Document

FORM 6-K
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
 
For the month of January, 2019
 
001-14832
(Commission File Number)
 

 
CELESTICA INC.
(Translation of registrant’s name into English)
 

 
844 Don Mills Road
Toronto, Ontario
Canada M3C 1V7
(416) 448-5800
(Address of principal executive offices)
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
 
Form 20-F  x
Form 40-F  o
 
Indicate by check mark whether the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o
 
Indicate by check mark whether the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
 
 
 





Furnished Herewith (and incorporated by reference herein)
 
Exhibit No.    Description

99.1
 
 
The information contained in Exhibit 99.1 of this Form 6-K is not incorporated by reference into any registration statement (or into any prospectus that forms a part thereof) filed by Celestica Inc. with the Securities and Exchange Commission.

 




SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
CELESTICA INC.
 
 
 
 
 
 
Date:  January 31, 2019
By:
/s/ Elizabeth L. DelBianco
 
 
Elizabeth L. DelBianco
 
 
Chief Legal and Administrative Officer
 



 
EXHIBIT INDEX
 
Exhibit No.    Description

99.1
 




CLS-2018.12.31-6-K (PR & FS) Combined Document
Exhibit 99.1


FOR IMMEDIATE RELEASE                
(All amounts in U.S. dollars.                                       January 31, 2019
Per share information based on diluted                         
shares outstanding unless otherwise noted.)

CELESTICA ANNOUNCES FOURTH QUARTER & FULL YEAR 2018 FINANCIAL RESULTS

TORONTO, Canada - Celestica Inc. (TSX: CLS)(NYSE: CLS), a leader in design, manufacturing and supply chain solutions for the world's most innovative companies, today announced financial results for the fourth quarter of 2018 (Q4 2018) and the year ended December 31, 2018 (FY 2018). During the first quarter of 2018, Celestica completed a reorganization of its business into two operating and reportable segments Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS)*. Celestica adopted International Financial Reporting Standards (IFRS) 15 (Revenue from Contracts with Customers) effective January 1, 2018, and all prior period comparatives in this press release have been restated to reflect such adoption.

Q4 2018 Highlights

Revenue: $1.73 billion, compared to our previously provided guidance range of $1.70 to $1.80 billion, increased 10% compared to the fourth quarter of 2017 (Q4 2017); Operating margin (non-IFRS)**: 3.5%, consistent with the mid-point of our revenue and non-IFRS adjusted EPS guidance ranges for Q4 2018, and compared to 3.2% for Q4 2017

ATS segment revenue increased 11% compared to Q4 2017, and represented 33% of total revenue; ATS segment margin*** was 3.7% compared to 5.2% for Q4 2017

CCS segment revenue increased 10% compared to Q4 2017, and represented 67% of total revenue; CCS segment margin*** was 3.3% compared to 2.2% for Q4 2017
IFRS EPS: $0.44 per share, compared to $0.09 per share for Q4 2017. IFRS EPS for Q4 2018 included a net benefit of $0.36 per share related to the recognition of deferred tax assets (discussed below)
Adjusted EPS (non-IFRS)**: $0.29 per share, compared to our previously provided guidance range of $0.27 to $0.33 per share, and $0.27 per share for Q4 2017
Adjusted ROIC (non-IFRS)**: 15.0%, compared to 16.4% for Q4 2017
Free cash flow (non-IFRS)**: negative $35.9 million, compared to positive $18.8 million for Q4 2017
Recorded restructuring charges of $6.4 million ($0.05 per share negative impact on IFRS EPS), compared to $13.2 million ($0.09 per share negative impact on IFRS EPS) for Q4 2017
Completed acquisition of Impakt Holdings, LLC (Impakt); financed with borrowings under our revolving credit facility and a new $250 million term loan
Launched a new normal course issuer bid (NCIB) in December 2018, allowing us to repurchase up to approximately 9.5 million subordinate voting shares through December 2019
Obtained municipal zoning approval for sale of our Toronto real property; scheduled to close March 7, 2019; expect to receive total proceeds of approximately U.S. $110 million on closing (discussed below)


*Our ATS segment consists of our ATS end market, and is comprised of our aerospace and defense, industrial, smart energy, healthtech, and capital equipment businesses. Our capital equipment business consists of our semiconductor, display and power equipment businesses. Our CCS segment consists of our Communications and Enterprise end markets, and is comprised of our enterprise communications, telecommunications, servers and storage businesses. Prior period financial information has been reclassified to reflect this reorganized segment structure.
** See “Non-IFRS Supplementary Information” below for information on our rationale for the use of non-IFRS measures, and Schedule 1 for, among other items, non-IFRS measures included in this press release, as well as their definitions, uses, and a reconciliation of non-IFRS measures to the most directly comparable IFRS measures.
*** Segment performance is evaluated based on segment revenue, segment income and segment margin (segment income as a percentage of segment revenue). See note 4 to our December 31, 2018 unaudited interim condensed consolidated financial statements (Q4 2018 Interim Financial Statements) for further detail.





“Celestica delivered on its Q4 consolidated non-IFRS operating margin target of 3.5%, driven by strong performance in our CCS segment and our aerospace and defense business,” said Rob Mionis, President and CEO, Celestica. “We were particularly pleased that we achieved this key margin metric despite the impact of slower cyclical demand from our capital equipment customers, which had an adverse impact on ATS segment margin for the quarter. Although we remain positive about our positioning and the long-term growth prospects of the capital equipment business, we will focus our efficiency initiatives during the first quarter of 2019 on improving margins and better aligning this business to the current revenue environment.”

“We made good progress in 2018 on our long-term revenue diversification and strategic priorities, including delivering sequential margin expansion in every quarter since Q1, and growing our strong leadership positions within the aerospace and defense, and capital equipment markets. As we enter 2019, we will continue to focus on driving better inventory performance as the constrained materials environment modestly improves, completing our efficiency initiatives to drive margin expansion, and continuing the diversification of our revenue and earnings in order to drive sustainable profitable growth.”

Fourth Quarter and Full Year Summary
 
Three months ended
 
 
Year ended
 
 
December 31
 
December 31
 
2017
 
2018
 
 
2017
 
2018
 
 
(restated)

 
 
 
 
(restated)

 
 
 
Revenue (in millions)
$
1,570.2

 
$
1,727.0

 
 
$
6,142.7

 
$
6,633.2

 
   ATS segment revenue as a % of total revenue
33%
 
33%
 
 
32%
 
33%
 
   CCS segment revenue as a % of total revenue
67%
 
67%
 
 
68%
 
67%
 
        Communications
40
%
 
39
%
 
 
43
%
 
41
%
 
        Enterprise
27
%
 
28
%
 
 
25
%
 
26
%
 
 
 
 
 
 
 
 
 
 
 
IFRS net earnings (in millions)
$
13.6

 
$
60.1

 
 
$
105.5

 
$
98.9

 
IFRS EPS
$
0.09

 
$
0.44

 
 
$
0.73

 
$
0.70

 
 
 
 
 
 
 
 
 
 
 
Non-IFRS adjusted net earnings* (in millions)  
$
39.1

 
$
39.7

 
 
$
173.0

 
$
149.8

 
Non-IFRS adjusted EPS*
$
0.27

 
$
0.29

 
 
$
1.19

 
$
1.07

 
Non-IFRS operating margin*
3.2
%
 
3.5
%
 
 
3.5
%
 
3.2
%
 
Non-IFRS adjusted ROIC*
16.4
%
 
15.0
%
 
 
18.8
%
 
15.1
%
 
Non-IFRS free cash flow*
$
18.8

 
$
(35.9
)
 
 
$
21.0

 
$
(98.4
)
 
* See “Non-IFRS Supplementary Information” below
Segment Income (in millions) and Margin
Three months ended December 31
 
Year ended December 31
 
2017
 
2018
 
2017
 
2018
 
(restated)
 
 
 
 
(restated)
 
 
 
 
 
Segment Margin
 
 
Segment Margin
 
 
Segment Margin
 
 
Segment Margin
ATS
$
26.7

5.2%
 
$
20.9

3.7%
 
$
96.8

4.9%
 
$
102.5

4.6%
CCS
23.2

2.2%
 
38.8

3.3%
 
120.4

2.9%
 
111.4

2.5%

Notes regarding EPS, non-IFRS adjusted EPS* and non-IFRS operating margin*

IFRS earnings per share (EPS) for Q4 2018 included an aggregate charge of $0.18 (pre-tax) per share for employee stock-based compensation expense, amortization of intangible assets (excluding computer software), Toronto transition costs, and restructuring charges (see the tables in Schedule 1 and note 13 to the Q4 2018 Interim Financial Statements for per-item charges). This aggregate charge is within the range we provided on October 24, 2018 of between $0.14 to $0.20 per share for these items.

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IFRS EPS for Q4 2018 included a $0.36 per share tax benefit arising from the recognition of deferred tax assets as a result of our acquisition of Impakt; offset in part by an aggregate $0.12 per share negative impact attributable to other charges. IFRS EPS for FY 2018 included an aggregate $0.43 per share negative impact attributable to other charges, most significantly restructuring charges (a $0.25 per share negative impact), and an aggregate $0.08 per share negative tax impact arising from: taxable foreign exchange (Currency Impacts), and an increased proportion of profits earned in higher tax rate jurisdictions (Mix Impacts); all of which were largely offset by an aggregate $0.38 per share tax benefit arising from the recognition of deferred tax assets as a result of our acquisitions of Impakt and Atrenne Integrated Solutions, Inc. (Atrenne), and a $0.04 per share tax benefit arising from the reversal of previously-accrued Mexican taxes (Mexican Tax Reversal). See notes 5, 13 and 14 to our Q4 2018 Interim Financial Statements for further detail.

Non-IFRS adjusted EPS* for FY 2018 included the negative Currency Impacts and Mix Impacts noted above, as well as the impact of the Mexican Tax Reversal, all of which pertain to our core operations. See Schedule 1 for the exclusions used to determine non-IFRS adjusted EPS* for Q4 2018 and FY 2018 (which include, among other items, other charges and the Atrenne and Impakt deferred tax asset benefits noted above).

IFRS EPS for Q4 2017 included a $0.09 per share negative impact resulting from restructuring charges. IFRS EPS for FY 2017 included a $0.20 per share negative impact resulting from restructuring charges, and was favorably impacted by a $0.03 per share deferred income tax benefit we recorded in the second quarter of 2017 related to prior write-down and impairment charges on our solar assets (Solar Benefit). See notes 13 and 14 to our Q4 2018 Interim Financial Statements for further detail. See Schedule 1 for the exclusions used to determine non-IFRS adjusted EPS* for Q4 2017 and FY 2017.

Non-IFRS operating margin* for Q4 2018 of 3.5% reflects improved performance from our CCS segment, offset in part by weaker than expected demand in our capital equipment business, resulting in lower utilization during the quarter. As compared to FY 2017, non-IFRS operating margin for FY 2018 was negatively impacted by such lower utilization, changes in overall mix and pricing pressures, most significantly in our CCS segment, as well as $13.5 million in increased inventory provisions.

* Non-IFRS measures do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other public companies that use IFRS or other generally accepted accounting principles (GAAP). See “Non-IFRS Supplementary Information” below for information on our rationale for the use of non-IFRS measures, and Schedule 1 for, among other items, non-IFRS measures included in this press release, as well as their definitions, uses, and a reconciliation of non-IFRS measures to the most directly comparable IFRS measures.


CCS Portfolio Review

As part of our strategy to continue to diversify our business and improve shareholder returns, we commenced a comprehensive review of our CCS revenue portfolio (CCS Review) in the second half of 2018, with the intention of addressing under-performing programs and disengaging from customer programs that do not meet our strategic objectives. The review of our CCS business, which generated $4.4 billion of revenue in 2018, is currently expected to result in a decline in our CCS segment revenue of approximately $500 million over the next 12 to 18 months (subject to change based on the growth or contraction of CCS programs not subject to the review). The review is substantially complete and the customer programs that comprise the approximate $500 million in revenue have been identified. We expect to complete the majority of these actions in 2019, including the intended restructuring actions (which have been built into our current cost efficiency initiative), and changes to our manufacturing network. Although we expect reduced revenue in our CCS business as a result of our CCS Review, we intend to maintain a significant majority of our CCS business, and continue to invest in areas we believe are key to the long-term success of our CCS segment, including our JDM offering, to help drive improved CCS financial performance in future periods.

Capital Equipment Business Update

Within our capital equipment business, revenue from our semiconductor capital equipment customers has been adversely impacted by cyclical decreases in demand primarily in the second half of 2018, which resulted in losses in this business (in the mid-single digit million dollar range) in the fourth quarter of 2018. In response to this demand softness, which we expect to continue throughout 2019, we are undertaking actions to align this business to the current demand environment and to improve profitability.


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Restructuring Update

We have recorded $43 million in restructuring charges from the commencement of our cost efficiency initiative through the end of Q4 2018, including the $6.4 million of restructuring charges recorded in Q4 2018. Our restructuring actions under this initiative include, among others, actions identified as part of our CCS Review (noted above) as well as actions in our capital equipment business (noted above). We continue to estimate total restructuring charges for our efficiency initiative to be within the previously disclosed range of between $50 million and $75 million, however we are extending the program by six months and expect the remainder of the charges to be recorded by the end of 2019.

Toronto Real Property and Related Transactions Update

The agreement governing the sale of our Toronto real property was assigned to a new purchaser in September 2018, and in connection therewith, was amended to provide for the remaining proceeds of $122 million Canadian dollars (approximately $89 million at year-end exchange rates) to be paid in one lump sum cash payment upon closing of the transaction. On January 21, 2019, the required municipal zoning approval was obtained. As a result, the closing of the transaction is scheduled to occur on March 7, 2019, and we have every reason to believe that this transaction will be completed on or about such time. If the transaction is consummated, we will receive total proceeds of approximately U.S. $110 million, including a high density bonus and an early vacancy incentive related to the temporary relocation of our corporate headquarters. See note 13(b) to our Q4 2018 Interim Financial Statements for further details.

Completion of Impakt Acquisition

In November 2018, we completed the acquisition of U.S.- based Impakt, a highly-specialized, vertically integrated company providing manufacturing solutions for leading OEMs in the display (including LCD and Organic Light Emitting Diode (OLED)), and semiconductor industries, as well as other markets requiring complex fabrication services, with operations in California and South Korea. The purchase price for Impakt was $325.4 million, net of cash acquired. The purchase price is subject to a net working capital adjustment, which has not yet been finalized. The purchase was funded with borrowings under our revolving credit facility, $245.0 million of which were repaid with proceeds of a new incremental term loan under our credit facility. See notes 5 and 11 to our Q4 2018 Interim Financial Statements.

Board Member Addition

Robert Cascella is being appointed to Celestica's Board of Directors effective February 1, 2019. Mr. Cascella is currently an Executive Vice President of Royal Philips, a public Dutch multinational healthcare company. He is also the CEO of Royal Philips' Diagnosis and Treatment businesses. He was formerly the president and CEO of Hologic, where he held executive positions for about a decade. He has also held senior leadership positions in companies such as NeoVision Corporation, CFG Capital and Fischer Imaging Corporation.


Guidance Summary and First Quarter 2019 Outlook

 
Q4 2018 Guidance (1)
 
Q4 2018 Actual (1)
 
Q1 2019 Guidance (2)
IFRS revenue (in billions) 
$1.70 to $1.80
 
$1.73
 
$1.45 to $1.55
Non-IFRS operating margin
3.5% at the mid-point of our revenue and non-IFRS adjusted EPS guidance ranges
 
3.5%
 
2.6% at the mid-point of our revenue and non-IFRS adjusted EPS guidance ranges
Non-IFRS adjusted SG&A (in millions)
$49.0 to $51.0
 
$55.0
 
$51.0 to $53.0
Non-IFRS adjusted EPS
$0.27 to $0.33
 
$0.29
 
$0.12 to $0.18


(1) For Q4 2018, our revenue was within our guidance range, but slightly below our guidance mid-point as lower demand in our Communications end market and demand softness from our capital equipment business, were partially offset by stronger than expected demand in our Enterprise end market. Non-IFRS operating margin for Q4 2018 met our guidance. Non-IFRS adjusted SG&A for Q4 2018 was higher than our guidance range primarily due to higher than expected variable expenses and SG&A costs related to Impakt. Our non-IFRS adjusted EPS results for Q4 2018 were within our guidance range.


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(2) For the first quarter of 2019, we expect a negative $0.18 to $0.24 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), Toronto transition costs (described on Schedule 1 hereto), and restructuring charges. We anticipate our annual non-IFRS adjusted effective tax rate for 2019 to be in the range of 19% to 21%, excluding any impacts from taxable foreign exchange. 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.

See “Non-IFRS Supplementary Information” below for information on our rationale for the use of non-IFRS measures, and Schedule 1 for, among other items, non-IFRS measures included in this press release, as well as their definitions, uses, and a reconciliation of non-IFRS measures to the most directly comparable IFRS measures.

We do not provide reconciliations for forward-looking non-IFRS financial measures, as we are unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing or amount of various events that have not yet occurred, are out of our control and/or cannot be reasonably predicted, and that would impact the most directly comparable forward-looking IFRS financial measure. For these same reasons, we are unable to address the probable significance of the unavailable information. Forward-looking non-IFRS financial measures may vary materially from the corresponding IFRS financial measures.

Q4 2018 Webcast
Management will host its Q4 2018 results conference call today at 5:00 p.m. Eastern Daylight Time. The webcast can be accessed at www.celestica.com.

Non-IFRS Supplementary Information
In addition to disclosing detailed operating results in accordance with IFRS, Celestica provides supplementary non-IFRS measures to consider in evaluating the company’s operating performance. Management uses adjusted net earnings and other non-IFRS measures to assess operating performance and the effective use and allocation of resources; to provide more meaningful period-to-period comparisons of operating results; to enhance investors’ understanding of the core operating results of Celestica’s business; and to set management incentive targets. We believe investors use both IFRS and non-IFRS measures to assess management's past, current and future decisions associated with our priorities and our allocation of capital, as well as to analyze how our business operates in, or responds to, swings in economic cycles or to other events that impact our core operations.

See Schedule 1 - Supplementary Non-IFRS Measures for, among other items, non-IFRS measures provided herein, non-IFRS definitions, and a reconciliation of non-IFRS measures to the most directly comparable IFRS measures.

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, capital equipment, and smart energy 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, visit http://www.celestica.com.

Our securities filings can also be accessed at www.sedar.com and www.sec.gov.


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Cautionary Note Regarding Forward-looking Statements
This news release contains forward-looking statements, including, without limitation, those related to our priorities and goals; trends in the electronics manufacturing services (EMS) industry in general and our capital equipment business in particular, including our expectations for a continued constrained EMS materials environment and muted capital equipment revenue environment, and our intended strategies in response thereto; our anticipated financial and/or operational results, and our anticipated non-IFRS adjusted effective tax rate; the range and timing of our cost efficiency initiative; the anticipated impact of our CCS Review; the timing and quantity of purchases of subordinate voting shares under our NCIB; the timing of the valuation of certain recently-acquired assets and finalization of the related purchase price allocations; our growth and diversification plans; anticipated costs and expenses, amortization of certain intangible assets (including anticipated increases as a result of recent acquisitions), and restructuring actions and charges; the anticipated impact of acquisitions and program wins, transfers, losses or disengagements on our business; the impact of tax and litigation outcomes; the timing and terms of the sale of our real property in Toronto and related lease transactions (collectively, the Toronto Real Property Transactions), and related relocation costs; the anticipated impact of newly-issued accounting standards; our intentions with respect to our U.K. Supplementary pension plan, and the timing of, and potential true-up premium on, annuities purchased for our U.K. Main pension plan. Such forward-looking statements may, without limitation, be preceded by, followed by, or include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “continues,” “project,” “potential,” “possible,” “contemplate,” “seek,” or similar expressions, or may employ such future or conditional verbs as “may,” “might,” “will,” “could,” “should,” or “would,” or may otherwise be indicated as forward-looking statements by grammatical construction, phrasing or context. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995, where applicable, and applicable Canadian securities laws.

Forward-looking statements are provided to assist readers in understanding management’s current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. Forward-looking statements are not guarantees of future performance and are subject to risks that could cause actual results to differ materially from those expressed or implied in such forward-looking statements, including, among others, risks related to: our customers’ ability to compete and succeed with our products and services; customer and segment concentration; challenges of replacing revenue from completed or lost programs or customer disengagements; changes in our mix of customers and/or the types of products or services we provide; the impact on gross profit of higher concentrations of lower margin programs; price, margin pressures and other competitive factors affecting, and the highly competitive nature of, the EMS industry in general and our CCS segment in particular; the cyclical nature of our capital equipment business; our response to changes in demand, rapidly evolving and changing technologies, and changes in our customers' business and outsourcing strategies; customer, competitor and/or supplier consolidation; integrating acquisitions and “operate-in-place” arrangements, and achieving the anticipated benefits therefrom; retaining or expanding our business due to execution and quality issues (including our ability to successfully resolve these challenges); maintaining sufficient financial resources and working capital to fund currently anticipated financial obligations and to pursue desirable business opportunities; negative impacts on our business resulting from recent increases in third-party indebtedness, or significant uses of cash, securities issuances, and/or additional increases in third-party indebtedness for additional acquisitions or to otherwise fund our operations; delays in the delivery and availability of components, services and materials; the impact of our restructuring actions; the incurrence of future impairment charges or other write-downs of assets; managing our operations, growth initiatives, and our working capital performance during uncertain market and economic conditions; disruptions to our operations, or those of our customers, component suppliers and/or logistics partners, including as a result of global or local events outside of our/their control and the impact of significant tariffs on items imported into the U.S.; the expansion or consolidation of our operations; recruiting or retaining skilled talent; changes to our operating model; changing commodity, materials and component costs as well as labor costs and conditions; defects or deficiencies in our products, services or designs; non-performance by counterparties; our financial exposure to foreign currency volatility; our dependence on industries affected by rapid technological change; increasing taxes, tax audits, and challenges of defending our tax positions; obtaining, renewing or meeting the conditions of tax incentives and credits; the closing of the Toronto Real Property Transactions on a timely basis or at all; the relocation of our corporate headquarters; computer viruses, malware, hacking attempts or outages that may disrupt our operations; the variability of revenue and operating results; compliance with applicable laws, regulations, government grants and social responsibility initiatives; and current or future litigation, governmental actions, and/or changes in legislation. The foregoing and other material risks and uncertainties are discussed in our public filings at www.sedar.com and www.sec.gov, including in our most recent MD&A, our 2017 Annual Report on Form 20-F filed with, and subsequent reports on Form 6-K furnished to, the U.S. Securities and Exchange Commission, and as applicable, the Canadian Securities Administrators.

Our revenue, earnings and other financial guidance contained in this press release is based on various assumptions, many of which involve factors that are beyond our control. Our material assumptions include those related to the following: fluctuation of production schedules from our customers in terms of volume and mix of products or services; the timing and execution of, and investments associated with, ramping new business; the successful pursuit, completion and integration of acquisitions; the success of our customers’ products; our ability to retain programs and customers; the stability of general economic and market conditions, currency exchange rates, and interest rates; supplier performance, pricing and terms; compliance by third parties with their contractual obligations and the accuracy of their representations and warranties; the costs and availability of components, materials, services, equipment, labor, energy and transportation; that our customers will retain liability for recently-imposed tariffs and countermeasures; our ability to keep pace with rapidly changing technological developments; the impact of the recent U.S. tax reform on our operations;

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the timing, execution and effect of restructuring actions; the successful resolution of quality issues that arise from time to time; our having sufficient financial resources and working capital to fund currently anticipated financial obligations and to pursue desirable business opportunities; our ability to successfully diversify our customer base and develop new capabilities; the availability of cash resources for repurchases of outstanding subordinate voting shares; that we achieve the expected benefits from our acquisitions of Atrenne and Impakt; and that the sale of our Toronto real property will be consummated when anticipated. Although management believes these assumptions to be reasonable under the current circumstances, they may prove to be inaccurate, which could cause actual results to differ materially (and adversely) from those that would have been achieved had such assumptions been accurate. Forward-looking statements speak only as of the date on which they are made, and we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
  
All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

Contacts:
Celestica Communications                 Celestica Investor Relations
(416) 448-2200                        (416) 448-2211
media@celestica.com                     clsir@celestica.com


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Supplementary Non-IFRS Measures                                 Schedule 1

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 or operating earnings as a percentage of revenue), adjusted net earnings, adjusted earnings per share, adjusted return on invested capital (adjusted ROIC), free cash flow, adjusted tax expense and adjusted effective tax rate. Adjusted EBIAT, adjusted ROIC, free cash flow, adjusted tax expense and adjusted effective tax rate 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 (as defined below), impairment charges, other solar charges (as defined below), and acquisition inventory fair value adjustments, all net of the associated tax adjustments (which are set forth in the table below), and non-core tax impacts (tax adjustments related to acquisitions, and certain other tax costs or recoveries related to 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 in a more consistent manner (by excluding specific items that we do not consider to be reflective of our ongoing operating results), to evaluate cash resources that we generate 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 provides improved insight into the tax effects of our ongoing business operations, and is useful to management and investors for historical comparisons and forecasting. These non-IFRS financial measures result largely from managements 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 therefore 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 managements 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 companys performance, and reconciling non-IFRS financial measures back to the most directly comparable IFRS financial measures.
The economic substance of the exclusions described above 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, consist of 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, Toronto transition costs (recoveries) (defined below), acquisition-related

     vii                         more...



consulting, transaction and integration costs (Acquisition Costs), legal settlements (recoveries), and the accelerated amortization of $1.2 million in unamortized deferred financing costs recorded on the extinguishment of our Prior Facility during the second quarter of 2018. We exclude these 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.
Toronto transition costs (recoveries) are costs (recoveries) recorded in connection with the sale of our Toronto real property, the relocation of our Toronto manufacturing operations, the move of our corporate headquarters to a temporary location while space in a new office building for such headquarters at our current location is under construction, as well as the move to such new office space upon its completion. Toronto transition costs consist of direct relocation costs, duplicate costs (such as rent expense, utility costs, depreciation charges, and personnel costs) incurred during the transition period, as well as cease-use costs incurred in connection with idle or vacated portions of the relevant premises that we would not have incurred but for these relocations. Toronto transition recoveries will consist of amounts received from the purchaser of the Toronto real property or gains we record in connection with its sale, if consummated. We believe that excluding these costs and recoveries permits a better comparison of our core operating results from period-to-period, as these costs will not reflect our ongoing operations once these relocations are complete.
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.
Other solar charges, consisting of non-cash charges to further write down the carrying value of our then-remaining solar panel inventory and the write-down of solar accounts receivable (A/R) (primarily as a result of a solar customer's bankruptcy) to estimated recoverable amounts, were recorded in the second quarter of 2017 through cost of sales and SG&A expenses, respectively. These impairment charges, which were identified during the wind-down of our solar operations, were excluded as they pertained to a business we had exited, and therefore were no longer directly related to our ongoing core operating results. Although we recorded significant impairment charges to write down our solar panel inventory in the third quarter of 2016, those charges were not excluded in the determination of our non-IFRS financial measures for such period, as we were then still engaged in the solar panel manufacturing business. In connection with this wind-down, we also recorded net non-cash impairment charges to write down the carrying value of our solar panel manufacturing equipment held for sale to its estimated sales value less costs of disposal, which we recorded through other charges during 2017.
Acquisition inventory fair value adjustments relate to the write-up of the inventory acquired in connection with our acquisitions, representing the difference between the cost and fair value of such inventory. Acquired assets and liabilities are recorded on our balance sheet at their fair values as of the date of acquisition. Fair value adjustments are recognized through cost of sales in the period during which the acquired inventory is sold. We recognized the full $1.6 million adjustment related to inventory acquired from Atrenne during the second quarter of 2018 (as all of the inventory was sold during that quarter), which negatively impacted our gross profit and net earnings for such period. No such adjustment was recorded with respect to inventory acquired from Impakt. We exclude the impact of the recognition of these adjustments as applicable, because we believe such exclusion permits a better comparison of our core operating results from period-to-period, as their impact is not indicative of our ongoing operating performance.
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 sets forth, for the periods indicated, the various non-IFRS measures discussed above, and a reconciliation of non-IFRS measures to the most directly comparable IFRS measures (in millions, except percentages and per share amounts). 2017 financial information has been restated to reflect the adoption, effective January 1, 2018, of IFRS 15.

     viii                         more...



 
Three months ended December 31
 
Year ended December 31
 
2017
 
2018
 
2017
 
2018
 
(restated)
% of revenue
 
 
% of revenue
 
(restated)
% of revenue
 
 
% of revenue
IFRS revenue
$
1,570.2

 
 
$
1,727.0

 
 
$
6,142.7

 
 
$
6,633.2

 
 
 
 
 
 
 
 
 
 
 
 
 
IFRS gross profit
$
101.6

6.5%
 
$
120.0

6.9%
 
$
418.5

6.8%
 
$
430.5

6.5%
Employee stock-based compensation expense
3.2

 
 
3.8

 
 
14.6

 
 
14.7

 
Other solar charges (inventory write-down)

 
 

 
 
0.9

 
 

 
   Acquisition inventory fair value adjustment

 
 

 
 

 
 
1.6

 
Non-IFRS adjusted gross profit
$
104.8

6.7%
 
$
123.8

7.2%
 
$
434.0

7.1%
 
$
446.8

6.7%
 
 
 
 
 
 
 
 
 
 
 
 
IFRS SG&A
$
51.1

3.3%
 
$
59.6

3.5%
 
$
203.2

3.3%
 
$
219.0

3.3%
Employee stock-based compensation expense
(4.2
)
 
 
(4.6
)
 
 
(15.5
)
 
 
(18.7
)
 
Other solar charges (A/R write-down)

 
 

 
 
(0.5
)
 
 

 
Non-IFRS adjusted SG&A
$
46.9

3.0%
 
$
55.0

3.2%
 
$
187.2

3.0%
 
$
200.3

3.0%
 
 
 
 
 
 
 
 
 
 
 
 
IFRS earnings before income taxes
$
21.3

1.4%
 
$
20.1

1.2%
 
$
133.1

2.2%
 
$
81.9

1.2%
Finance costs
2.6

 
 
9.2

 
 
10.1

 
 
24.4

 
Employee stock-based compensation expense
7.4

 
 
8.4

 
 
30.1

 
 
33.4

 
Amortization of intangible assets (excluding computer software)
1.1

 
 
5.1

 
 
5.5

 
 
11.6

 
Net restructuring, impairment and other charges (1)
17.5

 
 
16.9

 
 
37.0

 
 
61.0

 
Other solar charges (inventory and A/R write-down)

 
 

 
 
1.4

 
 

 
   Acquisition inventory fair value adjustment

 
 

 
 

 
 
1.6

 
Non-IFRS operating earnings (adjusted EBIAT) (1)
$
49.9

3.2%
 
$
59.7

3.5%
 
$
217.2

3.5%
 
$
213.9

3.2%
 
 
 
 
 
 
 
 
 
 
 
 
IFRS net earnings
$
13.6

0.9%
 
$
60.1

3.5%
 
$
105.5

1.7%
 
$
98.9

1.5%
Employee stock-based compensation expense
7.4

 
 
8.4

 
 
30.1

 
 
33.4

 
Amortization of intangible assets (excluding computer software)
1.1

 
 
5.1

 
 
5.5

 
 
11.6

 
Net restructuring, impairment and other charges (recoveries) (1)
17.5

 
 
16.9

 
 
37.0

 
 
61.0

 
Other solar charges (inventory and A/R write-down)

 
 

 
 
1.4

 
 

 
Acquisition inventory fair value adjustment

 
 

 
 

 
 
1.6

 
Adjustments for taxes (2)
(0.5
)
 
 
(50.8
)
 
 
(6.5
)
 
 
(56.7
)
 
Non-IFRS adjusted net earnings
$
39.1

 
 
$
39.7

 
 
$
173.0

 
 
$
149.8

 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS
 
 
 
 
 
 
 
 
 
 

 
Weighted average # of shares (in millions)
145.5

 
 
138.0

 
 
145.2

 
 
140.6

 
IFRS earnings per share
$
0.09

 
 
$
0.44

 
 
$
0.73

 
 
$
0.70

 
Non-IFRS adjusted earnings per share
$
0.27

 
 
$
0.29

 
 
$
1.19

 
 
$
1.07

 
# of shares outstanding at period end (in millions)
141.8

 
 
136.3

 
 
141.8

 
 
136.3

 
 
 
 
 
 
 
 
 
 
 
 
 
IFRS cash provided by (used in) operations
$
43.7

 
 
$
(1.9
)
 
 
$
127.0

 
 
$
33.1

 
Purchase of property, plant and equipment, net of sales proceeds
(20.6
)
 
 
(18.8
)
 
 
(101.8
)
 
 
(78.5
)
 
Finance lease payments
(1.7
)
 
 
(0.9
)
 
 
(6.5
)
 
 
(17.0
)
 
Repayments from former solar supplier

 
 

 
 
12.5

 
 

 
Finance costs paid
(2.6
)
 
 
(14.3
)
 
 
(10.2
)
 
 
(36.0
)
 
Non-IFRS free cash flow (3)
$
18.8

 
 
$
(35.9
)
 
 
$
21.0

 
 
$
(98.4
)
 
IFRS ROIC % (4)
7.0
%
 
 
5.0
%
 
 
11.5
%
 
 
5.8
%
 
Non-IFRS adjusted ROIC % (4)
16.4
%
 
 
15.0
%
 
 
18.8
%
 
 
15.1
%
 

     ix                         more...




(1)
Management uses non-IFRS operating earnings (adjusted EBIAT) as a measure to assess performance related to our core operations. Non-IFRS adjusted EBIAT is defined as earnings before income taxes, finance costs (consisting of interest and fees related to our credit facility, our accounts receivable sales program and a customer's supplier financing program), amortization of intangible assets (excluding computer software) and in applicable periods, employee stock-based compensation expense, net restructuring and other charges (recoveries) (consisting of restructuring charges (recoveries), Acquisition Costs, legal settlements (recoveries), Toronto transition costs (recoveries), and the accelerated amortization of unamortized deferred financing costs), impairment charges (recoveries), other solar charges, and acquisition inventory fair value adjustments. See note 13 to our Q4 2018 Interim Financial Statements for separate quantification and discussion of impairment charges, and the components of net restructuring and other charges (recoveries).

(2)
The adjustments for taxes, as applicable, represent the tax effects of our non-IFRS adjustments and non-core tax impacts (described below).

The following table sets forth a reconciliation of our IFRS tax expense and IFRS effective tax rate to our non-IFRS adjusted tax expense and our non-IFRS adjusted effective tax rate for the periods indicated, in each case determined by excluding the tax benefits or costs associated with the listed items (in millions, except percentages) from our IFRS tax expense for such periods:
 
Three months ended
 
Year ended
 
December 31
 
December 31
 
2017
Effective tax rate
 
2018
Effective tax rate
 
2017
Effective tax rate
 
2018
Effective tax rate
 
(restated)
 
 
 
 
(restated)
 
 
 
IFRS tax expense and IFRS effective tax rate
$
7.7

36%
 
$
(40.0
)
(199)%
 
$
27.6

21%
 
$
(17.0
)
(21)%


 
 

 
 

 
 

 
Tax costs (benefits) of the following items excluded from IFRS tax expense:
 
 
 
 
 
 
 
 
 
 
 
Employee stock-based compensation
0.9

 
 
1.1

 
 
1.7

 
 
2.3

 
Amortization of intangible assets (excluding computer software)

 
 

 
 

 
 

 
Net restructuring, impairment and other charges
(0.4
)
 
 
0.7

 
 
1.0

 
 
1.4

 
Other solar charges (inventory and A/R write-down)

 
 

 
 
0.4

 
 

 
Non-core tax impact related to fair value adjustment on acquisitions *

 
 
49.6

 
 

 
 
53.3

 
Non-core tax impacts related to restructured sites **

 
 
(0.6
)
 
 
3.4

 
 
(0.3
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-IFRS adjusted tax expense and Non-IFRS adjusted effective tax rate
$
8.2

17%
 
$
10.8

21%
 
$
34.1

16%
 
$
39.7

21%

*
Consists of deferred tax assets attributable to our acquisitions of Atrenne (recorded in the second quarter of 2018) and Impakt (recorded in the fourth quarter of 2018).
**
Includes the Solar Benefit recorded in the second quarter of 2017.

(3)
Management uses non-IFRS 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 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, repayments from a former solar supplier, and finance costs paid. As a measure of liquidity, we intend to include any amounts we receive from the sale of our Toronto real property, if consummated, in non-IFRS free cash flow in the period of receipt. See note 13(b) to our Q4 2018 Interim Financial Statements. 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 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. Our non-IFRS adjusted ROIC measure reflects non-IFRS operating earnings, working capital management and asset utilization. Non-IFRS adjusted 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 five-point average to calculate average net invested capital for the year. A comparable measure under IFRS would be determined by dividing IFRS earnings before income taxes by net invested capital (which we have set forth in the charts above and below), however, this measure (which we have called IFRS ROIC), is not a measure defined under IFRS.


     x                         more...



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 %). 2017 financial information has been restated to reflect the adoption, effective January 1, 2018, of IFRS 15.
 
 
 
Three months ended
 
Year ended
 
 
 
December 31
 
December 31
 
 
 
2017
 
2018
 
2017
 
2018
 
 
 
(restated)
 
 
 
(restated)
 
 
IFRS earnings before income taxes
 
 
$
21.3

 
$
20.1

 
$
133.1

 
$
81.9

Multiplier to annualize earnings
 
 
4

 
4

 
1

 
1

Annualized IFRS earnings before income taxes
 
 
$
85.2

 
$
80.4

 
$
133.1

 
$
81.9

 
 
 
 
 
 
 
 
 
 
Average net invested capital for the period
 
 
$
1,216.5

 
$
1,594.1

 
$
1,152.9

 
$
1,413.6

 
 
 
 
 
 
 
 
 
 
IFRS ROIC % (1)
 
 
7.0
%
 
5.0
%
 
11.5
%
 
5.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended
 
Year ended
 
 
 
December 31
 
December 31
 
 
 
2017
 
2018
 
2017
 
2018
 
 
 
(restated)
 
 
 
(restated)
 
 
Non-IFRS operating earnings (adjusted EBIAT)
 
 
$
49.9

 
$
59.7

 
$
217.2

 
$
213.9

Multiplier to annualize earnings
 
 
4

 
4

 
1

 
1

Annualized non-IFRS adjusted EBIAT
 
 
$
199.6

 
$
238.8

 
$
217.2

 
$
213.9

 
 
 
 
 
 
 
 
 
 
Average net invested capital for the period
 
 
$
1,216.5

 
$
1,594.1

 
$
1,152.9

 
$
1,413.6

 
 
 
 
 
 
 
 
 
 
Non-IFRS adjusted ROIC % (1)
 
 
16.4
%
 
15.0
%
 
18.8
%
 
15.1
%
 
 
 
 
 
 
 
 
 
 
 
December 31
2017
 
March 31
2018
 
June 30
2018
 
September 30
2018
 
December 31
2018
 
(restated)
 
 
 
 
 
 
 
 
Net invested capital consists of:
 
 
 
 
 
 
 
 
 
Total assets
$
2,964.2

 
$
2,976.0

 
$
3,212.2

 
$
3,316.1

 
$
3,737.7

Less: cash
515.2

 
435.7

 
401.4

 
457.7

 
422.0

Less: accounts payable, accrued and other current liabilities, provisions and income taxes payable
1,228.6

 
1,278.1

 
1,413.8

 
1,473.3

 
1,512.6

Net invested capital at period end (1)
$
1,220.4

 
$
1,262.2

 
$
1,397.0

 
$
1,385.1

 
$
1,803.1

 
 
 
 
 
 
 
 
 
 
 
December 31
2016
 
March 31
2017
 
June 30
2017
 
September 30
2017
 
December 31
2017
 
(restated)
 
(restated)
 
(restated)
 
(restated)
 
(restated)
Net invested capital consists of:
 
 
 
 
 
 
 
 
 
Total assets
$
2,841.9

 
$
2,833.5

 
$
2,876.7

 
$
2,892.0

 
$
2,964.2

Less: cash
557.2

 
558.0

 
582.7

 
527.0

 
515.2

Less: accounts payable, accrued and other current liabilities, provisions and income taxes payable
1,189.7

 
1,165.2

 
1,167.9

 
1,152.4

 
1,228.6

Net invested capital at period end (1)
$
1,095.0

 
$
1,110.3

 
$
1,126.1

 
$
1,212.6

 
$
1,220.4

(1) 
See footnote 4 of the previous table.

     xi                         more...

CELESTICA INC. 
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions of U.S. dollars)
(unaudited)
 
January 1
2017
 
December 31
2017
 
December 31
2018
 
(restated)*
 
(restated)*
 
 
Assets
 
 
 

 
 

Current assets:
 
 
 

 
 

     Cash and cash equivalents
$
557.2

 
$
515.2

 
$
422.0

     Accounts receivable (notes 3 & 7)
1,017.4

 
1,023.7

 
1,206.6

     Inventories (notes 3 & 8)
684.4

 
824.0

 
1,089.9

Income taxes receivable
5.4

 
1.6

 
5.0

    Assets classified as held for sale (note 9)
28.9

 
30.1

 
27.4

    Other current assets
73.9

 
82.0

 
72.6

Total current assets
2,367.2

 
2,476.6

 
2,823.5

 
 
 
 
 
 
Property, plant and equipment
302.7

 
323.9

 
365.3

Goodwill (note 5)
23.2

 
23.2

 
198.4

Intangible assets (note 5)
25.5

 
21.6

 
283.6

Deferred income taxes
35.3

 
37.6

 
36.7

Other non-current assets (note 10)
88.0

 
81.3

 
30.2

Total assets
$
2,841.9

 
$
2,964.2

 
$
3,737.7

 
 
 
 
 
 
Liabilities and Equity
 
 
 

 
 

Current liabilities:
 
 
 

 
 

Current portion of borrowings under credit facility and finance lease obligations (note 11)
$
56.0

 
$
37.9

 
$
107.7

Accounts payable
876.9

 
931.1

 
1,126.7

Accrued and other current liabilities
261.7

 
233.2

 
320.4

Income taxes payable
32.4

 
37.7

 
42.3

Current portion of provisions
18.7

 
26.6

 
23.2

Total current liabilities
1,245.7

 
1,266.5

 
1,620.3

 
 
 
 
 
 
Long-term portion of borrowings under credit facility and finance lease obligations (note 11)
188.7

 
166.5

 
650.2

Pension and non-pension post-employment benefit obligations (note 10)
86.0

 
97.8

 
88.8

Provisions and other non-current liabilities
28.3

 
35.4

 
20.6

Deferred income taxes
35.4

 
27.8

 
25.5

Total liabilities
1,584.1

 
1,594.0

 
2,405.4

 
 
 
 
 
 
Equity:
 
 
 

 
 

     Capital stock (note 12)
2,048.2

 
2,048.3

 
1,954.1

     Treasury stock (note 12)
(15.3
)
 
(8.7
)
 
(20.2
)
Contributed surplus
862.6

 
863.0

 
906.6

Deficit
(1,613.0
)
 
(1,525.7
)
 
(1,481.7
)
Accumulated other comprehensive loss
(24.7
)
 
(6.7
)
 
(26.5
)
Total equity
1,257.8

 
1,370.2

 
1,332.3

Total liabilities and equity
$
2,841.9

 
$
2,964.2

 
$
3,737.7

Contingencies (note 16), Subsequent event (note 13(b))
 
* Certain prior period figures have been restated to reflect the adoption of IFRS 15 (see notes 2 and 3).
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

1more...


CELESTICA INC. 
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions of U.S. dollars, except per share amounts)
(unaudited)

 
 
Three months ended
 
Year ended
{
December 31
 
December 31
 
2017
 
2018
 
2017
 
2018
 
(restated)*
 
 
 
(restated)*
 
 
Revenue
$
1,570.2

 
$
1,727.0

 
$
6,142.7

 
$
6,633.2

Cost of sales (note 8)
1,468.6

 
1,607.0

 
5,724.2

 
6,202.7

Gross profit
101.6

 
120.0

 
418.5

 
430.5

Selling, general and administrative expenses (SG&A)
51.1

 
59.6

 
203.2

 
219.0

Research and development
6.9

 
8.1

 
26.2

 
28.8

Amortization of intangible assets
2.2

 
6.1

 
8.9

 
15.4

Other charges (note 13)
17.5

 
16.9

 
37.0

 
61.0

Earnings from operations
23.9

 
29.3

 
143.2

 
106.3

Finance costs
2.6

 
9.2

 
10.1

 
24.4

Earnings before income taxes
21.3

 
20.1

 
133.1

 
81.9

Income tax expense (recovery) (note 14):
 

 
 

 
 
 
 
Current
3.5

 
6.8

 
39.1

 
39.7

Deferred
4.2

 
(46.8
)
 
(11.5
)
 
(56.7
)
 
7.7

 
(40.0
)
 
27.6

 
(17.0
)
Net earnings for the period
$
13.6

 
$
60.1

 
$
105.5

 
$
98.9

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.09

 
$
0.44

 
$
0.74

 
$
0.71

 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.09

 
$
0.44

 
$
0.73

 
$
0.70

 
 
 
 
 
 
 
 
Shares used in computing per share amounts (in millions):
 

 
 

 
 
 
 
Basic
143.3

 
136.8

 
143.1

 
139.4

Diluted
145.5

 
138.0

 
145.2

 
140.6


 * Certain prior period figures have been restated to reflect the adoption of IFRS 15 (see notes 2 and 3).
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.



2more...



CELESTICA INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions of U.S. dollars)
(unaudited)
 
 
Three months ended
 
Year ended
 
December 31
 
December 31
 
2017
 
2018
 
2017
 
2018
 
(restated)*
 
 
 
(restated)*
 
 
Net earnings for the period
$
13.6

 
$
60.1

 
$
105.5

 
$
98.9

Other comprehensive income, net of tax:
 

 
 

 
 

 
 
Items that will not be reclassified to net earnings:
 
 
 
 
 
 
 
Gains (losses) on pension and non-pension post-employment benefit plans (note 10)
(1.2
)
 
8.4

 
(18.2
)
 
(54.9
)
Items that may be reclassified to net earnings:
 
 
 
 
 
 
 
  Currency translation differences for foreign operations

 
0.5

 
0.7

 
0.1

  Changes from currency forward derivatives designated as hedges
(3.3
)
 
(2.9
)
 
17.3

 
(15.5
)
  Changes from interest rate swap derivatives designated as hedges (note 15)

 
(4.8
)
 

 
(4.4
)
Total comprehensive income for the period
$
9.1

 
$
61.3

 
$
105.3

 
$
24.2

 
* Certain prior period figures have been restated to reflect the adoption of IFRS 15 (see notes 2 and 3).
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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CELESTICA INC. 
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in millions of U.S. dollars)
(unaudited)
 
 
Capital stock
(note 12)
 
Treasury stock
 (note 12)
 
Contributed
surplus
 
Deficit
 
Accumulated
other
comprehensive
loss (a)
 
Total equity
Balance -- January 1, 2017
$
2,048.2

 
$
(15.3
)
 
$
862.6

 
$
(1,632.0
)
 
$
(24.7
)
 
$
1,238.8

Impact of change in accounting policies (notes 2 and 3)

 

 

 
19.0

 

 
19.0

Restated balance at January 1, 2017
2,048.2

 
(15.3
)
 
862.6

 
(1,613.0
)
 
(24.7
)
 
1,257.8

Capital transactions (note 12):
 

 
 

 
 

 
 

 
 

 
 

Issuance of capital stock
30.4

 

 
(16.8
)
 

 

 
13.6

Repurchase of capital stock for cancellation
(30.3
)
 

 
10.4

 

 

 
(19.9
)
Purchase of treasury stock for stock-based plans

 
(16.7
)
 

 

 

 
(16.7
)
Stock-based compensation and other

 
23.3

 
6.8

 

 

 
30.1

Total comprehensive income (loss):
 

 
 

 
 

 
 

 
 

 
 

Net earnings for the period

 

 

 
105.5

 

 
105.5

  Other comprehensive income (loss), net of tax:
 

 
 

 
 

 
 

 
 

 
 

Losses on pension and non-pension post-employment benefit plans (note 10)

 

 

 
(18.2
)
 

 
(18.2
)
Currency translation differences for foreign operations

 

 

 

 
0.7

 
0.7

Changes from currency forward derivatives designated as hedges

 

 

 

 
17.3

 
17.3

Balance -- December 31, 2017
$
2,048.3

 
$
(8.7
)
 
$
863.0

 
$
(1,525.7
)
 
$
(6.7
)
 
$
1,370.2

Capital transactions (note 12):
 

 
 

 
 

 
 

 
 

 
 

Issuance of capital stock
14.9

 

 
(14.5
)
 

 

 
0.4

Repurchase of capital stock for cancellation
(109.1
)
 

 
33.6

 

 

 
(75.5
)
Purchase of treasury stock for stock-based plans

 
(22.4
)
 

 

 

 
(22.4
)
Stock-based compensation and other

 
10.9

 
24.5

 

 

 
35.4

Total comprehensive income (loss):
 

 
 

 
 

 
 

 
 

 
 

Net earnings for the period

 

 

 
98.9

 

 
98.9

Other comprehensive income (loss), net of tax:
 

 
 

 
 

 
 

 
 

 
 

 Losses on pension and non-pension post-employment benefit plans (note 10)

 

 

 
(54.9
)
 

 
(54.9
)
Currency translation differences for foreign operations

 

 

 

 
0.1

 
0.1

Changes from currency forward derivatives designated as hedges

 

 

 

 
(15.5
)
 
(15.5
)
Changes from interest rate swap derivatives designated as hedges

 

 

 

 
(4.4
)
 
(4.4
)
Balance -- December 31, 2018
$
1,954.1

 
$
(20.2
)
 
$
906.6

 
$
(1,481.7
)
 
$
(26.5
)

$
1,332.3

 
(a)  Accumulated other comprehensive loss is net of tax.

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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CELESTICA INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions of U.S. dollars)
(unaudited)

 
Three months ended
 
Year ended
 
December 31
 
December 31
 
2017
 
2018
 
2017
 
2018
 
(restated)*
 
 
 
(restated)*
 
 
Cash provided by (used in):
 

 
 

 
 
 
 
Operating activities:
 

 
 

 
 
 
 
Net earnings for the period
$
13.6

 
$
60.1

 
$
105.5

 
$
98.9

Adjustments to net earnings for items not affecting cash:
 

 
 

 
 
 
 
Depreciation and amortization
19.6

 
25.0

 
76.5

 
89.1

Equity-settled stock-based compensation
7.4

 
8.4

 
30.1

 
33.4

Other charges
(1.4
)
 

 
5.7

 
1.4

Finance costs
2.6

 
9.2

 
10.1

 
24.4

Income tax expense (recovery)
7.7

 
(40.0
)
 
27.6

 
(17.0
)
Other
2.3

 
1.6

 
(1.6
)
 
(7.5
)
Changes in non-cash working capital items:
 

 
 

 
 
 
 
Accounts receivable
(48.8
)
 
(60.4
)
 
(6.3
)
 
(155.4
)
Inventories
(21.0
)
 
1.6

 
(139.6
)
 
(224.0
)
Other current assets
(7.5
)
 
(2.7
)
 
(2.0
)
 
7.6

Accounts payable, accrued and other current liabilities and provisions
75.6

 
5.2

 
51.8

 
227.0

Non-cash working capital changes
(1.7
)
 
(56.3
)
 
(96.1
)
 
(144.8
)
Net income tax paid
(6.4
)
 
(9.9
)
 
(30.8
)
 
(44.8
)
Net cash provided by (used in) operating activities
43.7

 
(1.9
)
 
127.0

 
33.1

 
 
 
 
 
 
 
 
Investing activities:
 

 
 

 
 
 
 
Acquisition, net of cash acquired (note 5)

 
(325.4
)
 

 
(467.1
)
Purchase of computer software and property, plant and equipment(a)
(20.8
)
 
(18.8
)
 
(102.6
)
 
(82.2
)
Proceeds/deposits related to the sale of assets
0.2

 

 
0.8

 
3.7

Repayment of advances from solar supplier (note 6)

 

 
12.5

 

Net cash used in investing activities
(20.6
)
 
(344.2
)
 
(89.3
)
 
(545.6
)
 
 
 
 
 
 
 
 
Financing activities:
 

 
 

 
 
 
 
Borrowings under prior credit facility (note 11)

 

 

 
163.0

Repayments under prior credit facility (note 11)
(6.3
)
 

 
(40.0
)
 
(350.5
)
Borrowings under new credit facility (note 11)

 
354.0

 

 
759.0

Repayments under new credit facility (note 11)

 
(1.7
)
 

 
(1.7
)
Finance lease payments (note 11)
(1.7
)
 
(0.9
)
 
(6.5
)
 
(17.0
)
Issuance of capital stock (note 12)
0.1

 

 
13.6

 
0.4

Repurchase of capital stock for cancellation (note 12)
(19.9
)
 
(13.9
)
 
(19.9
)
 
(75.5
)
Purchase of treasury stock for stock-based plans (note 12)
(4.5
)
 
(12.8
)
 
(16.7
)
 
(22.4
)
Finance costs paid
(2.6
)
 
(14.3
)
 
(10.2
)
 
(36.0
)
Net cash provided by (used in) financing activities
(34.9
)
 
310.4

 
(79.7
)
 
419.3

 
 
 
 
 
 
 
 
Net decrease in cash and cash equivalents
(11.8
)
 
(35.7
)
 
(42.0
)
 
(93.2
)
Cash and cash equivalents, beginning of period
527.0

 
457.7

 
557.2

 
515.2

Cash and cash equivalents, end of period
$
515.2

 
$
422.0

 
$
515.2

 
$
422.0

(a) Additional equipment of nil and $9.3 was acquired through finance leases in the fourth quarter and FY 2018, respectively (fourth quarter and FY 2017 — nil and $5.0, respectively).

* Certain prior period figures have been restated to reflect the adoption of IFRS 15 (see notes 2 and 3).
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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CELESTICA INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
(unaudited)



1.             REPORTING ENTITY
 
Celestica Inc. (Celestica) is incorporated in Ontario with its corporate headquarters located in Toronto, Ontario, Canada. Celestica’s subordinate voting shares are listed on the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE).
 
Celestica delivers innovative supply chain solutions globally to customers in 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, industrial, smart energy, healthtech, and capital equipment businesses. Our capital equipment business consists of our semiconductor, display and power equipment businesses. Our CCS segment consists of our Communications and Enterprise end markets, and is comprised of our enterprise communications, telecommunications, servers and storage businesses. See note 4 below for a discussion of the reorganization of our end markets and the division of our business into two operating and reportable segments, commencing in the first quarter of 2018. Our prior period financial information has been reclassified to reflect the reorganized segment structure and to conform to the current presentation.


2.             BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Statement of compliance:
 
These unaudited interim condensed consolidated financial statements for the quarter ended December 31, 2018 (Q4 2018 Interim Financial Statements) have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB) and the accounting policies we have adopted in accordance with International Financial Reporting Standards (IFRS). The Q4 2018 Interim Financial Statements should be read in conjunction with our 2017 annual audited consolidated financial statements (2017 AFS) and reflect all adjustments that are, in the opinion of management, necessary to present fairly our financial position as at December 31, 2018 and our financial performance, comprehensive income and cash flows for the three months ended December 31, 2018 (Q4 2018) and year ended December 31, 2018 (FY 2018). The Q4 2018 Interim Financial Statements are presented in U.S. dollars, which is also our functional currency. Unless otherwise noted, all financial information is presented in millions of U.S. dollars (except percentages and per share amounts).
 
The Q4 2018 Interim Financial Statements were authorized for issuance by our board of directors on January 31, 2019.
 
Use of estimates and judgments:
 
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, revenue and expenses, and the related disclosures of contingent assets and liabilities. 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 could also impact certain estimates necessary to prepare our consolidated financial statements, including estimates related to the recoverable amounts used in our impairment testing of our non-financial assets, and the discount rates applied to our net pension and non-pension post-employment benefit assets or liabilities. Our assessment of these factors forms the basis for our judgments on the carrying values of 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 impact future periods as well. There have been no material changes to our assumptions or the judgments affecting the application of our estimates and assumptions during Q4 2018 or FY 2018 from those described in the notes to our 2017 AFS. However, see “Accounting policies” below for a discussion of recently adopted accounting standards and recently issued accounting pronouncements.

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CELESTICA INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
(unaudited)


Accounting policies:
The Q4 2018 Interim Financial Statements are based upon accounting policies consistent with those used and described in note 2 of our 2017 AFS, except for the recently adopted accounting standards discussed below.
Recently adopted accounting standards:
IFRS 15, Revenue from Contracts with Customers:

Effective January 1, 2018, we adopted IFRS 15, Revenue from Contracts with Customers, issued by the IASB. This standard provides a comprehensive five-step revenue recognition model for all contracts with customers, and prescribes when and how much revenue should be recognized. This standard replaced IAS 18, Revenues, IAS 11, Construction Contracts, and related interpretations. In accordance with the transitional provisions of the rule, we elected to apply IFRS 15 using the retrospective method, and have restated the comparative reporting periods presented herein, and recognized the transitional adjustments through equity at the start of the first comparative reporting period presented herein. The new standard changed the timing of our revenue recognition for a significant portion of our business, resulting in the recognition of revenue for certain customer contracts earlier than under the previous recognition rules (which was generally upon delivery). The new standard had a material impact on our consolidated financial statements, primarily in relation to inventory and accounts receivable balances.
IFRS 9, Financial Instruments:
Effective January 1, 2018, we adopted IFRS 9, Financial Instruments issued by the IASB. This standard introduced a new model for the classification and measurement of financial assets, a single expected credit loss (ECL) model for the measurement of the impairment of financial assets, and a new model for hedge accounting that is aligned with a company’s risk management activities. In connection with the adoption of this standard, we also complied with the transitional rules of IAS 1, Presentation of Financial Statements and IFRS 7, Financial Instruments Disclosures. In accordance with the transitional provisions of the rule, we have applied the changes of IFRS 9 retrospectively, with the exception of the hedge accounting policies, which we have applied prospectively as required. The adoption of this standard did not result in any adjustments to our consolidated financial statements and did not have a material impact on our accounting policies.
Under IFRS 9, financial assets are classified as either: measured at amortized cost, fair value through other comprehensive income (FVOCI), or fair value through profit or loss (FVTPL). This classification is generally based on the business model in which the financial asset is managed and its contractual cash flow characteristics. IFRS 9 eliminated the held-to-maturity, loans and receivables, and available-for-sale categories previously allowed under IAS 39. Trade and non-customer receivables, that were previously classified as loans and receivables under IAS 39, are measured at amortized cost under IFRS 9. Although the classification of such assets changed, measurement of these assets continues to be at amortized cost, and no changes to their carrying amounts were required upon adopting IFRS 9. For financial liabilities, IFRS 9 largely retains the existing IAS 39 classifications, with the exception of those designated at FVTPL. We do not currently hold any liabilities designated as FVTPL. We do not currently hold any financial assets or liabilities under FVOCI.
See “Changes in accounting policies” below for a description of accounting policy changes in connection with our adoption of IFRS 9 and IFRS 15, and note 3 for the transitional impacts of adopting IFRS 15.

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CELESTICA INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
(unaudited)


Recently issued accounting pronouncements:
IFRS 16, Leases:
In January 2016, the IASB issued this standard, which brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. IFRS 16 supersedes IAS 17, Leases, and related interpretations, and is effective for periods beginning on or after January 1, 2019, with earlier adoption permitted. We adopted this standard effective January 1, 2019 applying the modified retrospective approach, whereby the cumulative effect of adopting IFRS 16 will be recognized as an adjustment to the opening retained deficit balance as of January 1, 2019, without restatement of prior period comparative information. We have implemented changes to our business processes, systems and controls to enable the preparation of our financial statements in accordance with IFRS 16. The new standard is expected to have a material impact on our consolidated financial statements in the period of initial application, the quantification of which we expect to estimate in our audited consolidated annual financial statements for FY 2018. We will recognize new right-of-use assets and lease liabilities related to the majority of our operating leases on our consolidated balance sheet as of January 1, 2019 upon initial application of IFRS 16. The amortization of these assets will be recognized as a depreciation charge, and the interest expense on the lease liabilities will be recognized as finance costs in our consolidated statement of operations. Previously, we recognized operating lease expenses on a straight-line basis over the lease term generally in cost of sales or SG&A in our consolidated statement of operations. No significant changes are expected for our existing finance leases nor for any leases in which we are a lessor.

Changes in accounting policies:
The following section should be read as a modification to the significant accounting policies in notes 2 (q), (r), (s) and (t) of our 2017 AFS and reflects accounting policy changes in connection with our adoption of IFRS 9 and IFRS 15.

(a) Financial assets and financial liabilities:
We recognize financial assets and financial liabilities initially at fair value and subsequently measure these at either fair value or amortized cost based on their classification as described below.
Fair value through profit or loss (FVTPL):
Financial assets and any financial liabilities that we purchase or incur, respectively, with the intention of generating earnings in the near term, and derivatives other than cash flow hedges, are classified as FVTPL. This category includes short-term investments in money market funds (if applicable) that we group with cash equivalents, and derivative assets and derivative liabilities that do not qualify for hedge accounting. See Derivatives and hedge accounting in paragraph (c) below for derivative contracts that qualify for hedge accounting. For investments that we classify as FVTPL, we initially recognize such financial assets on our consolidated balance sheet at fair value and recognize subsequent changes in our consolidated statement of operations. We expense transaction costs as incurred in our consolidated statement of operations. We do not currently hold any liabilities designated as FVTPL.
Amortized cost:
Financial assets that we hold with the intention of collecting the contractual cash flows (in the form of payment of principal and related interest) at amortized cost, and includes our trade receivables, term deposits and non-customer receivables. We initially recognize the carrying amount of such assets on our consolidated balance sheet at fair value plus directly attributable transaction costs, and subsequently measure these at amortized cost using the effective interest rate method, less any impairment losses.
Other financial liabilities:
This category is for our financial liabilities that are not classified as FVTPL, and includes our accounts payable, the majority of our accrued liabilities and certain other provisions, as well as borrowings under our credit facility, including our term loans. We record these financial liabilities at amortized cost on our consolidated balance sheet.

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CELESTICA INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
(unaudited)


(b) Impairment of financial assets:
We used a forward-looking ECL model in determining our allowance for doubtful accounts as it relates to trade receivables, contract assets (under IFRS 15), and other financial assets. Our allowance is based on historical experience, and includes consideration of the aging of the balances, the customer's creditworthiness, current economic conditions, expectation of bankruptcies, and political and economic volatility in the markets or location of our customers, among other factors. A financial asset is written off or written down to its net realizable value as soon as it is known to be impaired. We will adjust previous write-downs to reflect changes in estimates or actual experience.

(c) Derivatives and hedge accounting:

We measure foreign exchange forward and interest swap contracts that we designate as cash flow hedges and qualify for hedge accounting at fair value on our consolidated balance sheet. We defer changes in the fair value of the hedging derivative, to the extent effective, in other comprehensive income (OCI) until we recognize the asset, liability or forecasted transaction being hedged in our consolidated statement of operations. Any cash flow hedge ineffectiveness is recognized in operations immediately. For hedges that we discontinue before the end of the original hedge term, we amortize the unrealized hedge gain or loss in our consolidated statement of operations over the remaining term of the hedge. If the hedged item ceases to exist before the end of the original hedge term, we recognize the unrealized hedge gain or loss immediately in our consolidated statement of operations.

(d) Revenue:

We derive the majority of our revenue from the sale of electronic products and services that we manufacture and provide to customer specifications. We recognize revenue from the sale of products and services rendered when our performance obligation has been satisfied or when the associated control over the products has passed to the customer and no material uncertainties remain as to the collection of our receivables. Under IFRS 15, which we adopted January 1, 2018, where products are custom-made to meet a customers' specific requirements, and such customers are obligated to compensate us for the work performed to date, we recognize revenue over time as production progresses to completion, or as services are rendered. We generally estimate revenue for our work in progress based on costs incurred to date plus a reasonable profit margin for eligible products for which we do not have alternative uses. For contracts that do not qualify for revenue recognition over time under IFRS 15, we recognize revenue at the point in time where control is passed to the customer, which is generally upon shipment and no further performance obligation remains except for our standard manufacturing or service warranties. We apply significant estimates, judgment and assumptions in determining the timing of revenue recognition, measuring work in progress, and estimating the amounts and timing of expected returns, revenues and related costs. As our invoices are typically issued at the time of the delivery of final products to the customers, the earlier recognition of revenue on certain custom-made products has significantly increased the amount of unbilled contract assets included in accounts receivable on our consolidated balance sheet. See “Recently adopted accounting standards” above and note 3(a) below for the impact of adopting IFRS 15.

3.    TRANSITION TO IFRS 15, REVENUE FROM CONTRACTS WITH CUSTOMERS

We adopted IFRS 15 as of January 1, 2018, by applying the retrospective method, and have restated the comparative reporting periods presented herein. In computing the transitional adjustments, we applied the practical expedients in accordance with IFRS 15 to exclude certain contracts that we started and completed in the same annual reporting period, or were completed prior to January 1, 2016, the beginning of the earliest period to be presented in our 2018 annual audited consolidated financial statements. We recognized the transitional adjustments through equity as of January 1, 2017 for our Q4 2018 Interim Financial Statements.


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CELESTICA INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
(unaudited)


(a) Transitional impacts:

For a significant portion of our business, the timing of our revenue recognition has changed under the new standard from a point-in-time to over time, resulting in earlier recognition of revenue than under the previous recognition rules (which was generally upon delivery of final products to our end customer). The most significant financial impacts of adopting IFRS 15 on the comparative periods in our Q4 2018 Interim Financial Statements are summarized as follows:
 
 
 
Three
months
ended
Year
ended
 
 
 
December 31,
2016
December 31,
2017
December 31,
2017
December 31,
2017
 
 
Increase (decrease)
Contract assets (included in accounts receivable)
 
$
226.9



$
258.9

Inventories
 
(206.2
)


(237.8
)
Deferred taxes
 
(1.7
)


(1.9
)
Accrued and other current liabilities
 



(0.3
)
Deficit
 
(19.0
)


(19.5
)
 
 
 


 
Revenue
 

$
16.3

$
32.2


Cost of sales
 

17.1

31.5


Income tax expense
 


0.2


Net earnings
 

(0.8
)
0.5


 
 
 


 
Diluted earnings per share
 

$
(0.01
)
$
0.01



(b) Contract assets and liabilities:

Our contract assets consist of unbilled amounts recognized as revenue under IFRS 15 and deferred investment costs incurred to obtain or fulfill a contract. As of December 31, 2018, we had approximately $267.8 (December 31, 2017 — $258.9) of contract assets recognized as revenue under IFRS 15, which we recorded in accounts receivable on our consolidated balance sheet. Deferred investment costs are recorded initially at cost in other current and non-current assets on our consolidated balance sheet, and are subsequently amortized over the projected period of expected future benefits, or as recoveries are realized, from the new contracts. We monitor our contract assets for potential impairment on a regular basis. No significant impairment losses were recorded on our contract assets during Q4 2018, the fourth quarter of 2017 (Q4 2017), FY 2018, or the year ended December 31, 2017 (FY 2017). Our contract liabilities consist of advance payments from customers and deferred revenue, which we recorded in accrued and other current liabilities on our consolidated balance sheet.


4.             SEGMENT AND CUSTOMER REPORTING
 
Segment Reorganization:

Operating segments are defined as components of an enterprise that engage in business activities from which they may earn revenue and incur expenses; for which discrete financial information is available; and whose operating results are regularly reviewed by the chief operating decision maker in deciding how to allocate resources and to assess performance. No operating segments have been aggregated to determine our reportable segments.


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CELESTICA INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
(unaudited)


During the first quarter of 2018, we completed a reorganization of our reporting structure, including our sales, operations and management systems, into two operating and reportable segments: ATS and CCS. Prior to this reorganization, we operated in one reportable segment (Electronic Manufacturing Services), which was comprised of multiple end markets (ATS, Communications and Enterprise during 2017). The change in operating and reportable segments was a result of modifications to our organizational and internal management structure which were initiated in 2017 to streamline business operations and improve profitability and competitiveness, and were completed in early 2018. As a result of these modifications, and commencing in the first quarter of 2018, our Chief Executive Officer (CEO), who is our chief operating decision maker, reviews segment revenue, segment income and segment margin (described below) to assess performance and make decisions about resource allocation. Our prior period financial information has been reclassified to reflect the reorganized segment structure and to conform to the current presentation. The foregoing changes had no impact on our historical consolidated financial position, results of operations or cash flows as previously reported.

Factors considered in determining the two reportable segments included the nature of applicable business activities, management structure, market strategy and margin profiles. Our ATS segment consists of our ATS end market, and is comprised of our aerospace and defense, industrial, smart energy, healthtech, and capital equipment (including semiconductor, display and power equipment) businesses. Products and services in this segment are extensive and are often more regulated than in our CCS segment, and can include the following: government-certified and highly-specialized manufacturing, electronic and enclosure-related services for aerospace and defense-related customers; high-precision equipment and integrated subsystems used in the manufacture of semiconductors and displays; a wide range of industrial automation, controls, test and measurement devices; advanced solutions for surgical instruments, diagnostic imaging and patient monitoring; and efficiency products to help manage and monitor the energy and power industries. Our ATS segment businesses typically have a higher margin profile and longer product life cycles than the businesses in our CCS segment. Our CCS segment consists of our Communications and Enterprise end markets, and is comprised of our enterprise communications, telecommunications, servers and storage businesses. Products and services in this segment consist predominantly of enterprise-level data communications and information processing infrastructure products, and can include routers, switches, servers and storage-related products used by a wide range of businesses and cloud-based service providers to manage digital connectivity, commerce and social media applications. Our CCS segment businesses typically have a lower margin profile and higher volumes than the businesses in our ATS segment, and have been impacted in recent periods (and continue to be impacted) by aggressive pricing, rapid shifts in technology, model obsolescence and the commoditization of certain products.

Segment performance is evaluated based on segment revenue, segment income and segment margin (segment income as a percentage of segment revenue). Revenue is attributed to the segment in which the product is manufactured or the service is performed. Segment income is defined as a segment’s net revenue less its cost of sales and its allocable portion of selling, general and administrative expenses and research and development expenses (collectively, Segment Costs). Identifiable Segment Costs are allocated directly to the applicable segment while other Segment Costs, including indirect costs and certain corporate charges, are allocated to our segments based on an analysis of the relative usage or benefit derived by each segment from such costs. Segment income excludes finance costs (net of refund interest, when applicable), amortization of intangible assets (excluding computer software), employee stock-based compensation expense, net restructuring, impairment and other charges (recoveries), other solar charges, and recognized fair value adjustments for inventory acquired in connection with acquisitions (see note 5), as these costs and charges are managed and reviewed by the CEO at the company level. Net restructuring, impairment and other charges (recoveries) include, in applicable periods, restructuring charges (recoveries), impairment charges (recoveries), acquisition-related consulting, transaction and integration costs, legal settlements (recoveries), Toronto transition costs (recoveries), and the accelerated amortization of unamortized deferred financing costs. Our segments do not record inter-segment revenue. Although segment income and segment margin are used to evaluate the performance of our segments, we may incur operating costs in one segment that may also benefit the other segment. Our accounting policies for segment reporting are the same as those applied to the company as a whole.



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CELESTICA INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
(unaudited)


Information regarding the results of each reportable segment is set forth below:
Revenue by segment:
Three months ended December 31
 
Year ended December 31
 
2017
 
2018
 
2017
 
2018
 
 
% of total
 
 
% of total
 
 
% of total
 
 
% of total
ATS
$
513.0

33%
 
$
567.4

33%
 
$
1,958.6

32%
 
$
2,209.7

33%
CCS
1,057.2

67%
 
1,159.6

67%
 
4,184.1

68%
 
4,423.5

67%
Total
$
1,570.2


 
$
1,727.0


 
$
6,142.7


 
$
6,633.2


Segment income, segment margin, and reconciliation of segment income to IFRS earnings before income taxes:
Three months ended December 31
 
Year ended December 31
 
2017
 
2018
 
2017