Our non-IFRS measures herein include adjusted gross profit, adjusted gross margin (adjusted gross profit as a percentage of revenue), adjusted selling, general and administrative expenses (SG&A), adjusted SG&A as a percentage of revenue, operating earnings (adjusted EBIAT), operating margin (adjusted EBIAT as a percentage of revenue), adjusted net earnings, adjusted earnings per share, return on invested capital (ROIC), and free cash flow. Adjusted EBIAT, ROIC and free cash flow are further described in the tables below. In calculating these non-IFRS financial measures, management excludes the following items, where applicable: employee stock-based compensation expense, amortization of intangible assets (excluding computer software), restructuring and other charges, net of recoveries (most significantly restructuring charges), the write-down of goodwill, intangible assets and property, plant and equipment, and gains or losses related to the repurchase of our securities, net of tax adjustments and significant deferred tax write-offs or recoveries associated with restructuring actions or restructured sites.
We believe the non-IFRS measures we present herein are useful, as they enable investors to evaluate and compare our results from operations and cash resources generated from our business in a more consistent manner (by excluding specific items that we do not consider to be reflective of our ongoing operating results) and provide an analysis of operating results using the same measures our chief operating decision makers use to measure performance. The non-IFRS financial measures that can be reconciled to IFRS measures result largely from management's determination that the facts and circumstances surrounding the excluded charges or recoveries are not indicative of the ordinary course of the ongoing operation of our business.
Non-IFRS measures do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other public companies that use IFRS, or who report under U.S. GAAP and use non-U.S. GAAP measures to describe similar operating metrics. Non-IFRS measures are not measures of performance under IFRS and should not be considered in isolation or as a substitute for any standardized measure under IFRS. The most significant limitation to management's use of non-IFRS financial measures is that the charges or credits excluded from the non-IFRS measures are nonetheless charges or credits that are recognized under IFRS and that have an economic impact on the company. Management compensates for these limitations primarily by issuing IFRS results to show a complete picture of the company's performance, and reconciling non-IFRS results back to IFRS results where a comparable IFRS measure exists.
The economic substance of these exclusions and management's rationale for excluding them from non-IFRS financial measures is provided below:
Employee stock-based compensation expense, which represents the estimated fair value of stock options, restricted share units and performance share units granted to employees, is excluded because grant activities vary significantly from quarter-to-quarter in both quantity and fair value. In addition, excluding this expense allows us to better compare core operating results with those of our competitors who also generally exclude employee stock-based compensation expense in assessing operating performance, who may have different granting patterns and types of equity awards, and who may use different valuation assumptions than we do, including those competitors who report under U.S. GAAP and use non-U.S. GAAP measures to present similar metrics.
Amortization charges (excluding computer software) consist of non-cash charges against intangible assets that are impacted by the timing and magnitude of acquired businesses. Amortization of intangible assets varies among our competitors, and we believe that excluding these charges permits a better comparison of core operating results with those of our competitors who also generally exclude amortization charges in assessing operating performance.
Restructuring and other charges, net of recoveries, include costs relating to employee severance, lease terminations, site closings and consolidations, write-downs of owned property and equipment which are no longer used and are available for sale, reductions in infrastructure, and acquisition-related transaction costs. We exclude restructuring and other charges, net of recoveries, because we believe that they are not directly related to ongoing operating results and do not reflect expected future operating expenses after completion of these activities. We believe these exclusions permit a better comparison of our core operating results with those of our competitors who also generally exclude these charges, net of recoveries, in assessing operating performance.
Impairment charges, which consist of non-cash charges against goodwill, intangible assets and property, plant and equipment, result primarily when the carrying value of these assets exceeds their recoverable amount. Our competitors may record impairment charges at different times, and we believe that excluding these charges permits a better comparison of our core operating results with those of our competitors who also generally exclude these charges in assessing operating performance.
Gains or losses related to the repurchase of our securities are excluded, as we believe that these gains or losses do not reflect core operating performance and vary significantly among those of our competitors who also generally exclude these gains or losses in assessing operating performance.
Significant deferred tax write-offs or recoveries associated with restructuring actions or restructured sites are excluded, as we believe that these write-offs or recoveries do not reflect core operating performance and vary significantly among those of our competitors who also generally exclude these charges or recoveries in assessing operating performance.
The following table sets forth, for the periods indicated, the various non-IFRS measures discussed above, and a reconciliation of IFRS to non-IFRS measures, where a comparable IFRS measure exists (in millions, except percentages and per share amounts):
Three months ended June 30 Six months ended June 30
----------------------------- -----------------------------
2015 2016 2015 2016
-------------- -------------- -------------- --------------
% of % of % of % of
revenue revenue revenue revenue
-------------- -------------- -------------- --------------
IFRS revenue $1,417.3 $1,485.5 $2,715.8 $2,838.8
IFRS gross
profit $ 97.3 6.9% $ 111.8 7.5% $ 188.7 6.9% $ 204.6 7.2%
Employee
stock-based
compensation
expense 3.0 3.0 7.4 7.5
--------- --------- --------- ---------
Non-IFRS
adjusted gross
profit $ 100.3 7.1% $ 114.8 7.7% $ 196.1 7.2% $ 212.1 7.5%
========= ========= ========= =========
IFRS SG&A $ 50.1 3.5% $ 54.4 3.7% $ 105.5 3.9% $ 106.4 3.7%
Employee
stock-based
compensation
expense (4.1) (3.8) (11.2) (8.7)
--------- --------- --------- ---------
Non-IFRS
adjusted SG&A $ 46.0 3.2% $ 50.6 3.4% $ 94.3 3.5% $ 97.7 3.4%
========= ========= ========= =========
IFRS earnings
before income
taxes $ 29.3 $ 49.1 $ 56.0 $ 78.3
Finance costs 1.1 2.7 1.6 4.9
Employee
stock-based
compensation
expense 7.1 6.8 18.6 16.2
Amortization
of intangible
assets
(excluding
computer
software) 1.5 1.5 3.0 3.0
Restructuring
and other
charges
(recoveries) 9.3 (3.0) 9.6 (1.3)
--------- --------- --------- ---------
Non-IFRS
operating
earnings
(adjusted
EBIAT) (1) $ 48.3 3.4% $ 57.1 3.8% $ 88.8 3.3% $ 101.1 3.6%
========= ========= ========= =========
IFRS net
earnings $ 24.2 1.7% $ 36.2 2.4% $ 43.9 1.6% $ 61.8 2.2%
Employee
stock-based
compensation
expense 7.1 6.8 18.6 16.2
Amortization
of intangible
assets
(excluding
computer
software) 1.5 1.5 3.0 3.0
Restructuring
and other
charges
(recoveries) 9.3 (3.0) 9.6 (1.3)
Adjustments
for taxes (2) (0.4) 0.3 (0.4) (0.3)
--------- --------- --------- ---------
Non-IFRS
adjusted net
earnings $ 41.7 $ 41.8 $ 74.7 $ 79.4
========= ========= ========= =========
Diluted EPS
Weighted
average # of
shares (in
millions) 166.9 144.1 170.7 144.6
IFRS earnings
per share $ 0.14 $ 0.25 $ 0.26 $ 0.43
Non-IFRS
adjusted
earnings per
share $ 0.25 $ 0.29 $ 0.44 $ 0.55
# of shares
outstanding at
period end (in
millions) 142.9 140.7 142.9 140.7
IFRS cash
provided by
(used in)
operations $ 44.4 $ (4.5) $ 79.5 $ (22.8)
Purchase of
property,
plant and
equipment,
net of sales
proceeds (18.2) (17.7) (30.8) (33.6)
Finance lease
payments - (1.1) - (2.4)
Repayments
from
(Advances to)
Solar
Supplier (21.0) 2.0 (21.0) 5.0
Finance costs
paid (2.8) (2.5) (3.3) (4.8)
--------- --------- --------- ---------
Non-IFRS free
cash flow (3) $ 2.4 $ (23.8) $ 24.4 $ (58.6)
========= ========= ========= =========
Non-IFRS ROIC %
(4) 19.6% 20.9% 18.2% 19.3%
The calculation of our weighted average number of shares (used to
determine our IFRS EPS and non-IFRS adjusted EPS) for the second
quarter and first half of 2016 reflected the full impact of the
reduction in our subordinate voting shares as a result of our share
repurchases and cancellations in 2015 pursuant to our $350.0 million
substantial issuer bid completed in June 2015, as well as our previous
NCIB that expired in September 2015. Accordingly, the positive effect
of reduced weighted average number of shares on our IFRS EPS and non-
IFRS adjusted EPS for the second quarter and first half of 2016 was
greater as compared to the prior year periods.
(1) Management uses non-IFRS operating earnings (adjusted EBIAT) as a
measure to assess our operational performance related to our core
operations. Non-IFRS adjusted EBIAT is defined as earnings before
finance costs (consisting of interest and fees related to our credit
facility and accounts receivable sales program), amortization of
intangible assets (excluding computer software) and income taxes. Non-
IFRS adjusted EBIAT also excludes, in periods where such charges have
been recorded, employee stock-based compensation expense, restructuring
and other charges (net of recoveries), gains or losses related to the
repurchase of our securities, and impairment charges.
(2) The adjustments for taxes, as applicable, represent the tax effects on
the non-IFRS adjustments and significant deferred tax write-offs or
recoveries associated with restructuring actions or restructured sites
that management considers not to be reflective of our core operating
performance.
(3) Management uses non-IFRS free cash flow as a measure, in addition to
IFRS cash flow provided by (used in) operations, to assess our
operational cash flow performance. We believe non-IFRS free cash flow
provides another level of transparency to our liquidity. Non-IFRS free
cash flow is defined as cash provided by (used in) operations after the
purchase of property, plant and equipment (net of proceeds from the
sale of certain surplus equipment and property), finance lease
payments, advances to (or repayments from) a solar supplier, and
finance costs paid. Note that non-IFRS free cash flow, however, does
not represent residual cash flow available to Celestica for
discretionary expenditures.
(4) Management uses non-IFRS ROIC as a measure to assess the effectiveness
of the invested capital we use to build products or provide services to
our customers, by quantifying how well we generate earnings relative to
the capital we have invested in our business. Our non-IFRS ROIC measure
reflects non-IFRS operating earnings, working capital management and
asset utilization. Non-IFRS ROIC is calculated by dividing non-IFRS
adjusted EBIAT by average net invested capital. Net invested capital
(calculated in the table below) consists of the following IFRS
measures: total assets less cash, accounts payable, accrued and other
current liabilities and provisions, and income taxes payable. We use a
two-point average to calculate average net invested capital for the
quarter and a three-point average to calculate average net invested
capital for the six-month period. Management believes there is no
comparable measure under IFRS.
The following table sets forth, for the periods indicated, our calculation of non-IFRS ROIC % (in millions, except ROIC %):
Three months ended June 30 Six months ended June 30
--------------------------- ---------------------------
2015 2016 2015 2016
------------- ------------- ------------- -------------
Non-IFRS operating
earnings (adjusted
EBIAT) $ 48.3 $ 57.1 $ 88.8 $ 101.1
Multiplier 4 4 2 2
------------- ------------- ------------- -------------
Annualized non-IFRS
adjusted EBIAT $ 193.2 $ 228.4 $ 177.6 $ 202.2
------------- ------------- ------------- -------------
Average net invested
capital for the
period $ 985.5 $ 1,090.7 $ 978.4 $ 1,047.9
Non-IFRS ROIC % (1) 19.6% 20.9% 18.2% 19.3%
December 31 March 31 June 30
2015 2016 2016
------------- ------------- -------------
Net invested capital
consists of:
Total assets $ 2,612.0 $ 2,621.9 $ 2,720.1
Less: cash 545.3 511.5 472.9
Less: accounts
payable, accrued
and other current
liabilities,
provisions and
income taxes
payable 1,104.3 1,053.8 1,122.5
------------- ------------- -------------
Net invested capital
at period end (1) $ 962.4 $ 1,056.6 $ 1,124.7
============= ============= =============
December 31 March 31 June 30
2014 2015 2015
------------- ------------- -------------
Net invested capital
consists of:
Total assets $ 2,583.6 $ 2,579.3 $ 2,624.7
Less: cash 565.0 569.2 496.8
Less: accounts
payable, accrued
and other current
liabilities,
provisions and
income taxes
payable 1,054.3 1,044.8 1,122.3
------------- ------------- -------------
Net invested capital
at period end (1) $ 964.3 $ 965.3 $ 1,005.6
============= ============= =============
(1) Management uses non-IFRS ROIC as a measure to assess the effectiveness
of the invested capital we use to build products or provide services to
our customers, by quantifying how well we generate earnings relative to
the capital we have invested in our business. Our non-IFRS ROIC measure
reflects non-IFRS operating earnings, working capital management and
asset utilization. Non-IFRS ROIC is calculated by dividing non-IFRS
adjusted EBIAT by average net invested capital. Net invested capital
consists of the following IFRS measures: total assets less cash,
accounts payable, accrued and other current liabilities and provisions,
and income taxes payable. We use a two-point average to calculate
average net invested capital for the quarter and a three-point average
to calculate average net invested capital for the six-month period.
Management believes there is no comparable measure under IFRS.
GUIDANCE SUMMARY
Q2 2016 Guidance Q2 2016 Actual Q3 2016 Guidance (2)
----------------------------------------------------
IFRS revenue (in
billions) $1.4 to $1.5 $1.49 $1.475 to $1.575
Non-IFRS adjusted EPS
(diluted) (1) $0.25 to $0.31 $0.29 $0.27 to $0.33
(1) Non-IFRS adjusted EPS (diluted) for the second quarter of 2016 was
negatively impacted by a $0.02 per share net income tax expense related to
the unfavorable impact of taxable foreign exchange related to the weakening
of the Malaysian ringgit and Chinese renminbi. Our guidance for this measure
for the second quarter of 2016 excluded the potential impact of taxable
foreign exchange.
(2) For the third quarter of 2016, we anticipate a negative $0.07 to $0.12
per share (pre-tax) aggregate impact on net earnings on an IFRS basis for
employee stock-based compensation expense, amortization of intangible assets
(excluding computer software) and restructuring charges. We cannot predict
changes in currency exchange rates, the impact of such changes on our
operating results, or the degree to which we will be able to manage such
impacts. For the third quarter of 2016, we also anticipate our non-IFRS
operating margin to be 3.6% at the mid-point of our expectations.
CELESTICA INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions of U.S. dollars)
(unaudited)
December 31 June 30
2015 2016
-------------- --------------
Assets
Current assets:
Cash and cash equivalents (note 11) $ 545.3 $ 472.9
Accounts receivable (note 5) 681.0 741.7
Inventories (note 6) 794.6 905.6
Income taxes receivable 10.4 12.9
Assets classified as held-for-sale 27.4 27.4
Other current assets (note 4) 65.3 86.3
-------------- --------------
Total current assets 2,124.0 2,246.8
Property, plant and equipment 314.6 310.2
Goodwill 19.5 19.5
Intangible assets 30.4 27.3
Deferred income taxes 40.1 36.5
Other non-current assets (note 4) 83.4 79.8
-------------- --------------
Total assets $ 2,612.0 $ 2,720.1
============== ==============
Liabilities and Equity
Current liabilities:
Current portion of borrowings under credit
facility and finance lease obligations
(notes 4 & 7) $ 29.1 $ 84.1
Accounts payable 801.4 856.6
Accrued and other current liabilities 257.7 217.9
Income taxes payable 25.0 27.9
Current portion of provisions 20.2 20.1
-------------- --------------
Total current liabilities 1,133.4 1,206.6
Long-term portion of borrowings under credit
facility and finance lease obligations (notes
4 & 7) 250.6 211.7
Pension and non-pension post-employment
benefit obligations 83.2 88.2
Provisions and other non-current liabilities 28.0 29.9
Deferred income taxes 25.8 21.6
-------------- --------------
Total liabilities 1,521.0 1,558.0
Equity:
Capital stock (note 8) 2,093.9 2,046.6
Treasury stock (note 8) (31.4) (4.3)
Contributed surplus 846.7 852.8
Deficit (1,785.4) (1,723.6)
Accumulated other comprehensive loss (32.8) (9.4)
-------------- --------------
Total equity 1,091.0 1,162.1
-------------- --------------
Total liabilities and equity $ 2,612.0 $ 2,720.1
============== ==============
Contingencies (note 12)
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
CELESTICA INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions of U.S. dollars, except per share amounts)
(unaudited)
Three months ended Six months ended
June 30 June 30
--------------------- ---------------------
2015 2016 2015 2016
---------- ---------- ---------- ----------
Revenue $ 1,417.3 $ 1,485.5 $ 2,715.8 $ 2,838.8
Cost of sales (note 6) 1,320.0 1,373.7 2,527.1 2,634.2
---------- ---------- ---------- ----------
Gross profit 97.3 111.8 188.7 204.6
Selling, general and
administrative expenses (SG&A) 50.1 54.4 105.5 106.4
Research and development 5.2 6.3 11.4 11.7
Amortization of intangible
assets 2.3 2.3 4.6 4.6
Other charges (recoveries) (note
9) 9.3 (3.0) 9.6 (1.3)
---------- ---------- ---------- ----------
Earnings from operations 30.4 51.8 57.6 83.2
Finance costs 1.1 2.7 1.6 4.9
---------- ---------- ---------- ----------
Earnings before income taxes 29.3 49.1 56.0 78.3
Income tax expense (recovery)
(note 10):
Current 7.7 10.0 13.1 19.0
Deferred (2.6) 2.9 (1.0) (2.5)
---------- ---------- ---------- ----------
5.1 12.9 12.1 16.5
---------- ---------- ---------- ----------
Net earnings for the period $ 24.2 $ 36.2 $ 43.9 $ 61.8
========== ========== ========== ==========
Basic earnings per share $ 0.15 $ 0.25 $ 0.26 $ 0.43
Diluted earnings per share $ 0.14 $ 0.25 $ 0.26 $ 0.43
Shares used in computing per
share amounts (in millions):
Basic 164.9 142.1 168.6 142.8
Diluted 166.9 144.1 170.7 144.6
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
CELESTICA INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions of U.S. dollars)
(unaudited)
Three months ended Six months ended
June 30 June 30
-------------------- --------------------
2015 2016 2015 2016
--------- ---------- ---------- ---------
Net earnings for the period $ 24.2 $ 36.2 $ 43.9 $ 61.8
Other comprehensive income (loss),
net of tax:
Items that may be reclassified
to net earnings:
Currency translation
differences for foreign
operations 0.2 1.4 (1.8) 2.2
Changes from derivatives
designated as hedges 5.8 (2.2) 0.3 21.2
--------- ---------- ---------- ---------
Total comprehensive income for the
period $ 30.2 $ 35.4 $ 42.4 $ 85.2
========= ========== ========== =========
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
CELESTICA INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in millions of U.S. dollars)
(unaudited)
Accumul-
ated
other
Capital Treasury Contri- compre-
stock stock buted hensive Total
(note 8) (note 8) surplus Deficit loss (a) equity
--------- --------- --------- ---------- --------- ----------
Balance --
January 1,
2015 $2,609.5 $ (21.4) $ 677.1 $(1,845.3) $ (25.0) $ 1,394.9
Capital
transactions
(note 8):
Issuance of
capital
stock 7.4 - (4.8) - - 2.6
Repurchase of
capital
stock for
cancellation (528.2) - 157.3 - - (370.9)
Stock-based
compensation
and other - 15.8 3.7 - - 19.5
Total
comprehensive
income:
Net earnings
for the
period - - - 43.9 - 43.9
Other
comprehensive
income
(loss), net
of tax:
Currency
translation
differences
for
foreign
operations - - - - (1.8) (1.8)
Changes from
derivatives
designated
as hedges - - - - 0.3 0.3
--------- --------- --------- ---------- --------- ----------
Balance --
June 30, 2015 $2,088.7 $ (5.6) $ 833.3 $(1,801.4) $ (26.5) $ 1,088.5
--------- --------- --------- ---------- --------- ----------
Balance --
January 1,
2016 $2,093.9 $ (31.4) $ 846.7 $(1,785.4) $ (32.8) $ 1,091.0
Capital
transactions
(note 8):
Issuance of
capital
stock 4.8 - (1.8) - - 3.0
Repurchase of
capital
stock for
cancellation (52.1) - 17.8 - - (34.3)
Stock-based
compensation
and other - 27.1 (9.9) - - 17.2
Total
comprehensive
income:
Net earnings
for the
period - - - 61.8 - 61.8
Other
comprehensive
income,
net of tax:
Currency
translation
differences
for
foreign
operations - - - - 2.2 2.2
Changes from
derivatives
designated
as hedges - - - - 21.2 21.2
--------- --------- --------- ---------- --------- ----------
Balance --
June 30, 2016 $2,046.6 $ (4.3) $ 852.8 $(1,723.6) $ (9.4) $ 1,162.1
========= ========= ========= ========== ========= ==========
(a) Accumulated other comprehensive loss is net of tax.
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
CELESTICA INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions of U.S. dollars)
(unaudited)
Three months ended Six months ended
June 30 June 30
-------------------- ---------------------
2015 2016 2015 2016
---------- ---------- ---------- ----------
Cash provided by (used in):
Operating activities:
Net earnings for the period $ 24.2 $ 36.2 $ 43.9 $ 61.8
Adjustments to net earnings for
items not affecting cash:
Depreciation and amortization 16.9 19.0 33.5 36.8
Equity-settled stock-based
compensation 7.1 6.8 18.6 16.2
Other charges 4.0 2.2 4.0 2.2
Finance costs 1.1 2.7 1.6 4.9
Income tax expense 5.1 12.9 12.1 16.5
Other (3.9) 6.3 (8.6) (1.0)
Changes in non-cash working
capital items:
Accounts receivable (25.5) (87.3) 23.7 (60.7)
Inventories (64.2) (49.7) (99.1) (111.0)
Other current assets 1.8 (15.4) (0.3) (10.5)
Accounts payable, accrued and
other current liabilities and
provisions 81.9 70.5 57.8 39.3
---------- ---------- ---------- ----------
Non-cash working capital changes (6.0) (81.9) (17.9) (142.9)
Net income taxes paid (4.1) (8.7) (7.7) (17.3)
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities 44.4 (4.5) 79.5 (22.8)
Investing activities:
Purchase of computer software and
property, plant and equipment (18.5) (18.2) (31.2) (34.3)
Proceeds from sale of assets 0.3 0.5 0.4 0.7
Advances to solar supplier (note
4) (21.0) - (21.0) -
Repayments from solar supplier
(note 4) - 2.0 - 5.0
---------- ---------- ---------- ----------
Net cash used in investing
activities (39.2) (15.7) (51.8) (28.6)
Financing activities:
Borrowings under credit facility
(note 7) 275.0 - 275.0 40.0
Repayments under credit facility
(note 7) - (16.3) - (22.5)
Finance lease payments (note 4) - (1.1) - (2.4)
Issuance of capital stock (note
8) 0.6 1.5 2.6 3.0
Repurchase of capital stock for
cancellation (note 8) (350.4) - (370.2) (34.3)
Finance costs paid (2.8) (2.5) (3.3) (4.8)
---------- ---------- ---------- ----------
Net cash used in financing
activities (77.6) (18.4) (95.9) (21.0)
Net decrease in cash and cash
equivalents (72.4) (38.6) (68.2) (72.4)
Cash and cash equivalents,
beginning of period 569.2 511.5 565.0 545.3
---------- ---------- ---------- ----------
Cash and cash equivalents, end of
period $ 496.8 $ 472.9 $ 496.8 $ 472.9
---------- ---------- ---------- ----------
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements .
CELESTICA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
