Celestica Inc. (TSX: CLS) (NYSE: CLS), a leader in design,
manufacturing, hardware platform and supply chain solutions for the
world's most innovative companies, today announced financial
results for the quarter ended December 31, 2023 (Q4 2023)†.
“We are pleased with our solid fourth quarter
results, delivering non-IFRS operating margin* of 6.0%, and
non-IFRS adjusted EPS* of $0.76. We had a strong finish to 2023 and
achieved 10% revenue growth for the full year compared to 2022,
while our non-IFRS adjusted EPS* of $2.43 and non-IFRS operating
margin* of 5.6% were each the highest in our company’s history”
said Rob Mionis, President and CEO, Celestica. “The strong momentum
we had in 2023 is continuing into 2024 and we remain confident in
our long term strategy”.
Q4 2023 Highlights
• Key measures:
- Revenue: $2.14
billion, increased 5% compared to $2.04 billion for the fourth
quarter of 2022 (Q4 2022).
- Non-IFRS operating
margin*: 6.0%, compared to 5.3% for Q4 2022.
- ATS segment revenue
decreased 2% compared to Q4 2022; ATS segment margin was 4.7%
compared to 4.4% for Q4 2022.
- CCS segment revenue
increased 10% compared to Q4 2022; CCS segment margin was 6.7%
compared to 5.9% for Q4 2022.
- Adjusted earnings
per share (EPS) (non-IFRS)*: $0.76, compared to $0.56 for Q4
2022.
- Adjusted return on
invested capital (adjusted ROIC) (non-IFRS)*: 23.3%, compared to
20.7% for Q4 2022.
- Adjusted free cash
flow (non-IFRS)*: $83.8 million, compared to
$42.6 million for Q4 2022.
• Most directly comparable IFRS financial
measures to non-IFRS measures above:
- Earnings from
operations as a percentage of revenue: 5.5% compared to 4.0% for Q4
2022.
- EPS: $0.70 compared
to $0.35 for Q4 2022.
- Return on invested
capital (IFRS ROIC): 21.6% compared to 15.7% for Q4 2022.
- Cash provided by
operations: $138.8 million compared to $101.3 million for Q4
2022.
• Repurchased 0.4 million subordinate
voting shares (SVS) for cancellation for $10.0 million.
† Celestica has two operating and reportable
segments: Advanced Technology Solutions (ATS) and Connectivity
& Cloud Solutions (CCS). Our ATS segment consists of our ATS
end market and is comprised of our Aerospace and Defense (A&D),
Industrial, HealthTech and Capital Equipment businesses. Our CCS
segment consists of our Communications and Enterprise (servers and
storage) end markets. Segment performance is evaluated based on
segment revenue, segment income and segment margin (segment income
as a percentage of segment revenue). See note 3 to our
December 31, 2023 unaudited interim condensed consolidated
financial statements (Q4 2023 Interim Financial Statements) for
further detail.* Non-International Financial Reporting Standards
(IFRS) financial measures (including ratios based on non-IFRS
financial measures) do not have any standardized meaning prescribed
by IFRS and therefore may not be comparable to similar financial
measures presented by other public companies that report under IFRS
or U.S. generally accepted accounting principles (GAAP). See
“Non-IFRS Supplementary Information” below for information on our
rationale for the use of non-IFRS financial measures. See Schedule
1 for, among other items, non-IFRS financial measures included in
this press release, their definitions, uses, and a reconciliation
of historical non-IFRS financial measures to the most directly
comparable IFRS financial measures. Schedule 1 also includes a
description of modifications to the calculation of certain non-IFRS
financial measures resulting from: (x) a recently-applicable
exclusion related to our total return swap (TRS); and (y) the
recent addition of certain costs to Other Charges, substantially
all of which consist of additional Transition Costs and Secondary
Offering Costs (each as defined therein). The most directly
comparable IFRS financial measures to non-IFRS operating margin,
non-IFRS adjusted EPS, non-IFRS adjusted ROIC and non-IFRS adjusted
free cash flow are earnings from operations as a percentage of
revenue, EPS, IFRS ROIC, and cash provided by operations,
respectively.
First Quarter of 2024 (Q1 2024)
Guidance‡
| |
Q1 2024
Guidance |
| Revenue (in billions) |
$2.025 to $2.175 |
| Non-IFRS operating
margin* |
6.0% at the mid-point of ourrevenue and non-IFRS adjustedEPS
guidance ranges |
| Adjusted SG&A (non-IFRS)*
(in millions) |
$62 to $64 |
| Adjusted EPS (non-IFRS)* |
$0.67 to $0.77 |
For Q1 2024, we expect a negative $0.26 to $0.32
per share (pre-tax) aggregate impact on net earnings on an IFRS
basis for employee stock-based compensation (SBC) expense,
amortization of intangible assets (excluding computer software),
and restructuring charges.
For Q1 2024, we also expect a non-IFRS adjusted
effective tax rate* of approximately 20% (which does not account
for foreign exchange impacts or unanticipated tax settlements),
assuming that our income will be subject to Pillar Two global
minimum tax, as legislation that has been introduced in Canada may
become applicable before the end of Q1 2024 with retroactive impact
to January 1, 2024‡. If this legislation is not
substantively enacted in Q1 2024, we expect that our non-IFRS
adjusted effective tax rate* for the quarter would be approximately
15%.
2024 Annual Outlook
Update‡
We are updating the 2024 annual non-IFRS
adjusted free cash flow* outlook provided in our November 29, 2023
press release from $175 million, or more, to $200 million, or more;
other 2024 annual outlook items provided therein remain
unchanged.
* See Schedule 1 for the definitions of, and
recent modifications to certain of, these non-IFRS financial
measures. We do not provide reconciliations for forward-looking
non-IFRS financial measures, as we are unable to provide a
meaningful or accurate calculation or estimation of reconciling
items and the information is not available without unreasonable
effort. This is due to the inherent difficulty of forecasting the
timing or amount of various events that have not yet occurred, are
out of our control and/or cannot be reasonably predicted, and that
would impact the most directly comparable forward-looking IFRS
financial measure. For these same reasons, we are unable to address
the probable significance of the unavailable information.
Forward-looking non-IFRS financial measures may vary materially
from the corresponding IFRS financial measures.
‡ Our Q1 2024 guidance and 2024 annual outlook
each assume: (i) accelerated applicability of Pillar Two global
minimum tax legislation to reporting periods in 2024 instead of
2025 (see note 2 to the Q4 2023 Interim Financial Statements); and
(ii) anticipated operational adjustments, including tax
efficiencies. However, the timing of global minimum tax legislation
effectiveness and its impact on our tax expense cannot currently be
estimated with certainty, and may differ materially from our
expectations. In addition, although we have incorporated the
anticipated impact of demand softness in our Capital Equipment
business into our Q1 2024 financial guidance and 2024 annual
outlook to the best of our ability, its adverse impact (in terms of
duration and severity) cannot be estimated with certainty, and may
be materially in excess of our expectations.
Summary of Selected Q4 2023
Results
| |
Q4 2023
Actual |
|
Q4 2023 Guidance
(2) |
|
Key measures: |
|
|
|
|
Revenue (in billions) |
$2.14 |
|
|
$2.00 to $2.15 |
|
Non-IFRS operating margin* |
|
6.0% |
|
|
5.7% at the mid-point of ourrevenue and non-IFRS adjustedEPS
guidance ranges |
|
Adjusted SG&A (non-IFRS)* (in millions) |
$76.7 |
|
|
$67 to $69 |
|
Adjusted EPS (non-IFRS)* |
$0.76 |
|
|
$0.65 to $0.71 |
| |
|
|
|
|
Most directly comparable IFRS financial measures: |
|
|
|
|
Earnings from operations as a % of revenue |
|
5.5% |
|
|
N/A |
|
SG&A (in millions) |
$75.7 |
|
|
N/A |
|
EPS (1) |
$0.70 |
|
|
N/A |
*See Schedule 1 for, among other things, the
definitions of, and recent modifications to, these non-IFRS
financial measures, as well as a reconciliation of these non-IFRS
financial measures to the most directly comparable IFRS financial
measures for Q4 2023.
(1) IFRS EPS of $0.70 for Q4 2023 included an
aggregate charge of $0.17 (pre-tax) per share for employee SBC
expense, amortization of intangible assets (excluding computer
software), and restructuring charges (excluding restructuring
recoveries). See the tables in Schedule 1 and note 9 to the Q4 2023
Interim Financial Statements for per-item charges. This aggregate
charge was within our Q4 2023 guidance range of between $0.15 to
$0.21 per share for these items.
IFRS EPS for Q4 2023 included: a $0.10 per share
positive impact attributable to a fair value gain on our TRS (TRS
Gain), substantially all of which was offset by: (i) a $0.04 per
share negative tax impact arising from the repatriation of
undistributed earnings, net of the reversal of previously-recorded
tax expense from then-anticipated repatriations, from certain of
our Asian subsidiaries; (ii) a $0.04 per share negative impact
arising from tax uncertainties relating to one of our Asian
subsidiaries (Tax Uncertainties); and (iii) a $0.01 per share
negative impact attributable to restructuring charges. See notes 8,
9 and 10 to the Q4 2023 Interim Financial Statements.
IFRS EPS of $0.35 for Q4 2022 included a $0.03
per share negative impact arising from taxable temporary
differences associated with the anticipated repatriation of
undistributed earnings from certain of our Chinese subsidiaries
(Repatriation Expense), a $0.02 per share negative impact
attributable to restructuring charges, and a $0.01 per share
negative taxable foreign exchange impact arising from the
fluctuation of the Chinese renminbi relative to the U.S. dollar
(Currency Impact). See notes 9 and 10 to the Q4 2023 Interim
Financial Statements.
(2) For Q4 2023, our revenue was towards the
high end of our guidance range; our non-IFRS adjusted EPS exceeded
the high end of our guidance range, and our non-IFRS operating
margin exceeded the mid-point of our revenue and non-IFRS adjusted
EPS guidance ranges, driven by unanticipated volume leverage and
production efficiencies in our CCS segment. Our non-IFRS adjusted
SG&A for Q4 2023 exceeded the high end of our guidance range as
a result of an audit settlement of certain historical value-added
tax filings for one of our subsidiaries in Asia. Our IFRS effective
tax rate for Q4 2023 was 19%. As anticipated, our non-IFRS adjusted
effective tax rate for Q4 2023 was 20%.
Summary of Selected Full Year 2023
Results
2023 was another successful year for Celestica,
in which we continued to demonstrate solid performance, including
the following achievements:
| |
2022 Actual |
|
2023 Actual |
|
2023 Outlook |
| |
|
|
|
|
(previously provided in November 29, 2023 press release) |
|
Key measures: |
|
|
|
|
|
|
Revenue (in billions) |
$7.25 |
|
$7.96 |
|
$7.90 |
|
Non-IFRS operating margin* |
4.9% |
|
5.6% |
|
5.5% |
|
Adjusted EPS (non-IFRS)* |
$1.90 |
|
$2.43 |
|
$2.36 |
|
Adjusted ROIC (non-IFRS)* |
17.5% |
|
20.7% |
|
N/A |
|
Adjusted free cash flow (non-IFRS)* (in millions) |
$93.8 |
|
$193.9 |
|
$150.0 |
|
Most directly comparable IFRS financial measures: |
|
|
|
|
|
|
Earnings from operations as a % of revenue |
3.6% |
|
4.8% |
|
N/A |
|
EPS (1) |
$1.18 |
|
$2.03 |
|
N/A |
|
IFRS ROIC |
12.9% |
|
17.8% |
|
N/A |
|
Cash provided by operations (in millions) |
$297.9 |
|
$429.7 |
|
N/A |
|
|
|
|
|
|
|
* See Schedule 1 for, among other things, the
definitions of, and exclusions used to determine, these non-IFRS
financial measures, and a reconciliation of such non-IFRS financial
measures to the most directly comparable IFRS financial measures
for 2023 and 2022. Schedule 1 also includes a description of
modifications to the calculation of certain non-IFRS financial
measures as a result of: (x) a recently-applicable exclusion
related to our TRS; and (y) the recent addition of certain costs to
Other Charges, substantially all of which consist of additional
Transition Costs and Secondary Offering Costs (each as defined
therein).
(1) IFRS EPS of $2.03 for 2023 included: (i) a
$0.38 per share TRS Gain and (ii) a $0.05 favorable tax impact
attributable to the reversals of previously-recorded tax
uncertainties in one of our Asian subsidiaries; partially offset
by: (x) a $0.12 per share negative impact attributable to net other
charges (consisting primarily of a $0.10 per share negative impact
attributable to restructuring charges, a $0.03 per share negative
impact attributable to Transition Costs, a $0.01 per share negative
impact attributable to Acquisition Costs, and a $0.01 per share
negative impact, substantially of which was attributable to
Secondary Offering Costs (each defined in Schedule 1), offset in
part by a $0.02 per share positive impact attributable to legal
recoveries and a $0.01 per share positive impact attributable to
restructuring recoveries); and (y) a $0.09 per share negative tax
impact from both the repatriation of undistributed earnings and
taxable temporary differences associated with the then-anticipated
repatriation of undistributed earnings from certain of our Asian
subsidiaries, and a $0.04 per share negative impact from Tax
Uncertainties. See notes 8, 9 and 10 to the Q4 2023 Interim
Financial Statements.
IFRS EPS of $1.18 for 2022 included: (i) a $0.05
per share negative impact attributable to net other charges
(consisting most significantly of a $0.07 per share negative impact
attributable to restructuring charges and a $0.01 per share
negative impact attributable to Transition Costs, partially offset
by a $0.03 per share positive impact attributable to Transition
Recoveries (each defined in Schedule 1)); (ii) a $0.03 per share
negative impact attributable to estimated Constraint Costs (defined
as both direct and indirect costs, including manufacturing
inefficiencies related to lost revenue due to our inability to
secure materials, idled labor costs and incremental costs for
labor, expedite fees and freight premiums, cleaning supplies,
personal protective equipment, and/or IT-related services to
support our work-from-home arrangements as a result of supply chain
constraints, or COVID-19-related periodic lockdowns or workforce
constraints); (iii) a $0.03 per share negative Currency Impact; and
(iv) a $0.03 per share negative Repatriation Expense, all offset in
part by a $0.04 per share favorable tax impact attributable to the
reversal of previously-recorded tax uncertainties in one of our
Asian subsidiaries. See notes 9 and 10 to the Q4 2023 Interim
Financial Statements.
Acceptance of Normal Course Issuer Bid
(NCIB)
On December 12, 2023, the Toronto Stock Exchange
accepted our notice to launch a new NCIB (2023 NCIB). The 2023 NCIB
allows us to repurchase, at our discretion, from December 14, 2023
until the earlier of December 13, 2024 or the completion of
purchases thereunder, up to approximately 11.8 million SVS in the
open market, or as otherwise permitted, subject to the normal terms
and limitations of such bids. See note 8 to the Q4 2023 Interim
Financial Statements.
Q4 2023
Webcast
Management will host its Q4 2023 results
conference call on January 30, 2024 at 8:00 a.m. Eastern Standard
Time (EST). The webcast can be accessed at www.celestica.com.
Non-IFRS Supplementary
Information
In addition to disclosing detailed operating
results in accordance with IFRS, Celestica provides supplementary
non-IFRS financial measures to consider in evaluating the company’s
operating performance. Management uses adjusted net earnings and
other non-IFRS financial measures to assess operating performance
and the effective use and allocation of resources; to provide more
meaningful period-to-period comparisons of operating results; to
enhance investors’ understanding of the core operating results of
Celestica’s business; and to set management incentive targets. We
believe investors use both IFRS and non-IFRS financial measures to
assess management's past, current and future decisions associated
with our priorities and our allocation of capital, as well as to
analyze how our business operates in, or responds to, swings in
economic cycles or to other events that impact our core operations.
See Schedule 1 below.
About Celestica
Celestica enables the world's best brands.
Through our recognized customer-centric approach, we partner with
leading companies in Aerospace and Defense, Communications,
Enterprise, HealthTech, Industrial, and Capital Equipment to
deliver solutions for their most complex challenges. As a leader in
design, manufacturing, hardware platform and supply chain
solutions, Celestica brings global expertise and insight at every
stage of product development - from the drawing board to full-scale
production and after-market services. With talented teams across
North America, Europe and Asia, we imagine, develop and deliver a
better future with our customers. For more information on
Celestica, visit www.celestica.com. Our securities filings can be
accessed at www.sedarplus.com and www.sec.gov.
Cautionary Note Regarding
Forward-looking Statements
This press release contains forward-looking
statements, including, without limitation, those related to: our
anticipated financial and/or operational results, guidance and
outlook, including statements under the headings "First Quarter of
2024 (Q1 2024) Guidance", and "2024 Annual Outlook Update"; our
credit risk; our liquidity; anticipated charges and expenses,
including restructuring charges; the potential impact of tax and
litigation outcomes; mandatory prepayments under our credit
facility; anticipated sublease recoveries; and expected insurance
recoveries for tangible losses in connection with the June 2022
fire at our Batam facility in Indonesia (Batam Fire). Such
forward-looking statements may, without limitation, be preceded by,
followed by, or include words such as “believes,” “expects,”
“anticipates,” “estimates,” “intends,” “plans,” “continues,”
“project,” "target," "outlook," "goal," "guidance", “potential,”
“possible,” “contemplate,” “seek,” or similar expressions, or may
employ such future or conditional verbs as “may,” “might,” “will,”
“could,” “should,” or “would,” or may otherwise be indicated as
forward-looking statements by grammatical construction, phrasing or
context. For those statements, we claim the protection of the safe
harbor for forward-looking statements contained in the
U.S. Private Securities Litigation Reform Act of 1995, where
applicable, and for forward-looking information under applicable
Canadian securities laws.
Forward-looking statements are provided to
assist readers in understanding management’s current expectations
and plans relating to the future. Readers are cautioned that such
information may not be appropriate for other purposes.
Forward-looking statements are not guarantees of future performance
and are subject to risks that could cause actual results to differ
materially from those expressed or implied in such forward-looking
statements, including, among others, risks related to: customer and
segment concentration; challenges of replacing revenue from
completed, lost or non-renewed programs or customer disengagements;
managing our business during uncertain market, political and
economic conditions, including among others, global inflation
and/or recession, and geopolitical and other risks associated with
our international operations, including military actions/wars,
protectionism and reactive countermeasures, economic or other
sanctions or trade barriers, including in relation to the
Russia/Ukraine conflict and/or conflicts in the Middle East,
including the Israel/Hamas conflict and those related to Houthi
attacks in the Red Sea; shipping delays and increased shipping
costs (including as a result of shipping disruptions in the Red
Sea); managing changes in customer demand; our customers' ability
to compete and succeed using our products and services; delays in
the delivery and availability of components, services and/or
materials, as well as their costs and quality; our inventory levels
and practices; the cyclical and volatile nature of our
semiconductor business; changes in our mix of customers and/or the
types of products or services we provide, including negative
impacts of higher concentrations of lower margin programs; price,
margin pressures, and other competitive factors and adverse market
conditions affecting, and the highly competitive nature of, the
electronic manufacturing services (EMS) and original design
manufacturer (ODM) industries in general and our segments in
particular (including the risk that anticipated market conditions
do not materialize); challenges associated with new customers or
programs, or the provision of new services; interest rate
fluctuations; rising commodity, materials and component costs as
well as rising labor costs and changing labor conditions; changes
in U.S. policies or legislation; customer relationships with
emerging companies; recruiting or retaining skilled talent; our
ability to adequately protect intellectual property and
confidential information; the variability of revenue and operating
results; unanticipated disruptions to our cash flows; deterioration
in financial markets or the macro-economic environment, including
as a result of global inflation and/or recession; maintaining
sufficient financial resources to fund currently anticipated
financial actions and obligations and to pursue desirable business
opportunities; the expansion or consolidation of our operations;
the inability to maintain adequate utilization of our workforce;
integrating and achieving the anticipated benefits from
acquisitions and "operate-in-place" arrangements; execution and/or
quality issues (including our ability to successfully resolve these
challenges); non-performance by counterparties; negative impacts on
our business resulting from any significant uses of cash,
securities issuances, and/or additional increases in third-party
indebtedness (including as a result of an inability to sell desired
amounts under our uncommitted accounts receivable sales program or
supplier financing programs); disruptions to our operations, or
those of our customers, component suppliers and/or logistics
partners, including as a result of events outside of our control
(including those described in "External factors that may impact our
business" in our most recent Management's Discussion and Analysis
of Financial Condition and Results of Operations (MD&A));
defects or deficiencies in our products, services or designs;
volatility in the commercial aerospace industry; compliance with
customer-driven policies and standards, and third-party
certification requirements; negative impacts on our business
resulting from our third-party indebtedness; the scope, duration
and impact of materials constraints; coronavirus disease 2019
(COVID-19) mutations or resurgences; declines in U.S. and other
government budgets, changes in government spending or budgetary
priorities, or delays in contract awards; changes to our operating
model; foreign currency volatility; our global operations and
supply chain; competitive bid selection processes; our dependence
on industries affected by rapid technological change; rapidly
evolving and changing technologies, and changes in our customers'
business or outsourcing strategies; increasing taxes (including as
a result of global tax reform) and potential ineffectiveness of
related operational adjustments; tax audits, and challenges of
defending our tax positions; obtaining, renewing or meeting the
conditions of tax incentives and credits; the management of our
information technology systems, and the fact that while we have not
been materially impacted by computer viruses, malware, ransomware,
hacking incidents or outages, we have been (and may in the future
be) the target of such events; the impact of our restructuring
actions and/or productivity initiatives, including a failure to
achieve anticipated benefits therefrom; the incurrence of future
restructuring charges, impairment charges, other unrecovered
write-downs of assets (including inventory) or operating losses;
the inability to prevent or detect all errors or fraud; compliance
with applicable laws and regulations; our pension and other benefit
plan obligations; changes in accounting judgments, estimates and
assumptions; our ability to maintain compliance with applicable
credit facility covenants; our total return swap agreement; our
ability to refinance our indebtedness from time to time; our credit
rating; our eligibility for foreign private issuer status; activist
shareholders; current or future litigation, governmental actions,
and/or changes in legislation or accounting standards; volatility
in our SVS price; the impermissibility of SVS repurchases, or a
determination not to repurchase SVS, under any NCIB; potential
unenforceability of judgments; negative publicity; the impact of
climate change; our ability to achieve our environmental, social
and governance targets and goals, including with respect to climate
change and greenhouse gas emissions reduction; and our potential
vulnerability to take-over or tender offer. The foregoing and other
material risks and uncertainties are discussed in our public
filings at www.sedarplus.com and www.sec.gov, including in our
most recent MD&A, our 2022 Annual Report on Form 20-F filed
with, and subsequent reports on Form 6-K furnished to, the U.S.
Securities and Exchange Commission, and as applicable, the Canadian
Securities Administrators.
The forward-looking statements contained in this
press release are based on various assumptions, many of which
involve factors that are beyond our control. Our material
assumptions include: no significant decline in the global economy
or in economic activity in our end markets due to a major recession
or otherwise; growth in manufacturing outsourcing from customers in
diversified markets; continued growth in the advancement and
commercialization of artificial intelligence technologies and cloud
computing, supporting sustained high levels of capital expenditure
investments by leading hyperscaler customers; no unforeseen
disruptions due to geopolitical factors (including war) causing
significant negative impacts to economic activity, global or
regional supply chains or normal business operations; no unexpected
transfers, losses or disengagements; no unforeseen adverse changes
in our mix of businesses; no unforeseen adverse changes in the
regulatory environment; no undue negative impact on our customers'
ability to compete and succeed using our products and services;
continued growth in our end markets; no significant unforeseen
negative impacts to our operations (including from mutations or
resurgences of COVID-19); no unforeseen materials price increases,
margin pressures, or other competitive factors affecting the EMS or
ODM industries in general or our segments in particular, as well as
those related to the following: the scope and duration of materials
constraints (i.e., that they do not materially worsen), and their
impact on our sites, customers and suppliers; our ability to fully
recover our tangible losses caused by the Batam Fire through
insurance claims; fluctuation of production schedules from our
customers in terms of volume and mix of products or services; the
timing and execution of, and investments associated with, ramping
new business; our ability to retain programs and customers; the
stability of currency exchange rates; supplier performance and
quality, pricing and terms; compliance by third parties with their
contractual obligations; the costs and availability of components,
materials, services, equipment, labor, energy and transportation;
that our customers will retain liability for product/component
tariffs and countermeasures; global tax legislation changes
(including accelerated applicability of Pillar Two legislation) and
anticipated related operational adjustments; our ability to keep
pace with rapidly changing technological developments; the timing,
execution and effect of restructuring actions; the successful
resolution of quality issues that arise from time to time; the
components of our leverage ratio (as defined in our credit
facility); our ability to successfully diversify our customer base
and develop new capabilities; the availability of capital resources
for, and the permissibility under our credit facility of,
repurchases of outstanding SVS under NCIBs, and compliance with
applicable laws and regulations pertaining to NCIBs; compliance
with applicable credit facility covenants; anticipated demand
levels across our businesses; the impact of anticipated market
conditions on our businesses; that global inflation will not have a
material impact on our revenues or expenses; and our maintenance of
sufficient financial resources to fund currently anticipated
financial actions and obligations and to pursue desirable business
opportunities. Although management believes its assumptions to be
reasonable under the current circumstances, they may prove to be
inaccurate, which could cause actual results to differ materially
(and adversely) from those that would have been achieved had such
assumptions been accurate. Forward-looking statements speak only as
of the date on which they are made, and we disclaim any intention
or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise,
except as required by applicable law.
All forward-looking statements attributable to
us are expressly qualified by these cautionary statements.
|
Contacts: |
|
| Celestica Global Communications |
Celestica Investor Relations |
| (416) 448-2200 |
(416) 448-2211 |
| media@celestica.com |
clsir@celestica.com |
| |
|
Schedule 1Supplementary
Non-IFRS Financial Measures
The non-IFRS financial measures (including
ratios based on non-IFRS financial measures) included in this press
release are: adjusted gross profit, adjusted gross margin (adjusted
gross profit as a percentage of revenue), adjusted selling, general
and administrative expenses (SG&A), adjusted SG&A as a
percentage of revenue, non-IFRS operating earnings (or adjusted
EBIAT), non-IFRS operating margin (non-IFRS operating earnings or
adjusted EBIAT as a percentage of revenue), adjusted net earnings,
adjusted EPS, adjusted return on invested capital (adjusted ROIC),
adjusted free cash flow, adjusted tax expense and adjusted
effective tax rate. Adjusted EBIAT, adjusted ROIC, adjusted free
cash flow, adjusted tax expense and adjusted effective tax rate are
further described in the tables below. As used herein, "Q1," "Q2,"
"Q3," and "Q4" followed by a year refers to the first quarter,
second quarter, third quarter and fourth quarter of such year,
respectively.
In Q4 2022, we entered into a total return swap
(TRS) agreement (TRS Agreement). Similar to employee stock-based
compensation (SBC) expense, quarterly fair value adjustments of our
TRS (TRS FVAs) are classified in cost of sales and SG&A
expenses in our consolidated statement of operations. Commencing in
Q1 2023, TRS FVAs are excluded in our determination of the
following non-IFRS financial measures included herein: adjusted
gross profit, adjusted gross margin, adjusted SG&A, adjusted
SG&A as a percentage of revenue, non-IFRS operating earnings,
non-IFRS operating margin, adjusted net earnings and adjusted EPS
(for the reasons described below). TRS FVAs also impact the
determination of our non-IFRS adjusted tax expense and non-IFRS
adjusted effective tax rate. However, as the impact of TRS FVAs on
our Q4 2022 Interim Financial Statements was de minimis, no such
exclusion was applicable to such non-IFRS financial measures in
either Q4 2022 or the full year 2022.
We believe the non-IFRS financial measures we
present herein are useful to investors, as they enable investors to
evaluate and compare our results from operations in a more
consistent manner (by excluding specific items that we do not
consider to be reflective of our core operations), to evaluate cash
resources that we generate from our business each period, and to
provide an analysis of operating results using the same measures
our chief operating decision makers use to measure performance. In
addition, management believes that the use of a non-IFRS adjusted
tax expense and a non-IFRS adjusted effective tax rate provide
improved insight into the tax effects of our core operations, and
are useful to management and investors for historical comparisons
and forecasting. These non-IFRS financial measures result largely
from management’s determination that the facts and circumstances
surrounding the excluded charges or recoveries are not indicative
of our core operations.
Non-IFRS financial measures do not have any
standardized meaning prescribed by IFRS and therefore may not be
comparable to similar measures presented by other companies that
report under IFRS, or who report under U.S. GAAP and use non-GAAP
financial measures to describe similar financial metrics. Non-IFRS
financial measures are not measures of performance under IFRS and
should not be considered in isolation or as a substitute for any
IFRS financial measure.
The most significant limitation to management’s
use of non-IFRS financial measures is that the charges or credits
excluded from the non-IFRS financial measures are nonetheless
recognized under IFRS and have an economic impact on us. Management
compensates for these limitations primarily by issuing IFRS results
to show a complete picture of our performance, and reconciling
non-IFRS financial measures back to the most directly comparable
financial measures determined under IFRS.
In calculating the following non-IFRS financial
measures: adjusted gross profit, adjusted gross margin, adjusted
SG&A, adjusted SG&A as a percentage of revenue, non-IFRS
operating earnings, non-IFRS operating margin, adjusted net
earnings, adjusted EPS, and adjusted tax expense, management
excludes the following items (where indicated): employee SBC
expense, TRS FVAs, amortization of intangible assets (excluding
computer software), and Other Charges (Recoveries) (defined below),
all net of the associated tax adjustments (quantified in the table
below), and any non-core tax impacts (tax adjustments related to
acquisitions, and certain other tax costs or recoveries related to
restructuring actions or restructured sites).The economic substance
of these exclusions (where applicable to the periods presented) and
management’s rationale for excluding them from non-IFRS financial
measures is provided below. The determination of our non-IFRS
adjusted effective tax rate, adjusted free cash flow, and adjusted
ROIC is described in footnote 2, 3 and 4 to the table below,
respectively.
Employee SBC expense, which represents the
estimated fair value of stock options, restricted share units and
performance share units granted to employees, is excluded because
grant activities vary significantly from quarter-to-quarter in both
quantity and fair value. In addition, excluding this expense allows
us to better compare core operating results with those of our
competitors who also generally exclude employee SBC expense in
assessing operating performance, who may have different granting
patterns and types of equity awards, and who may use different
valuation assumptions than we do.
TRS FVAs represent mark-to-market adjustments to
our TRS, as the TRS is recorded at fair value at each quarter end.
We exclude the impact of these non-cash fair value adjustments
(both positive and negative), as they reflect fluctuations in the
market price of our SVS from period to period, and not our ongoing
operating performance. In addition, we believe that excluding these
non-cash adjustments permits a better comparison of our core
operating results to those of our competitors.
Amortization charges (excluding computer
software) consist of non-cash charges against intangible assets
that are impacted by the timing and magnitude of acquired
businesses. Amortization of intangible assets varies among our
competitors, and we believe that excluding these charges permits a
better comparison of core operating results with those of our
competitors who also generally exclude amortization charges in
assessing operating performance.
Other Charges (Recoveries) consist of, when
applicable: Restructuring Charges, net of recoveries (defined
below); Transition Costs (Recoveries) (defined below); net
Impairment charges (defined below); consulting, transaction and
integration costs related to potential and completed acquisitions,
and charges or releases related to the subsequent re-measurement of
indemnification assets or the release of indemnification or other
liabilities recorded in connection with acquisitions; legal
settlements (recoveries); specified credit facility-related
charges; post-employment benefit plan losses; in Q2 2023 and Q3
2023, Secondary Offering Costs (defined below) and, commencing in
Q2 2023, related costs pertaining to certain accounting
considerations. We exclude these charges and recoveries because we
believe that they are not directly related to ongoing operating
results and do not reflect expected future operating expenses after
completion of these activities or incurrence of the relevant costs
or recoveries. Our competitors may record similar charges and
recoveries at different times, and we believe these exclusions
permit a better comparison of our core operating results with those
of our competitors who also generally exclude these types of
charges and recoveries in assessing operating performance. In
addition, Other Charges (Recoveries) for Q4 2022 and full year 2022
included nil and approximately $95 million, respectively, in
charges and equivalent recoveries resulting from the Batam Fire.
See note 13 to the Q4 2023 Interim Financial Statements.
Restructuring Charges, net of recoveries,
consist of costs relating to: employee severance, lease
terminations, site closings and consolidations, accelerated
depreciation of owned property and equipment which are no longer
used and are available for sale and reductions in
infrastructure.
Transition Costs consist of costs recorded in
connection with: (i) the transfer of manufacturing lines from
closed sites to other sites within our global network; (ii) the
sale of real properties unrelated to restructuring actions
(Property Dispositions); and (iii) with respect to full year 2023,
the Purchaser Lease Charge (defined below). In connection with our
March 2019 Toronto real property sale, we treated associated
relocation and duplicate costs as Transition Costs. As part of such
sale, we entered into a 10-year lease with the purchaser of such
property for our then-anticipated headquarters, to be built by such
purchaser on the site of our former location (Purchaser Lease).
However, as previously disclosed, we were informed that due to
construction issues, the commencement date of the Purchaser Lease
would be delayed beyond the prior target of May 2023. As a result,
in November 2022, we extended (on a long-term basis) the lease on
our current corporate headquarters. Subsequently, we were informed
that the Purchaser Lease would commence in June 2024. In Q3 2023,
we executed a sublease for a portion of the space under the
Purchaser Lease. Consistent with our prior treatment of duplicate
costs incurred as a result of our 2019 Toronto real property sale,
we recorded Transition Costs of $3.9 million (Purchaser Lease
Charge) in full year 2023, representing the excess of rental
expenses under the Purchaser Lease (with respect to the subleased
space) over anticipated rental recoveries under the sublease.
Transition Costs consist of direct relocation and duplicate costs
(such as rent expense, utility costs, depreciation charges, and
personnel costs) incurred during the transition periods, as well as
cease-use and other costs incurred in connection with idle or
vacated portions of the relevant premises that we would not have
incurred but for these relocations, transfers and dispositions.
Transition Recoveries consist of any gains recorded in connection
with Property Dispositions. We believe that excluding these costs
and recoveries permits a better comparison of our core operating
results from period-to-period, as these costs or recoveries do not
reflect our ongoing operations once these specified events are
complete.
Impairment charges, which consist of non-cash
charges against goodwill, intangible assets, property, plant and
equipment, and right-of-use (ROU) assets, result primarily when the
carrying value of these assets exceeds their recoverable
amount.
Secondary Offering Costs consist of costs
associated with conversion and sale of our shares by Onex
Corporation (Onex). Onex, our then-controlling shareholder,
completed underwritten secondary public offerings in June 2023 and
August 2023. Nil Secondary Offering Costs were incurred in Q4 2023
and an aggregate of approximately $1.6 million of such costs were
incurred in the full year 2023. We believe that excluding Secondary
Offering Costs permits a better comparison of our core operating
results from period-to-period, as they do not reflect our ongoing
operations, and are no longer applicable as such conversions and
sales have been completed.
Non-core tax impacts are excluded, as we believe
that these costs or recoveries do not reflect core operating
performance and vary significantly among those of our competitors
who also generally exclude these costs or recoveries in assessing
operating performance.
The following table (which is unaudited) sets
forth, for the periods indicated, the various non-IFRS financial
measures discussed above, and a reconciliation of non-IFRS
financial measures to the most directly comparable financial
measures determined under IFRS (in millions, except
percentages and per share amounts):
| |
Three months ended December 31 |
|
Year ended December 31 |
| |
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
| |
|
% of revenue |
|
|
% of revenue |
|
|
% of revenue |
|
|
% of revenue |
| IFRS
revenue |
$ |
2,042.6 |
|
|
|
$ |
2,140.5 |
|
|
|
$ |
7,250.0 |
|
|
|
$ |
7,961.0 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
IFRS gross profit |
$ |
186.2 |
|
|
9.1 |
% |
|
$ |
223.2 |
|
|
10.4 |
% |
|
$ |
636.3 |
|
|
8.8 |
% |
|
$ |
778.5 |
|
|
9.8 |
% |
|
Employee SBC expense |
|
5.6 |
|
|
|
|
4.2 |
|
|
|
|
20.3 |
|
|
|
|
22.6 |
|
|
|
TRS FVAs (gains) |
|
— |
|
|
|
|
(4.8 |
) |
|
|
|
— |
|
|
|
|
(18.6 |
) |
|
| Non-IFRS adjusted
gross profit |
$ |
191.8 |
|
|
9.4 |
% |
|
$ |
222.6 |
|
|
10.4 |
% |
|
$ |
656.6 |
|
|
9.1 |
% |
|
$ |
782.5 |
|
|
9.8 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
| IFRS
SG&A |
$ |
77.1 |
|
|
3.8 |
% |
|
$ |
75.7 |
|
|
3.5 |
% |
|
$ |
279.9 |
|
|
3.9 |
% |
|
$ |
279.6 |
|
|
3.5 |
% |
|
Employee SBC expense |
|
(8.6 |
) |
|
|
|
(5.6 |
) |
|
|
|
(30.7 |
) |
|
|
|
(33.0 |
) |
|
|
TRS FVAs (gains) |
|
— |
|
|
|
|
6.6 |
|
|
|
|
— |
|
|
|
|
27.0 |
|
|
| Non-IFRS adjusted
SG&A |
$ |
68.5 |
|
|
3.4 |
% |
|
$ |
76.7 |
|
|
3.6 |
% |
|
$ |
249.2 |
|
|
3.4 |
% |
|
$ |
273.6 |
|
|
3.4 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
| IFRS earnings from
operations |
$ |
81.6 |
|
|
4.0 |
% |
|
$ |
118.6 |
|
|
5.5 |
% |
|
$ |
263.3 |
|
|
3.6 |
% |
|
$ |
383.2 |
|
|
4.8 |
% |
|
Employee SBC expense |
|
14.2 |
|
|
|
|
9.8 |
|
|
|
|
51.0 |
|
|
|
|
55.6 |
|
|
|
TRS FVAs (gains) |
|
— |
|
|
|
|
(11.4 |
) |
|
|
|
— |
|
|
|
|
(45.6 |
) |
|
|
Amortization of intangible assets (excluding computer
software) |
|
9.2 |
|
|
|
|
9.2 |
|
|
|
|
37.0 |
|
|
|
|
36.8 |
|
|
|
Other Charges (Recoveries) |
|
2.8 |
|
|
|
|
1.5 |
|
|
|
|
6.7 |
|
|
|
|
15.2 |
|
|
|
Non-IFRS operating earnings (adjusted
EBIAT)(1) |
$ |
107.8 |
|
|
5.3 |
% |
|
$ |
127.7 |
|
|
6.0 |
% |
|
$ |
358.0 |
|
|
4.9 |
% |
|
$ |
445.2 |
|
|
5.6 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
| IFRS net
earnings |
$ |
42.4 |
|
|
2.1 |
% |
|
$ |
84.2 |
|
|
3.9 |
% |
|
$ |
145.5 |
|
|
2.0 |
% |
|
$ |
244.6 |
|
|
3.1 |
% |
|
Employee SBC expense |
|
14.2 |
|
|
|
|
9.8 |
|
|
|
|
51.0 |
|
|
|
|
55.6 |
|
|
|
TRS FVAs (gains) |
|
— |
|
|
|
|
(11.4 |
) |
|
|
|
— |
|
|
|
|
(45.6 |
) |
|
|
Amortization of intangible assets (excluding computer
software) |
|
9.2 |
|
|
|
|
9.2 |
|
|
|
|
37.0 |
|
|
|
|
36.8 |
|
|
|
Other Charges (Recoveries) |
|
2.8 |
|
|
|
|
1.5 |
|
|
|
|
6.7 |
|
|
|
|
15.2 |
|
|
|
Adjustments for taxes(2) |
|
(0.2 |
) |
|
|
|
(3.0 |
) |
|
|
|
(5.8 |
) |
|
|
|
(14.3 |
) |
|
| Non-IFRS adjusted net
earnings |
$ |
68.4 |
|
|
|
$ |
90.3 |
|
|
|
$ |
234.4 |
|
|
|
$ |
292.3 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Diluted
EPS |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average # of shares (in millions) |
|
122.4 |
|
|
|
|
119.5 |
|
|
|
|
123.6 |
|
|
|
|
120.3 |
|
|
|
IFRS earnings per share |
$ |
0.35 |
|
|
|
$ |
0.70 |
|
|
|
$ |
1.18 |
|
|
|
$ |
2.03 |
|
|
|
Non-IFRS adjusted earnings per share |
$ |
0.56 |
|
|
|
$ |
0.76 |
|
|
|
$ |
1.90 |
|
|
|
$ |
2.43 |
|
|
|
# of shares outstanding at period end (in millions) |
|
121.6 |
|
|
|
|
119.0 |
|
|
|
|
121.6 |
|
|
|
|
119.0 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| IFRS cash provided by
operations |
$ |
101.3 |
|
|
|
$ |
138.8 |
|
|
|
$ |
297.9 |
|
|
|
$ |
429.7 |
|
|
|
Purchase of property, plant and equipment, net of sales
proceeds |
|
(32.3 |
) |
|
|
|
(31.9 |
) |
|
|
|
(108.9 |
) |
|
|
|
(122.4 |
) |
|
|
Lease payments |
|
(9.9 |
) |
|
|
|
(11.4 |
) |
|
|
|
(46.0 |
) |
|
|
|
(48.3 |
) |
|
|
Finance Costs paid (excluding debt issuance costs paid) |
|
(16.5 |
) |
|
|
|
(11.7 |
) |
|
|
|
(49.2 |
) |
|
|
|
(65.1 |
) |
|
| Non-IFRS adjusted free
cash flow (3) |
$ |
42.6 |
|
|
|
$ |
83.8 |
|
|
|
$ |
93.8 |
|
|
|
$ |
193.9 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| IFRS ROIC %
(4) |
|
15.7 |
% |
|
|
|
21.6 |
% |
|
|
|
12.9 |
% |
|
|
|
17.8 |
% |
|
| Non-IFRS adjusted ROIC
% (4) |
|
20.7 |
% |
|
|
|
23.3 |
% |
|
|
|
17.5 |
% |
|
|
|
20.7 |
% |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Management uses
non-IFRS operating earnings (adjusted EBIAT) as a measure to assess
performance related to our core operations. Non-IFRS operating
earnings is defined as earnings from operations before employee SBC
expense, TRS FVAs (defined above), amortization of intangible
assets (excluding computer software), and Other Charges
(Recoveries) (defined above). See note 9 to our Q4 2023 Interim
Financial Statements for separate quantification and discussion of
the components of Other Charges (Recoveries). Non-IFRS operating
margin is non-IFRS operating earnings as a percentage of
revenue.
(2) The adjustments
for taxes, as applicable, represent the tax effects of our non-IFRS
adjustments (see below).
The following table
sets forth a reconciliation of our non-IFRS adjusted tax expense
and our non-IFRS adjusted effective tax rate to our IFRS tax
expense and IFRS effective tax rate, respectively, for the periods
indicated, in each case determined by excluding the tax benefits or
costs associated with the listed items (in millions, except
percentages) from our IFRS tax expense for such periods. Our IFRS
effective tax rate is determined by dividing (i) IFRS tax expense
by (ii) earnings from operations minus Finance Costs (defined in
footnote (3) below); our non-IFRS adjusted effective tax rate is
determined by dividing (i) non-IFRS adjusted tax expense by (ii)
non-IFRS operating earnings minus Finance Costs.
| |
Three months ended December 31 |
|
Year ended December 31 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
| IFRS tax expense |
$ |
19.9 |
|
|
$ |
19.9 |
|
|
$ |
58.1 |
|
|
$ |
62.0 |
|
| |
|
|
|
|
|
|
|
| Tax costs (benefits) of the
following items excluded from IFRS tax expense: |
|
|
|
|
|
|
|
|
Employee SBC expense |
|
(1.0 |
) |
|
|
2.4 |
|
|
|
2.5 |
|
|
|
10.6 |
|
|
TRS FVAs |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.6 |
) |
|
Amortization of intangible assets (excluding computer
software) |
|
0.7 |
|
|
|
0.8 |
|
|
|
3.0 |
|
|
|
3.0 |
|
|
Other Charges (Recoveries) |
|
0.5 |
|
|
|
(0.2 |
) |
|
|
0.3 |
|
|
|
1.3 |
|
| Non-IFRS adjusted tax
expense |
$ |
20.1 |
|
|
$ |
22.9 |
|
|
$ |
63.9 |
|
|
$ |
76.3 |
|
| |
|
|
|
|
|
|
|
| IFRS tax expense |
$ |
19.9 |
|
|
$ |
19.9 |
|
|
$ |
58.1 |
|
|
$ |
62.0 |
|
| |
|
|
|
|
|
|
|
| Earnings from operations |
$ |
81.6 |
|
|
$ |
118.6 |
|
|
$ |
263.3 |
|
|
$ |
383.2 |
|
|
Finance Costs |
|
(19.3 |
) |
|
|
(14.5 |
) |
|
|
(59.7 |
) |
|
|
(76.6 |
) |
| |
$ |
62.3 |
|
|
$ |
104.1 |
|
|
$ |
203.6 |
|
|
$ |
306.6 |
|
| |
|
|
|
|
|
|
|
| IFRS effective tax rate |
|
32 |
% |
|
|
19 |
% |
|
|
29 |
% |
|
|
20 |
% |
| |
|
|
|
|
|
|
|
| Non-IFRS adjusted tax
expense |
$ |
20.1 |
|
|
$ |
22.9 |
|
|
$ |
63.9 |
|
|
$ |
76.3 |
|
| |
|
|
|
|
|
|
|
| Non-IFRS operating
earnings |
$ |
107.8 |
|
|
$ |
127.7 |
|
|
$ |
358.0 |
|
|
$ |
445.2 |
|
|
Finance Costs |
|
(19.3 |
) |
|
|
(14.5 |
) |
|
|
(59.7 |
) |
|
|
(76.6 |
) |
| |
$ |
88.5 |
|
|
$ |
113.2 |
|
|
$ |
298.3 |
|
|
$ |
368.6 |
|
| |
|
|
|
|
|
|
|
| Non-IFRS adjusted effective
tax rate |
|
23 |
% |
|
|
20 |
% |
|
|
21 |
% |
|
|
21 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) Management uses
non-IFRS adjusted free cash flow as a measure, in addition to IFRS
cash provided by (used in) operations, to assess our operational
cash flow performance. We believe non-IFRS adjusted free cash flow
provides another level of transparency to our liquidity. Non-IFRS
adjusted free cash flow is defined as cash provided by (used in)
operations after the purchase of property, plant and equipment (net
of proceeds from the sale of certain surplus equipment and
property), lease payments, and Finance Costs (defined below)
paid (excluding any debt issuance costs and when applicable, credit
facility waiver fees paid). Finance Costs consist of interest
expense and fees related to our credit facility (including debt
issuance and related amortization costs), our interest rate swap
agreements, our TRS Agreement, our accounts receivable sales
program and customers' supplier financing programs, and interest
expense on our lease obligations, net of interest income earned. We
do not consider debt issuance costs paid (nil and $0.4 million in
Q4 2023 and full year 2023, respectively; nil and $0.8 million in
Q4 2022 and full year 2022, respectively) or such waiver fees (when
applicable) to be part of our ongoing financing expenses. As a
result, these costs are excluded from total Finance Costs paid in
our determination of non-IFRS adjusted free cash flow. We believe
that excluding Finance Costs paid (other than debt issuance costs
and credit-agreement-related waiver fees paid) from cash provided
by operations in the determination of non-IFRS adjusted free cash
flow provides useful insight for assessing the performance of our
core operations. Note, however, that non-IFRS adjusted free cash
flow does not represent residual cash flow available to Celestica
for discretionary expenditures.
(4) Management uses
non-IFRS adjusted ROIC as a measure to assess the effectiveness of
the invested capital we use to build products or provide services
to our customers, by quantifying how well we generate earnings
relative to the capital we have invested in our business. Non-IFRS
adjusted ROIC is calculated by dividing annualized non-IFRS
adjusted EBIAT by average net invested capital for the period. Net
invested capital (calculated in the tables below) is derived from
IFRS financial measures, and is defined as total assets less: cash,
ROU assets, accounts payable, accrued and other current
liabilities, provisions, and income taxes payable. We use a
two-point average to calculate average net invested capital for the
quarter and a five-point average to calculate average net invested
capital for the year. Average net invested capital for Q4 2023 is
the average of net invested capital as at September 30, 2023 and
December 31, 2023, and average net invested capital for the full
year 2023 is the average of net invested capital at December 31,
2022, March 31, 2023, June 30, 2023, September 30 2023 and December
31, 2023. A comparable financial measure to non-IFRS adjusted ROIC
determined using IFRS measures would be calculated by dividing
annualized IFRS earnings from operations by average net invested
capital for the period.
The following table sets forth, for the periods
indicated, our calculation of IFRS ROIC % and non-IFRS adjusted
ROIC % (in millions, except IFRS ROIC % and non-IFRS adjusted ROIC
%).
| |
|
Three months ended |
|
Year ended |
| |
|
December 31 |
|
December 31 |
|
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
| |
|
|
|
|
|
|
|
|
| IFRS earnings from
operations |
$ |
81.6 |
|
|
$ |
118.6 |
|
|
$ |
263.3 |
|
|
$ |
383.2 |
|
| Multiplier to
annualize earnings |
|
4 |
|
|
|
4 |
|
|
|
1 |
|
|
|
1 |
|
| Annualized IFRS
earnings from operations |
$ |
326.4 |
|
|
$ |
474.4 |
|
|
$ |
263.3 |
|
|
$ |
383.2 |
|
| Average net
invested capital for the period |
$ |
2,085.4 |
|
|
$ |
2,193.7 |
|
|
$ |
2,040.3 |
|
|
$ |
2,152.8 |
|
| IFRS ROIC %
(1) |
|
15.7 |
% |
|
|
21.6 |
% |
|
|
12.9 |
% |
|
|
17.8 |
% |
| |
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
Year ended |
| |
|
December 31 |
|
December 31 |
| |
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
| |
|
|
|
|
|
|
|
|
| Non-IFRS operating
earnings (adjusted EBIAT) |
$ |
107.8 |
|
|
$ |
127.7 |
|
|
$ |
358.0 |
|
|
$ |
445.2 |
|
| Multiplier to
annualize earnings |
|
4 |
|
|
|
4 |
|
|
|
1 |
|
|
|
1 |
|
| Annualized
non-IFRS adjusted EBIAT |
$ |
431.2 |
|
|
$ |
510.8 |
|
|
$ |
358.0 |
|
|
$ |
445.2 |
|
| Average net
invested capital for the period |
$ |
2,085.4 |
|
|
$ |
2,193.7 |
|
|
$ |
2,040.3 |
|
|
$ |
2,152.8 |
|
| Non-IFRS adjusted
ROIC % (1) |
|
20.7 |
% |
|
|
23.3 |
% |
|
|
17.5 |
% |
|
|
20.7 |
% |
| |
December 31 2022 |
|
March 312023 |
|
June 30 2023 |
|
September 30 2023 |
|
December 31 2023 |
| Net invested capital consists
of: |
|
|
|
|
|
|
|
|
|
|
Total assets |
$ |
5,628.0 |
|
|
$ |
5,468.1 |
|
|
$ |
5,500.5 |
|
|
$ |
5,745.3 |
|
|
$ |
5,890.7 |
|
| Less: cash |
|
374.5 |
|
|
|
318.7 |
|
|
|
360.7 |
|
|
|
353.1 |
|
|
|
370.4 |
|
| Less: ROU assets |
|
138.8 |
|
|
|
133.1 |
|
|
|
146.5 |
|
|
|
157.8 |
|
|
|
154.0 |
|
| Less: accounts payable,
accrued and other current liabilities, provisions and income taxes
payable |
|
3,003.0 |
|
|
|
2,873.9 |
|
|
|
2,870.6 |
|
|
|
3,045.4 |
|
|
|
3,167.9 |
|
| Net invested capital at period
end (1) |
$ |
2,111.7 |
|
|
$ |
2,142.4 |
|
|
$ |
2,122.7 |
|
|
$ |
2,189.0 |
|
|
$ |
2,198.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
December 31 2021 |
|
March 31 2022 |
|
June 30 2022 |
|
September 30 2022 |
|
December 31 2022 |
| Net invested capital consists
of: |
|
|
|
|
|
|
|
|
|
| Total assets |
$ |
4,666.9 |
|
|
$ |
4,848.0 |
|
|
$ |
5,140.5 |
|
|
$ |
5,347.9 |
|
|
$ |
5,628.0 |
|
| Less: cash |
|
394.0 |
|
|
|
346.6 |
|
|
|
365.5 |
|
|
|
363.3 |
|
|
|
374.5 |
|
| Less: ROU assets |
|
113.8 |
|
|
|
109.8 |
|
|
|
133.6 |
|
|
|
128.0 |
|
|
|
138.8 |
|
| Less: accounts payable,
accrued and other current liabilities, provisions and income taxes
payable |
|
2,202.0 |
|
|
|
2,347.4 |
|
|
|
2,612.1 |
|
|
|
2,797.5 |
|
|
|
3,003.0 |
|
| Net invested capital at period
end (1) |
$ |
1,957.1 |
|
|
$ |
2,044.2 |
|
|
$ |
2,029.3 |
|
|
$ |
2,059.1 |
|
|
$ |
2,111.7 |
|
(1) See footnote
4 on the previous page.
|
CELESTICA INC. CONDENSED CONSOLIDATED
BALANCE SHEET(in millions of
U.S. dollars)(unaudited) |
| |
| |
Note |
December 312022 |
|
December 312023 |
| |
|
|
|
|
| Assets |
|
|
|
|
| Current assets: |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
374.5 |
|
|
$ |
370.4 |
|
|
Accounts receivable |
4 |
|
1,393.5 |
|
|
|
1,795.7 |
|
|
Inventories |
5&13 |
|
2,350.3 |
|
|
|
2,106.1 |
|
|
Income taxes receivable |
|
|
5.9 |
|
|
|
11.9 |
|
|
Other current assets |
11&13 |
|
202.8 |
|
|
|
228.5 |
|
| Total current assets |
|
|
4,327.0 |
|
|
|
4,512.6 |
|
| |
|
|
|
|
| Property, plant and
equipment |
|
|
371.5 |
|
|
|
472.7 |
|
| Right-of-use assets |
|
|
138.8 |
|
|
|
154.0 |
|
| Goodwill |
|
|
321.8 |
|
|
|
321.7 |
|
| Intangible assets |
|
|
346.5 |
|
|
|
318.3 |
|
| Deferred income taxes |
|
|
68.9 |
|
|
|
62.5 |
|
| Other non-current assets |
11 |
|
53.5 |
|
|
|
48.9 |
|
| Total assets |
|
$ |
5,628.0 |
|
|
$ |
5,890.7 |
|
| |
|
|
|
|
| Liabilities and
Equity |
|
|
|
|
| Current liabilities: |
|
|
|
|
|
Current portion of borrowings under credit facility and lease
obligations |
7 |
$ |
52.2 |
|
|
$ |
51.6 |
|
|
Accounts payable |
|
|
1,440.8 |
|
|
|
1,298.2 |
|
|
Accrued and other current liabilities |
5&11 |
|
1,462.2 |
|
|
|
1,781.3 |
|
|
Income taxes payable |
|
|
82.1 |
|
|
|
64.8 |
|
|
Current portion of provisions |
|
|
17.9 |
|
|
|
23.6 |
|
| Total current liabilities |
|
|
3,055.2 |
|
|
|
3,219.5 |
|
| |
|
|
|
|
| Long-term portion of
borrowings under credit facility and lease obligations |
7 |
|
733.9 |
|
|
|
731.2 |
|
| Pension and non-pension
post-employment benefit obligations |
|
|
77.0 |
|
|
|
88.1 |
|
| Provisions and other
non-current liabilities |
|
|
32.5 |
|
|
|
41.2 |
|
| Deferred income taxes |
|
|
51.7 |
|
|
|
42.2 |
|
| Total liabilities |
|
|
3,950.3 |
|
|
|
4,122.2 |
|
| |
|
|
|
|
| Equity: |
|
|
|
|
|
Capital stock |
8 |
|
1,714.9 |
|
|
|
1,672.5 |
|
|
Treasury stock |
8 |
|
(18.5 |
) |
|
|
(80.1 |
) |
|
Contributed surplus |
|
|
1,063.6 |
|
|
|
1,030.6 |
|
|
Deficit |
|
|
(1,076.6 |
) |
|
|
(839.6 |
) |
|
Accumulated other comprehensive loss |
|
|
(5.7 |
) |
|
|
(14.9 |
) |
| Total equity |
|
|
1,677.7 |
|
|
|
1,768.5 |
|
| Total liabilities and
equity |
|
$ |
5,628.0 |
|
|
$ |
5,890.7 |
|
| |
|
|
|
|
Commitments and Contingencies (note 12).
Subsequent event (note 11).
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
|
CELESTICA INC. CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS(in millions of
U.S. dollars, except per share
amounts)(unaudited) |
| |
|
|
|
|
| |
|
Three months ended |
|
Year ended |
| |
|
December 31 |
|
December 31 |
|
|
Note |
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
| |
|
|
|
|
|
|
|
|
| Revenue |
3 |
$ |
2,042.6 |
|
|
$ |
2,140.5 |
|
|
$ |
7,250.0 |
|
|
$ |
7,961.0 |
|
| Cost of sales |
5 |
|
1,856.4 |
|
|
|
1,917.3 |
|
|
|
6,613.7 |
|
|
|
7,182.5 |
|
| Gross profit |
|
|
186.2 |
|
|
|
223.2 |
|
|
|
636.3 |
|
|
|
778.5 |
|
| Selling, general and
administrative expenses |
|
|
77.1 |
|
|
|
75.7 |
|
|
|
279.9 |
|
|
|
279.6 |
|
| Research and development |
|
|
14.5 |
|
|
|
17.6 |
|
|
|
46.3 |
|
|
|
60.9 |
|
| Amortization of intangible
assets |
|
|
10.2 |
|
|
|
9.8 |
|
|
|
40.1 |
|
|
|
39.6 |
|
| Other charges, net of
recoveries |
9 |
|
2.8 |
|
|
|
1.5 |
|
|
|
6.7 |
|
|
|
15.2 |
|
| Earnings from operations |
|
|
81.6 |
|
|
|
118.6 |
|
|
|
263.3 |
|
|
|
383.2 |
|
| Finance costs |
7 |
|
19.3 |
|
|
|
14.5 |
|
|
|
59.7 |
|
|
|
76.6 |
|
| Earnings before income
taxes |
|
|
62.3 |
|
|
|
104.1 |
|
|
|
203.6 |
|
|
|
306.6 |
|
| Income tax expense
(recovery) |
10 |
|
|
|
|
|
|
|
|
Current |
|
|
22.8 |
|
|
|
17.2 |
|
|
|
88.7 |
|
|
|
63.9 |
|
|
Deferred |
|
|
(2.9 |
) |
|
|
2.7 |
|
|
|
(30.6 |
) |
|
|
(1.9 |
) |
|
|
|
|
19.9 |
|
|
|
19.9 |
|
|
|
58.1 |
|
|
|
62.0 |
|
| Net earnings for the
period |
|
$ |
42.4 |
|
|
$ |
84.2 |
|
|
$ |
145.5 |
|
|
$ |
244.6 |
|
| |
|
|
|
|
|
|
|
|
| Basic earnings per share |
|
$ |
0.35 |
|
|
$ |
0.71 |
|
|
$ |
1.18 |
|
|
$ |
2.04 |
|
| Diluted earnings per
share |
|
$ |
0.35 |
|
|
$ |
0.70 |
|
|
$ |
1.18 |
|
|
$ |
2.03 |
|
| |
|
|
|
|
|
|
|
|
| Shares used in computing per
share amounts (in millions): |
|
|
|
|
|
|
|
|
|
Basic |
|
|
122.3 |
|
|
|
119.3 |
|
|
|
123.5 |
|
|
|
120.1 |
|
|
Diluted |
|
|
122.4 |
|
|
|
119.5 |
|
|
|
123.6 |
|
|
|
120.3 |
|
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
|
CELESTICA INC.CONDENSED CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME(in millions
of U.S. dollars)(unaudited) |
| |
|
|
|
|
| |
|
Three months ended |
|
Year ended |
| |
|
December 31 |
|
December 31 |
|
|
Note |
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
| |
|
|
|
|
|
|
|
|
| Net earnings for the
period |
|
$ |
42.4 |
|
|
$ |
84.2 |
|
|
$ |
145.5 |
|
|
$ |
244.6 |
|
| Other
comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
Items that will not be reclassified to net earnings: |
|
|
|
|
|
|
|
|
|
Gains (losses) on pension and non-pension post-employment benefit
plans |
6 |
|
33.5 |
|
|
|
(7.6 |
) |
|
|
33.5 |
|
|
|
(7.6 |
) |
|
Items that may be reclassified to net earnings: |
|
|
|
|
|
|
|
|
|
Currency translation differences for foreign operations |
|
|
6.8 |
|
|
|
2.8 |
|
|
|
(6.7 |
) |
|
|
(3.4 |
) |
|
Changes from currency forward derivative hedges |
|
|
23.4 |
|
|
|
13.4 |
|
|
|
7.2 |
|
|
|
(1.8 |
) |
|
Changes from interest rate swap derivative hedges |
|
|
(5.9 |
) |
|
|
(5.1 |
) |
|
|
20.6 |
|
|
|
(4.0 |
) |
| Total comprehensive income for
the period |
|
$ |
100.2 |
|
|
$ |
87.7 |
|
|
$ |
200.1 |
|
|
$ |
227.8 |
|
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
|
CELESTICA INC. CONDENSED CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY(in millions of U.S.
dollars)(unaudited) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Note |
Capital stock(note
8) |
|
Treasury
stock (note 8) |
|
Contributedsurplus |
|
Deficit |
|
Accumulated other
comprehensiveloss
(a) |
|
Total equity |
|
Balance -- January 1, 2022 |
|
$ |
1,764.5 |
|
|
$ |
(48.9 |
) |
|
$ |
1,029.8 |
|
|
$ |
(1,255.6 |
) |
|
$ |
(26.8 |
) |
|
$ |
1,463.0 |
|
| Capital
transactions: |
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital stock |
|
|
0.7 |
|
|
|
— |
|
|
|
(0.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
0.2 |
|
|
Repurchase of capital stock for cancellation(b) |
|
|
(50.3 |
) |
|
|
(1.8 |
) |
|
|
25.0 |
|
|
|
— |
|
|
|
— |
|
|
|
(27.1 |
) |
|
Purchase of treasury stock for stock-based compensation (SBC) plans
(c) |
|
|
— |
|
|
|
(11.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11.1 |
) |
|
Equity-settled SBC |
|
|
— |
|
|
|
43.3 |
|
|
|
9.3 |
|
|
|
— |
|
|
|
— |
|
|
|
52.6 |
|
| Total comprehensive
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
145.5 |
|
|
|
— |
|
|
|
145.5 |
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on pension and non-pension post-employment benefit plans |
6 |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
33.5 |
|
|
|
— |
|
|
|
33.5 |
|
|
Currency translation differences for foreign operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6.7 |
) |
|
|
(6.7 |
) |
|
Changes from currency forward derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7.2 |
|
|
|
7.2 |
|
|
Changes from interest rate swap derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20.6 |
|
|
|
20.6 |
|
| Balance -- December 31,
2022 |
|
$ |
1,714.9 |
|
|
$ |
(18.5 |
) |
|
$ |
1,063.6 |
|
|
$ |
(1,076.6 |
) |
|
$ |
(5.7 |
) |
|
$ |
1,677.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Balance -- January 1,
2023 |
|
$ |
1,714.9 |
|
|
$ |
(18.5 |
) |
|
$ |
1,063.6 |
|
|
$ |
(1,076.6 |
) |
|
$ |
(5.7 |
) |
|
$ |
1,677.7 |
|
| Capital
transactions: |
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital stock (d) |
|
|
0.6 |
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
|
Repurchase of capital stock for cancellation(e) |
8 |
|
(43.0 |
) |
|
|
1.8 |
|
|
|
2.9 |
|
|
|
— |
|
|
|
— |
|
|
|
(38.3 |
) |
|
Purchase of treasury stock for SBC plans (f) |
|
|
— |
|
|
|
(89.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(89.8 |
) |
|
SBC cash settlement |
8 |
|
— |
|
|
|
— |
|
|
|
(66.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
(66.7 |
) |
|
Equity-settled SBC |
|
|
— |
|
|
|
26.4 |
|
|
|
31.1 |
|
|
|
— |
|
|
|
— |
|
|
|
57.5 |
|
| Total comprehensive
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
244.6 |
|
|
|
— |
|
|
|
244.6 |
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses on pension and non-pension post-employment benefit
plans |
6 |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7.6 |
) |
|
|
— |
|
|
|
(7.6 |
) |
|
Currency translation differences for foreign operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3.4 |
) |
|
|
(3.4 |
) |
|
Changes from currency forward derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.8 |
) |
|
|
(1.8 |
) |
|
Changes from interest rate swap derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4.0 |
) |
|
|
(4.0 |
) |
| Balance -- December 31,
2023 |
|
$ |
1,672.5 |
|
|
$ |
(80.1 |
) |
|
$ |
1,030.6 |
|
|
$ |
(839.6 |
) |
|
$ |
(14.9 |
) |
|
$ |
1,768.5 |
|
(a) Accumulated other comprehensive loss is net of tax.(b)
Consists of $34.6 paid to repurchase subordinate voting shares
(SVS) for cancellation during 2022, offset in part by the reversal
of $7.5 accrued at December 31, 2021 for the estimated contractual
maximum quantity of permitted SVS repurchases (Contractual Maximum
Quantity) under an automatic share purchase plan (ASPP) executed in
December 2021 for such purpose (see note 8).(c) Consists of $44.9
paid to repurchase SVS for delivery obligations under our SBC plans
during 2022, offset in part by the reversal of $33.8 accrued at
December 31, 2021 for the estimated Contractual Maximum Quantity
under an ASPP executed in December 2021 for such purpose (see note
8).(d) In 2023, we issued 18.6 million SVS upon conversion of an
equivalent number of our multiple voting shares, with nil impact on
our aggregate capital stock amount (see note 8).(e) Consists of
$35.6 paid to repurchase SVS for cancellation during 2023, and $2.7
accrued at December 31, 2023 for the estimated Contractual
Maximum Quantity under an ASPP executed in December 2023 for such
purpose (see note 8).(f) Consists of $82.3 paid to repurchase SVS
for delivery obligations under our SBC plans during 2023, and an
accrual of $7.5 at December 31, 2023 for the estimated
Contractual Maximum Quantity under an ASPP executed in September
2023 for such purpose (see note 8).
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
|
CELESTICA INC.CONDENSED CONSOLIDATED STATEMENT OF
CASH FLOWS(in millions of U.S.
dollars)(unaudited) |
| |
|
|
|
|
| |
|
Three months ended |
|
Year ended |
| |
|
December 31 |
|
December 31 |
|
|
Note |
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
| |
|
|
|
|
|
|
|
|
| Cash provided by (used
in): |
|
|
|
|
|
|
|
|
| Operating
activities: |
|
|
|
|
|
|
|
|
| Net earnings for the
period |
|
$ |
42.4 |
|
|
$ |
84.2 |
|
|
$ |
145.5 |
|
|
$ |
244.6 |
|
| Adjustments to net earnings
for items not affecting cash: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
37.5 |
|
|
|
43.3 |
|
|
|
144.8 |
|
|
|
160.4 |
|
|
Equity-settled employee SBC expense |
8 |
|
14.2 |
|
|
|
9.8 |
|
|
|
51.0 |
|
|
|
55.6 |
|
|
Total return swap fair value adjustments |
|
|
— |
|
|
|
(11.4 |
) |
|
|
— |
|
|
|
(45.6 |
) |
|
Other charges (recoveries) |
9 |
|
— |
|
|
|
(0.3 |
) |
|
|
0.9 |
|
|
|
5.5 |
|
|
Finance costs |
|
|
19.3 |
|
|
|
14.5 |
|
|
|
59.7 |
|
|
|
76.6 |
|
|
Income tax expense |
|
|
19.9 |
|
|
|
19.9 |
|
|
|
58.1 |
|
|
|
62.0 |
|
| Other |
|
|
(12.3 |
) |
|
|
(12.5 |
) |
|
|
(8.2 |
) |
|
|
(8.3 |
) |
| Changes in non-cash working
capital items: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(231.9 |
) |
|
|
(196.7 |
) |
|
|
(133.3 |
) |
|
|
(402.2 |
) |
|
Inventories |
|
|
6.7 |
|
|
|
155.0 |
|
|
|
(717.3 |
) |
|
|
244.2 |
|
|
Other current assets |
|
|
(9.3 |
) |
|
|
(13.9 |
) |
|
|
(51.6 |
) |
|
|
8.8 |
|
|
Accounts payable, accrued and other current liabilities and
provisions |
|
|
221.8 |
|
|
|
53.5 |
|
|
|
813.4 |
|
|
|
106.5 |
|
| Non-cash working capital
changes |
|
|
(12.7 |
) |
|
|
(2.1 |
) |
|
|
(88.8 |
) |
|
|
(42.7 |
) |
| Net income tax paid |
|
|
(7.0 |
) |
|
|
(6.6 |
) |
|
|
(65.1 |
) |
|
|
(78.4 |
) |
| Net cash provided by operating
activities |
|
|
101.3 |
|
|
|
138.8 |
|
|
|
297.9 |
|
|
|
429.7 |
|
| |
|
|
|
|
|
|
|
|
| Investing
activities: |
|
|
|
|
|
|
|
|
| Purchase of computer software
and property, plant and equipment |
|
|
(32.3 |
) |
|
|
(32.9 |
) |
|
|
(109.0 |
) |
|
|
(125.1 |
) |
| Proceeds related to the sale
of assets |
|
|
— |
|
|
|
1.0 |
|
|
|
0.1 |
|
|
|
2.7 |
|
| Net cash used in investing
activities |
|
|
(32.3 |
) |
|
|
(31.9 |
) |
|
|
(108.9 |
) |
|
|
(122.4 |
) |
| |
|
|
|
|
|
|
|
|
| Financing
activities: |
|
|
|
|
|
|
|
|
| Repayments under term
loans |
7 |
|
(19.5 |
) |
|
|
(4.5 |
) |
|
|
(33.2 |
) |
|
|
(18.3 |
) |
| Lease payments |
|
|
(9.9 |
) |
|
|
(11.4 |
) |
|
|
(46.0 |
) |
|
|
(48.3 |
) |
| Issuance of capital stock |
|
|
0.1 |
|
|
|
— |
|
|
|
0.2 |
|
|
|
0.3 |
|
| Repurchase of capital stock
for cancellation |
8 |
|
(12.0 |
) |
|
|
(10.0 |
) |
|
|
(34.6 |
) |
|
|
(35.6 |
) |
| Purchase of treasury stock for
stock-based plans |
8 |
|
— |
|
|
|
(35.1 |
) |
|
|
(44.9 |
) |
|
|
(82.3 |
) |
| Proceeds from partial TRS
settlement |
11 |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5.0 |
|
| SBC cash settlement |
8 |
|
— |
|
|
|
(16.9 |
) |
|
|
— |
|
|
|
(66.7 |
) |
| Finance costs paid(a) |
7 |
|
(16.5 |
) |
|
|
(11.7 |
) |
|
|
(50.0 |
) |
|
|
(65.5 |
) |
| Net cash used in financing
activities |
|
|
(57.8 |
) |
|
|
(89.6 |
) |
|
|
(208.5 |
) |
|
|
(311.4 |
) |
| |
|
|
|
|
|
|
|
|
| Net increase (decrease) in
cash and cash equivalents |
|
|
11.2 |
|
|
|
17.3 |
|
|
|
(19.5 |
) |
|
|
(4.1 |
) |
| Cash and cash equivalents,
beginning of period |
|
|
363.3 |
|
|
|
353.1 |
|
|
|
394.0 |
|
|
|
374.5 |
|
| Cash and cash equivalents, end
of period |
|
$ |
374.5 |
|
|
$ |
370.4 |
|
|
$ |
374.5 |
|
|
$ |
370.4 |
|
(a) Finance costs paid in the fourth quarter and
year ended December 31, 2023 include nil and $0.4 in debt
issuance costs, respectively (the fourth quarter and year ended
December 31, 2022 — nil and $0.8, respectively).
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
1. REPORTING
ENTITY
Celestica Inc. (referred to herein as Celestica,
the Company, we, us, or our) is incorporated in Ontario with its
corporate headquarters located in Toronto, Ontario, Canada.
Celestica’s subordinate voting shares (SVS) are listed on the
Toronto Stock Exchange (TSX) and the New York Stock Exchange
(NYSE).
2. BASIS OF PREPARATION
AND MATERIAL ACCOUNTING POLICIES
Statement of compliance:
These unaudited interim condensed consolidated
financial statements for the period ended December 31, 2023
(Q4 2023 Interim Financial Statements) have been prepared in
accordance with International Accounting Standard (IAS) 34, Interim
Financial Reporting, and the accounting policies we have adopted in
accordance with International Financial Reporting Standards (IFRS),
in each case as issued by the International Accounting Standards
Board (IASB), and reflect all adjustments that are, in the opinion
of management, necessary to present fairly our financial position
as of December 31, 2023 and our financial performance,
comprehensive income and cash flows for the three months and year
ended December 31, 2023 (referred to herein as Q4 2023 and FY
2023, respectively). The Q4 2023 Interim Financial Statements
should be read in conjunction with our 2022 audited consolidated
financial statements (2022 AFS), which are included in our Annual
Report on Form 20-F for the year ended December 31, 2022. The Q4
2023 Interim Financial Statements are presented in United States
(U.S.) dollars, which is also Celestica's functional currency.
Unless otherwise noted, all financial information is presented in
millions of U.S. dollars (except percentages and per share
amounts).
The Q4 2023 Interim Financial Statements were
authorized for issuance by our board of directors (Board) on
January 29, 2024, and our independent auditors have not
performed an audit or a review of these Q4 2023 Interim Financial
Statements.
Use of estimates and
judgments:
The preparation of financial statements in
conformity with IFRS requires management to make judgments,
estimates and assumptions that affect the application of accounting
policies, the reported amounts of assets, liabilities, revenue and
expenses, and related disclosures with respect to contingent assets
and liabilities. We base our judgments, estimates and assumptions
on current facts (including, in recent periods, the prolonged
impact of global supply chain constraints), historical experience
and various other factors that we believe are reasonable under the
circumstances. The economic environment also impacts certain
estimates and discount rates necessary to prepare our consolidated
financial statements, including significant estimates and discount
rates applicable to the determination of the recoverable amounts
used in the impairment testing of our non-financial assets. Our
assessment of these factors forms the basis for our judgments on
the carrying values of our assets and liabilities, and the accrual
of our costs and expenses. Actual results could differ materially
from our estimates and assumptions. We review our estimates and
underlying assumptions on an ongoing basis and make revisions as
determined necessary by management. Revisions are recognized in the
period in which the estimates are revised and may also impact
future periods.
Our review of the estimates, judgments and
assumptions used in the preparation of the Q4 2023 Interim
Financial Statements included those relating to, among others: our
determination of the timing of revenue recognition, the
determination of whether indicators of impairment existed for our
assets and cash generating units (CGUs1), our measurement of
deferred tax assets and liabilities, our estimated inventory
write-downs and expected credit losses, and customer
creditworthiness. Any revisions to estimates, judgments or
assumptions may result in, among other things, write-downs,
accelerated depreciation or amortization, or impairments to our
assets or CGUs, and/or adjustments to the carrying amount of our
accounts receivable and/or inventories, or to the valuation of our
deferred tax assets, any of which could have a material impact on
our financial performance and financial condition.
1 CGUs are the smallest identifiable group of
assets that cannot be tested individually and generate cash inflows
that are largely independent of those of other assets or groups of
assets, and can be comprised of a single site, a group of sites, or
a line of business.
Accounting policies:
Except for: (i) Amendments to IAS 1 and IFRS
Practice Statement 2, IAS 8, and IAS 12, adopted at January 1,
2023; and (ii) IFRS 17, adopted at January 1, 2023, as described
below, the Q4 2023 Interim Financial Statements are based on
accounting policies consistent with those described in note 2 to
our 2022 AFS. In addition, we adopted Amendments to IAS 1 at
January 1, 2024, as described below.
Recently adopted accounting standards
and amendments:
Making Materiality Judgements (Amendments to IAS
1 and IFRS Practice Statement 2)
In February 2021, the IASB issued amendments to
IAS 1 and IFRS Practice Statement 2 “Making Materiality
Judgements,” which provide guidance and examples to help entities
apply materiality judgements to accounting policy disclosures. The
amendments aim to help entities provide accounting policy
disclosures that are more useful by replacing the requirement for
entities to disclose their “significant” accounting policies with a
requirement to disclose their material accounting policies and
adding guidance on how entities are to apply the concept of
materiality in making decisions about accounting policy
disclosures. These amendments are applicable for annual periods
beginning on or after January 1, 2023. These amendments, which we
adopted as of such date, had no material impact on, and will be
reflected in, our 2023 annual consolidated financial
statements.
Definition of accounting estimates (Amendments to IAS 8)
In February 2021, the IASB issued Definition of
accounting estimates (Amendments to IAS 8) to clarify the
distinction between accounting policies and accounting estimates.
The amendments are effective for reporting periods beginning on or
after January 1, 2023. We adopted this standard as of January 1,
2023. The adoption of this standard had no material impact on our
consolidated financial statements.
Deferred tax related to assets and liabilities arising from a
single transaction (Amendments to IAS 12 Income Taxes)
In May 2021, the IASB issued Deferred tax
related to assets and liabilities arising from a single transaction
(Amendments to IAS 12 Income Taxes) to clarify how to account for
deferred tax on transactions such as leases and decommissioning
obligations. The amendments are effective for reporting periods
beginning on or after January 1, 2023. We adopted this standard as
of January 1, 2023. The adoption of this standard had no material
impact on our consolidated financial statements.
International Tax Reform — Pillar Two Model
Rules (Amendments to IAS 12 Income Taxes)
In May 2023, the IASB issued amendments to IAS
12 to give entities temporary mandatory relief from accounting for
deferred taxes arising from the Organization for Economic
Co-operation and Development’s international tax reform. The
amendments became effective upon issuance, except for certain
disclosure requirements which are effective for annual reporting
periods beginning on or after January 1, 2023. We adopted the
required amendments in May 2023, and have applied the mandatory
temporary exception to recognizing and disclosing information
related to Pillar Two income taxes.
Pillar Two legislation has been enacted or
substantively enacted in certain jurisdictions where we have
operations, while legislation in other relevant jurisdictions has
yet to be finalized. Based on currently enacted legislation, we
anticipate that Pillar Two legislation will impact our reporting
periods commencing January 1, 2025, however, enactment of Pillar
Two legislation in other relevant jurisdictions may result in
applicability for our reporting periods commencing January 1, 2024.
We currently estimate that once such legislation becomes
applicable, we will have incremental income taxes of approximately
$6 in the first quarter of 2024.
We will continue to monitor the impact of Pillar
Two income taxes as the Pillar Two Model Rules become enacted in
the jurisdictions where we have operations.
IFRS 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17 Insurance
Contracts. IFRS 17 replaces IFRS 4 and sets out principles for the
recognition, measurement, presentation and disclosure of insurance
contracts within the scope of IFRS 17. This standard is effective
for reporting periods beginning on or after January 1, 2023. We
adopted this standard as of January 1, 2023. The adoption of this
standard had no material impact on our consolidated financial
statements.
Classification of liabilities as current or
non-current (Amendments to IAS 1)
In January 2020, the IASB issued Classification
of liabilities as current or non-current (Amendments to IAS 1) to
clarify how to classify debt and other liabilities as current or
non-current. The amendments are effective for reporting periods
beginning on or after January 1, 2024. We adopted this standard as
of January 1, 2024. We do not anticipate that the adoption of this
standard will have a material impact on our consolidated financial
statements.
3.
SEGMENT AND CUSTOMER REPORTING
Segments:
Celestica delivers innovative supply chain
solutions globally to customers in two operating and reportable
segments: Advanced Technology Solutions (ATS) and Connectivity
& Cloud Solutions (CCS). Our ATS segment consists of our ATS
end market, and is comprised of our Aerospace and Defense
(A&D), Industrial, HealthTech and Capital Equipment businesses.
Our CCS segment consists of our Communications and Enterprise
(servers and storage) end markets. See note 25 to our 2022 AFS for
a description of the businesses that comprise our segments. Segment
performance is evaluated based on segment revenue, segment income
and segment margin (segment income as a percentage of segment
revenue). Segment income is defined as a segment’s net revenue less
its cost of sales and its allocable portion of selling, general and
administrative expenses and research and development expenses
(collectively, Segment Costs). Identifiable Segment Costs are
allocated directly to the applicable segment while other Segment
Costs, including indirect costs and certain corporate charges, are
allocated to our segments based on an analysis of the relative
usage or benefit derived by each segment from such costs. Segment
income excludes finance costs (defined in note 7), employee
stock-based compensation (SBC) expense, fair value adjustments (TRS
FVAs) related to our total return swap agreement (TRS Agreement)
executed in December 2022 (commencing in the first quarter of 2023
(Q1 2023)), amortization of intangible assets (excluding computer
software), and other charges, net of recoveries (the components of
which are described in note 9), as these costs and charges are
managed and reviewed by our Chief Executive Officer at the company
level. Although segment income and segment margin are used to
evaluate the performance of our segments, we may incur operating
costs in one segment that may also benefit the other segment. Our
accounting policies for segment reporting are the same as those
applied to Celestica as a whole.
Information regarding the performance of our
reportable segments is set forth below:
| Revenue by
segment: |
Three months ended December 31 |
|
Year ended December 31 |
| |
2022 |
|
2023 |
|
2022 |
|
2023 |
| |
|
% of total |
|
|
% of total |
|
|
% of total |
|
|
% of total |
|
ATS |
$ |
821.5 |
|
|
40 |
% |
|
$ |
802.9 |
|
|
38 |
% |
|
$ |
2,979.0 |
|
|
41 |
% |
|
$ |
3,319.8 |
|
|
42 |
% |
| CCS |
|
1,221.1 |
|
|
60 |
% |
|
|
1,337.6 |
|
|
62 |
% |
|
|
4,271.0 |
|
|
59 |
% |
|
|
4,641.2 |
|
|
58 |
% |
|
Communications end market revenue as a % of total revenue |
|
|
39 |
% |
|
|
|
33 |
% |
|
|
|
40 |
% |
|
|
|
33 |
% |
|
Enterprise end market revenue as a % of total revenue |
|
|
21 |
% |
|
|
|
29 |
% |
|
|
|
19 |
% |
|
|
|
25 |
% |
| Total |
$ |
2,042.6 |
|
|
|
$ |
2,140.5 |
|
|
|
$ |
7,250.0 |
|
|
|
$ |
7,961.0 |
|
|
| Segment
income, segment margin, and reconciliation of segment income to
IFRS earnings before income taxes: |
Three months ended December 31 |
|
Year ended December 31 |
| |
Note |
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
| |
|
|
Segment Margin |
|
|
Segment Margin |
|
|
Segment Margin |
|
|
Segment Margin |
|
ATS segment income and margin |
|
$ |
36.2 |
|
|
4.4 |
% |
|
$ |
37.5 |
|
|
4.7 |
% |
|
$ |
140.9 |
|
|
4.7 |
% |
|
$ |
156.1 |
|
|
4.7 |
% |
| CCS segment income and
margin |
|
|
71.6 |
|
|
5.9 |
% |
|
|
90.2 |
|
|
6.7 |
% |
|
|
217.1 |
|
|
5.1 |
% |
|
|
289.1 |
|
|
6.2 |
% |
| Total segment income |
|
|
107.8 |
|
|
|
|
127.7 |
|
|
|
|
358.0 |
|
|
|
|
445.2 |
|
|
| Reconciling items: |
|
|
|
|
|
|
|
|
|
|
|
|
| Finance costs |
7 |
|
19.3 |
|
|
|
|
14.5 |
|
|
|
|
59.7 |
|
|
|
|
76.6 |
|
|
| Employee SBC expense |
|
|
14.2 |
|
|
|
|
9.8 |
|
|
|
|
51.0 |
|
|
|
|
55.6 |
|
|
| TRS FVAs (gains) |
8 |
|
— |
|
|
|
|
(11.4 |
) |
|
|
|
— |
|
|
|
|
(45.6 |
) |
|
| Amortization of intangible
assets (excluding computer software) |
|
|
9.2 |
|
|
|
|
9.2 |
|
|
|
|
37.0 |
|
|
|
|
36.8 |
|
|
| Other charges, net of
recoveries |
9 |
|
2.8 |
|
|
|
|
1.5 |
|
|
|
|
6.7 |
|
|
|
|
15.2 |
|
|
| IFRS earnings before income
taxes |
|
$ |
62.3 |
|
|
|
$ |
104.1 |
|
|
|
$ |
203.6 |
|
|
|
$ |
306.6 |
|
|
Customers:
One customer (in our CCS segment) individually
represented 10% or more of total revenue in Q4 2023 (29%) and FY
2023 (22%). Two customers (each in our CCS segment) individually
represented 10% or more of total revenue in the fourth quarter of
2022 (Q4 2022) (13% and 11%) and in the year ended December 31,
2022 (FY 2022) (11% for each customer).
4. ACCOUNTS
RECEIVABLE
Accounts receivable (A/R) sales program
and supplier financing programs (SFPs):
We are party to an A/R sales program agreement
with a third-party bank to sell up to $450.0 (increased in March
2023 from the prior limit of $405.0) in A/R on an uncommitted,
revolving basis, subject to pre-determined limits by customer. This
agreement provides for automatic annual one-year extensions, and
may be terminated at any time by the bank or by us upon 3 months’
prior notice, or by the bank upon specified defaults. Under our A/R
sales program, we continue to collect cash from our customers and
remit amounts collected to the bank weekly.
As of December 31, 2023, we participate in
three customer SFPs, pursuant to which we sell A/R from the
relevant customer to third-party banks on an uncommitted basis. The
SFPs have an indefinite term and may be terminated at any time by
the customer or by us upon specified prior notice. Under our SFPs,
the third-party banks collect the relevant A/R directly from these
customers.
At December 31, 2023, we sold nil A/R
(December 31, 2022 — $245.6) under our A/R sales program,
and $18.6 of A/R (December 31, 2022 — $105.6) under the SFPs.
The A/R sold under each of these programs are de-recognized from
our A/R balance at the time of sale, and the proceeds are reflected
as cash provided by operating activities in our consolidated
statement of cash flows. Upon sale, we assign the rights to the A/R
to the banks. A/R are sold net of discount charges, which are
recorded as finance costs in our consolidated statement of
operations.
Contract assets:
At December 31, 2023, our A/R balance
included $250.8 (December 31, 2022 — $292.9) of contract
assets recognized as revenue in accordance with our revenue
recognition accounting policy.
5.
INVENTORIES
We record inventory write-downs, net of
valuation recoveries, in cost of sales. Inventories are valued at
the lower of cost and net realizable value. Inventory write-downs
reflect the write-down of inventory to its net realizable value.
Valuation recoveries primarily reflect gains on the disposition of
previously written-down inventory and recoveries reflecting current
and forecasted usage. We recorded net inventory write-downs of
$17.2 and $57.6 for Q4 2023 and FY 2023, respectively (Q4 2022 —
$13.9; FY 2022 — $30.5). The accounting treatment of inventories
destroyed in a fire event in June 2022 is described in note 13.
We receive cash deposits from certain of our
customers primarily to help mitigate the impact of high inventory
levels carried due to the current constrained materials
environment, and to reduce risks related to excess and/or obsolete
inventory. Such deposits as of December 31, 2023 totaled
$904.8 (December 31, 2022 — $825.6), and were recorded in
accrued and other current liabilities on our consolidated balance
sheet.
6. PENSION AND
NON-PENSION POST-EMPLOYMENT BENEFIT PLANS
Our pension and post-employment defined benefit
plan obligations are determined based on actuarial valuations. We
recognize actuarial gains or losses arising from pension and
non-pension post-employment defined benefit plans in other
comprehensive income (loss) (OCI), and subsequently reclassify the
amounts to deficit. During Q4 2023 and FY 2023, we recognized an
actuarial loss of $7.6, net of a $0.1 income tax recovery (Q4 2022
and FY 2022 — actuarial gain of $33.5, including a $5.0 income tax
recovery), relating to such benefit plans.
7. CREDIT FACILITIES
AND LEASE OBLIGATIONS
We are party to a credit agreement (Credit
Facility) with Bank of America, N.A., as Administrative Agent, and
the other lenders party thereto, which includes a term loan in the
original principal amount of $350.0 (Initial Term Loan), a term
loan in the original principal amount of $365.0 (Incremental Term
Loan), and a $600.0 revolving credit facility (Revolver). The
Initial Term Loan and the Incremental Term Loan are collectively
referred to as the Term Loans. In June 2023 (effective for all new
interest periods for existing borrowings and all new subsequent
borrowings), we amended our Credit Facility (June 2023 Amendments)
to replace LIBOR with the term Secured Overnight Financing Rate
(SOFR) plus 0.1% (Adjusted Term SOFR). The June 2023 Amendments did
not have a significant impact on our Q4 2023 Interim Financial
Statements.
The Initial Term Loan matures in June 2025. The
Incremental Term Loan and the Revolver each mature in March 2025,
unless either (i) the Initial Term Loan has been prepaid or
refinanced or (ii) commitments under the Revolver are available and
have been reserved to repay the Initial Term Loan in full, in which
case the Incremental Term Loan and Revolver each mature in December
2026.
The Credit Facility has an accordion feature
that allows us to increase the Term Loans and/or commitments under
the Revolver by $150.0, plus an unlimited amount to the extent that
a specified leverage ratio on a pro forma basis does not exceed
specified limits, in each case on an uncommitted basis and subject
to the satisfaction of certain terms and conditions.
Borrowings under the Revolver bear interest,
depending on the currency of the borrowing and our election for
such currency, at: (i) LIBOR for interest periods beginning prior
to the June 2023 Amendments and Adjusted Term SOFR thereafter, (ii)
Base Rate, (iii) Canadian Prime, (iv) an Alternative Currency Daily
Rate, or (v) an Alternative Currency Term Rate (each as defined in
the Credit Facility) plus a specified margin. The margin for
borrowings under the Revolver and the Incremental Term Loan ranges
from 1.50% — 2.25% for LIBOR and Adjusted Term SOFR borrowings (as
applicable) and Alternative Currency borrowings, and between 0.50%
— 1.25% for Base Rate and Canadian Prime borrowings, in each case
depending on the rate we select and our consolidated leverage ratio
(as defined in the Credit Facility). Commitment fees range between
0.30% and 0.45% depending on our consolidated leverage ratio. As of
December 31, 2023, the Initial Term Loan bears interest at
Adjusted Term SOFR plus 2.125%, and the Incremental Term Loan bears
interest at Adjusted Term SOFR plus 1.75%.
The Incremental Term Loan requires quarterly
principal repayments of $4.5625, and each of the Term Loans
requires a lump sum repayment of the remainder outstanding at
maturity. The Initial Term Loan required quarterly principal
repayments of $0.875, all of which were paid in prior years. We are
also required to make annual prepayments of outstanding obligations
under the Credit Facility (applied first to the Term Loans, then to
the Revolver, in the manner set forth in the Credit Facility)
ranging from 0% — 50% (based on a defined leverage ratio) of
specified excess cash flow for the prior fiscal year. No
prepayments based on excess cash flow were required in 2023, or
will be required in 2024. In addition, prepayments of outstanding
obligations under the Credit Facility (applied as described above)
may also be required in the amount of specified net cash proceeds
received above a specified annual threshold (including proceeds
from the disposal of certain assets). No Credit Facility
prepayments based on net cash proceeds were required in 2023, or
will be required in 2024. Any outstanding amounts under the
Revolver are due at maturity.
Activity under our Credit Facility during FY
2022 and FY 2023 is set forth below:
| |
Revolver (1) |
|
Term loans |
|
Outstanding balances as of December 31, 2021 |
$ |
— |
|
|
$ |
660.4 |
|
| Amount repaid in Q1
2022(2) |
|
— |
|
|
|
(4.5625 |
) |
| Amount repaid in Q2
2022(2) |
|
— |
|
|
|
(4.5625 |
) |
| Amount repaid in Q3
2022(2) |
|
— |
|
|
|
(4.5625 |
) |
| Amount repaid in Q4
2022(3) |
|
— |
|
|
|
(19.5625 |
) |
| Outstanding balances as of
December 31, 2022 |
$ |
— |
|
|
$ |
627.2 |
|
| Amount repaid in Q1
2023(2) |
|
— |
|
|
|
(4.5625 |
) |
| Amount repaid in Q2
2023(2) |
|
— |
|
|
|
(4.5625 |
) |
| Amount repaid in Q3
2023(2) |
|
— |
|
|
|
(4.5625 |
) |
| Amount repaid in Q4
2023(2) |
|
— |
|
|
|
(4.5625 |
) |
| Outstanding balances as of
December 31, 2023 |
$ |
— |
|
|
$ |
608.9 |
|
(1) In addition to
the activity described in this table, we have drawn on the Revolver
for short term borrowings from time-to-time during the periods set
forth above and repaid such borrowings in full within the quarter
borrowed, with no impact to the amounts outstanding at the relevant
quarter-end. Such intra-quarter borrowings and repayments are
excluded from this table.
(2) Represents the
scheduled quarterly principal repayment under the Incremental Term
Loan.
(3) Represents the
scheduled quarterly principal repayment under the Incremental Term
Loan and a $15.0 voluntary prepayment under the Initial Term
Loan.
At December 31, 2023 and December 31,
2022, we were in compliance with all restrictive and financial
covenants under the Credit Facility.
The following tables set forth, at the dates
shown: outstanding borrowings under the Credit Facility, excluding
ordinary course letters of credit (L/Cs); notional amounts under
our interest rate swap agreements; and outstanding lease
obligations:
| |
Outstanding borrowings |
|
Notional amounts under interest rate swaps (note
11) |
| |
December 312022 |
|
December 312023 |
|
December 312022 |
|
December 312023 |
|
Borrowings under the Revolver |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| Borrowings under term
loans: |
|
|
|
|
|
|
|
|
Initial Term Loan |
$ |
280.4 |
|
|
$ |
280.4 |
|
|
$ |
100.0 |
|
|
$ |
100.0 |
|
|
Incremental Term Loan |
|
346.8 |
|
|
|
328.5 |
|
|
|
230.0 |
|
|
|
230.0 |
|
|
Total |
$ |
627.2 |
|
|
$ |
608.9 |
|
|
$ |
330.0 |
|
|
$ |
330.0 |
|
| Total borrowings under Credit
Facility |
$ |
627.2 |
|
|
$ |
608.9 |
|
|
|
|
|
| Unamortized debt issuance
costs related to our term loans (1) |
|
(3.5 |
) |
|
|
(2.6 |
) |
|
|
|
|
| Lease obligations(2) |
|
162.4 |
|
|
|
176.5 |
|
|
|
|
|
| |
$ |
786.1 |
|
|
$ |
782.8 |
|
|
|
|
|
| Total Credit Facility and
lease obligations: |
|
|
|
|
|
|
|
| Current portion |
$ |
52.2 |
|
|
$ |
51.6 |
|
|
|
|
|
| Long-term portion |
|
733.9 |
|
|
|
731.2 |
|
|
|
|
|
| |
$ |
786.1 |
|
|
$ |
782.8 |
|
|
|
|
|
(1) We incur debt issuance costs upon execution
of, subsequent security arrangements under, and amendments to the
Credit Facility. Debt issuance costs incurred in Q4 2023 and FY
2023 in connection with our Revolver totaling nil and $0.2
respectively (Q4 2022 and FY 2022 — nil and $0.3 respectively) were
deferred as other assets on our consolidated balance sheet and are
amortized on a straight line basis over the remaining term of the
Revolver. Debt issuance costs incurred in Q4 2023 and FY 2023 in
connection with our Term Loans totaling nil and $0.2 respectively
(Q4 2022 and FY 2022 — nil and $0.3 respectively) were deferred as
long-term debt on our consolidated balance sheet and are amortized
over their respective terms using the effective interest rate
method.
(2) These lease obligations represent the
present value of unpaid lease payment obligations recognized as
liabilities as of December 31, 2022 and December 31, 2023,
respectively, which have been discounted using our incremental
borrowing rate on the lease commencement dates. In addition to
these lease obligations, we have commitments under real property
leases in Richardson, Texas and in Toronto, Canada not recognized
as liabilities as of December 31, 2023 because such leases had
not yet commenced as of such date. A description of these leases
and minimum lease obligations thereunder are disclosed in note 24
to the 2022 AFS. In the third quarter of 2023 (Q3 2023), we
subleased a portion of the space under the Toronto lease. See note
9(b) below.
The following table sets forth, at the dates
shown, information regarding outstanding L/Cs, surety bonds and
overdraft facilities:
| |
December 312022 |
|
December 312023 |
|
Outstanding L/Cs under the Revolver |
$ |
18.0 |
|
|
$ |
10.5 |
|
| Outstanding L/Cs and surety
bonds outside the Revolver |
|
23.8 |
|
|
|
16.5 |
|
| Total |
$ |
41.8 |
|
|
$ |
27.0 |
|
| Available uncommitted bank
overdraft facilities |
$ |
198.5 |
|
|
$ |
198.5 |
|
|
Amounts outstanding under available uncommitted bank overdraft
facilities |
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
Finance costs consist of interest expense and
fees related to our Credit Facility (including debt issuance and
related amortization costs), our interest rate swap agreements, our
TRS Agreement, our A/R sales program and the SFPs, and interest
expense on our lease obligations, net of interest income
earned.
8. CAPITAL STOCK AND RELATED PARTY
TRANSACTIONS
Secondary Offerings by Onex Corporation
(Onex):
In connection with two underwritten secondary
public offerings by Onex, our then-controlling shareholder,
completed in June 2023 (June Secondary Offering) and August 2023
(August Secondary Offering, and collectively with the June
Secondary Offering, the Secondary Offerings), we issued an
aggregate of approximately 18.6 million SVS, upon conversion of an
equivalent number of our multiple voting shares (MVS). The
Secondary Offerings had nil impact on our aggregate capital stock
amount.
In connection with the June Secondary Offering
and August Secondary Offering, we entered into underwriting
agreements with Onex and certain underwriters. In addition, we
agreed to indemnify Onex and each of the underwriters against
certain claims, including claims under the U.S. Securities Act and
applicable Canadian securities laws, based on the relevant U.S.
registration statement and related U.S. and Canadian
prospectuses.
Prior to the completion of the August Secondary
Offering, Onex beneficially owned, controlled, or directed,
directly or indirectly, all of our issued and outstanding MVS.
Accordingly, Onex had the ability to exercise significant influence
over our business and affairs and generally had the power to
determine all matters submitted to a vote of our shareholders where
the SVS and MVS vote together as a single class. Mr. Gerald
Schwartz, the Chairman of the Board of Onex, indirectly owns shares
representing the majority of the voting rights of the shares of
Onex. However, upon completion of the August Secondary Offering, we
have no MVS outstanding and Onex is no longer our controlling
shareholder.
Prior to September 3, 2023, we were party to a
services agreement (Services Agreement) with Onex for the services
of Mr. Tawfiq Popatia, an officer of Onex, as a director of
Celestica, pursuant to which Onex received an annual fee of $0.235
(payable in deferred share units (DSUs)) in equal quarterly
installments in arrears, as compensation for such services. Mr.
Popatia resigned from our Board, and the Services Agreement
terminated automatically pursuant to its terms, on September 3,
2023. In accordance with the provisions of the Services Agreement,
we paid Onex approximately $9.2 in cash in October 2023 to settle
Onex’s outstanding DSUs.
SVS Repurchase Plans:
In recent years, we have repurchased SVS in the
open market, or as otherwise permitted, for cancellation through
normal course issuer bids (NCIBs), which allow us to repurchase a
limited number of SVS during a specified period. The maximum number
of SVS we are permitted to repurchase for cancellation under each
NCIB is reduced by the number of SVS we arrange to be purchased by
any non-independent broker in the open market during the term of
such NCIB to satisfy delivery obligations under our SBC plans. We
from time-to-time enter into automatic share purchase plans (ASPPs)
with a broker, instructing the broker to purchase our SVS in the
open market on our behalf, either for cancellation under an NCIB
(NCIB ASPPs) or for delivery obligations under our SBC plans (SBC
ASPPs), including during any applicable trading blackout periods,
up to specified maximums (and subject to certain pricing and other
conditions) through the term of each ASPP.
On December 2, 2021, the TSX accepted our notice
to launch an NCIB (2021 NCIB), which allowed us to repurchase, at
our discretion, from December 6, 2021 until the earlier of December
5, 2022 or the completion of purchases thereunder, up to
approximately 9.0 million of our SVS in the open market, or as
otherwise permitted, subject to the normal terms and limitations of
such bids. We entered into several NCIB ASPPs and SBC ASPPs (each
with independent brokers) during the term of the 2021 NCIB, all of
which have expired. We accrued $7.5 (2021 NCIB Accrual) at December
31, 2021, representing the estimated contractual maximum number of
permitted SVS repurchases (Contractual Maximum Quantity) under an
NCIB ASPP that we entered into in December 2021 (0.7 million
SVS), which was reversed in FY 2022. We accrued $33.8 (2021 SBC
Accrual) at December 31, 2021, representing the estimated
Contractual Maximum Quantity (3.0 million SVS) under an SBC
ASPP that we entered into in December 2021, which was reversed in
FY 2022.
On December 8, 2022, the TSX accepted our notice
to launch another NCIB (2022 NCIB), which allowed us to repurchase,
at our discretion, from December 13, 2022 until the earlier of
December 12, 2023 or the completion of purchases thereunder, up to
approximately 8.8 million of our SVS in the open market, or as
otherwise permitted, subject to the normal terms and limitations of
such bids. We entered into several NCIB ASPPs and SBC ASPPs (each
with independent brokers) during the term of the 2022 NCIB, all but
one of which expired prior to December 31, 2023 (see below for the
ASPP accruals we recorded at December 31, 2023). There were no
accruals at December 31, 2022 in connection with any NCIB ASPP or
SBC ASPP.
On December 12, 2023, the TSX accepted our
notice to launch a new NCIB (2023 NCIB), which allows us to
repurchase, at our discretion, from December 14, 2023 until the
earlier of December 13, 2024 or the completion of purchases
thereunder, up to approximately 11.8 million of our SVS in the open
market, or as otherwise permitted, subject to the normal terms and
limitations of such bids. As of December 31, 2023, approximately
11.8 million SVS remained available for repurchase under the 2023
NCIB either for cancellation or SBC delivery purposes. At
December 31, 2023, we recorded an accrual of: (i) $2.7,
representing the estimated Contractual Maximum Quantity
(0.1 million SVS) under an NCIB ASPP we entered into in
December 2023 (2023 NCIB Accrual); and (ii) $7.5, representing the
estimated Contractual Maximum Quantity (0.3 million SVS) under
an SBC ASPP we entered into in September 2023 (2023 SBC
Accrual).
SVS repurchased in Q4 2023, FY 2023 and the
respective prior year periods for cancellation and for SBC plan
delivery obligations (including under ASPPs) are set forth in the
chart below.
SVS repurchases:
| |
Three months ended December 31 |
|
Year ended December 31 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
| Aggregate cost(1) of SVS
repurchased for cancellation(2) |
$ |
12.0 |
|
|
$ |
10.0 |
|
|
$ |
34.6 |
|
|
$ |
35.6 |
|
| Number of SVS repurchased for
cancellation (in millions)(3) |
|
1.2 |
|
|
|
0.4 |
|
|
|
3.4 |
|
|
|
2.6 |
|
| Weighted average price per
share for repurchases |
$ |
10.20 |
|
|
$ |
24.56 |
|
|
$ |
10.45 |
|
|
$ |
13.83 |
|
| Aggregate cost(1) of SVS
repurchased for delivery under SBC plans(4) (see below) |
$ |
— |
|
|
$ |
35.1 |
|
|
$ |
44.9 |
|
|
$ |
82.3 |
|
| Number of SVS repurchased for
delivery under SBC plans (in millions)(5) |
|
— |
|
|
|
1.3 |
|
|
|
3.9 |
|
|
|
3.7 |
|
(1) Includes transaction fees.(2) For
Q4 2023 and FY 2023, excludes the $2.7 2023 NCIB
Accrual.(3) For Q4 2023 and FY 2023, includes nil and 0.9
million NCIB ASPP purchases of SVS for cancellation, respectively.
For Q4 2022 and FY 2022, includes 0.8 million and 2.5 million NCIB
ASPP purchases of SVS for cancellation, respectively.(4) For
Q4 2023 and FY 2023, excludes the $7.5 2023 SBC
Accrual.(5) For each period, consists entirely of SBC ASPP
purchases through an independent broker.
SBC:
From time to time, we pay cash to a broker to
purchase SVS in the open market to satisfy delivery requirements
under our SBC plans. At December 31, 2023, the broker held 3.3
million SVS with a value of $72.6 (December 31, 2022 — 1.5
million SVS with a value of $16.7) for this purpose, which we
report as treasury stock on our consolidated balance sheet. We used
1.9 million SVS held by the broker (including additional SVS
purchased during FY 2023) to settle SBC awards during FY 2023.
We grant restricted share units (RSUs) and
performance share units (PSUs), and occasionally, stock options, to
employees under our SBC plans. The majority of RSUs vest one-third
per year over a three-year period. Stock options generally vest 25%
per year over a four-year period. The number of outstanding PSUs
that will actually vest varies from 0% to 200% of a target amount
granted. For PSUs granted in 2020, 2021 and 2022, the number of
PSUs that vested (or will vest) are based on the level of
achievement of a pre-determined non-market performance measurement
in the final year of the relevant three-year performance period,
subject to modification by each of a separate pre-determined
non-market financial target, and our relative total shareholder
return (TSR), a market performance condition, compared to a
pre-defined group of companies, in each case over the relevant
three-year performance period. For PSUs granted in 2023, the number
of PSUs that will vest are based on the level of achievement of a
different predetermined non-market performance measurement, subject
to modification by our relative TSR compared to a pre-defined group
of companies, in each case over the relevant three-year performance
period. We also grant DSUs and RSUs (under specified circumstances)
to directors as compensation under our Directors' Share
Compensation Plan. See note 2(l) to the 2022 AFS for further
detail.
Information regarding RSU, PSU and DSU grants to
employees and directors, as applicable, for the periods indicated
is set forth below (no stock options were granted in the periods
below):
| |
Three months ended December 31 |
|
Year ended December 31 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
| RSUs
Granted: |
| Number of awards (in
millions) |
|
0.1 |
|
|
|
0.03 |
|
|
|
2.1 |
|
|
|
2.0 |
|
| Weighted average grant date
fair value per unit |
$ |
10.67 |
|
|
$ |
26.29 |
|
|
$ |
12.14 |
|
|
$ |
13.25 |
|
| |
| PSUs
Granted: |
| Number of awards (in millions,
representing 100% of target) |
|
— |
|
|
|
— |
|
|
|
1.3 |
|
|
|
1.3 |
|
| Weighted average grant date
fair value per unit |
$ |
— |
|
|
$ |
— |
|
|
$ |
14.27 |
|
|
$ |
15.06 |
|
| |
|
|
|
|
|
|
|
| DSUs
Granted: |
| Number of awards (in
millions) |
|
0.03 |
|
|
|
0.01 |
|
|
|
0.12 |
|
|
|
0.08 |
|
| Weighted average grant date
fair value per unit |
$ |
11.27 |
|
|
$ |
29.28 |
|
|
$ |
10.18 |
|
|
$ |
17.72 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Q1 2023, we settled a portion of RSUs and
PSUs that vested during Q1 2023 with a cash payment of $49.8. In Q4
2023, we made a cash payment of $7.7 for withholding taxes in
connection with the RSUs and PSUs that vested during Q4 2023. See
"Secondary Offerings by Onex Corporation (Onex)" above for our cash
settlement of Onex's DSUs in October 2023.
In December 2022, we entered into the TRS
Agreement to manage cash flow requirements and our exposure to
fluctuations in the share price of our SVS in connection with the
settlement of certain outstanding equity awards under our SBC
plans. In September 2023, we terminated a portion of the TRS
Agreement by reducing the notional amount thereunder by 0.5 million
SVS. See note 11 for further detail.
Information regarding employee and director SBC
expense and TRS FVAs for the periods indicated is set forth
below:
| |
Three months ended December 31 |
|
Year ended December 31 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
| Employee SBC expense in cost
of sales |
$ |
5.6 |
|
|
$ |
4.2 |
|
|
$ |
20.3 |
|
|
$ |
22.6 |
|
| Employee SBC expense in
SG&A |
|
8.6 |
|
|
|
5.6 |
|
|
|
30.7 |
|
|
|
33.0 |
|
| Total employee SBC
expense |
$ |
14.2 |
|
|
$ |
9.8 |
|
|
$ |
51.0 |
|
|
$ |
55.6 |
|
| |
|
|
|
|
|
|
|
| TRS FVAs (gains) in cost of
sales |
$ |
— |
|
|
$ |
(4.8 |
) |
|
$ |
— |
|
|
$ |
(18.6 |
) |
| TRS FVAs (gains) in
SG&A |
|
— |
|
|
|
(6.6 |
) |
|
|
— |
|
|
|
(27.0 |
) |
| Total TRS FVAs (gains) |
$ |
— |
|
|
$ |
(11.4 |
) |
|
$ |
— |
|
|
$ |
(45.6 |
) |
| |
|
|
|
|
|
|
|
| Combined effect of employee
SBC expense and TRS FVAs |
$ |
14.2 |
|
|
$ |
(1.6 |
) |
|
$ |
51.0 |
|
|
$ |
10.0 |
|
| |
|
|
|
|
|
|
|
| Director SBC expense in
SG&A(1) |
$ |
0.6 |
|
|
$ |
0.6 |
|
|
$ |
2.2 |
|
|
$ |
2.4 |
|
(1) Expense consists of director compensation to be settled with
SVS, or SVS and cash, as elected by each director.
9. OTHER CHARGES, NET OF
RECOVERIES
| |
Three months ended December 31 |
|
Year ended December 31 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
| Restructuring charges, net of
recoveries (a) |
$ |
2.8 |
|
|
$ |
1.4 |
|
|
$ |
8.4 |
|
|
$ |
11.2 |
|
| Transition Costs (Recoveries)
(b) |
|
— |
|
|
|
— |
|
|
|
(2.1 |
) |
|
|
3.9 |
|
| Acquisition Costs (c) |
|
— |
|
|
|
0.1 |
|
|
|
0.4 |
|
|
|
1.0 |
|
| Other recoveries, net of costs
(d) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.9 |
) |
| |
$ |
2.8 |
|
|
$ |
1.5 |
|
|
$ |
6.7 |
|
|
$ |
15.2 |
|
| |
Annual Impairment
Assessment:
We review the carrying amount of goodwill,
intangible assets, property, plant and equipment, and right-of-use
(ROU) assets for impairment whenever events or changes in
circumstances (triggering events) indicate that the carrying amount
of such assets, or the related CGU or CGUs, may not be recoverable.
If any such indication exists, we test the carrying amount of such
assets or CGUs for impairment. No triggering events occurred during
FY 2023 or FY 2022 (however, refer to paragraph (a) below for a
description of write-downs of specified assets during such periods
in connection with our restructuring activities). Also see note 13.
In addition to an assessment of triggering events during the year,
we conduct an annual impairment assessment of CGUs with goodwill in
the fourth quarter of each year to correspond with our annual
planning cycle (Annual Impairment Assessment). During each of Q4
2023 and Q4 2022, we performed our Annual Impairment Assessment of
CGUs with goodwill and determined that there was no impairment, as
the recoverable amount of such CGUs exceeded their respective
carrying values.
(a)
Restructuring:
Our restructuring activities for Q4 2023 and FY
2023 consisted primarily of actions to adjust our cost base to
address reduced levels of demand in certain of our businesses and
geographies.
We recorded cash restructuring charges of $1.7
and $9.6 in Q4 2023 and FY 2023, respectively, primarily for
employee termination costs. We recorded nil non-cash restructuring
charges in Q4 2023 and $2.9 of non-cash restructuring charges in FY
2023, consisting primarily of accelerated depreciation of
equipment, building improvements and ROU assets related to
disengaging programs and vacated properties. In Q4 2023, we
recorded non-cash restructuring recoveries of $0.3 related to gains
on the sale of surplus equipment. In FY 2023, we recorded non-cash
restructuring recoveries of $1.3, which resulted from gains on the
sale of surplus equipment and certain sublet recoveries in excess
of the carrying value of the related leases. At December 31,
2023, our restructuring provision was $3.6 (December 31, 2022
— $5.8), which we recorded in the current portion of provisions on
our consolidated balance sheet.
We recorded cash restructuring charges of $2.8
and $7.5 in Q4 2022 and FY 2022, respectively, consisting primarily
of employee termination costs. We recorded nil non-cash
restructuring charges in Q4 2022, and $0.9 of such charges in FY
2022, consisting primarily of the accelerated depreciation of ROU
assets in connection with vacated properties and assets related to
disengaging programs.
(b) Transition Costs
(Recoveries):
Transition Costs consist of costs recorded in
connection with: (i) the transfer of manufacturing lines from
closed sites to other sites within our global network; (ii) the
sale of real properties unrelated to restructuring actions
(Property Dispositions) and (iii) with respect to FY 2023, the
Purchaser Lease Charge (defined below). Transition Costs consist of
direct relocation and duplicate costs (such as rent expense,
utility costs, depreciation charges, and personnel costs) incurred
during the transition periods, as well as cease-use and other costs
incurred in connection with idle or vacated portions of the
relevant premises that we would not have incurred but for these
relocations, transfers and dispositions. Transition Recoveries
consist of any gains recorded in connection with Property
Dispositions.
In connection with our March 2019 Toronto real
property sale, we treated associated relocation and duplicate costs
as Transition Costs. As part of such sale, we entered into a
10-year lease with the purchaser of such property for our
then-anticipated headquarters, to be built by such purchaser on the
site of our former location (Purchaser Lease). However, as
previously disclosed, we were informed that due to construction
issues, the commencement date of the Purchaser Lease would be
delayed beyond the prior target of May 2023. As a result, in
November 2022, we extended (on a long-term basis) the lease on our
current corporate headquarters. Subsequently, we were informed that
the Purchaser Lease would commence in June 2024. In Q3 2023, we
executed a sublease for a portion of the space under the Purchaser
Lease. Consistent with our prior treatment of duplicate costs
incurred as a result of our 2019 Toronto real property sale, we
recorded Transition Costs of $3.9 (Purchaser Lease Charge) in FY
2023, representing the excess of rental expenses under the
Purchaser Lease (with respect to the subleased space) over
anticipated rental recoveries under the sublease. See note 24 to
the 2022 AFS for a description of our lease obligations under the
Purchaser Lease.
We incurred nil Transition Recoveries in Q4 2023
or FY 2023. We incurred no Transition Costs in Q4 2022 and $1.5 of
Transition Costs in FY 2022, related primarily to the disposal of
assets reclassified as held for sale in the first quarter of 2022.
We recorded no Transition Recoveries in Q4 2022 and $3.6 of
Transition Recoveries in FY 2022, reflecting the gain on the
disposal of such assets held for sale.
(c) Acquisition
Costs:
We incur consulting, transaction and integration
costs relating to potential and completed acquisitions. We also
incur charges or releases related to the subsequent re-measurement
of indemnification assets or the release of indemnification or
other liabilities recorded in connection with acquisitions, when
applicable. Collectively, these costs, charges and releases are
referred to as Acquisition Costs (Recoveries).
We recorded Acquisition Costs of $0.1 in Q4 2023
and $1.0 in FY 2023 related to potential acquisitions (Q4 2022 —
nil; FY 2022 — $0.4, related to the acquisition of PCI Private
Limited in November 2021). We recorded nil Acquisition Recoveries
in any of the foregoing periods.
(d) Other recoveries,
net of costs:
Other recoveries, net of costs in FY 2023
consisted of legal recoveries of $2.7 in connection with the
settlement of class action lawsuits (for component parts purchased
in prior periods) in which we were a plaintiff, offset in part by
an aggregate of $1.8 of costs, substantially all of which consisted
of fees and expenses of the Secondary Offerings (see note 8). We
recorded nil other costs (recoveries) in Q4 2023, Q4 2022 or FY
2022.
10. INCOME
TAXES
Our income tax expense or recovery for each
quarter is determined by multiplying the earnings or losses before
tax for such quarter by management’s best estimate of the
weighted-average annual income tax rate expected for the full year,
taking into account the tax effect of certain items recognized in
the interim period. As a result, the effective income tax rates
used in our interim financial statements may differ from
management’s estimate of the annual effective tax rate for the
annual financial statements. Our estimated annual effective income
tax rate varies as the quarters progress, for various reasons,
including as a result of the mix and volume of business in various
tax jurisdictions within the Americas, Europe and Asia, in
jurisdictions with tax holidays and tax incentives, and in
jurisdictions for which no net deferred income tax assets have been
recognized because management believes it is not probable that
future taxable profit will be available against which tax losses
and deductible temporary differences could be utilized. Our
annual effective income tax rate can also vary due to the impact of
restructuring charges, foreign exchange fluctuations, operating
losses, cash repatriations, and changes in our provisions related
to tax uncertainties.
Our Q4 2023 net income tax expense of $19.9
included a $4.8 tax expense for tax uncertainties relating to one
of our Asian subsidiaries (Tax Uncertainties) and a $4.5 tax
expense arising from the repatriation of undistributed earnings,
net of the reversal of previously-recorded tax expense from
then-anticipated repatriations, from certain of our Asian
subsidiaries. Our FY 2023 net income tax expense of $62.0 included
a $11.3 tax expense arising from both the repatriation of
undistributed earnings and taxable temporary differences associated
with the anticipated repatriation of undistributed earnings from
certain of our Asian subsidiaries, and the $4.8 in Tax
Uncertainties, partially offset by the favorable impact of $5.5 in
reversals of previously-recorded tax uncertainties in another of
our Asian subsidiaries. Withholding tax of $5.8 associated with the
repatriation of undistributed earnings from certain of our Asian
subsidiaries in FY 2023 (realized as current tax) was fully offset
by the reversal of previously accrued deferred taxes from the
then-anticipated repatriation of such undistributed earnings.
Taxable foreign exchange impacts were not significant in Q4 2023 or
FY 2023.
Our Q4 2022 net income tax expense of $19.9
included an adverse $1.3 taxable foreign exchange impact arising
from the fluctuation of the Chinese renminbi relative to the U.S.
dollar, our functional currency (Currency Impact) and a $3.3
expense arising from taxable temporary differences associated with
the anticipated repatriation of undistributed earnings from certain
of our Chinese subsidiaries (Repatriation Expense). Our FY 2022 net
income tax expense of $58.1 was favorably impacted by $4.9 in
reversals of previously-recorded tax uncertainties in one of our
Asian subsidiaries, which was more than offset by an adverse $3.5
Currency Impact and a $3.3 Repatriation Expense. The withholding
tax of $10.3 associated with the repatriation of undistributed
earnings from certain of our Chinese subsidiaries in FY 2022
(realized as current tax) was fully offset by the reversal of
previously accrued deferred taxes from the then-anticipated
repatriation of such undistributed earnings.
11. FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT
Our financial assets are comprised primarily of
cash and cash equivalents, A/R, and derivatives used for hedging
purposes. Our financial liabilities are comprised primarily of
accounts payable, certain accrued and other liabilities, the Term
Loans, borrowings under the Revolver, lease obligations, and
derivatives used for hedging purposes.
Equity price risk:
In December 2022, we entered into the TRS
Agreement with a third-party bank with respect to a notional amount
of 3.0 million of our SVS (Notional Amount) to manage our cash flow
requirements and exposure to fluctuations in the price of our SVS
in connection with the settlement of certain outstanding equity
awards under our SBC plans. The counterparty under the TRS
Agreement is obligated to make a payment to us upon its termination
(in whole or in part) or expiration (Settlement) based on the
increase (if any) in the value of the TRS (as defined in the TRS
Agreement) over the agreement’s term, in exchange for periodic
payments made by us based on the counterparty’s SVS purchase costs
and SOFR plus a specified margin. Similarly, if the value of the
TRS (as defined in the TRS Agreement) decreases over the term of
the TRS Agreement, we are obligated to pay the counterparty the
amount of such decrease upon Settlement. The change in value of the
TRS is determined by comparing the average amount realized by the
counterparty upon the disposition of purchased SVS to the average
amount paid for such SVS. By the end of Q1 2023, the counterparty
had acquired the entire original Notional Amount at a weighted
average price of $12.73 per share. The TRS Agreement provides for
automatic annual one-year extensions (subject to specified
conditions), and may be terminated (in whole or in part) by either
party at any time. In September 2023, we terminated a portion of
the TRS Agreement by reducing the Notional Amount by 0.5 million
SVS. We received $5.0 from the counterparty in connection
therewith, which was recorded in cash provided by financing
activities in our consolidated statement of cash flows. The TRS
does not qualify for hedge accounting. As of December 31,
2023, the fair value of the TRS Agreement was an unrealized gain of
$40.6 (December 31, 2022 — de minimis), which we recorded in other
current assets on our consolidated balance sheet. TRS FVAs
(representing the change of fair value of TRS) are recognized in
our consolidated statement of operations each quarter. See note 8
for TRS FVAs in Q4 2023 and FY 2023.
Interest rate risk:
Borrowings under the Credit Facility expose us
to interest rate risk due to the potential variability of market
interest rates (see note 7). In order to partially hedge against
our exposure to interest rate variability on our Term Loans, we
have entered into various agreements with third-party banks to swap
the variable interest rate with a fixed rate of interest for a
portion of the borrowings under our Term Loans. At
December 31, 2023, we had: (i) interest rate swaps hedging the
interest rate risk associated with $100.0 of our Initial Term Loan
borrowings that expire in June 2024 (Initial Swaps); (ii) interest
rate swaps hedging the interest rate risk associated with $100.0 of
our Initial Term Loan borrowings (and any subsequent term loans
replacing the Initial Term Loan), for which the cash flows commence
upon the expiration of the Initial Swaps and continue through
December 2025; (iii) interest rate swaps hedging the interest rate
risk associated with $100.0 of outstanding borrowings under the
Incremental Term Loan that expire in December 2025 (Incremental
Swaps); and (iv) interest rate swaps hedging the interest rate risk
associated with an additional $130.0 of our Incremental Term Loan
borrowings that expire in December 2025 (Additional Incremental
Swaps). The option to cancel up to $50.0 of the notional amount of
the Additional Incremental Swaps from January 2024 through October
2025 was terminated in January 2024.
At December 31, 2023, the interest rate
risk related to $278.9 of borrowings under the Credit Facility was
unhedged, consisting of unhedged amounts outstanding under the Term
Loans ($180.4 under the Initial Term Loan and $98.5 under the
Incremental Term Loan), and no amounts outstanding (other than
ordinary course L/Cs) under the Revolver. See note 7.
At December 31, 2023, the fair value of our
interest rate swap agreements was an unrealized gain of $13.2
(December 31, 2022 — an unrealized gain of $18.7), which we
recorded in other current assets and other non-current assets on
our consolidated balance sheet. The unrealized portion of the
change in fair value of the swaps is recorded in OCI. The realized
portion of the change in fair value of the swaps is released from
accumulated OCI and recognized under finance costs in our
consolidated statement of operations when the hedged interest
expense is recognized.
We amended our Credit Facility in June 2023 to
replace LIBOR with Adjusted Term SOFR. See note 7. In June 2023,
all of our interest rate swap agreements were similarly amended.
None of these amendments (individually or in the aggregate) had a
significant impact on our Q4 2023 Interim Financial Statements. We
continue to apply hedge accounting to our interest rate swaps.
Currency risk:
The majority of our currency risk is driven by
operational costs, including income tax expense, incurred in local
currencies by our subsidiaries. We cannot predict changes in
currency exchange rates, the impact of exchange rate changes on our
operating results, nor the degree to which we will be able to
manage the impact of currency exchange rate changes. Such changes
could have a material effect on our business, financial performance
and financial condition.
Our major currency exposures at
December 31, 2023 are summarized in U.S. dollar equivalents in
the following table. The local currency amounts have been converted
to U.S. dollar equivalents using spot rates at December 31,
2023.
| |
Canadian dollar |
|
Euro |
|
Thai baht |
|
Mexican peso |
|
Cash and cash equivalents |
$ |
(0.2 |
) |
|
$ |
15.6 |
|
|
$ |
6.3 |
|
|
$ |
1.4 |
|
| Accounts receivable |
|
0.2 |
|
|
|
55.6 |
|
|
|
0.1 |
|
|
|
— |
|
| Income taxes and value-added
taxes receivable |
|
— |
|
|
|
0.7 |
|
|
|
1.4 |
|
|
|
64.3 |
|
| Other financial assets |
|
— |
|
|
|
5.6 |
|
|
|
1.2 |
|
|
|
0.9 |
|
| Pension and non-pension
post-employment liabilities |
|
(50.1 |
) |
|
|
(0.9 |
) |
|
|
(20.8 |
) |
|
|
(5.3 |
) |
| Income taxes and value-added
taxes payable |
|
(2.5 |
) |
|
|
(0.8 |
) |
|
|
— |
|
|
|
(12.7 |
) |
| Accounts payable and certain
accrued and other liabilities and provisions |
|
(69.7 |
) |
|
|
(46.9 |
) |
|
|
(53.3 |
) |
|
|
(22.1 |
) |
| Net financial assets
(liabilities) |
$ |
(122.3 |
) |
|
$ |
28.9 |
|
|
$ |
(65.1 |
) |
|
$ |
26.5 |
|
|
|
We enter into foreign currency forward contracts
to hedge our cash flow exposures and foreign currency swaps to
hedge the exposures of our monetary assets and liabilities
denominated in foreign currencies. While these contracts are
intended to reduce the effects of fluctuations in foreign currency
exchange rates, our hedging strategy does not mitigate the
longer-term impacts of changes to foreign exchange rates.
At December 31, 2023, we had foreign
currency forwards and swaps to trade U.S. dollars in exchange
for the following currencies:
|
Currency |
Contract
amount inU.S. dollars |
|
Weighted averageexchange rate
inU.S. dollars
(1) |
|
Maximumperiod inmonths |
|
Fair valuegain (loss) |
|
Canadian dollar |
$ |
202.1 |
|
|
$ |
0.75 |
|
|
12 |
|
$ |
3.9 |
|
| Thai baht |
|
156.3 |
|
|
|
0.03 |
|
|
12 |
|
|
2.9 |
|
| Malaysian ringgit |
|
93.6 |
|
|
|
0.22 |
|
|
12 |
|
|
(1.5 |
) |
| Mexican peso |
|
86.9 |
|
|
|
0.06 |
|
|
12 |
|
|
1.8 |
|
| British pound |
|
2.7 |
|
|
|
1.26 |
|
|
4 |
|
|
(0.1 |
) |
| Chinese renminbi |
|
30.2 |
|
|
|
0.14 |
|
|
12 |
|
|
0.1 |
|
| Euro |
|
48.3 |
|
|
|
1.09 |
|
|
12 |
|
|
(1.4 |
) |
| Romanian leu |
|
42.2 |
|
|
|
0.22 |
|
|
12 |
|
|
0.9 |
|
| Singapore dollar |
|
29.4 |
|
|
|
0.75 |
|
|
12 |
|
|
0.3 |
|
| Japanese yen |
|
5.1 |
|
|
|
0.0069 |
|
|
4 |
|
|
(0.2 |
) |
| Korean won |
|
3.6 |
|
|
|
0.0008 |
|
|
4 |
|
|
(0.2 |
) |
| Total |
$ |
700.4 |
|
|
|
|
|
|
$ |
6.5 |
|
| |
|
|
|
|
|
|
|
| Fair values of
outstanding foreign currency forward and swap contracts related to
effective cash flow hedges where we applied hedge accounting |
|
|
6.1 |
|
| Fair values of
outstanding foreign currency forward and swap contracts related to
economic hedges where we record the changes in the fair values of
such contracts through our consolidated statement of
operations |
|
|
0.4 |
|
| |
|
|
|
|
|
|
$ |
6.5 |
|
(1) Represents the U.S. dollar equivalent
(not in millions) of one unit of the foreign currency, weighted
based on the notional amounts of the underlying foreign currency
forward and swap contracts outstanding as at December 31,
2023.
At December 31, 2023, the aggregate fair
value of our outstanding contracts was a net unrealized gain of
$6.5 (December 31, 2022 — net unrealized gain of $5.2),
resulting from fluctuations in foreign exchange rates between the
contract execution and the period-end date. At December 31,
2023, we recorded $15.8 of derivative assets in other current
assets and $9.3 of derivative liabilities in accrued and other
current liabilities (December 31, 2022 — $18.9 of derivative
assets in other current assets and $13.7 of derivative liabilities
in accrued and other current liabilities).
Credit risk:
Credit risk refers to the risk that a
counterparty may default on its contractual obligations resulting
in a financial loss to us. We believe our credit risk of
counterparty non-performance continues to be relatively low. We are
in regular contact with our customers, suppliers and logistics
providers, and have not experienced significant counterparty
credit-related non-performance in 2022 or 2023. However, if a key
supplier (or any company within such supplier's supply chain) or
customer fails to comply with their contractual obligations, this
could result in a significant financial loss to us. We would also
suffer a significant financial loss if an institution from which we
purchased foreign currency exchange contracts and swaps, interest
rate swaps, or annuities for our pension plans, or the counterparty
to our TRS Agreement, defaults on their contractual obligations.
With respect to our financial market activities, we have adopted a
policy of dealing only with counterparties we deem to be
creditworthy. No significant adjustments were made to our allowance
for doubtful accounts during Q4 2023 or FY 2023 in connection with
our ongoing credit risk assessments.
Liquidity risk:
Liquidity risk is the risk that we may not have
cash available to satisfy our financial obligations as they come
due. The majority of our financial liabilities recorded in accounts
payable, accrued and other current liabilities and provisions are
due within 90 days. We manage liquidity risk through
maintenance of cash on hand and access to the various financing
arrangements described in notes 4 and 7. We believe that cash flow
from operating activities, together with cash on hand, cash from
accepted sales of A/R, and borrowings available under the Revolver
and potentially available under uncommitted intraday and overnight
bank overdraft facilities, are sufficient to fund our currently
anticipated financial obligations, and will remain available in the
current environment. As our A/R sales program and SFPs are each
uncommitted, however, there can be no assurance that any
participant bank will purchase any of the A/R that we wish to
sell.
12.
COMMITMENTS AND CONTINGENCIES
Litigation:
In the normal course of our operations, we may
be subject to lawsuits, investigations and other claims, including
environmental, labor, product, customer disputes, and other
matters. Management believes that adequate provisions have
been recorded where required. Although it is not always possible to
estimate the extent of potential costs, if any, we believe that the
ultimate resolution of all such pending matters will not have a
material adverse impact on our financial performance, financial
position or liquidity.
Taxes and Other Matters:
In 2021, the Romanian tax authorities issued a
final assessment in the aggregate amount of approximately
31 million Romanian leu (approximately $7 at Q4 2023
period-end exchange rates), for additional income and value-added
taxes for one of our Romanian subsidiaries for the 2014 to 2018 tax
years. In order to advance our case to the appeals phase and reduce
or eliminate potential interest and penalties, we paid the Romanian
tax authorities the full amount assessed in 2021 (without agreement
to all or any portion of such assessment). We believe that our
originally-filed tax return positions are in compliance with
applicable Romanian tax laws and regulations, and intend to
vigorously defend our position through all necessary appeals or
other judicial processes.
The successful pursuit of assertions made by any
government authority, including tax authorities, could result in
our owing significant amounts of tax or other reimbursements,
interest and possibly penalties. We believe we adequately accrue
for any probable potential adverse ruling. However, there can be no
assurance as to the final resolution of any claims and any
resulting proceedings. If any claims and any ensuing proceedings
are determined adversely to us, the amounts we may be required to
pay could be material, and in excess of amounts accrued.
13. FIRE
EVENT
In June 2022, a fire occurred at our Batam,
Indonesia facility. The fire destroyed inventories and damaged a
building and equipment located at the site. Our manufacturing
operations at the site were briefly paused, but resumed in June
2022. In 2022, we wrote down inventories destroyed (approximately
$94) and a building and equipment damaged (approximately $1) by the
fire. We expect to fully recover our tangible losses pursuant to
the terms and conditions of our insurance policies. In 2022 and
2023, we recovered approximately $31 and $23 of our inventory
losses through insurance proceeds, respectively. As of
December 31, 2023, we recorded an estimated receivable of
approximately $41 related to remaining anticipated insurance
proceeds in other current assets on our consolidated balance sheet.
The write-downs and the offsetting insurance receivable (in
equivalent amounts) were each recorded in other charges in 2022,
resulting in no net impact to 2022 net earnings. We determined that
this event did not constitute an impairment review triggering event
for the applicable CGU, and no impairments to our intangibles or
goodwill were recorded in connection therewith in 2022 or 2023.
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