014, we had forward exchange contracts to
trade U.S. dollars in exchange for the following
currencies:
Currency
|
Amount of
U.S. dollars
|
|
Weighted
average
exchange rate
in
U.S. dollars
|
|
Maximum
period in
months
|
|
Fair value
gain
(loss)
|
Canadian
dollar...............................................................................
|
$
|
229.3
|
|
|
$
|
0.91
|
|
|
13
|
|
|
$
|
(4.6)
|
|
Thai
baht...........................................................................................
|
139.8
|
|
|
0.03
|
|
|
15
|
|
|
(0.3)
|
|
Malaysian
ringgit.............................................................................
|
88.3
|
|
|
0.30
|
|
|
15
|
|
|
(0.8)
|
|
Mexican
peso...................................................................................
|
30.1
|
|
|
0.07
|
|
|
14
|
|
|
(0.6)
|
|
British
pound....................................................................................
|
96.5
|
|
|
1.66
|
|
|
4
|
|
|
2.2
|
|
Chinese
renminbi.............................................................................
|
102.6
|
|
|
0.16
|
|
|
12
|
|
|
(0.2)
|
|
Euro....................................................................................................
|
28.5
|
|
|
1.31
|
|
|
4
|
|
|
0.4
|
|
Romanian
leu...................................................................................
|
12.8
|
|
|
0.30
|
|
|
11
|
|
|
(0.7)
|
|
Singapore
dollar...............................................................................
|
22.6
|
|
|
0.80
|
|
|
12
|
|
|
(0.3)
|
|
Other..................................................................................................
|
10.9
|
|
|
|
|
|
4
|
|
|
0.1
|
|
Total...................................................................................................
|
$
|
761.4
|
|
|
|
|
|
|
|
|
$
|
(4.8)
|
|
At September 30, 2014, the fair value of the outstanding
contracts was a net unrealized loss of $4.8 (December 31, 2013 — net unrealized
loss of $17.3). Changes in the
fair value of hedging derivatives to which we apply cash flow hedge
accounting, to the extent effective, are deferred in other
comprehensive income until the expenses or items being hedged are
recognized in our consolidated statement of operations. Any hedge
ineffectiveness, which at September 30, 2014 was not
significant, is recognized immediately in our consolidated
statement of operations. At September 30, 2014, we recorded
$4.5 of derivative assets in other
current assets, and $9.3 of
derivative liabilities in accrued and other current and non-current
liabilities (December 31, 2013 —
$1.5 of derivative assets in other
current assets and $18.8 of
derivative liabilities in accrued and other current liabilities and
other 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.
11. CONTINGENCIES
Litigation
In the normal course of our operations, we may be subject to
lawsuits, investigations and other claims, including environmental,
labor, product, customer disputes and other
matters. Management believes that adequate provisions have
been recorded in the accounts where required. Although it is not
always possible to estimate the extent of potential costs, if any,
management believes that the ultimate resolution of all such
pending matters will not have a material adverse impact on our
financial performance, financial position or liquidity.
In 2007, securities class action lawsuits were commenced against
us and our former Chief Executive and Chief Financial Officers, in
the United States District Court of the Southern District of
New York by certain individuals, on behalf of themselves and
other unnamed purchasers of our stock, claiming that they were
purchasers of our stock during the period January 27, 2005 through January 30, 2007. The plaintiffs allege
violations of United States federal securities laws and seek
unspecified damages. They allege that during the purported period
we made statements concerning our actual and anticipated future
financial results that failed to disclose certain purportedly
material adverse information with respect to demand and inventory
in our Mexico operations and our
information technology and communications divisions. In an amended
complaint, the plaintiffs added one of our directors and Onex
Corporation as defendants. On October 14, 2010, the District
Court granted the defendants' motions to dismiss the consolidated
amended complaint in its entirety. The plaintiffs appealed to
the United States Court of Appeals
for the Second Circuit the dismissal of their claims against us,
and our former Chief Executive and Chief Financial Officers, but
not as to the other defendants. In a summary order dated
December 29, 2011, the Court of
Appeals reversed the District Court's dismissal of the consolidated
amended complaint and remanded the case to the District Court for
further proceedings. The discovery phase of the case has been
completed. Defendants moved for summary judgment dismissing the
case in its entirety, and plaintiffs moved for class certification
and for partial summary judgment on certain elements of their
claims. In an order dated February 21, 2014, the District
Court denied plaintiffs' motion for class certification because
they sought to include in their proposed class persons who
purchased Celestica stock in Canada. Plaintiffs renewed their motion for
class certification on April 23,
2014, removing Canadian stock purchasers from their proposed
class in accordance with the District Court's February 21 order. Defendants opposed plaintiffs'
renewed motion on May 5, 2014 on the
grounds that the plaintiffs are not adequate class representatives.
On August 20, 2014, the District
Court denied our motion for summary judgment. The District Court
also denied the majority of plaintiffs' motion for partial summary
judgment, but granted plaintiffs' motion on market
efficiency. The District Court also granted plaintiffs'
renewed class certification motion and certified plaintiffs'
revised class. A trial date has been set for April 20, 2015. Parallel class proceedings remain
against us and our former Chief Executive and Chief Financial
Officers in the Ontario Superior Court of Justice. On October 15, 2012, the Ontario Superior Court of
Justice granted limited aspects of the defendants' motion to
strike, but dismissed the defendants' limitation period argument.
The defendants' appeal of the limitation period issue was dismissed
on February 3, 2014 when the Court of Appeal for Ontario overturned its own prior decision on
the limitation period issue. On August 7,
2014, the defendants were granted leave to appeal the
decision to the Supreme Court of Canada, together with two other cases that
deal with the limitation period issue. The Supreme Court of
Canada is tentatively scheduled to
hear the appeal on February 9, 2015.
In a decision dated February 19, 2014, the Ontario Superior
Court of Justice granted the plaintiffs leave to proceed with a
statutory claim under the Ontario Securities Act and certified the
action as a class proceeding on the claim that the defendants made
misrepresentations regarding the 2005 restructuring. The court
denied the plaintiffs leave and certification on the claims that
the defendants did not properly report Celestica's inventory and
revenue and that Celestica's financial statements did not comply
with GAAP. The court also denied certification of the plaintiffs'
common law claims. The action is at the discovery stage. We believe
the allegations in the claims are without merit and we intend to
continue to defend against them vigorously. However, there can be
no assurance that the outcome of the litigation 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 claims. As the
matter is ongoing, we cannot predict its duration or resources
required. We have liability insurance coverage that may cover some
of our litigation expenses, and potential judgments or settlement
costs.
Income taxes
We are subject to increased scrutiny in tax audits and reviews
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 charge.
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 $18 to $22 at period-end exchange rates) in the
form of letters of credit to the tax authorities in connection with
the transfer pricing appeal, however, we do not believe that such
security will be required. If the tax authorities are successful
with their challenge, we estimate that the maximum net impact for
additional income taxes and interest charges associated with the
proposed limitations of the favorable adjustments could be
approximately $41 million Canadian
dollars (approximately $37 at
period-end exchange rates).
Canadian tax authorities have taken the position that certain
interest amounts deducted by one of our Canadian entities in 2002
through 2004 on historical debt instruments should be
re-characterized as capital losses. If the tax authorities are
successful with their challenge, we estimate that the maximum net
impact for additional income taxes and interest charges could be
approximately $32 million Canadian
dollars (approximately $29 at
period-end exchange rates). We have appealed this decision with the
Canadian tax authorities and have provided the requisite security
to the tax authorities, including a letter of credit in
January 2014 of $5 million Canadian dollars (approximately
$5 at period-end exchange rates), in
addition to amounts previously on account, in order to proceed with
the appeal. We believe that our asserted position is appropriate
and would be sustained upon full examination by the tax authorities
and, if necessary, upon consideration by the judicial courts. Our
position is supported by our Canadian legal tax advisors.
We have and expect to continue to recognize the future benefit
of certain Brazilian tax losses on the basis that these tax losses
can and will be fully utilized in the fiscal period ending on the
date of dissolution of our Brazilian subsidiary. While our ability
to do so is not certain, we believe that our interpretation of
applicable Brazilian law will be sustained upon full examination by
the Brazilian tax authorities and, if necessary, upon consideration
by the Brazilian judicial courts. Our position is supported by
our Brazilian legal tax advisors. An adverse change to the
benefit realizable on these Brazilian losses could increase our net
deferred tax liabilities by approximately 33 million Brazilian
reais (approximately $14 at
period-end exchange rates).
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.
12. COMPARATIVE INFORMATION:
We have reclassified certain prior period information to conform
to the current period's presentation.
SOURCE Celestica Inc.