Celestica Inc. (TSX: CLS) (NYSE: CLS), a leader in design,
manufacturing, hardware platform and supply chain solutions for the
world's most innovative companies, today announced financial
results for the quarter ended September 30, 2024 (Q3 2024)†.
“We are pleased to have delivered very strong
financial performance in Q3 2024, with revenue up 22% year-to-year
and non-IFRS adjusted EPS* up 60% year-to-year. With our guidance
for Q4 2024, we expect a strong close to another successful year in
2024,” said Rob Mionis, President and CEO, Celestica.
“Looking to next year, we continue to see solid
demand signals from many of our large customers, which are
providing us with visibility for continued growth. Our 2025 outlook
calls for higher year-over-year revenues and non-IFRS operating
margin*, which if achieved would represent 15% annual growth in our
non-IFRS adjusted EPS*.”
Q3 2024 Highlights
- Key measures:
- Revenue: $2.50
billion, increased 22% compared to $2.04 billion for the third
quarter of 2023 (Q3 2023).
- Non-IFRS operating
margin*: 6.7%, compared to 5.7% for Q3 2023.
- CCS segment revenue
increased 42% compared to Q3 2023; CCS segment margin was 7.6%
compared to 6.2% for Q3 2023.
- ATS segment revenue
decreased 5% compared to Q3 2023; ATS segment margin was 4.8%
compared to 4.9% for Q3 2023.
- Adjusted earnings
per share (EPS) (non-IFRS)*: $1.04, compared to $0.65 for Q3
2023.
- Adjusted return on
invested capital (adjusted ROIC) (non-IFRS)*: 28.6%, compared to
21.5% for Q3 2023.
- Adjusted free cash
flow (non-IFRS)*: $74.5 million, compared to
$34.1 million for Q3 2023.
- Most directly
comparable IFRS financial measures to non-IFRS measures above:
- Earnings from
operations as a percentage of revenue: 5.5% compared to 5.7% for Q3
2023.
- EPS: $0.77 compared
to $0.67 for Q3 2023.
- Return on invested
capital (IFRS ROIC): 23.3% compared to 21.8% for Q3 2023.
- Cash provided by
operations: $144.8 million compared to $88.4 million for
Q3 2023.
- Repurchased 2.2 million common shares for cancellation for
$100.0 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
September 30, 2024 unaudited interim condensed consolidated
financial statements (Q3 2024 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 non-IFRS
adjusted net earnings, non-IFRS adjusted EPS, non-IFRS adjusted tax
expense and non-IFRS adjusted effective tax rate in the first nine
months of 2024 (YTD 2024) resulting from the enactment of Pillar
Two (global minimum tax) legislation in Canada, and the recent
amendment and restatement of our credit facility. The most directly
comparable IFRS financial measures to non-IFRS operating margin,
non-IFRS adjusted EPS, non-IFRS adjusted ROIC and non-IFRS adjusted
free cash flow are earnings from operations as a percentage of
revenue, EPS, IFRS ROIC, and cash provided by operations,
respectively.
Fourth Quarter of 2024 (Q4 2024)
Guidance
|
|
Q4 2024 Guidance |
| Revenue (in billions) |
$2.425 to $2.575 |
| Non-IFRS operating
margin* |
6.7% at the mid-point of ourrevenue and non-IFRS adjustedEPS
guidance ranges |
| Adjusted SG&A (non-IFRS)*
(in millions) |
$78 to $80 |
| Adjusted EPS (non-IFRS)* |
$0.99 to $1.09 |
| |
|
For Q4 2024, we expect a negative $0.17 to $0.23
per share (pre-tax) aggregate impact on net earnings on an IFRS
basis for employee stock-based compensation (SBC) expense,
amortization of intangible assets (excluding computer software),
and restructuring charges. For Q4 2024, we also expect a non-IFRS
adjusted effective tax rate* of approximately 21%.
2024 Annual Outlook Update
Assuming the achievement of the mid-point of the
above revenue and non-IFRS adjusted EPS* guidance for Q4 2024,
our updated 2024 outlook consists of:
- revenue of $9.60 billion (our
previous outlook was $9.45 billion);
- non-IFRS operating margin* of 6.5%
(our previous outlook was 6.3%);
- non-IFRS adjusted EPS* of $3.85
(our previous outlook was $3.62); and
- non-IFRS adjusted free cash flow*
of $275 million (our previous outlook was $250 million).
2025 Annual Outlook
- Revenue of $10.40 billion;
- non-IFRS operating margin* of
6.7%;
- non-IFRS adjusted EPS* of $4.42;
and
- non-IFRS adjusted free cash flow*
of $325 million.
Our 2025 outlook assumes an annual non-IFRS
adjusted effective tax rate* of approximately 20%.
* See Schedule 1 for the definitions of these
non-IFRS financial measures, including a modification to the
calculation of non-IFRS adjusted EPS in YTD 2024 resulting from the
enactment of Pillar Two legislation in Canada and the recent
amendment and restatement of our credit facility. 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.
Other Updates
We are pleased to announce the following
developments related to new customer relationships and program
wins:
Groq, Inc. (Groq)
Celestica has entered into a new strategic
relationship with Groq, an artificial intelligence (AI) company who
has developed a new proprietary silicon platform known as the
Language Processing Unit (LPU), which specializes in accelerated
inferencing.
Celestica’s collaboration will support Groq in
the manufacturing of AI/machine learning servers, as well as full
rack solutions. The initial programs are expected to begin ramping
in early 2025.
New 1.6T program win
Celestica has secured a program win with a major
hyperscaler customer for 1.6 Terabyte switching, showcasing the
company's market leadership and innovation in high-bandwidth
networking solutions. We expect revenues to begin ramping in
2026.
Summary of Selected Q3 2024
Results
|
|
Q3 2024
Actual |
|
Q3 2024 Guidance
(2) |
|
Key measures: |
|
|
|
|
Revenue (in billions) |
$2.500 |
|
$2.325 to $2.475 |
|
Non-IFRS operating margin* |
6.7% |
|
6.3% at the mid-point of ourrevenue and non-IFRS adjustedEPS
guidance ranges |
|
Adjusted SG&A (non-IFRS)* (in millions) |
$79.8 |
|
$73 to $75 |
|
Adjusted EPS (non-IFRS)* |
$1.04 |
|
$0.86 to $0.96 |
| |
|
|
|
|
Most directly comparable IFRS financial measures: |
|
|
|
|
Earnings from operations as a % of revenue |
5.5% |
|
N/A |
|
SG&A (in millions) |
$91.9 |
|
N/A |
|
EPS(1) |
$0.77 |
|
N/A |
|
|
|
|
|
*See Schedule 1 for, among other things, the
definitions of these non-IFRS financial measures, including a
modification to the calculation of non-IFRS adjusted EPS in YTD
2024 resulting from the enactment of Pillar Two legislation in
Canada and the recent amendment and restatement of our credit
facility, as well as a reconciliation of these non-IFRS financial
measures to the most directly comparable IFRS financial
measures.
(1) IFRS EPS of $0.77 for Q3 2024 included an
aggregate charge of $0.20 (pre-tax) per share for employee SBC
expense, amortization of intangible assets (excluding computer
software), and restructuring charges. See the tables in Schedule 1
and note 9 to the Q3 2024 Interim Financial Statements for per-item
charges. This aggregate charge was within our Q3 2024 guidance
range of between $0.16 to $0.22 per share for these items.
IFRS EPS for Q3 2024 included: (i) a $0.06 per
share negative impact attributable to a fair value loss on our
total return swap agreement (TRS Agreement), (ii) a $0.02 per share
negative impact attributable to withholding tax expense incurred to
minimize the impact of the enactment of Pillar Two (global minimum
tax) legislation in Canada (Pillar Two Withholding Expense) and
(iii) a $0.02 per share negative impact arising from taxable
temporary differences associated with the anticipated repatriation
of undistributed earnings from certain of our Asian subsidiaries
(Repatriation Expense). See notes 8, 9 and 10 to the Q3 2024
Interim Financial Statements.
IFRS EPS of $2.46 for YTD 2024 included: (i) a
$0.33 per share positive impact attributable to a fair value gain
(TRS Gain) on our TRS Agreement, (ii) a $0.06 per share favorable
tax impact attributable to the recognition of previously
unrecognized deferred tax assets in our U.S. group of subsidiaries
as a result of our acquisition of NCS Global Services LLC (NCS),
(iii) a $0.05 per share favorable tax impact attributable to the
reversals of tax uncertainties (Reversals) relating to one of our
Asian subsidiaries, and (iv) a $0.01 per share positive impact
attributable to legal recoveries, partially offset by: (a) a $0.16
per share negative Pillar Two Withholding Expense, (b) a $0.09 per
share negative impact attributable to restructuring charges, (c) a
$0.03 per share negative impact attributable to Transition Costs
(defined in Schedule 1), (d) a $0.02 per share negative impact
attributable to acquisition costs, and (e) a $0.02 per share
Repatriation Expense. See notes 8, 9 and 10 to the Q3 2024 Interim
Financial Statements.
IFRS EPS of $0.67 for Q3 2023 included: a $0.25
per share TRS Gain, partially offset by: (i) a $0.05 per share
negative impact attributable to net other charges (consisting most
significantly of: a $0.03 per share negative impact attributable to
Transition Costs (defined in Schedule 1), a $0.01 per share
negative impact, substantially all of which was attributable to
Secondary Offering Costs (defined in Schedule 1), and a $0.01 per
share negative impact attributable to restructuring charges, offset
in part by a $0.01 per share positive impact attributable to
restructuring recoveries); and (ii) a $0.03 per share Repatriation
Expense. See notes 8, 9 and 10 to the Q3 2024 Interim Financial
Statements.
IFRS EPS of $1.33 for the first nine months of
2023 (YTD 2023) included: (i) a $0.28 per share TRS Gain and (ii) a
$0.05 favorable tax impact attributable to Reversals in one of our
Asian subsidiaries; partially offset by: (x) a $0.11 per share
negative impact attributable to net other charges (consisting
primarily of a $0.09 per share negative impact attributable to
restructuring charges, a $0.03 per share negative impact
attributable to Transition Costs (defined in Schedule 1), and a
$0.01 per share negative impact, substantially all of which was
attributable to Secondary Offering Costs (defined in Schedule 1),
offset in part by a $0.02 per share positive impact attributable to
legal recoveries and a $0.01 per share positive impact attributable
to restructuring recoveries); and (y) a $0.06 per share
Repatriation Expense. See notes 8, 9 and 10 to the Q3 2024 Interim
Financial Statements.
(2) For Q3 2024, our revenue exceeded the high
end of our guidance range due to higher-than-anticipated customer
demand in our CCS segment. Our non-IFRS operating margin for Q3
2024 exceeded the mid-point of our revenue and non-IFRS adjusted
EPS guidance ranges and our Q3 2024 non-IFRS adjusted EPS exceeded
the high end of our guidance range, primarily driven by
unanticipated operating leverage in our CCS segment. Our non-IFRS
adjusted SG&A for Q3 2024 exceeded the high end of our guidance
range primarily due to the impact of foreign exchange. Our IFRS
effective tax rate for Q3 2024 was 27%. Our non-IFRS adjusted
effective tax rate for Q3 2024 was 21%, higher than our anticipated
estimate of approximately 20%, mainly due to jurisdictional profit
mix.
Intention for Early Renewal of Normal
Course Issuer Bid (NCIB)
We intend to file a notice of intention with the
Toronto Stock Exchange (TSX) to commence a new NCIB in Q4 2024,
prior to our current NCIB expiring in December 2024. If this notice
is accepted by the TSX, we expect to be permitted to repurchase for
cancellation, at our discretion during the 12 months following such
acceptance, up to 10% of the “public float” (calculated in
accordance with the rules of the TSX) of our issued and outstanding
common shares, less the number of common shares purchased and
cancelled under our current NCIB (which would terminate upon
commencement of the new NCIB). Purchases under the new NCIB, if
accepted, will be conducted in the open market or as otherwise
permitted, subject to applicable terms and limitations, and will be
made through the facilities of the TSX and the New York Stock
Exchange or as otherwise permitted. We believe that the early
renewal of the NCIB is in the best interests of Celestica and our
shareholders.
Change in Foreign Private Issuer
Status
As previously disclosed, as of the end of the
second quarter of 2024, we no longer meet the definition of a
"foreign private issuer" under U.S. federal securities regulations.
Accordingly, beginning January 1, 2025, we will become subject to
the same reporting and disclosure requirements applicable to
domestic U.S. issuers, including preparation of our consolidated
financial statements in accordance with U.S. generally accepted
accounting principles.
Q3 2024 Financial
Results and Virtual Investor Meeting Webcast
Management will host a combined Q3 2024 results
conference call and virtual investor meeting on October 23, 2024 at
5:00 p.m. Eastern Daylight Time (EDT). In addition to a discussion
of Q3 2024 financial results, Celestica’s management will provide
an overview of Celestica's business, growth opportunities and
financial outlook. 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.ca and www.sec.gov.
Cautionary Note Regarding
Forward-looking Statements
This press release contains forward-looking
statements, including, without limitation, those related to: demand
signals from many of our large customers, our anticipated financial
and/or operational results, guidance and outlook, including
statements under the headings "Fourth Quarter of 2024 (Q4 2024)
Guidance", "2024 Annual Outlook Update" and "2025 Annual Outlook";
our intention to early terminate our current NCIB and concurrently
launch a new NCIB; anticipated terms of a new NCIB; new customer
relationships and the expected timing of related program and
revenue ramps; our credit risk; our liquidity; anticipated charges
and expenses, including restructuring charges; the finalization of
the purchase price allocation and amortization of intangible assets
in connection with our NCS acquisition; the potential impact of tax
and litigation outcomes; and mandatory prepayments under our credit
facility. 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. Forward-looking statements
reflect our current estimates, beliefs and assumptions, which are
based on management’s perception of historic trends, current
conditions and expected future developments, as well as other
factors it believes are appropriate in the circumstances, including
certain assumptions about anticipated CCS and ATS revenue growth,
anticipated demand levels across our businesses, continuing
operating leverage and improving mix, the impact of anticipated
market conditions on our businesses, continued growth in the
advancement and commercialization of AI technologies and cloud
computing, supporting sustained high levels of capital expenditure
investments by leading hyperscaler, AI, and data center customers,
the economy, our customers, our suppliers, our ability to achieve
our strategic goals, the number of outstanding shares, as well as
other market, financial and operational assumptions. Readers are
cautioned that such information may not be appropriate for other
purposes. Readers should not place undue reliance on such
forward-looking information.
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; reduction in
customer revenue; erosion in customer market competitiveness;
changing revenue mix and margins; uncertain market, political and
economic conditions; operational challenges such as inventory
management and materials and supply chain constraints; the cyclical
nature and/or volatility of certain of our businesses; talent
management and inefficient employee utilization; risks related to
the expansion or consolidation of our operations; cash flow,
revenue and operating results variability; technology and IT
disruption; increasing legal, tax and regulatory complexity and
uncertainty (including in relation to our or our customers'
businesses); integrating and achieving the anticipated benefits
from acquisitions; and the potential adverse impacts of events
outside of our control.
For more exhaustive information on the foregoing
and other material risks, uncertainties and assumptions readers
should refer to our public filings at www.sedarplus.ca and
www.sec.gov, including in our most recent Management's Discussion
and Analysis of Financial Condition and Results of Operations,
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 the Canadian Securities Administrators, as applicable.
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 expressly 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 1
Supplementary Non-IFRS Financial
Measures
The non-IFRS financial measures (including
ratios based on non-IFRS financial measures) included in this press
release are: adjusted gross profit, adjusted gross margin (adjusted
gross profit as a percentage of revenue), adjusted selling, general
and administrative expenses (SG&A), adjusted SG&A as a
percentage of revenue, non-IFRS operating earnings (or adjusted
EBIAT), non-IFRS operating margin (non-IFRS operating earnings or
adjusted EBIAT as a percentage of revenue), adjusted net earnings,
adjusted EPS, adjusted return on invested capital (adjusted ROIC),
adjusted free cash flow, adjusted tax expense and adjusted
effective tax rate. Adjusted EBIAT, adjusted ROIC, adjusted free
cash flow, adjusted tax expense and adjusted effective tax rate are
further described in the tables below. As used herein, "Q1," "Q2,"
"Q3," and "Q4" followed by a year refers to the first quarter,
second quarter, third quarter and fourth quarter of such year,
respectively.
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, adjusted tax expense and adjusted effective
tax rate, management excludes the following items (where
indicated): employee SBC expense, fair value adjustments on our TRS
Agreement (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. In addition, in
calculating adjusted net earnings, adjusted EPS, adjusted tax
expense and adjusted effective tax rate for YTD 2024, (i)
management also excluded the one-time Q1 2024 portion of the
negative tax impact arising from the enactment of Pillar Two
(global minimum tax) legislation in Canada recorded in Q2 2024 and
incremental withholding tax accrued in such quarter to minimize its
impact (Pillar Two Tax Adjustments), as such portion is not
attributable to our on-going operations for subsequent periods; and
(ii) commencing in Q2 2024, management excludes Refinancing Charges
(Gains) (defined 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 Common Shares 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); 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.
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) specified charges related to the
Purchaser Lease (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. As part of our 2019
Toronto real property sale, we entered into a related 10-year lease
for our then-anticipated headquarters (Purchaser Lease). Consistent
with our prior treatment of duplicate and idle premises costs
incurred as a result of such property sale, the excess of rental
expenses attributable to space subleased in Q3 2023 under the
Purchaser Lease over anticipated sublease rental recoveries were
recorded as Transition Costs ($3.9 million charge) in Q3 2023, as
we previously extended (on a long-term basis) the lease on our
current corporate headquarters due to several Purchaser Lease
commencement date delays. Similarly, as the Purchaser Lease
commenced in June 2024, we recorded a $3.4 million charge in Q2
2024 as Transition Costs, representing the write-down of
right-of-use (ROU) assets under the Purchaser Lease with respect to
non-subleased space. 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 ROU assets, result primarily when the carrying value
of these assets exceeds their recoverable amount.
Secondary Offering Costs consisted of costs
associated with the conversion and underwritten public sale of our
shares by Onex Corporation (Onex), our then-controlling
shareholder, in Q2 2023 and Q3 2023. We believe that excluding
Secondary Offering Costs permits a better comparison of our core
operating results from period-to-period, as they did not reflect
our ongoing operations, and are no longer applicable as such
conversions and sales are complete.
Refinancing Charges (Gains) consist of costs
(gains) recorded as finance costs (income) in our statement of
operations in connection with refinancings of our credit facility.
In Q2 2024, we amended and restated our credit facility agreement.
In connection therewith, our two then-existing term loans were
repaid in full, terminated and replaced with two new term loans.
Refinancing Charges for YTD 2024 consist of the $5.2 million in
fees and costs incurred in connection with such amendment and
restatement, and the $0.8 million in accelerated amortization of
unamortized deferred financing costs recorded as a result of the
related termination of one of the prior term loans. Notwithstanding
the termination of the second prior term loan and its replacement
with a new term loan, for accounting purposes, this portion of the
transaction was treated as a modification of the second terminated
term loan, resulting in a $5.5 million modification gain.
Refinancing Gains for YTD 2024 consist of this modification gain.
Refinancing Charges (Gains) are excluded in our determination of
adjusted net earnings, adjusted EPS, adjusted tax expense and
adjusted effective tax rate, as management believes that such
exclusions (both positive and negative) permit a better comparison
of our core operating results from period-to-period, as these costs
and gains are not directly related to ongoing operating results and
do not reflect expected future operating expenses after completion
of the applicable refinancing transaction.
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 such non-IFRS
financial measures to the most directly comparable financial
measures determined under IFRS (in millions, except
percentages and per share amounts):
| |
Three months ended September 30 |
|
Nine months ended September 30 |
| |
2023 |
|
2024 |
|
2023 |
|
2024 |
| |
|
% of revenue |
|
|
% of revenue |
|
|
% of revenue |
|
|
% of revenue |
| IFRS
revenue |
$ |
2,043.3 |
|
|
|
$ |
2,499.5 |
|
|
|
$ |
5,820.5 |
|
|
|
$ |
7,100.3 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
IFRS gross profit |
$ |
206.7 |
|
10.1 |
% |
|
$ |
259.1 |
|
10.4 |
% |
|
$ |
555.3 |
|
9.5 |
% |
|
$ |
744.0 |
|
10.5 |
% |
|
Employee SBC expense |
|
5.1 |
|
|
|
|
5.6 |
|
|
|
|
18.4 |
|
|
|
|
20.2 |
|
|
|
TRS FVAs: losses (gains) |
|
(11.8 |
) |
|
|
|
2.7 |
|
|
|
|
(13.8 |
) |
|
|
|
(17.2 |
) |
|
| Non-IFRS adjusted
gross profit |
$ |
200.0 |
|
9.8 |
% |
|
$ |
267.4 |
|
10.7 |
% |
|
$ |
559.9 |
|
9.6 |
% |
|
$ |
747.0 |
|
10.5 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
| IFRS
SG&A |
$ |
56.9 |
|
2.8 |
% |
|
$ |
91.9 |
|
3.7 |
% |
|
$ |
203.9 |
|
3.5 |
% |
|
$ |
237.2 |
|
3.3 |
% |
|
Employee SBC expense |
|
(7.8 |
) |
|
|
|
(7.1 |
) |
|
|
|
(27.4 |
) |
|
|
|
(27.1 |
) |
|
|
TRS FVAs: (losses) gains |
|
17.6 |
|
|
|
|
(5.0 |
) |
|
|
|
20.4 |
|
|
|
|
22.3 |
|
|
| Non-IFRS adjusted
SG&A |
$ |
66.7 |
|
3.3 |
% |
|
$ |
79.8 |
|
3.2 |
% |
|
$ |
196.9 |
|
3.4 |
% |
|
$ |
232.4 |
|
3.3 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
| IFRS earnings from
operations |
$ |
117.4 |
|
5.7 |
% |
|
$ |
136.4 |
|
5.5 |
% |
|
$ |
264.6 |
|
4.5 |
% |
|
$ |
404.3 |
|
5.7 |
% |
|
Employee SBC expense |
|
12.9 |
|
|
|
|
12.7 |
|
|
|
|
45.8 |
|
|
|
|
47.3 |
|
|
|
TRS FVAs: losses (gains) |
|
(29.4 |
) |
|
|
|
7.7 |
|
|
|
|
(34.2 |
) |
|
|
|
(39.5 |
) |
|
|
Amortization of intangible assets (excluding computer
software) |
|
9.2 |
|
|
|
|
9.9 |
|
|
|
|
27.6 |
|
|
|
|
28.9 |
|
|
|
Other Charges, net of Recoveries |
|
5.6 |
|
|
|
|
1.0 |
|
|
|
|
13.7 |
|
|
|
|
15.9 |
|
|
| Non-IFRS operating
earnings (adjusted EBIAT)(1) |
$ |
115.7 |
|
5.7 |
% |
|
$ |
167.7 |
|
6.7 |
% |
|
$ |
317.5 |
|
5.5 |
% |
|
$ |
456.9 |
|
6.4 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
| IFRS net
earnings |
$ |
80.2 |
|
3.9 |
% |
|
$ |
91.7 |
|
3.7 |
% |
|
$ |
160.4 |
|
2.8 |
% |
|
$ |
293.0 |
|
4.1 |
% |
|
Employee SBC expense |
|
12.9 |
|
|
|
|
12.7 |
|
|
|
|
45.8 |
|
|
|
|
47.3 |
|
|
|
TRS FVAs: losses (gains) |
|
(29.4 |
) |
|
|
|
7.7 |
|
|
|
|
(34.2 |
) |
|
|
|
(39.5 |
) |
|
|
Amortization of intangible assets (excluding computer
software) |
|
9.2 |
|
|
|
|
9.9 |
|
|
|
|
27.6 |
|
|
|
|
28.9 |
|
|
|
Other Charges, net of Recoveries |
|
5.6 |
|
|
|
|
1.0 |
|
|
|
|
13.7 |
|
|
|
|
15.9 |
|
|
|
Refinancing Charges, net of Refinancing Gains |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
0.5 |
|
|
|
Adjustments for taxes(2) |
|
(0.3 |
) |
|
|
|
0.8 |
|
|
|
|
(11.3 |
) |
|
|
|
(11.3 |
) |
|
| Non-IFRS adjusted net
earnings |
$ |
78.2 |
|
|
|
$ |
123.8 |
|
|
|
$ |
202.0 |
|
|
|
$ |
334.8 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Diluted
EPS |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average # of shares (in millions) |
|
119.6 |
|
|
|
|
118.9 |
|
|
|
|
120.5 |
|
|
|
|
119.1 |
|
|
|
IFRS earnings per share |
$ |
0.67 |
|
|
|
$ |
0.77 |
|
|
|
$ |
1.33 |
|
|
|
$ |
2.46 |
|
|
|
Non-IFRS adjusted earnings per share |
$ |
0.65 |
|
|
|
$ |
1.04 |
|
|
|
$ |
1.68 |
|
|
|
$ |
2.81 |
|
|
|
# of shares outstanding at period end (in millions) |
|
119.4 |
|
|
|
|
116.4 |
|
|
|
|
119.4 |
|
|
|
|
116.4 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| IFRS cash provided by
operations |
$ |
88.4 |
|
|
|
$ |
144.8 |
|
|
|
$ |
290.9 |
|
|
|
$ |
399.0 |
|
|
|
Purchase of property, plant and equipment, net of sales
proceeds |
|
(26.2 |
) |
|
|
|
(46.0 |
) |
|
|
|
(90.5 |
) |
|
|
|
(120.4 |
) |
|
|
Lease payments |
|
(12.8 |
) |
|
|
|
(13.0 |
) |
|
|
|
(36.9 |
) |
|
|
|
(37.6 |
) |
|
|
Finance Costs Paid (defined below) |
|
(15.3 |
) |
|
|
|
(11.3 |
) |
|
|
|
(53.4 |
) |
|
|
|
(38.0 |
) |
|
| Non-IFRS adjusted free
cash flow(3) |
$ |
34.1 |
|
|
|
$ |
74.5 |
|
|
|
$ |
110.1 |
|
|
|
$ |
203.0 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| IFRS ROIC
% (4) |
|
21.8 |
% |
|
|
|
23.3 |
% |
|
|
|
16.5 |
% |
|
|
|
23.6 |
% |
|
| Non-IFRS adjusted ROIC
% (4) |
|
21.5 |
% |
|
|
|
28.6 |
% |
|
|
|
19.8 |
% |
|
|
|
26.7 |
% |
|
|
(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 Q3 2024
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, net of finance income recorded on
our statement of operations (Finance Costs and Finance Income,
respectively); 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, net of Finance
Income.
| |
Three months ended September 30 |
|
Nine months ended September 30 |
|
|
|
2023 |
|
|
|
2024 |
|
|
|
2023 |
|
|
|
2024 |
|
| IFRS tax expense |
$ |
18.9 |
|
|
$ |
33.7 |
|
|
$ |
42.1 |
|
|
$ |
68.1 |
|
| |
|
|
|
|
|
|
|
| Add-backs to (deductions from)
IFRS tax expense representing the tax benefits or costs associated
with the following items*: |
|
|
|
|
|
|
|
|
Employee SBC expense and TRS FVAs |
|
(1.1 |
) |
|
|
(1.4 |
) |
|
|
7.6 |
|
|
|
9.0 |
|
|
Amortization of intangible assets (excluding computer
software) |
|
0.7 |
|
|
|
0.7 |
|
|
|
2.2 |
|
|
|
2.3 |
|
|
Other Charges, net of Recoveries |
|
0.7 |
|
|
|
(0.1 |
) |
|
|
1.5 |
|
|
|
0.6 |
|
|
Non-core tax adjustment for NCS acquisition |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7.5 |
|
|
Pillar Two Tax Adjustments |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8.1 |
) |
| Non-IFRS adjusted tax
expense |
$ |
19.2 |
|
|
$ |
32.9 |
|
|
$ |
53.4 |
|
|
$ |
79.4 |
|
| |
|
|
|
|
|
|
|
| IFRS tax expense |
$ |
18.9 |
|
|
$ |
33.7 |
|
|
$ |
42.1 |
|
|
$ |
68.1 |
|
| |
|
|
|
|
|
|
|
| Earnings from operations |
$ |
117.4 |
|
|
$ |
136.4 |
|
|
$ |
264.6 |
|
|
$ |
404.3 |
|
|
Finance Costs, net of Finance Income |
|
(18.3 |
) |
|
|
(11.0 |
) |
|
|
(62.1 |
) |
|
|
(43.2 |
) |
| |
$ |
99.1 |
|
|
$ |
125.4 |
|
|
$ |
202.5 |
|
|
$ |
361.1 |
|
| |
|
|
|
|
|
|
|
| IFRS effective tax rate |
|
19 |
% |
|
|
27 |
% |
|
|
21 |
% |
|
|
19 |
% |
| |
|
|
|
|
|
|
|
| Non-IFRS adjusted tax
expense |
$ |
19.2 |
|
|
$ |
32.9 |
|
|
$ |
53.4 |
|
|
$ |
79.4 |
|
| |
|
|
|
|
|
|
|
| Non-IFRS operating
earnings |
$ |
115.7 |
|
|
$ |
167.7 |
|
|
$ |
317.5 |
|
|
$ |
456.9 |
|
|
Finance Costs, net of Finance Income |
|
(18.3 |
) |
|
|
(11.0 |
) |
|
|
(62.1 |
) |
|
|
(43.2 |
) |
| |
$ |
97.4 |
|
|
$ |
156.7 |
|
|
$ |
255.4 |
|
|
$ |
413.7 |
|
| |
|
|
|
|
|
|
|
| Non-IFRS adjusted effective
tax rate |
|
20 |
% |
|
|
21 |
% |
|
|
21 |
% |
|
|
19 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Tax impact associated with Refinancing
Charges, net of Refinancing Gains in YTD 2024 was insignificant,
and was inapplicable to the other periods presented above.
|
(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, when applicable), lease payments,
and Finance Costs Paid. Finance Costs Paid is defined as
interest expense and fees paid related to our credit facility
(excluding, when applicable, any debt issuance costs and credit
facility waiver fees paid), 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. We do not consider debt issuance costs paid ($0.6
million in Q3 2024 and $9.6 million in YTD 2024; $0.4 million in Q3
2023 and YTD 2023) or credit facility waiver fees paid (when
applicable) to be part of our ongoing financing expenses. As a
result, these costs are excluded from our definition of Finance
Costs Paid for our determination of non-IFRS adjusted free cash
flow. We believe that excluding Finance Costs 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 four-point average to calculate average net
invested capital for the nine-month period. Average net invested
capital for Q3 2024 is the average of net invested capital as at
June 30, 2024 and September 30, 2024, and average net invested
capital for YTD 2024 is the average of net invested capital as at
December 31, 2023, March 31, 2024, June 30, 2024 and September 30,
2024. A comparable financial measure to non-IFRS adjusted ROIC
determined using IFRS measures would be calculated by dividing
annualized IFRS earnings from operations by average net invested
capital for the period. |
| |
|
|
The following table sets forth, for the periods
indicated, our calculation of IFRS ROIC % and non-IFRS adjusted
ROIC % (in millions, except IFRS ROIC % and non-IFRS adjusted ROIC
%).
| |
Three months ended |
|
Nine months ended |
| |
September 30 |
|
September 30 |
|
|
|
2023 |
|
|
|
2024 |
|
|
|
2023 |
|
|
|
2024 |
|
| |
|
|
|
|
|
|
|
| IFRS earnings from
operations |
$ |
117.4 |
|
|
$ |
136.4 |
|
|
$ |
264.6 |
|
|
$ |
404.3 |
|
| Multiplier to
annualize earnings |
|
4 |
|
|
|
4 |
|
|
|
1.333 |
|
|
|
1.333 |
|
| Annualized IFRS
earnings from operations |
$ |
469.6 |
|
|
$ |
545.6 |
|
|
$ |
352.7 |
|
|
$ |
538.9 |
|
| |
|
|
|
|
|
|
|
| Average net
invested capital for the period |
$ |
2,155.9 |
|
|
$ |
2,346.0 |
|
|
$ |
2,141.5 |
|
|
$ |
2,281.7 |
|
| |
|
|
|
|
|
|
|
| IFRS ROIC
% (1) |
|
21.8 |
% |
|
|
23.3 |
% |
|
|
16.5 |
% |
|
|
23.6 |
% |
| |
|
|
|
|
|
|
|
| |
Three months ended |
|
Nine months ended |
| |
September 30 |
|
September 30 |
| |
|
2023 |
|
|
|
2024 |
|
|
|
2023 |
|
|
|
2024 |
|
| |
|
|
|
|
|
|
|
| Non-IFRS operating
earnings (adjusted EBIAT) |
$ |
115.7 |
|
|
$ |
167.7 |
|
|
$ |
317.5 |
|
|
$ |
456.9 |
|
| Multiplier to
annualize earnings |
|
4 |
|
|
|
4 |
|
|
|
1.333 |
|
|
|
1.333 |
|
| Annualized
non-IFRS adjusted EBIAT |
$ |
462.8 |
|
|
$ |
670.8 |
|
|
$ |
423.2 |
|
|
$ |
609.0 |
|
| |
|
|
|
|
|
|
|
| Average net
invested capital for the period |
$ |
2,155.9 |
|
|
$ |
2,346.0 |
|
|
$ |
2,141.5 |
|
|
$ |
2,281.7 |
|
| |
|
|
|
|
|
|
|
| Non-IFRS adjusted
ROIC % (1) |
|
21.5 |
% |
|
|
28.6 |
% |
|
|
19.8 |
% |
|
|
26.7 |
% |
| |
December 31 2023 |
|
March 31 2024 |
|
June 30 2024 |
|
September 30 2024 |
| Net invested
capital consists of: |
|
|
|
|
|
|
|
|
Total assets |
$ |
5,890.7 |
|
|
$ |
5,717.1 |
|
|
$ |
5,882.4 |
|
|
$ |
5,926.8 |
|
| Less: cash |
|
370.4 |
|
|
|
308.1 |
|
|
|
434.0 |
|
|
|
398.5 |
|
| Less: ROU
assets |
|
154.0 |
|
|
|
180.1 |
|
|
|
188.6 |
|
|
|
167.8 |
|
| Less: accounts
payable, accrued and other current liabilities, provisions and
income taxes payable |
|
3,167.9 |
|
|
|
2,992.6 |
|
|
|
2,949.3 |
|
|
|
2,979.1 |
|
| Net invested
capital at period end (1) |
$ |
2,198.4 |
|
|
$ |
2,236.3 |
|
|
$ |
2,310.5 |
|
|
$ |
2,381.4 |
|
| |
|
|
|
|
|
|
|
| |
December 312022 |
|
March 31 2023 |
|
June 30 2023 |
|
September 30 2023 |
| Net invested
capital consists of: |
|
|
|
|
|
|
| Total assets |
$ |
5,628.0 |
|
|
$ |
5,468.1 |
|
|
$ |
5,500.5 |
|
|
$ |
5,745.3 |
|
| Less: cash |
|
374.5 |
|
|
|
318.7 |
|
|
|
360.7 |
|
|
|
353.1 |
|
| Less: ROU
assets |
|
138.8 |
|
|
|
133.1 |
|
|
|
146.5 |
|
|
|
157.8 |
|
| 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 |
|
| Net invested
capital at period end (1) |
$ |
2,111.7 |
|
|
$ |
2,142.4 |
|
|
$ |
2,122.7 |
|
|
$ |
2,189.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1)
See footnote 4 on the previous page. |
| |
|
CELESTICA INC. CONDENSED
CONSOLIDATED BALANCE SHEET(in millions of
U.S. dollars)(unaudited) |
| |
| |
Note |
December 312023 |
|
September 302024 |
| |
|
|
|
|
| Assets |
|
|
|
|
| Current assets: |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
370.4 |
|
|
$ |
398.5 |
|
|
Accounts receivable |
5 |
|
1,795.7 |
|
|
|
2,007.7 |
|
|
Inventories |
6 |
|
2,106.1 |
|
|
|
1,827.4 |
|
|
Income taxes receivable |
|
|
11.9 |
|
|
|
14.8 |
|
|
Other current assets |
11 |
|
228.5 |
|
|
|
220.3 |
|
| Total current assets |
|
|
4,512.6 |
|
|
|
4,468.7 |
|
| |
|
|
|
|
| Property, plant and
equipment |
|
|
472.7 |
|
|
|
478.2 |
|
| Right-of-use assets |
|
|
154.0 |
|
|
|
167.8 |
|
| Goodwill |
4 |
|
321.7 |
|
|
|
341.0 |
|
| Intangible assets |
|
|
318.3 |
|
|
|
320.0 |
|
| Deferred income taxes |
|
|
62.5 |
|
|
|
74.3 |
|
| Other non-current assets |
11 |
|
48.9 |
|
|
|
76.8 |
|
| Total assets |
|
$ |
5,890.7 |
|
|
$ |
5,926.8 |
|
| |
|
|
|
|
| Liabilities and
Equity |
|
|
|
|
| Current liabilities: |
|
|
|
|
|
Current portion of borrowings under credit facility and lease
obligations |
7 |
$ |
51.6 |
|
|
$ |
57.7 |
|
|
Accounts payable |
|
|
1,298.2 |
|
|
|
1,392.5 |
|
|
Accrued and other current liabilities |
6&11 |
|
1,781.3 |
|
|
|
1,481.3 |
|
|
Income taxes payable |
|
|
64.8 |
|
|
|
85.7 |
|
|
Current portion of provisions |
|
|
23.6 |
|
|
|
19.6 |
|
| Total current liabilities |
|
|
3,219.5 |
|
|
|
3,036.8 |
|
| |
|
|
|
|
| Long-term portion of
borrowings under credit facility and lease obligations |
7 |
|
731.2 |
|
|
|
883.4 |
|
| Pension and non-pension
post-employment benefit obligations |
|
|
88.1 |
|
|
|
90.3 |
|
| Provisions and other
non-current liabilities |
|
|
41.2 |
|
|
|
54.7 |
|
| Deferred income taxes |
|
|
42.2 |
|
|
|
41.9 |
|
| Total liabilities |
|
|
4,122.2 |
|
|
|
4,107.1 |
|
| |
|
|
|
|
| Equity: |
|
|
|
|
|
Capital stock |
8 |
|
1,672.5 |
|
|
|
1,637.0 |
|
|
Treasury stock |
8 |
|
(80.1 |
) |
|
|
(87.5 |
) |
|
Contributed surplus |
|
|
1,030.6 |
|
|
|
836.9 |
|
|
Deficit |
|
|
(839.6 |
) |
|
|
(546.6 |
) |
|
Accumulated other comprehensive loss |
|
|
(14.9 |
) |
|
|
(20.1 |
) |
| Total equity |
|
|
1,768.5 |
|
|
|
1,819.7 |
|
| Total liabilities and
equity |
|
$ |
5,890.7 |
|
|
$ |
5,926.8 |
|
| |
|
|
|
|
Commitments and Contingencies (note 12).
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
| |
|
CELESTICA INC. CONDENSED
CONSOLIDATED STATEMENT OF
OPERATIONS(in millions of U.S. dollars,
except per share amounts)(unaudited) |
| |
| |
|
Three months ended |
|
Nine months ended |
| |
|
September 30 |
|
September 30 |
|
|
Note |
|
2023 |
|
|
2024 |
|
|
|
2023 |
|
|
|
2024 |
|
| |
|
|
|
|
|
|
|
|
| Revenue |
3 |
$ |
2,043.3 |
|
$ |
2,499.5 |
|
|
$ |
5,820.5 |
|
|
$ |
7,100.3 |
|
| Cost of sales |
6 |
|
1,836.6 |
|
|
2,240.4 |
|
|
|
5,265.2 |
|
|
|
6,356.3 |
|
| Gross profit |
|
|
206.7 |
|
|
259.1 |
|
|
|
555.3 |
|
|
|
744.0 |
|
| Selling, general and
administrative expenses |
|
|
56.9 |
|
|
91.9 |
|
|
|
203.9 |
|
|
|
237.2 |
|
| Research and development |
|
|
16.9 |
|
|
18.7 |
|
|
|
43.3 |
|
|
|
54.6 |
|
| Amortization of intangible
assets |
|
|
9.9 |
|
|
11.1 |
|
|
|
29.8 |
|
|
|
32.0 |
|
| Other charges, net of
recoveries |
9 |
|
5.6 |
|
|
1.0 |
|
|
|
13.7 |
|
|
|
15.9 |
|
| Earnings from operations |
|
|
117.4 |
|
|
136.4 |
|
|
|
264.6 |
|
|
|
404.3 |
|
| Finance income |
7 |
|
0.3 |
|
|
1.9 |
|
|
|
0.9 |
|
|
|
8.5 |
|
| Finance costs |
7 |
|
18.6 |
|
|
12.9 |
|
|
|
63.0 |
|
|
|
51.7 |
|
| Earnings before income
taxes |
|
|
99.1 |
|
|
125.4 |
|
|
|
202.5 |
|
|
|
361.1 |
|
| Income tax expense
(recovery) |
10 |
|
|
|
|
|
|
|
|
Current |
|
|
16.9 |
|
|
40.4 |
|
|
|
46.7 |
|
|
|
90.2 |
|
|
Deferred |
|
|
2.0 |
|
|
(6.7 |
) |
|
|
(4.6 |
) |
|
|
(22.1 |
) |
|
|
|
|
18.9 |
|
|
33.7 |
|
|
|
42.1 |
|
|
|
68.1 |
|
| Net earnings for the
period |
|
$ |
80.2 |
|
$ |
91.7 |
|
|
$ |
160.4 |
|
|
$ |
293.0 |
|
| |
|
|
|
|
|
|
|
|
| Basic earnings per share |
|
$ |
0.67 |
|
$ |
0.78 |
|
|
$ |
1.33 |
|
|
$ |
2.47 |
|
| Diluted earnings per
share |
|
$ |
0.67 |
|
$ |
0.77 |
|
|
$ |
1.33 |
|
|
$ |
2.46 |
|
| |
|
|
|
|
|
|
|
|
| Shares used in computing per
share amounts (in millions): |
|
|
|
|
|
|
|
|
|
Basic |
|
|
119.3 |
|
|
118.2 |
|
|
|
120.4 |
|
|
|
118.7 |
|
|
Diluted |
|
|
119.6 |
|
|
118.9 |
|
|
|
120.5 |
|
|
|
119.1 |
|
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
| |
|
CELESTICA INC.CONDENSED CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME(in millions
of U.S. dollars)(unaudited) |
| |
| |
Three months ended |
|
Nine months ended |
| |
September 30 |
|
September 30 |
|
|
|
2023 |
|
|
|
2024 |
|
|
|
2023 |
|
|
|
2024 |
|
| |
|
|
|
|
|
|
|
| Net earnings for the
period |
$ |
80.2 |
|
|
$ |
91.7 |
|
|
$ |
160.4 |
|
|
$ |
293.0 |
|
| Other comprehensive income
(loss), net of tax: |
|
|
|
|
|
|
|
|
Items that may be reclassified to net earnings: |
|
|
|
|
|
|
|
|
Currency translation differences for foreign operations |
|
(1.6 |
) |
|
|
4.7 |
|
|
|
(6.2 |
) |
|
|
(0.7 |
) |
|
Changes from currency forward derivative hedges |
|
(9.8 |
) |
|
|
15.3 |
|
|
|
(15.2 |
) |
|
|
2.4 |
|
|
Changes from interest rate swap derivative hedges |
|
0.2 |
|
|
|
(6.3 |
) |
|
|
1.1 |
|
|
|
(6.9 |
) |
| Total comprehensive income for
the period |
$ |
69.0 |
|
|
$ |
105.4 |
|
|
$ |
140.1 |
|
|
$ |
287.8 |
|
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) |
|
Totalequity |
|
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 (b) |
|
|
0.5 |
|
|
|
— |
|
|
|
(0.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
|
Repurchase of capital stock for cancellation |
|
|
(37.3 |
) |
|
|
1.8 |
|
|
|
9.9 |
|
|
|
— |
|
|
|
— |
|
|
|
(25.6 |
) |
|
Purchase of treasury stock for stock-based compensation (SBC) plans
(c) |
|
|
— |
|
|
|
(53.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(53.7 |
) |
|
SBC cash settlement |
|
|
— |
|
|
|
— |
|
|
|
(49.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
(49.8 |
) |
|
Equity-settled SBC |
|
|
— |
|
|
|
15.6 |
|
|
|
31.7 |
|
|
|
— |
|
|
|
— |
|
|
|
47.3 |
|
| Total comprehensive
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
160.4 |
|
|
|
— |
|
|
|
160.4 |
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences for foreign operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6.2 |
) |
|
|
(6.2 |
) |
|
Changes from currency forward derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(15.2 |
) |
|
|
(15.2 |
) |
|
Changes from interest rate swap derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.1 |
|
|
|
1.1 |
|
| Balance -- September 30,
2023 |
|
$ |
1,678.1 |
|
|
$ |
(54.8 |
) |
|
$ |
1,055.2 |
|
|
$ |
(916.2 |
) |
|
$ |
(26.0 |
) |
|
$ |
1,736.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Balance -- January 1,
2024 |
|
$ |
1,672.5 |
|
|
$ |
(80.1 |
) |
|
$ |
1,030.6 |
|
|
$ |
(839.6 |
) |
|
$ |
(14.9 |
) |
|
$ |
1,768.5 |
|
| Capital
transactions: |
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital stock |
|
|
5.6 |
|
|
|
— |
|
|
|
(1.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
3.9 |
|
|
Repurchase of capital stock for cancellation(d) |
|
|
(41.1 |
) |
|
|
— |
|
|
|
(85.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
(126.1 |
) |
|
Purchase of treasury stock for SBC plans (e) |
|
|
— |
|
|
|
(94.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(94.1 |
) |
|
SBC cash settlement |
|
|
— |
|
|
|
— |
|
|
|
(69.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
(69.0 |
) |
|
Equity-settled SBC |
|
|
— |
|
|
|
86.7 |
|
|
|
(38.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
48.7 |
|
| Total comprehensive
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
293.0 |
|
|
|
— |
|
|
|
293.0 |
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences for foreign operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.7 |
) |
|
|
(0.7 |
) |
|
Changes from currency forward derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.4 |
|
|
|
2.4 |
|
|
Changes from interest rate swap derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6.9 |
) |
|
|
(6.9 |
) |
| Balance -- September 30,
2024 |
|
$ |
1,637.0 |
|
|
$ |
(87.5 |
) |
|
$ |
836.9 |
|
|
$ |
(546.6 |
) |
|
$ |
(20.1 |
) |
|
$ |
1,819.7 |
|
|
(a) |
|
Accumulated other comprehensive loss is net of tax. |
| (b) |
|
In June and August 2023, we
issued 11.8 million and 6.8 million of our common shares
(previously named subordinate voting shares), respectively, in each
case upon conversion of an equivalent number of our
then-outstanding multiple voting shares with nil impact
(individually or in the aggregate) on our aggregate capital stock
amount (see note 8). |
| (c) |
|
Consists of $47.2 paid to repurchase common shares for delivery
obligations under our SBC plans during the first nine months of
2023 and $6.5 accrued at September 30, 2023 for the estimated
contractual maximum number of permitted common share repurchases
(Contractual Maximum Quantity) under an automatic share purchase
plan (ASPP) executed in September 2023 for such purpose (see note
8). |
| (d) |
|
Consists of $126.5 paid to
repurchase common shares for cancellation during the first nine
months of 2024 and $2.3 accrued at September 30, 2024 for share
buyback taxes, offset in part by the reversal of $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). |
| (e) |
|
Consists of $101.6 paid to
repurchase common shares for delivery obligations under our SBC
plans during the first nine months of 2024, offset in part by the
reversal of $7.5 accrued 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 |
|
Nine months ended |
| |
|
September 30 |
|
September 30 |
|
|
Note |
|
2023 |
|
|
|
2024 |
|
|
|
2023 |
|
|
|
2024 |
|
| |
|
|
|
|
|
|
|
|
| Cash provided by (used
in): |
|
|
|
|
|
|
|
|
| Operating
activities: |
|
|
|
|
|
|
|
|
| Net earnings for the
period |
|
$ |
80.2 |
|
|
$ |
91.7 |
|
|
$ |
160.4 |
|
|
$ |
293.0 |
|
| Adjustments to net earnings
for items not affecting cash: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
39.4 |
|
|
|
47.8 |
|
|
|
117.1 |
|
|
|
136.4 |
|
|
Equity-settled employee SBC expense |
8 |
|
12.9 |
|
|
|
12.7 |
|
|
|
45.8 |
|
|
|
47.3 |
|
|
Total return swap fair value adjustments: losses (gains) |
|
|
(29.4 |
) |
|
|
7.7 |
|
|
|
(34.2 |
) |
|
|
(39.5 |
) |
|
Other charges, net of recoveries |
9 |
|
3.4 |
|
|
|
0.4 |
|
|
|
6.3 |
|
|
|
4.5 |
|
|
Finance costs, net of finance income |
|
|
18.3 |
|
|
|
11.0 |
|
|
|
62.1 |
|
|
|
43.2 |
|
|
Income tax expense |
|
|
18.9 |
|
|
|
33.7 |
|
|
|
42.1 |
|
|
|
68.1 |
|
| Other |
|
|
(3.2 |
) |
|
|
0.5 |
|
|
|
3.7 |
|
|
|
1.3 |
|
| Changes in non-cash working
capital items: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(295.3 |
) |
|
|
(111.7 |
) |
|
|
(205.5 |
) |
|
|
(209.4 |
) |
|
Inventories |
|
|
84.5 |
|
|
|
25.5 |
|
|
|
89.2 |
|
|
|
278.6 |
|
|
Other current assets |
|
|
(6.6 |
) |
|
|
37.7 |
|
|
|
22.7 |
|
|
|
37.1 |
|
|
Accounts payable, accrued and other current liabilities and
provisions |
|
|
186.3 |
|
|
|
21.0 |
|
|
|
53.0 |
|
|
|
(189.7 |
) |
| Non-cash working capital
changes |
|
|
(31.1 |
) |
|
|
(27.5 |
) |
|
|
(40.6 |
) |
|
|
(83.4 |
) |
| Net income tax paid |
|
|
(21.0 |
) |
|
|
(33.2 |
) |
|
|
(71.8 |
) |
|
|
(71.9 |
) |
| Net cash provided by operating
activities |
|
|
88.4 |
|
|
|
144.8 |
|
|
|
290.9 |
|
|
|
399.0 |
|
| |
|
|
|
|
|
|
|
|
| Investing
activities: |
|
|
|
|
|
|
|
|
| Acquisition of NCS Global
Services LLC, net of cash acquired |
4 |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(36.1 |
) |
| Purchase of computer software
and property, plant and equipment |
|
|
(27.0 |
) |
|
|
(46.0 |
) |
|
|
(92.2 |
) |
|
|
(123.3 |
) |
| Proceeds related to the sale
of assets |
|
|
0.8 |
|
|
|
— |
|
|
|
1.7 |
|
|
|
2.9 |
|
| Other |
|
|
— |
|
|
|
(5.0 |
) |
|
|
— |
|
|
|
(5.0 |
) |
| Net cash used in investing
activities |
|
|
(26.2 |
) |
|
|
(51.0 |
) |
|
|
(90.5 |
) |
|
|
(161.5 |
) |
| |
|
|
|
|
|
|
|
|
| Financing
activities: |
|
|
|
|
|
|
|
|
| Revolving loan borrowings |
7 |
|
— |
|
|
|
20.0 |
|
|
|
— |
|
|
|
485.0 |
|
| Revolving loan repayments |
7 |
|
— |
|
|
|
(20.0 |
) |
|
|
— |
|
|
|
(485.0 |
) |
| Term loan borrowings |
7 |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
750.0 |
|
| Term loan repayments |
7 |
|
(4.6 |
) |
|
|
(4.4 |
) |
|
|
(13.8 |
) |
|
|
(613.3 |
) |
| Lease payments |
|
|
(12.8 |
) |
|
|
(13.0 |
) |
|
|
(36.9 |
) |
|
|
(37.6 |
) |
| Issuance of capital stock |
8 |
|
0.3 |
|
|
|
— |
|
|
|
0.3 |
|
|
|
3.9 |
|
| Repurchase of capital stock
for cancellation |
8 |
|
— |
|
|
|
(100.0 |
) |
|
|
(25.6 |
) |
|
|
(126.5 |
) |
| Purchase of treasury stock for
stock-based plans |
8 |
|
(42.0 |
) |
|
|
— |
|
|
|
(47.2 |
) |
|
|
(101.6 |
) |
| Proceeds from partial total
return swap settlement |
11 |
|
5.0 |
|
|
|
— |
|
|
|
5.0 |
|
|
|
32.3 |
|
| SBC cash settlement |
8 |
|
— |
|
|
|
— |
|
|
|
(49.8 |
) |
|
|
(69.0 |
) |
| Finance costs paid(a) |
7 |
|
(15.7 |
) |
|
|
(11.9 |
) |
|
|
(53.8 |
) |
|
|
(47.6 |
) |
| Net cash used in financing
activities |
|
|
(69.8 |
) |
|
|
(129.3 |
) |
|
|
(221.8 |
) |
|
|
(209.4 |
) |
| |
|
|
|
|
|
|
|
|
| Net increase (decrease) in
cash and cash equivalents |
|
|
(7.6 |
) |
|
|
(35.5 |
) |
|
|
(21.4 |
) |
|
|
28.1 |
|
| Cash and cash equivalents,
beginning of period |
|
|
360.7 |
|
|
|
434.0 |
|
|
|
374.5 |
|
|
|
370.4 |
|
| Cash and cash equivalents, end
of period |
|
$ |
353.1 |
|
|
$ |
398.5 |
|
|
$ |
353.1 |
|
|
$ |
398.5 |
|
|
(a) |
|
Finance costs paid in the three and nine months ended September 30,
2024 include $0.6 and $9.6 of debt issuance costs paid,
respectively (three and nine months ended September 30, 2023 —
$0.4). |
| |
|
|
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
CELESTICA INC. NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(in
millions of U.S. dollars, except percentages and per share
amounts)(unaudited)
1.
REPORTING ENTITY
Celestica Inc. (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 were re-designated as common
shares (Common Shares) effective April 25, 2024 (see note 8), and
are listed as such on the Toronto Stock Exchange (TSX) and the New
York Stock Exchange (NYSE). We refer to our common equity as Common
Shares for all periods presented herein.
2. BASIS OF
PREPARATION AND MATERIAL ACCOUNTING POLICIES
Statement of compliance:
These unaudited interim condensed consolidated
financial statements for the period ended September 30, 2024
(Q3 2024 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
at September 30, 2024 and our financial performance,
comprehensive income and cash flows for the three and nine months
ended September 30, 2024 (referred to herein as Q3 2024 and
YTD 2024, respectively). The Q3 2024 Interim Financial Statements
should be read in conjunction with our 2023 audited consolidated
financial statements (2023 AFS), which are included in our Annual
Report on Form 20-F for the year ended December 31, 2023. The Q3
2024 Interim Financial Statements are presented in United States
(U.S.) dollars, which is also our functional currency. Unless
otherwise noted, all financial information is presented in millions
of U.S. dollars (except percentages and per share/per unit
amounts).
The Q3 2024 Interim Financial Statements were
authorized for issuance by our Board of Directors (Board) on
October 23, 2024.
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, historical experience and various other factors
that we believe are reasonable under the circumstances. The
economic environment also impacts certain estimates and discount
rates necessary to prepare our consolidated financial statements,
including significant estimates and discount rates applicable to
the determination of the recoverable amounts used in the impairment
testing of our non-financial assets. Our assessment of these
factors forms the basis for our judgments on the carrying values of
our assets and liabilities, and the accrual of our costs and
expenses. Actual results could differ materially from our estimates
and assumptions. We review our estimates and underlying assumptions
on an ongoing basis and make revisions as determined necessary by
management. Revisions are recognized in the period in which the
estimates are revised and may also impact future periods.
Our review of the estimates, judgments and
assumptions used in the preparation of the Q3 2024 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/or cash generating units (CGUs1), our measurement of
deferred tax assets and liabilities, our estimated inventory
write-downs and expected credit losses, customer creditworthiness,
and the determination of the fair value of assets acquired,
liabilities assumed, and contingent consideration in connection
with a business combination. 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 Amendments to IAS 1, adopted as of
January 1, 2024 as described below, the Q3 2024 Interim Financial
Statements are based on accounting policies consistent with those
described in note 2 to our 2023 AFS.
Recently adopted accounting standards
and amendments:
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. This standard, which we
adopted as of January 1, 2024, did not have a material impact on
our consolidated financial statements.
Recently issued but not yet effective
standards:
IFRS 18 Presentation and Disclosure in Financial
Statements
In April 2024, the IASB issued IFRS 18
Presentation and Disclosure in Financial Statements. IFRS 18
replaces IAS 1 Presentation of Financial Statements and sets out
requirements for the presentation and disclosure of information in
general purpose financial statements. The standard applies to
annual reporting periods beginning on or after January 1, 2027 and
is to be applied retrospectively, with early adoption permitted. We
have not yet adopted such standard and are currently assessing the
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. Segment performance is evaluated
based on segment revenue, segment income and segment margin
(segment income as a percentage of segment revenue). See note 25 to
our 2023 AFS for a description of the businesses that comprise our
segments, how segment revenue is attributed, how costs are
allocated to our segments, and how segment income and segment
margin are determined.
Information regarding the performance of our
reportable segments is set forth below:
| Revenue by
segment: |
Three months ended September 30 |
|
Nine months ended September 30 |
| |
|
2023 |
|
|
|
2024 |
|
|
|
2023 |
|
|
|
2024 |
|
| |
|
% of total |
|
|
% of total |
|
|
% of total |
|
|
% of total |
|
ATS |
$ |
859.4 |
42 |
% |
|
$ |
814.1 |
33 |
% |
|
$ |
2,516.9 |
43 |
% |
|
$ |
2,349.7 |
33 |
% |
| CCS |
|
1,183.9 |
58 |
% |
|
|
1,685.4 |
67 |
% |
|
|
3,303.6 |
57 |
% |
|
|
4,750.6 |
67 |
% |
|
Communications end market revenue as a % of total revenue |
|
36 |
% |
|
|
42 |
% |
|
|
34 |
% |
|
|
39 |
% |
|
Enterprise end market revenue as a % of total revenue |
|
22 |
% |
|
|
25 |
% |
|
|
23 |
% |
|
|
28 |
% |
| Total |
$ |
2,043.3 |
|
|
$ |
2,499.5 |
|
|
$ |
5,820.5 |
|
|
$ |
7,100.3 |
|
| Segment
income, segment margin, and reconciliation of segment income to
IFRS earnings before income taxes: |
Three months ended September 30 |
|
Nine months ended September 30 |
| |
Note |
|
2023 |
|
|
|
2024 |
|
|
|
2023 |
|
|
|
2024 |
|
| |
|
|
Segment Margin |
|
|
Segment Margin |
|
|
Segment Margin |
|
|
Segment Margin |
|
ATS segment income and margin |
|
$ |
42.1 |
|
4.9 |
% |
|
$ |
39.0 |
4.8 |
% |
|
$ |
118.6 |
|
4.7 |
% |
|
$ |
110.5 |
|
4.7 |
% |
| CCS segment income and
margin |
|
|
73.6 |
|
6.2 |
% |
|
|
128.7 |
7.6 |
% |
|
|
198.9 |
|
6.0 |
% |
|
|
346.4 |
|
7.3 |
% |
| Total segment income |
|
|
115.7 |
|
|
|
|
167.7 |
|
|
|
317.5 |
|
|
|
|
456.9 |
|
|
| Reconciling items: |
|
|
|
|
|
|
|
|
|
|
|
|
| Finance costs, net of finance
income |
7 |
|
18.3 |
|
|
|
|
11.0 |
|
|
|
62.1 |
|
|
|
|
43.2 |
|
|
| Employee stock-based
compensation (SBC) expense |
|
|
12.9 |
|
|
|
|
12.7 |
|
|
|
45.8 |
|
|
|
|
47.3 |
|
|
| Total return swap (TRS) fair
value adjustments: losses (gains) |
8&11 |
|
(29.4 |
) |
|
|
|
7.7 |
|
|
|
(34.2 |
) |
|
|
|
(39.5 |
) |
|
| Amortization of intangible
assets (excluding computer software) |
|
|
9.2 |
|
|
|
|
9.9 |
|
|
|
27.6 |
|
|
|
|
28.9 |
|
|
| Other charges, net of
recoveries |
9 |
|
5.6 |
|
|
|
|
1.0 |
|
|
|
13.7 |
|
|
|
|
15.9 |
|
|
| IFRS earnings before income
taxes |
|
$ |
99.1 |
|
|
|
$ |
125.4 |
|
|
$ |
202.5 |
|
|
|
$ |
361.1 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers:
Two customers (both in our CCS segment)
individually represented 10% or more of total revenue in Q3 2024
(25% and 12%) and YTD 2024 (30% and 11%). One such customer also
individually represented 10% or more of total revenue in the third
quarter of 2023 (Q3 2023) (23%) and in the first nine months of
2023 (YTD 2023) (19%).
4. ACQUISITION
On April 26, 2024, we completed the acquisition
of 100% of the interests of NCS Global Services LLC (NCS), a
U.S.-based IT infrastructure and asset management business, for a
purchase price of $39.6, including a net working capital adjustment
finalized in Q3 2024. The purchase price was funded with the
revolving portion of our credit facility (see note 7). The NCS
acquisition agreement also includes a potential earn-out of up to
$20 if certain adjusted earnings before interest, taxes,
depreciation and amortization targets are achieved during the
period from May 2024 to April 2025. We estimated the fair value of
such potential earn-out to be $6.6 at the date of acquisition. We
recorded purchase consideration of $46.2 for the fair value of the
acquired assets (including $3.5 of cash) and liabilities at the
date of acquisition on our consolidated balance sheet. Our
preliminary purchase price allocation for the NCS acquisition is as
follows:
|
Cash and cash equivalents |
$ |
3.5 |
|
| Accounts
receivable and other current assets |
|
3.0 |
|
| Right-of-use (ROU)
assets |
|
5.2 |
|
| Property, plant
and equipment |
|
0.4 |
|
| Computer software
assets and intellectual property |
|
1.3 |
|
| Customer and brand
intangible assets |
|
28.6 |
|
| Goodwill |
|
19.4 |
|
| Accounts payable
and accrued liabilities |
|
(2.5 |
) |
| Lease
liabilities |
|
(5.2 |
) |
| Deferred income
tax liabilities |
|
(7.5 |
) |
| |
$ |
46.2 |
|
| |
|
|
|
We engaged third-party consultants to assist in
the estimation of the fair value of acquired intangible assets and
the potential earn-out. We expect to finalize our purchase price
allocation in the fourth quarter of 2024, once the work of our
third-party consultants has been completed.
The preliminary valuation of the intangible
assets and the potential earn-out was primarily based on the income
approach using a discounted cash flow model and forecasts based on
management's subjective estimates and assumptions. Various Level 2
and 3 data inputs of the fair value measurement hierarchy
(described in note 20 to the 2023 AFS) were used in such
valuation.
Newly-recognized customer and brand intangible
assets from the acquisition will be amortized on a straight line
basis over an estimated useful life of 10 years. As a result, our
amortization of customer and brand intangible assets will increase
by approximately $3 annually. Goodwill from the acquisition arose
primarily from expected synergies from the combination of our
operations. Such goodwill is attributable to our CCS segment and is
not tax deductible.
Had the acquisition occurred on January 1, 2024,
the operations of NCS would have contributed less than 10% to our
consolidated revenue and net earnings for YTD 2024.
In connection with our acquisition of NCS, we
recorded Acquisition Costs (defined in note 9) of nil in Q3 2024
and $1.6 in YTD 2024. See note 9 for all Acquisition Costs incurred
in Q3 2024, YTD 2024, and the respective prior year periods.
5. 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 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.
At September 30, 2024, we participate in
three customer SFPs, pursuant to which we sell A/R from the
relevant customer to third-party banks on an uncommitted basis. The
SFPs have an indefinite term and may be terminated at any time by
the customer or by us upon specified prior notice. Under our SFPs,
the third-party banks collect the relevant A/R directly from these
customers.
At September 30, 2024, we sold nil of A/R
(December 31, 2023 — nil) under our A/R sales program and
nil of A/R (December 31, 2023 — $18.6) 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 September 30, 2024, our A/R balance
included $269.6 (December 31, 2023 — $250.8) of contract
assets recognized as revenue in accordance with our revenue
recognition accounting policy.
6.
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 reflect gains on the disposition of previously
written-down inventory and favorable adjustments reflecting current
and forecasted usage. We recorded net inventory write-downs of
$16.8 and $27.1 for Q3 2024 and YTD 2024, respectively (Q3 2023 —
$17.1; YTD 2023 — $40.4).
We receive cash deposits from certain of our
customers primarily to help reduce risks related to excess and/or
obsolete inventory. Such deposits as of September 30, 2024
totaled $521.1 (December 31, 2023 — $904.8), and were recorded
in accrued and other current liabilities on our consolidated
balance sheet.
7. CREDIT
FACILITIES AND LEASE OBLIGATIONS
We are party to a credit agreement (Credit
Facility) with Bank of America, N.A., as Administrative Agent, and
the other lenders party thereto, which as of a June 2024 amendment
and restatement (June 2024 Amendment), includes a new term loan in
the original principal amount of $250.0 (Term A Loan), a new term
loan in the original principal amount of $500.0 (Term B Loan, and
collectively with the Term A Loan, the New Term Loans), and a
$750.0 revolving credit facility (Revolver). Prior to the June 2024
Amendment, the Credit Facility included a term loan in the original
principal amount of $350.0 (Initial Term Loan) and a term loan in
the original principal amount of $365.0 (Incremental Term Loan),
the outstanding borrowings under each of which were fully repaid
with a substantial portion of the proceeds of the New Term Loans,
and commitments of $600.0 under the Revolver. The terms of the
Credit Facility prior to the June 2024 Amendment are described in
detail in note 11 to the 2023 AFS. Notwithstanding the repayment of
the Incremental Term Loan in full and its replacement with the Term
A Loan, for accounting purposes, this portion of the transaction
was treated as a non-substantial modification of the Incremental
Term Loan, resulting in a $5.5 gain (Modification Gain) recorded in
YTD 2024 as finance income in our consolidated statement of
operations. The repayment of the Initial Term Loan in full was
treated, for accounting purposes, as an extinguishment of such
loan.
The Term A Loan and the Revolver each mature in
June 2029. The Term B Loan matures in June 2031. The Term A Loan
and the Term B Loan require quarterly principal repayments of
$3.125 and $1.250, respectively (which commenced in September
2024), and each of the New Term Loans requires a lump sum repayment
of the remainder outstanding at maturity. We are also required to
make annual prepayments of outstanding obligations under the Credit
Facility (applied first to the New 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 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. Except under
specified circumstances, and subject to the payment of breakage
costs (if any), we are generally permitted to make voluntary
prepayments of outstanding amounts under the Revolver and the New
Term Loans without any other premium or penalty. Repaid amounts on
the New Term Loans may not be re-borrowed.
The Credit Facility has an accordion feature
that allows us to increase the New Term Loans and/or commitments
under the Revolver by $200.0, plus an unlimited amount to the
extent that a defined 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. The
Revolver also includes a $50.0 sub-limit for swingline loans,
providing for short-term borrowings up to a maximum of ten business
days, as well as a $150.0 sub-limit for letters of credit (L/Cs),
in each case subject to the overall Revolver credit limit. The
Revolver permits us and certain designated subsidiaries to borrow
funds (subject to specified conditions) for general corporate
purposes, including for capital expenditures, certain acquisitions,
and working capital needs.
Borrowings under the Revolver bear interest,
depending on the currency of the borrowing and our election for
such currency, at: (i) term Secured Overnight Financing Rate (Term
SOFR) plus 0.10% (Adjusted Term SOFR), (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 ranges from 1.50% to 2.25% for Adjusted Term SOFR,
Alternative Currency Daily Rate or Alternative Currency Term Rate
borrowings, and from 0.50% to 1.25% for Base Rate and Canadian
Prime borrowings, in each case depending on the rate we select and
a defined net leverage ratio (NLR). Commitment fees range from
0.30% to 0.45%, depending on our NLR. Outstanding amounts under the
Term A Loan bear interest at Adjusted Term SOFR or Base Rate, plus
a margin ranging from 1.50% — 2.25% for Adjusted Term SOFR
borrowings and from 0.50% — 1.25% for Base Rate borrowings, in each
case depending on the rate we select and our NLR. Outstanding
amounts under the Term B Loan bear interest at Term SOFR plus 1.75%
or the Base Rate plus 0.75%, depending on the rate we select. At
September 30, 2024, outstanding amounts under the Term A Loan
bore interest at Adjusted Term SOFR plus 1.75%; outstanding amounts
under the Term B Loan bore interest at Term SOFR plus 1.75%; and no
amounts were outstanding under the Revolver. We have entered into
interest rate swap agreements to hedge against our exposures to the
interest rate variability on a portion of the New Term Loans. See
note 11 for further detail.
We are required to comply with certain
restrictive covenants under the Credit Facility, including those
relating to the incurrence of certain indebtedness, the existence
of certain liens, the sale of certain assets, specified investments
and payments, sale and leaseback transactions, and certain
financial covenants relating to a defined interest coverage ratio
and leverage ratio that are tested on a quarterly basis. Our Credit
Facility also limits share repurchases for cancellation if our
consolidated secured leverage ratio (as defined in such facility)
exceeds a specified amount (Repurchase Restriction). The Repurchase
Restriction did not prohibit share repurchases during Q3 2024 or at
September 30, 2024. At September 30, 2024 and
December 31, 2023, we were in compliance with all restrictive
and financial covenants under the Credit Facility.
The obligations under the Credit Facility are
guaranteed by us and certain specified subsidiaries. Subject to
specified exemptions and limitations, all assets of the guarantors
are pledged as security for the obligations under the Credit
Facility. The Credit Facility contains customary events of default.
If an event of default occurs and is continuing (and is not
waived), the Administrative Agent may declare all amounts
outstanding under the Credit Facility to be immediately due and
payable, and may cancel the lenders’ commitments to make further
advances thereunder. In the event of a payment or other specified
defaults, outstanding obligations accrue interest at a specified
default rate.
Activity under our Credit Facility during 2023
and YTD 2024 is set forth below:
| |
Revolver |
|
Term loans |
|
Outstanding balances as of December 31, 2022 |
$ |
— |
|
|
|
$ |
627.2 |
|
|
| Amount repaid in Q1 2023 |
|
— |
|
(1) |
|
|
(4.5625 |
) |
(2) |
| Amount repaid in Q2 2023 |
|
— |
|
(1) |
|
|
(4.5625 |
) |
(2) |
| Amount repaid in Q3 2023 |
|
— |
|
(1) |
|
|
(4.5625 |
) |
(2) |
| Amount repaid in Q4 2023 |
|
— |
|
(1) |
|
|
(4.5625 |
) |
(2) |
| Outstanding balances as of
December 31, 2023 |
$ |
— |
|
|
|
$ |
608.9 |
|
|
| Amount borrowed in Q1
2024 |
|
285.0 |
|
|
|
|
— |
|
|
| Amount repaid in Q1 2024 |
|
(257.0 |
) |
|
|
|
(4.5625 |
) |
(2) |
| Amount borrowed in Q2
2024 |
|
180.0 |
|
(3) |
|
|
750.0 |
|
(4) |
| Amount repaid in Q2 2024 |
|
(208.0 |
) |
|
|
|
(604.3 |
) |
(5) |
| Amount borrowed in Q3
2024 |
|
20.0 |
|
|
|
|
— |
|
|
| Amount repaid in Q3 2024 |
|
(20.0 |
) |
|
|
|
(4.375 |
) |
(6) |
| Outstanding balances as of
September 30, 2024 |
$ |
— |
|
|
|
$ |
745.6 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
(1) |
|
During each quarter in 2023, we made intra-quarter borrowings under
the Revolver 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. Intra-quarter borrowings (and repayments
in equivalent amounts) were a cumulative aggregate of $270, $140,
$200 and $281 in Q4 2023, Q3 2023, Q2 2023 and Q1 2023,
respectively. |
| (2) |
|
Represents scheduled quarterly
principal repayments under the Incremental Term Loan prior to the
June 2024 Amendment. |
| (3) |
|
A portion of this amount was used to fund the NCS purchase price
(see note 4). |
| (4) |
|
Represents borrowings under the
New Term Loans. |
| (5) |
|
Represents the repayment and
termination of the Initial Term Loan and Incremental Term
Loan. |
| (6) |
|
Represents scheduled quarterly
principal repayments under the New Term Loans. |
| |
|
|
The following table sets forth, at the dates
shown: outstanding borrowings under the Credit Facility, excluding
ordinary course L/Cs; notional amounts under our interest rate swap
agreements; and outstanding lease obligations:
| |
Outstanding borrowings |
|
Notional amounts underinterest rate swaps (note
11) |
| |
December 312023 |
|
September 302024 |
|
December 312023 |
|
September 302024 |
|
Borrowings under the Revolver |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
$ |
— |
| Borrowings under term
loans: |
|
|
|
|
|
|
|
|
Initial Term Loan |
$ |
280.4 |
|
|
$ |
— |
|
|
$ |
100.0 |
|
$ |
— |
|
Incremental Term Loan |
|
328.5 |
|
|
|
— |
|
|
|
230.0 |
|
|
— |
|
Term A Loan |
|
— |
|
|
|
246.9 |
|
|
|
— |
|
|
130.0 |
|
Term B Loan |
|
— |
|
|
|
498.7 |
|
|
|
— |
|
|
200.0 |
|
Total |
$ |
608.9 |
|
|
$ |
745.6 |
|
|
$ |
330.0 |
|
$ |
330.0 |
| |
|
|
|
|
|
|
|
| Total borrowings under Credit
Facility |
$ |
608.9 |
|
|
$ |
745.6 |
|
|
|
|
|
| Unamortized debt issuance
costs and modification adjustment related to our term loans(1) |
|
(2.6 |
) |
|
|
(11.7 |
) |
|
|
|
|
| Lease obligations(2) |
|
176.5 |
|
|
|
207.2 |
|
|
|
|
|
| |
$ |
782.8 |
|
|
$ |
941.1 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Total Credit Facility and
lease obligations: |
|
|
|
|
|
|
|
| Current portion |
$ |
51.6 |
|
|
$ |
57.7 |
|
|
|
|
|
| Long-term portion |
|
731.2 |
|
|
|
883.4 |
|
|
|
|
|
| |
$ |
782.8 |
|
|
$ |
941.1 |
|
|
|
|
|
|
(1) |
|
We incur debt issuance costs upon execution of, subsequent security
arrangements under, and amendments to the Credit Facility. We
incurred nil debt issuance costs in either Q3 2024 or Q3 2023. Debt
issuance costs incurred in YTD 2024 in connection with our Revolver
totaling $3.9 (YTD 2023 — $0.2) 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 YTD 2024 in connection with our New Term Loans totaling
$2.2 (YTD 2023 — $0.2, in connection with prior term loans) and a
modification adjustment of $5.5 in YTD 2024 in connection with the
termination of the Incremental Term Loan and its replacement with
the Term A Loan, were deferred as long-term debt on our
consolidated balance sheet and are amortized over their respective
terms using the effective interest rate method. In YTD 2024, the
Modification Gain and the accelerated amortization of $0.8 of
unamortized deferred financing costs related to the termination of
the Initial Term Loan, were recorded in finance income and finance
costs, respectively. |
| (2) |
|
These lease obligations represent the present value of unpaid lease
payment obligations recognized as liabilities as of
December 31, 2023 and September 30, 2024, respectively,
which have been discounted using our incremental borrowing rate on
the lease commencement dates. In addition to the lease obligations
as of September 30, 2024, we have commitments under a real
property lease in Richardson, Texas not recognized as liabilities
as of September 30, 2024 because such lease had not yet
commenced as of such date. A description of such lease and minimum
lease obligations thereunder are disclosed in note 24 to the 2023
AFS. |
| |
|
|
The following table sets forth, at the dates
shown, information regarding outstanding L/Cs, guarantees, surety
bonds and overdraft facilities:
| |
December 312023 |
|
September 302024 |
|
Outstanding L/Cs under the Revolver |
$ |
10.5 |
|
$ |
11.5 |
| Outstanding bank guarantees
and surety bonds outside the Revolver |
|
16.5 |
|
|
23.9 |
| Total |
$ |
27.0 |
|
$ |
35.4 |
| 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 (TRS Agreement), our A/R sales program and the SFPs,
and interest expense on our lease obligations. In YTD 2024, finance
costs included $5.2 in fees and costs incurred in connection with
the June 2024 Amendment and $0.8 in accelerated amortization of
unamortized deferred financing costs in connection with the related
termination of the Initial Term Loan. Finance income consists of
interest income earned and additionally, in YTD 2024, the
Modification Gain.
8. CAPITAL STOCK AND
RELATED PARTY TRANSACTIONS
Secondary Offerings by Onex Corporation
(Onex):
In connection with underwritten secondary public
offerings by Onex, our then-controlling shareholder, completed in
June 2023 (June Secondary Offering) and August 2023 (August
Secondary Offering), we issued approximately 11.8 million and 6.8
million Common Shares, respectively, in each case upon conversion
of an equivalent number of our then-existing multiple voting shares
(MVS). Such transactions had nil impact (individually or in the
aggregate) on our aggregate capital stock amount. As a result of
the August Secondary Offering, we had no MVS outstanding and Onex
is no longer our controlling shareholder.
Prior to September 2023, we were party to a
services agreement with Onex for the services of an Onex officer as
a member of our Board, pursuant to which Onex received
compensation. This agreement terminated automatically in September
2023, and in accordance with its provisions, we paid Onex
approximately $9.2 in cash in October 2023 to settle Onex's
outstanding deferred share units (DSUs). The Onex officer resigned
from our Board in September 2023.
Removing provisions of MVS and
re-designating our subordinate voting shares
At our April 25, 2024 Annual and Special Meeting
of Shareholders, our shareholders approved Articles of Amendment to
our Articles of Incorporation to remove the provisions relating to
our MVS (as such shares were no longer outstanding) and to
re-designate our subordinate voting shares as Common Shares,
effective as of such date. See note 1.
Common Share repurchase
plans:
In recent years, we have repurchased Common
Shares 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 Common Shares during a
specified period. The maximum number of Common Shares we are
permitted to repurchase for cancellation under each NCIB is reduced
by the number of Common Shares 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 Common Shares 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 8, 2022, the TSX accepted our notice
to launch an 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 Common Shares in the open
market, or as otherwise permitted, subject to the normal terms and
limitations of such bids. Several NCIB ASPPs and SBC ASPPs (all of
which have since expired) were in effect during YTD 2023. At
September 30, 2023, we recorded an accrual of $6.5 (September 2023
SBC Accrual), representing the contractual maximum number of
permitted Common Share repurchases (Contractual Maximum Quantity)
under an SBC ASPP (0.3 million Common Shares) executed in
September 2023.
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 (unless terminated earlier) or the
completion of purchases thereunder, up to approximately 11.8
million of our Common Shares in the open market, or as otherwise
permitted, subject to the normal terms and limitations of such
bids. At September 30, 2024, approximately 8.9 million Common
Shares 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 Common
Shares) under an NCIB ASPP we entered into in December 2023; and
(ii) $7.5, representing the estimated Contractual Maximum Quantity
(0.3 million Common Shares) under an SBC ASPP we entered into
in September 2023, each of which were reversed in YTD 2024. One
NCIB ASPP and two SBC ASPPs were in effect during YTD 2024, all of
which have since expired, and no ASPP accruals were recorded at
September 30, 2024.
Common Shares repurchased in Q3 2024, YTD 2024,
and the respective prior year periods, for cancellation and for SBC
plan delivery obligations (including under ASPPs) are set forth in
the chart below.
Common Share repurchases:
| |
Three months ended September 30 |
|
Nine months ended September 30 |
|
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
2024 |
| Aggregate cost(1)of Common
Shares repurchased for cancellation |
$ |
— |
|
$ |
100.0 |
|
$ |
25.6 |
|
$ |
126.5 |
| Number of Common Shares
repurchased for cancellation (in millions)(2) |
|
— |
|
|
2.2 |
|
|
2.2 |
|
|
2.9 |
| Weighted average price per
share for repurchases |
$ |
— |
|
$ |
44.44 |
|
$ |
11.80 |
|
$ |
43.28 |
| Aggregate cost(1) of Common
Shares repurchased for delivery under SBC plans (3) (see
below) |
$ |
42.0 |
|
$ |
— |
|
$ |
47.2 |
|
$ |
101.6 |
| Number of Common Shares
repurchased for delivery under SBC plans (in millions)(4) |
|
2.0 |
|
|
— |
|
|
2.4 |
|
|
2.8 |
|
(1) |
|
Includes transaction fees. For Q3 2024 and YTD 2024, aggregate cost
of Common Shares repurchased for cancellation excludes $2.3 accrued
at September 30, 2024 for share buyback taxes. |
| (2) |
|
For Q3 2024 and YTD 2024, includes nil and 0.5 million Common
Shares, respectively, purchased for cancellation under NCIB ASPPs
(Q3 2023 — nil; YTD 2023 — 0.9 million). |
| (3) |
|
For Q3 2023 and YTD 2023, excludes the $6.5 September 2023 SBC
Accrual. |
| (4) |
|
For each applicable period, consists entirely of SBC ASPP purchases
through an independent broker. |
| |
|
|
SBC:
From time to time, we pay cash to a broker to
purchase Common Shares in the open market to satisfy delivery
requirements under our SBC plans. At September 30, 2024, the
broker held 2.6 million Common Shares with a value of $87.5
(December 31, 2023 — 3.3 million Common Shares with a
value of $72.6) for this purpose, which we report as treasury stock
on our consolidated balance sheet. 3.5 million Common Shares held
by the broker (including additional Common Shares purchased during
YTD 2024) were used to settle SBC awards during YTD 2024.
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 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. Commencing 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 2023 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 September 30 |
|
Nine months ended September 30 |
| |
2023 |
|
2024 |
|
2023 |
|
2024 |
| RSUs
Granted: |
|
Number of awards (in millions) |
|
0.1 |
|
|
0.03 |
|
|
2.0 |
|
|
0.7 |
| Weighted average grant date
fair value per unit |
$ |
22.11 |
|
$ |
47.08 |
|
$ |
13.03 |
|
$ |
37.36 |
| |
| PSUs
Granted: |
| Number of awards (in millions,
representing 100% of target) |
|
0.01 |
|
|
0.01 |
|
|
1.3 |
|
|
0.5 |
| Weighted average grant date
fair value per unit |
$ |
24.89 |
|
$ |
55.89 |
|
$ |
15.06 |
|
$ |
43.47 |
| |
|
|
|
|
|
|
|
| DSUs
Granted: |
| Number of awards (in
millions) |
|
0.01 |
|
|
0.01 |
|
|
0.07 |
|
|
0.02 |
| Weighted average grant date
fair value per unit |
$ |
24.52 |
|
$ |
51.32 |
|
$ |
15.84 |
|
$ |
50.10 |
| |
|
|
|
|
|
|
|
|
|
|
|
In YTD 2023, we settled a portion of RSUs and
PSUs that vested during such period with a cash payment of $49.8.
In YTD 2024, we made a cash payment of $69.0 for withholding taxes
in connection with the RSUs and PSUs that vested during such
period.
In YTD 2024, our Chief Executive Officer
exercised 0.3 million stock options with an exercise price per
option of $17.52 Canadian dollars.
We use the TRS Agreement to manage cash flow
requirements and our exposure to fluctuations in the share price of
our Common Shares in connection with the settlement of certain
outstanding equity awards under our SBC plans. See note 11 for
further detail.
Information regarding employee and director SBC
expense and TRS fair value adjustments (TRS FVAs) for the periods
indicated is set forth below:
| |
Three months ended September 30 |
|
Nine months ended September 30 |
|
|
|
2023 |
|
|
|
2024 |
|
|
2023 |
|
|
|
2024 |
|
| Employee SBC expense in cost
of sales |
$ |
5.1 |
|
|
$ |
5.6 |
|
$ |
18.4 |
|
|
$ |
20.2 |
|
| Employee SBC expense in
SG&A |
|
7.8 |
|
|
|
7.1 |
|
|
27.4 |
|
|
|
27.1 |
|
| Total employee SBC
expense |
$ |
12.9 |
|
|
$ |
12.7 |
|
$ |
45.8 |
|
|
$ |
47.3 |
|
| |
|
|
|
|
|
|
|
| TRS FVAs: losses (gains) in
cost of sales |
$ |
(11.8 |
) |
|
$ |
2.7 |
|
$ |
(13.8 |
) |
|
$ |
(17.2 |
) |
| TRS FVAs: losses (gains) in
SG&A |
|
(17.6 |
) |
|
|
5.0 |
|
|
(20.4 |
) |
|
|
(22.3 |
) |
| Total TRS FVAs: losses
(gains) |
$ |
(29.4 |
) |
|
$ |
7.7 |
|
$ |
(34.2 |
) |
|
$ |
(39.5 |
) |
| |
|
|
|
|
|
|
|
|
Combined effect of employee SBC expense and TRS FVAs: expenses
(recoveries) |
$ |
(16.5 |
) |
|
$ |
20.4 |
|
$ |
11.6 |
|
|
$ |
7.8 |
|
| |
|
|
|
|
|
|
|
| Director SBC expense in
SG&A(1) |
$ |
0.6 |
|
|
$ |
0.6 |
|
$ |
1.8 |
|
|
$ |
1.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Expense consists of director compensation to be settled with
Common Shares, or Common Shares and cash.
9. OTHER CHARGES, NET OF
RECOVERIES
| |
Three months ended September 30 |
|
Nine months ended September 30 |
| |
2023 |
|
2024 |
|
2023 |
|
2024 |
|
Restructuring charges, net of recoveries (a) |
$ |
0.3 |
|
$ |
0.6 |
|
$ |
9.8 |
|
|
$ |
11.3 |
|
| Transition Costs (b) |
|
3.9 |
|
|
— |
|
|
3.9 |
|
|
|
3.4 |
|
| Acquisition Costs (c) |
|
0.6 |
|
|
0.4 |
|
|
0.9 |
|
|
|
2.5 |
|
| Other costs (recoveries)
(d) |
|
0.8 |
|
|
— |
|
|
(0.9 |
) |
|
|
(1.3 |
) |
| |
$ |
5.6 |
|
$ |
1.0 |
|
$ |
13.7 |
|
|
$ |
15.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Restructuring charges, net of
recoveries:
Our restructuring activities for Q3 2024 and YTD
2024 consisted primarily of actions to adjust our cost base to
address reduced levels of demand in certain of our businesses and
geographies.
We recorded cash restructuring charges of $0.2
and $10.2 in Q3 2024 and YTD 2024, respectively (Q3 2023 — $1.3;
YTD 2023 — $7.9), primarily for employee termination costs. We
recorded $0.4 and $1.1 of non-cash restructuring charges in Q3 2024
and YTD 2024, respectively, consisting primarily of accelerated
depreciation of equipment related to disengaging programs (Q3 2023
— nil; YTD 2023 — $2.9, consisting primarily of the accelerated
depreciation of equipment, building improvements and ROU assets
related to disengaging programs and vacated properties). In Q3 2023
and YTD 2023, we also recorded non-cash restructuring recoveries of
$1.0, related to sublet recoveries in excess of the carrying value
of the related leases and sales of surplus equipment. At
September 30, 2024, our restructuring provision was $2.4
(December 31, 2023 — $3.6), which we recorded in the current
portion of provisions on our consolidated balance sheet.
(b)
Transition Costs:
Transition Costs consist of costs recorded in
connection with: (i) the transfer of manufacturing lines from
closed sites to other sites within our global network; (ii) the
sale of real properties unrelated to restructuring actions; and
(iii) specified charges related to the Purchaser Lease (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.
In March 2019, as part of our Toronto real
property 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). Due to a number of construction-related commencement date
delays, in November 2022, we extended (on a long-term basis) the
lease on our current corporate headquarters, and in Q3 2023, we
executed a sublease for a portion of the leased space under the
Purchaser Lease (Sublease). The Purchaser Lease commenced in June
2024 and related ROU assets and lease liabilities were recognized
in our consolidated financial statements. Consistent with our prior
treatment as Transition Costs of duplicate and idle premises costs
incurred as a result of our 2019 Toronto real property sale, the
excess of rental expenses under the Purchaser Lease (with respect
to the subleased space) over anticipated rental recoveries under
the Sublease were recorded as Transition Costs in Q3 2023 and YTD
2023 ($3.9). Similarly, we recorded Transition Costs of $3.4 in YTD
2024, representing the write-down of ROU assets under the Purchaser
Lease with respect to the space not subleased. We incurred no
Transition Costs in Q3 2024.
(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 $0.4 in Q3 2024
related to potential acquisitions and $2.5 in YTD 2024 related to
the acquisition of NCS (see note 4) and potential acquisitions (Q3
2023 and YTD 2023 — $0.6 and $0.9, respectively, related to
potential acquisitions).
(d) Other
costs (recoveries)
We recorded nil other costs or recoveries in Q3
2024. In YTD 2024, we recorded nil other costs, and $1.3 of other
recoveries, consisting of legal recoveries in connection with the
settlement of class action lawsuits (for component parts purchased
in prior periods) in which we were a plaintiff (Parts Recoveries).
In Q3 2023, we recorded $0.8 of other costs, substantially all of
which consisted of fees and expenses of the August Secondary
Offering, and nil other recoveries. In YTD 2023, we recorded $2.7
in Parts Recoveries, offset in part by $1.8 of other costs,
substantially all of which consisted of fees and expenses of both
the June Secondary Offering and the August Secondary Offering. See
note 8.
10. INCOME
TAXES
Our income tax expense or recovery for each
quarter is determined by multiplying the earnings or losses before
tax for such quarter by management’s best estimate of the
weighted-average annual income tax rate expected for the full year,
taking into account the tax effect of certain items recognized in
the interim period. As a result, the effective income tax rates
used in our interim financial statements may differ from
management’s estimate of the annual effective tax rate for the
annual financial statements. Our estimated annual effective income
tax rate varies as the quarters progress, for various reasons,
including as a result of the mix and volume of business in various
tax jurisdictions within the Americas, Europe and Asia, in
jurisdictions with tax holidays and tax incentives, and in
jurisdictions for which no net deferred income tax assets have been
recognized because management believes it is not probable that
future taxable profit will be available against which tax losses
and deductible temporary differences could be utilized. Our
annual effective income tax rate can also vary due to the impact of
restructuring charges, foreign exchange fluctuations, operating
losses, cash repatriations, and changes in our provisions related
to tax uncertainties.
Our Q3 2024 net income tax expense of $33.7
included a $2.6 withholding tax expense incurred to minimize the
impact of the enactment of Pillar Two (global minimum tax)
legislation in Canada, and a $2.0 tax expense arising from taxable
temporary differences associated with the anticipated repatriation
of undistributed earnings from certain of our Asian subsidiaries
(Repatriation Expense). Our YTD 2024 net income tax expense of
$68.1 included an $18.8 withholding tax expense incurred to
minimize the impact of the enactment of Pillar Two legislation in
Canada, and a $2.0 Repatriation Expense, offset in part by the
recognition of $7.5 of previously unrecognized deferred tax assets
in our U.S. group of subsidiaries as a result of our NCS
acquisition, and $5.6 of reversals of tax uncertainties (Reversals)
relating to one of our Asian subsidiaries. Taxable foreign exchange
impacts were not significant in Q3 2024 or YTD 2024.
Our Q3 2023 net income tax expense of $18.9
included a $3.5 Repatriation Expense. Our YTD 2023 net income tax
expense of $42.1 included a $6.8 Repatriation Expense, partially
offset by the favorable impact of $5.5 in Reversals relating to one
of our Asian subsidiaries. Taxable foreign exchange impacts were
not significant in Q3 2023 or YTD 2023.
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 New
Term Loans, borrowings under the Revolver, lease obligations, and
derivatives used for hedging purposes.
Equity price risk:
We are party to the TRS Agreement with a
third-party bank with respect to an original notional amount of 3.0
million of our Common Shares (Original Notional Amount) to manage
our cash flow requirements and exposure to fluctuations in the
price of our Common Shares 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 Common Share 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 Common Shares to the average amount paid
for such shares. By the end of the first quarter of 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 each of September 2023 and February
2024, we terminated a portion of the TRS Agreement by reducing the
Original Notional Amount by 0.5 million Common Shares and 1.25
million Common Shares, respectively, and received $5.0 and $32.3,
respectively, from the counterparty in connection therewith, which
we recorded in cash provided by financing activities in our
consolidated statement of cash flows. The TRS does not qualify for
hedge accounting. As of September 30, 2024, the fair value of
the TRS Agreement was an unrealized gain of $47.8
(December 31, 2023 — an unrealized gain of $40.6), 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 Q3 2024, YTD 2024, and the
respective prior year periods.
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 New Term Loans, we
are party to various agreements with third-party banks to swap the
variable interest rate with a fixed rate of interest for a portion
of the borrowings thereunder. At September 30, 2024, we had
interest rate swaps hedging the interest rate risk associated with
$130.0 of our Term A Loan borrowings and $200.0 of our Term B Loan
borrowings, each of which expire in December 2025. Prior to the
June 2024 Amendment, these interest rate swaps were used to hedge
$100.0 of our Initial Term Loan borrowings and $230.0 of our
Incremental Term Loan borrowings. We continue to apply hedge
accounting to our interest rate swaps, as the term loan borrowings
prior and subsequent to the June 2024 Amendment share the same
floating interest rate risk. The option to cancel up to $50.0 of
the notional amount of the interest rate swaps on the Incremental
Term Loan from January 2024 through October 2025 was terminated in
January 2024.
At September 30, 2024, the interest rate
risk related to $415.6 of borrowings under the Credit Facility was
unhedged, consisting of unhedged amounts outstanding under the New
Term Loans ($298.7 under the Term B Loan and $116.9 under the Term
A Loan). See note 7.
At September 30, 2024, the fair value of
our interest rate swap agreements was an unrealized gain of $6.3
(December 31, 2023 — an unrealized gain of $13.2), which we
recorded in other non-current assets on our consolidated balance
sheet. The unrealized portion of the change in fair value of the
swaps is recorded in other comprehensive income (loss) (OCI). The
realized portion of the change in fair value of the swaps is
released from accumulated OCI and recognized under finance costs in
our consolidated statement of operations when the hedged interest
expense is recognized.
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
September 30, 2024 are summarized in U.S. dollar equivalents
in the following table. The local currency amounts have been
converted to U.S. dollar equivalents using spot rates at
September 30, 2024.
| |
Canadian dollar |
|
Euro |
|
Thai baht |
|
Chinese renminbi |
|
Mexican peso |
|
Malaysian ringgit |
|
Cash and cash equivalents |
$ |
2.0 |
|
|
$ |
13.3 |
|
|
$ |
2.2 |
|
|
$ |
11.2 |
|
|
$ |
11.8 |
|
|
$ |
8.7 |
|
| Accounts receivable |
|
0.2 |
|
|
|
56.7 |
|
|
|
— |
|
|
|
13.0 |
|
|
|
— |
|
|
|
10.7 |
|
| Income taxes and value-added
taxes receivable |
|
14.8 |
|
|
|
0.7 |
|
|
|
3.7 |
|
|
|
3.1 |
|
|
|
52.6 |
|
|
|
12.7 |
|
| Other financial assets |
|
— |
|
|
|
8.3 |
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
0.8 |
|
|
|
9.0 |
|
| Pension and non-pension
post-employment liabilities |
|
(52.0 |
) |
|
|
(0.9 |
) |
|
|
(23.3 |
) |
|
|
(0.7 |
) |
|
|
(6.0 |
) |
|
|
(0.1 |
) |
| Income taxes and value-added
taxes payable |
|
(21.6 |
) |
|
|
(2.2 |
) |
|
|
— |
|
|
|
(12.1 |
) |
|
|
(13.9 |
) |
|
|
— |
|
| Accounts payable and certain
accrued and other liabilities and provisions |
|
(73.9 |
) |
|
|
(49.9 |
) |
|
|
(64.4 |
) |
|
|
(42.3 |
) |
|
|
(17.9 |
) |
|
|
(51.6 |
) |
| Net financial assets
(liabilities) |
$ |
(130.5 |
) |
|
$ |
26.0 |
|
|
$ |
(81.5 |
) |
|
$ |
(27.4 |
) |
|
$ |
27.4 |
|
|
$ |
(10.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We enter into foreign currency forward contracts
to hedge our cash flow exposures and foreign currency swaps to
hedge the exposures of our monetary assets and liabilities
denominated in foreign currencies. While these contracts are
intended to reduce the effects of fluctuations in foreign currency
exchange rates, our hedging strategy does not mitigate the
longer-term impacts of changes to foreign exchange rates.
At September 30, 2024, 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 |
$ |
221.3 |
|
$ |
0.74 |
|
12 |
|
$ |
1.2 |
|
| Thai baht |
|
199.5 |
|
|
0.03 |
|
12 |
|
|
16.3 |
|
| Malaysian ringgit |
|
69.7 |
|
|
0.22 |
|
12 |
|
|
6.5 |
|
| Mexican peso |
|
113.7 |
|
|
0.05 |
|
11 |
|
|
(4.5 |
) |
| British pound |
|
3.8 |
|
|
1.32 |
|
4 |
|
|
(0.2 |
) |
| Chinese renminbi |
|
33.1 |
|
|
0.14 |
|
12 |
|
|
0.2 |
|
| Euro |
|
56.8 |
|
|
1.11 |
|
11 |
|
|
(1.3 |
) |
| Romanian leu |
|
43.0 |
|
|
0.22 |
|
12 |
|
|
1.1 |
|
| Singapore dollar |
|
26.6 |
|
|
0.76 |
|
12 |
|
|
0.6 |
|
| Japanese yen |
|
4.9 |
|
|
0.0067 |
|
4 |
|
|
(0.4 |
) |
| Korean won |
|
2.7 |
|
|
0.0007 |
|
4 |
|
|
(0.1 |
) |
| Total |
$ |
775.1 |
|
|
|
|
|
$ |
19.4 |
|
| |
|
|
|
|
|
|
|
| Fair values of
outstanding foreign currency forward and swap contracts related to
effective cash flow hedges where we applied hedge accounting |
|
|
9.8 |
|
| 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 |
|
|
9.6 |
|
| |
|
|
|
|
|
|
$ |
19.4 |
|
|
(1) |
|
Represents the U.S. dollar equivalent (not in millions) of one unit
of the foreign currency, weighted based on the notional amounts of
the underlying foreign currency forward and swap contracts
outstanding as at September 30, 2024. |
| |
|
|
At September 30, 2024, the aggregate fair
value of our outstanding contracts was a net unrealized gain of
$19.4 (December 31, 2023 — net unrealized gain of $6.5),
resulting from fluctuations in foreign exchange rates between the
contract execution and the period-end date. At September 30,
2024, we recorded $33.9 of derivative assets in other current
assets and an aggregate of $14.5 of derivative liabilities in other
current liabilities (December 31, 2023 — $15.8 of derivative
assets in other current assets and $9.3 of derivative liabilities
in 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-performancein 2023 or YTD 2024. 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 material adjustments were made to our
allowance for doubtful accounts during Q3 2024 or YTD 2024 in
connection with our ongoing credit risk assessments.
Liquidity risk:
Liquidity risk is the risk that we may not have
cash available to satisfy our financial obligations as they come
due. The majority of our financial liabilities recorded in accounts
payable, accrued and other current liabilities and provisions are
due within 90 days. We manage liquidity risk through
maintenance of cash on hand and access to the various financing
arrangements described in notes 5 and 7. We believe that cash flow
from operating activities, together with cash on hand, cash from
accepted sales of A/R, and borrowings available under the Revolver
and potentially available under uncommitted intraday and overnight
bank overdraft facilities, are sufficient to fund our currently
anticipated financial obligations, and will remain available in the
current environment. As our A/R sales program and SFPs are each
uncommitted, however, there can be no assurance that any
participant bank will purchase any of the A/R that we wish to
sell.
12.
COMMITMENTS AND
CONTINGENCIES
Litigation:
We are party to litigation, investigations and
other claims that arise from time to time in the ordinary course of
our operations, including legal, regulatory and tax
proceedings. 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 Q3 2024
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.
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