Celestica Inc. (TSX: CLS) (NYSE: CLS), a leader in design,
manufacturing, hardware platform and supply chain solutions for the
world's most innovative companies, today announced financial
results for the quarter ended June 30, 2022 (Q2 2022)†.
"We are pleased to deliver another quarter of
strong performance in Q2 2022, as our positive momentum continues
to build," said Rob Mionis, President and CEO, Celestica.
"Despite continued challenges in the macro
environment, our Q2 2022 results met the high end of our revenue
guidance range and non-IFRS adjusted earnings per share (EPS)*
guidance range. As we look forward to a strong second half to the
year, we remain on track to achieve solid double digit revenue and
non-IFRS adjusted EPS* growth in 2022."
Q2 2022 Highlights
• Key measures:
- Revenue: $1.72
billion, increased 21% compared to $1.42 billion for the second
quarter of 2021 (Q2 2021).
- Non-IFRS operating
margin*: 4.8%, compared to 3.9% for Q2 2021.
- ATS segment
revenue: increased 24% compared to Q2 2021; ATS segment margin was
4.5%, compared to 4.1% for Q2 2021.
- CCS segment
revenue: increased 19% compared to Q2 2021; CCS segment margin was
5.0%, compared to 3.7% for Q2 2021.
- Adjusted EPS
(non-IFRS)*: $0.44, compared to $0.30 for Q2 2021.
- Adjusted return on
invested capital (non-IFRS)*: 16.2%, compared to 13.7% for Q2
2021.
- Adjusted free cash
flow (non-IFRS)*: $43.3 million, compared to $31.2 million for
Q2 2021.
• IFRS financial measures (directly comparable
to non-IFRS measures above):
- Earnings from
operations as a percentage of revenue: 3.7%, compared to 3.0% for
Q2 2021.
- EPS: $0.29,
compared to $0.21 per share for Q2 2021.
- Return on invested
capital: 9.7%, compared to 8.7% for Q2 2021.
- Cash provided by
operations: $86.9 million, compared to $56.5 million for Q2
2021.
• Repurchased and cancelled 1.0 million shares
for $9.8 million under our normal course issuer bid.
† Celestica has two operating and reportable
segments: Advanced Technology Solutions (ATS) and Connectivity
& Cloud Solutions (CCS). Our ATS segment consists of our ATS
end market and is comprised of our Aerospace and Defense (A&D),
Industrial (including PCI Private Limited (PCI) and energy),
HealthTech and Capital Equipment businesses. Our CCS segment
consists of our Communications and Enterprise (servers and storage)
end markets. Segment performance is evaluated based on segment
revenue, segment income and segment margin (segment income as a
percentage of segment revenue). See note 25 to our 2021 audited
consolidated financial statements, included in our Annual Report on
Form 20-F for the year ended December 31, 2021 (2021 20-F),
available at www.sec.gov and www.sedar.com, for further detail.
* Non-International Financial Reporting
Standards (IFRS) financial measures (including ratios based on
non-IFRS financial measures) do not have any standardized meaning
prescribed by IFRS and therefore may not be comparable to similar
financial measures presented by other public companies that report
under IFRS or U.S. generally accepted accounting principles
(GAAP). Adjusted free cash flow was previously referred to as
free cash flow, but has been renamed. Its composition remains
unchanged. In addition, non-IFRS operating earnings (adjusted
EBIAT) was previously reconciled to IFRS earnings before income
taxes, and non-IFRS operating margin was previously reconciled to
IFRS earnings before income taxes as a percentage of revenue, but
are now (and in future periods will be) reconciled to IFRS earnings
from operations, and IFRS earnings from operations as a percentage
of revenue, respectively (as the most directly comparable IFRS
financial measures), with no change to either resultant non-IFRS
measure. Prior period reconciliations included herein reflect the
current presentation. See “Non-IFRS Supplementary Information”
below for information on our rationale for the use of non-IFRS
financial measures, and Schedule 1 for, among other items, non-IFRS
financial measures included in this press release, as well as their
definitions, uses, and a reconciliation of historical non-IFRS
financial measures to the most directly comparable IFRS financial
measures. The most directly-comparable IFRS financial measures to
non-IFRS operating margin, non-IFRS adjusted EPS, non-IFRS adjusted
return on invested capital and non-IFRS adjusted free cash flow are
earnings from operations as a percentage of revenue, EPS, return on
invested capital, and cash provided by operations,
respectively.
Third Quarter of 2022 (Q3 2022)
Guidance
|
Q3 2022 Guidance |
Revenue (in
billions) |
$1.650 to $1.800 |
Non-IFRS operating
margin* |
4.8% at the mid-point of ourrevenue and non-IFRS adjustedEPS
guidance ranges |
Adjusted SG&A (non-IFRS)*
(in millions) |
$64 to $66 |
Adjusted EPS
(non-IFRS)* |
$0.41 to $0.47 |
For Q3 2022, we expect a negative $0.13 to $0.19
per share (pre-tax) aggregate impact on net earnings on an IFRS
basis for employee stock-based compensation (SBC) expense,
amortization of intangible assets (excluding computer software),
and restructuring charges; and a non-IFRS adjusted effective tax
rate* of approximately 21% (which does not account for foreign
exchange impacts or unanticipated tax settlements).
2022 Outlook
Based on our strong execution in Q2 2022, and
current and expected levels of demand, we have raised our 2022
revenue outlook to at least $6.7 billion, and tightened our 2022
non-IFRS adjusted EPS* target to between $1.65 and $1.75. We
continue to anticipate 2022 non-IFRS operating margin* to be
between 4% and 5%.
The above financial guidance and outlook assume
that the supply chain constraint impact on our revenue and expenses
does not materially worsen during the remainder of 2022 as compared
to Q2 2022. In addition, although the Q2 2022 financial impact of a
recent fire at our facility in Batam, Indonesia (Batam Fire),
described in note 14 to our June 30, 2022 unaudited interim
condensed consolidated financial statements (Q2 2022 Interim
Financial Statements) was minimal, anticipated supply chain delays
in procuring replacement Batam inventories are expected to result
in unfulfilled revenue in 2022 of less than $100 million (we
anticipate such revenues to be shifted to 2023). We expect to fully
recover our tangible losses from the Batam Fire through insurance
coverage. Although we have incorporated the anticipated impact of
supply chain constraints and the Batam Fire into the foregoing
financial guidance and outlook to the best of our ability, their
adverse impact (in terms of duration and severity) cannot be
estimated with certainty, and may be materially in excess of our
expectations.
* See Schedule 1 for the definitions of these
non-IFRS financial measures. We do not provide reconciliations for
forward-looking non-IFRS financial measures, as we are unable to
provide a meaningful or accurate calculation or estimation of
reconciling items and the information is not available without
unreasonable effort. This is due to the inherent difficulty of
forecasting the timing or amount of various events that have not
yet occurred, are out of our control and/or cannot be reasonably
predicted, and that would impact the most directly comparable
forward-looking IFRS financial measure. For these same reasons, we
are unable to address the probable significance of the unavailable
information. Forward-looking non-IFRS financial measures may vary
materially from the corresponding IFRS financial measures.
Summary of Selected Q2 2022
Results
|
Q2 2022 Actual |
|
Q2 2022 Guidance (2) |
Key measures: |
|
|
|
Revenue (in billions)
|
$1.72 |
|
$1.575 to $1.725 |
Non-IFRS operating
margin* |
4.8% |
|
4.6% at the mid-point of ourrevenue and non-IFRS adjustedEPS
guidance ranges |
Adjusted SG&A (non-IFRS)* (in
millions) |
$63.1 |
|
$62 to $64 |
Adjusted EPS
(non-IFRS)* |
$0.44 |
|
$0.38 to $0.44 |
|
|
|
|
Directly comparable IFRS financial measures: |
|
|
|
Earnings from operations as a % of
revenue |
3.7% |
|
N/A |
SG&A (in
millions) |
$71.0 |
|
N/A |
EPS (1) |
$0.29 |
|
N/A |
* See Schedule 1 for, among other things, the
definitions of, and exclusions used to determine, these non-IFRS
financial measures, and a reconciliation of such financial measures
to the most directly comparable IFRS financial measures for Q2
2022.
(1) IFRS EPS of $0.29 for Q2 2022 included an
aggregate charge of $0.19 (pre-tax) per share for employee SBC
expense, amortization of intangible assets (excluding computer
software), and restructuring charges. See the tables in Schedule 1
and note 9 to our Q2 2022 Interim Financial Statements for per-item
charges. This aggregate charge was within our Q2 2022 guidance
range of between $0.14 to $0.20 per share for these items.
IFRS EPS for Q2 2022 included a $0.02 per share
net positive impact attributable to other charges (recoveries),
consisting primarily of a $0.03 per share positive impact
attributable to Transition Recoveries (defined in Schedule 1),
offset in part by a $0.01 per share negative impact attributable to
restructuring charges. Although $92 million in write-downs to
inventories, a building and equipment due to the Batam Fire were
recorded in other charges (recoveries), an equivalent amount was
also recorded in other charges (recoveries) as a recovery, as we
expect to fully recover the written-down amounts pursuant to the
terms and conditions of our insurance policies.
IFRS EPS of $0.46 for the first half of 2022 (1H
2022) included: (i) a $0.02 per share net negative impact
attributable to other charges (recoveries) (consisting most
significantly of a $0.03 per share negative impact attributable to
restructuring charges and a $0.01 per share negative impact
attributable to Transition Costs, substantially offset by a $0.03
per share positive impact attributable to Transition Recoveries
(each defined in Schedule 1)); (ii) as a result of supply chain
constraints and COVID-19-related workforce expenses and
constraints, a $0.03 per share negative impact attributable to
estimated Constraint Costs (defined as both direct and indirect
costs, including manufacturing inefficiencies related to lost
revenue due to our inability to secure materials, idled labor
costs, and incremental costs for labor, expedite fees and freight
premiums, cleaning supplies, personal protective equipment, and/or
IT-related services to support our work-from-home arrangements);
and (iii) a $0.04 favorable tax impact attributable to the reversal
of tax uncertainties in one of our Asian subsidiaries. See notes 9
and 10 to the Q2 2022 Interim Financial Statements. See the
preceding paragraph for a discussion of offsetting charges and
recoveries pertaining to the Batam Fire.
IFRS EPS of $0.21 for Q2 2021 included a $0.02
per share negative impact attributable to restructuring charges,
and, as a result of supply chain constraints and COVID-19-related
workforce expenses and constraints, a $0.02 per share negative
impact attributable to estimated Constraint Costs, net of
recognized COVID-19-related government subsidies, credits and
grants and customer recoveries (collectively, COVID Recoveries).
IFRS EPS of $0.29 for the first half of 2021 (1H 2021) included a
$0.07 per share negative impact attributable to restructuring
charges and a $0.03 per share negative impact attributable to
estimated Constraint Costs, net of recognized COVID Recoveries.
For the estimated impact of supply chain
constraints on our revenues and costs in 1H 2022, Q2 2021 and 1H
2021, see "Segment Updates — Operational Impacts" of our Q2 2022
Management's Discussion and Analysis of Financial Condition and
Results of Operations, to be filed today at www.sedar.com and
furnished on Form 6-K at www.sec.gov.
(2) For Q2 2022, our revenue and non-IFRS
adjusted EPS met the high end of our guidance ranges, and our
non-IFRS operating margin exceeded the mid-point of our revenue and
non-IFRS adjusted EPS guidance ranges, driven by solid results in
both of our segments. Non-IFRS adjusted SG&A for Q2 2022 was
within our guidance range. Our IFRS effective tax rate for Q2 2022
was 28%. Our non-IFRS adjusted effective tax rate for Q2 2022 was
22%, higher than our anticipated estimate of approximately 20%,
mainly due to jurisdictional profit mix.
Q2 2022
Webcast
Management will host its Q2 2022 results
conference call on July 26, 2022 at 8:00 a.m. Eastern Daylight Time
(EDT). 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 financial measures to consider in evaluating the company’s
operating performance. Management uses adjusted net earnings and
other non-IFRS financial 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 financial measures to
assess management's 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 below.
About CelesticaCelestica
enables the world's best brands. Through our recognized
customer-centric approach, we partner with leading companies in
Aerospace and Defense, Communications, Enterprise, HealthTech,
Industrial, and Capital Equipment to deliver solutions for their
most complex challenges. As a leader in design, manufacturing,
hardware platform and supply chain solutions, Celestica brings
global expertise and insight at every stage of product development
- from the drawing board to full-scale production and after-market
services. With talented teams across North America, Europe and
Asia, we imagine, develop and deliver a better future with our
customers. For more information on Celestica, visit
www.celestica.com. Our securities filings can be accessed at
www.sedar.com and www.sec.gov.
Cautionary Note Regarding
Forward-looking Statements
This press release contains forward-looking
statements, including, without limitation, those related to: our
anticipated financial and/or operational results and outlook,
including our anticipated Q3 2022 non-IFRS adjusted effective tax
rate, and our expectations with respect to the impact of, and
insurance recoveries for tangible losses in connection with, the
Batam Fire; our credit risk; our liquidity; anticipated charges and
expenses, including restructuring charges; the potential impact of
tax and litigation outcomes; mandatory prepayments under our credit
facility; our intangible asset amortization; and interest rates.
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,” "target," “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, where
applicable, and for forward-looking information under applicable
Canadian securities laws.
Forward-looking statements are provided to
assist 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 those expressed or implied in such forward-looking
statements, including, among others, risks related to: customer and
segment concentration; price, margin pressures, and other
competitive factors and adverse market conditions affecting, and
the highly competitive nature of, the electronics manufacturing
services industry in general and our segments in particular
(including the risk that anticipated market improvements do not
materialize); delays in the delivery and availability of
components, services and/or materials, as well as their costs and
quality; challenges of replacing revenue from completed, lost or
non-renewed programs or customer disengagements; our customers'
ability to compete and succeed using our products and services;
changes in our mix of customers and/or the types of products or
services we provide, including negative impacts of higher
concentrations of lower margin programs; managing changes in
customer demand; rapidly evolving and changing technologies, and
changes in our customers' business or outsourcing strategies; the
cyclical and volatile nature of our semiconductor business; the
expansion or consolidation of our operations; the inability to
maintain adequate utilization of our workforce; defects or
deficiencies in our products, services or designs; volatility in
the commercial aerospace industry; integrating and achieving the
anticipated benefits from acquisitions (including our acquisition
of PCI) and "operate-in-place" arrangements; an inability to
recover our tangible losses caused by the Batam Fire through
insurance claims; an inability to return to pre-Batam Fire
production rates when anticipated; operational disruptions caused
by the Batam Fire that may have a more severe impact on our
financial results than anticipated; compliance with customer-driven
policies and standards, and third-party certification requirements;
challenges associated with new customers or programs, or the
provision of new services; the impact of our restructuring actions
and/or productivity initiatives, including a failure to achieve
anticipated benefits therefrom; negative impacts on our business
resulting from newly-increased third-party indebtedness; the
incurrence of future restructuring charges, impairment charges,
other unrecovered write-downs of assets or operating losses;
managing our business during uncertain market, political and
economic conditions, including among others, geopolitical and other
risks associated with our international operations, including
military actions, protectionism and reactive countermeasures,
economic or other sanctions or trade barriers, including in
relation to the evolving Ukraine/Russia conflict; disruptions to
our operations, or those of our customers, component suppliers
and/or logistics partners, including as a result of events outside
of our control (see "External Factors that May Impact our Business"
in Item 5 of our 2021 20-F); the scope, duration and impact of the
COVID-19 pandemic and material constraints; changes to our
operating model; rising commodity, materials and component costs as
well as rising labor costs and changing labor conditions; execution
and/or quality issues (including our ability to successfully
resolve these challenges); non-performance by counterparties;
maintaining sufficient financial resources to fund currently
anticipated financial actions and obligations and to pursue
desirable business opportunities; negative impacts on our business
resulting from any significant uses of cash (including for the
acquisition of PCI), securities issuances, and/or additional
increases in third-party indebtedness (including as a result of an
inability to sell desired amounts under our uncommitted accounts
receivable sales program or supplier financing programs); foreign
currency volatility; our global operations and supply chain;
competitive bid selection processes; customer relationships with
emerging companies; recruiting or retaining skilled talent; our
dependence on industries affected by rapid technological change;
our ability to adequately protect intellectual property and
confidential information; increasing taxes (including as a result
of global tax reform), tax audits, and challenges of defending our
tax positions; obtaining, renewing or meeting the conditions of tax
incentives and credits; the management of our information
technology systems, and the fact that while we have not been
materially impacted by computer viruses, malware, ransomware,
hacking attempts or outages, we have been (and may continue to be)
the target of such events; the inability to prevent or detect all
errors or fraud; the variability of revenue and operating results;
unanticipated disruptions to our cash flows; compliance with
applicable laws and regulations; our pension and other benefit plan
obligations; changes in accounting judgments, estimates and
assumptions; our ability to maintain compliance with applicable
credit facility covenants; interest rate fluctuations and the
discontinuation of LIBOR; our ability to refinance our indebtedness
from time to time; deterioration in financial markets or the
macro-economic environment; our credit rating; the interest of our
controlling shareholder; current or future litigation, governmental
actions, and/or changes in legislation or accounting standards;
negative publicity; that we will not be permitted to, or do not,
repurchase subordinate voting shares (SVS) under any normal course
issuer bid (NCIB); the impact of climate change; and our ability to
achieve our environmental, social and governance (ESG) initiative
goals, including with respect to diversity and inclusion and
climate change. The foregoing and other material risks and
uncertainties are discussed in our public filings at
www.sedar.com and www.sec.gov, including in our most recent
MD&A, our 2021 Annual Report on Form 20-F filed with, and
subsequent reports on Form 6-K furnished to, the U.S. Securities
and Exchange Commission, and as applicable, the Canadian Securities
Administrators.
The forward-looking statements contained in this
press release are based on various assumptions, many of which
involve factors that are beyond our control. Our material
assumptions include: continued growth (and recovery from adverse
impacts due to COVID-19) in the broader economy and our end
markets; growth in manufacturing outsourcing from customers in
diversified end markets; no significant unforeseen negative impacts
to Celestica’s operations; no unforeseen materials price increases,
margin pressures, or other competitive factors affecting the EMS
industry in general or our segments in particular, as well as those
related to the following: the scope and duration of materials
constraints (i.e., that they do not materially worsen) and the
COVID-19 pandemic and their impact on our sites, customers and
suppliers; our ability to recover our tangible losses caused by the
Batam Fire through insurance proceeds; our ability to return our
Batam operations to pre-Batam Fire production rates when
anticipated; fluctuation of production schedules from our customers
in terms of volume and mix of products or services; the timing and
execution of, and investments associated with, ramping new
business; the success of our customers’ products; our ability to
retain programs and customers; the stability of general economic
and market conditions and currency exchange rates; supplier
performance and quality, pricing and terms; compliance by third
parties with their contractual obligations; the costs and
availability of components, materials, services, equipment, labor,
energy and transportation; that our customers will retain liability
for product/component tariffs and countermeasures; global tax
legislation changes; our ability to keep pace with rapidly changing
technological developments; the timing, execution and effect of
restructuring actions; the successful resolution of quality issues
that arise from time to time; the components of our leverage ratio
(as defined in our credit facility); our ability to successfully
diversify our customer base and develop new capabilities; the
availability of capital resources for, and the permissibility under
our credit facility of, repurchases of outstanding SVS under NCIBs,
and compliance with applicable laws and regulations pertaining to
NCIBs; compliance with applicable credit facility covenants;
anticipated demand strength in certain of our businesses;
anticipated demand weakness in, and/or the impact of anticipated
adverse market conditions on, certain of our businesses; our
ability to successfully integrate PCI and achieve the expected
long-term benefits from the acquisition; and our maintenance of
sufficient financial resources to fund currently anticipated
financial actions and obligations and to pursue desirable business
opportunities. Although management believes its assumptions to be
reasonable under the current circumstances, they may prove to be
inaccurate, which could cause actual results to differ materially
(and adversely) from those that would have been achieved had such
assumptions been accurate. Forward-looking statements speak only as
of the date on which they are made, and we disclaim any intention
or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise,
except as required by applicable law. All
forward-looking statements attributable to us are expressly
qualified by these cautionary statements.
Schedule 1
Supplementary Non-IFRS Financial
Measures
The non-IFRS financial measures (including
ratios based on non-IFRS financial measures) included in this press
release are: 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, non-IFRS operating earnings (or adjusted
EBIAT), non-IFRS operating margin (non-IFRS operating earnings or
adjusted EBIAT as a percentage of revenue), adjusted net earnings,
adjusted EPS, adjusted return on invested capital (adjusted ROIC),
adjusted free cash flow, adjusted tax expense and adjusted
effective tax rate. Adjusted EBIAT, adjusted ROIC, adjusted free
cash flow, adjusted tax expense and adjusted effective tax rate are
further described in the tables below. Adjusted free cash flow was
previously referred to as free cash flow, but has been renamed. Its
composition remains unchanged. In addition, non-IFRS operating
earnings (adjusted EBIAT) was previously reconciled to IFRS
earnings before income taxes, and non-IFRS operating margin was
previously reconciled to IFRS earnings before income taxes as a
percentage of revenue, but are now (and in future periods will be)
reconciled to IFRS earnings from operations, and IFRS earnings from
operations as a percentage of revenue, respectively (as the most
directly comparable IFRS financial measures), with no change to
either resultant non-IFRS measure. Prior period reconciliations
included herein reflect the current presentation. In calculating
our non-IFRS financial measures, management excludes the following
items (where indicated): employee stock-based compensation (SBC)
expense, amortization of intangible assets (excluding computer
software), Other Charges, net of recoveries (defined below), and
specified Finance Costs (defined below), all net of the associated
tax adjustments (quantified in the table below), and non-core tax
impacts (tax adjustments related to acquisitions, and certain other
tax costs or recoveries related to restructuring actions or
restructured sites).
We believe the non-IFRS financial measures we
present herein are useful to investors, as they enable investors to
evaluate and compare our results from operations in a more
consistent manner (by excluding specific items that we do not
consider to be reflective of our core operations), to evaluate cash
resources that we generate from our business each period, and to
provide an analysis of operating results using the same measures
our chief operating decision makers use to measure performance. In
addition, management believes that the use of a non-IFRS adjusted
tax expense and a non-IFRS adjusted effective tax rate provide
improved insight into the tax effects of our core operations, and
are useful to management and investors for historical comparisons
and forecasting. These non-IFRS financial measures result largely
from management’s determination that the facts and circumstances
surrounding the excluded charges or recoveries are not indicative
of our core operations.
Non-IFRS financial measures do not have any
standardized meaning prescribed by IFRS and therefore may not be
comparable to similar measures presented by other companies that
report under IFRS, or who report under U.S. GAAP and use non-GAAP
financial measures to describe similar financial metrics. Non-IFRS
financial measures are not measures of performance under IFRS and
should not be considered in isolation or as a substitute for any
IFRS financial measure.
The most significant limitation to management’s
use of non-IFRS financial measures is that the charges or credits
excluded from the non-IFRS financial measures are nonetheless
recognized under IFRS and have an economic impact on us. Management
compensates for these limitations primarily by issuing IFRS results
to show a complete picture of our performance, and reconciling
non-IFRS financial measures back to the most directly comparable
IFRS financial measures.
The economic substance of these exclusions
described above (where applicable to the periods presented) and
management’s rationale for excluding them from non-IFRS financial
measures is provided below:
Employee SBC 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 SBC expense in
assessing operating performance, who may have different granting
patterns and types of equity awards, and who may use different
valuation assumptions than we do.
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 in
assessing operating performance.
Other Charges, net of recoveries, consist of,
when applicable: Restructuring Charges, net of recoveries (defined
below); Transition Costs (Recoveries) (defined below); net
Impairment charges (defined below); consulting, transaction and
integration costs related to potential and completed acquisitions,
and charges or releases related to the subsequent re-measurement of
indemnification assets or the release of indemnification or other
liabilities recorded in connection with acquisitions, when
applicable; legal settlements (recoveries); specified credit
facility-related charges; and post-employment benefit plan losses.
We exclude these 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 or incurrence of the relevant costs. Our
competitors may record similar charges at different times, and we
believe these exclusions permit a better comparison of our core
operating results with those of our competitors who also generally
exclude these types of charges, net of recoveries, in assessing
operating performance.
Restructuring Charges, net of recoveries,
consist of costs relating to: employee severance, lease
terminations, site closings and consolidations; write-downs of
owned property and equipment which are no longer used and are
available for sale; and reductions in infrastructure.
Transition Costs consist of costs recorded in
connection with: (i) the relocation of our Toronto manufacturing
operations, and the move of our corporate headquarters into and out
of a temporary location during, and upon completion, of the
construction of space in a new office building at our former
location (all in connection with the 2019 sale of our Toronto real
property), (ii) the transfer of manufacturing lines from closed
sites to other sites within our global network; and (iii)
consistent with the treatment of our Toronto real property sale,
the sale of real properties unrelated to restructuring actions
(Property Dispositions). Transition Costs consist of direct
relocation and duplicate costs (such as rent expense, utility
costs, depreciation charges, and personnel costs) incurred during
the transition periods, as well as cease-use and other costs
incurred in connection with idle or vacated portions of the
relevant premises that we would not have incurred but for these
relocations, transfers and dispositions. Transition Recoveries
consist of any gains recorded in connection with Property
Dispositions. We believe that excluding these costs and recoveries
permits a better comparison of our core operating results from
period-to-period, as these costs or recoveries will not reflect our
ongoing operations once these relocations, manufacturing line
transfers, and dispositions are complete.
Impairment charges, which consist of non-cash
charges against goodwill, intangible assets, property, plant and
equipment, and right-of-use (ROU) assets, result primarily when the
carrying value of these assets exceeds their recoverable
amount.
Finance Costs consist of interest expense and
fees related to our credit facility (including debt issuance and
related amortization costs), our interest rate swap agreements, our
accounts receivable sales program and customers' supplier financing
programs, and interest expense on our lease obligations, net of
interest income earned. We believe that excluding Finance Costs
paid (other than debt issuance costs and credit-agreement-related
waiver fees paid, which are not considered part of our ongoing
financing expenses) from cash provided by operations in the
determination of non-IFRS adjusted free cash flow provides useful
insight for assessing the performance of our core operations.
Non-core tax impacts are excluded, as we believe
that these costs or recoveries do not reflect core operating
performance and vary significantly among those of our competitors
who also generally exclude these costs or recoveries in assessing
operating performance.
The following table (which is unaudited) sets
forth, for the periods indicated, the various non-IFRS financial
measures discussed above, and a reconciliation of non-IFRS
financial measures to the most directly comparable IFRS financial
measures (in millions, except percentages and per
share amounts):
|
Three months ended June 30 |
|
Six months ended June 30 |
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
% ofrevenue |
|
|
% ofrevenue |
|
|
% ofrevenue |
|
|
% ofrevenue |
IFRS
revenue |
$ |
1,420.3 |
|
|
|
$ |
1,717.2 |
|
|
|
$ |
2,655.2 |
|
|
|
$ |
3,284.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS gross
profit |
$ |
118.0 |
|
8.3 |
% |
|
$ |
149.9 |
|
8.7 |
% |
|
$ |
219.5 |
|
8.3 |
% |
|
$ |
282.4 |
|
8.6 |
% |
Employee SBC
expense |
|
1.4 |
|
|
|
|
5.3 |
|
|
|
|
6.3 |
|
|
|
|
10.9 |
|
|
Non-IFRS adjusted
gross
profit |
$ |
119.4 |
|
8.4 |
% |
|
$ |
155.2 |
|
9.0 |
% |
|
$ |
225.8 |
|
8.5 |
% |
|
$ |
293.3 |
|
8.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
IFRS
SG&A |
$ |
58.8 |
|
4.1 |
% |
|
$ |
71.0 |
|
4.1 |
% |
|
$ |
117.6 |
|
4.4 |
% |
|
$ |
136.7 |
|
4.2 |
% |
Employee SBC
expense |
|
(4.1 |
) |
|
|
|
(7.9 |
) |
|
|
|
(9.3 |
) |
|
|
|
(16.9 |
) |
|
Non-IFRS adjusted
SG&A |
$ |
54.7 |
|
3.9 |
% |
|
$ |
63.1 |
|
3.7 |
% |
|
$ |
108.3 |
|
4.1 |
% |
|
$ |
119.8 |
|
3.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
IFRS earnings from
operations |
$ |
42.4 |
|
3.0 |
% |
|
$ |
62.7 |
|
3.7 |
% |
|
$ |
66.1 |
|
2.5 |
% |
|
$ |
103.3 |
|
3.1 |
% |
Employee SBC
expense |
|
5.5 |
|
|
|
|
13.2 |
|
|
|
|
15.6 |
|
|
|
|
27.8 |
|
|
Amortization of intangible assets (excluding computer
software) |
|
4.9 |
|
|
|
|
9.3 |
|
|
|
|
9.8 |
|
|
|
|
18.6 |
|
|
Other Charges |
|
2.2 |
|
|
|
|
(2.5 |
) |
|
|
|
6.8 |
|
|
|
|
2.3 |
|
|
Non-IFRS operating
earnings (adjusted
EBIAT)(1) |
$ |
55.0 |
|
3.9 |
% |
|
$ |
82.7 |
|
4.8 |
% |
|
$ |
98.3 |
|
3.7 |
% |
|
$ |
152.0 |
|
4.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
IFRS net
earnings |
$ |
26.3 |
|
1.9 |
% |
|
$ |
35.6 |
|
2.1 |
% |
|
$ |
36.8 |
|
1.4 |
% |
|
$ |
57.4 |
|
1.7 |
% |
Employee SBC
expense |
|
5.5 |
|
|
|
|
13.2 |
|
|
|
|
15.6 |
|
|
|
|
27.8 |
|
|
Amortization of intangible assets (excluding computer
software) |
|
4.9 |
|
|
|
|
9.3 |
|
|
|
|
9.8 |
|
|
|
|
18.6 |
|
|
Other Charges |
|
2.2 |
|
|
|
|
(2.5 |
) |
|
|
|
6.8 |
|
|
|
|
2.3 |
|
|
Adjustments for
taxes(2) |
|
(1.0 |
) |
|
|
|
(1.4 |
) |
|
|
|
(3.3 |
) |
|
|
|
(3.7 |
) |
|
Non-IFRS adjusted net
earnings |
$ |
37.9 |
|
|
|
$ |
54.2 |
|
|
|
$ |
65.7 |
|
|
|
$ |
102.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS |
|
|
|
|
|
|
|
|
|
|
|
Weighted average # of shares (in millions)
|
|
127.6 |
|
|
|
|
124.0 |
|
|
|
|
128.3 |
|
|
|
|
124.3 |
|
|
IFRS earnings per share
|
$ |
0.21 |
|
|
|
$ |
0.29 |
|
|
|
$ |
0.29 |
|
|
|
$ |
0.46 |
|
|
Non-IFRS adjusted earnings per
share |
$ |
0.30 |
|
|
|
$ |
0.44 |
|
|
|
$ |
0.51 |
|
|
|
$ |
0.82 |
|
|
# of shares outstanding at period end (in
millions) |
|
126.8 |
|
|
|
|
123.2 |
|
|
|
|
126.8 |
|
|
|
|
123.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS cash provided by
operations |
$ |
56.5 |
|
|
|
$ |
86.9 |
|
|
|
$ |
105.3 |
|
|
|
$ |
122.2 |
|
|
Purchase of property, plant and equipment, net of sales proceeds
|
|
(9.5 |
) |
|
|
|
(21.5 |
) |
|
|
|
(22.1 |
) |
|
|
|
(37.9 |
) |
|
Lease payments
|
|
(10.4 |
) |
|
|
|
(11.9 |
) |
|
|
|
(20.0 |
) |
|
|
|
(23.1 |
) |
|
Finance Costs paid (excluding debt issuance costs paid)
|
|
(5.4 |
) |
|
|
|
(10.2 |
) |
|
|
|
(11.1 |
) |
|
|
|
(17.4 |
) |
|
Non-IFRS adjusted free
cash flow
(3) |
$ |
31.2 |
|
|
|
$ |
43.3 |
|
|
|
$ |
52.1 |
|
|
|
$ |
43.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS ROIC %
(4) |
|
8.7 |
% |
|
|
|
9.7 |
% |
|
|
|
6.3 |
% |
|
|
|
8.0 |
% |
|
Non-IFRS adjusted ROIC
%
(4) |
|
13.7 |
% |
|
|
|
16.2 |
% |
|
|
|
12.2 |
% |
|
|
|
15.1 |
% |
|
(1) Management uses non-IFRS operating earnings
(adjusted EBIAT) as a measure to assess performance related to our
core operations. Non-IFRS operating earnings is defined as earnings
from operations before employee SBC expense, amortization of
intangible assets (excluding computer software), and Other Charges
(recoveries) (defined above). See note 9 to our Q2 2022 Interim
Financial Statements for separate quantification and discussion of
the components of Other Charges (recoveries).
(2) The adjustments for taxes, as applicable,
represent the tax effects of our non-IFRS adjustments and non-core
tax impacts (see below).
The following table sets forth a reconciliation
of our IFRS tax expense and IFRS effective tax rate to our non-IFRS
adjusted tax expense and our non-IFRS adjusted effective tax rate
for the periods indicated, in each case determined by excluding the
tax benefits or costs associated with the listed items (in
millions, except percentages) from our IFRS tax expense for such
periods:
|
Three months ended June 30 |
|
Six months ended June 30 |
|
|
2021 |
Effectivetax rate |
|
|
2022 |
|
Effectivetax rate |
|
|
2021 |
Effectivetax rate |
|
|
2022 |
|
Effectivetax rate |
IFRS tax expense and IFRS effective tax
rate |
$ |
8.5 |
24% |
|
$ |
14.0 |
|
28% |
|
$ |
13.7 |
27% |
|
$ |
23.0 |
|
29% |
|
|
|
|
|
|
|
|
|
|
|
|
Tax costs (benefits) of the following items excluded from IFRS tax
expense: |
|
|
|
|
|
|
|
|
|
|
|
Employee SBC
expense |
|
0.6 |
|
|
|
1.5 |
|
|
|
|
1.5 |
|
|
|
3.0 |
|
|
Amortization of intangible assets (excluding computer
software) |
|
— |
|
|
|
0.7 |
|
|
|
|
— |
|
|
|
1.5 |
|
|
Other Charges |
|
0.4 |
|
|
|
(0.8 |
) |
|
|
|
0.7 |
|
|
|
(0.8 |
) |
|
Non-core tax impact related to restructured
sites* |
|
— |
|
|
|
— |
|
|
|
|
1.1 |
|
|
|
— |
|
|
Non-IFRS adjusted tax expense and non-IFRS adjusted effective tax
rate |
$ |
9.5 |
20% |
|
$ |
15.4 |
|
22% |
|
$ |
17.0 |
21% |
|
$ |
26.7 |
|
21% |
- Consists of the
reversals of tax uncertainties related to one of our Asian
subsidiaries that completed its liquidation and dissolution during
the first quarter of 2021.
(3) Management uses non-IFRS adjusted free cash
flow as a measure, in addition to IFRS cash provided by (used in)
operations, to assess our operational cash flow performance. We
believe non-IFRS adjusted free cash flow provides another level of
transparency to our liquidity. Non-IFRS adjusted free cash flow is
defined as cash provided by (used in) operations after the purchase
of property, plant and equipment (net of proceeds from the sale of
certain surplus equipment and property), lease payments and Finance
Costs (defined above) paid (excluding any debt issuance costs
and when applicable, credit facility waiver fees paid). We do not
consider debt issuance costs (nil and $0.8 million paid in Q1 2022
and 1H 2022, respectively; nil in Q2 2021 or 1H 2021) or such
waiver fees (when applicable) to be part of our ongoing financing
expenses. As a result, these costs are excluded from total Finance
Costs paid in our determination of non-IFRS adjusted free cash
flow. Note, however, that non-IFRS adjusted free cash flow does not
represent residual cash flow available to Celestica for
discretionary expenditures.
(4) Management uses non-IFRS adjusted ROIC as a
measure to assess the effectiveness of the invested capital we use
to build products or provide services to our customers, by
quantifying how well we generate earnings relative to the capital
we have invested in our business. Non-IFRS adjusted ROIC is
calculated by dividing non-IFRS adjusted EBIAT by average net
invested capital. Net invested capital (calculated in the table
below) is derived from IFRS financial measures, and is defined as
total assets less: cash, ROU assets, accounts payable, accrued and
other current liabilities, provisions, and income taxes payable. We
use a two-point average to calculate average net invested capital
for the quarter and a three-point average to calculate average net
invested capital for the six-month period. Average net invested
capital for Q2 2022 is calculated using the average of net invested
capital as at March 31, 2022 and June 30, 2022, and average net
invested capital for 1H 2022 is calculated using the average of net
invested capital as at December 31, 2021, March 31, 2022 and June
30, 2022. A comparable financial measure under IFRS would be
determined by dividing IFRS earnings before income taxes by average
net invested capital.
The following table sets forth, for the periods
indicated, our calculation of IFRS ROIC % and non-IFRS adjusted
ROIC % (in millions, except IFRS ROIC % and non-IFRS adjusted ROIC
%).
|
|
Three months ended |
|
Six months ended |
|
|
June 30 |
|
June 30 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
IFRS earnings
before income
taxes |
|
$ |
34.8 |
|
|
$ |
49.6 |
|
|
$ |
50.5 |
|
|
$ |
80.4 |
|
Multiplier to
annualize
earnings |
|
|
4 |
|
|
|
4 |
|
|
|
2 |
|
|
|
2 |
|
Annualized IFRS
earnings before income
taxes |
|
$ |
139.2 |
|
|
$ |
198.4 |
|
|
$ |
101.0 |
|
|
$ |
160.8 |
|
|
|
|
|
|
|
|
|
|
Average net
invested capital for the period
|
|
$ |
1,600.3 |
|
|
$ |
2,036.8 |
|
|
$ |
1,607.1 |
|
|
$ |
2,010.2 |
|
|
|
|
|
|
|
|
|
|
IFRS ROIC %
(1) |
|
|
8.7 |
% |
|
|
9.7 |
% |
|
|
6.3 |
% |
|
|
8.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30 |
|
June 30 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
Non-IFRS operating
earnings (adjusted
EBIAT) |
|
$ |
55.0 |
|
|
$ |
82.7 |
|
|
$ |
98.3 |
|
|
$ |
152.0 |
|
Multiplier to
annualize
earnings |
|
|
4 |
|
|
|
4 |
|
|
|
2 |
|
|
|
2 |
|
Annualized
non-IFRS adjusted
EBIAT |
|
$ |
220.0 |
|
|
$ |
330.8 |
|
|
$ |
196.6 |
|
|
$ |
304.0 |
|
|
|
|
|
|
|
|
|
|
Average net
invested capital for the
period |
|
$ |
1,600.3 |
|
|
$ |
2,036.8 |
|
|
$ |
1,607.1 |
|
|
$ |
2,010.2 |
|
|
|
|
|
|
|
|
|
|
Non-IFRS adjusted
ROIC % (1) |
|
|
13.7 |
% |
|
|
16.2 |
% |
|
|
12.2 |
% |
|
|
15.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 312021 |
|
March 312022 |
|
June 302022 |
Net invested
capital consists of: |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,666.9 |
|
|
$ |
4,848.0 |
|
|
$ |
5,140.5 |
|
Less: cash |
|
|
394.0 |
|
|
|
346.6 |
|
|
|
365.5 |
|
Less: ROU
assets |
|
|
113.8 |
|
|
|
109.8 |
|
|
|
133.6 |
|
Less: accounts
payable, accrued and other current liabilities, provisions and
income taxes payable |
|
|
2,202.0 |
|
|
|
2,347.4 |
|
|
|
2,612.1 |
|
Net invested
capital at period end (1) |
|
$ |
1,957.1 |
|
|
$ |
2,044.2 |
|
|
$ |
2,029.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 312020 |
|
March 312021 |
|
June 302021 |
Net invested
capital consists of: |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,664.1 |
|
|
$ |
3,553.4 |
|
|
$ |
3,745.4 |
|
Less: cash |
|
|
463.8 |
|
|
|
449.4 |
|
|
|
467.2 |
|
Less: ROU
assets |
|
|
101.0 |
|
|
|
98.4 |
|
|
|
100.5 |
|
Less: accounts
payable, accrued and other current liabilities, provisions and
income taxes payable |
|
|
1,478.4 |
|
|
|
1,407.0 |
|
|
|
1,575.8 |
|
Net invested
capital at period end (1) |
|
$ |
1,620.9 |
|
|
$ |
1,598.6 |
|
|
$ |
1,601.9 |
|
(1) See footnote 4 on the previous
page.
CELESTICA INC. CONDENSED
CONSOLIDATED BALANCE SHEET(in millions of
U.S. dollars)(unaudited)
|
Note |
December 312021 |
|
June 302022 |
|
|
|
|
|
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash
equivalents |
|
$ |
394.0 |
|
|
$ |
365.5 |
|
Accounts
receivable |
5 |
|
1,260.3 |
|
|
|
1,211.1 |
|
Inventories |
6&14 |
|
1,697.0 |
|
|
|
2,107.8 |
|
Income taxes
receivable |
|
|
8.6 |
|
|
|
9.3 |
|
Other current
assets |
14 |
|
75.4 |
|
|
|
203.8 |
|
Total current
assets |
|
|
3,435.3 |
|
|
|
3,897.5 |
|
|
|
|
|
|
Property, plant and
equipment |
|
|
338.7 |
|
|
|
330.3 |
|
Right-of-use
assets |
|
|
113.8 |
|
|
|
133.6 |
|
Goodwill |
4 |
|
324.2 |
|
|
|
321.7 |
|
Intangible
assets |
|
|
382.0 |
|
|
|
365.5 |
|
Deferred income
taxes |
|
|
47.7 |
|
|
|
55.4 |
|
Other non-current
assets |
|
|
25.2 |
|
|
|
36.5 |
|
Total
assets |
|
$ |
4,666.9 |
|
|
$ |
5,140.5 |
|
|
|
|
|
|
Liabilities and
Equity |
|
|
|
|
Current liabilities: |
|
|
|
|
Current portion of borrowings under credit facility and lease
obligations |
7 |
$ |
51.5 |
|
|
$ |
69.5 |
|
Accounts
payable |
|
|
1,238.3 |
|
|
|
1,506.2 |
|
Accrued and other current
liabilities |
6 |
|
884.3 |
|
|
|
1,016.3 |
|
Income taxes
payable |
|
|
62.3 |
|
|
|
71.4 |
|
Current portion of
provisions |
|
|
17.1 |
|
|
|
18.2 |
|
Total current
liabilities |
|
|
2,253.5 |
|
|
|
2,681.6 |
|
|
|
|
|
|
Long-term portion of
borrowings under credit facility and lease
obligations |
7 |
|
742.9 |
|
|
|
734.9 |
|
Pension and non-pension
post-employment benefit
obligations |
|
|
107.5 |
|
|
|
105.7 |
|
Provisions and other
non-current
liabilities |
|
|
39.8 |
|
|
|
34.4 |
|
Deferred income
taxes |
|
|
60.2 |
|
|
|
54.3 |
|
Total
liabilities |
|
|
3,203.9 |
|
|
|
3,610.9 |
|
|
|
|
|
|
Equity: |
|
|
|
|
Capital stock |
8 |
|
1,764.5 |
|
|
|
1,739.6 |
|
Treasury stock |
8 |
|
(48.9 |
) |
|
|
(28.8 |
) |
Contributed
surplus |
|
|
1,029.8 |
|
|
|
1,041.7 |
|
Deficit |
|
|
(1,255.6 |
) |
|
|
(1,198.2 |
) |
Accumulated other comprehensive
loss |
|
|
(26.8 |
) |
|
|
(24.7 |
) |
Total
equity |
|
|
1,463.0 |
|
|
|
1,529.6 |
|
Total liabilities and
equity |
|
$ |
4,666.9 |
|
|
$ |
5,140.5 |
|
|
|
|
|
|
Commitments
and Contingencies (note 13).
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
CELESTICA INC. CONDENSED
CONSOLIDATED STATEMENT OF
OPERATIONS(in millions of U.S. dollars,
except per share amounts)(unaudited)
|
|
Three months ended |
|
Six months ended |
|
|
June 30 |
|
June 30 |
|
Note |
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
Revenue |
3 |
$ |
1,420.3 |
|
|
$ |
1,717.2 |
|
|
$ |
2,655.2 |
|
|
$ |
3,284.1 |
|
Cost of
sales |
6 |
|
1,302.3 |
|
|
|
1,567.3 |
|
|
|
2,435.7 |
|
|
|
3,001.7 |
|
Gross
profit |
|
|
118.0 |
|
|
|
149.9 |
|
|
|
219.5 |
|
|
|
282.4 |
|
Selling, general and
administrative expenses
(SG&A) |
|
|
58.8 |
|
|
|
71.0 |
|
|
|
117.6 |
|
|
|
136.7 |
|
Research and
development |
|
|
9.0 |
|
|
|
8.8 |
|
|
|
17.8 |
|
|
|
20.2 |
|
Amortization of intangible
assets |
|
|
5.6 |
|
|
|
9.9 |
|
|
|
11.2 |
|
|
|
19.9 |
|
Other charges
(recoveries) |
9 |
|
2.2 |
|
|
|
(2.5 |
) |
|
|
6.8 |
|
|
|
2.3 |
|
Earnings from
operations |
|
|
42.4 |
|
|
|
62.7 |
|
|
|
66.1 |
|
|
|
103.3 |
|
Finance
costs |
7 |
|
7.6 |
|
|
|
13.1 |
|
|
|
15.6 |
|
|
|
22.9 |
|
Earnings before income
taxes |
|
|
34.8 |
|
|
|
49.6 |
|
|
|
50.5 |
|
|
|
80.4 |
|
Income tax expense
(recovery) |
10 |
|
|
|
|
|
|
|
Current |
|
|
8.8 |
|
|
|
23.5 |
|
|
|
19.5 |
|
|
|
37.0 |
|
Deferred |
|
|
(0.3 |
) |
|
|
(9.5 |
) |
|
|
(5.8 |
) |
|
|
(14.0 |
) |
|
|
|
8.5 |
|
|
|
14.0 |
|
|
|
13.7 |
|
|
|
23.0 |
|
Net earnings for the
period |
|
$ |
26.3 |
|
|
$ |
35.6 |
|
|
$ |
36.8 |
|
|
$ |
57.4 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share |
|
$ |
0.21 |
|
|
$ |
0.29 |
|
|
$ |
0.29 |
|
|
$ |
0.46 |
|
Diluted earnings per
share |
|
$ |
0.21 |
|
|
$ |
0.29 |
|
|
$ |
0.29 |
|
|
$ |
0.46 |
|
|
|
|
|
|
|
|
|
|
Shares used in computing per
share amounts (in millions): |
|
|
|
|
|
|
|
|
Basic |
|
|
127.6 |
|
|
|
124.0 |
|
|
|
128.2 |
|
|
|
124.3 |
|
Diluted |
|
|
127.6 |
|
|
|
124.0 |
|
|
|
128.3 |
|
|
|
124.3 |
|
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 |
|
Six months ended |
|
|
June 30 |
|
June 30 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
Net earnings for the
period |
|
$ |
26.3 |
|
|
$ |
35.6 |
|
|
$ |
36.8 |
|
|
$ |
57.4 |
|
Other comprehensive income
(loss), net of tax: |
|
|
|
|
|
|
|
|
Items that may be reclassified to net earnings: |
|
|
|
|
|
|
|
|
Currency translation differences for foreign
operations |
|
|
(0.2 |
) |
|
|
(5.1 |
) |
|
|
(4.6 |
) |
|
|
(7.9 |
) |
Changes from currency forward derivative
hedges |
|
|
(1.6 |
) |
|
|
(8.5 |
) |
|
|
(11.5 |
) |
|
|
(5.5 |
) |
Changes from interest rate swap derivative
hedges |
|
|
1.5 |
|
|
|
5.0 |
|
|
|
4.8 |
|
|
|
15.5 |
|
Total comprehensive income for
the period |
|
$ |
26.0 |
|
|
$ |
27.0 |
|
|
$ |
25.5 |
|
|
$ |
59.5 |
|
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)
|
Note |
Capitalstock(note 8) |
|
Treasurystock (note 8) |
|
Contributedsurplus |
|
Deficit |
|
Accumulatedothercomprehensiveloss
(a) |
|
Total equity |
Balance -- January 1,
2021 |
|
$ |
1,834.2 |
|
|
$ |
(15.7 |
) |
|
$ |
974.5 |
|
|
$ |
(1,368.8 |
) |
|
$ |
(15.2 |
) |
|
$ |
1,409.0 |
|
Capital
transactions: |
8 |
|
|
|
|
|
|
|
|
|
|
|
Repurchase of capital stock for
cancellation(b) |
|
|
(36.2 |
) |
|
|
— |
|
|
|
13.6 |
|
|
|
— |
|
|
|
— |
|
|
|
(22.6 |
) |
Equity-settled stock-based compensation
(SBC) |
|
|
— |
|
|
|
13.4 |
|
|
|
3.0 |
|
|
|
— |
|
|
|
— |
|
|
|
16.4 |
|
Total comprehensive
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the
period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
36.8 |
|
|
|
— |
|
|
|
36.8 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences for foreign
operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4.6 |
) |
|
|
(4.6 |
) |
Changes from currency forward derivative
hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11.5 |
) |
|
|
(11.5 |
) |
Changes from interest rate swap derivative
hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4.8 |
|
|
|
4.8 |
|
Balance -- June 30,
2021 |
|
$ |
1,798.0 |
|
|
$ |
(2.3 |
) |
|
$ |
991.1 |
|
|
$ |
(1,332.0 |
) |
|
$ |
(26.5 |
) |
|
$ |
1,428.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance -- January 1,
2022 |
|
$ |
1,764.5 |
|
|
$ |
(48.9 |
) |
|
$ |
1,029.8 |
|
|
$ |
(1,255.6 |
) |
|
$ |
(26.8 |
) |
|
$ |
1,463.0 |
|
Capital
transactions: |
8 |
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital
stock |
|
|
0.5 |
|
|
|
— |
|
|
|
(0.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
Repurchase of capital stock for cancellation
(c) |
|
|
(25.4 |
) |
|
|
(0.4 |
) |
|
|
15.7 |
|
|
|
— |
|
|
|
— |
|
|
|
(10.1 |
) |
Purchase of treasury stock for SBC plans
(d) |
|
|
— |
|
|
|
(11.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11.1 |
) |
Equity-settled
SBC |
|
|
— |
|
|
|
31.6 |
|
|
|
(3.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
28.2 |
|
Total comprehensive
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the
period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
57.4 |
|
|
|
— |
|
|
|
57.4 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences for foreign
operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7.9 |
) |
|
|
(7.9 |
) |
Changes from currency forward derivative
hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5.5 |
) |
|
|
(5.5 |
) |
Changes from interest rate swap derivative
hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15.5 |
|
|
|
15.5 |
|
Balance -- June 30,
2022 |
|
$ |
1,739.6 |
|
|
$ |
(28.8 |
) |
|
$ |
1,041.7 |
|
|
$ |
(1,198.2 |
) |
|
$ |
(24.7 |
) |
|
$ |
1,529.6 |
|
(a) Accumulated other comprehensive loss is net of tax.
(b) Consists of $18.7 we paid to repurchase
subordinate voting shares (SVS) for cancellation during the first
half of 2021 and an accrual of $18.9 for the contractual maximum
number of permitted SVS repurchases (Contractual Maximum) as of
June 30, 2021 under an automatic share purchase plan (ASPP)
executed in June 2021, offset in part by the reversal of a $15.0
prior accrual as of December 31, 2020 for the Contractual Maximum
as of December 31, 2020 under an ASPP executed in December 2020.
(see note 8).
(c) We paid $17.6 during the first half of 2022
to repurchase SVS for cancellation under our normal course issuer
bid, offset in part by the reversal of $7.5 accrued as of December
31, 2021 under an ASPP executed in December 2021 for such purpose
(see note 8).
(d) We paid $44.9 during the first half of 2022
to repurchase SVS for delivery obligations under our SBC plans,
offset in part by the reversal of $33.8 accrued as of December 31,
2021 under a separate ASPP executed in December 2021 for such
purpose (see note 8).
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
CELESTICA INC.CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS(in millions
of U.S. dollars)(unaudited)
|
|
Three months ended |
|
Six months ended |
|
|
June 30 |
|
June 30 |
|
Note |
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
Cash provided by (used
in): |
|
|
|
|
|
|
|
|
Operating
activities: |
|
|
|
|
|
|
|
|
Net earnings for the
period |
|
$ |
26.3 |
|
|
$ |
35.6 |
|
|
$ |
36.8 |
|
|
$ |
57.4 |
|
Adjustments to net earnings
for items not affecting cash: |
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
30.6 |
|
|
|
35.9 |
|
|
|
60.9 |
|
|
|
71.8 |
|
Equity-settled employee SBC expense
|
8 |
|
5.5 |
|
|
|
13.2 |
|
|
|
15.6 |
|
|
|
27.8 |
|
Other charges
(recoveries) |
9 |
|
0.5 |
|
|
|
0.6 |
|
|
|
(0.6 |
) |
|
|
0.9 |
|
Finance costs |
|
|
7.6 |
|
|
|
13.1 |
|
|
|
15.6 |
|
|
|
22.9 |
|
Income tax
expense |
|
|
8.5 |
|
|
|
14.0 |
|
|
|
13.7 |
|
|
|
23.0 |
|
Other
|
|
|
8.7 |
|
|
|
1.7 |
|
|
|
14.3 |
|
|
|
2.4 |
|
Changes in non-cash working
capital items: |
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(121.9 |
) |
|
|
32.3 |
|
|
|
6.5 |
|
|
|
49.2 |
|
Inventories |
14 |
|
(71.3 |
) |
|
|
(263.8 |
) |
|
|
(133.4 |
) |
|
|
(501.6 |
) |
Other current
assets |
14 |
|
5.5 |
|
|
|
(28.6 |
) |
|
|
3.8 |
|
|
|
(39.1 |
) |
Accounts payable, accrued and other current liabilities and
provisions |
|
|
161.5 |
|
|
|
251.3 |
|
|
|
94.2 |
|
|
|
435.1 |
|
Non-cash working capital
changes |
|
|
(26.2 |
) |
|
|
(8.8 |
) |
|
|
(28.9 |
) |
|
|
(56.4 |
) |
Net income tax
paid |
|
|
(5.0 |
) |
|
|
(18.4 |
) |
|
|
(22.1 |
) |
|
|
(27.6 |
) |
Net cash provided by operating
activities |
|
|
56.5 |
|
|
|
86.9 |
|
|
|
105.3 |
|
|
|
122.2 |
|
|
|
|
|
|
|
|
|
|
Investing
activities: |
|
|
|
|
|
|
|
|
Purchase of computer software
and property, plant and equipment |
|
|
(9.5 |
) |
|
|
(21.6 |
) |
|
|
(22.1 |
) |
|
|
(38.0 |
) |
Proceeds related to the sale
of assets |
|
|
— |
|
|
|
0.1 |
|
|
|
— |
|
|
|
0.1 |
|
Net cash used in investing
activities |
|
|
(9.5 |
) |
|
|
(21.5 |
) |
|
|
(22.1 |
) |
|
|
(37.9 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities: |
|
|
|
|
|
|
|
|
Repayments under term
loans |
7 |
|
— |
|
|
|
(4.5 |
) |
|
|
(30.0 |
) |
|
|
(9.1 |
) |
Lease
payments |
|
|
(10.4 |
) |
|
|
(11.9 |
) |
|
|
(20.0 |
) |
|
|
(23.1 |
) |
Issuance of capital
stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
Repurchase of capital stock
for
cancellation |
8 |
|
(13.4 |
) |
|
|
(9.8 |
) |
|
|
(18.7 |
) |
|
|
(17.6 |
) |
Purchase of treasury stock for
stock-based
plans |
8 |
|
— |
|
|
|
(10.1 |
) |
|
|
— |
|
|
|
(44.9 |
) |
Finance costs
paid(a) |
7 |
|
(5.4 |
) |
|
|
(10.2 |
) |
|
|
(11.1 |
) |
|
|
(18.2 |
) |
Net cash used in financing
activities |
|
|
(29.2 |
) |
|
|
(46.5 |
) |
|
|
(79.8 |
) |
|
|
(112.8 |
) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in
cash and cash
equivalents |
|
|
17.8 |
|
|
|
18.9 |
|
|
|
3.4 |
|
|
|
(28.5 |
) |
Cash and cash equivalents,
beginning of
period |
|
|
449.4 |
|
|
|
346.6 |
|
|
|
463.8 |
|
|
|
394.0 |
|
Cash and cash equivalents, end
of period |
|
$ |
467.2 |
|
|
$ |
365.5 |
|
|
$ |
467.2 |
|
|
$ |
365.5 |
|
(a) Finance costs paid include debt issuance
costs paid of nil and $0.8 in the three and six months ended
June 30, 2022, respectively (nil in the three and six months
ended June 30, 2021).
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
Ontario with its corporate headquarters located in Toronto,
Ontario, Canada. Celestica’s subordinate voting shares (SVS) are
listed on the Toronto Stock Exchange (TSX) and the New York Stock
Exchange (NYSE).
2.
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING
POLICIES
Statement of compliance:
These unaudited interim condensed consolidated
financial statements for the period ended June 30, 2022 (Q2
2022 Interim Financial Statements) have been prepared in accordance
with International Accounting Standard (IAS) 34, Interim Financial
Reporting, and the accounting policies we have adopted in
accordance with International Financial Reporting Standards (IFRS),
in each case as issued by the International Accounting Standards
Board (IASB), and reflect all adjustments that are, in the opinion
of management, necessary to present fairly our financial position
as of June 30, 2022 and our financial performance,
comprehensive income and cash flows for the three and six months
ended June 30, 2022 (referred to herein as Q2 2022 and 1H
2022, respectively). The Q2 2022 Interim Financial Statements
should be read in conjunction with our 2021 audited consolidated
financial statements (2021 AFS), which are included in our Annual
Report on Form 20-F for the year ended December 31, 2021. The Q2
2022 Interim Financial Statements are presented in United States
(U.S.) dollars, which is also Celestica's functional currency.
Unless otherwise noted, all financial information is presented in
millions of U.S. dollars (except percentages and per share
amounts).
The Q2 2022 Interim Financial Statements were
authorized for issuance by our board of directors on July 25,
2022.
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 related disclosures with respect to
contingent assets and liabilities. We base our judgments, estimates
and assumptions on current facts (including, in recent periods, the
prolonged impact of coronavirus disease 2019 and related mutations
(COVID-19) and global supply chain constraints, and additionally in
Q2 2022, the fire event described in note 14), historical
experience and various other factors that we believe are reasonable
under the circumstances. The economic environment also impacts
certain estimates and discount rates necessary to prepare our
consolidated financial statements, including significant estimates
and discount rates applicable to the determination of the
recoverable amounts used in the impairment testing of our
non-financial assets. Our assessment of these factors forms the
basis for our judgments on the carrying values of our assets and
liabilities, and the accrual of our costs and expenses. Actual
results could differ materially from our 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 also impact future periods.
Our review of the estimates, judgments and
assumptions used in the preparation of the Q2 2022 Interim
Financial Statements included those relating to, among others: our
determination of the timing of revenue recognition, the
determination of whether indicators of impairment existed for our
assets and cash generating units (CGUs1), our measurement of
deferred tax assets and liabilities, our estimated inventory
provisions and expected credit losses, customer creditworthiness,
and the determination of the fair value of assets acquired and
liabilities assumed in connection with a business combination. Any
revisions to estimates, judgments or assumptions may result in,
among other things, write-downs or impairments to our assets or
CGUs, and/or adjustments to the carrying amount of our accounts
receivable and/or inventories, or to the valuation of our deferred
tax assets, any of which could have a material impact on our
financial performance and financial condition.
Accounting policies:
The Q2 2022 Interim Financial Statements are
based on accounting policies consistent with those described in
note 2 to our 2021 AFS.
3. SEGMENT
AND CUSTOMER REPORTING
Segments:
Celestica delivers innovative supply chain
solutions globally to customers in two operating and reportable
segments: Advanced Technology Solutions (ATS) and Connectivity
& Cloud Solutions (CCS). Our ATS segment consists of our ATS
end market, and is comprised of our Aerospace and Defense
(A&D), Industrial (including PCI Private Limited and energy),
HealthTech and Capital Equipment businesses. Our CCS segment
consists of our Communications and Enterprise (servers and storage)
end markets. Segment performance is evaluated based on segment
revenue, segment income and segment margin (segment income as a
percentage of segment revenue). See note 25 to our 2021 AFS for a
description of the businesses that comprise our segments, and how
segment revenue, segment income and segment margin are
determined.
Information regarding the performance of our
reportable segments is set forth below:
Revenue by
segment: |
Three months ended June 30 |
|
Six months ended June 30 |
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
% of total |
|
|
% of total |
|
|
% of total |
|
|
% of total |
ATS |
$ |
562.6 |
40 |
% |
|
$ |
695.3 |
40 |
% |
|
$ |
1,093.9 |
41 |
% |
|
$ |
1,392.0 |
42 |
% |
CCS |
|
857.7 |
60 |
% |
|
|
1,021.9 |
60 |
% |
|
|
1,561.3 |
59 |
% |
|
|
1,892.1 |
58 |
% |
Communications end market revenue as a % of total
revenue |
|
42 |
% |
|
|
39 |
% |
|
|
41 |
% |
|
|
38 |
% |
Enterprise end market revenue as a % of total
revenue |
|
18 |
% |
|
|
21 |
% |
|
|
18 |
% |
|
|
20 |
% |
Total |
$ |
1,420.3 |
|
|
$ |
1,717.2 |
|
|
$ |
2,655.2 |
|
|
$ |
3,284.1 |
|
Segment
income, segment margin, and reconciliation of segment income to
IFRS earnings before income taxes: |
Three months ended June 30 |
|
Six months ended June 30 |
|
Note |
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
|
SegmentMargin |
|
|
SegmentMargin |
|
|
SegmentMargin |
|
|
SegmentMargin |
ATS segment income and
margin |
|
$ |
23.2 |
4.1 |
% |
|
$ |
31.6 |
|
4.5 |
% |
|
$ |
44.5 |
4.1 |
% |
|
$ |
66.7 |
4.8 |
% |
CCS segment income and
margin |
|
|
31.8 |
3.7 |
% |
|
|
51.1 |
|
5.0 |
% |
|
|
53.8 |
3.4 |
% |
|
|
85.3 |
4.5 |
% |
Total segment
income |
|
|
55.0 |
|
|
|
82.7 |
|
|
|
|
98.3 |
|
|
|
152.0 |
|
Reconciling items: |
|
|
|
|
|
|
|
|
|
|
|
|
Finance
costs |
7 |
|
7.6 |
|
|
|
13.1 |
|
|
|
|
15.6 |
|
|
|
22.9 |
|
Employee stock-based
compensation (SBC)
expense |
|
|
5.5 |
|
|
|
13.2 |
|
|
|
|
15.6 |
|
|
|
27.8 |
|
Amortization of intangible
assets (excluding computer
software) |
|
|
4.9 |
|
|
|
9.3 |
|
|
|
|
9.8 |
|
|
|
18.6 |
|
Other charges
(recoveries) |
9 |
|
2.2 |
|
|
|
(2.5 |
) |
|
|
|
6.8 |
|
|
|
2.3 |
|
IFRS earnings before income
taxes |
|
$ |
34.8 |
|
|
$ |
49.6 |
|
|
|
$ |
50.5 |
|
|
$ |
80.4 |
|
Customers:
One customer in our CCS segment represented 10%
or more of total revenue (13%) in Q2 2022. One customer in our CCS
segment represented 10% or more of total revenue (10%) in the
second quarter of 2021 (Q2 2021). No individual customer
represented 10% or more of total revenue in 1H 2022 or the first
half of 2021 (1H 2021).
Seasonality:
From time to time, we experience some level of
seasonality in our quarterly revenue patterns across certain of our
businesses. Typically, revenue from our Enterprise end market
decreases in the first quarter of the year compared to the previous
quarter, and then increases in the second quarter, reflecting an
increase in customer demand. We also typically experience our
lowest overall revenue levels during the first quarter of each
year. There can be no assurance that these patterns will continue.
The addition of new customers has also introduced different demand
cycles from our existing customers, creating more volatility and
unpredictability in our revenue patterns. These and other factors
make it difficult to isolate the impact of seasonality on
our business.
4. ACQUISITION
On November 1, 2021, we completed the
acquisition of 100% of the shares of PCI Private Limited (PCI), a
fully integrated design, engineering and manufacturing solutions
provider with five manufacturing and design facilities across Asia.
The final purchase price for PCI was $314.7, net of $11.4 of cash
acquired. In the first quarter of 2022 (Q1 2022), we finalized the
purchase price allocation for the acquisition. In connection
therewith, we made the following changes to our preliminary
purchase price allocation: increased the carrying value of customer
intangible assets by $2.7, increased deferred income taxes
liability by $0.5, and decreased goodwill by $2.2. Details of our
final purchase price allocation for the PCI acquisition are as
follows:
Accounts
receivable and other current
assets |
$ |
68.9 |
|
Inventories
|
|
83.6 |
|
Property, plant
and equipment |
|
22.8 |
|
Customer
intangible assets
|
|
176.1 |
|
Other non-current
assets |
|
6.9 |
|
Goodwill |
|
123.8 |
|
Accounts payable
and accrued
liabilities |
|
(121.3 |
) |
Other current
liabilities |
|
(8.1 |
) |
Deferred income
taxes and other long-term
liabilities |
|
(38.0 |
) |
|
|
|
|
$ |
314.7 |
|
Due to the acquisition, our amortization of
intangible assets will increase by approximately $18 annually.
Goodwill from the acquisition is attributable to our ATS segment
and is not tax deductible.
We engaged third-party consultants to provide
valuations of certain inventory, property, plant and equipment and
intangible assets in connection with our acquisition of PCI. The
fair value of the acquired tangible assets was measured by applying
the market (sales comparison, brokers' quotes), cost or replacement
cost, or the income (discounted cash flow) approach, as deemed
appropriate. The valuation of the intangible assets by the
third-party consultants was primarily based on the income approach
using a discounted cash flow model and forecasts based on
management's subjective estimates and assumptions. Various Level 2
and 3 data inputs of the fair value measurement hierarchy
(described in note 20 to the 2021 AFS) were used in the valuation
of the foregoing assets.
We recorded Acquisition Costs (defined in note
9) of $0.2 and $0.4 during Q2 2022 and 1H 2022, respectively (Q2
2021 and 1H 2021 — nil) related to our acquisition of PCI. See note
9 for a description of aggregate Acquisition Costs (Recoveries)
incurred in each of the foregoing periods.
5.
ACCOUNTS RECEIVABLE
Accounts receivable (A/R) sales program
and supplier financing programs (SFPs):
We are party to an agreement with a third-party
bank to sell up to $300.0 in A/R on an uncommitted basis, subject
to pre-determined limits by customer. This agreement provides for
automatic annual one-year extensions, and may be terminated at any
time by the bank or by us upon 3 months’ prior notice, or by the
bank upon specified defaults. Under our A/R sales program, we
continue to collect cash from our customers and remit amounts
collected to the bank weekly.
As of June 30, 2022, we participate in
three customer SFPs, pursuant to which we sell A/R from the
relevant customer to third-party banks on an uncommitted basis. The
SFPs have an indefinite term and may be terminated at any time by
the customer or by us upon specified prior notice. Under our SFPs,
the third-party banks collect the relevant receivables directly
from these customers.
At June 30, 2022, we sold $225.4 of A/R
(December 31, 2021 — $45.8) under our A/R sales program,
and $166.6 of A/R under the SFPs (December 31, 2021 — $98.0).
The A/R sold under each of these programs are de-recognized from
our A/R balance, and the proceeds are reflected as cash provided by
operating activities in our consolidated statement of cash flows.
Upon sale, we assign the rights to the A/R to the banks. A/R are
sold net of discount charges, which are recorded as finance costs
in our consolidated statement of operations.
Contract assets:
At June 30, 2022, our A/R balance included
$243.6 (December 31, 2021 — $253.5) of contract assets
recognized as revenue in accordance with our revenue recognition
accounting policy.
6.
INVENTORIES
We record inventory provisions, net of valuation
recoveries, in cost of sales. Inventory provisions reflect
write-downs in the value of our inventory to net realizable value,
and valuation recoveries primarily reflect gains on the disposition
of previously written-down inventory. We recorded net inventory
provisions of $5.7 and $8.2 for Q2 2022 and 1H 2022, respectively
(Q2 2021 and 1H 2021— provisions of $0.5 and $2.9, respectively).
The accounting treatment of inventories destroyed by a fire in Q2
2022 is described in notes 9 and 14.
We receive cash deposits from certain of our
customers primarily to help mitigate the impact of higher inventory
levels carried due to the current constrained materials
environment, and to reduce risks related to excess and/or obsolete
inventory. Such deposits as of June 30, 2022 totaled $525.7
(December 31, 2021 — $434.0), and were recorded in accrued and
other current liabilities on our consolidated balance sheet.
7. CREDIT
FACILITIES AND LEASE OBLIGATIONS
We are party to a credit agreement (Credit
Facility) with Bank of America, N.A., as Administrative Agent, and
the other lenders party thereto, which as of a December 6, 2021
amendment thereto, includes a term loan in the original principal
amount of $350.0 (Initial Term Loan), a new term loan in the
original principal amount of $365.0 (Incremental Term Loan), and a
$600.0 revolving credit facility (Revolver). Prior to such
amendment, the Credit Facility included the Initial Term Loan, a
term loan in the original principal amount of $250.0 (Terminated
Term Loan), the outstanding borrowings under which were fully
repaid on December 6, 2021 with a portion of the proceeds of the
Incremental Term Loan, and commitments of $450.0 under the
Revolver. See note 11 to the 2021 AFS for additional detail
regarding the amendments to our Credit Facility in December 2021.
The Initial Term Loan and the Incremental Term Loan are
collectively referred to as the Term Loans.
The Initial Term Loan matures in June 2025. The
Incremental Term Loan and the Revolver each mature on March 28,
2025, unless either (i) the Initial Term Loan has been prepaid or
refinanced or (ii) commitments under the Revolver are available and
have been reserved to repay the Initial Term Loan in full, in which
case the Incremental Term Loan and Revolver each mature on December
6, 2026.
The Credit Facility has an accordion feature
that allows us to increase the Term Loans and/or commitments under
the Revolver by $150.0, plus an unlimited amount to the extent that
a specified leverage ratio on a pro forma basis does not exceed
specified limits, in each case on an uncommitted basis and subject
to the satisfaction of certain terms and conditions.
Borrowings under the Revolver bear interest,
depending on the currency of the borrowing and our election for
such currency, at LIBOR, Base Rate, Canadian Prime, an Alternative
Currency Daily Rate, or an Alternative Currency Term Rate (each as
defined in the Credit Facility) plus a specified margin. The margin
for borrowings under the Revolver and the Incremental Term Loan
ranges from 1.50% — 2.25% for LIBOR borrowings and Alternative
Currency borrowings, and between 0.50% — 1.25% for Base Rate and
Canadian Prime borrowings, in each case depending on the rate we
select and our consolidated leverage ratio (as defined in the
Credit Facility). Commitment fees range between 0.30% and 0.45%
depending on our consolidated leverage ratio. The Initial Term Loan
currently bears interest at LIBOR plus 2.125%. The Incremental Term
Loan currently bears interest at LIBOR plus 2.0%. See note 11 for a
description of the LIBOR successor provisions under the Credit
Facility. Prior to the amendments to our Credit Facility in
December 2021, the margin for borrowings under the Revolver ranged
from 0.75% to 2.5%, commitment fees ranged between 0.35% and 0.50%,
in each case depending on the rate we selected and our consolidated
leverage ratio, the Initial Term Loan bore interest at LIBOR plus
2.125%, and the Terminated Term Loan bore interest at LIBOR plus
2.5%.
The Incremental Term Loan requires quarterly
principal repayments of $4.5625, and each of the Term Loans
requires a lump sum repayment of the remainder outstanding at
maturity. The Initial Term Loan required quarterly principal
repayments of $0.875, all of which were paid by the first half of
2020. We are also required to make annual prepayments of
outstanding obligations under the Credit Facility (applied first to
the Term Loans, then to the Revolver, in the manner set forth in
the Credit Facility) ranging from 0% — 50% (based on a defined
leverage ratio) of specified excess cash flow for the prior fiscal
year. No prepayments based on 2021 excess cash flow will be
required in 2022. In addition, prepayments of outstanding
obligations under the Credit Facility (applied as described above)
may also be required in the amount of specified net cash proceeds
received above a specified annual threshold (including proceeds
from the disposal of certain assets). No Credit Facility
prepayments based on 2021 net cash proceeds will be required in
2022. Any outstanding amounts under the Revolver are due at
maturity.
Activity under our Credit Facility during 2021
and 1H 2022 is set forth below:
|
Revolver |
|
Term loans |
Outstanding balances as of December 31,
2020 |
$ |
— |
|
|
$ |
470.4 |
|
Amount repaid in Q1
2021(1) |
|
— |
|
|
|
(30.0 |
) |
Amount borrowed in Q4
2021(2) |
|
220.0 |
|
|
|
365.0 |
|
Amount repaid in Q4
2021(2) |
|
(220.0 |
) |
|
|
(145.0 |
) |
Outstanding balances as of
December 31,
2021 |
$ |
— |
|
|
$ |
660.4 |
|
Amount repaid in Q1
2022(3) |
|
— |
|
|
|
(4.5625 |
) |
Amount repaid in Q2
2022(3) |
|
|
|
(4.5625 |
) |
Outstanding balances as of
June 30, 2022 |
$ |
— |
|
|
$ |
651.3 |
|
(1) Represents a prepayment under the
Terminated Term Loan.
(2) On October 27, 2021, we borrowed $220.0
under the Revolver to fund a portion of the PCI acquisition price
in November 2021 (see note 4). On December 6, 2021, upon receipt of
the net proceeds from the $365.0 Incremental Term Loan, we repaid
all remaining amounts outstanding under the Terminated Term Loan
($145.0), and repaid $215.0 of the $220.0 borrowed under the
Revolver. On December 29, 2021, we repaid the remaining $5.0
outstanding under the Revolver.
(3) Represents the scheduled quarterly
principal repayment under the Incremental Term Loan.
At June 30, 2022 and December 31,
2021, we were in compliance with all restrictive and financial
covenants under the Credit Facility.
The following tables set forth, at the dates
shown: outstanding borrowings under the Credit Facility, excluding
ordinary course letters of credit (L/Cs); notional amounts under
our interest rate swap agreements; and outstanding lease
obligations:
|
Outstanding borrowings |
|
Notional amounts under interest rate swaps (note
11) |
|
December 312021 |
|
June 302022 |
|
December 312021 |
|
June 302022 |
Borrowings under the Revolver
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
$ |
— |
Borrowings under term
loans: |
|
|
|
|
|
|
|
Initial Term
Loan |
$ |
295.4 |
|
|
$ |
295.4 |
|
|
$ |
100.0 |
|
$ |
100.0 |
Incremental Term
Loan |
|
365.0 |
|
|
|
355.9 |
|
|
|
100.0 |
|
|
230.0 |
Total |
$ |
660.4 |
|
|
$ |
651.3 |
|
|
$ |
200.0 |
|
$ |
330.0 |
Total borrowings under Credit
Facility |
$ |
660.4 |
|
|
$ |
651.3 |
|
|
|
|
|
Unamortized debt issuance
costs related to our term loans
(1) |
|
(4.6 |
) |
|
|
(4.2 |
) |
|
|
|
|
Lease
obligations(2) |
|
138.6 |
|
|
|
157.3 |
|
|
|
|
|
|
$ |
794.4 |
|
|
$ |
804.4 |
|
|
|
|
|
Total Credit Facility and
lease obligations: |
|
|
|
|
|
|
|
Current
portion |
$ |
51.5 |
|
|
$ |
69.5 |
|
|
|
|
|
Long-term
portion |
|
742.9 |
|
|
|
734.9 |
|
|
|
|
|
|
$ |
794.4 |
|
|
$ |
804.4 |
|
|
|
|
|
(1) We incur debt issuance costs upon
execution of, subsequent security arrangements under, and
amendments to the Credit Facility. No debt issuance costs were
incurred in Q2 2022, Q2 2021, or 1H 2021. Debt issuance costs
incurred in Q1 2022 in connection with our Revolver totaling $0.3
were deferred as other assets on our consolidated balance sheet and
are amortized on a straight line basis over the remaining term of
the Revolver. Debt issuance costs incurred in Q1 2022 in connection
with our Term Loans totaling $0.3 were deferred as long-term debt
on our consolidated balance sheet and are amortized over their
respective terms using the effective interest rate method.
(2) These lease obligations represent
the present value of unpaid lease payments which have been
discounted using our incremental borrowing rate on the lease
commencement dates. In addition to these lease obligations, we have
commitments under additional real property leases not recognized as
liabilities as of June 30, 2022 or December 31, 2021 (as
applicable) because all (or a portion of) such leases had not yet
commenced as of such dates. A description of, and minimum lease
obligations under, these leases are disclosed in note 24 to the
2021 AFS.
The following table sets forth, at the dates
shown, information regarding outstanding L/Cs, surety bonds and
overdraft facilities:
|
December 312021 |
|
June 302022 |
Outstanding L/Cs under the
Revolver |
$ |
21.0 |
|
$ |
21.0 |
Outstanding L/Cs and surety
bonds outside the
Revolver |
|
27.1 |
|
|
31.3 |
Total |
$ |
48.1 |
|
$ |
52.3 |
Available uncommitted bank
overdraft
facilities |
$ |
198.5 |
|
$ |
198.5 |
Amounts outstanding under
available uncommitted bank overdraft
facilities |
$ |
— |
|
$ |
— |
|
|
|
|
Finance costs consist of interest expense and
fees related to our Credit Facility (including debt issuance and
related amortization costs), our interest rate swap agreements, our
A/R sales program and the SFPs, and interest expense on our lease
obligations, net of interest income earned.
8.
CAPITAL STOCK
SVS Repurchase Plans:
In recent years, we have repurchased SVS in the
open market, or as otherwise permitted, for cancellation through
normal course issuer bids (NCIBs), which allow us to repurchase a
limited number of SVS during a specified period. The maximum number
of SVS we are permitted to repurchase for cancellation under each
NCIB is reduced by the number of SVS purchased by a broker in the
open market during the term of such NCIB to satisfy delivery
obligations under our SBC plans. We from time-to-time enter into
automatic share purchase plans (ASPPs) with a broker, instructing
the broker to purchase our SVS in the open market on our behalf,
either for cancellation under an NCIB (NCIB ASPPs) or for delivery
obligations under our SBC plans (SBC ASPPs), including during any
applicable trading blackout periods, up to specified maximums (and
subject to certain pricing and other conditions) through the term
of each ASPP.
On November 19, 2020, the TSX accepted our
notice to launch an NCIB (2020 NCIB), which allowed us to
repurchase, at our discretion, from November 24, 2020 until the
earlier of November 23, 2021 or the completion of purchases
thereunder, up to approximately 9.0 million SVS in the open market,
or as otherwise permitted, subject to the normal terms and
limitations of such bids. We entered into NCIB ASPPs in each of
December 2020, March 2021 and June 2021, all of which have since
expired. At December 31, 2020, we accrued $15.0, representing the
estimated contractual maximum number of permitted SVS repurchases
(Contractual Maximum) under the December 2020 NCIB ASPP (2.0
million SVS). This accrual was reversed in 1H 2021. At
June 30, 2021, we accrued $18.9, representing the estimated
Contractual Maximum (2.3 million SVS) under the June 2021 NCIB
ASPP. This accrual was reversed in the third quarter of 2021. In Q2
2021 and 1H 2021, we repurchased an aggregate of 0.5 million SVS
under applicable NCIB ASPPs.
On December 2, 2021, the TSX accepted our notice
to launch a new NCIB (2021 NCIB). The 2021 NCIB allows us to
repurchase, at our discretion, from December 6, 2021 until the
earlier of December 5, 2022 or the completion of purchases
thereunder, up to approximately 9.0 million of our SVS in the open
market, or as otherwise permitted, subject to the normal terms and
limitations of such bids. As of June 30, 2022, approximately
2.7 million SVS remain available for repurchase under the 2021 NCIB
either for cancellation or SBC delivery purposes.
In each of December 2021 and June 2022, we
entered into an NCIB ASPP, each of which expired prior to or on
June 30, 2022. We recorded an accrual at December 31, 2021 of
$7.5, representing the estimated Contractual Maximum (0.7 million
SVS) under the December 2021 NCIB ASPP, which was reversed in 1H
2022. There was no such accrual at June 30, 2022. In Q2 2022
and 1H 2022, we repurchased 0.4 million and 0.6 million SVS,
respectively, for cancellation under those NCIB ASPPs (see chart
below).
In each of December 2021 and May 2022, we
entered into an SBC ASPP, each of which expired prior to
June 30, 2022. We recorded an accrual at December 31, 2021 of
$33.8, representing the estimated Contractual Maximum (3.0 million
SVS) under the December 2021 SBC ASPP, which was reversed in 1H
2022. There was no such accrual at June 30, 2022. In Q2 2022
and 1H 2022, we repurchased 0.9 million and 3.9 million SVS for SBC
plan delivery obligations under those SBC ASPPs (see chart
below).
SVS repurchases:
Information regarding SVS repurchase activities
for the periods indicated is set forth below:
|
Three months endedJune 30 |
|
Six months endedJune 30 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 |
Aggregate cost(1) of SVS
repurchased for cancellation (2)
|
$ |
13.4 |
|
$ |
9.8 |
|
$ |
18.7 |
|
$ |
17.6 |
Number of SVS repurchased for cancellation (in millions)
(3) |
|
1.6 |
|
|
1.0 |
|
|
2.2 |
|
|
1.7 |
Weighted average price per share for
repurchases |
$ |
8.28 |
|
$ |
10.30 |
|
$ |
8.30 |
|
$ |
10.80 |
Aggregate cost(1) of SVS
repurchased for delivery under SBC plans (see
below) |
$ |
— |
|
$ |
10.1 |
|
$ |
— |
|
$ |
44.9 |
Number of SVS repurchased for delivery under SBC plans (in
millions) (4) |
|
— |
|
|
0.9 |
|
|
— |
|
|
3.9 |
(1) Includes transaction
fees.(2) For Q2 2021 and 1H 2021, excludes an accrual of
$18.9 we recorded at June 30, 2021 for the estimated Contractual
Maximum under the June 2021 NCIB ASPP.(3) For Q2 2021
and 1H 2021, includes 0.5 million ASPP purchases of SVS for
cancellation. For Q2 2022 and 1H 2022, includes 0.4 million and 0.6
million ASPP purchases of SVS for cancellation,
respectively.(4) For Q2 2022 and 1H 2022, includes 0.9
million and 3.9 million ASPP purchases of SVS for SBC delivery
obligations, respectively.
SBC:
From time to time, we pay cash to a broker to
purchase SVS in the open market to satisfy delivery requirements
under our SBC plans. At June 30, 2022, the broker held 2.5
million SVS with a value of $28.4 (December 31, 2021 — 1.4
million SVS with a value of $15.1) for this purpose, which we
report as treasury stock on our consolidated balance sheet. We used
2.9 million SVS held by the broker (including additional SVS
purchased during 1H 2022) to settle SBC awards that vested during
1H 2022.
We grant restricted share units (RSUs) and
performance share units (PSUs), and from time-to-time stock
options, to employees under our SBC plans. The majority of RSUs
vest one-third per year over a three-year period. Stock options
generally vest 25% per year over a four-year period. The number of
outstanding PSUs that will actually vest will vary from 0% to 200%
of a target amount granted based on the level of achievement of a
pre-determined non-market performance measurement in the final year
of a three-year performance period, subject to modification by each
of a separate pre-determined non-market financial target and our
relative Total Shareholder Return (TSR) performance over the
three-year vesting period. The portion of our expense that relates
to non-TSR-based performance is subject to adjustment in any period
to reflect changes in the estimated level of achievement of
pre-determined goals and financial targets. We also grant deferred
share units (DSUs) and RSUs (under specified circumstances) to
directors as compensation under our Directors' Share Compensation
Plan. See note 2(l) to the 2021 AFS for further detail.
Information regarding RSU, PSU, and DSU grants
to employees and directors, as applicable, for the periods
indicated is set forth below (no stock options were granted in any
such period):
|
Three months ended June 30 |
|
Six months ended June 30 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 |
RSUs
Granted: |
Number of awards (in
millions) |
|
0.2 |
|
|
0.2 |
|
|
2.6 |
|
|
1.9 |
Weighted average grant date
fair value per
unit |
$ |
8.30 |
|
$ |
11.01 |
|
$ |
8.13 |
|
$ |
12.30 |
|
PSUs
Granted: |
Number of awards (in millions,
representing 100% of
target) |
|
0.1 |
|
|
0.1 |
|
|
1.9 |
|
|
1.3 |
Weighted average grant date
fair value per
unit |
$ |
8.94 |
|
$ |
12.42 |
|
$ |
8.82 |
|
$ |
14.27 |
|
|
|
|
|
|
|
|
DSUs
Granted: |
Number of awards (in
millions) |
|
0.03 |
|
|
0.03 |
|
|
0.06 |
|
|
0.06 |
Weighted average grant date
fair value per
unit |
$ |
7.85 |
|
$ |
9.72 |
|
$ |
8.10 |
|
$ |
10.70 |
Information regarding employee and director SBC
expense for the periods indicated is set forth below:
|
Three months ended June 30 |
|
Six months ended June 30 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 |
Employee SBC expense in cost
of sales |
$ |
1.4 |
|
$ |
5.3 |
|
$ |
6.3 |
|
$ |
10.9 |
Employee SBC expense in
SG&A |
|
4.1 |
|
|
7.9 |
|
|
9.3 |
|
|
16.9 |
Total |
$ |
5.5 |
|
$ |
13.2 |
|
$ |
15.6 |
|
$ |
27.8 |
Director SBC expense in
SG&A (1) |
$ |
0.5 |
|
$ |
0.5 |
|
$ |
1.0 |
|
$ |
1.1 |
(1) Expense consists of director compensation to be settled with
SVS, or SVS and cash, as elected by each director.
9.
OTHER CHARGES (RECOVERIES)
|
Three months ended June 30 |
|
Six months ended June 30 |
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
Restructuring
(a) |
$ |
3.0 |
|
|
$ |
0.9 |
|
|
$ |
8.8 |
|
|
$ |
4.0 |
|
Transition Costs, net of
Transaction Recoveries
(b) |
|
— |
|
|
|
(3.6 |
) |
|
|
0.1 |
|
|
|
(2.1 |
) |
Acquisition Costs (Recoveries)
and Other (c) |
|
(0.8 |
) |
|
|
0.2 |
|
|
|
(2.1 |
) |
|
|
0.4 |
|
|
$ |
2.2 |
|
|
$ |
(2.5 |
) |
|
$ |
6.8 |
|
|
$ |
2.3 |
|
In addition to the items set forth above, other
charges (recoveries) for Q2 2022 and 1H 2022 included approximately
$92 in charges representing write-downs recorded in Q2 2022 to
inventories, a building and equipment resulting from the fire event
described in note 14 below, and an equivalent amount in recoveries,
as we expect to fully recover the written-down amounts pursuant to
the terms and conditions of our insurance policies. As a result,
such event had no net impact on other charges (recoveries) during
Q2 2022 or 1H 2022.
(a) Restructuring:
Our restructuring activities for Q2 2022 and 1H
2022 consisted primarily of actions to adjust our cost base to
address reduced levels of demand in certain of our businesses and
geographies.
We recorded cash restructuring charges of $0.3
and $3.1 in Q2 2022 and 1H 2022, respectively, consisting primarily
of employee termination costs. We recorded non-cash restructuring
charges of $0.6 and $0.9 in Q2 2022 and 1H 2022, respectively,
consisting primarily of the write-down of assets related to
disengaging programs in Q1 2022 and write-down of right-of-use
assets in connection with vacated properties in Q2 2022. In Q2 2021
and 1H 2021, we recorded cash charges of $2.5 and $8.2,
respectively, primarily for employee termination costs, and
non-cash charges of $0.5 and $0.6, respectively, reflecting the
write-down of both equipment related to disengaged programs and
right-of-use assets in connection with vacated properties. At
June 30, 2022, our restructuring provision was $5.8
(December 31, 2021 — $6.1), which we recorded in the current
portion of provisions on our consolidated balance sheet.
(b) Transition
Costs:
Transition Costs consist of costs recorded in
connection with: (i) the relocation of our Toronto manufacturing
operations, and the move of our corporate headquarters into and out
of a temporary location during, and upon completion, of the
construction of space in a new office building at our former
location (all in connection with the 2019 sale of our Toronto real
property); (ii) the transfer of manufacturing lines from closed
sites to other sites within our global network; and (iii)
consistent with the treatment of our Toronto real property sale,
the sale of real properties unrelated to restructuring actions
(Property Dispositions). Transition Costs consist of direct
relocation and duplicate costs (such as rent expense, utility
costs, depreciation charges, and personnel costs) incurred during
the transition periods, as well as cease-use and other costs
incurred in connection with idle or vacated portions of the
relevant premises that we would not have incurred but for these
relocations, transfers and dispositions. Transition Recoveries
consist of any gains recorded in connection with Property
Dispositions. We incurred no Transition Costs during Q2 2022 and
$1.5 of Transition Costs during 1H 2022, related primarily to the
disposal of assets reclassified as held for sale in Q1 2022. In Q2
2022 and 1H 2022, we recorded $3.6 in Transition Recoveries,
reflecting the gain on the disposal of such assets held for sale.
In Q2 2021, we recorded no Transition Costs or Transition
Recoveries. In 1H 2021, we recorded $0.1 of Transition Costs
pertaining to the transfer of manufacturing lines from closed sites
to other sites within our global network, and no Transition
Recoveries.
(c) Acquisition
Costs (Recoveries) and Other:
We incur consulting, transaction and integration
costs relating to potential and completed acquisitions. We also
incur charges or releases related to the subsequent re-measurement
of indemnification assets or the release of indemnification or
other liabilities recorded in connection with acquisitions, when
applicable. Collectively, these costs, charges and releases are
referred to as Acquisition Costs (Recoveries).
We recorded Acquisition Costs of $0.2 and $0.4
during Q2 2022 and 1H 2022, respectively, all related to the
acquisition of PCI (see note 4), and no Acquisition Recoveries. No
Acquisition Costs (Recoveries) were incurred during Q2 2021. Net
Acquisition Recoveries of $0.8 recorded during Q1 2021 and 1H 2021
consisted of $0.4 in consulting costs related to potential
acquisitions and $1.2 of releases related to certain indirect tax
liabilities previously recorded in connection with our acquisition
of Impakt Holdings, LLC in November 2018. Other consists of legal
recoveries of $0.8 in Q2 2021 and $1.3 in 1H 2021 in connection
with the settlement of class action lawsuits (for component parts
purchased in prior periods) in which we were a plaintiff.
10. INCOME
TAXES
Our income tax expense or recovery for each
quarter is determined by multiplying the earnings or losses before
tax for such quarter by management’s best estimate of the
weighted-average annual income tax rate expected for the full year,
taking into account the tax effect of certain items recognized in
the interim period. As a result, the effective income tax rates
used in our interim financial statements may differ from
management’s estimate of the annual effective tax rate for the
annual financial statements. Our estimated annual effective income
tax rate varies as the quarters progress, for various reasons,
including as a result of the mix and volume of business in various
tax jurisdictions within the Americas, Europe and Asia, in
jurisdictions with tax holidays and tax incentives, and in
jurisdictions for which no net deferred income tax assets have been
recognized because management believes it is not probable that
future taxable profit will be available against which tax losses
and deductible temporary differences could be utilized. Our
annual effective income tax rate can also vary due to the impact of
restructuring charges, foreign exchange fluctuations, operating
losses, cash repatriations, and changes in our provisions related
to tax uncertainties.
Our Q2 2022 net income tax expense was $14.0.
Our 1H 2022 net income tax expense of $23.0 was favorably impacted
by $4.9 in reversals of tax uncertainties in one of our Asian
subsidiaries. Taxable foreign exchange impacts were not significant
in either Q2 2022 or 1H 2022.
Our Q2 2021 net income tax expense of $8.5
included a $2.0 tax expense arising from taxable temporary
differences associated with the anticipated repatriation of
undistributed earnings from one of our Chinese subsidiaries
(Chinese Repatriation Expense). Our 1H 2021 net income tax expense
of $13.7 included the $2.0 Chinese Repatriation Expense, partly
offset by $1.1 in reversals of tax uncertainties in one of our
Asian subsidiaries that completed its liquidation and dissolution
during 1H 2021. Taxable foreign exchange impacts were not
significant in either Q2 2021 or 1H 2021.
11.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Our financial assets are comprised primarily of
cash and cash equivalents, A/R, and derivatives used for hedging
purposes. Our financial liabilities are comprised primarily of
accounts payable, certain accrued and other liabilities, the Term
Loans, borrowings under the Revolver, lease obligations, and
derivatives.
Interest rate risk:
Borrowings under the Credit Facility expose us
to interest rate risk due to the potential variability of market
interest rates. In order to partially hedge against our exposure to
interest rate variability on our Term Loans, we have entered into
various agreements with third-party banks to swap the variable
interest rate (based on LIBOR plus a margin) with a fixed rate of
interest for a portion of the borrowings under our Term Loans. At
June 30, 2022, we had: (i) interest rate swaps hedging the
interest rate risk associated with $100.0 of our Initial Term Loan
borrowings that expire in August 2023 (Initial Swaps); (ii)
interest rate swaps hedging the interest rate risk associated with
$100.0 of our Initial Term Loan borrowings, for which the cash
flows commence upon the expiration of the Initial Swaps and
continue through June 2024 (First Extended Initial Swaps); (iii)
interest rate swaps hedging the interest rate risk associated with
$100.0 of our Initial Term Loan borrowings (and any subsequent term
loans replacing the Initial Term Loan), for which the cash flows
commence upon the expiration of the First Extended Initial Swaps
and continue through December 2025 (Second Extended Initial Swaps);
(iv) interest rate swaps hedging the interest rate risk associated
with $100.0 of outstanding borrowings under the Incremental Term
Loan that expire in December 2023 (Incremental Swaps); (v) interest
rate swaps hedging the interest rate risk associated with $100.0 of
our Incremental Term Loan borrowings, for which the cash flows
commence upon the expiration of the Incremental Swaps and continue
through December 2025 (First Extended Incremental Swaps); and (vi)
interest rate swaps hedging the interest rate risk associated with
an additional $130.0 of our Incremental Term Loan borrowings that
expire in December 2025 (Additional Incremental Swaps). We have an
option to cancel up to $50.0 of the notional amount of the
Additional Incremental Swaps from January 2024 through October
2025.
At June 30, 2022, the interest rate risk
related to $321.3 of borrowings under the Credit Facility was
unhedged, consisting of unhedged amounts outstanding under the Term
Loans ($195.4 under the Initial Term Loan and $125.9 under the
Incremental Term Loan), and no amounts outstanding (other than
ordinary course L/Cs) under the Revolver. See note 7.
At June 30, 2022, the fair value of our
interest rate swap agreements was an unrealized gain of $8.6, which
we recorded in other non-current assets on our consolidated balance
sheet. At December 31, 2021, the fair value of our interest
rate swap agreements was a net unrealized loss of $6.9, consisting
of aggregate unrealized losses of $7.4, which we recorded in other
non-current liabilities on our consolidated balance sheet, and
aggregate unrealized gains of $0.5, which we recorded in other
non-current assets on our consolidated balance sheet. The
unrealized portion of the change in fair value of the swaps is
recorded in other comprehensive income (loss) (OCI). The realized
portion of the change in fair value of the swaps is released from
accumulated OCI and recognized under finance costs in our
consolidated statement of operations when the hedged interest
expense is recognized.
Global reform of major interest rate benchmarks
is currently underway, including the anticipated replacement of
some Interbank Offered Rates (including LIBOR) with alternative
nearly risk-free rates. See note 2, "Recently issued accounting
standards and amendments" of the 2021 AFS. We have obligations
under our Credit Facility, certain lease arrangements and
derivative instruments that are indexed to LIBOR (LIBOR
Agreements). The interest rates under these agreements are subject
to change when relevant LIBOR benchmark rates cease to exist. There
remains uncertainty over the timing and methods of transition to
such alternate rates.
Our Credit Facility provides that when the
administrative agent, the majority of lenders or we determine that
LIBOR (or the corresponding rate for any Alternative Currency, as
defined in the Credit Facility), is unavailable or being replaced
(or, in the case of LIBOR borrowings under the Revolver and the
Incremental Term Loan, at our joint election with the
administrative agent), then we and the administrative agent may
amend the underlying credit agreement to reflect a successor rate
as specified therein. Once LIBOR becomes unavailable, if no
successor rate has been established, applicable loans under the
Credit Facility accruing interest at LIBOR will convert to Base
Rate loans. The Credit Facility has not yet been amended to reflect
a successor rate for LIBOR. Certain of our lease arrangements that
include progress payments provide that a successor rate will be
determined by the lessor when LIBOR ceases to be available or is no
longer representative, or if earlier, by mutually-agreed amendments
to the lease agreement to adopt a replacement benchmark, but
successor rates have not yet been implemented. It remains uncertain
when the benchmark transitions will be complete or what replacement
rates will be used.
Our variable rate Term Loans are partially
hedged with interest rate swap agreements (described above). Hedge
ineffectiveness could result due to the cessation of LIBOR, if such
agreements transition using a different benchmark or spread
adjustment as compared to the underlying hedged debt. The Second
Extended Initial Swaps, the First Extended Incremental Swaps and
the Additional Incremental Swaps mirror the LIBOR successor
provisions under the Credit Facility, but have not yet transitioned
to a successor rate. We have also amended the swap agreement with
one of the two counterparty banks under the Incremental Swaps (with
a notional amount of $50.0) to mirror the LIBOR successor
provisions under the Credit Facility, but such swaps have not yet
transitioned to the successor rate. Our remaining interest rate
swap agreements do not yet have LIBOR successor provisions and will
require future amendment. As a result, we cannot assure that
benchmark transitions under these interest rate swap agreements
will be successful, or if so, what replacement rates will be
used.
Our A/R sales program and three customers SFPs
that were indexed to LIBOR have transitioned to alternative
benchmark rates with predetermined spreads, with no significant
impact on our consolidated financial statements.
While we expect that reasonable alternatives to
LIBOR benchmarks will be implemented in advance of their cessation
dates, we cannot assure that this will be the case. If relevant
LIBOR benchmarks are no longer available and the alternative
reference rate is higher, interest rates under the affected LIBOR
Agreements would increase, which would adversely impact our
interest expense, our financial performance and cash flows. We will
continue to monitor developments with respect to the cessation of
LIBOR, and will evaluate potential impacts on our LIBOR Agreements,
processes, systems, risk management methodology and valuations,
financial reporting, taxes, and financial results. However, we are
currently unable to predict what the future replacement rates or
consequences on our operations or financial results will be.
Currency risk:
The majority of our currency risk is driven by
operational costs, including income tax expense, incurred in local
currencies by our subsidiaries. We cannot predict changes in
currency exchange rates, the impact of exchange rate changes on our
operating results, nor the degree to which we will be able to
manage the impact of currency exchange rate changes. Such changes,
including negative impacts on currency exchange rates related to
the COVID-19 pandemic, could have a material effect on our
business, financial performance and financial condition.
Our major currency exposures at June 30,
2022 are summarized in U.S. dollar equivalents in the following
table. The local currency amounts have been converted to U.S.
dollar equivalents using spot rates at June 30, 2022.
|
Canadiandollar |
|
Euro |
|
Thai baht |
|
Chineserenminbi |
Cash and cash
equivalents |
$ |
13.8 |
|
|
$ |
9.6 |
|
|
$ |
1.1 |
|
|
$ |
12.4 |
|
Accounts receivable
|
|
6.9 |
|
|
|
42.8 |
|
|
|
0.1 |
|
|
|
20.2 |
|
Income taxes and value-added
taxes
receivable |
|
15.1 |
|
|
|
0.6 |
|
|
|
13.9 |
|
|
|
6.0 |
|
Other financial
assets |
|
— |
|
|
|
3.1 |
|
|
|
0.3 |
|
|
|
0.7 |
|
Pension and non-pension
post-employment
liabilities |
|
(76.9 |
) |
|
|
(0.5 |
) |
|
|
(18.3 |
) |
|
|
(0.6 |
) |
Income taxes and value-added
taxes payable |
|
— |
|
|
|
(0.5 |
) |
|
|
(8.8 |
) |
|
|
(11.2 |
) |
Accounts payable and certain
accrued and other liabilities and
provisions |
|
(82.6 |
) |
|
|
(35.0 |
) |
|
|
(38.8 |
) |
|
|
(41.8 |
) |
Net financial assets
(liabilities) |
$ |
(123.7 |
) |
|
$ |
20.1 |
|
|
$ |
(50.5 |
) |
|
$ |
(14.3 |
) |
We enter into foreign currency forward contracts
to hedge our cash flow exposures and foreign currency swaps to
hedge the exposures of our monetary assets and liabilities
denominated in foreign currencies. While these contracts are
intended to reduce the effects of fluctuations in foreign currency
exchange rates, our hedging strategy does not mitigate the
longer-term impacts of changes to foreign exchange rates.
At June 30, 2022, we had foreign currency
forwards and swaps to trade U.S. dollars in exchange for the
following currencies:
Currency |
Contractamount inU.S. dollars |
|
Weighted averageexchange rate
inU.S. dollars
(1) |
|
Maximumperiod inmonths |
|
Fair valuegain (loss) |
Canadian
dollar |
$ |
210.0 |
|
$ |
0.79 |
|
12 |
|
$ |
(4.8 |
) |
Thai
baht |
|
125.1 |
|
|
0.03 |
|
12 |
|
|
(6.1 |
) |
Malaysian
ringgit |
|
101.9 |
|
|
0.23 |
|
12 |
|
|
(2.7 |
) |
Mexican
peso |
|
47.9 |
|
|
0.05 |
|
12 |
|
|
0.4 |
|
British
pound |
|
0.4 |
|
|
1.25 |
|
4 |
|
|
— |
|
Chinese
renminbi |
|
32.5 |
|
|
0.15 |
|
12 |
|
|
(1.3 |
) |
Euro |
|
43.7 |
|
|
1.07 |
|
8 |
|
|
1.7 |
|
Romanian
leu |
|
36.1 |
|
|
0.22 |
|
12 |
|
|
(2.0 |
) |
Singapore
dollar |
|
20.5 |
|
|
0.74 |
|
12 |
|
|
(0.4 |
) |
Japanese
yen |
|
9.7 |
|
|
0.0077 |
|
4 |
|
|
1.1 |
|
Korean
won |
|
5.4 |
|
|
0.0008 |
|
4 |
|
|
0.4 |
|
Total |
$ |
633.2 |
|
|
|
|
|
$ |
(13.7 |
) |
|
|
|
|
|
|
|
|
Fair values of
outstanding foreign currency forward and swap contracts related to
effective cash flow hedges where we applied hedge accounting |
|
|
(10.1 |
) |
Fair values of
outstanding foreign currency forward and swap contracts related to
economic hedges where we record the changes in the fair values of
such contracts through our consolidated statement of
operations |
|
|
(3.6 |
) |
|
|
|
|
|
|
|
$ |
(13.7 |
) |
(1) Represents the U.S. dollar equivalent
(not in millions) of one unit of the foreign currency, weighted
based on the notional amounts of the underlying foreign currency
forward and swap contracts outstanding as at June 30,
2022.
At June 30, 2022, the aggregate fair value
of our outstanding contracts was a net unrealized loss of $13.7
(December 31, 2021 — net unrealized gain of $1.2), resulting
from fluctuations in foreign exchange rates between the contract
execution and the period-end date. At June 30, 2022, we
recorded $5.8 of derivative assets in other current assets and
$19.5 of derivative liabilities in accrued and other current
liabilities (December 31, 2021 — $7.4 of derivative assets in
other current assets and $6.2 of derivative liabilities in accrued
and other current liabilities).
Credit risk:
Credit risk refers to the risk that a
counterparty may default on its contractual obligations resulting
in a financial loss to us. We believe our credit risk of
counterparty non-performance continues to be relatively low. We are
in regular contact with our customers, suppliers and logistics
providers, and have not experienced significant counterparty
credit-related non-performance in 2021 or 1H 2022. However, if a
key supplier (or any company within such supplier's supply chain)
or customer fails to comply with their contractual obligations,
this could result in a significant financial loss to us. We would
also suffer a significant financial loss if an institution from
which we purchased foreign currency exchange contracts and swaps,
interest rate swaps, or annuities for our pension plans defaults on
their contractual obligations. With respect to our financial market
activities, we have adopted a policy of dealing only with
counterparties we deem to be creditworthy. No significant
adjustments were made to our allowance for doubtful accounts during
Q2 2022, 1H 2022 or the respective prior year periods in connection
with our ongoing credit risk assessments.
Liquidity risk:
Liquidity risk is the risk that we may not have
cash available to satisfy our financial obligations as they come
due. The majority of our financial liabilities recorded in accounts
payable, accrued and other current liabilities and provisions are
due within 90 days. We manage liquidity risk through
maintenance of cash on hand and access to the various financing
arrangements described in notes 5 and 7. We believe that cash flow
from operating activities, together with cash on hand, cash from
accepted sales of A/R, and borrowings available under the Revolver
and potentially available under uncommitted intraday and overnight
bank overdraft facilities, are sufficient to fund our currently
anticipated financial obligations, and will remain available in the
current environment. As our A/R sales program and SFPs are each
uncommitted, however, there can be no assurance that any
participant bank will purchase any of the A/R that we wish to
sell.
12.
COVID-19
GOVERNMENT SUBSIDIES
We qualified for COVID-19-related government
subsidies, grants and/or credits (COVID Subsidies) during 2021 from
various government authorities, the most significant of which were
provided under the Canadian Emergency Wage Subsidy (CEWS) first
announced by the Government of Canada in April 2020. We have not
applied for further COVID Subsidies since June 2021, and recorded
no COVID Subsidies in Q2 2022 or 1H 2022. In Q2 2021 and 1H 2021,
we qualified for an estimated aggregate of $6 and $10 of COVID
Subsidies, respectively, from various government authorities, which
we recognized as a reduction to the related expenses in cost of
goods sold (Q2 2021 — $4; 1H 2021 — $7) and SG&A (Q2 2021 — $2;
1H 2021 — $3) on our consolidated statement of operations.
13.
COMMITMENTS AND 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 where required. Although it is not always possible to
estimate the extent of potential costs, if any, we believe that the
ultimate resolution of all such pending matters will not have a
material adverse impact on our financial performance, financial
position or liquidity.
Taxes and Other Matters:
In 2017, the Brazilian Ministry of Science,
Technology, Innovation and Communications issued assessments
seeking to disqualify certain research and development expenses of
our Brazilian subsidiary for the years 2006 to 2009. As of the end
of Q1 2022, this matter was completely resolved with no adjustment
to our original filing positions for any relevant year.
In the third quarter of 2021 (Q3 2021), the
Romanian tax authorities issued a final assessment in the aggregate
amount of approximately 31 million Romanian leu (approximately
$7 at period-end exchange rates), for additional income and
value-added taxes for one of our Romanian subsidiaries for the 2014
to 2018 tax years. In order to advance our case to the appeals
phase and reduce or eliminate potential interest and penalties, we
paid the Romanian tax authorities the full amount assessed in Q3
2021 (without agreement to all or any portion of such assessment).
We believe that our originally-filed tax return positions are in
compliance with applicable Romanian tax laws and regulations, and
intend to vigorously defend our position through all necessary
appeals or other judicial processes.
The successful pursuit of assertions made by any
government authority, including tax authorities, could result in
our owing significant amounts of tax or other reimbursements,
interest and possibly penalties. We believe we adequately accrue
for any probable potential adverse ruling. However, there can be no
assurance as to the final resolution of any claims and any
resulting proceedings. If any claims and any ensuing proceedings
are determined adversely to us, the amounts we may be required to
pay could be material, and in excess of amounts accrued.
14.
FIRE EVENT
On June 7, 2022, a fire occurred at our Batam,
Indonesia facility. The fire destroyed inventories located at the
site with a carrying value of approximately $91, and damaged a
building and equipment with an aggregate carrying value of $1. Our
manufacturing operations at the site were briefly paused, but have
since resumed. We expect to fully recover our tangible losses
pursuant to the terms and conditions of our insurance policies. We
have written down the inventories destroyed and a building and
equipment damaged by the fire, and recorded in other current assets
on our consolidated balance sheet an estimated receivable of
approximately $92 related to anticipated insurance proceeds. The
write-downs and the anticipated insurance recovery (in equivalent
amounts) were each recorded in other charges (recoveries),
resulting in a net impact of nil to net earnings. See note 9. We
determined that this event did not constitute an impairment review
triggering event for the applicable CGU, and no impairments to our
intangibles or goodwill were recorded in connection therewith.
1 CGUs are the smallest identifiable group of assets that cannot
be tested individually and generate cash inflows that are largely
independent of those of other assets or groups of assets, and can
be comprised of a single site, a group of sites, or a line of
business.
Contacts:
Celestica Global Communications
(416) 448-2200
media@celestica.com
Celestica Investor Relations
(416) 448-2211
clsir@celestica.com
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