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 September 30, 2022 (Q3 2022)†.
"Our exceptional performance during the third
quarter was marked by our highest non-IFRS operating margin* in our
history and our highest non-IFRS adjusted EPS* in more than 20
years," said Rob Mionis, President and CEO, Celestica.
"We continue to execute on our strategy to drive
profitable growth, and we are pleased with our solid financial
results and the momentum that has been building. Year to date, our
revenues are up 26%, and our non-IFRS adjusted EPS* is up 56%,
compared to the prior year period. The strong performance in recent
quarters continues to be driven by new project ramps in our ATS
segment and strong demand with market share gains in our Hardware
Platform Solutions business. Based on our strong momentum, we are
raising our revenue and non-IFRS adjusted EPS* outlook for 2022,
and expect revenue and non-IFRS adjusted EPS* growth in 2023."
Q3 2022 Highlights
• Key measures:
- Revenue: $1.92
billion, increased 31% compared to $1.47 billion for the third
quarter of 2021 (Q3 2021).
- Non-IFRS operating
margin*: 5.1%, compared to 4.2% for Q3 2021.
- ATS segment
revenue: increased 30% compared to Q3 2021; ATS segment margin was
5.0%, compared to 4.3% for Q3 2021.
- CCS segment
revenue: increased 32% compared to Q3 2021; CCS segment margin was
5.2%, compared to 4.1% for Q3 2021.
- Adjusted earnings
per share (EPS) (non-IFRS)*: $0.52, compared to $0.35 for Q3
2021.
- Adjusted return on
invested capital (non-IFRS)*: 19.2%, compared to 15.2% for Q3
2021.
- Adjusted free cash
flow (non-IFRS)*: $7.4 million, compared to $27.1 million for
Q3 2021.
• IFRS financial measures (directly comparable
to non-IFRS measures above):
- Earnings from
operations as a percentage of revenue: 4.1%, compared to 3.5% for
Q3 2021.
- EPS: $0.37,
compared to $0.28 for Q3 2021.
- Return on invested
capital (IFRS ROIC): 15.3%, compared to 12.8% for Q3 2021.
- Cash provided by
operations: $74.4 million, compared to $55.7 million for Q3
2021.
• Repurchased and cancelled 0.5 million
subordinate voting shares (SVS) for $5.0 million under our
normal course issuer bid (NCIB).
† 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, 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, prior
to the second quarter of 2022 (Q2 2022), non-IFRS operating
earnings (adjusted EBIAT) was reconciled to IFRS earnings before
income taxes, and non-IFRS operating margin was reconciled to IFRS
earnings before income taxes as a percentage of revenue, but
commencing in Q2 2022, are 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
financial measure. Since non-IFRS adjusted return on invested
capital (adjusted ROIC) is based on non-IFRS operating earnings, in
comparing this measure to the most directly-comparable financial
measure determined using IFRS measures (which we refer to as IFRS
ROIC), commencing in Q3 2022, our calculation of IFRS ROIC is based
on IFRS earnings from operations (instead of IFRS earnings before
income taxes), with no change to the determination of non-IFRS
adjusted ROIC. Prior period reconciliations and calculations
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 ROIC and non-IFRS
adjusted free cash flow are earnings from operations as a
percentage of revenue, EPS, IFRS ROIC, and cash provided by
operations, respectively.
Fourth Quarter of 2022 (Q4 2022)
Guidance
|
Q4 2022 Guidance |
Revenue (in
billions) |
$1.875 to $2.025 |
Non-IFRS operating
margin* |
5.1% 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)* |
$0.49 to $0.55 |
For Q4 2022, we expect a negative $0.15 to $0.21
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 and 2023 Outlook
Based on our strong performance in the first
nine months of 2022 and our Q4 2022 guidance, we have raised our
2022 revenue outlook to between $7.08 billion and $7.23 billion,
and our non-IFRS adjusted EPS* outlook to between $1.83 and $1.89.
Achievement of the mid-point of these ranges would represent 27%
and 43% year- over-year growth for revenue and non-IFRS adjusted
EPS*, respectively. Additionally, our 2022 non-IFRS adjusted free
cash flow* outlook is $75 million, as we continue to make strategic
investments to support our strong growth.
For 2023, our outlook consists of:
- revenue of at least $7.5
billion;
- non-IFRS operating margin* of
between 4.5% and 5.5%; and
- target non-IFRS adjusted EPS* of
between $1.95 and $2.05.
Although we have incorporated the anticipated
impact of supply chain constraints 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 Q3 2022
Results
|
Q3 2022 Actual |
|
Q3 2022 Guidance (2) |
Key measures: |
|
|
|
Revenue (in billions)
|
$1.92 |
|
$1.65 to $1.80 |
Non-IFRS operating
margin* |
5.1% |
|
4.8% at the mid-point of ourrevenue and non-IFRS adjustedEPS
guidance ranges |
Adjusted SG&A (non-IFRS)* (in
millions) |
$60.9 |
|
$64 to $66 |
Adjusted EPS
(non-IFRS)* |
$0.52 |
|
$0.41 to $0.47 |
|
|
|
|
Directly comparable IFRS financial measures: |
|
|
|
Earnings from operations as a % of
revenue |
4.1% |
|
N/A |
SG&A (in
millions) |
$66.1 |
|
N/A |
EPS (1) |
$0.37 |
|
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 Q3
2022.
(1) IFRS EPS of $0.37 for Q3 2022 included an
aggregate charge of $0.16 (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 September 30, 2022 unaudited interim condensed
consolidated financial statements (Q3 2022 Interim Financial
Statements) for per-item charges. This aggregate charge was within
our Q3 2022 guidance range of between $0.13 to $0.19 per share for
these items.
IFRS EPS for Q3 2022 included a $0.02 per share
negative taxable foreign exchange impact arising from the weakening
of the Chinese renminbi relative to the U.S. dollar (Currency
Impact) and a $0.01 per share negative impact attributable to
restructuring charges.
IFRS EPS of $0.83 for the first nine months of
2022 (YTD 2022) included: (i) a $0.03 per share net negative impact
attributable to other charges (recoveries) (consisting most
significantly of a $0.05 per share negative impact attributable to
restructuring charges and a $0.01 per share negative impact
attributable to Transition Costs, partially 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);
(iii) a $0.04 per share favorable tax impact attributable to the
reversal of tax uncertainties in one of our Asian subsidiaries; and
(iv) a $0.02 per share negative Currency Impact. See notes 9 and 10
to the Q3 2022 Interim Financial Statements.
IFRS EPS of $0.28 for Q3 2021 included a $0.04
per share positive impact attributable to a deferred tax recovery
recorded in connection with the revaluation of certain temporary
differences using the future effective tax rate of our Thailand
subsidiary related to the then-forthcoming income tax exemption
rate reduction in 2022 under an applicable tax incentive
(Revaluation Impact), and a $0.03 per share positive impact
attributable to net other recoveries (consisting most significantly
of a $0.07 per share positive impact attributable to legal
recoveries, offset in part by a $0.05 per share negative impact
attributable to Acquisition Costs, each as described in note 9 to
the Q3 2022 Interim Financial Statements), all offset in part by a
$0.05 per share negative impact attributable to estimated
Constraint Costs net of recognized COVID-19-related government
subsidies, credits and grants (COVID Subsidies).
IFRS EPS of $0.57 for the first nine months of
2021 (YTD 2021) included a $0.17 per share negative impact
attributable to estimated Constraint Costs, and a $0.02 per share
negative impact attributable to net other charges (consisting most
significantly of a $0.06 per share negative impact attributable to
net restructuring charges and a $0.04 per share negative impact
attributable to Acquisition Costs, offset in part by a $0.08 per
share positive impact attributable to legal recoveries, each as
described in note 9 to the Q3 2022 Interim Financial Statements),
all offset in part by a $0.09 per share positive impact
attributable to approximately $11 million of recognized COVID
Subsidies and $1 million of customer recoveries related to
COVID-19, as well as the $0.04 per share positive Revaluation
Impact.
For the estimated impact of supply chain
constraints on our revenues and costs in YTD 2022, Q3 2021 and YTD
2021, see "Recent Developments — Segment Environment — Operational
Impacts" of our Q3 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 Q3 2022, our revenue and non-IFRS
adjusted EPS exceeded 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 continued strong
demand across the majority of our businesses and improved materials
availability in some markets relative to expectations. Non-IFRS
adjusted SG&A for Q3 2022 was lower than our guidance range due
to the impact of foreign exchange and cost efficiency improvement
measures. Our IFRS effective tax rate for Q3 2022 was 25%. As
anticipated, our non-IFRS adjusted effective tax rate for Q3 2022
was 21%.
Intention to Launch New
NCIB
We intend to file a notice of intention with the
Toronto Stock Exchange (TSX) to commence a new NCIB in Q4 2022,
after our current NCIB expires in December 2022. If this notice is
accepted by the TSX, we expect to be permitted to repurchase for
cancellation, at our discretion during the 12 months following such
acceptance, up to 10% of the “public float” (calculated in
accordance with the rules of the TSX) of our issued and outstanding
SVS. Purchases under the new NCIB, if accepted, will be conducted
in the open market or as otherwise permitted, subject to applicable
terms and limitations, and will be made through the facilities of
the TSX and the New York Stock Exchange. We believe that a new NCIB
is in the interest of the Company.
Q3 2022
Webcast
Management will host its Q3 2022 results
conference call on October 25, 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 statements made and guidance provided under the headings
"Fourth Quarter of 2022 (Q4 2022) Guidance" and "2022 and 2023
Outlook"; our intention to launch a new NCIB and anticipated terms;
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," "goal," “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 (EMS) industry in general and our segments in particular
(including the risk that anticipated market conditions 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 Private Limited (PCI)) and "operate-in-place" arrangements;
the potential loss of PCI customers as a result of the recent fire
at our Batam facility in Indonesia (Batam Fire); an inability to
recover our tangible losses caused by the Batam Fire through
insurance claims; 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 our third-party indebtedness; the incurrence of
future restructuring charges, impairment charges, other unrecovered
write-downs of assets (including inventory) or operating losses;
managing our business during uncertain market, political and
economic conditions, including among others, global inflation
and/or recession, and 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 materials 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, including as a result of global inflation and/or
recession; 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; a lack of acceptance by the TSX of a new NCIB; the
impermissibility of SVS repurchases, or a determination not to
repurchase SVS under any NCIB; the impact of climate change; and
our ability to achieve our environmental, social and governance
(ESG) initiative goals, including with respect to climate change
and greenhouse gas emissions reduction. 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 in 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 claims; 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 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, acceptance
of a new NCIB and compliance with applicable laws and regulations
pertaining to NCIBs; compliance with applicable credit facility
covenants; anticipated demand levels across our businesses; the
impact of anticipated market conditions on our businesses; that
global inflation and/or recession will not have a material impact
on our revenues or expenses; 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, prior to the second
quarter of 2022 (Q2 2022), non-IFRS operating earnings (adjusted
EBIAT) was reconciled to IFRS earnings before income taxes, and
non-IFRS operating margin was reconciled to IFRS earnings before
income taxes as a percentage of revenue, but commencing in Q2 2022,
are 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 financial measure. Since non-IFRS
adjusted ROIC is based on non-IFRS operating earnings, in comparing
this measure to the most directly-comparable financial measure
determined using IFRS measures (which we refer to as IFRS ROIC),
commencing in Q3 2022, our calculation of IFRS ROIC is based on
IFRS earnings from operations (instead of IFRS earnings before
income taxes), with no change to the determination of non-IFRS
adjusted ROIC. Prior period reconciliations and calculations
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
financial measures determined under IFRS.
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) 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 financial
measures determined under IFRS (in millions, except
percentages and per share amounts):
|
Three months ended September 30 |
|
Nine months ended September 30 |
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
% of revenue |
|
|
% of revenue |
|
|
% of revenue |
|
|
% of revenue |
IFRS
revenue |
$ |
1,467.4 |
|
|
|
$ |
1,923.3 |
|
|
|
$ |
4,122.6 |
|
|
|
$ |
5,207.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS gross profit |
$ |
125.4 |
|
8.5 |
% |
|
$ |
167.7 |
|
8.7 |
% |
|
$ |
344.9 |
|
8.4 |
% |
|
$ |
450.1 |
|
8.6 |
% |
Employee SBC expense |
|
3.1 |
|
|
|
|
3.8 |
|
|
|
|
9.4 |
|
|
|
|
14.7 |
|
|
Non-IFRS adjusted
gross profit |
$ |
128.5 |
|
8.8 |
% |
|
$ |
171.5 |
|
8.9 |
% |
|
$ |
354.3 |
|
8.6 |
% |
|
$ |
464.8 |
|
8.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
IFRS
SG&A |
$ |
62.0 |
|
4.2 |
% |
|
$ |
66.1 |
|
3.4 |
% |
|
$ |
179.6 |
|
4.4 |
% |
|
$ |
202.8 |
|
3.9 |
% |
Employee SBC expense |
|
(5.5 |
) |
|
|
|
(5.2 |
) |
|
|
|
(14.8 |
) |
|
|
|
(22.1 |
) |
|
Non-IFRS adjusted
SG&A |
$ |
56.5 |
|
3.9 |
% |
|
$ |
60.9 |
|
3.2 |
% |
|
$ |
164.8 |
|
4.0 |
% |
|
$ |
180.7 |
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
IFRS earnings from
operations |
$ |
51.7 |
|
3.5 |
% |
|
$ |
78.4 |
|
4.1 |
% |
|
$ |
117.8 |
|
2.9 |
% |
|
$ |
181.7 |
|
3.5 |
% |
Employee SBC expense |
|
8.6 |
|
|
|
|
9.0 |
|
|
|
|
24.2 |
|
|
|
|
36.8 |
|
|
Amortization of intangible assets (excluding computer
software) |
|
4.9 |
|
|
|
|
9.2 |
|
|
|
|
14.7 |
|
|
|
|
27.8 |
|
|
Other Charges (recoveries) |
|
(3.9 |
) |
|
|
|
1.6 |
|
|
|
|
2.9 |
|
|
|
|
3.9 |
|
|
Non-IFRS operating earnings (adjusted
EBIAT)(1) |
$ |
61.3 |
|
4.2 |
% |
|
$ |
98.2 |
|
5.1 |
% |
|
$ |
159.6 |
|
3.9 |
% |
|
$ |
250.2 |
|
4.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
IFRS net
earnings |
$ |
35.2 |
|
2.4 |
% |
|
$ |
45.7 |
|
2.4 |
% |
|
$ |
72.0 |
|
1.7 |
% |
|
$ |
103.1 |
|
2.0 |
% |
Employee SBC expense |
|
8.6 |
|
|
|
|
9.0 |
|
|
|
|
24.2 |
|
|
|
|
36.8 |
|
|
Amortization of intangible assets (excluding computer
software) |
|
4.9 |
|
|
|
|
9.2 |
|
|
|
|
14.7 |
|
|
|
|
27.8 |
|
|
Other Charges (recoveries) |
|
(3.9 |
) |
|
|
|
1.6 |
|
|
|
|
2.9 |
|
|
|
|
3.9 |
|
|
Adjustments for taxes(2) |
|
(1.4 |
) |
|
|
|
(1.9 |
) |
|
|
|
(4.7 |
) |
|
|
|
(5.6 |
) |
|
Non-IFRS adjusted net
earnings |
$ |
43.4 |
|
|
|
$ |
63.6 |
|
|
|
$ |
109.1 |
|
|
|
$ |
166.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS |
|
|
|
|
|
|
|
|
|
|
|
Weighted average # of shares (in millions) |
|
125.5 |
|
|
|
|
123.2 |
|
|
|
|
127.3 |
|
|
|
|
124.0 |
|
|
IFRS earnings per share |
$ |
0.28 |
|
|
|
$ |
0.37 |
|
|
|
$ |
0.57 |
|
|
|
$ |
0.83 |
|
|
Non-IFRS adjusted earnings per share |
$ |
0.35 |
|
|
|
$ |
0.52 |
|
|
|
$ |
0.86 |
|
|
|
$ |
1.34 |
|
|
# of shares outstanding at period end (in millions) |
|
124.7 |
|
|
|
|
122.6 |
|
|
|
|
124.7 |
|
|
|
|
122.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS cash provided by
operations |
$ |
55.7 |
|
|
|
$ |
74.4 |
|
|
|
$ |
161.0 |
|
|
|
$ |
196.6 |
|
|
Purchase of property, plant and equipment, net of sales
proceeds |
|
(13.2 |
) |
|
|
|
(38.7 |
) |
|
|
|
(35.3 |
) |
|
|
|
(76.6 |
) |
|
Lease payments |
|
(10.0 |
) |
|
|
|
(13.0 |
) |
|
|
|
(30.0 |
) |
|
|
|
(36.1 |
) |
|
Finance Costs paid (excluding debt issuance costs paid) |
|
(5.4 |
) |
|
|
|
(15.3 |
) |
|
|
|
(16.5 |
) |
|
|
|
(32.7 |
) |
|
Non-IFRS adjusted free
cash flow (3) |
$ |
27.1 |
|
|
|
$ |
7.4 |
|
|
|
$ |
79.2 |
|
|
|
$ |
51.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS ROIC %
(4) |
|
12.8 |
% |
|
|
|
15.3 |
% |
|
|
|
9.7 |
% |
|
|
|
12.0 |
% |
|
Non-IFRS adjusted ROIC
% (4) |
|
15.2 |
% |
|
|
|
19.2 |
% |
|
|
|
13.2 |
% |
|
|
|
16.5 |
% |
|
(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 Q3 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 September 30 |
|
Nine months ended September 30 |
|
|
2021 |
Effective tax rate |
|
|
2022 |
Effective tax rate |
|
|
2021 |
Effective tax rate |
|
|
2022 |
|
Effective tax rate |
IFRS tax expense and IFRS effective tax rate |
$ |
8.7 |
20 |
% |
|
$ |
15.2 |
25 |
% |
|
$ |
22.4 |
24 |
% |
|
$ |
38.2 |
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Tax costs (benefits) of the
following items excluded from IFRS tax expense: |
|
|
|
|
|
|
|
|
|
|
|
Employee SBC expense |
|
1.4 |
|
|
|
0.5 |
|
|
|
2.9 |
|
|
|
3.5 |
|
|
Amortization of intangible
assets (excluding computer software) |
|
— |
|
|
|
0.8 |
|
|
|
— |
|
|
|
2.3 |
|
|
Other Charges
(recoveries) |
|
— |
|
|
|
0.6 |
|
|
|
0.7 |
|
|
|
(0.2 |
) |
|
Non-core tax impact related to
restructured sites* |
|
— |
|
|
|
— |
|
|
|
1.1 |
|
|
|
— |
|
|
Non-IFRS adjusted tax expense
and non-IFRS adjusted effective tax rate |
$ |
10.1 |
19 |
% |
|
$ |
17.1 |
21 |
% |
|
$ |
27.1 |
20 |
% |
|
$ |
43.8 |
|
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 paid (nil and $0.8 million in Q3 2022
and YTD 2022, respectively; nil in Q3 2021 or YTD 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
annualized non-IFRS adjusted EBIAT by average net invested capital
for the period. 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 four-point average to calculate average net
invested capital for the nine-month period. Average net invested
capital for Q3 2022 is the average of net invested capital as at
June 30, 2022 and September 30, 2022, and average net invested
capital for YTD 2022 is the average of net invested capital as at
December 31, 2021, March 31, 2022, June 30, 2022 and September 30,
2022. A comparable financial measure to non-IFRS adjusted ROIC
determined using IFRS measures would be calculated by dividing
annualized IFRS earnings from operations by average net invested
capital for the period. |
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 |
|
Nine months ended |
|
|
|
September 30 |
|
September 30 |
|
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
IFRS earnings from
operations |
|
$ |
51.7 |
|
|
$ |
78.4 |
|
|
$ |
117.8 |
|
|
$ |
181.7 |
|
Multiplier to
annualize earnings |
|
|
4 |
|
|
|
4 |
|
|
|
1.333 |
|
|
|
1.333 |
|
Annualized IFRS
earnings from operations |
|
$ |
206.8 |
|
|
$ |
313.6 |
|
|
$ |
157.0 |
|
|
$ |
242.2 |
|
|
|
|
|
|
|
|
|
|
|
Average net
invested capital for the period |
|
$ |
1,617.3 |
|
|
$ |
2,044.2 |
|
|
$ |
1,613.5 |
|
|
$ |
2,022.4 |
|
|
|
|
|
|
|
|
|
|
|
IFRS ROIC %
(1) |
|
|
12.8 |
% |
|
|
15.3 |
% |
|
|
9.7 |
% |
|
|
12.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
|
September 30 |
|
September 30 |
|
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS operating
earnings (adjusted EBIAT) |
|
$ |
61.3 |
|
|
$ |
98.2 |
|
|
$ |
159.6 |
|
|
$ |
250.2 |
|
Multiplier to
annualize earnings |
|
|
4 |
|
|
|
4 |
|
|
|
1.333 |
|
|
|
1.333 |
|
Annualized
non-IFRS adjusted EBIAT |
|
$ |
245.2 |
|
|
$ |
392.8 |
|
|
$ |
212.7 |
|
|
$ |
333.5 |
|
|
|
|
|
|
|
|
|
|
|
Average net
invested capital for the period |
|
$ |
1,617.3 |
|
|
$ |
2,044.2 |
|
|
$ |
1,613.5 |
|
|
$ |
2,022.4 |
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS adjusted
ROIC % (1) |
|
|
15.2 |
% |
|
|
19.2 |
% |
|
|
13.2 |
% |
|
|
16.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 2021 |
|
March 31 2022 |
|
June 30 2022 |
|
September 30 2022 |
Net invested
capital consists of: |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,666.9 |
|
|
$ |
4,848.0 |
|
|
$ |
5,140.5 |
|
|
$ |
5,347.9 |
|
Less: cash |
|
|
394.0 |
|
|
|
346.6 |
|
|
|
365.5 |
|
|
|
363.3 |
|
Less: ROU
assets |
|
|
113.8 |
|
|
|
109.8 |
|
|
|
133.6 |
|
|
|
128.0 |
|
Less: accounts
payable, accrued and other current liabilities, provisions and
income taxes payable |
|
|
2,202.0 |
|
|
|
2,347.4 |
|
|
|
2,612.1 |
|
|
|
2,797.5 |
|
Net invested
capital at period end (1) |
|
$ |
1,957.1 |
|
|
$ |
2,044.2 |
|
|
$ |
2,029.3 |
|
|
$ |
2,059.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 2020 |
|
March 31 2021 |
|
June 30 2021 |
|
September 30 2021 |
Net invested
capital consists of: |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,664.1 |
|
|
$ |
3,553.4 |
|
|
$ |
3,745.4 |
|
|
$ |
4,026.1 |
|
Less: cash |
|
|
463.8 |
|
|
|
449.4 |
|
|
|
467.2 |
|
|
|
477.2 |
|
Less: ROU
assets |
|
|
101.0 |
|
|
|
98.4 |
|
|
|
100.5 |
|
|
|
115.4 |
|
Less: accounts
payable, accrued and other current liabilities, provisions and
income taxes payable |
|
|
1,478.4 |
|
|
|
1,407.0 |
|
|
|
1,575.8 |
|
|
|
1,800.8 |
|
Net invested
capital at period end (1) |
|
$ |
1,620.9 |
|
|
$ |
1,598.6 |
|
|
$ |
1,601.9 |
|
|
$ |
1,632.7 |
|
(1) See footnote 4 on the previous
page.
CELESTICA INC. CONDENSED
CONSOLIDATED BALANCE SHEET(in millions of
U.S. dollars)(unaudited)
|
Note |
December 312021 |
|
September 302022 |
|
|
|
|
|
Assets |
|
|
|
|
Current
assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
394.0 |
|
|
$ |
363.3 |
|
Accounts receivable |
5 |
|
1,260.3 |
|
|
|
1,161.7 |
|
Inventories |
6&14 |
|
1,697.0 |
|
|
|
2,325.8 |
|
Income taxes receivable |
|
|
8.6 |
|
|
|
7.8 |
|
Other current assets |
14 |
|
75.4 |
|
|
|
213.1 |
|
Total
current assets |
|
|
3,435.3 |
|
|
|
4,071.7 |
|
|
|
|
|
|
Property, plant and equipment |
|
|
338.7 |
|
|
|
355.5 |
|
Right-of-use assets |
|
|
113.8 |
|
|
|
128.0 |
|
Goodwill |
4 |
|
324.2 |
|
|
|
321.3 |
|
Intangible assets |
|
|
382.0 |
|
|
|
356.1 |
|
Deferred
income taxes |
|
|
47.7 |
|
|
|
66.7 |
|
Other non-current assets |
|
|
25.2 |
|
|
|
48.6 |
|
Total
assets |
|
$ |
4,666.9 |
|
|
$ |
5,347.9 |
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
Current
liabilities: |
|
|
|
|
Current portion of borrowings under credit facility and lease
obligations |
7 |
$ |
51.5 |
|
|
$ |
51.4 |
|
Accounts payable |
|
|
1,238.3 |
|
|
|
1,482.6 |
|
Accrued and other current liabilities |
6 |
|
884.3 |
|
|
|
1,227.6 |
|
Income taxes payable |
|
|
62.3 |
|
|
|
68.2 |
|
Current portion of provisions |
|
|
17.1 |
|
|
|
19.1 |
|
Total
current liabilities |
|
|
2,253.5 |
|
|
|
2,848.9 |
|
|
|
|
|
|
Long-term portion of borrowings under credit facility and lease
obligations |
7 |
|
742.9 |
|
|
|
741.1 |
|
Pension
and non-pension post-employment benefit obligations |
|
|
107.5 |
|
|
|
101.1 |
|
Provisions and other non-current liabilities |
|
|
39.8 |
|
|
|
34.8 |
|
Deferred
income taxes |
|
|
60.2 |
|
|
|
52.3 |
|
Total
liabilities |
|
|
3,203.9 |
|
|
|
3,778.2 |
|
|
|
|
|
|
Equity: |
|
|
|
|
Capital stock |
8 |
|
1,764.5 |
|
|
|
1,730.9 |
|
Treasury stock |
8 |
|
(48.9 |
) |
|
|
(25.0 |
) |
Contributed surplus |
|
|
1,029.8 |
|
|
|
1,046.3 |
|
Deficit |
|
|
(1,255.6 |
) |
|
|
(1,152.5 |
) |
Accumulated other comprehensive loss |
|
|
(26.8 |
) |
|
|
(30.0 |
) |
Total
equity |
|
|
1,463.0 |
|
|
|
1,569.7 |
|
Total
liabilities and equity |
|
$ |
4,666.9 |
|
|
$ |
5,347.9 |
|
|
|
|
|
|
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 |
|
Nine months ended |
|
|
September 30 |
|
September 30 |
|
Note |
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
Revenue |
3 |
$ |
1,467.4 |
|
|
$ |
1,923.3 |
|
|
$ |
4,122.6 |
|
|
$ |
5,207.4 |
|
Cost of sales |
6 |
|
1,342.0 |
|
|
|
1,755.6 |
|
|
|
3,777.7 |
|
|
|
4,757.3 |
|
Gross profit |
|
|
125.4 |
|
|
|
167.7 |
|
|
|
344.9 |
|
|
|
450.1 |
|
Selling, general and
administrative expenses (SG&A) |
|
|
62.0 |
|
|
|
66.1 |
|
|
|
179.6 |
|
|
|
202.8 |
|
Research and development |
|
|
10.0 |
|
|
|
11.6 |
|
|
|
27.8 |
|
|
|
31.8 |
|
Amortization of intangible
assets |
|
|
5.6 |
|
|
|
10.0 |
|
|
|
16.8 |
|
|
|
29.9 |
|
Other charges
(recoveries) |
9 |
|
(3.9 |
) |
|
|
1.6 |
|
|
|
2.9 |
|
|
|
3.9 |
|
Earnings from operations |
|
|
51.7 |
|
|
|
78.4 |
|
|
|
117.8 |
|
|
|
181.7 |
|
Finance costs |
7 |
|
7.8 |
|
|
|
17.5 |
|
|
|
23.4 |
|
|
|
40.4 |
|
Earnings before income
taxes |
|
|
43.9 |
|
|
|
60.9 |
|
|
|
94.4 |
|
|
|
141.3 |
|
Income tax expense
(recovery) |
10 |
|
|
|
|
|
|
|
Current |
|
|
17.0 |
|
|
|
28.9 |
|
|
|
36.5 |
|
|
|
65.9 |
|
Deferred |
|
|
(8.3 |
) |
|
|
(13.7 |
) |
|
|
(14.1 |
) |
|
|
(27.7 |
) |
|
|
|
8.7 |
|
|
|
15.2 |
|
|
|
22.4 |
|
|
|
38.2 |
|
Net earnings for the
period |
|
$ |
35.2 |
|
|
$ |
45.7 |
|
|
$ |
72.0 |
|
|
$ |
103.1 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.28 |
|
|
$ |
0.37 |
|
|
$ |
0.57 |
|
|
$ |
0.83 |
|
Diluted earnings per
share |
|
$ |
0.28 |
|
|
$ |
0.37 |
|
|
$ |
0.57 |
|
|
$ |
0.83 |
|
|
|
|
|
|
|
|
|
|
Shares used in computing per
share amounts (in millions): |
|
|
|
|
|
|
|
|
Basic |
|
|
125.4 |
|
|
|
123.1 |
|
|
|
127.3 |
|
|
|
123.9 |
|
Diluted |
|
|
125.5 |
|
|
|
123.2 |
|
|
|
127.3 |
|
|
|
124.0 |
|
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
CELESTICA INC.CONDENSED CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME(in millions
of U.S. dollars)(unaudited)
|
|
Three months ended |
|
Nine months ended |
|
|
September 30 |
|
September 30 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
Net earnings for the
period |
|
$ |
35.2 |
|
|
$ |
45.7 |
|
|
$ |
72.0 |
|
|
$ |
103.1 |
|
Other
comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
Items that may be reclassified to net earnings: |
|
|
|
|
|
|
|
|
Currency translation differences for foreign operations |
|
|
(1.5 |
) |
|
|
(5.6 |
) |
|
|
(6.1 |
) |
|
|
(13.5 |
) |
Changes from currency forward derivative hedges |
|
|
(5.1 |
) |
|
|
(10.7 |
) |
|
|
(16.6 |
) |
|
|
(16.2 |
) |
Changes from interest rate swap derivative hedges |
|
|
1.6 |
|
|
|
11.0 |
|
|
|
6.4 |
|
|
|
26.5 |
|
Total comprehensive income for
the period |
|
$ |
30.2 |
|
|
$ |
40.4 |
|
|
$ |
55.7 |
|
|
$ |
99.9 |
|
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 |
Capital stock(note
8) |
|
Treasury
stock (note 8) |
|
Contributedsurplus |
|
Deficit |
|
Accumulated other
comprehensiveloss
(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 |
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital stock |
|
|
0.3 |
|
|
|
— |
|
|
|
(0.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
Repurchase of capital stock for cancellation(b) |
|
|
(70.0 |
) |
|
|
— |
|
|
|
49.1 |
|
|
|
— |
|
|
|
— |
|
|
|
(20.9 |
) |
Equity-settled stock-based compensation (SBC) |
|
|
— |
|
|
|
13.4 |
|
|
|
12.0 |
|
|
|
— |
|
|
|
— |
|
|
|
25.4 |
|
Total comprehensive
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
72.0 |
|
|
|
— |
|
|
|
72.0 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences for foreign operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6.1 |
) |
|
|
(6.1 |
) |
Changes from currency forward derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16.6 |
) |
|
|
(16.6 |
) |
Changes from interest rate swap derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6.4 |
|
|
|
6.4 |
|
Balance -- September 30,
2021 |
|
$ |
1,764.5 |
|
|
$ |
(2.3 |
) |
|
$ |
1,035.4 |
|
|
$ |
(1,296.8 |
) |
|
$ |
(31.5 |
) |
|
$ |
1,469.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
0.6 |
|
|
|
— |
|
|
|
(0.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
Repurchase of capital stock for cancellation (c) |
|
|
(34.2 |
) |
|
|
— |
|
|
|
14.1 |
|
|
|
— |
|
|
|
— |
|
|
|
(20.1 |
) |
Purchase of treasury stock for SBC plans (d) |
|
|
— |
|
|
|
(11.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11.1 |
) |
Equity-settled SBC |
|
|
— |
|
|
|
35.0 |
|
|
|
2.9 |
|
|
|
— |
|
|
|
— |
|
|
|
37.9 |
|
Total comprehensive
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
103.1 |
|
|
|
— |
|
|
|
103.1 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences for foreign operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(13.5 |
) |
|
|
(13.5 |
) |
Changes from currency forward derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16.2 |
) |
|
|
(16.2 |
) |
Changes from interest rate swap derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
26.5 |
|
|
|
26.5 |
|
Balance -- September 30,
2022 |
|
$ |
1,730.9 |
|
|
$ |
(25.0 |
) |
|
$ |
1,046.3 |
|
|
$ |
(1,152.5 |
) |
|
$ |
(30.0 |
) |
|
$ |
1,569.7 |
|
(a) |
Accumulated other comprehensive loss is net of tax. |
(b) |
Consists of $35.9 paid to repurchase subordinate voting shares
(SVS) for cancellation during the first nine months of 2021, offset
in part by the reversal of $15.0 accrued as of December 31, 2020
for the estimated contractual maximum number of permitted SVS
repurchases (Contractual Maximum Quantity) as of December 31, 2020
under an automatic share purchase plan (ASPP) executed in December
2020 (see note 8). |
(c) |
Consists of $22.6 paid to repurchase SVS for cancellation during
the first nine months of 2022, and an accrual of $5.0 as of
September 30, 2022 for the contractual maximum spend for SVS
repurchases under an ASPP executed in September 2022, offset in
part by the reversal of $7.5 accrued as of December 31, 2021 for
the estimated Contractual Maximum Quantity under an ASPP executed
in December 2021 for such purpose (see note 8). |
(d) |
We paid $44.9 during the first nine months 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 for the
Contractual Maximum Quantity 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 |
|
Nine months ended |
|
|
September 30 |
|
September 30 |
|
Note |
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
Cash provided by (used
in): |
|
|
|
|
|
|
|
|
Operating
activities: |
|
|
|
|
|
|
|
|
Net earnings for the
period |
|
$ |
35.2 |
|
|
$ |
45.7 |
|
|
$ |
72.0 |
|
|
$ |
103.1 |
|
Adjustments to net earnings
for items not affecting cash: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
30.6 |
|
|
|
35.5 |
|
|
|
91.5 |
|
|
|
107.3 |
|
Equity-settled employee SBC expense |
8 |
|
8.6 |
|
|
|
9.0 |
|
|
|
24.2 |
|
|
|
36.8 |
|
Other charges (recoveries) |
9 |
|
(0.8 |
) |
|
|
— |
|
|
|
(1.4 |
) |
|
|
0.9 |
|
Finance costs |
|
|
7.8 |
|
|
|
17.5 |
|
|
|
23.4 |
|
|
|
40.4 |
|
Income tax expense |
|
|
8.7 |
|
|
|
15.2 |
|
|
|
22.4 |
|
|
|
38.2 |
|
Other |
|
|
5.2 |
|
|
|
1.7 |
|
|
|
19.5 |
|
|
|
4.1 |
|
Changes in non-cash working
capital items: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(61.2 |
) |
|
|
49.4 |
|
|
|
(54.7 |
) |
|
|
98.6 |
|
Inventories |
14 |
|
(181.0 |
) |
|
|
(222.4 |
) |
|
|
(314.4 |
) |
|
|
(724.0 |
) |
Other current assets |
14 |
|
(10.9 |
) |
|
|
(3.2 |
) |
|
|
(7.1 |
) |
|
|
(42.3 |
) |
Accounts payable, accrued and other current liabilities and
provisions |
|
|
226.5 |
|
|
|
156.5 |
|
|
|
320.7 |
|
|
|
591.6 |
|
Non-cash working capital
changes |
|
|
(26.6 |
) |
|
|
(19.7 |
) |
|
|
(55.5 |
) |
|
|
(76.1 |
) |
Net income tax paid |
|
|
(13.0 |
) |
|
|
(30.5 |
) |
|
|
(35.1 |
) |
|
|
(58.1 |
) |
Net cash provided by operating
activities |
|
|
55.7 |
|
|
|
74.4 |
|
|
|
161.0 |
|
|
|
196.6 |
|
|
|
|
|
|
|
|
|
|
Investing
activities: |
|
|
|
|
|
|
|
|
Purchase of computer software
and property, plant and equipment |
|
|
(15.7 |
) |
|
|
(38.7 |
) |
|
|
(37.8 |
) |
|
|
(76.7 |
) |
Proceeds related to the sale
of assets |
|
|
2.5 |
|
|
|
— |
|
|
|
2.5 |
|
|
|
0.1 |
|
Net cash used in investing
activities |
|
|
(13.2 |
) |
|
|
(38.7 |
) |
|
|
(35.3 |
) |
|
|
(76.6 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities: |
|
|
|
|
|
|
|
|
Repayments under term
loans |
7 |
|
— |
|
|
|
(4.6 |
) |
|
|
(30.0 |
) |
|
|
(13.7 |
) |
Lease payments |
|
|
(10.0 |
) |
|
|
(13.0 |
) |
|
|
(30.0 |
) |
|
|
(36.1 |
) |
Issuance of capital stock |
|
|
0.1 |
|
|
|
— |
|
|
|
0.1 |
|
|
|
0.1 |
|
Repurchase of capital stock
for cancellation |
8 |
|
(17.2 |
) |
|
|
(5.0 |
) |
|
|
(35.9 |
) |
|
|
(22.6 |
) |
Purchase of treasury stock for
stock-based plans |
8 |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(44.9 |
) |
Finance costs paid(a) |
7 |
|
(5.4 |
) |
|
|
(15.3 |
) |
|
|
(16.5 |
) |
|
|
(33.5 |
) |
Net cash used in financing
activities |
|
|
(32.5 |
) |
|
|
(37.9 |
) |
|
|
(112.3 |
) |
|
|
(150.7 |
) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in
cash and cash equivalents |
|
|
10.0 |
|
|
|
(2.2 |
) |
|
|
13.4 |
|
|
|
(30.7 |
) |
Cash and cash equivalents,
beginning of period |
|
|
467.2 |
|
|
|
365.5 |
|
|
|
463.8 |
|
|
|
394.0 |
|
Cash and cash equivalents, end
of period |
|
$ |
477.2 |
|
|
$ |
363.3 |
|
|
$ |
477.2 |
|
|
$ |
363.3 |
|
(a) |
Finance costs paid include debt issuance costs paid of nil and $0.8
in the three and nine months ended September 30, 2022,
respectively (nil in the three and nine months ended
September 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 September 30, 2022
(Q3 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 September 30, 2022 and our financial performance,
comprehensive income and cash flows for the three and nine months
ended September 30, 2022 (referred to herein as Q3 2022 and
YTD 2022, respectively). The Q3 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 Q3
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 Q3 2022 Interim Financial Statements were
authorized for issuance by our board of directors on
October 24, 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
the second and third quarters of 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 Q3 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, and customer
creditworthiness. 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 Q3 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, 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 September 30 |
|
Nine months ended September 30 |
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
% of total |
|
|
% of total |
|
|
% of total |
|
|
% of total |
ATS |
$ |
588.4 |
40 |
% |
|
$ |
765.5 |
40 |
% |
|
$ |
1,682.3 |
41 |
% |
|
$ |
2,157.5 |
41 |
% |
CCS |
|
879.0 |
60 |
% |
|
|
1,157.8 |
60 |
% |
|
|
2,440.3 |
59 |
% |
|
|
3,049.9 |
59 |
% |
Communications end market revenue as a % of total revenue |
|
39 |
% |
|
|
42 |
% |
|
|
40 |
% |
|
|
40 |
% |
Enterprise end market revenue as a % of total revenue |
|
21 |
% |
|
|
18 |
% |
|
|
19 |
% |
|
|
19 |
% |
Total |
$ |
1,467.4 |
|
|
$ |
1,923.3 |
|
|
$ |
4,122.6 |
|
|
$ |
5,207.4 |
|
Segment
income, segment margin, and reconciliation of segment income to
IFRS earnings before income taxes: |
Three months ended September 30 |
|
Nine months ended September 30 |
|
Note |
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
|
Segment Margin |
|
|
Segment Margin |
|
|
Segment Margin |
|
|
Segment Margin |
ATS segment income and margin |
|
$ |
25.1 |
|
4.3 |
% |
|
$ |
38.0 |
5.0 |
% |
|
$ |
69.6 |
4.1 |
% |
|
$ |
104.7 |
4.9 |
% |
CCS segment income and
margin |
|
|
36.2 |
|
4.1 |
% |
|
|
60.2 |
5.2 |
% |
|
|
90.0 |
3.7 |
% |
|
|
145.5 |
4.8 |
% |
Total segment income |
|
|
61.3 |
|
|
|
|
98.2 |
|
|
|
159.6 |
|
|
|
250.2 |
|
Reconciling items: |
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs |
7 |
|
7.8 |
|
|
|
|
17.5 |
|
|
|
23.4 |
|
|
|
40.4 |
|
Employee stock-based
compensation (SBC) expense |
|
|
8.6 |
|
|
|
|
9.0 |
|
|
|
24.2 |
|
|
|
36.8 |
|
Amortization of intangible
assets (excluding computer software) |
|
|
4.9 |
|
|
|
|
9.2 |
|
|
|
14.7 |
|
|
|
27.8 |
|
Other charges
(recoveries) |
9 |
|
(3.9 |
) |
|
|
|
1.6 |
|
|
|
2.9 |
|
|
|
3.9 |
|
IFRS earnings before income
taxes |
|
$ |
43.9 |
|
|
|
$ |
60.9 |
|
|
$ |
94.4 |
|
|
$ |
141.3 |
|
Customers:
Two customers (each in our CCS segment)
individually represented 10% or more of total revenue (14% and 12%)
in Q3 2022. One customer (in our CCS segment) represented 10% or
more of total revenue (11%) in YTD 2022. One customer (in our CCS
segment) represented 10% or more of total revenue (10%) in the
third quarter of 2021 (Q3 2021). No individual customer represented
10% or more of total revenue in the nine months ended
September 30, 2021 (YTD 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.
In connection with our acquisition of PCI, we
recorded nil Acquisition Costs (defined in note 9) in Q3 2022 and
$0.4 of Acquisition Costs in YTD 2022 (Q3 2021 and YTD
2021 — $3.7). 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 $405.0 (as amended in September 2022 to increase
the prior limit of $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 September 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 A/R directly from these
customers.
At September 30, 2022, we sold $367.3 of
A/R (December 31, 2021 — $45.8) under our A/R sales
program, and $147.1 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 September 30, 2022, our A/R balance
included $266.2 (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 $8.4 and $16.6 for Q3 2022 and YTD 2022, respectively
(Q3 2021 and YTD 2021— $0.2 and $3.1, respectively). The accounting
treatment of inventories destroyed in a fire event in June 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 September 30, 2022 totaled
$623.6 (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 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 YTD 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 |
) |
Amount repaid in Q3
2022(3) |
|
— |
|
|
|
(4.5625 |
) |
Outstanding balances as of
September 30, 2022 |
$ |
— |
|
|
$ |
646.7 |
|
(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 $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 September 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 |
|
September 302022 |
|
December 312021 |
|
September 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 |
|
|
|
351.3 |
|
|
|
100.0 |
|
|
230.0 |
Total |
$ |
660.4 |
|
|
$ |
646.7 |
|
|
$ |
200.0 |
|
$ |
330.0 |
Total borrowings under Credit
Facility |
$ |
660.4 |
|
|
$ |
646.7 |
|
|
|
|
|
Unamortized debt issuance
costs related to our term loans (1) |
|
(4.6 |
) |
|
|
(3.9 |
) |
|
|
|
|
Lease obligations(2) |
|
138.6 |
|
|
|
149.7 |
|
|
|
|
|
|
$ |
794.4 |
|
|
$ |
792.5 |
|
|
|
|
|
Total Credit Facility and
lease obligations: |
|
|
|
|
|
|
|
Current portion |
$ |
51.5 |
|
|
$ |
51.4 |
|
|
|
|
|
Long-term portion |
|
742.9 |
|
|
|
741.1 |
|
|
|
|
|
|
$ |
794.4 |
|
|
$ |
792.5 |
|
|
|
|
|
(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 the second quarter of 2022 (Q2
2022), Q3 2022 , Q3 2021, or YTD 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 September 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 |
|
September 302022 |
Outstanding L/Cs under the Revolver |
$ |
21.0 |
|
$ |
18.0 |
Outstanding L/Cs and surety
bonds outside the Revolver |
|
27.1 |
|
|
27.8 |
Total |
$ |
48.1 |
|
$ |
45.8 |
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 we arrange to be purchased by
any non-independent 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. As of December 31, 2020, we accrued $15.0, representing
the estimated contractual maximum number of permitted SVS
repurchases (Contractual Maximum Quantity) under the December 2020
NCIB ASPP (2.0 million SVS). This accrual was reversed in YTD 2021.
No such accrual was recorded as of September 30, 2021. SVS
repurchased in Q3 2021 and YTD 2021 for cancellation under those
NCIB ASPPs are set forth in the chart below.
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 September 30, 2022,
approximately 6.8 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 has since expired. We
recorded an accrual as of December 31, 2021 of $7.5, representing
the estimated Contractual Maximum Quantity (0.7 million SVS) under
the December 2021 NCIB ASPP, which was reversed in YTD 2022. SVS
repurchased in Q3 2022 and YTD 2022 for cancellation under those
NCIB ASPPs are set forth in the chart below. In September 2022, we
entered into an NCIB ASPP (effective during October 2022). We
recorded an accrual as of September 30, 2022 of $5.0,
representing the contractual maximum spend for SVS repurchases
(Contractual Maximum Spend) under the September 2022 NCIB ASPP.
In each of December 2021 and May 2022, we
entered into an SBC ASPP, each of which expired prior to
September 30, 2022. We recorded an accrual as of December 31,
2021 of $33.8, representing the estimated Contractual Maximum
Quantity (3.0 million SVS) under the December 2021 SBC ASPP, which
was reversed in YTD 2022. No such accrual was recorded at
September 30, 2022. SVS repurchased in Q3 2022 and YTD 2022
for SBC plan delivery obligations under those SBC ASPPs are set
forth in the chart below.
SVS repurchases:
Information regarding SVS repurchase activities
for the periods indicated is set forth below:
|
Three months ended September 30 |
|
Nine months ended September 30 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 |
Aggregate cost(1) of SVS
repurchased for cancellation(2) |
$ |
17.2 |
|
$ |
5.0 |
|
$ |
35.9 |
|
$ |
22.6 |
Number of SVS repurchased for cancellation (in millions)(3) |
|
2.1 |
|
|
0.5 |
|
|
4.4 |
|
|
2.2 |
Weighted average price per share for repurchases |
$ |
8.10 |
|
$ |
9.86 |
|
$ |
8.20 |
|
$ |
10.58 |
Aggregate cost(1) of SVS
repurchased for delivery under SBC plans (see below) |
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
44.9 |
Number of SVS repurchased for delivery under SBC plans (in
millions)(4) |
|
— |
|
|
— |
|
|
— |
|
|
3.9 |
(1) |
Includes transaction fees. |
(2) |
For Q3 2022 and YTD 2022, excludes an accrual of $5.0 recorded as
of September 30, 2022 for the Contractual Maximum Spend under the
September 2022 NCIB ASPP. |
(3) |
For Q3 2021 and YTD 2021, includes 1.2 million and
2.8 million NCIB ASPP purchases of SVS for cancellation,
respectively. For Q3 2022 and YTD 2022, includes 0.5 million
and 1.7 million NCIB ASPP purchases of SVS for cancellation,
respectively. |
(4) |
Represents SBC ASPP purchases. |
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 September 30, 2022, the broker held
2.2 million SVS with a value of $25.0 (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
3.2 million SVS held by the broker (including additional SVS
purchased during YTD 2022) to settle SBC awards that vested during
YTD 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 September 30 |
|
Nine months ended September 30 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 |
RSUs
Granted: |
Number of awards (in
millions) |
|
0.1 |
|
|
0.1 |
|
|
2.7 |
|
|
2.0 |
Weighted average grant date
fair value per unit |
$ |
8.91 |
|
$ |
10.43 |
|
$ |
8.16 |
|
$ |
12.21 |
|
PSUs
Granted: |
Number of awards (in millions,
representing 100% of target) |
|
— |
|
|
— |
|
|
1.9 |
|
|
1.3 |
Weighted average grant date
fair value per unit |
$ |
— |
|
$ |
— |
|
$ |
8.82 |
|
$ |
14.27 |
|
|
|
|
|
|
|
|
DSUs
Granted: |
Number of awards (in
millions) |
|
0.03 |
|
|
0.03 |
|
|
0.09 |
|
|
0.09 |
Weighted average grant date
fair value per unit |
$ |
8.88 |
|
$ |
8.41 |
|
$ |
8.35 |
|
$ |
9.80 |
Information regarding employee and director SBC
expense for the periods indicated is set forth below:
|
Three months ended September 30 |
|
Nine months ended September 30 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 |
Employee SBC expense in cost
of sales |
$ |
3.1 |
|
$ |
3.8 |
|
$ |
9.4 |
|
$ |
14.7 |
Employee SBC expense in
SG&A |
|
5.5 |
|
|
5.2 |
|
|
14.8 |
|
|
22.1 |
Total |
$ |
8.6 |
|
$ |
9.0 |
|
$ |
24.2 |
|
$ |
36.8 |
Director SBC expense in
SG&A(1) |
$ |
0.5 |
|
$ |
0.5 |
|
$ |
1.5 |
|
$ |
1.6 |
(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 September 30 |
|
Nine months ended September 30 |
|
|
2021 |
|
|
|
2022 |
|
|
2021 |
|
|
|
2022 |
|
Restructuring charges
(recoveries) (a) |
$ |
(0.7 |
) |
|
$ |
1.6 |
|
$ |
8.1 |
|
|
$ |
5.6 |
|
Transition Costs (Recoveries)
(b) |
|
0.2 |
|
|
|
— |
|
|
0.3 |
|
|
|
(2.1 |
) |
Acquisition Costs (Recoveries)
and Other (c) |
|
(3.4 |
) |
|
|
— |
|
|
(5.5 |
) |
|
|
0.4 |
|
|
$ |
(3.9 |
) |
|
$ |
1.6 |
|
$ |
2.9 |
|
|
$ |
3.9 |
|
In addition to the items set forth above, other
charges (recoveries) for Q3 2022 included approximately $3 in
additional write-downs to inventories resulting from the fire event
described in note 14 below, and YTD 2022 included approximately $95
in aggregate charges representing write-downs to inventories, a
building and equipment resulting from such event, as well as
equivalent amounts in recoveries in each of the respective periods,
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
Q3 2022 or YTD 2022.
(a)
Restructuring:
Our restructuring activities for Q3 2022 and YTD
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 $1.6
and $4.7 in Q3 2022 and YTD 2022, respectively, consisting
primarily of employee termination costs. We recorded nil non-cash
restructuring charges in Q3 2022, and $0.9 of non-cash
restructuring charges in YTD 2022, consisting of the write-down of
right-of-use assets in connection with vacated properties and
assets related to disengaging programs. In Q3 2021 and YTD 2021, we
recorded cash charges of $0.1 and $8.3, respectively, primarily for
employee termination costs. In Q3 2021, we recorded non-cash
restructuring recoveries of $0.8. In YTD 2021, we recorded net
non-cash restructuring recoveries of $0.2 (consisting of non-cash
restructuring charges of $0.6 and non-cash restructuring recoveries
of $0.8). The non-cash restructuring recoveries recorded in Q3 2021
and YTD 2021 primarily reflect gains on the sale of surplus
equipment. The non-cash restructuring charges recorded in YTD 2021
consisted primarily of the write-down of equipment related to
disengaged programs. At September 30, 2022, our restructuring
provision was $6.6 (December 31, 2021 — $6.1), which we
recorded in the current portion of provisions on our consolidated
balance sheet.
(b)
Transition Costs (Recoveries):
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) 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 Q3 2022 and $1.5 of Transition
Costs during YTD 2022, related primarily to the disposal of assets
reclassified as held for sale in Q1 2022. We recorded no Transition
Recoveries in Q3 2022 and $3.6 of Transition Recoveries in YTD
2022, reflecting the gain on the disposal of such assets held for
sale. We incurred Transition Costs of $0.2 and $0.3 during Q3 2021
and YTD 2021, respectively, pertaining to the transfer of
manufacturing lines from closed sites to other sites within our
global network, and no Transition Recoveries during either
period.
(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 nil Acquisition Costs in Q3 2022,
and $0.4 of Acquisition Costs during YTD 2022 related to the
acquisition of PCI (see note 4). No Acquisition Recoveries were
recorded in either Q3 2022 or YTD 2022. Acquisition Costs of $5.8
and $6.2 were recorded during Q3 2021 and YTD 2021, respectively,
related in each case to acquisition activities, including our
acquisition of PCI, offset in part (in YTD 2021) by $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 $9.2 in Q3
2021 and $10.5 in YTD 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 Q3 2022 net income tax expense of $15.2
includes an adverse $2.0 taxable foreign exchange impact arising
from the weakening of the Chinese renminbi relative to the U.S.
dollar, our functional currency (Currency Impact). The withholding
tax of $5.0 associated with the repatriation of undistributed
earnings from one of our Chinese subsidiaries in Q3 2022 (realized
as current tax) was offset by the reversal of previously accrued
deferred taxes from the then-anticipated repatriation of such
undistributed earnings. Our YTD 2022 net income tax expense of
$38.2 was favorably impacted by $4.9 in reversals of tax
uncertainties in one of our Asian subsidiaries, offset in part by
an adverse $2.2 Currency Impact.
Our Q3 2021 net income tax expense of $8.7
includes a $5.5 deferred tax recovery recorded in connection with
the revaluation of certain temporary differences using the future
effective tax rate of our Thailand subsidiary in connection with
the then-forthcoming transition from a 100% income tax exemption to
a 50% exemption in 2022 under an applicable tax incentive
(Revaluation Impact), offset in part by a $2.0 tax expense arising
from taxable temporary differences associated with the anticipated
repatriation of undistributed earnings from certain of our Chinese
subsidiaries (Repatriation Expense). Our YTD 2021 net income tax
expense of $22.4 includes the $5.5 Revaluation Impact and $1.1 in
reversals of tax uncertainties in one of our Asian subsidiaries
that completed its liquidation and dissolution during the first
quarter of 2021, offset in large part by a $4.0 Repatriation
Expense. Taxable foreign exchange impacts were not significant in
either Q3 2021 or YTD 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
September 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 September 30, 2022, the interest rate
risk related to $316.7 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 $121.3 under the
Incremental Term Loan), and no amounts outstanding (other than
ordinary course L/Cs) under the Revolver. See note 7.
At September 30, 2022, the fair value of
our interest rate swap agreements was an unrealized gain of $19.6,
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, with respect
to the Initial Term Loan and any non-U.S. dollar-denominated
borrowings under the Revolver, 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, then we and the
administrative agent may amend the underlying credit agreement to
reflect a successor rate as specified therein. The Credit Facility
has not yet been so amended. Once LIBOR becomes unavailable: (i) if
no successor rate has been established, LIBOR borrowings under the
Initial Term Loan will convert to Base Rate loans, and any non-U.S.
dollar-denominated borrowings under the Revolver will be repaid,
replaced or converted pursuant to the Credit Facility, and (ii)
LIBOR borrowings under the Incremental Term Loan and U.S.
dollar-denominated borrowings under the Revolver will convert to
secured overnight financing rate (SOFR) loans recommended or
selected by the relevant governmental body, adjusted as set forth
in the Credit Facility. 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
September 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
September 30, 2022.
|
Canadian dollar |
|
Euro |
|
Thai baht |
|
Chinese renminbi |
|
Mexican Peso |
Cash and cash equivalents |
$ |
16.3 |
|
|
$ |
15.8 |
|
|
$ |
2.3 |
|
|
$ |
12.0 |
|
|
$ |
1.7 |
|
Accounts receivable |
|
7.3 |
|
|
|
37.4 |
|
|
|
0.1 |
|
|
|
14.5 |
|
|
|
— |
|
Income taxes and value-added
taxes receivable |
|
14.4 |
|
|
|
0.7 |
|
|
|
14.8 |
|
|
|
6.5 |
|
|
|
37.7 |
|
Other financial assets |
|
— |
|
|
|
6.5 |
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
1.8 |
|
Pension and non-pension
post-employment liabilities |
|
(72.3 |
) |
|
|
(0.5 |
) |
|
|
(17.6 |
) |
|
|
(0.7 |
) |
|
|
(4.4 |
) |
Income taxes and value-added
taxes payable |
|
— |
|
|
|
(2.1 |
) |
|
|
— |
|
|
|
(6.3 |
) |
|
|
(10.8 |
) |
Accounts payable and certain
accrued and other liabilities and provisions |
|
(42.4 |
) |
|
|
(37.5 |
) |
|
|
(37.8 |
) |
|
|
(39.3 |
) |
|
|
(12.4 |
) |
Net financial assets
(liabilities) |
$ |
(76.7 |
) |
|
$ |
20.3 |
|
|
$ |
(38.0 |
) |
|
$ |
(12.9 |
) |
|
$ |
13.6 |
|
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 September 30, 2022, we had foreign
currency forwards and swaps to trade U.S. dollars in exchange
for the following currencies:
Currency |
Contract
amount inU.S. dollars |
|
Weighted averageexchange rate
inU.S. dollars
(1) |
|
Maximumperiod inmonths |
|
Fair valuegain (loss) |
Canadian dollar |
$ |
205.8 |
|
$ |
0.76 |
|
12 |
|
$ |
(14.0 |
) |
Thai baht |
|
129.6 |
|
|
0.03 |
|
12 |
|
|
(10.7 |
) |
Malaysian ringgit |
|
110.4 |
|
|
0.23 |
|
12 |
|
|
(5.5 |
) |
Mexican peso |
|
49.8 |
|
|
0.05 |
|
13 |
|
|
0.5 |
|
British pound |
|
2.5 |
|
|
1.14 |
|
4 |
|
|
0.2 |
|
Chinese renminbi |
|
40.7 |
|
|
0.15 |
|
12 |
|
|
(2.4 |
) |
Euro |
|
40.9 |
|
|
1.01 |
|
10 |
|
|
2.5 |
|
Romanian leu |
|
37.9 |
|
|
0.21 |
|
12 |
|
|
(2.3 |
) |
Singapore dollar |
|
27.8 |
|
|
0.72 |
|
12 |
|
|
(0.8 |
) |
Japanese yen |
|
6.7 |
|
|
0.0072 |
|
4 |
|
|
0.4 |
|
Korean won |
|
5.1 |
|
|
0.0007 |
|
4 |
|
|
0.5 |
|
Total |
$ |
657.2 |
|
|
|
|
|
$ |
(31.6 |
) |
|
|
|
|
|
|
|
|
Fair values of
outstanding foreign currency forward and swap contracts related to
effective cash flow hedges where we applied hedge accounting |
|
|
(23.3 |
) |
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 |
|
|
(8.3 |
) |
|
|
|
|
|
|
|
$ |
(31.6 |
) |
(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 September 30, 2022. |
At September 30, 2022, the aggregate fair
value of our outstanding contracts was a net unrealized loss of
$31.6 (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 September 30,
2022, we recorded $7.4 of derivative assets in other current assets
and $39.0 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 YTD 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
Q3 2022, YTD 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. However, we
have not applied for COVID Subsidies since June 2021, and recorded
no COVID Subsidies in Q3 2022 or YTD 2022. In Q3 2021 and YTD 2021,
we qualified for an estimated aggregate of $1 and $11 of COVID
Subsidies, respectively, from various government authorities, which
we recognized as a reduction to the related expenses in cost of
goods sold (Q3 2021 — $1; YTD 2021 — $8) and SG&A (Q3 2021 —
nil; YTD 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 Q3 2021, the Romanian tax authorities issued
a final assessment in the aggregate amount of approximately
31 million Romanian leu (approximately $6 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 and damaged a
building and equipment located at the site. Our manufacturing
operations at the site were briefly paused, but resumed during Q2
2022. We wrote down inventories destroyed ($91 in Q2 2022 and $3 in
Q3 2022) and a building and equipment damaged (aggregate of $1 in
Q2 2022) by the fire. We expect to fully recover our tangible
losses pursuant to the terms and conditions of our insurance
policies. As of September 30, 2022, we recorded in other
current assets on our consolidated balance sheet an estimated
receivable of approximately $95 related to anticipated insurance
proceeds. The write-downs and the offsetting insurance receivable
(in equivalent amounts) were each recorded in other charges
(recoveries), resulting in no net impact to net earnings in either
Q2 2022 or Q3 2022. 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 either in Q2 2022 or Q3
2022.
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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