(All Amounts in U.S. dollars; Per Share Information Based on Diluted Shares Outstanding Unless Otherwise Noted.)
TORONTO, ON--(Marketwired - July 21, 2016) - Celestica Inc.
(NYSE: CLS) (TSX: CLS), a global leader in the delivery of
end-to-end product lifecycle solutions, today announced financial results for the second quarter ended June 30, 2016.
Second Quarter 2016 Highlights
- Revenue: $1.49 billion, at the high end of our previously provided guidance range of $1.4 to $1.5 billion, increased 10%
sequentially and 5% compared to the second quarter of 2015
- Revenue from our diversified end market grew 13% compared to the second quarter of 2015, and represented 30% of total
revenue, up from 28% of total revenue for the second quarter of 2015
- IFRS EPS: $0.25 per share, compared to $0.14 per share for the second quarter of 2015
- Adjusted EPS (non-IFRS): $0.29 per share ($0.31 per share had we excluded a $0.02 per share income tax expense resulting
from taxable foreign exchange impacts), within our previously provided guidance range of $0.25 to $0.31 per share, compared to
$0.25 per share for the second quarter of 2015
- Operating margin (non-IFRS): 3.8%, compared to 3.4% for the second quarter of 2015
- ROIC (non-IFRS): 20.9%, compared to 19.6% for the second quarter of 2015
- Free cash flow (non-IFRS): negative $23.8 million, compared to positive $2.4 million for the second quarter of 2015
- Repurchased and cancelled 2.8 million subordinate voting shares for $30.0 million pursuant to a previously disclosed
program share repurchase funded in March 2016
"Celestica delivered 5% year over year revenue growth in the second quarter with revenue and adjusted earnings
per share above the midpoint of our guidance," said Rob Mionis, Celestica's President and Chief Executive Officer. "We also
delivered sequential and year-over-year improvements in operating margin, return on invested capital and earnings per share."
"We are pleased with our momentum in delivering three consecutive quarters of year-over-year revenue growth, led
by strength in our Diversified end market and certain programs in our Communications end market. Overall, we remain focused on
further diversifying our business while delivering value to our customers and shareholders through strong operational and
financial performance."
Board of Directors Appointment
Today, the company also announced that Joe Natale, who has been a director since January 2012 has been appointed Vice-Chair of
the Board of Directors.
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Second Quarter and Year-to-Date Summary |
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Three months ended June 30 |
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Six months ended June 30 |
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2015 |
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2016 |
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2015 |
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2016 |
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Revenue (in millions) |
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$ |
1,417.3 |
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$ |
1,485.5 |
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$ |
2,715.8 |
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$ |
2,838.8 |
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IFRS net earnings (in millions)(i) |
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$ |
24.2 |
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$ |
36.2 |
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$ |
43.9 |
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$ |
61.8 |
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IFRS earnings per share (i) |
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$ |
0.14 |
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$ |
0.25 |
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$ |
0.26 |
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$ |
0.43 |
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Non-IFRS adjusted net earnings (in millions) (i) (ii) |
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$ |
41.7 |
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$ |
41.8 |
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$ |
74.7 |
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$ |
79.4 |
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Non-IFRS adjusted EPS(i) (ii) |
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$ |
0.25 |
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$ |
0.29 |
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$ |
0.44 |
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$ |
0.55 |
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Non-IFRS return on invested capital (ROIC)(ii) |
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19.6 |
% |
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20.9 |
% |
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18.2 |
% |
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19.3 |
% |
Non-IFRS operating margin(ii) |
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3.4 |
% |
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3.8 |
% |
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3.3 |
% |
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3.6 |
% |
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i. International Financial Reporting Standards (IFRS) EPS for the second quarter of
2016 included an aggregate charge of $0.09 (pre-tax) per share for employee stock-based compensation expense, amortization
of intangible assets (excluding computer software) and restructuring charges. This aggregate charge is within the range we
provided on April 21, 2016 of an aggregate charge of between $0.07 to $0.12 per share for these items (see the tables in
Schedule 1 attached hereto for per-item charges). IFRS EPS and adjusted EPS (non-IFRS) for the second quarter of 2016 were
negatively impacted by a $0.02 per share net income tax expense related to the unfavorable impact of taxable foreign
exchange related to the weakening of the Malaysian ringgit and Chinese renminbi. Our guidance for adjusted EPS (non-IFRS)
for the second quarter of 2016 excluded the potential impact of taxable foreign exchange. |
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In addition, the calculation of our weighted average number of shares (used to
determine our IFRS EPS and non-IFRS adjusted EPS) for the second quarter and first half of 2016 reflected the full impact
of the reduction in our subordinate voting shares as a result of our share repurchases and cancellations in 2015 pursuant
to our $350.0 million substantial issuer bid completed in June 2015, as well as our previous normal course issuer bid
(NCIB) that expired in September 2015. Accordingly, the positive effect of reduced weighted average number of shares on our
IFRS EPS and non-IFRS adjusted EPS for the second quarter and first half of 2016 was greater as compared to the prior year
periods. |
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ii. Non-IFRS measures do not have any standardized meaning prescribed by IFRS and
therefore may not be comparable to similar measures presented by other public companies that use IFRS or other generally
accepted accounting principles (GAAP). See "Non-IFRS Supplementary Information" below for information on our rationale for
the use of non-IFRS measures, and Schedule 1 for, among other items, non-IFRS measures included in this press release, as
well as their definitions, uses, and a reconciliation of non-IFRS to IFRS measures (where a comparable IFRS measure
exists). |
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End Markets by Quarter as a Percentage of Total Revenue |
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2015 |
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2016 |
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Q1 |
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Q2 |
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Q3 |
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Q4 |
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FY |
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Q1 |
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Q2 |
Communications |
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40% |
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40% |
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41% |
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38% |
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40% |
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38% |
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41% |
Consumer |
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3% |
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3% |
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3% |
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3% |
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3% |
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3% |
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3% |
Diversified(i) |
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28% |
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28% |
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30% |
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30% |
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29% |
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34% |
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30% |
Servers |
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11% |
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10% |
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8% |
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10% |
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10% |
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9% |
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9% |
Storage |
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18% |
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19% |
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18% |
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19% |
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18% |
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16% |
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17% |
Revenue (in billions) |
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$1.30 |
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$1.42 |
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$1.41 |
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$1.51 |
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$5.64 |
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$1.35 |
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$1.49 |
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i. Our diversified end market is comprised of aerospace and defense, industrial,
healthcare, energy, and semiconductor equipment. |
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Third Quarter 2016 Outlook
For the third quarter ending September 30, 2016, we anticipate revenue to be in the range of $1.475 billion to $1.575 billion,
and non-IFRS adjusted earnings per share to be in the range of $0.27 to $0.33. We expect a negative $0.07 to $0.12 per share
(pre-tax) aggregate impact on net earnings on an IFRS basis for employee stock-based compensation expense, amortization of
intangible assets (excluding computer software) and restructuring charges. We cannot predict changes in currency exchange rates,
the impact of such changes on our operating results, or the degree to which we will be able to manage such impacts.
Second Quarter 2016 Webcast
Management will host its second quarter 2016 results conference call today at 5:00 p.m. Eastern Daylight Time. The webcast can
be accessed at www.celestica.com.
Non-IFRS Supplementary Information
In addition to disclosing detailed operating results in accordance with IFRS, Celestica provides supplementary non-IFRS
measures to consider in evaluating the company's operating performance. Management uses adjusted net earnings and other non-IFRS
measures to assess operating performance and the effective use and allocation of resources; to provide more meaningful
period-to-period comparisons of operating results; to enhance investors' understanding of the core operating results of
Celestica's business; and to set management incentive targets. We believe investors use both IFRS and non-IFRS measures to assess
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 - Supplementary Non-IFRS Measures for, among other items, non-IFRS measures provided herein, non-IFRS
definitions, and a reconciliation of non-IFRS to IFRS measures (where a comparable IFRS measure exists).
About Celestica
Celestica is dedicated to delivering end-to-end product lifecycle solutions to drive our customers' success. Through our
simplified global operations network and information technology platform, we are solid partners who deliver informed, flexible
solutions that enable our customers to succeed in the markets they serve. Committed to providing a truly differentiated customer
experience, our agile and adaptive employees share a proud history of demonstrated expertise and creativity that provides our
customers with the ability to overcome complex challenges. For further information about Celestica, visit our website at www.celestica.com. Our securities filings can also be accessed at www.sedar.com and www.sec.gov.
Cautionary Note Regarding Forward-looking Statements
This news release contains forward-looking statements related to our future growth; trends in the electronics
manufacturing services (EMS) industry; our anticipated financial or operational results, including our quarterly revenue,
non-IFRS operating margin and earnings guidance; the impact of acquisitions and program wins or losses on our financial results
and working capital requirements; anticipated expenses, restructuring actions and charges, capital expenditures and/or benefits;
our expected tax and litigation outcomes; our cash flows, financial targets and priorities; changes in our mix of revenue by end
market; our ability to diversify and grow our customer base and develop new capabilities; the effect of the global economic
environment on customer demand; the possibility of future impairments of property, plant and equipment, goodwill or intangible
assets; the timing and extent of the expected recovery of cash advances made to a particular solar cell supplier; the impact of
the Term Loan (as defined herein), on our liquidity, future operations and financial condition; and the number of subordinate
voting shares and price thereof we may repurchase under our current NCIB. Such forward-looking statements may, without
limitation, be preceded by, followed by, or include words such as "believes", "expects", "anticipates", "estimates", "intends",
"plans", "continues", "project", "potential", "possible", "contemplate", "seek", or similar expressions, or may employ such
future or conditional verbs as "may", "might", "will", "could", "should" or "would", or may otherwise be indicated as
forward-looking statements by grammatical construction, phrasing or context. For those statements, we claim the protection of the
safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995 and applicable
Canadian securities laws.
Forward-looking statements are provided for the purpose of assisting readers in understanding management's
current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for
other purposes. Forward-looking statements are not guarantees of future performance and are subject to risks that could cause
actual results to differ materially from conclusions, forecasts or projections expressed in such statements, including, among
others, risks related to: our customers' ability to compete and succeed in the marketplace with the services we provide and the
products we manufacture; price and other competitive factors generally affecting the EMS industry; managing our operations and
our working capital performance during uncertain market and economic conditions; responding to changes in demand, rapidly
evolving and changing technologies, and changes in our customers' business and outsourcing strategies, including the insourcing
of programs; customer concentration and the challenges of diversifying our customer base and replacing revenue from completed or
lost programs, or customer disengagements; changing commodity, material and component costs, as well as labor costs and
conditions; disruptions to our operations, or those of our customers, component suppliers or logistics partners, including as a
result of global or local events outside our control, including as a result of the June 2016 referendum by British voters
advising for the exit of the United Kingdom from the European Union (Brexit); retaining or expanding our business due to
execution issues relating to the ramping of new or existing programs or new offerings; the incurrence of future impairment
charges; recruiting or retaining skilled personnel; transitions associated with our new CEO, our Global Business Services
initiative, our Organizational Design initiative, and/or other changes to our company's operating model; current or future
litigation and/or governmental actions; improving operating performance and financial results in our semiconductor and solar
businesses; delays in the delivery and availability of components, services and materials, including from suppliers upon which we
are dependent for certain components; non-performance by counterparties; our financial exposure to foreign currency
volatility, including stock market volatility and currency exchange rate fluctuations resulting from the Brexit; our dependence
on industries affected by rapid technological change; the variability of revenue and operating results; managing our global
operations and supply chain; increasing income taxes, tax audits, and challenges of defending our tax positions, and obtaining,
renewing or meeting the conditions of tax incentives and credits; completing restructuring actions, including achieving the
anticipated benefits therefrom, and integrating any acquisitions; defects or deficiencies in our products, services or designs;
computer viruses, malware, hacking attempts or outages that may disrupt our operations; any failure to adequately protect our
intellectual property or the intellectual property of others; compliance with applicable laws, regulations and social
responsibility initiatives; our having sufficient financial resources and working capital to fund currently anticipated financial
obligations and to pursue desirable business opportunities; the potential that conditions to closing the sale of our real
property in Toronto and related transactions (collectively, the "Toronto Real Property Transactions") may not be satisfied on a
timely basis or at all; and if the Toronto Real Property Transactions are completed, our ability to secure on commercially
acceptable terms an alternate site for our existing Toronto manufacturing operations, and the costs, timing and/or execution of
such relocation proving to be other than anticipated. The foregoing and other material risks and uncertainties are discussed in
our public filings at www.sedar.com and www.sec.gov, including in our MD&A, our most recent Annual Report on Form 20-F filed with, and subsequent
reports on Form 6-K furnished to, the U.S. Securities and Exchange Commission, and our Annual Information Form filed with the
Canadian Securities Administrators.
Our revenue, earnings and other financial guidance, as contained in this press release, are based on various
assumptions, many of which involve factors that are beyond our control. Our material assumptions include those related to the
following: production schedules from our customers, which generally range from 30 days to 90 days and can fluctuate significantly
in terms of volume and mix of products or services; the timing and execution of, and investments associated with, ramping new
business; the success in the marketplace of our customers' products; the stability of general economic and market conditions,
currency exchange rates, and interest rates; our pricing, the competitive environment and contract terms and conditions; supplier
performance, pricing and terms; compliance by third parties with their contractual obligations, the accuracy of their
representations and warranties, and the performance of their covenants; the costs and availability of components, materials,
services, plant and capital equipment, labor, energy and transportation; operational and financial matters including the extent,
timing and costs of replacing revenue from completed or lost programs, or customer disengagements; technological developments;
overall demand improvement in the semiconductor industry; revenue growth and improved financial results in our semiconductor and
solar businesses; the timing, execution and effect of restructuring actions; our having sufficient financial resources and
working capital to fund our currently anticipated financial obligations and to pursue desirable business opportunities; and our
ability to diversify our customer base and develop new capabilities. While management believes these assumptions to be reasonable
under the current circumstances, they may prove to be inaccurate. Forward-looking statements speak only as of the date on which
they are made, and we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as required by applicable law.
All forward-looking statements attributable to us are expressly qualified by these cautionary
statements.
Schedule 1
Supplementary Non-IFRS Measures
Our non-IFRS measures herein include adjusted gross profit, adjusted gross margin (adjusted gross profit as a
percentage of revenue), adjusted selling, general and administrative expenses (SG&A), adjusted SG&A as a percentage of
revenue, operating earnings (adjusted EBIAT), operating margin (adjusted EBIAT as a percentage of revenue), adjusted net
earnings, adjusted earnings per share, return on invested capital (ROIC), and free cash flow. Adjusted EBIAT, ROIC and free cash
flow are further described in the tables below. In calculating these non-IFRS financial measures, management excludes the
following items, where applicable: employee stock-based compensation expense, amortization of intangible assets (excluding
computer software), restructuring and other charges, net of recoveries (most significantly restructuring charges), the write-down
of goodwill, intangible assets and property, plant and equipment, and gains or losses related to the repurchase of our
securities, net of tax adjustments and significant deferred tax write-offs or recoveries associated with restructuring actions or
restructured sites.
We believe the non-IFRS measures we present herein are useful, as they enable investors to evaluate and compare
our results from operations and cash resources generated from our business in a more consistent manner (by excluding specific
items that we do not consider to be reflective of our ongoing operating results) and provide an analysis of operating results
using the same measures our chief operating decision makers use to measure performance. The non-IFRS financial measures that can
be reconciled to IFRS measures result largely from management's determination that the facts and circumstances surrounding the
excluded charges or recoveries are not indicative of the ordinary course of the ongoing operation of our business.
Non-IFRS measures do not have any standardized meaning prescribed by IFRS and may not be comparable to similar
measures presented by other public companies that use IFRS, or who report under U.S. GAAP and use non-U.S. GAAP measures to
describe similar operating metrics. Non-IFRS measures are not measures of performance under IFRS and should not be considered in
isolation or as a substitute for any standardized measure under IFRS. The most significant limitation to management's use of
non-IFRS financial measures is that the charges or credits excluded from the non-IFRS measures are nonetheless charges or credits
that are recognized under IFRS and that have an economic impact on the company. Management compensates for these limitations
primarily by issuing IFRS results to show a complete picture of the company's performance, and reconciling non-IFRS results back
to IFRS results where a comparable IFRS measure exists.
The economic substance of these exclusions and management's rationale for excluding them from non-IFRS financial
measures is provided below:
Employee stock-based compensation expense, which represents the estimated fair value of stock options, restricted
share units and performance share units granted to employees, is excluded because grant activities vary significantly from
quarter-to-quarter in both quantity and fair value. In addition, excluding this expense allows us to better compare core
operating results with those of our competitors who also generally exclude employee stock-based compensation expense 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, including those competitors who report under U.S. GAAP and use non-U.S. GAAP measures to present similar
metrics.
Amortization charges (excluding computer software) consist of non-cash charges against intangible assets that are
impacted by the timing and magnitude of acquired businesses. Amortization of intangible assets varies among our competitors, and
we believe that excluding these charges permits a better comparison of core operating results with those of our competitors who
also generally exclude amortization charges in assessing operating performance.
Restructuring and other charges, net of recoveries, include costs relating to employee severance, lease
terminations, site closings and consolidations, write-downs of owned property and equipment which are no longer used and are
available for sale, reductions in infrastructure, and acquisition-related transaction costs. We exclude restructuring and other
charges, net of recoveries, because we believe that they are not directly related to ongoing operating results and do not reflect
expected future operating expenses after completion of these activities. We believe these exclusions permit a better comparison
of our core operating results with those of our competitors who also generally exclude these charges, net of recoveries, in
assessing operating performance.
Impairment charges, which consist of non-cash charges against goodwill, intangible assets and property, plant and
equipment, result primarily when the carrying value of these assets exceeds their recoverable amount. Our competitors may record
impairment charges at different times, and we believe that excluding these charges permits a better comparison of our core
operating results with those of our competitors who also generally exclude these charges in assessing operating performance.
Gains or losses related to the repurchase of our securities are excluded, as we believe that these gains or
losses do not reflect core operating performance and vary significantly among those of our competitors who also generally exclude
these gains or losses in assessing operating performance.
Significant deferred tax write-offs or recoveries associated with restructuring actions or restructured sites are
excluded, as we believe that these write-offs or recoveries do not reflect core operating performance and vary significantly
among those of our competitors who also generally exclude these charges or recoveries in assessing operating performance.
The following table sets forth, for the periods indicated, the various non-IFRS measures discussed above, and a
reconciliation of IFRS to non-IFRS measures, where a comparable IFRS measure exists (in millions, except percentages and per
share amounts):
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Three months ended June 30 |
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Six months ended June 30 |
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2015 |
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2016 |
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2015 |
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2016 |
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% of |
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% of |
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% of |
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% of |
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revenue |
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revenue |
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revenue |
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revenue |
|
IFRS revenue |
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$ |
1,417.3 |
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$ |
1,485.5 |
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$ |
2,715.8 |
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$ |
2,838.8 |
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IFRS gross profit |
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$ |
97.3 |
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6.9 |
% |
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$ |
111.8 |
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7.5 |
% |
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$ |
188.7 |
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6.9 |
% |
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$ |
204.6 |
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7.2 |
% |
|
Employee stock-based compensation expense |
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3.0 |
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3.0 |
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7.4 |
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7.5 |
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Non-IFRS adjusted gross profit |
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$ |
100.3 |
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7.1 |
% |
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$ |
114.8 |
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7.7 |
% |
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$ |
196.1 |
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7.2 |
% |
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$ |
212.1 |
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7.5 |
% |
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IFRS SG&A |
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$ |
50.1 |
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|
3.5 |
% |
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$ |
54.4 |
|
|
3.7 |
% |
|
$ |
105.5 |
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|
3.9 |
% |
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$ |
106.4 |
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|
3.7 |
% |
|
Employee stock-based compensation expense |
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(4.1 |
) |
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(3.8 |
) |
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(11.2 |
) |
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(8.7 |
) |
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|
Non-IFRS adjusted SG&A |
|
$ |
46.0 |
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|
3.2 |
% |
|
$ |
50.6 |
|
|
3.4 |
% |
|
$ |
94.3 |
|
|
3.5 |
% |
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$ |
97.7 |
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|
3.4 |
% |
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IFRS earnings before income taxes |
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$ |
29.3 |
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$ |
49.1 |
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$ |
56.0 |
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$ |
78.3 |
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Finance costs |
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1.1 |
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2.7 |
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1.6 |
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4.9 |
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|
Employee stock-based compensation expense |
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|
7.1 |
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6.8 |
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18.6 |
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16.2 |
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|
Amortization of intangible assets (excluding computer software) |
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1.5 |
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1.5 |
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3.0 |
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3.0 |
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|
Restructuring and other charges (recoveries) |
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9.3 |
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(3.0 |
) |
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9.6 |
|
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(1.3 |
) |
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|
|
Non-IFRS operating earnings (adjusted EBIAT)
(1) |
|
$ |
48.3 |
|
|
3.4 |
% |
|
$ |
57.1 |
|
|
3.8 |
% |
|
$ |
88.8 |
|
|
3.3 |
% |
|
$ |
101.1 |
|
|
3.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS net earnings |
|
$ |
24.2 |
|
|
1.7 |
% |
|
$ |
36.2 |
|
|
2.4 |
% |
|
$ |
43.9 |
|
|
1.6 |
% |
|
$ |
61.8 |
|
|
2.2 |
% |
|
Employee stock-based compensation expense |
|
|
7.1 |
|
|
|
|
|
|
6.8 |
|
|
|
|
|
|
18.6 |
|
|
|
|
|
|
16.2 |
|
|
|
|
|
Amortization of intangible assets (excluding computer software) |
|
|
1.5 |
|
|
|
|
|
|
1.5 |
|
|
|
|
|
|
3.0 |
|
|
|
|
|
|
3.0 |
|
|
|
|
|
Restructuring and other charges (recoveries) |
|
|
9.3 |
|
|
|
|
|
|
(3.0 |
) |
|
|
|
|
|
9.6 |
|
|
|
|
|
|
(1.3 |
) |
|
|
|
|
Adjustments for taxes (2) |
|
|
(0.4 |
) |
|
|
|
|
|
0.3 |
|
|
|
|
|
|
(0.4 |
) |
|
|
|
|
|
(0.3 |
) |
|
|
|
Non-IFRS adjusted net earnings |
|
$ |
41.7 |
|
|
|
|
|
$ |
41.8 |
|
|
|
|
|
$ |
74.7 |
|
|
|
|
|
$ |
79.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average # of shares (in millions) |
|
|
166.9 |
|
|
|
|
|
|
144.1 |
|
|
|
|
|
|
170.7 |
|
|
|
|
|
|
144.6 |
|
|
|
|
|
IFRS earnings per share |
|
$ |
0.14 |
|
|
|
|
|
$ |
0.25 |
|
|
|
|
|
$ |
0.26 |
|
|
|
|
|
$ |
0.43 |
|
|
|
|
|
Non-IFRS adjusted earnings per share |
|
$ |
0.25 |
|
|
|
|
|
$ |
0.29 |
|
|
|
|
|
$ |
0.44 |
|
|
|
|
|
$ |
0.55 |
|
|
|
|
# of shares outstanding at period end (in millions) |
|
|
142.9 |
|
|
|
|
|
|
140.7 |
|
|
|
|
|
|
142.9 |
|
|
|
|
|
|
140.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS cash provided by (used in) operations |
|
$ |
44.4 |
|
|
|
|
|
$ |
(4.5 |
) |
|
|
|
|
$ |
79.5 |
|
|
|
|
|
$ |
(22.8 |
) |
|
|
|
|
Purchase of property, plant and equipment, net of sales proceeds |
|
|
(18.2 |
) |
|
|
|
|
|
(17.7 |
) |
|
|
|
|
|
(30.8 |
) |
|
|
|
|
|
(33.6 |
) |
|
|
|
|
Finance lease payments |
|
|
- |
|
|
|
|
|
|
(1.1 |
) |
|
|
|
|
|
- |
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
Repayments from (Advances to) Solar Supplier |
|
|
(21.0 |
) |
|
|
|
|
|
2.0 |
|
|
|
|
|
|
(21.0 |
) |
|
|
|
|
|
5.0 |
|
|
|
|
|
Finance costs paid |
|
|
(2.8 |
) |
|
|
|
|
|
(2.5 |
) |
|
|
|
|
|
(3.3 |
) |
|
|
|
|
|
(4.8 |
) |
|
|
|
Non-IFRS free cash flow (3) |
|
$ |
2.4 |
|
|
|
|
|
$ |
(23.8 |
) |
|
|
|
|
$ |
24.4 |
|
|
|
|
|
$ |
(58.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS ROIC % (4) |
|
|
19.6 |
% |
|
|
|
|
|
20.9 |
% |
|
|
|
|
|
18.2 |
% |
|
|
|
|
|
19.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The calculation of our weighted average number of shares (used to determine our
IFRS EPS and non-IFRS adjusted EPS) for the second quarter and first half of 2016 reflected the full impact of the
reduction in our subordinate voting shares as a result of our share repurchases and cancellations in 2015 pursuant to our
$350.0 million substantial issuer bid completed in June 2015, as well as our previous NCIB that expired in September 2015.
Accordingly, the positive effect of reduced weighted average number of shares on our IFRS EPS and non-IFRS adjusted EPS for
the second quarter and first half of 2016 was greater as compared to the prior year periods. |
|
|
(1) |
Management uses non-IFRS operating earnings (adjusted EBIAT) as a measure to assess
our operational performance related to our core operations. Non-IFRS adjusted EBIAT is defined as earnings before finance
costs (consisting of interest and fees related to our credit facility and accounts receivable sales program), amortization
of intangible assets (excluding computer software) and income taxes. Non-IFRS adjusted EBIAT also excludes, in periods
where such charges have been recorded, employee stock-based compensation expense, restructuring and other charges (net of
recoveries), gains or losses related to the repurchase of our securities, and impairment charges. |
|
|
(2) |
The adjustments for taxes, as applicable, represent the tax effects on the non-IFRS
adjustments and significant deferred tax write-offs or recoveries associated with restructuring actions or restructured
sites that management considers not to be reflective of our core operating performance. |
|
|
(3) |
Management uses non-IFRS free cash flow as a measure, in addition to IFRS cash flow
provided by (used in) operations, to assess our operational cash flow performance. We believe non-IFRS free cash flow
provides another level of transparency to our liquidity. Non-IFRS free cash flow is defined as cash provided by (used in)
operations after the purchase of property, plant and equipment (net of proceeds from the sale of certain surplus equipment
and property), finance lease payments, advances to (or repayments from) a solar supplier, and finance costs paid. Note that
non-IFRS free cash flow, however, does not represent residual cash flow available to Celestica for discretionary
expenditures. |
|
|
(4) |
Management uses non-IFRS ROIC as a measure to assess the effectiveness of the
invested capital we use to build products or provide services to our customers, by quantifying how well we generate
earnings relative to the capital we have invested in our business. Our non-IFRS ROIC measure reflects non-IFRS operating
earnings, working capital management and asset utilization. Non-IFRS ROIC is calculated by dividing non-IFRS adjusted EBIAT
by average net invested capital. Net invested capital (calculated in the table below) consists of the following IFRS
measures: total assets less cash, accounts payable, accrued and other current liabilities and provisions, and income taxes
payable. We use a two-point average to calculate average net invested capital for the quarter and a three-point average to
calculate average net invested capital for the six-month period. Management believes there is no comparable measure under
IFRS. |
The following table sets forth, for the periods indicated, our calculation of non-IFRS ROIC % (in millions,
except ROIC %):
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
|
Six months ended June 30 |
|
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS operating earnings (adjusted EBIAT) |
|
$ |
48.3 |
|
|
$ |
57.1 |
|
|
$ |
88.8 |
|
|
$ |
101.1 |
|
Multiplier |
|
|
4 |
|
|
|
4 |
|
|
|
2 |
|
|
|
2 |
|
Annualized non-IFRS adjusted EBIAT |
|
$ |
193.2 |
|
|
$ |
228.4 |
|
|
$ |
177.6 |
|
|
$ |
202.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average net invested capital for the period |
|
$ |
985.5 |
|
|
$ |
1,090.7 |
|
|
$ |
978.4 |
|
|
$ |
1,047.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS ROIC % (1) |
|
|
19.6 |
% |
|
|
20.9 |
% |
|
|
18.2 |
% |
|
|
19.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
March 31 |
|
|
June 30 |
|
|
|
|
|
|
2015 |
|
|
2016 |
|
|
2016 |
|
Net invested capital consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
$ |
2,612.0 |
|
|
$ |
2,621.9 |
|
|
$ |
2,720.1 |
|
Less: cash |
|
|
|
|
|
|
545.3 |
|
|
|
511.5 |
|
|
|
472.9 |
|
Less: accounts payable, accrued and other current liabilities, provisions and
income taxes payable |
|
|
|
|
|
|
1,104.3 |
|
|
|
1,053.8 |
|
|
|
1,122.5 |
|
Net invested capital at period end (1) |
|
|
|
|
|
$ |
962.4 |
|
|
$ |
1,056.6 |
|
|
$ |
1,124.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
March 31 |
|
|
June 30 |
|
|
|
|
|
|
2014 |
|
|
2015 |
|
|
2015 |
|
Net invested capital consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
$ |
2,583.6 |
|
|
$ |
2,579.3 |
|
|
$ |
2,624.7 |
|
Less: cash |
|
|
|
|
|
|
565.0 |
|
|
|
569.2 |
|
|
|
496.8 |
|
Less: accounts payable, accrued and other current liabilities, provisions and
income taxes payable |
|
|
|
|
|
|
1,054.3 |
|
|
|
1,044.8 |
|
|
|
1,122.3 |
|
Net invested capital at period end (1) |
|
|
|
|
|
$ |
964.3 |
|
|
$ |
965.3 |
|
|
$ |
1,005.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Management uses non-IFRS ROIC as a measure to assess the effectiveness of the
invested capital we use to build products or provide services to our customers, by quantifying how well we generate
earnings relative to the capital we have invested in our business. Our non-IFRS ROIC measure reflects non-IFRS operating
earnings, working capital management and asset utilization. Non-IFRS ROIC is calculated by dividing non-IFRS adjusted EBIAT
by average net invested capital. Net invested capital consists of the following IFRS measures: total assets less cash,
accounts payable, accrued and other current liabilities and provisions, and income taxes payable. We use a two-point
average to calculate average net invested capital for the quarter and a three-point average to calculate average net
invested capital for the six-month period. Management believes there is no comparable measure under IFRS. |
|
|
|
|
|
|
|
|
|
GUIDANCE SUMMARY |
|
|
|
|
|
|
|
|
Q2 2016 Guidance |
|
Q2 2016 Actual |
|
Q3 2016 Guidance (2) |
IFRS revenue (in billions) |
|
$1.4 to $1.5 |
|
$1.49 |
|
$1.475 to $1.575 |
Non-IFRS adjusted EPS (diluted) (1) |
|
$0.25 to $0.31 |
|
$0.29 |
|
$0.27 to $0.33 |
|
|
|
|
|
|
|
|
(1) Non-IFRS adjusted EPS (diluted) for the second quarter of 2016 was negatively
impacted by a $0.02 per share net income tax expense related to the unfavorable impact of taxable foreign exchange related
to the weakening of the Malaysian ringgit and Chinese renminbi. Our guidance for this measure for the second quarter of
2016 excluded the potential impact of taxable foreign exchange. |
|
(2) For the third quarter of 2016, we anticipate a negative $0.07 to $0.12 per
share (pre-tax) aggregate impact on net earnings on an IFRS basis for employee stock-based compensation expense,
amortization of intangible assets (excluding computer software) and restructuring charges. We cannot predict changes in
currency exchange rates, the impact of such changes on our operating results, or the degree to which we will be able to
manage such impacts. For the third quarter of 2016, we also anticipate our non-IFRS operating margin to be 3.6% at the
mid-point of our expectations. |
|
|
|
CELESTICA INC. |
|
|
|
CONDENSED CONSOLIDATED BALANCE SHEET |
|
(in millions of U.S. dollars) |
|
(unaudited) |
|
|
|
|
|
December 31 |
|
|
June 30 |
|
|
|
2015 |
|
|
2016 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (note 11) |
|
$ |
545.3 |
|
|
$ |
472.9 |
|
|
Accounts receivable (note 5) |
|
|
681.0 |
|
|
|
741.7 |
|
|
Inventories (note 6) |
|
|
794.6 |
|
|
|
905.6 |
|
|
Income taxes receivable |
|
|
10.4 |
|
|
|
12.9 |
|
|
Assets classified as held-for-sale |
|
|
27.4 |
|
|
|
27.4 |
|
|
Other current assets (note 4) |
|
|
65.3 |
|
|
|
86.3 |
|
Total current assets |
|
|
2,124.0 |
|
|
|
2,246.8 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
314.6 |
|
|
|
310.2 |
|
Goodwill |
|
|
19.5 |
|
|
|
19.5 |
|
Intangible assets |
|
|
30.4 |
|
|
|
27.3 |
|
Deferred income taxes |
|
|
40.1 |
|
|
|
36.5 |
|
Other non-current assets (note 4) |
|
|
83.4 |
|
|
|
79.8 |
|
Total assets |
|
$ |
2,612.0 |
|
|
$ |
2,720.1 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Current portion of borrowings under credit facility and finance lease obligations (notes 4 &
7) |
|
$ |
29.1 |
|
|
$ |
84.1 |
|
|
Accounts payable |
|
|
801.4 |
|
|
|
856.6 |
|
|
Accrued and other current liabilities |
|
|
257.7 |
|
|
|
217.9 |
|
|
Income taxes payable |
|
|
25.0 |
|
|
|
27.9 |
|
|
Current portion of provisions |
|
|
20.2 |
|
|
|
20.1 |
|
Total current liabilities |
|
|
1,133.4 |
|
|
|
1,206.6 |
|
|
|
|
|
|
|
|
|
|
Long-term portion of borrowings under credit facility and finance lease obligations (notes 4 &
7) |
|
|
250.6 |
|
|
|
211.7 |
|
Pension and non-pension post-employment benefit obligations |
|
|
83.2 |
|
|
|
88.2 |
|
Provisions and other non-current liabilities |
|
|
28.0 |
|
|
|
29.9 |
|
Deferred income taxes |
|
|
25.8 |
|
|
|
21.6 |
|
Total liabilities |
|
|
1,521.0 |
|
|
|
1,558.0 |
|
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
|
Capital stock (note 8) |
|
|
2,093.9 |
|
|
|
2,046.6 |
|
|
Treasury stock (note 8) |
|
|
(31.4 |
) |
|
|
(4.3 |
) |
|
Contributed surplus |
|
|
846.7 |
|
|
|
852.8 |
|
|
Deficit |
|
|
(1,785.4 |
) |
|
|
(1,723.6 |
) |
|
Accumulated other comprehensive loss |
|
|
(32.8 |
) |
|
|
(9.4 |
) |
Total equity |
|
|
1,091.0 |
|
|
|
1,162.1 |
|
Total liabilities and equity |
|
$ |
2,612.0 |
|
|
$ |
2,720.1 |
|
|
|
Contingencies (note 12) |
|
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 June 30 |
|
|
Six months ended June 30 |
|
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
Revenue |
|
$ |
1,417.3 |
|
|
$ |
1,485.5 |
|
|
$ |
2,715.8 |
|
|
$ |
2,838.8 |
|
Cost of sales (note 6) |
|
|
1,320.0 |
|
|
|
1,373.7 |
|
|
|
2,527.1 |
|
|
|
2,634.2 |
|
Gross profit |
|
|
97.3 |
|
|
|
111.8 |
|
|
|
188.7 |
|
|
|
204.6 |
|
Selling, general and administrative expenses (SG&A) |
|
|
50.1 |
|
|
|
54.4 |
|
|
|
105.5 |
|
|
|
106.4 |
|
Research and development |
|
|
5.2 |
|
|
|
6.3 |
|
|
|
11.4 |
|
|
|
11.7 |
|
Amortization of intangible assets |
|
|
2.3 |
|
|
|
2.3 |
|
|
|
4.6 |
|
|
|
4.6 |
|
Other charges (recoveries) (note 9) |
|
|
9.3 |
|
|
|
(3.0 |
) |
|
|
9.6 |
|
|
|
(1.3 |
) |
Earnings from operations |
|
|
30.4 |
|
|
|
51.8 |
|
|
|
57.6 |
|
|
|
83.2 |
|
Finance costs |
|
|
1.1 |
|
|
|
2.7 |
|
|
|
1.6 |
|
|
|
4.9 |
|
Earnings before income taxes |
|
|
29.3 |
|
|
|
49.1 |
|
|
|
56.0 |
|
|
|
78.3 |
|
Income tax expense (recovery) (note 10): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
7.7 |
|
|
|
10.0 |
|
|
|
13.1 |
|
|
|
19.0 |
|
|
Deferred |
|
|
(2.6 |
) |
|
|
2.9 |
|
|
|
(1.0 |
) |
|
|
(2.5 |
) |
|
|
|
5.1 |
|
|
|
12.9 |
|
|
|
12.1 |
|
|
|
16.5 |
|
Net earnings for the period |
|
$ |
24.2 |
|
|
$ |
36.2 |
|
|
$ |
43.9 |
|
|
$ |
61.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.15 |
|
|
$ |
0.25 |
|
|
$ |
0.26 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.14 |
|
|
$ |
0.25 |
|
|
$ |
0.26 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing per share amounts (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
164.9 |
|
|
|
142.1 |
|
|
|
168.6 |
|
|
|
142.8 |
|
|
Diluted |
|
|
166.9 |
|
|
|
144.1 |
|
|
|
170.7 |
|
|
|
144.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 30 |
|
|
Six months ended June 30 |
|
|
2015 |
|
2016 |
|
|
2015 |
|
|
2016 |
Net earnings for the period |
|
$ |
24.2 |
|
$ |
36.2 |
|
|
$ |
43.9 |
|
|
$ |
61.8 |
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may be reclassified to net earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences for foreign operations |
|
|
0.2 |
|
|
1.4 |
|
|
|
(1.8 |
) |
|
|
2.2 |
|
|
Changes from derivatives designated as hedges |
|
|
5.8 |
|
|
(2.2 |
) |
|
|
0.3 |
|
|
|
21.2 |
Total comprehensive income for the period |
|
$ |
30.2 |
|
$ |
35.4 |
|
|
$ |
42.4 |
|
|
$ |
85.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial
statements.
|
|
CELESTICA INC. |
|
|
|
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY |
|
(in millions of U.S. dollars) |
|
(unaudited) |
|
|
|
|
|
Capital stock
(note 8) |
|
|
Treasury
stock (note 8) |
|
|
Contributed
surplus |
|
|
Deficit |
|
|
Accumulated
other
comprehensive
loss (a) |
|
|
Total equity |
|
Balance -- January 1, 2015 |
|
$ |
2,609.5 |
|
|
$ |
(21.4 |
) |
|
$ |
677.1 |
|
|
$ |
(1,845.3 |
) |
|
$ |
(25.0 |
) |
|
$ |
1,394.9 |
|
Capital transactions (note 8): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital stock |
|
|
7.4 |
|
|
|
- |
|
|
|
(4.8 |
) |
|
|
- |
|
|
|
- |
|
|
|
2.6 |
|
|
Repurchase of capital stock for cancellation |
|
|
(528.2 |
) |
|
|
- |
|
|
|
157.3 |
|
|
|
- |
|
|
|
- |
|
|
|
(370.9 |
) |
|
Stock-based compensation and other |
|
|
- |
|
|
|
15.8 |
|
|
|
3.7 |
|
|
|
- |
|
|
|
- |
|
|
|
19.5 |
|
Total comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the period |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
43.9 |
|
|
|
- |
|
|
|
43.9 |
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences for foreign operations |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1.8 |
) |
|
|
(1.8 |
) |
|
|
Changes from derivatives designated as hedges |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.3 |
|
|
|
0.3 |
|
Balance -- June 30, 2015 |
|
$ |
2,088.7 |
|
|
$ |
(5.6 |
) |
|
$ |
833.3 |
|
|
$ |
(1,801.4 |
) |
|
$ |
(26.5 |
) |
|
$ |
1,088.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance -- January 1, 2016 |
|
$ |
2,093.9 |
|
|
$ |
(31.4 |
) |
|
$ |
846.7 |
|
|
$ |
(1,785.4 |
) |
|
$ |
(32.8 |
) |
|
$ |
1,091.0 |
|
Capital transactions (note 8): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital stock |
|
|
4.8 |
|
|
|
- |
|
|
|
(1.8 |
) |
|
|
- |
|
|
|
- |
|
|
|
3.0 |
|
|
Repurchase of capital stock for cancellation |
|
|
(52.1 |
) |
|
|
- |
|
|
|
17.8 |
|
|
|
- |
|
|
|
- |
|
|
|
(34.3 |
) |
|
Stock-based compensation and other |
|
|
- |
|
|
|
27.1 |
|
|
|
(9.9 |
) |
|
|
- |
|
|
|
- |
|
|
|
17.2 |
|
Total comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the period |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
61.8 |
|
|
|
- |
|
|
|
61.8 |
|
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences for foreign operations |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2.2 |
|
|
|
2.2 |
|
|
|
Changes from derivatives designated as hedges |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
21.2 |
|
|
|
21.2 |
|
Balance -- June 30, 2016 |
|
$ |
2,046.6 |
|
|
$ |
(4.3 |
) |
|
$ |
852.8 |
|
|
$ |
(1,723.6 |
) |
|
$ |
(9.4 |
) |
|
$ |
1,162.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Accumulated other comprehensive loss is net of tax. |
|
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial
statements.
|
CELESTICA INC. |
|
|
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS |
(in millions of U.S. dollars) |
(unaudited) |
|
|
|
|
|
Three months ended June 30 |
|
|
Six months ended June 30 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the period |
$ |
24.2 |
|
|
$ |
36.2 |
|
|
$ |
43.9 |
|
|
$ |
61.8 |
|
Adjustments to net earnings for items not affecting cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
16.9 |
|
|
|
19.0 |
|
|
|
33.5 |
|
|
|
36.8 |
|
|
Equity-settled stock-based compensation |
|
7.1 |
|
|
|
6.8 |
|
|
|
18.6 |
|
|
|
16.2 |
|
|
Other charges |
|
4.0 |
|
|
|
2.2 |
|
|
|
4.0 |
|
|
|
2.2 |
|
|
Finance costs |
|
1.1 |
|
|
|
2.7 |
|
|
|
1.6 |
|
|
|
4.9 |
|
|
Income tax expense |
|
5.1 |
|
|
|
12.9 |
|
|
|
12.1 |
|
|
|
16.5 |
|
Other |
|
(3.9 |
) |
|
|
6.3 |
|
|
|
(8.6 |
) |
|
|
(1.0 |
) |
Changes in non-cash working capital items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
(25.5 |
) |
|
|
(87.3 |
) |
|
|
23.7 |
|
|
|
(60.7 |
) |
|
Inventories |
|
(64.2 |
) |
|
|
(49.7 |
) |
|
|
(99.1 |
) |
|
|
(111.0 |
) |
|
Other current assets |
|
1.8 |
|
|
|
(15.4 |
) |
|
|
(0.3 |
) |
|
|
(10.5 |
) |
|
Accounts payable, accrued and other current liabilities and provisions |
|
81.9 |
|
|
|
70.5 |
|
|
|
57.8 |
|
|
|
39.3 |
|
Non-cash working capital changes |
|
(6.0 |
) |
|
|
(81.9 |
) |
|
|
(17.9 |
) |
|
|
(142.9 |
) |
Net income taxes paid |
|
(4.1 |
) |
|
|
(8.7 |
) |
|
|
(7.7 |
) |
|
|
(17.3 |
) |
Net cash provided by (used in) operating activities |
|
44.4 |
|
|
|
(4.5 |
) |
|
|
79.5 |
|
|
|
(22.8 |
) |
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of computer software and property, plant and equipment |
|
(18.5 |
) |
|
|
(18.2 |
) |
|
|
(31.2 |
) |
|
|
(34.3 |
) |
Proceeds from sale of assets |
|
0.3 |
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
0.7 |
|
Advances to solar supplier (note 4) |
|
(21.0 |
) |
|
|
- |
|
|
|
(21.0 |
) |
|
|
- |
|
Repayments from solar supplier (note 4) |
|
- |
|
|
|
2.0 |
|
|
|
- |
|
|
|
5.0 |
|
Net cash used in investing activities |
|
(39.2 |
) |
|
|
(15.7 |
) |
|
|
(51.8 |
) |
|
|
(28.6 |
) |
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under credit facility (note 7) |
|
275.0 |
|
|
|
- |
|
|
|
275.0 |
|
|
|
40.0 |
|
Repayments under credit facility (note 7) |
|
- |
|
|
|
(16.3 |
) |
|
|
- |
|
|
|
(22.5 |
) |
Finance lease payments (note 4) |
|
- |
|
|
|
(1.1 |
) |
|
|
- |
|
|
|
(2.4 |
) |
Issuance of capital stock (note 8) |
|
0.6 |
|
|
|
1.5 |
|
|
|
2.6 |
|
|
|
3.0 |
|
Repurchase of capital stock for cancellation (note 8) |
|
(350.4 |
) |
|
|
- |
|
|
|
(370.2 |
) |
|
|
(34.3 |
) |
Finance costs paid |
|
(2.8 |
) |
|
|
(2.5 |
) |
|
|
(3.3 |
) |
|
|
(4.8 |
) |
Net cash used in financing activities |
|
(77.6 |
) |
|
|
(18.4 |
) |
|
|
(95.9 |
) |
|
|
(21.0 |
) |
Net decrease in cash and cash equivalents |
|
(72.4 |
) |
|
|
(38.6 |
) |
|
|
(68.2 |
) |
|
|
(72.4 |
) |
Cash and cash equivalents, beginning of period |
|
569.2 |
|
|
|
511.5 |
|
|
|
565.0 |
|
|
|
545.3 |
|
Cash and cash equivalents, end of period |
$ |
496.8 |
|
|
$ |
472.9 |
|
|
$ |
496.8 |
|
|
$ |
472.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial
statements.
CELESTICA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
(unaudited)
1. REPORTING ENTITY
Celestica Inc. (Celestica) is incorporated in Canada with its corporate headquarters located at 844 Don Mills
Road, Toronto, Ontario, M3C 1V7. Celestica's subordinate voting shares are listed on the Toronto Stock Exchange (TSX) and the New
York Stock Exchange (NYSE).
Celestica delivers innovative supply chain solutions globally to customers in the Communications (comprised of
enterprise communications and telecommunications), Consumer, Diversified (comprised of aerospace and defense, industrial,
healthcare, energy, and semiconductor equipment), Servers, and Storage end markets. Our product lifecycle offerings include a
range of services to our customers including design and development, engineering services, supply chain management, new product
introduction, component sourcing, electronics manufacturing, assembly and test, complex mechanical assembly, systems integration,
precision machining, order fulfillment, logistics and after-market repair and return services.
2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance:
These unaudited interim condensed consolidated financial statements have been prepared in accordance with
International Accounting Standard (IAS) 34, Interim Financial Reporting, as issued by the International Accounting
Standards Board (IASB) and the accounting policies we have adopted in accordance with International Financial Reporting Standards
(IFRS). These unaudited interim condensed consolidated financial statements reflect all adjustments that are, in the opinion of
management, necessary to present fairly our financial position as at June 30, 2016 and our financial performance, comprehensive
income and cash flows for the three and six months ended June 30, 2016.
These unaudited interim condensed consolidated financial statements were authorized for issuance by our board of
directors on July 21, 2016.
Functional and presentation currency:
These unaudited interim condensed consolidated financial statements are presented in U.S. dollars, which is also
our functional currency. Unless otherwise noted, all financial information is presented in millions of U.S. dollars (except
percentages and per share amounts).
Use of estimates and judgments:
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates
and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, revenue
and expenses, and the related disclosures of contingent assets and liabilities. Actual results could differ materially from these
estimates and assumptions. We review our estimates and underlying assumptions on an ongoing basis and make revisions as
determined necessary by management. Revisions are recognized in the period in which the estimates are revised and may impact
future periods as well.
Key sources of estimation uncertainty and judgment: We have applied significant estimates and
assumptions in the following areas which we believe could have a significant impact on our reported results and financial
position: our valuations of inventory, assets held for sale and income taxes; the amount of our restructuring charges or
recoveries; the measurement of the recoverable amounts of our cash generating units (CGUs, as defined below), which includes
estimating future growth, profitability, and discount rates, and the fair value of our real property; our valuations of financial
assets and liabilities, pension and non-pension post-employment benefit costs, employee stock-based compensation expense,
provisions and contingencies; and the allocation of the purchase price and other valuations related to our business
acquisitions.
We define a CGU as the smallest identifiable group of assets that cannot be tested individually and that
generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. CGUs can be
comprised of a single site, a group of sites, or a line of business.
We have also applied significant judgment in the following areas: the determination of our CGUs and whether
events or changes in circumstances during the period are indicators that a review for impairment should be conducted, and the
timing of the recognition of charges or recoveries associated with our restructuring actions.
These unaudited interim condensed consolidated financial statements are based upon accounting policies and
estimates consistent with those used and described in note 2 of our 2015 annual audited consolidated financial statements. There
have been no material changes to our significant accounting estimates and assumptions or the judgments affecting the application
of such estimates and assumptions during the second quarter of 2016 from those described in the notes to our 2015 annual audited
consolidated financial statements. The near-term economic environment could also impact certain estimates necessary to prepare
our consolidated financial statements, in particular, the estimates related to the recoverable amounts used in our impairment
testing of our non-financial assets, and the discount rates applied to our net pension and non-pension post-employment benefit
assets or liabilities.
3. SEGMENT AND CUSTOMER REPORTING
End markets:
The following table indicates revenue by end market as a percentage of total revenue for the periods indicated.
Our revenue fluctuates from period-to-period depending on numerous factors, including but not limited to: the mix and complexity
of the products or services we provide, the extent, timing and rate of new program wins, and the execution of our programs and
services, follow-on business, program completions or losses, the phasing in or out of programs, the success in the marketplace of
our customers' products, changes in customer demand, and the seasonality of our business. We expect that the pace of
technological change, the frequency of customers transferring business among EMS competitors, the level of outsourcing by
customers (including decisions to insource), and the dynamics of the global economy will also continue to impact our business
from period-to-period.
|
|
|
|
|
|
|
Three months ended June 30 |
|
|
Six months ended June 30 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
Communications |
40 |
% |
|
41 |
% |
|
40 |
% |
|
40 |
% |
Consumer |
3 |
% |
|
3 |
% |
|
3 |
% |
|
3 |
% |
Diversified |
28 |
% |
|
30 |
% |
|
28 |
% |
|
32 |
% |
Servers |
10 |
% |
|
9 |
% |
|
10 |
% |
|
9 |
% |
Storage |
19 |
% |
|
17 |
% |
|
19 |
% |
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Customers:
For the second quarter and first half of 2016, we had two customers that individually represented more than 10%
of total revenue (second quarter and first half of 2015 -- three customers).
4. SOLAR INVESTMENTS
In March 2015, we entered into a supply agreement with an Asia-based solar cell supplier (Solar Supplier), that
includes a commitment by us to provide cash advances of up to $31.0 to help secure our solar cell supply. The advances were used
by the Solar Supplier to help finance the expansion of its manufacturing operations into Malaysia. This supply agreement has an
initial term of three and a half years, and is subject to automatic renewal for successive one-year terms unless either party
provides a notice of intent not to renew. All such cash advances are scheduled to be repaid by this supplier through quarterly
repayment installments, which commenced in the fourth quarter of 2015 and are to continue through the end of 2017. As of June 30,
2016, we have advanced a total of $29.5 under this agreement. We received cash repayments of $2.0 from the supplier in the second
quarter of 2016 (first half of 2016 -- $5.0). As of June 30, 2016, $21.5 remains recoverable from this supplier, which we have
recorded as other current assets of $17.0 and other non-current assets of $4.5 on our consolidated balance sheet. We received an
additional cash repayment of $2.0 from this supplier in July 2016.
In April 2015, we entered into a five-year agreement, pursuant to which we leased $19.3 of manufacturing
equipment to be used in our solar operations in Asia. Our quarterly lease payments commenced in January 2016, pursuant to which
we made a scheduled repayment of $1.1 in the second quarter of 2016 (first half of 2016 -- $2.4). As of June 30, 2016, our
related lease obligations totaled $17.3, consisting of short-term obligations of $4.1 and long-term obligations of $13.2. This
lease qualifies as a finance lease under IFRS. See note 7.
5. ACCOUNTS RECEIVABLE
We have an accounts receivable sales agreement to sell up to $250.0 at any one time in accounts receivable on an
uncommitted basis (subject to pre-determined limits by customer) to two third-party banks. Each of these banks had a Standard and
Poor's long-term rating of BBB+ or above and a short-term rating of A-2 or above at June 30, 2016. The term of this agreement has
been annually extended in recent years for additional one-year periods (and is currently extendable to November 2017 under
specified circumstances), but may be terminated earlier as provided in the agreement. At June 30, 2016, $60.0 of accounts
receivable were sold under this facility (December 31, 2015 -- $50.0) and de-recognized from our accounts receivable balance. The
accounts receivable sold are removed from our consolidated balance sheet 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 accounts receivable to
the banks. We continue to collect cash from our customers and remit the cash to the banks when collected. We pay interest and
fees which we record in finance costs in our consolidated statement of operations.
6. INVENTORIES
We record our inventory provisions and valuation recoveries in cost of sales. We record inventory provisions to
reflect write-downs in the value of our inventory to net realizable value, and valuation recoveries primarily to reflect realized
gains on the disposition of inventory previously written down to net realizable value. We recorded net inventory recoveries of
$0.4 for the second quarter of 2016 and net inventory provisions of $0.2 for the first half of 2016 (second quarter and first
half of 2015 -- net inventory provisions of $2.5 and $4.2, respectively). We regularly review our estimates and assumptions used
to value our inventory through analysis of historical performance. During the second quarter of 2016, our net inventory
recoveries of $0.4 were comprised of a $2.5 provision reversal to reflect improved recovery of certain inventory, offset in part
by new provisions of $2.1 for aged inventory.
7. CREDIT FACILITIES AND LONG-TERM DEBT
In order to fund a portion of our share repurchases under the $350.0 substantial issuer bid (the SIB) completed
in June 2015, we amended our $300.0 revolving credit facility in May 2015 to add a non-revolving term loan component (Term Loan)
in the amount of $250.0 (in addition to the previous revolving credit limit of $300.0), and to extend the maturity of the entire
facility from October 2018 to May 2020. We funded the SIB using the proceeds of the Term Loan, $25.0 drawn on the revolving
portion of the credit facility (Revolving Facility), and $75.0 of available cash on hand. We also borrowed an additional $40.0
under the Revolving Facility in the first quarter of 2016 to fund the repurchase of shares and to pre-fund a program share
repurchase (PSR) under our current normal course issuer bid (the 2016 NCIB), which PSR was completed in May 2016. During the
second quarter of 2016, we made a scheduled quarterly principal repayment of $6.25 (first half of 2016 -- $12.5) under the Term
Loan, and a repayment of $10.0 under the Revolving Facility. At June 30, 2016, $280.0 was outstanding under the credit facility,
comprised of $55.0 under the Revolving Facility and $225.0 under the Term Loan (December 31, 2015 -- $262.5 outstanding,
comprised of $25.0 under the Revolving Facility and $237.5 under the Term Loan).
The Revolving Facility has an accordion feature that allows us to increase the $300.0 limit by an additional
$150.0 on an uncommitted basis upon satisfaction of certain terms and conditions. The Revolving Facility also includes a $25.0
swing line, subject to the overall revolving credit limit, that provides for short-term borrowings up to a maximum of seven days.
The Revolving Facility permits us and certain designated subsidiaries to borrow funds for general corporate purposes, including
acquisitions. Borrowings under the Revolving Facility bear interest for the period of the draw at various base rates selected by
us consisting of LIBOR, Prime, Base Rate Canada, and Base Rate (each as defined in the amended credit agreement), plus a margin.
The margin for borrowings under the Revolving Facility ranges from 0.6% to 1.4% (except in the case of the LIBOR base rate, in
which case, the margin ranges from 1.6% to 2.4%), based on a specified financial ratio based on indebtedness. The Term Loan bears
interest at LIBOR plus a margin ranging from 2.0% to 3.0% based on the same financial ratio.
We are required to comply with certain restrictive covenants under the credit facility, including those relating
to the incurrence of senior ranking indebtedness, the sale of assets, a change of control, and certain financial covenants
related to indebtedness and interest coverage. Certain of our assets are pledged as security for borrowings under this facility.
If an event of default occurs and is continuing, the administrative agent may declare all advances on the facility to be
immediately due and payable and may cancel the lenders' commitments to make further advances thereunder.
The following table sets forth our borrowings under the Revolving Facility, Term Loan, and finance lease
obligations as of the period-ends indicated:
|
|
|
|
|
|
|
December 31 |
|
|
June 30 |
|
|
2015 |
|
|
2016 |
|
Borrowings under the Revolving Facility |
$ |
25.0 |
|
|
$ |
55.0 |
|
Term Loan |
|
237.5 |
|
|
|
225.0 |
|
Total borrowings under credit facility |
|
262.5 |
|
|
|
280.0 |
|
Less: unamortized debt issuance costs |
|
(1.8 |
) |
|
|
(1.5 |
) |
Finance lease obligations (note 4) |
|
19.0 |
|
|
|
17.3 |
|
|
$ |
279.7 |
|
|
$ |
295.8 |
|
Comprised of: |
|
|
|
|
|
|
|
Current portion of borrowings under credit facility and finance lease obligations |
$ |
29.1 |
|
|
$ |
84.1 |
|
Long-term portion of borrowings under credit facility and finance lease obligations |
|
250.6 |
|
|
|
211.7 |
|
|
$ |
279.7 |
|
|
$ |
295.8 |
|
|
|
|
|
|
|
|
|
We incurred debt issuance costs of $2.1 in 2015 in connection with the amendment of the credit facility, which we
recorded as an offset against the proceeds from the Term Loan. Such costs are deferred and amortized over the term of the Term
Loan using the effective interest rate method.
The $55.0 outstanding under the Revolving Facility is due upon maturity of the facility in May 2020. We are
permitted to repay amounts prior to maturity. We currently intend to repay this $55.0 within the next twelve months. Prepayments
are also required under certain circumstances.
The Term Loan requires quarterly principal repayments until its maturity. At June 30, 2016, the remaining
mandatory principal repayments of the Term Loan were as follows:
|
|
Years ending December 31 |
Amount |
2016 |
$ |
12.5 |
2017 |
|
25.0 |
2018 |
|
25.0 |
2019 |
|
25.0 |
2020 (to maturity in May 2020) |
|
137.5 |
|
$ |
225.0 |
|
|
|
We are permitted to make voluntary prepayments of the Term Loan, subject to certain terms and conditions.
Prepayments on the Term Loan are also required under certain circumstances. Repaid amounts on the Term Loan may not be
re-borrowed.
At June 30, 2016, we were in compliance with all restrictive and financial covenants under the credit facility.
Commitment fees paid in the second quarter and first half of 2016 were $0.3 and $0.6, respectively (second quarter and first half
of 2015 -- $0.3 and $0.6, respectively). At June 30, 2016, we had $29.1 (December 31, 2015 -- $27.2) outstanding in letters of
credit under this facility.
We also have a total of $70.0 of uncommitted bank overdraft facilities available for intraday and overnight
operating requirements. There were no amounts outstanding under these overdraft facilities at June 30, 2016 or December 31,
2015.
The amounts we borrow and repay under these facilities can vary significantly from month-to-month depending upon
our working capital and other cash requirements.
8. CAPITAL STOCK
Share repurchases:
We have repurchased subordinate voting shares in the open market and otherwise for cancellation in recent years
pursuant to normal course issuer bids (NCIBs), which allow us to repurchase a limited number of subordinate voting shares during
a specified period, and from time to time pursuant to substantial issuer bids. As part of the NCIB process, we enter into
Automatic Share Purchase Plans (ASPPs) with brokers from time to time, that allow such brokers to purchase our subordinate voting
shares in the open market on our behalf for cancellation under our NCIBs (including during any applicable self-imposed trading
blackout periods). In addition, we enter into PSRs from time to time as part of the NCIB process (if permitted by the TSX),
pursuant to which we make a prepayment to a broker in consideration for the right to receive a variable number of subordinate
voting shares upon such PSR's completion. Under such PSRs, the price and number of subordinate voting shares to be repurchased by
us is generally determined based on a discount to the volume weighted-average market price of our subordinate voting shares
during the term of the PSR, subject to certain terms and conditions. The subordinate voting shares repurchased under any PSR are
cancelled upon completion of such PSR under the NCIB. The maximum number of subordinate voting shares we are permitted to
repurchase for cancellation under each NCIB is reduced by the number of subordinate voting shares we purchase in the open market
during the term of such NCIB to satisfy obligations under our stock-based compensation plans.
On September 9, 2014, the TSX accepted our notice to launch an NCIB (the 2014 NCIB), which allowed us to
repurchase, at our discretion, until the earlier of September 10, 2015 or the completion of purchases thereunder, up to
approximately 10.3 million subordinate voting shares (representing approximately 5.8% of our total subordinate voting and
multiple voting shares outstanding at the time of launch) in the open market or as otherwise permitted, subject to the normal
terms and limitations of such bids. During the first quarter of 2015, we repurchased and cancelled a total of 6.1 million
subordinate voting shares for $69.8 (including transaction fees) under the 2014 NCIB, at a weighted average price of $11.46 per
share, including 4.4 million subordinate voting shares repurchased under a $50.0 PSR which we funded in December 2014. We
completed the share repurchases under this PSR on January 28, 2015 at a weighted average price of $11.38 per share. We did not
repurchase any shares under the 2014 NCIB in the second quarter of 2015. The 2014 NCIB expired in September 2015.
In the second quarter of 2015, we launched and completed the SIB, pursuant to which we repurchased and cancelled
approximately 26.3 million subordinate voting shares at a price of $13.30 per share (for an aggregate purchase price of $350.0),
representing approximately 15.5% of our total multiple voting shares and subordinate voting shares issued and outstanding prior
to completion of the SIB. We also recorded $0.9 in transaction-related costs. We funded the share repurchases with the proceeds
of the Term Loan, $25.0 drawn on the Revolving Facility, and $75.0 of cash on hand. See note 7.
On February 22, 2016, the TSX accepted our notice to launch the 2016 NCIB, which allows us to repurchase, at our
discretion, until the earlier of February 23, 2017 or the completion of purchases thereunder, up to approximately 10.5 million
subordinate voting shares (representing approximately 7.3% of our total outstanding subordinate voting and multiple voting shares
at the time of launch) in the open market or as otherwise permitted, subject to the normal terms and limitations of such bids.
The maximum number of subordinate voting shares we are permitted to repurchase for cancellation under the 2016 NCIB will be
reduced by the number of subordinate voting shares purchased during the term of the 2016 NCIB to satisfy obligations under our
stock-based compensation plans. During the first quarter of 2016, prior to the launch of the PSR described below, we paid $4.3
(including transaction fees) to repurchase and cancel 0.4 million subordinate voting shares under the 2016 NCIB at a weighted
average price of $10.73 per share. In March 2016, the TSX accepted our notice to amend the 2016 NCIB to permit the repurchase of
our subordinate voting shares thereunder through one or more PSRs. In connection therewith, we paid $30.0 to a broker in March
2016 under a PSR for the right to receive a variable number of our subordinate voting shares upon such PSR's completion. We
completed this PSR in May 2016, pursuant to which we repurchased and cancelled 2.8 million subordinate voting shares at a
weighted average price of $10.69 per share. As of June 30, 2016, up to an additional 7.3 million subordinate voting shares could
be repurchased under the 2016 NCIB during the remainder of its term.
Stock-based compensation:
We grant share unit awards to employees under our stock-based compensation plans. Under one of our stock-based
compensation plans, we have the option to satisfy the delivery of shares upon vesting of the awards by purchasing subordinate
voting shares in the open market or by settling such awards in cash. Under our other stock-based compensation plan, we may (at
the time of grant) authorize the grantee to settle awards in either cash or subordinate voting shares (absent such permitted
election, grants will be settled in subordinate voting shares, which we may purchase in the open market or issue from treasury,
subject to certain limits). From time-to-time, we pay cash for the purchase by a trustee of subordinate voting shares in the open
market to satisfy the delivery of shares upon vesting of awards. For accounting purposes, we classify these shares as treasury
stock until they are delivered pursuant to the plans. We did not purchase any subordinate voting shares in the open market to
satisfy the delivery requirements under our stock-based compensation plans during the second quarter or the first half of 2016 or
2015. At June 30, 2016, the trustee held 0.4 million subordinate voting shares for this purpose, having a value of $4.3 (December
31, 2015 -- 2.8 million subordinate voting shares with a value of $31.4).
The following table outlines the activities for stock-based awards granted to employees (activities for deferred
share units (DSUs) issued to directors are excluded) for the six months ended June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Number of awards (in millions) |
|
Options |
|
|
|
RSUs |
|
|
|
PSUs |
|
|
|
Outstanding at December 31, 2015 |
|
2.9 |
|
|
|
3.5 |
|
|
|
5.5 |
|
Granted |
|
- |
|
|
|
2.1 |
|
|
|
2.5 |
|
Exercised or settled (i) |
|
(0.4 |
) |
|
|
(1.2 |
) |
|
|
(1.2 |
) |
Forfeited or expired |
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
(0.8 |
) |
Outstanding at June 30, 2016 |
|
2.3 |
|
|
|
4.3 |
|
|
|
6.0 |
|
|
|
Weighted-average grant date fair value of options and share units granted |
|
N/A |
|
|
$ |
9.12 |
|
|
$ |
9.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
During the second quarter and first half of 2016, we received cash proceeds of $1.5 and $3.0, respectively
(second quarter and first half of 2015 -- $0.6 and $2.6, respectively) relating to the exercise of vested employee stock
options. |
At June 30, 2016, 1.4 million (December 31, 2015 -- 1.3 million) DSUs were outstanding.
For the second quarter and first half of 2016, we recorded aggregate employee stock-based compensation expense
(excluding DSU expense) through cost of sales and SG&A of $6.8 and $16.2, respectively (second quarter and first half of 2015
-- $7.1 and $18.6, respectively), and DSU expense (recorded through SG&A) of $0.5 and $1.0, respectively (second quarter and
first half of 2015 -- $0.5 and $1.0, respectively). Employee stock-based compensation expense varies from period-to-period. The
portion of such expense that relates to a non-market performance condition varies depending on the level of achievement of
pre-determined financial targets.
9. OTHER CHARGES (RECOVERIES)
|
|
|
Three months ended June 30 |
|
|
Six months ended June 30 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
Restructuring (a) |
$ |
9.5 |
|
|
$ |
4.5 |
|
|
$ |
9.8 |
|
|
$ |
6.5 |
|
Other (b) |
|
(0.2 |
) |
|
|
(7.5 |
) |
|
|
(0.2 |
) |
|
|
(7.8 |
) |
|
$ |
9.3 |
|
|
$ |
(3.0 |
) |
|
$ |
9.6 |
|
|
$ |
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Restructuring:
We perform ongoing evaluations of our business, operational efficiency and cost structure, and implement
restructuring actions as we deem necessary. As a result of our most recent evaluation, during the second quarter and first half
of 2016, we recorded restructuring charges of $4.5 and $6.5, respectively, compared to $9.5 and $9.8, respectively, for the
second quarter and first half of 2015. Our restructuring actions for the first half of 2016 and 2015 included consolidating
certain of our sites and reducing our workforce. During the second quarter of 2016, we recorded cash charges of $2.3, primarily
for employee termination costs and contractual lease obligations related to operations that we have begun to wind down, and
non-cash charges of $2.2, primarily to write down certain plant assets and equipment to recoverable amounts. During the second
quarter of 2015, we consolidated two of our semiconductor sites, to reduce the cost structure and improve the margin performance
of that business, as well as implemented employee headcount reductions in various geographies. We recorded cash charges of $5.3
during the second quarter of 2015, primarily for employee termination costs and non-cash charges of $4.2, primarily to write down
certain equipment to recoverable amounts. Our restructuring provision at June 30, 2016 was $3.8 (December 31, 2015 -- $10.7)
comprised primarily of employee termination and lease obligation costs.
The recognition of restructuring charges requires us to make certain judgments and estimates regarding the
nature, timing and amounts associated with our restructuring actions. Our major assumptions include the number of employees to be
terminated and the timing of such terminations, the measurement of termination costs, the timing and amount of lease obligations
and any sublease recoveries from exited sites, and the timing of disposition and estimated fair values of assets available for
sale, as applicable. We develop detailed plans and record termination costs for employees informed of their termination. For
leased facilities that we intend to exit, the lease obligation costs represent future contractual lease payments less estimated
sublease recoveries and cancellation fees, if any. We engage independent brokers to determine the estimated fair values less
costs to sell for assets we no longer use and which are available for sale. We recognize an impairment loss for assets whose
carrying amount exceeds their respective fair values less costs to sell as determined by such independent brokers. We also record
adjustments to reflect actual proceeds received upon the disposition of these assets. At the end of each reporting period, we
evaluate the appropriateness of our restructuring charges and balances. Further adjustments may be required to reflect actual
experience or changes in estimates.
(b) Other:
In July 2016, we received recoveries of damages of $12.0 in connection with the settlement of class action
lawsuits in which we were a plaintiff, related to certain purchases we made in prior periods. We recorded these recoveries as
other current assets on our consolidated balance sheet as of June 30, 2016. We also recorded a provision in the second quarter of
2016 with respect to the settlement of an unrelated legal matter based on our current estimate of the likely outcome.
10. INCOME TAXES
Our effective income tax rate can vary significantly quarter-to-quarter for various reasons, including the mix
and volume of business in lower tax jurisdictions within Europe and Asia, in jurisdictions with tax holidays and tax incentives,
and in jurisdictions for which no deferred income tax assets have been recognized because management believed it was not probable
that future taxable profit would be available against which tax losses and deductible temporary differences could be utilized.
Our effective income tax rate can also vary due to the impact of restructuring charges, foreign exchange fluctuations, operating
losses, and changes in our provisions related to tax uncertainties.
Our net income tax expense for the second quarter of 2016 was adversely affected by taxable foreign exchange
impacts of $2.5 arising from the weakening of the Malaysian ringgit and Chinese renminbi relative to the U.S. dollar (our
functional currency).
See note 12 regarding income tax contingencies.
11. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Our financial assets are comprised primarily of cash and cash equivalents, accounts receivable, outstanding cash
advances receivable and derivatives used for hedging purposes. Our financial liabilities are comprised primarily of accounts
payable, certain accrued and other liabilities and provisions, the Term Loan, borrowings under the Revolving Facility, and
derivatives. We record the majority of our financial liabilities at amortized cost except for derivative liabilities, which we
measure at fair value. We classify our term deposits as held-to-maturity. We record our short-term investments in money market
funds at fair value, with changes recognized in our consolidated statement of operations. The carrying value of the Term Loan
approximates its fair value as it bears interest at a variable market rate. The carrying value of the outstanding cash advances
receivable from the Solar Supplier approximates their fair value due to their relatively short term to maturity. We classify the
financial assets and liabilities that we measure at fair value based on the inputs used to determine fair value at the
measurement date. See note 20 of our 2015 annual audited consolidated financial statements for details of the input levels used
and our fair value hierarchy at December 31, 2015. There have been no significant changes to the source of our inputs since
December 31, 2015.
Cash and cash equivalents are comprised of the following:
|
|
December 31 |
|
June 30 |
|
|
2015 |
|
|
2016 |
Cash |
$ |
476.1 |
|
$ |
403.1 |
Cash equivalents |
|
69.2 |
|
|
69.8 |
|
$ |
545.3 |
|
$ |
472.9 |
|
|
|
|
|
|
Our current portfolio consists of bank deposits and certain money market funds that primarily hold U.S.
government securities. The majority of our cash and cash equivalents is held with financial institutions each of which had at
June 30, 2016 a Standard and Poor's short-term rating of A-1 or above.
Interest rate risk:
Borrowings under our credit facility bear interest at specified rates, plus specified margins. See note 7. Our
borrowings under this facility, which at June 30, 2016 totalled $280.0 (December 31, 2015 -- $262.5), expose us to interest rate
risk due to potential increases to the specified rates and margins.
Currency risk:
Due to the global nature of our operations, we are exposed to exchange rate fluctuations on our financial
instruments denominated in various currencies. The majority of our currency risk is driven by operational costs, including income
tax expense, incurred in local currencies by our subsidiaries. As part of our risk management program, we attempt to mitigate
currency risk through a hedging program using forecasts of our anticipated future cash flows and balance sheet exposures
denominated in foreign currencies. We enter into foreign exchange forward contracts, generally for periods up to 15 months, to
lock in the exchange rates for future foreign currency transactions, which is intended to reduce the variability of our operating
costs and future cash flows denominated in local 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. Although our functional currency is the U.S. dollar, currency risk on our income tax expense arises as we
are generally required to file our tax returns in the local currency for each particular country in which we have operations.
While our hedging program is designed to mitigate currency risk vis-à-vis the U.S. dollar, we remain subject to taxable foreign
exchange impacts in our translated local currency financial results relevant for tax reporting purposes.
Our major currency exposures at June 30, 2016 are summarized in U.S. dollar equivalents in the following table.
We have included in this table only those items that we classify as financial assets or liabilities and which were denominated in
non-functional currencies. In accordance with the IFRS financial instruments standard, we have excluded items such as pension and
non-pension post-employment benefits and income taxes from the table below. The local currency amounts have been converted to
U.S. dollar equivalents using spot rates at June 30, 2016.
|
|
|
Canadian |
|
|
|
|
|
Thai |
|
|
dollar |
|
|
Euro |
|
|
baht |
|
Cash and cash equivalents |
$ |
9.6 |
|
|
$ |
10.2 |
|
|
$ |
0.7 |
|
Accounts receivable and other financial assets |
|
3.1 |
|
|
|
29.0 |
|
|
|
1.6 |
|
Accounts payable and certain accrued and other liabilities and provisions |
|
(36.4 |
) |
|
|
(24.5 |
) |
|
|
(16.6 |
) |
Net financial assets (liabilities) |
$ |
(23.7 |
) |
|
$ |
14.7 |
|
|
$ |
(14.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency risk sensitivity analysis:
The financial impact of a one-percentage point strengthening or weakening of the following currencies against the
U.S. dollar for our financial instruments denominated in such non-functional currencies is summarized in the following table as
at June 30, 2016. The financial instruments impacted by a change in exchange rates include our exposures to the above financial
assets or liabilities denominated in non-functional currencies and our foreign exchange forward contracts.
|
|
|
|
|
|
|
|
|
|
Canadian |
|
|
|
|
|
Thai |
|
|
dollar |
|
|
Euro |
|
|
baht |
|
|
Increase (decrease) |
1% Strengthening |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
$ |
1.3 |
|
|
$ |
(0.2 |
) |
|
$ |
0.1 |
|
|
Other comprehensive income |
|
1.3 |
|
|
|
0.1 |
|
|
|
0.7 |
|
1% Weakening |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
(1.3 |
) |
|
|
0.2 |
|
|
|
(0.1 |
) |
|
Other comprehensive income |
|
(1.3 |
) |
|
|
(0.1 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2016, we had forward exchange contracts to trade U.S. dollars in exchange for the following
currencies:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
average |
|
|
|
|
|
|
Contract |
|
exchange rate |
|
Maximum |
|
|
|
|
amount in |
|
in |
|
period in |
|
Fair value |
|
Currency |
U.S. dollars |
|
U.S. dollars |
|
months |
|
gain (loss) |
|
Canadian dollar |
$ |
293.5 |
|
$ |
0.76 |
|
12 |
|
$ |
2.9 |
|
Thai baht |
|
95.6 |
|
|
0.03 |
|
12 |
|
|
0.2 |
|
Malaysian ringgit |
|
71.8 |
|
|
0.24 |
|
12 |
|
|
1.7 |
|
Mexican peso |
|
23.2 |
|
|
0.06 |
|
12 |
|
|
(1.2 |
) |
British pound |
|
113.4 |
|
|
1.39 |
|
4 |
|
|
2.7 |
|
Chinese renminbi |
|
92.9 |
|
|
0.15 |
|
12 |
|
|
(0.8 |
) |
Euro |
|
59.4 |
|
|
1.13 |
|
11 |
|
|
0.3 |
|
Romanian leu |
|
22.0 |
|
|
0.25 |
|
11 |
|
|
(0.2 |
) |
Singapore dollar |
|
21.6 |
|
|
0.72 |
|
12 |
|
|
0.6 |
|
Other |
|
13.0 |
|
|
|
|
5 |
|
|
(0.7 |
) |
Total |
$ |
806.4 |
|
|
|
|
|
|
$ |
5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2016, the fair value of the outstanding contracts was a net unrealized gain of $5.5 (December 31,
2015 -- net unrealized loss of $24.0). Changes in the fair value of hedging derivatives to which we apply cash flow hedge
accounting, to the extent effective, are deferred in other comprehensive income until the expenses or items being hedged are
recognized in our consolidated statement of operations. Any hedge ineffectiveness, which at June 30, 2016 was not significant, is
recognized immediately in our consolidated statement of operations. At June 30, 2016, we recorded $13.2 of derivative assets in
other current assets, and $7.7 of derivative liabilities in accrued and other current liabilities (December 31, 2015 -- $2.8 of
derivative assets in other current assets and $26.8 of derivative liabilities in accrued and other current and non-current
liabilities). The unrealized gains or losses are a result of fluctuations in foreign exchange rates between the date the currency
forward contracts were entered into and the valuation date at period end.
12. CONTINGENCIES
Litigation
In the normal course of our operations, we may be subject to lawsuits, investigations and other claims, including
environmental, labor, product, customer disputes and other matters. Management believes that adequate provisions have been
recorded in the accounts where required. Although it is not always possible to estimate the extent of potential costs, if any,
management believes that the ultimate resolution of all such pending matters will not have a material adverse impact on our
financial performance, financial position or liquidity.
Commencing in 2007, securities class action lawsuits were brought against us and certain of our officers, a
director and Onex Corporation in the United States District Court for the Southern District of New York, alleging violations of
United States federal securities laws. In 2015, a settlement of the consolidated class action lawsuits was reached and the
District Court granted final approval of the settlement in July 2015. The time for any appeal from the approval of the settlement
had expired without any appeal having been filed. The settlement payment to the plaintiffs was paid by our liability insurance
carriers in 2015.
In 2007, parallel class proceedings were initiated against us and our former Chief Executive and Chief Financial
Officers in the Ontario Superior Court of Justice. These proceedings are not affected by the settlement discussed above. On
October 15, 2012, the Ontario Superior Court of Justice granted limited aspects of the defendants' motion to strike, but
dismissed the defendants' limitation period argument. The defendants' appeal of the limitation period issue was dismissed on
February 3, 2014 when the Court of Appeal for Ontario overturned its own prior decision on the limitation period issue. On August
7, 2014, the defendants were granted leave to appeal the decision to the Supreme Court of Canada, together with two other cases
that dealt with the limitation period issue. The Supreme Court of Canada heard the appeal on February 9, 2015. The Supreme Court
of Canada released its decision on December 4, 2015, allowing the defendants' appeal and holding that the statutory claims of the
plaintiff and the class under the Ontario Securities Act are barred by the applicable limitation period. In an earlier decision
dated February 14, 2014, the Ontario Superior Court of Justice denied certification of the plaintiffs' common law claims. No
party appealed that decision. We are seeking our costs of the Supreme Court proceedings and the proceedings below. It is too
early to assess the quantum of costs that may be awarded, if any. The Canadian plaintiff initiated a second motion to certify its
common law claims, which was quashed by a decision of the Ontario Superior Court of Justice on May 24, 2016.
Income taxes
We are subject to tax audits globally by various tax authorities of historical information, which could result in
additional tax expense in future periods relating to prior results. Reviews by tax authorities generally focus on, but are not
limited to, the validity of our inter-company transactions, including financing and transfer pricing policies which generally
involve subjective areas of taxation and a significant degree of judgment. If any of these tax authorities are successful with
their challenges, our income tax expense may be adversely affected and we could also be subject to interest and penalty
charges.
Tax authorities in Canada have taken the position that income reported by one of our Canadian subsidiaries should
have been materially higher in 2001 and 2002 and materially lower in 2003 and 2004 as a result of certain inter-company
transactions, and have imposed limitations on benefits associated with favorable adjustments arising from inter-company
transactions and other adjustments. We have appealed this decision with the Canadian tax authorities and have sought assistance
from the relevant Competent Authorities in resolving the transfer pricing matter under relevant treaty principles. We could be
required to provide security up to an estimated maximum range of $20 million to $25 million Canadian dollars (approximately $15
to $19 at period-end exchange rates) in the form of letters of credit to the tax authorities in connection with the transfer
pricing appeal, however, we do not believe that such security will be required. If the tax authorities are successful with their
challenge, we estimate that the maximum net impact for additional income taxes and interest charges associated with the proposed
limitations of the favorable adjustments could be approximately $41 million Canadian dollars (approximately $32 at period-end
exchange rates). Resolution of these matters is currently anticipated during the remainder of 2016.
Canadian tax authorities have taken the position that certain interest amounts deducted by one of our Canadian
entities in 2002 through 2004 on historical debt instruments should be re-characterized as capital losses. If the tax authorities
are successful with their challenge, we estimate that the maximum net impact for additional income taxes and interest charges
could be approximately $33 million Canadian dollars (approximately $25 at period-end exchange rates). We have appealed this
decision with the Canadian tax authorities and have provided the requisite security to the tax authorities, including a letter of
credit in January 2014 of $5 million Canadian dollars (approximately $4 at period-end exchange rates), in addition to amounts
previously on account, in order to proceed with the appeal. We believe that our asserted position is appropriate and would be
sustained upon full examination by the tax authorities and, if necessary, upon consideration by the judicial courts. Our position
is supported by our Canadian legal tax advisors.
The successful pursuit of the assertions made by any taxing authority related to the above noted tax audits or
others could result in our owing significant amounts of tax, interest and possibly penalties. We believe we have substantial
defenses to the asserted positions and have adequately accrued for any probable potential adverse tax impact. However, there can
be no assurance as to the final resolution of these claims and any resulting proceedings. If these claims and any ensuing
proceedings are determined adversely to us, the amounts we may be required to pay could be material, and could be in excess of
amounts currently accrued.
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