Celestica Inc. (TSX: CLS) (NYSE: CLS), a leader in design,
manufacturing, hardware platform and supply chain solutions for the
world’s most innovative companies, today announced financial
results for the quarter ended June 30, 2023 (Q2 2023)†.
“Celestica delivered another strong quarter,
exceeding the high end of our guidance ranges on revenue and
non-IFRS adjusted EPS*, with our non-IFRS operating margin* firmly
above 5.0%,” said Rob Mionis, President and CEO, Celestica.
“Our business delivered solid results as our
team continues to execute on our strategic plan and meet the
evolving needs of our customers. Our diversified portfolio is
driving revenue growth and margin expansion, despite softness in
the Semi Capital Equipment market. We are pleased to raise our 2023
annual financial outlook, and expect our strong performance to
continue into 2024 as all of our markets are poised for
growth.”
Q2 2023 Highlights
• Key measures:
- Revenue: $1.94
billion, increased 13% compared to $1.72 billion for the second
quarter of 2022 (Q2 2022).
- Non-IFRS operating
margin*: 5.5%, compared to 4.8% for Q2 2022.
- ATS segment
revenue: increased 24% compared to Q2 2022; ATS segment margin was
4.8%, compared to 4.5% for Q2 2022.
- CCS segment
revenue: increased 5% compared to Q2 2022; CCS segment margin was
6.0%, compared to 5.0% for Q2 2022.
- Adjusted earnings
per share (EPS) (non-IFRS)*: $0.55, compared to $0.44 for Q2
2022.
- Adjusted return on
invested capital (adjusted ROIC) (non-IFRS)*: 20.0%, compared to
16.2% for Q2 2022.
- Adjusted free cash
flow (non-IFRS)*: $66.8 million, compared to
$43.3 million for Q2 2022.
• Most directly comparable IFRS financial
measures to non-IFRS measures above:
- Earnings from
operations as a percentage of revenue: 4.5%, compared to 3.7% for
Q2 2022.
- EPS: $0.46,
compared to $0.29 for Q2 2022.
- Return on invested
capital (IFRS ROIC): 16.5%, compared to 12.3% for Q2 2022.
- Cash provided by
operations: $130.2 million, compared to $86.9 million for Q2
2022.
- Repurchased 1.4
million subordinate voting shares (SVS) for cancellation for
$15.0 million under our normal course issuer bid.
† Celestica has two operating and reportable
segments: Advanced Technology Solutions (ATS) and Connectivity
& Cloud Solutions (CCS). Our ATS segment consists of our ATS
end market and is comprised of our Aerospace and Defense (A&D),
Industrial, 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 3 to our
June 30, 2023 unaudited interim condensed consolidated
financial statements (Q2 2023 Interim Financial Statements) 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).
See “Non-IFRS Supplementary Information” below for information on
our rationale for the use of non-IFRS financial measures. See
Schedule 1 for, among other items, non-IFRS financial measures
included in this press release, their definitions, uses, and a
reconciliation of historical non-IFRS financial measures to the
most directly comparable IFRS financial measures. Schedule 1 also
includes a description of modifications to: (i) the IFRS financial
measure on which the measure we refer to as IFRS ROIC is based
(commencing in Q3 2022); and (ii) the calculation of certain
non-IFRS financial measures resulting from: (x) a
recently-applicable exclusion related to our total return swap
(commencing in the first quarter of 2023); and (y) the addition of
certain costs to other charges (commencing in Q2 2023),
substantially all of which for Q2 2023 consisted of Secondary
Offering Costs (defined therein). Prior period reconciliations and
calculations with respect to non-IFRS ROIC reflect the current
presentation. 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.
Third Quarter of 2023 (Q3 2023)
Guidance‡
|
Q3 2023
Guidance |
Revenue (in billions) |
$1.90 to $2.05 |
Non-IFRS operating
margin* |
5.6% at the mid-point of ourrevenue and non-IFRS adjustedEPS
guidance ranges |
Adjusted SG&A (non-IFRS)*
(in millions) |
$66 to $68 |
Adjusted EPS (non-IFRS)* |
$0.56 to $0.62 |
|
|
For Q3 2023, we expect a negative $0.17 to $0.23
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 19% (which does not account for foreign
exchange impacts or unanticipated tax settlements).
2023 Outlook
Raised‡
Based on our strong performance in Q2 2023 and
our current and expected levels of demand, our 2023 outlook
currently consists of:
- revenue of at least $7.85 billion
(our previous outlook was at least $7.6 billion);
- non-IFRS operating margin* of 5.5%
(our previous outlook was between 5.0% to 5.5%);
- non-IFRS adjusted EPS* of $2.25
(our previous outlook was between $2.00 and $2.05); and
- non-IFRS adjusted free cash flow*
of $125 million.
Achievement of our current 2023 revenue and
non-IFRS adjusted EPS* outlook would represent an at least 8%
revenue growth rate and an 18% non-IFRS adjusted EPS* growth rate
from 2022.
2024
Outlook‡
As we look forward to 2024, we expect revenue
growth across each of our businesses, supported by anticipated
strong secular tailwinds and new program wins. We believe that this
growth, with continuing margin strength, will lead to non-IFRS
adjusted EPS* growth of 10%, or more in 2024, relative to our 2023
outlook.
* See Schedule 1 for the definitions of, and
recent modifications to, certain 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.
‡ Although we have incorporated the anticipated
impact of supply chain constraints and demand softness in our
Capital Equipment business into our financial guidance and
outlook to the best of our ability, their adverse impact (in terms
of duration and severity) cannot be estimated with certainly, and
may be materially in excess of our expectations.
Summary of Selected Q2 2023
Results
|
Q2 2023
Actual |
|
Q2 2023 Guidance
(2) |
Key measures: |
|
|
|
Revenue (in billions) |
$1.94 |
|
$1.75 to $1.90 |
Non-IFRS operating margin* |
5.5% |
|
5.2% at the mid-point of ourrevenue and non-IFRS adjustedEPS
guidance ranges |
Adjusted SG&A (non-IFRS)* (in millions) |
$65.9 |
|
$64 to $66 |
Adjusted EPS (non-IFRS)* |
$0.55 |
|
$0.44 to $0.50 |
|
|
|
|
Most directly comparable IFRS financial measures: |
|
|
|
Earnings from operations as a % of revenue |
4.5% |
|
N/A |
SG&A (in millions) |
$69.1 |
|
N/A |
EPS (1) |
$0.46 |
|
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 non-IFRS financial
measures to the most directly comparable IFRS financial measures
for Q2 2023. Schedule 1 also includes a description of
modifications to the calculation of certain non-IFRS financial
measures as a result of: (x) a recently-applicable exclusion
related to our total return swap (commencing in the first quarter
of 2023); and (y) the addition of certain costs to other charges
(commencing in Q2 2023), substantially all of which for Q2 2023
consisted of Secondary Offering Costs (defined therein).
(1) IFRS EPS of $0.46 for Q2 2023 included an
aggregate charge of $0.21 (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 8 to the Q2 2023 Interim Financial Statements for per-item
charges. This aggregate charge was within our Q2 2023 guidance
range of between $0.19 to $0.25 per share for these items.
IFRS EPS for Q2 2023 included: (x) a $0.03 per
share net negative impact attributable to other charges
(recoveries), consisting of a $0.04 per share negative impact
attributable to restructuring charges and a $0.01 per share
negative impact, substantially all of which was attributable to
Secondary Offering Costs (defined in Schedule 1), offset in part by
a $0.02 per share positive impact attributable to legal recoveries;
and (y) a $0.02 per share negative impact arising from taxable
temporary differences associated with the anticipated repatriation
of undistributed earnings from certain of our Asian subsidiaries
(Repatriation Expense). See notes 8 and 9 to the Q2 2023 Interim
Financial Statements.
IFRS EPS for the first half of 2023 (1H 2023)
included: (x) a $0.07 per share net negative impact attributable to
other charges (recoveries), consisting primarily of a $0.08 per
share negative impact attributable to restructuring charges and a
$0.01 per share negative impact, substantially of which was
attributable to Secondary Offering Costs (defined in Schedule 1),
offset in part by a $0.02 per share positive impact attributable to
legal recoveries; and (y) a $0.05 favorable tax impact attributable
to the reversals of tax uncertainties in one of our Asian
subsidiaries, offset in part by a $0.03 per share negative impact
arising from Repatriation Expense. See notes 8 and 9 to the Q2 2023
Interim Financial Statements.
IFRS EPS of $0.29 for Q2 2022 included a $0.02
per share net positive impact attributable to other charges
(recoveries), consisting primarily of a $0.03 per share positive
impact attributable to Transition Recoveries (defined in Schedule
1), offset in part by a $0.01 per share negative impact
attributable to restructuring charges. See note 8 to the Q2 2023
Interim Financial Statements. Although $92 million in write-downs
to inventories, a building and equipment due to the June 2022 fire
at our Batam, Indonesia facility (Batam Fire) were recorded in
other charges (recoveries) in Q2 2022, an equivalent amount was
also recorded in other charges (recoveries) as a recovery, as we
expect to fully recover the written-down amounts pursuant to the
terms and conditions of our insurance policies.
IFRS EPS of $0.46 for the first half of 2022 (1H
2022) included: (i) a $0.02 per share net negative impact
attributable to other charges (recoveries) (consisting most
significantly of a $0.03 per share negative impact attributable to
restructuring charges and a $0.01 per share negative impact
attributable to Transition Costs, substantially offset by a $0.03
per share positive impact attributable to Transition Recoveries
(each defined in Schedule 1)); (ii) as a result of supply chain
constraints and COVID-19-related workforce expenses and
constraints, a $0.03 per share negative impact attributable to
estimated Constraint Costs (defined as both direct and indirect
costs, including manufacturing inefficiencies related to lost
revenue due to our inability to secure materials, idled labor
costs, and incremental costs for labor, expedite fees and freight
premiums, cleaning supplies, personal protective equipment, and/or
IT-related services to support our work-from-home arrangements);
and (iii) a $0.04 favorable tax impact attributable to the reversal
of tax uncertainties in one of our Asian subsidiaries. See notes 8
and 9 to the Q2 2023 Interim Financial Statements. See the
preceding paragraph for a discussion of offsetting charges and
recoveries pertaining to the Batam Fire.
(2) For Q2 2023, our revenue and non-IFRS
adjusted EPS exceeded the high end of our guidance ranges, and
non-IFRS operating margin exceeded the mid-point of our revenue and
non-IFRS adjusted EPS guidance ranges, driven by unanticipated
strong market demand. Non-IFRS adjusted SG&A for Q2 2023 was at
the high end of our guidance range. Our IFRS effective tax rate for
Q2 2023 was 16%. As anticipated, our non-IFRS adjusted effective
tax rate for Q2 2023 was 21%.
Secondary Offering
On June 5, 2023, the Company and Onex
Corporation (Onex), our controlling shareholder, entered into an
underwriting agreement (Underwriting Agreement) with RBC Capital
Markets, LLC (Underwriter), relating to an underwritten secondary
public offering (Secondary Offering) by Onex of 12 million SVS,
approximately 11.8 million of which were issued upon conversion of
an equivalent number of our multiple voting shares, which closed on
June 8, 2023. The Underwriting Agreement contains customary
provisions for agreements of this type. We did not sell any SVS in,
and did not receive any proceeds from, the Secondary Offering. In
connection with the Secondary Offering, we agreed to indemnify the
Underwriter and Onex against certain claims, including certain
claims under applicable U.S. and Canadian securities laws. The
Company agreed to pay approximately $0.95 million of the aggregate
fees and expenses of the Secondary Offering. Onex remains our
controlling shareholder.
Credit Facility Amendment
On June 14, 2023, we amended our credit facility
to replace LIBOR with the term Secured Overnight Financing Rate
plus 0.1%. Such amendment did not have a significant impact on our
Q2 2023 Interim Financial Statements.
Q2 2023
Webcast
Management will host its Q2 2023 results
conference call on July 27, 2023 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 Celestica
Celestica 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 and outlook provided, under
the headings “Third Quarter of 2023 (Q3 2023) Guidance”, “2023
Outlook Raised” and “2024 Outlook”; 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; interest rates; and our
expectations with respect to insurance recoveries for tangible
losses in connection with the Batam Fire. 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,”
“outlook,” “goal,” “guidance,” “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; challenges of replacing revenue from
completed, lost or non-renewed programs or customer disengagements;
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
Russia/Ukraine conflict; managing changes in customer demand; our
customers’ ability to compete and succeed using our products and
services; delays in the delivery and availability of components,
services and/or materials, as well as their costs and quality; our
inventory levels and practices; the cyclical and volatile nature of
our semiconductor business; 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; price,
margin pressures, and other competitive factors and adverse market
conditions affecting, and the highly competitive nature of, the
electronic manufacturing services (EMS) and original design
manufacturer (ODM) industries in general and our segments in
particular (including the risk that anticipated market conditions
do not materialize); challenges associated with new customers or
programs, or the provision of new services; interest rate
fluctuations; rising commodity, materials and component costs as
well as rising labor costs and changing labor conditions; changes
in U.S. policies or legislation; customer relationships with
emerging companies; recruiting or retaining skilled talent; our
ability to adequately protect intellectual property and
confidential information; the variability of revenue and operating
results; unanticipated disruptions to our cash flows; deterioration
in financial markets or the macro-economic environment, including
as a result of global inflation and/or recession; maintaining
sufficient financial resources to fund currently anticipated
financial actions and obligations and to pursue desirable business
opportunities; the expansion or consolidation of our operations;
the inability to maintain adequate utilization of our workforce;
integrating and achieving the anticipated benefits from
acquisitions and "operate-in-place" arrangements; execution and/or
quality issues (including our ability to successfully resolve these
challenges); non-performance by counterparties; negative impacts on
our business resulting from any significant uses of cash,
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); 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
(including those described in "External factors that may impact our
business" in our most recent Management’s Discussion and Analysis
of Financial Condition and Results of Operations (MD&A));
defects or deficiencies in our products, services or designs;
volatility in the commercial aerospace industry; compliance with
customer-driven policies and standards, and third-party
certification requirements; negative impacts on our business
resulting from our third-party indebtedness; the scope, duration
and impact of materials constraints; coronavirus disease 2019
(COVID-19) mutations or resurgences; declines in U.S. and other
government budgets, changes in government spending or budgetary
priorities, or delays in contract awards; the military conflict
between Russia and Ukraine; changes to our operating model; foreign
currency volatility; our global operations and supply chain;
competitive bid selection processes; our dependence on industries
affected by rapid technological change; rapidly evolving and
changing technologies, and changes in our customers’ business or
outsourcing strategies; 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 incidents or outages, we have been (and may in the future
be) the target of such events; the impact of our restructuring
actions and/or productivity initiatives, including a failure to
achieve anticipated benefits therefrom; the incurrence of future
restructuring charges, impairment charges, other unrecovered
write-downs of assets (including inventory) or operating losses;
the inability to prevent or detect all errors or fraud; 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; our total return swap agreement; our
ability to refinance our indebtedness from time to time; our credit
rating; the interest and actions of our controlling shareholder;
our eligibility for foreign private issuer status; activist
shareholders; current or future litigation, governmental actions,
and/or changes in legislation or accounting standards; volatility
in our SVS price; the impermissibility of SVS repurchases, or a
determination not to repurchase SVS, under any normal course issuer
bid (NCIB); potential unenforceability of judgments; negative
publicity; the impact of climate change; and our ability to achieve
our environmental, social and governance targets and 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 2022
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 markets; no
significant unforeseen negative impacts to our operations
(including from mutations or resurgences of COVID-19); no
unforeseen materials price increases, margin pressures, or other
competitive factors affecting the EMS or ODM industries 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 their impact on our sites,
customers and suppliers; our ability to fully 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 our
current 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; 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. As used herein, “Q1,” “Q2,”
“Q3,” and “Q4” followed by a year refers to the first quarter,
second quarter, third quarter and fourth quarter of such year,
respectively.
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). This
modification did not impact the determination of non-IFRS adjusted
ROIC. Prior period reconciliations and calculations included herein
reflect the current presentation.
In Q4 2022, we entered into a total return swap
(TRS) agreement (TRS Agreement). Similar to employee stock-based
compensation (SBC) expense, quarterly fair value adjustments of our
TRS (TRS FVAs) are classified in cost of sales and SG&A
expenses in our consolidated statement of operations. Commencing in
Q1 2023, TRS FVAs are excluded in our determination of the
following non-IFRS financial measures included herein: adjusted
gross profit, adjusted gross margin, adjusted SG&A, adjusted
SG&A as a percentage of revenue, non-IFRS operating earnings,
non-IFRS operating margin, adjusted net earnings and adjusted EPS
(for the reasons described below). TRS FVAs also impact the
determination of our non-IFRS adjusted tax expense and non-IFRS
adjusted effective tax rate, however, such impact was de minimis in
Q2 2023 and 1H 2023.
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.
In calculating our non-IFRS financial measures
other than non-IFRS adjusted free cash flow (which is described in
footnote (3) to the table below), management excludes the following
items (where indicated): employee SBC expense, TRS FVAs,
amortization of intangible assets (excluding computer software),
and Other Charges (Recoveries) (defined below), all net of the
associated tax adjustments (quantified in the table below), and any
non-core tax impacts (tax adjustments related to acquisitions, and
certain other tax costs or recoveries related to restructuring
actions or restructured sites).The economic substance of these
exclusions (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.
TRS FVAs represent mark-to-market adjustments to
our TRS, as the TRS is recorded at fair value at each quarter end.
We exclude the impact of these non-cash fair value adjustments
(both positive and negative), as they reflect fluctuations in the
market price of our SVS from period to period, and not our ongoing
operating performance. In addition, we believe that excluding these
non-cash adjustments permits a better comparison of our core
operating results to those of our competitors.
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 (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; post-employment benefit plan losses; and,
commencing Q2 2023, Secondary Offering Costs (defined below) and
related costs pertaining to certain accounting considerations. We
exclude these charges and 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 or recoveries.
Our competitors may record similar charges and recoveries 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 and
recoveries in assessing operating performance.
Restructuring Charges, net of recoveries,
consist of costs relating to: employee severance, lease
terminations, site closings and consolidations, accelerated
depreciation 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 transfer of manufacturing lines from
closed sites to other sites within our global network; and (ii) 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 do not reflect our
ongoing operations once these specified events 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.
Secondary Offering Costs consist of costs
associated with Onex’s conversion and sale of our shares. Such
costs (approximately $0.95 million) were incurred in Q2 2023 and 1H
2023 in connection with the Secondary Offering. Further Secondary
Offering Costs will be applicable during any period in which
additional conversions and sales by Onex occur. We believe that
excluding Secondary Offering Costs permits a better comparison of
our core operating results from period-to-period, as they do not
reflect our ongoing operations, and will be inapplicable once such
conversions and sales have been completed.
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 June 30 |
|
Six months ended June 30 |
|
2022 |
|
2023 |
|
2022 |
|
2023 |
|
|
% ofrevenue |
|
|
% ofrevenue |
|
|
% ofrevenue |
|
|
% ofrevenue |
IFRS
revenue |
$ |
1,717.2 |
|
|
|
$ |
1,939.4 |
|
|
|
$ |
3,284.1 |
|
|
|
$ |
3,777.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS gross profit |
$ |
149.9 |
|
8.7 |
% |
|
$ |
184.6 |
|
9.5 |
% |
|
$ |
282.4 |
|
8.6 |
% |
|
$ |
348.6 |
|
9.2 |
% |
Employee SBC expense |
|
5.3 |
|
|
|
|
4.8 |
|
|
|
|
10.9 |
|
|
|
|
13.3 |
|
|
TRS FVAs (gains) |
|
— |
|
|
|
|
(2.1 |
) |
|
|
|
— |
|
|
|
|
(2.0 |
) |
|
Non-IFRS adjusted
gross profit |
$ |
155.2 |
|
9.0 |
% |
|
$ |
187.3 |
|
9.7 |
% |
|
$ |
293.3 |
|
8.9 |
% |
|
$ |
359.9 |
|
9.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
IFRS
SG&A |
$ |
71.0 |
|
4.1 |
% |
|
$ |
69.1 |
|
3.6 |
% |
|
$ |
136.7 |
|
4.2 |
% |
|
$ |
147.0 |
|
3.9 |
% |
Employee SBC expense |
|
(7.9 |
) |
|
|
|
(6.1 |
) |
|
|
|
(16.9 |
) |
|
|
|
(19.6 |
) |
|
TRS FVAs (gains) |
|
— |
|
|
|
|
2.9 |
|
|
|
|
— |
|
|
|
|
2.8 |
|
|
Non-IFRS adjusted
SG&A |
$ |
63.1 |
|
3.7 |
% |
|
$ |
65.9 |
|
3.4 |
% |
|
$ |
119.8 |
|
3.6 |
% |
|
$ |
130.2 |
|
3.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
IFRS earnings from
operations |
$ |
62.7 |
|
3.7 |
% |
|
$ |
87.8 |
|
4.5 |
% |
|
$ |
103.3 |
|
3.1 |
% |
|
$ |
147.2 |
|
3.9 |
% |
Employee SBC expense |
|
13.2 |
|
|
|
|
10.9 |
|
|
|
|
27.8 |
|
|
|
|
32.9 |
|
|
TRS FVAs (gains) |
|
— |
|
|
|
|
(5.0 |
) |
|
|
|
— |
|
|
|
|
(4.8 |
) |
|
Amortization of intangible assets (excluding computer
software) |
|
9.3 |
|
|
|
|
9.2 |
|
|
|
|
18.6 |
|
|
|
|
18.4 |
|
|
Other Charges (Recoveries) |
|
(2.5 |
) |
|
|
|
3.5 |
|
|
|
|
2.3 |
|
|
|
|
8.1 |
|
|
Non-IFRS operating earnings (adjusted
EBIAT)(1) |
$ |
82.7 |
|
4.8 |
% |
|
$ |
106.4 |
|
5.5 |
% |
|
$ |
152.0 |
|
4.6 |
% |
|
$ |
201.8 |
|
5.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
IFRS net
earnings |
$ |
35.6 |
|
2.1 |
% |
|
$ |
55.5 |
|
2.9 |
% |
|
$ |
57.4 |
|
1.7 |
% |
|
$ |
80.2 |
|
2.1 |
% |
Employee SBC expense |
|
13.2 |
|
|
|
|
10.9 |
|
|
|
|
27.8 |
|
|
|
|
32.9 |
|
|
TRS FVAs (gains) |
|
— |
|
|
|
|
(5.0 |
) |
|
|
|
— |
|
|
|
|
(4.8 |
) |
|
Amortization of intangible assets (excluding computer
software) |
|
9.3 |
|
|
|
|
9.2 |
|
|
|
|
18.6 |
|
|
|
|
18.4 |
|
|
Other Charges (Recoveries) |
|
(2.5 |
) |
|
|
|
3.5 |
|
|
|
|
2.3 |
|
|
|
|
8.1 |
|
|
Adjustments for taxes(2) |
|
(1.4 |
) |
|
|
|
(7.5 |
) |
|
|
|
(3.7 |
) |
|
|
|
(11.0 |
) |
|
Non-IFRS adjusted net
earnings |
$ |
54.2 |
|
|
|
$ |
66.6 |
|
|
|
$ |
102.4 |
|
|
|
$ |
123.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS |
|
|
|
|
|
|
|
|
|
|
|
Weighted average # of shares (in millions) |
|
124.0 |
|
|
|
|
120.3 |
|
|
|
|
124.3 |
|
|
|
|
120.9 |
|
|
IFRS earnings per share |
$ |
0.29 |
|
|
|
$ |
0.46 |
|
|
|
$ |
0.46 |
|
|
|
$ |
0.66 |
|
|
Non-IFRS adjusted earnings per share |
$ |
0.44 |
|
|
|
$ |
0.55 |
|
|
|
$ |
0.82 |
|
|
|
$ |
1.02 |
|
|
# of shares outstanding at period end (in millions) |
|
123.2 |
|
|
|
|
119.3 |
|
|
|
|
123.2 |
|
|
|
|
119.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS cash provided by
operations |
$ |
86.9 |
|
|
|
$ |
130.2 |
|
|
|
$ |
122.2 |
|
|
|
$ |
202.5 |
|
|
Purchase of property, plant and equipment, net of sales
proceeds |
|
(21.5 |
) |
|
|
|
(31.2 |
) |
|
|
|
(37.9 |
) |
|
|
|
(64.3 |
) |
|
Lease payments |
|
(11.9 |
) |
|
|
|
(12.8 |
) |
|
|
|
(23.1 |
) |
|
|
|
(24.1 |
) |
|
Finance Costs paid (excluding debt issuance costs paid) |
|
(10.2 |
) |
|
|
|
(19.4 |
) |
|
|
|
(17.4 |
) |
|
|
|
(38.1 |
) |
|
Non-IFRS adjusted free
cash flow (3) |
$ |
43.3 |
|
|
|
$ |
66.8 |
|
|
|
$ |
43.8 |
|
|
|
$ |
76.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS ROIC %
(4) |
|
12.3 |
% |
|
|
|
16.5 |
% |
|
|
|
10.3 |
% |
|
|
|
13.9 |
% |
|
Non-IFRS adjusted ROIC
% (4) |
|
16.2 |
% |
|
|
|
20.0 |
% |
|
|
|
15.1 |
% |
|
|
|
19.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, TRS FVAs (defined above), amortization of intangible
assets (excluding computer software), and Other Charges
(Recoveries) (defined above). See note 8 to our Q2 2023 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
(see below).
The following table sets forth a reconciliation
of our non-IFRS adjusted tax expense and our non-IFRS adjusted
effective tax rate to our IFRS tax expense and IFRS effective tax
rate, respectively, for the periods indicated, in each case
determined by excluding the tax benefits or costs associated with
the listed items (in millions, except percentages) from our IFRS
tax expense for such periods:
|
Three months ended June 30 |
|
Six months ended June 30 |
|
|
2022 |
|
Effectivetax rate |
|
2023 |
Effective tax rate |
|
|
2022 |
|
Effectivetax rate |
|
2023 |
Effectivetax rate |
IFRS tax expense and IFRS effective tax rate |
$ |
14.0 |
|
28 |
% |
|
$ |
10.2 |
16 |
% |
|
$ |
23.0 |
|
29 |
% |
|
$ |
23.2 |
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Tax costs (benefits) of the
following items excluded from IFRS tax expense: |
|
|
|
|
|
|
|
|
|
|
|
Employee SBC expense |
|
1.5 |
|
|
|
|
6.4 |
|
|
|
3.0 |
|
|
|
|
8.7 |
|
Amortization of intangible assets (excluding computer
software) |
|
0.7 |
|
|
|
|
0.7 |
|
|
|
1.5 |
|
|
|
|
1.5 |
|
Other Charges (Recoveries) |
|
(0.8 |
) |
|
|
|
0.4 |
|
|
|
(0.8 |
) |
|
|
|
0.8 |
|
Non-IFRS adjusted tax expense
and non-IFRS adjusted effective tax rate |
$ |
15.4 |
|
22 |
% |
|
$ |
17.7 |
21 |
% |
|
$ |
26.7 |
|
21 |
% |
|
$ |
34.2 |
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 below)
paid (excluding any debt issuance costs and when applicable, credit
facility waiver fees paid). 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 TRS Agreement, our accounts receivable sales
program and customers’ supplier financing programs, and interest
expense on our lease obligations, net of interest income earned. We
do not consider debt issuance costs paid (nil in Q2 2023 and 1H
2023; nil and $0.8 million in Q2 2022 and 1H 2022, respectively) 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. We believe that excluding Finance Costs paid (other
than debt issuance costs and credit-agreement-related waiver fees
paid) 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. 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 three-point average to calculate average net invested
capital for the six-month period. Average net invested capital for
Q2 2023 is the average of net invested capital as at June 30, 2023
and March 31, 2023, and average net invested capital for 1H 2023 is
the average of net invested capital as at December 31, 2022, March
31, 2023 and June 30, 2023. 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 |
|
Six months ended |
|
|
|
June 30 |
|
June 30 |
|
|
|
2022 |
|
2023 |
|
2022 |
|
2023 |
|
|
|
|
|
|
|
|
|
|
IFRS earnings from operations |
|
$ |
62.7 |
|
|
$ |
87.8 |
|
|
$ |
103.3 |
|
|
$ |
147.2 |
|
Multiplier to
annualize earnings |
|
|
4 |
|
|
|
4 |
|
|
|
2 |
|
|
|
2 |
|
Annualized IFRS
earnings from operations |
|
$ |
250.8 |
|
|
$ |
351.2 |
|
|
$ |
206.6 |
|
|
$ |
294.4 |
|
|
|
|
|
|
|
|
|
|
|
Average net
invested capital for the period |
|
$ |
2,036.8 |
|
|
$ |
2,132.6 |
|
|
$ |
2,010.2 |
|
|
$ |
2,125.6 |
|
|
|
|
|
|
|
|
|
|
|
IFRS ROIC %
(1) |
|
|
12.3 |
% |
|
|
16.5 |
% |
|
|
10.3 |
% |
|
|
13.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
|
June 30 |
|
June 30 |
|
|
|
2022 |
|
2023 |
|
2022 |
|
2023 |
|
|
|
|
|
|
|
|
|
|
Non-IFRS operating
earnings (adjusted EBIAT) |
|
$ |
82.7 |
|
|
$ |
106.4 |
|
|
$ |
152.0 |
|
|
$ |
201.8 |
|
Multiplier to
annualize earnings |
|
|
4 |
|
|
|
4 |
|
|
|
2 |
|
|
|
2 |
|
Annualized
non-IFRS adjusted EBIAT |
|
$ |
330.8 |
|
|
$ |
425.6 |
|
|
$ |
304.0 |
|
|
$ |
403.6 |
|
|
|
|
|
|
|
|
|
|
|
Average net
invested capital for the period |
|
$ |
2,036.8 |
|
|
$ |
2,132.6 |
|
|
$ |
2,010.2 |
|
|
$ |
2,125.6 |
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS adjusted
ROIC % (1) |
|
|
16.2 |
% |
|
|
20.0 |
% |
|
|
15.1 |
% |
|
|
19.0 |
% |
|
|
|
December 312022 |
|
March 312023 |
|
June 302023 |
Net invested capital consists
of: |
|
|
|
|
|
|
|
Total assets |
|
$ |
5,628.0 |
|
$ |
5,468.1 |
|
$ |
5,500.5 |
Less: cash |
|
|
374.5 |
|
|
318.7 |
|
|
360.7 |
Less: ROU
assets |
|
|
138.8 |
|
|
133.1 |
|
|
146.5 |
Less: accounts
payable, accrued and other current liabilities, provisions and
income taxes payable |
|
|
3,003.0 |
|
|
2,873.9 |
|
|
2,870.6 |
Net invested
capital at period end (1) |
|
$ |
2,111.7 |
|
$ |
2,142.4 |
|
$ |
2,122.7 |
|
|
|
|
|
|
|
|
|
|
|
December 312021 |
|
March 312022 |
|
June 302022 |
Net invested capital consists
of: |
|
|
|
|
|
|
|
Total assets |
|
$ |
4,666.9 |
|
$ |
4,848.0 |
|
$ |
5,140.5 |
Less: cash |
|
|
394.0 |
|
|
346.6 |
|
|
365.5 |
Less: ROU
assets |
|
|
113.8 |
|
|
109.8 |
|
|
133.6 |
Less: accounts
payable, accrued and other current liabilities, provisions and
income taxes payable |
|
|
2,202.0 |
|
|
2,347.4 |
|
|
2,612.1 |
Net invested
capital at period end (1) |
|
$ |
1,957.1 |
|
$ |
2,044.2 |
|
$ |
2,029.3 |
(1) See footnote 4 on the previous
page.
CELESTICA INC. |
CONDENSED CONSOLIDATED BALANCE SHEET |
(in millions of U.S. dollars) |
(unaudited) |
|
Note |
December 312022 |
|
June 302023 |
|
|
|
|
|
Assets |
|
|
|
|
Current
assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
374.5 |
|
|
$ |
360.7 |
|
Accounts receivable |
4 |
|
1,393.5 |
|
|
|
1,303.7 |
|
Inventories |
5&12 |
|
2,350.3 |
|
|
|
2,345.6 |
|
Income taxes receivable |
|
|
5.9 |
|
|
|
7.2 |
|
Other current assets |
12 |
|
202.8 |
|
|
|
179.4 |
|
Total
current assets |
|
|
4,327.0 |
|
|
|
4,196.6 |
|
|
|
|
|
|
Property, plant and equipment |
|
|
371.5 |
|
|
|
384.8 |
|
Right-of-use assets |
|
|
138.8 |
|
|
|
146.5 |
|
Goodwill |
|
|
321.8 |
|
|
|
321.6 |
|
Intangible assets |
|
|
346.5 |
|
|
|
327.0 |
|
Deferred
income taxes |
|
|
68.9 |
|
|
|
72.1 |
|
Other non-current assets |
|
|
53.5 |
|
|
|
51.9 |
|
Total
assets |
|
$ |
5,628.0 |
|
|
$ |
5,500.5 |
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
Current
liabilities: |
|
|
|
|
Current portion of borrowings under credit facility and lease
obligations |
6 |
$ |
52.2 |
|
|
$ |
65.4 |
|
Accounts payable |
|
|
1,440.8 |
|
|
|
1,276.7 |
|
Accrued and other current liabilities |
5 |
|
1,462.2 |
|
|
|
1,510.0 |
|
Income taxes payable |
|
|
82.1 |
|
|
|
63.1 |
|
Current portion of provisions |
|
|
17.9 |
|
|
|
20.8 |
|
Total
current liabilities |
|
|
3,055.2 |
|
|
|
2,936.0 |
|
|
|
|
|
|
Long-term portion of borrowings under credit facility and lease
obligations |
6 |
|
733.9 |
|
|
|
718.0 |
|
Pension
and non-pension post-employment benefit obligations |
|
|
77.0 |
|
|
|
80.2 |
|
Provisions and other non-current liabilities |
|
|
32.5 |
|
|
|
38.2 |
|
Deferred
income taxes |
|
|
51.7 |
|
|
|
47.5 |
|
Total
liabilities |
|
|
3,950.3 |
|
|
|
3,819.9 |
|
|
|
|
|
|
Equity: |
|
|
|
|
Capital stock |
7 |
|
1,714.9 |
|
|
|
1,677.8 |
|
Treasury stock |
7 |
|
(18.5 |
) |
|
|
(27.8 |
) |
Contributed surplus |
|
|
1,063.6 |
|
|
|
1,041.8 |
|
Deficit |
|
|
(1,076.6 |
) |
|
|
(996.4 |
) |
Accumulated other comprehensive loss |
|
|
(5.7 |
) |
|
|
(14.8 |
) |
Total
equity |
|
|
1,677.7 |
|
|
|
1,680.6 |
|
Total
liabilities and equity |
|
$ |
5,628.0 |
|
|
$ |
5,500.5 |
|
|
|
|
|
|
Commitments and Contingencies (note 11).
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
|
CELESTICA INC. |
CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS |
(in millions of U.S. dollars, except per share
amounts) |
(unaudited) |
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30 |
|
June 30 |
|
Note |
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
|
|
|
|
|
|
|
Revenue |
3 |
$ |
1,717.2 |
|
|
$ |
1,939.4 |
|
|
$ |
3,284.1 |
|
|
$ |
3,777.2 |
|
Cost of sales |
5 |
|
1,567.3 |
|
|
|
1,754.8 |
|
|
|
3,001.7 |
|
|
|
3,428.6 |
|
Gross profit |
|
|
149.9 |
|
|
|
184.6 |
|
|
|
282.4 |
|
|
|
348.6 |
|
Selling, general and
administrative expenses |
|
|
71.0 |
|
|
|
69.1 |
|
|
|
136.7 |
|
|
|
147.0 |
|
Research and development |
|
|
8.8 |
|
|
|
14.3 |
|
|
|
20.2 |
|
|
|
26.4 |
|
Amortization of intangible
assets |
|
|
9.9 |
|
|
|
9.9 |
|
|
|
19.9 |
|
|
|
19.9 |
|
Other charges
(recoveries) |
8 |
|
(2.5 |
) |
|
|
3.5 |
|
|
|
2.3 |
|
|
|
8.1 |
|
Earnings from operations |
|
|
62.7 |
|
|
|
87.8 |
|
|
|
103.3 |
|
|
|
147.2 |
|
Finance costs |
6 |
|
13.1 |
|
|
|
22.1 |
|
|
|
22.9 |
|
|
|
43.8 |
|
Earnings before income
taxes |
|
|
49.6 |
|
|
|
65.7 |
|
|
|
80.4 |
|
|
|
103.4 |
|
Income tax expense
(recovery) |
9 |
|
|
|
|
|
|
|
Current |
|
|
23.5 |
|
|
|
11.9 |
|
|
|
37.0 |
|
|
|
29.8 |
|
Deferred |
|
|
(9.5 |
) |
|
|
(1.7 |
) |
|
|
(14.0 |
) |
|
|
(6.6 |
) |
|
|
|
14.0 |
|
|
|
10.2 |
|
|
|
23.0 |
|
|
|
23.2 |
|
Net earnings for the
period |
|
$ |
35.6 |
|
|
$ |
55.5 |
|
|
$ |
57.4 |
|
|
$ |
80.2 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.29 |
|
|
$ |
0.46 |
|
|
$ |
0.46 |
|
|
$ |
0.66 |
|
Diluted earnings per
share |
|
$ |
0.29 |
|
|
$ |
0.46 |
|
|
$ |
0.46 |
|
|
$ |
0.66 |
|
|
|
|
|
|
|
|
|
|
Shares used in computing per
share amounts (in millions): |
|
|
|
|
|
|
|
|
Basic |
|
|
124.0 |
|
|
|
120.3 |
|
|
|
124.3 |
|
|
|
120.9 |
|
Diluted |
|
|
124.0 |
|
|
|
120.3 |
|
|
|
124.3 |
|
|
|
120.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
|
CELESTICA INC. |
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME |
(in millions of U.S. dollars) |
(unaudited) |
|
|
Three months ended |
|
Six months ended |
|
June 30 |
|
June 30 |
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
|
|
|
|
|
|
Net earnings for the
period |
$ |
35.6 |
|
|
$ |
55.5 |
|
|
$ |
57.4 |
|
|
$ |
80.2 |
|
Other comprehensive income
(loss), net of tax: |
|
|
|
|
|
|
|
Items that may be reclassified to net earnings: |
|
|
|
|
|
|
|
Currency translation differences for foreign operations |
|
(5.1 |
) |
|
|
(3.1 |
) |
|
|
(7.9 |
) |
|
|
(4.6 |
) |
Changes from currency forward derivative hedges |
|
(8.5 |
) |
|
|
(6.5 |
) |
|
|
(5.5 |
) |
|
|
(5.4 |
) |
Changes from interest rate swap derivative hedges |
|
5.0 |
|
|
|
4.5 |
|
|
|
15.5 |
|
|
|
0.9 |
|
Total comprehensive income for
the period |
$ |
27.0 |
|
|
$ |
50.4 |
|
|
$ |
59.5 |
|
|
$ |
71.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
|
CELESTICA INC. |
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY |
(in millions of U.S. dollars) |
(unaudited) |
|
|
Note |
Capital stock(note
7) |
|
Treasury
stock (note 7) |
|
Contributedsurplus |
|
Deficit |
|
Accumulated other
comprehensiveloss
(a) |
|
Total equity |
Balance – January 1, 2022 |
|
$ |
1,764.5 |
|
|
$ |
(48.9 |
) |
|
$ |
1,029.8 |
|
|
$ |
(1,255.6 |
) |
|
$ |
(26.8 |
) |
|
$ |
1,463.0 |
|
Capital
transactions: |
7 |
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital stock |
|
|
0.5 |
|
|
|
— |
|
|
|
(0.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
Repurchase of capital stock for cancellation(b) |
|
|
(25.4 |
) |
|
|
(0.4 |
) |
|
|
15.7 |
|
|
|
— |
|
|
|
— |
|
|
|
(10.1 |
) |
Purchase of treasury stock for stock-based compensation (SBC) plans
(c) |
|
|
— |
|
|
|
(11.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11.1 |
) |
Equity-settled SBC |
|
|
— |
|
|
|
31.6 |
|
|
|
(3.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
28.2 |
|
Total comprehensive
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
57.4 |
|
|
|
— |
|
|
|
57.4 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences for foreign operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7.9 |
) |
|
|
(7.9 |
) |
Changes from currency forward derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5.5 |
) |
|
|
(5.5 |
) |
Changes from interest rate swap derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15.5 |
|
|
|
15.5 |
|
Balance – June 30,
2022 |
|
$ |
1,739.6 |
|
|
$ |
(28.8 |
) |
|
$ |
1,041.7 |
|
|
$ |
(1,198.2 |
) |
|
$ |
(24.7 |
) |
|
$ |
1,529.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – January 1,
2023 |
|
$ |
1,714.9 |
|
|
$ |
(18.5 |
) |
|
$ |
1,063.6 |
|
|
$ |
(1,076.6 |
) |
|
$ |
(5.7 |
) |
|
$ |
1,677.7 |
|
Capital
transactions: |
7 |
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital stock (d) |
|
|
0.2 |
|
|
|
— |
|
|
|
(0.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Repurchase of capital stock for cancellation |
7 |
|
(37.3 |
) |
|
|
1.8 |
|
|
|
9.9 |
|
|
|
— |
|
|
|
— |
|
|
|
(25.6 |
) |
Purchase of treasury stock for SBC plans (e) |
|
|
— |
|
|
|
(26.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(26.6 |
) |
SBC cash settlement |
7 |
|
— |
|
|
|
— |
|
|
|
(49.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
(49.8 |
) |
Equity-settled SBC |
|
|
— |
|
|
|
15.5 |
|
|
|
18.3 |
|
|
|
— |
|
|
|
— |
|
|
|
33.8 |
|
Total comprehensive
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
80.2 |
|
|
|
— |
|
|
|
80.2 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences for foreign operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4.6 |
) |
|
|
(4.6 |
) |
Changes from currency forward derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5.4 |
) |
|
|
(5.4 |
) |
Changes from interest rate swap derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.9 |
|
|
|
0.9 |
|
Balance – June 30,
2023 |
|
$ |
1,677.8 |
|
|
$ |
(27.8 |
) |
|
$ |
1,041.8 |
|
|
$ |
(996.4 |
) |
|
$ |
(14.8 |
) |
|
$ |
1,680.6 |
|
(a) Accumulated other comprehensive loss is net
of tax.
(b) Consists of $17.6 paid to
repurchase subordinate voting shares (SVS) for cancellation under
our normal course issuer bid (NCIB) during the first half of 2022,
offset in part by the reversal of $7.5 accrued as of December 31,
2021 for the estimated contractual maximum number of permitted SVS
repurchases (Contractual Maximum Quantity) for cancellation under
an automatic share purchase plan (ASPP) executed in December 2021
for such purpose (see note 7).
(c) Consists of $44.9 paid to
repurchase SVS for delivery obligations under our SBC plans during
the first half of 2022, offset in part by the reversal of $33.8
accrued as of December 31, 2021 for the estimated Contractual
Maximum Quantity under a separate ASPP executed in December 2021
for such purpose (see note 7).
(d) In June 2023, we issued
11.8 million SVS upon conversion of an equivalent number of our
multiple voting shares with nil impact on our aggregate capital
stock amount (see note 7).
(e) Consists of $5.2 paid to
repurchase SVS for delivery obligations under our SBC plans during
the first half of 2023 and $21.4 accrued as of June 30, 2023
for the estimated Contractual Maximum Quantity under an ASPP
executed in June 2023 for such purpose (see note 7).
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
|
CELESTICA INC. |
CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS |
(in millions of U.S. dollars) |
(unaudited) |
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30 |
|
June 30 |
|
Note |
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
|
|
|
|
|
|
|
Cash provided by (used
in): |
|
|
|
|
|
|
|
|
Operating
activities: |
|
|
|
|
|
|
|
|
Net earnings for the
period |
|
$ |
35.6 |
|
|
$ |
55.5 |
|
|
$ |
57.4 |
|
|
$ |
80.2 |
|
Adjustments to net earnings
for items not affecting cash: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
35.9 |
|
|
|
39.4 |
|
|
|
71.8 |
|
|
|
77.7 |
|
Equity-settled employee SBC expense |
7 |
|
13.2 |
|
|
|
10.9 |
|
|
|
27.8 |
|
|
|
32.9 |
|
Total return swap fair value adjustments |
|
|
— |
|
|
|
(5.0 |
) |
|
|
— |
|
|
|
(4.8 |
) |
Other charges |
8 |
|
0.6 |
|
|
|
2.9 |
|
|
|
0.9 |
|
|
|
2.9 |
|
Finance costs |
|
|
13.1 |
|
|
|
22.1 |
|
|
|
22.9 |
|
|
|
43.8 |
|
Income tax expense |
|
|
14.0 |
|
|
|
10.2 |
|
|
|
23.0 |
|
|
|
23.2 |
|
Other |
|
|
1.7 |
|
|
|
3.6 |
|
|
|
2.4 |
|
|
|
6.9 |
|
Changes in non-cash working
capital items: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
32.3 |
|
|
|
(43.7 |
) |
|
|
49.2 |
|
|
|
89.8 |
|
Inventories |
|
|
(263.8 |
) |
|
|
57.7 |
|
|
|
(501.6 |
) |
|
|
4.7 |
|
Other current assets |
|
|
(28.6 |
) |
|
|
20.7 |
|
|
|
(39.1 |
) |
|
|
29.3 |
|
Accounts payable, accrued and other current liabilities and
provisions |
|
|
251.3 |
|
|
|
(4.1 |
) |
|
|
435.1 |
|
|
|
(133.3 |
) |
Non-cash working capital
changes |
|
|
(8.8 |
) |
|
|
30.6 |
|
|
|
(56.4 |
) |
|
|
(9.5 |
) |
Net income tax paid |
|
|
(18.4 |
) |
|
|
(40.0 |
) |
|
|
(27.6 |
) |
|
|
(50.8 |
) |
Net cash provided by operating
activities |
|
|
86.9 |
|
|
|
130.2 |
|
|
|
122.2 |
|
|
|
202.5 |
|
|
|
|
|
|
|
|
|
|
Investing
activities: |
|
|
|
|
|
|
|
|
Purchase of computer software
and property, plant and equipment |
|
|
(21.6 |
) |
|
|
(32.1 |
) |
|
|
(38.0 |
) |
|
|
(65.2 |
) |
Proceeds related to the sale
of assets |
|
|
0.1 |
|
|
|
0.9 |
|
|
|
0.1 |
|
|
|
0.9 |
|
Net cash used in investing
activities |
|
|
(21.5 |
) |
|
|
(31.2 |
) |
|
|
(37.9 |
) |
|
|
(64.3 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities: |
|
|
|
|
|
|
|
|
Repayments under term
loans |
6 |
|
(4.5 |
) |
|
|
(4.6 |
) |
|
|
(9.1 |
) |
|
|
(9.2 |
) |
Lease payments |
|
|
(11.9 |
) |
|
|
(12.8 |
) |
|
|
(23.1 |
) |
|
|
(24.1 |
) |
Issuance of capital stock |
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
|
|
— |
|
Repurchase of capital stock
for cancellation |
7 |
|
(9.8 |
) |
|
|
(15.0 |
) |
|
|
(17.6 |
) |
|
|
(25.6 |
) |
Purchase of treasury stock for
stock-based plans |
7 |
|
(10.1 |
) |
|
|
(5.2 |
) |
|
|
(44.9 |
) |
|
|
(5.2 |
) |
SBC cash settlement |
7 |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(49.8 |
) |
Finance costs paid(a) |
6 |
|
(10.2 |
) |
|
|
(19.4 |
) |
|
|
(18.2 |
) |
|
|
(38.1 |
) |
Net cash used in financing
activities |
|
|
(46.5 |
) |
|
|
(57.0 |
) |
|
|
(112.8 |
) |
|
|
(152.0 |
) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in
cash and cash equivalents |
|
|
18.9 |
|
|
|
42.0 |
|
|
|
(28.5 |
) |
|
|
(13.8 |
) |
Cash and cash equivalents,
beginning of period |
|
|
346.6 |
|
|
|
318.7 |
|
|
|
394.0 |
|
|
|
374.5 |
|
Cash and cash equivalents, end
of period |
|
$ |
365.5 |
|
|
$ |
360.7 |
|
|
$ |
365.5 |
|
|
$ |
360.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Finance costs paid in the
three and six months ended June 30, 2023 include nil debt
issuance costs (three and six months ended June 30, 2022 — nil
and $0.8, respectively).
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
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 MATERIAL ACCOUNTING
POLICIES
Statement of compliance:
These unaudited interim condensed consolidated
financial statements for the period ended June 30, 2023 (Q2
2023 Interim Financial Statements) have been prepared in accordance
with International Accounting Standard (IAS) 34, Interim Financial
Reporting, and the accounting policies we have adopted in
accordance with International Financial Reporting Standards (IFRS),
in each case as issued by the International Accounting Standards
Board (IASB), and reflect all adjustments that are, in the opinion
of management, necessary to present fairly our financial position
as of June 30, 2023 and our financial performance,
comprehensive income and cash flows for the three and six months
ended June 30, 2023 (referred to herein as Q2 2023 and 1H
2023, respectively). The Q2 2023 Interim Financial Statements
should be read in conjunction with our 2022 audited consolidated
financial statements (2022 AFS), which are included in our Annual
Report on Form 20-F for the year ended December 31, 2022. The Q2
2023 Interim Financial Statements are presented in United States
(U.S.) dollars, which is also Celestica’s functional currency.
Unless otherwise noted, all financial information is presented in
millions of U.S. dollars (except percentages and per share
amounts).
The Q2 2023 Interim Financial Statements were
authorized for issuance by our board of directors on July 26,
2023.
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, the reported amounts of assets, 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 global supply chain constraints and the impact of the
fire event in June 2022 described in note 12), historical
experience and various other factors that we believe are reasonable
under the circumstances. The economic environment also impacts
certain estimates and discount rates necessary to prepare our
consolidated financial statements, including significant estimates
and discount rates applicable to the determination of the
recoverable amounts used in the impairment testing of our
non-financial assets. Our assessment of these factors forms the
basis for our judgments on the carrying values of our assets and
liabilities, and the accrual of our costs and expenses. Actual
results could differ materially from our estimates and assumptions.
We review our estimates and underlying assumptions on an ongoing
basis and make revisions as determined necessary by management.
Revisions are recognized in the period in which the estimates are
revised and may also impact future periods.
Our review of the estimates, judgments and
assumptions used in the preparation of the Q2 2023 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
write-downs and expected credit losses, and customer
creditworthiness. Any revisions to estimates, judgments or
assumptions may result in, among other things, write-downs,
accelerated depreciation or amortization, or impairment of 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:
Except for: (i) Amendments to IAS 1 and IFRS
Practice Statement 2, IAS 8, and IAS 12; and (ii) IFRS 17, each
adopted as of January 1, 2023 as described below, the Q2 2023
Interim Financial Statements are based on accounting policies
consistent with those described in note 2 to our 2022 AFS.
Recently adopted accounting standards
and amendments:
Making Materiality Judgements (Amendments to IAS
1 and IFRS Practice Statement 2)
In February 2021, the IASB issued amendments to
IAS 1 and IFRS Practice Statement 2 “Making Materiality
Judgements”, which provide guidance and examples to help entities
apply materiality judgements to accounting policy disclosures. The
amendments aim to help entities provide accounting policy
disclosures that are more useful by replacing the requirement for
entities to disclose their “significant” accounting policies with a
requirement to disclose their material accounting policies and
adding guidance on how entities are to apply the concept of
materiality in making decisions about accounting policy
disclosures. These amendments are applicable for annual periods
beginning on or after January 1, 2023. These amendments, which we
adopted as of such date, had no material impact and will be
reflected in our annual 2023 consolidated financial statements.
Definition of accounting estimates (Amendments to IAS 8)
In February 2021, the IASB issued Definition of
accounting estimates (Amendments to IAS 8) to clarify the
distinction between accounting policies and accounting estimates.
The amendments are effective for reporting periods beginning on or
after January 1, 2023. We adopted this standard as of January 1,
2023. The adoption of this standard had no material impact on our
consolidated financial statements.
Deferred tax related to assets and liabilities arising from a
single transaction (Amendments to IAS 12 Income Taxes)
In May 2021, the IASB issued Deferred tax
related to assets and liabilities arising from a single transaction
(Amendments to IAS 12 Income Taxes) to clarify how to account for
deferred tax on transactions such as leases and decommissioning
obligations. The amendments are effective for reporting periods
beginning on or after January 1, 2023. We adopted this standard as
of January 1, 2023. The adoption of this standard had no material
impact on our consolidated financial statements.
International Tax Reform — Pillar Two Model
Rules (Amendments to IAS 12 Income Taxes)
In May 2023, the IASB issued amendments to IAS
12 to give entities temporary mandatory relief from accounting for
deferred taxes arising from the Organization for Economic
Co-operation and Development’s international tax reform. The
amendments became effective upon issuance, except for certain
disclosure requirements which become effective for annual reporting
periods beginning on or after January 1, 2023. We adopted the
required amendments in May 2023, and have applied the mandatory
temporary exception to recognizing and disclosing information
related to Pillar Two income taxes. We are currently in the process
of evaluating the impact of the Pillar Two Model Rules on our
consolidated financial statements.
IFRS 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17 Insurance
Contracts. IFRS 17 replaces IFRS 4 and sets out principles for the
recognition, measurement, presentation and disclosure of insurance
contracts within the scope of IFRS 17. This standard is effective
for reporting periods beginning on or after January 1, 2023. We
adopted this standard as of January 1, 2023. The adoption of this
standard had no material impact on our consolidated financial
statements.
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. See note 25 to our 2022 AFS for
a description of the businesses that comprise our segments. Segment
performance is evaluated based on segment revenue, segment income
and segment margin (segment income as a percentage of segment
revenue). Segment income is defined as a segment’s net revenue less
its cost of sales and its allocable portion of selling, general and
administrative expenses and research and development expenses
(collectively, Segment Costs). Identifiable Segment Costs are
allocated directly to the applicable segment while other Segment
Costs, including indirect costs and certain corporate charges, are
allocated to our segments based on an analysis of the relative
usage or benefit derived by each segment from such costs. Segment
income excludes finance costs (defined in note 6), employee
stock-based compensation (SBC) expense, fair value adjustments (TRS
FVAs) related to our total return swap agreement (TRS Agreement)
executed in December 2022 (commencing in the first quarter of 2023
(Q1 2023)), amortization of intangible assets (excluding computer
software), and other charges (recoveries) (the components of which
are described in note 8), as these costs and charges are managed
and reviewed by our Chief Executive Officer at the company level.
Although segment income and segment margin are used to evaluate the
performance of our segments, we may incur operating costs in one
segment that may also benefit the other segment. Our accounting
policies for segment reporting are the same as those applied to
Celestica as a whole.
Information regarding the performance of our
reportable segments is set forth below:
Revenue by
segment: |
Three months ended June 30 |
|
Six months ended June 30 |
|
2022 |
|
2023 |
|
2022 |
|
2023 |
|
|
% of total |
|
|
% of total |
|
|
% of total |
|
|
% of total |
ATS |
$ |
695.3 |
40 |
% |
|
$ |
865.3 |
45 |
% |
|
$ |
1,392.0 |
42 |
% |
|
$ |
1,657.5 |
44 |
% |
CCS |
|
1,021.9 |
60 |
% |
|
|
1,074.1 |
55 |
% |
|
|
1,892.1 |
58 |
% |
|
|
2,119.7 |
56 |
% |
Communications end market revenue as a % of total revenue |
|
39 |
% |
|
|
29 |
% |
|
|
38 |
% |
|
|
32 |
% |
Enterprise end market revenue as a % of total revenue |
|
21 |
% |
|
|
26 |
% |
|
|
20 |
% |
|
|
24 |
% |
Total |
$ |
1,717.2 |
|
|
$ |
1,939.4 |
|
|
$ |
3,284.1 |
|
|
$ |
3,777.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
income, segment margin, and reconciliation of segment income to
IFRS earnings before income taxes: |
Three months ended June 30 |
|
Six months ended June 30 |
|
Note |
2022 |
|
2023 |
|
2022 |
|
2023 |
|
|
|
Segment Margin |
|
|
Segment Margin |
|
|
Segment Margin |
|
|
Segment Margin |
ATS segment income and margin |
|
$ |
31.6 |
|
4.5 |
% |
|
$ |
41.9 |
|
4.8 |
% |
|
$ |
66.7 |
4.8 |
% |
|
$ |
76.5 |
|
4.6 |
% |
CCS segment income and
margin |
|
|
51.1 |
|
5.0 |
% |
|
|
64.5 |
|
6.0 |
% |
|
|
85.3 |
4.5 |
% |
|
|
125.3 |
|
5.9 |
% |
Total segment income |
|
|
82.7 |
|
|
|
|
106.4 |
|
|
|
|
152.0 |
|
|
|
201.8 |
|
|
Reconciling items: |
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs |
6 |
|
13.1 |
|
|
|
|
22.1 |
|
|
|
|
22.9 |
|
|
|
43.8 |
|
|
Employee SBC expense |
|
|
13.2 |
|
|
|
|
10.9 |
|
|
|
|
27.8 |
|
|
|
32.9 |
|
|
TRS FVAs (gains) |
10 |
|
— |
|
|
|
|
(5.0 |
) |
|
|
|
— |
|
|
|
(4.8 |
) |
|
Amortization of intangible
assets (excluding computer software) |
|
|
9.3 |
|
|
|
|
9.2 |
|
|
|
|
18.6 |
|
|
|
18.4 |
|
|
Other charges
(recoveries) |
8 |
|
(2.5 |
) |
|
|
|
3.5 |
|
|
|
|
2.3 |
|
|
|
8.1 |
|
|
IFRS earnings before income
taxes |
|
$ |
49.6 |
|
|
|
$ |
65.7 |
|
|
|
$ |
80.4 |
|
|
$ |
103.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers:
One customer (in our CCS segment) individually
represented 10% or more of total revenue in Q2 2023 (18%) and 1H
2023 (17%). One customer (in our CCS segment) represented 10% or
more of total revenue (13%) in the second quarter of 2022 (Q2
2022). No customer represented 10% or more of total revenue in the
first half of 2022 (1H 2022).
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.
ACCOUNTS RECEIVABLE
Accounts receivable (A/R) sales program
and supplier financing programs (SFPs):
We are party to an A/R sales program agreement
with a third-party bank to sell up to $450.0 (as amended at the end
of March 2023 to increase the prior limit of $405.0) in A/R on an
uncommitted, revolving basis, subject to pre-determined limits by
customer. This agreement provides for automatic annual one-year
extensions, and may be terminated at any time by the bank or by us
upon 3 months’ prior notice, or by the bank upon specified
defaults. Under our A/R sales program, we continue to collect cash
from our customers and remit amounts collected to the bank
weekly.
As of June 30, 2023, 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 June 30, 2023, we sold $253.5 of A/R
(December 31, 2022 — $245.6) under our A/R sales program,
and $112.4 of A/R (December 31, 2022 — $105.6) under the SFPs.
The A/R sold under each of these programs are de-recognized from
our A/R balance at the time of sale, and the proceeds are reflected
as cash provided by operating activities in our consolidated
statement of cash flows. Upon sale, we assign the rights to the A/R
to the banks. A/R are sold net of discount charges, which are
recorded as finance costs in our consolidated statement of
operations.
Contract assets:
At June 30, 2023, our A/R balance included
$215.3 (December 31, 2022 — $292.9) of contract assets
recognized as revenue in accordance with our revenue recognition
accounting policy.
5.
INVENTORIES
We record inventory write-downs, net of
valuation recoveries, in cost of sales. Inventories are valued at
the lower of cost and net realizable value. Inventory write-downs
reflect the write-down of inventory to its net realizable value.
Valuation recoveries primarily reflect gains on the disposition of
previously written-down inventory and recoveries reflecting current
and forecasted usage. We recorded net inventory write-downs of $9.5
and $23.3 for Q2 2023 and 1H 2023, respectively (Q2 2022 — $5.7; 1H
2022 — $8.2). The accounting treatment of inventories destroyed in
a fire event in June 2022 is described in note 12.
We receive cash deposits from certain of our
customers primarily to help mitigate the impact of high inventory
levels carried due to the current constrained materials
environment, and to reduce risks related to excess and/or obsolete
inventory. Such deposits as of June 30, 2023 totaled $809.7
(December 31, 2022 — $825.6), and were recorded in accrued and
other current liabilities on our consolidated balance sheet.
6.
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 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). 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 in March 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 in December
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.
On June 14, 2023 (effective for all new interest
periods for existing borrowings and all new borrowings as of such
date), we amended our Credit Facility (June 2023 Amendments) to
replace LIBOR with the term Secured Overnight Financing Rate (SOFR)
plus 0.1% (Adjusted Term SOFR). The June 2023 Amendments did not
have a significant impact on our Q2 2023 Interim Financial
Statements. Borrowings under the Revolver bear interest, depending
on the currency of the borrowing and our election for such
currency, at: (i) LIBOR for interest periods beginning prior to
June 14, 2023 and Adjusted Term SOFR thereafter, (ii) Base Rate,
(iii) Canadian Prime, (iv) an Alternative Currency Daily Rate, or
(v) 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 and Adjusted Term SOFR borrowings (as applicable)
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. As of
June 30, 2023, the Initial Term Loan bears interest at
Adjusted Term SOFR plus 2.125%, and the Incremental Term Loan bears
interest at Adjusted Term SOFR plus 2.0%.
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 have been paid in prior years.
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 2022 excess cash flow will be required in
2023. 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 2022 net
cash proceeds will be required in 2023. Any outstanding amounts
under the Revolver are due at maturity.
Activity under our Credit Facility during 2022
and 1H 2023 is set forth below:
|
Revolver (1) |
|
Term loans |
Outstanding balances as of December 31, 2021 |
$ |
— |
|
$ |
660.4 |
|
Amount repaid in Q1
2022(2) |
|
— |
|
|
(4.5625 |
) |
Amount repaid in Q2
2022(2) |
|
— |
|
|
(4.5625 |
) |
Amount repaid in Q3
2022(2) |
|
— |
|
|
(4.5625 |
) |
Amount repaid in Q4
2022(3) |
|
— |
|
|
(19.5625 |
) |
Outstanding balances as of
December 31, 2022 |
$ |
— |
|
$ |
627.2 |
|
Amount repaid in Q1
2023(2) |
|
— |
|
|
(4.5625 |
) |
Amount repaid in Q2
2023(2) |
|
— |
|
|
(4.5625 |
) |
Outstanding balances as of
June 30, 2023 |
$ |
— |
|
$ |
618.0 |
|
(1) In addition to the activity
described in this table, we have drawn on the Revolver for short
term borrowings from time-to-time during the periods set forth
above and repaid such borrowings in full within the quarter
borrowed, with no impact to the amounts outstanding at the relevant
quarter-end. Such intra-quarter borrowings and repayments are
excluded from this table.
(2) Represents the scheduled
quarterly principal repayment under the Incremental Term Loan.
(3) Represents the scheduled
quarterly principal repayment under the Incremental Term Loan and a
$15.0 voluntary prepayment under the Initial Term Loan.
At June 30, 2023 and December 31,
2022, 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
10) |
|
December 312022 |
|
June 302023 |
|
December 312022 |
|
June 302023 |
Borrowings under the Revolver |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
$ |
— |
Borrowings under term
loans: |
|
|
|
|
|
|
|
Initial Term Loan |
$ |
280.4 |
|
|
$ |
280.4 |
|
|
$ |
100.0 |
|
$ |
100.0 |
Incremental Term Loan |
|
346.8 |
|
|
|
337.6 |
|
|
|
230.0 |
|
|
230.0 |
Total |
$ |
627.2 |
|
|
$ |
618.0 |
|
|
$ |
330.0 |
|
$ |
330.0 |
Total borrowings under Credit
Facility |
$ |
627.2 |
|
|
$ |
618.0 |
|
|
|
|
|
Unamortized debt issuance
costs related to our term loans (1) |
|
(3.5 |
) |
|
|
(3.1 |
) |
|
|
|
|
Lease obligations(2) |
|
162.4 |
|
|
|
168.5 |
|
|
|
|
|
|
$ |
786.1 |
|
|
$ |
783.4 |
|
|
|
|
|
Total Credit Facility and
lease obligations: |
|
|
|
|
|
|
|
Current portion |
$ |
52.2 |
|
|
$ |
65.4 |
|
|
|
|
|
Long-term portion |
|
733.9 |
|
|
|
718.0 |
|
|
|
|
|
|
$ |
786.1 |
|
|
$ |
783.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) We incur debt issuance
costs upon execution of, subsequent security arrangements under,
and amendments to the Credit Facility. Debt issuance costs incurred
in Q2 2023 and 1H 2023 in connection with our Revolver totaling
$0.2 (Q2 2022 and 1H 2022 — nil and $0.3 respectively) 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 Q2 2023 and 1H 2023 in
connection with our Term Loans totaling $0.2 (Q2 2022 and 1H 2022 —
nil and $0.3 respectively) 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 payment obligations
recognized as liabilities as of December 31, 2022 and June 30,
2023, respectively, which have been discounted using our
incremental borrowing rate on the lease commencement dates. In
addition to these lease obligations, we have commitments under
additional real property leases not recognized as liabilities as of
June 30, 2023 because such leases had not yet commenced as of
such date. A description of these leases and minimum lease
obligations thereunder are disclosed in note 24 to the 2022
AFS.
The following table sets forth, at the dates
shown, information regarding outstanding L/Cs, surety bonds and
overdraft facilities:
|
December 312022 |
|
June 302023 |
Outstanding L/Cs under the Revolver |
$ |
18.0 |
|
$ |
17.3 |
Outstanding L/Cs and surety
bonds outside the Revolver |
|
23.8 |
|
|
15.8 |
Total |
$ |
41.8 |
|
$ |
33.1 |
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
TRS Agreement, our A/R sales program and the SFPs, and interest
expense on our lease obligations, net of interest income
earned.
7.
CAPITAL STOCK
Secondary Offering by Onex Corporation
(Onex):
In connection with an underwritten secondary
public offering by Onex, our controlling shareholder, of 12 million
SVS completed in June 2023 (Secondary Offering), we issued
approximately 11.8 million SVS upon conversion of an equivalent
number of our multiple voting shares. This transaction had nil
impact on our aggregate capital stock amount.
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 December 2, 2021, the TSX accepted our notice
to launch an NCIB (2021 NCIB), which allowed 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. In each of December 2021 and June 2022, we entered into
an NCIB ASPP, each of which has since expired. We accrued $7.5 at
December 31, 2021, representing the estimated contractual maximum
number of permitted SVS repurchases (Contractual Maximum Quantity)
under the December 2021 NCIB ASPP (0.7 million SVS), which was
reversed in 1H 2022. There was no such accrual at June 30, 2022. In
each of December 2021 and May 2022, we entered into an SBC ASPP,
each of which has since expired. We accrued $33.8 at December 31,
2021, representing the estimated Contractual Maximum Quantity
(3.0 million SVS) under the December 2021 SBC ASPP, which was
reversed in 1H 2022. There was no such accrual at June 30,
2022.
On December 8, 2022, the TSX accepted our notice
to launch another NCIB (2022 NCIB), which allows us to repurchase,
at our discretion, from December 13, 2022 until the earlier of
December 12, 2023 or the completion of purchases thereunder, up to
approximately 8.8 million of our SVS in the open market, or as
otherwise permitted, subject to the normal terms and limitations of
such bids. As of June 30, 2023, approximately 6.3 million
SVS remain available for repurchase under the 2022 NCIB. In each of
December 2022 and February 2023, we entered into an NCIB ASPP, each
of which has since expired. There was no NCIB ASPP accrual at
December 31, 2022 or June 30, 2023. In May 2023, we
entered into an SBC ASPP which expired in June 2023. In June 2023,
we entered into another SBC ASPP. In connection with the June 2023
SBC ASPP, we recorded an accrual of $21.4 as of June 30, 2023
(June 2023 SBC Accrual), representing the Contractual Maximum
Quantity (1.5 million SVS) thereunder.
SVS repurchased in Q2 2023, 1H 2023 and the
respective prior year periods for cancellation and for SBC plan
delivery obligations (including under ASPPs) are set forth in the
chart below.
SVS repurchases:
|
Three months ended June 30 |
|
Six months ended June 30 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 |
Aggregate cost(1) of SVS
repurchased for
cancellation |
$ |
9.8 |
|
$ |
15.0 |
|
$ |
17.6 |
|
$ |
25.6 |
Number of SVS repurchased for
cancellation (in
millions)(2) |
|
1.0 |
|
|
1.4 |
|
|
1.7 |
|
|
2.2 |
Weighted average price per
share for
repurchases |
$ |
10.30 |
|
$ |
11.03 |
|
$ |
10.80 |
|
$ |
11.80 |
Aggregate cost(1) of SVS
repurchased for delivery under SBC plans (3) (see
below) |
$ |
10.1 |
|
$ |
5.2 |
|
$ |
44.9 |
|
$ |
5.2 |
Number of SVS repurchased for
delivery under SBC plans (in
millions)(4) |
|
0.9 |
|
|
0.4 |
|
|
3.9 |
|
|
0.4 |
(1) Includes transaction
fees.(2) For Q2 2023 and 1H 2023, includes 0.5
million and 0.9 million NCIB ASPP purchases of SVS for
cancellation, respectively. For Q2 2022 and 1H 2022, includes 1.0
million and 1.2 million NCIB ASPP purchases of SVS for
cancellation, respectively.(3) For Q2 2023 and 1H
2023, excludes the $21.4 June 2023 SBC
Accrual.(4) For each period, consists entirely of
SBC ASPP purchases through an independent broker.
SBC:
From time to time, we pay cash to a broker to
purchase SVS in the open market to satisfy delivery requirements
under our SBC plans. At June 30, 2023, the broker held 0.5
million SVS with a value of $6.4 (December 31, 2022 — 1.5
million SVS with a value of $16.7) for this purpose, which we
report as treasury stock on our consolidated balance sheet. We used
1.4 million SVS held by the broker (including additional SVS
purchased during 1H 2023) to settle SBC awards during 1H 2023.
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 varies from 0% to 200% of
a target amount granted. For PSUs granted in 2020, 2021 and 2022,
the number of PSUs that vested (or will vest) are based on the
level of achievement of a pre-determined non-market performance
measurement in the final year of the relevant 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), a market performance condition, compared
to a pre-defined group of companies, in each case over the relevant
three-year performance period. For PSUs granted in 2023, the number
of PSUs that will vest are based on the level of achievement of a
different predetermined non-market performance measurement, subject
to modification by our relative TSR compared to a pre-defined group
of companies, in each case over the relevant three-year performance
period. 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 2022 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 the periods
below):
|
Three months ended June 30 |
|
Six months ended June 30 |
|
2022 |
|
2023 |
|
2022 |
|
2023 |
RSUs
Granted: |
Number of awards (in millions) |
|
0.2 |
|
|
0.1 |
|
|
1.9 |
|
|
1.9 |
Weighted average grant date
fair value per unit |
$ |
11.01 |
|
$ |
11.53 |
|
$ |
12.30 |
|
$ |
12.69 |
|
PSUs
Granted: |
Number of awards (in millions,
representing 100% of target) |
|
0.1 |
|
|
0.009 |
|
|
1.3 |
|
|
1.3 |
Weighted average grant date
fair value per unit |
$ |
12.42 |
|
$ |
10.63 |
|
$ |
14.27 |
|
$ |
14.98 |
|
|
|
|
|
|
|
|
DSUs
Granted: |
Number of awards (in
millions) |
|
0.03 |
|
|
0.03 |
|
|
0.06 |
|
|
0.06 |
Weighted average grant date
fair value per unit |
$ |
9.72 |
|
$ |
14.42 |
|
$ |
10.70 |
|
$ |
13.58 |
|
|
|
|
|
|
|
|
|
|
|
|
In Q1 2023, we settled a portion of RSUs and
PSUs that vested during the quarter with a cash payment of
$49.8.
In December 2022, we entered into the TRS
Agreement to manage cash flow requirements and our exposure to
fluctuations in the share price of our SVS in connection with the
settlement of certain outstanding equity awards under our SBC
plans. See note 10 for further detail.
Information regarding employee and director SBC
expense and TRS FVAs for the periods indicated is set forth
below:
|
Three months ended June 30 |
|
Six months ended June 30 |
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
Employee SBC expense in cost of sales |
$ |
5.3 |
|
$ |
4.8 |
|
|
$ |
10.9 |
|
$ |
13.3 |
|
Employee SBC expense in
SG&A |
|
7.9 |
|
|
6.1 |
|
|
|
16.9 |
|
|
19.6 |
|
Total employee SBC
expense |
$ |
13.2 |
|
$ |
10.9 |
|
|
$ |
27.8 |
|
$ |
32.9 |
|
|
|
|
|
|
|
|
|
TRS FVAs (gains) in cost of
sales |
$ |
— |
|
$ |
(2.1 |
) |
|
$ |
— |
|
$ |
(2.0 |
) |
TRS FVAs (gains) in
SG&A |
|
— |
|
|
(2.9 |
) |
|
|
— |
|
|
(2.8 |
) |
Total TRS FVAs (gains) |
$ |
— |
|
$ |
(5.0 |
) |
|
$ |
— |
|
$ |
(4.8 |
) |
|
|
|
|
|
|
|
|
Sum of employee SBC expense
and TRS FVAs |
$ |
13.2 |
|
$ |
5.9 |
|
|
$ |
27.8 |
|
$ |
28.1 |
|
|
|
|
|
|
|
|
|
Director SBC expense in
SG&A(1) |
$ |
0.5 |
|
$ |
0.6 |
|
|
$ |
1.1 |
|
$ |
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Expense consists of director compensation to be settled with
SVS, or SVS and cash, as elected by each director.
8.
OTHER CHARGES (RECOVERIES)
|
Three months ended June 30 |
|
Six months ended June 30 |
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
Restructuring charges (a) |
$ |
0.9 |
|
|
$ |
5.2 |
|
|
$ |
4.0 |
|
|
$ |
9.5 |
|
Transition Costs (Recoveries)
(b) |
|
(3.6 |
) |
|
|
— |
|
|
|
(2.1 |
) |
|
|
— |
|
Acquisition Costs (c) |
|
0.2 |
|
|
|
— |
|
|
|
0.4 |
|
|
|
0.3 |
|
Other costs (recoveries)
(d) |
|
— |
|
|
|
(1.7 |
) |
|
|
— |
|
|
|
(1.7 |
) |
|
$ |
(2.5 |
) |
|
$ |
3.5 |
|
|
$ |
2.3 |
|
|
$ |
8.1 |
|
(a)
Restructuring:
Our restructuring activities for Q2 2023 and 1H
2023 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 $2.3
and $6.6 in Q2 2023 and 1H 2023, respectively (Q2 2022 and 1H 2022
— $0.3 and $3.1, respectively), primarily for employee termination
costs. We recorded non-cash restructuring charges of $2.9 in Q2
2023 and 1H 2023, consisting primarily of accelerated depreciation
of equipment, building improvements and right-of-use assets related
to disengaging programs and vacated properties (Q2 2022 and 1H 2022
— $0.6 and $0.9, respectively, consisting primarily of the
accelerated depreciation of: (i) assets related to disengaging
programs in the first quarter of 2022 (Q1 2022); and (ii)
right-of-use assets in connection with vacated properties in Q2
2022). At June 30, 2023, our restructuring provision was $5.3
(December 31, 2022 — $5.8), 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 transfer of manufacturing lines from
closed sites to other sites within our global network; and (ii) 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 or Transition
Recoveries in Q2 2023 or 1H 2023. We incurred no Transition Costs
during Q2 2022 and $1.5 of Transition Costs during 1H 2022, related
primarily to the disposal of assets reclassified as held for sale
in Q1 2022. In Q2 2022 and 1H 2022, we recorded $3.6 in Transition
Recoveries, reflecting the gain on the disposal of such assets held
for sale.
(c) Acquisition
Costs:
We incur consulting, transaction and integration
costs relating to potential and completed acquisitions. We also
incur charges or releases related to the subsequent re-measurement
of indemnification assets or the release of indemnification or
other liabilities recorded in connection with acquisitions, when
applicable. Collectively, these costs, charges and releases are
referred to as Acquisition Costs (Recoveries).
We recorded Acquisition Costs of nil in Q2 2023
and $0.3 in 1H 2023 related to potential acquisitions (Q2 2022 —
$0.2; 1H 2022 — $0.4, each related to the acquisition of PCI
Private Limited in November 2021).
(d) Other
costs (recoveries):
Other in Q2 2023 and 1H 2023 consisted of legal
recoveries of $2.7 in connection with the settlement of class
action lawsuits (for component parts purchased in prior periods) in
which we were a plaintiff, offset in part by an aggregate of $1.0
of costs, substantially all of which consisted of fees and expenses
of the Secondary Offering (see note 7).
9.
INCOME TAXES
Our income tax expense or recovery for each
quarter is determined by multiplying the earnings or losses before
tax for such quarter by management’s best estimate of the
weighted-average annual income tax rate expected for the full year,
taking into account the tax effect of certain items recognized in
the interim period. As a result, the effective income tax rates
used in our interim financial statements may differ from
management’s estimate of the annual effective tax rate for the
annual financial statements. Our estimated annual effective income
tax rate varies as the quarters progress, for various reasons,
including as a result of the mix and volume of business in various
tax jurisdictions within the Americas, Europe and Asia, in
jurisdictions with tax holidays and tax incentives, and in
jurisdictions for which no net deferred income tax assets have been
recognized because management believes it is not probable that
future taxable profit will be available against which tax losses
and deductible temporary differences could be utilized. Our
annual effective income tax rate can also vary due to the impact of
restructuring charges, foreign exchange fluctuations, operating
losses, cash repatriations, and changes in our provisions related
to tax uncertainties.
Our Q2 2023 net income tax expense of $10.2
included a $2.0 tax expense arising from taxable temporary
differences associated with the anticipated repatriation of
undistributed earnings from certain of our Asian subsidiaries
(Repatriation Expense). Our 1H 2023 net income tax expense of $23.2
was favorably impacted by $5.5 in reversals of tax uncertainties in
one of our Asian subsidiaries, partially offset by a $3.3
Repatriation Expense. Taxable foreign exchange impacts were not
significant in Q2 2023 or 1H 2023.
Our Q2 2022 net income tax expense was $14.0.
Our 1H 2022 net income tax expense of $23.0 was favorably impacted
by $4.9 in reversals of tax uncertainties in one of our Asian
subsidiaries. Taxable foreign exchange impacts were not significant
in Q2 2022 or 1H 2022.
10.
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.
Equity price risk:
In December 2022, we entered into the TRS
Agreement with a third-party bank with respect to a notional amount
of 3.0 million of our SVS (Notional Amount) to manage our cash flow
requirements and exposure to fluctuations in the price of our SVS
in connection with the settlement of certain outstanding equity
awards under our SBC plans. The counterparty under the TRS
Agreement is obligated to make a payment to us upon its termination
(in whole or in part) or expiration (Settlement) based on the
increase (if any) in the value of the TRS (as defined in the TRS
Agreement) over the agreement’s term, in exchange for periodic
payments made by us based on the counterparty’s SVS purchase costs
and SOFR plus a specified margin. Similarly, if the value of the
TRS (as defined in the TRS Agreement) decreases over the term of
the TRS Agreement, we are obligated to pay the counterparty the
amount of such decrease upon Settlement. The change in value of the
TRS is determined by comparing the average amount realized by the
counterparty upon the disposition of purchased SVS to the average
amount paid for such SVS. By the end of Q1 2023, the counterparty
had acquired the entire Notional Amount at a weighted average price
of $12.73 per share. The TRS Agreement provides for automatic
annual one-year extensions (subject to specified conditions), and
may be terminated by either party at any time. The TRS does not
qualify for hedge accounting. As of June 30, 2023, the fair
value of TRS Agreement was an unrealized gain of $4.8, which we
recorded in other current assets on our consolidated balance sheet.
TRS FVAs (representing the change of fair value of TRS) are
recognized in our consolidated statement of operations each
quarter. See note 7 for TRS FVAs in Q2 2023 and 1H 2023.
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 with a fixed rate of interest for a portion of the
borrowings under our Term Loans. At June 30, 2023, 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.
We amended our Credit Facility in June 2023 to
replace LIBOR with Adjusted Term SOFR. See note 6. In June 2023,
all of our interest rate swap agreements were similarly amended.
None of these amendments (individually or in the aggregate) had a
significant impact on our Q2 2023 Interim Financial Statements. We
continue to apply hedge accounting to our interest rate swaps.
At June 30, 2023, the interest rate risk
related to $288.0 of borrowings under the Credit Facility was
unhedged, consisting of unhedged amounts outstanding under the Term
Loans ($180.4 under the Initial Term Loan and $107.6 under the
Incremental Term Loan), and no amounts outstanding (other than
ordinary course L/Cs) under the Revolver. See note 6.
At June 30, 2023, the fair value of our
interest rate swap agreements was an unrealized gain of $19.8
(December 31, 2022 — an unrealized gain of $18.7), which we
recorded in other current assets and 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.
In previous periods, our A/R sales program and
three customer SFPs that were indexed to LIBOR transitioned to
alternative benchmark rates with predetermined spreads, and our
lease arrangements with progress payments indexed to LIBOR
transitioned to SOFR-based benchmark rates. None of these
transitions (individually or in the aggregate) had a significant
impact on our consolidated financial statements.
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
could have a material effect on our business, financial performance
and financial condition.
Our major currency exposures at June 30,
2023 are summarized in U.S. dollar equivalents in the following
table. The local currency amounts have been converted to U.S.
dollar equivalents using spot rates at June 30, 2023.
|
Canadiandollar |
|
Euro |
|
Thai baht |
|
Chineserenminbi |
|
Mexicanpeso |
Cash and cash equivalents |
$ |
2.7 |
|
|
$ |
16.2 |
|
|
$ |
3.0 |
|
|
$ |
9.3 |
|
|
$ |
0.5 |
|
Accounts receivable |
|
0.2 |
|
|
|
70.6 |
|
|
|
0.2 |
|
|
|
16.9 |
|
|
|
— |
|
Income taxes and value-added
taxes receivable |
|
18.6 |
|
|
|
0.5 |
|
|
|
0.8 |
|
|
|
2.7 |
|
|
|
55.3 |
|
Other financial assets |
|
— |
|
|
|
3.6 |
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
1.0 |
|
Pension and non-pension
post-employment liabilities |
|
(49.2 |
) |
|
|
(0.8 |
) |
|
|
(18.9 |
) |
|
|
(0.6 |
) |
|
|
(4.2 |
) |
Income taxes and value-added
taxes payable |
|
(18.1 |
) |
|
|
(0.8 |
) |
|
|
(4.8 |
) |
|
|
(10.4 |
) |
|
|
(11.0 |
) |
Accounts payable and certain
accrued and other liabilities and provisions |
|
(58.5 |
) |
|
|
(42.8 |
) |
|
|
(34.5 |
) |
|
|
(36.8 |
) |
|
|
(16.5 |
) |
Net financial assets
(liabilities) |
$ |
(104.3 |
) |
|
$ |
46.5 |
|
|
$ |
(53.8 |
) |
|
$ |
(18.6 |
) |
|
$ |
25.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We enter into foreign currency forward contracts
to hedge our cash flow exposures and foreign currency swaps to
hedge the exposures of our monetary assets and liabilities
denominated in foreign currencies. While these contracts are
intended to reduce the effects of fluctuations in foreign currency
exchange rates, our hedging strategy does not mitigate the
longer-term impacts of changes to foreign exchange rates.
At June 30, 2023, we had foreign currency
forwards and swaps to trade U.S. dollars in exchange for the
following currencies:
Currency |
Contractamount inU.S. dollars |
|
Weighted averageexchange rate
inU.S. dollars
(1) |
|
Maximumperiod inmonths |
|
Fair valuegain (loss) |
Canadian dollar |
$ |
202.2 |
|
$ |
0.75 |
|
12 |
|
$ |
3.2 |
|
Thai baht |
|
153.4 |
|
|
0.03 |
|
12 |
|
|
(4.4 |
) |
Malaysian ringgit |
|
120.0 |
|
|
0.23 |
|
12 |
|
|
(4.0 |
) |
Mexican peso |
|
83.8 |
|
|
0.05 |
|
12 |
|
|
3.8 |
|
British pound |
|
2.7 |
|
|
1.25 |
|
4 |
|
|
(0.1 |
) |
Chinese renminbi |
|
32.1 |
|
|
0.14 |
|
8 |
|
|
(2.0 |
) |
Euro |
|
84.8 |
|
|
1.09 |
|
9 |
|
|
0.4 |
|
Romanian leu |
|
41.6 |
|
|
0.21 |
|
12 |
|
|
1.4 |
|
Singapore dollar |
|
23.8 |
|
|
0.75 |
|
12 |
|
|
(0.1 |
) |
Japanese yen |
|
9.4 |
|
|
0.0071 |
|
4 |
|
|
0.6 |
|
Korean won |
|
4.2 |
|
|
0.0008 |
|
4 |
|
|
— |
|
Total |
$ |
758.0 |
|
|
|
|
|
$ |
(1.2 |
) |
|
|
|
|
|
|
|
|
Fair values of
outstanding foreign currency forward and swap contracts related to
effective cash flow hedges where we applied hedge accounting |
|
|
0.3 |
|
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 |
|
|
(1.5 |
) |
|
|
|
|
|
|
|
$ |
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
(1) Represents the U.S. dollar
equivalent (not in millions) of one unit of the foreign currency,
weighted based on the notional amounts of the underlying foreign
currency forward and swap contracts outstanding as at June 30,
2023.
At June 30, 2023, the aggregate fair value
of our outstanding contracts was a net unrealized loss of $1.2
(December 31, 2022 — net unrealized gain of $5.2), resulting
from fluctuations in foreign exchange rates between the contract
execution and the period-end date. At June 30, 2023, we
recorded $14.7 of derivative assets in other current assets and
$15.9 of derivative liabilities in accrued and other current
liabilities (December 31, 2022 — $18.9 of derivative assets in
other current assets and $13.7 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 2022 or 1H 2023. 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, or which
is a counterparty to our TRS Agreement, defaults on their
contractual obligations. With respect to our financial market
activities, we have adopted a policy of dealing only with
counterparties we deem to be creditworthy. No significant
adjustments were made to our allowance for doubtful accounts during
Q2 2023 or 1H 2023 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 4 and 6. 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.
11.
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 the third quarter of 2021 (Q3 2021), the
Romanian tax authorities issued a final assessment in the aggregate
amount of approximately 31 million Romanian leu (approximately
$7 at period-end exchange rates), for additional income and
value-added taxes for one of our Romanian subsidiaries for the 2014
to 2018 tax years. In order to advance our case to the appeals
phase and reduce or eliminate potential interest and penalties, we
paid the Romanian tax authorities the full amount assessed in Q3
2021 (without agreement to all or any portion of such assessment).
We believe that our originally-filed tax return positions are in
compliance with applicable Romanian tax laws and regulations, and
intend to vigorously defend our position through all necessary
appeals or other judicial processes.
The successful pursuit of assertions made by any
government authority, including tax authorities, could result in
our owing significant amounts of tax or other reimbursements,
interest and possibly penalties. We believe we adequately accrue
for any probable potential adverse ruling. However, there can be no
assurance as to the final resolution of any claims and any
resulting proceedings. If any claims and any ensuing proceedings
are determined adversely to us, the amounts we may be required to
pay could be material, and in excess of amounts accrued.
12.
FIRE EVENT
In June 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 in June
2022. In 2022, we wrote down inventories destroyed (approximately
$94) and a building and equipment damaged (approximately $1) by the
fire. We expect to fully recover our tangible losses pursuant to
the terms and conditions of our insurance policies. In 2022 and 1H
2023, we recovered $31 and $17 of our inventory losses through
insurance proceeds, respectively. As of June 30, 2023, we
recorded an estimated receivable of approximately $47 related to
remaining anticipated insurance proceeds in other current assets on
our consolidated balance sheet. The write-downs and the offsetting
insurance receivable (in equivalent amounts) were each recorded in
other charges in 2022, resulting in no net impact to 2022 net
earnings. 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 in 2022 or 1H 2023.
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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