Celestica Reports Q3 2018 Financial Results

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In the fourth quarter of 2017, we commenced the implementation of additional restructuring actions under a new cost efficiency initiative.  We have recorded $37.0 million in restructuring charges from the commencement of this initiative through the end of the third quarter of 2018, including the $13.3 million of restructuring charges recorded in the third quarter of 2018. We currently estimate that we will incur aggregate restructuring charges of between $50 million and $75 million under this initiative, and that the remainder of the charges will be recorded in the fourth quarter of 2018 through mid-2019.

Toronto Real Property and Related Transactions Update

In September 2018, the agreement governing the sale of our Toronto real property, which includes our corporate headquarters and Toronto manufacturing operations, was assigned to a new purchaser (unrelated to us and the previous purchaser). In connection with such assignment, the agreement was amended to provide for the remaining proceeds of $122 million Canadian dollars (approximately $94 million at period-end exchange rates) to be paid in one lump sum cash payment at closing. Previously, we were to receive one-half of the purchase price in the form of an interest-free, first-ranking mortgage having a term of two-years from the closing date. In addition, although we expect to receive certain additional cash amounts at closing, if consummated, the quantification of such amounts has not yet been finalized. Other terms of the agreement remain unchanged. We currently anticipate that the sale of our Toronto real property will close no later than the end of the first quarter of 2019. However, there can be no assurance that this transaction will be completed when anticipated, or at all.

The cash proceeds from the sale of this property (if consummated) are expected to more than offset the building improvements and other capitalized costs, as well as transition costs, associated with the relocation activities resulting from the anticipated property sale. We have incurred aggregate capitalized costs of approximately $13 million, as well as transition costs of approximately $10 million (since October 2017) in connection with our relocations and the preparation of our new facilities. We expect to incur total capitalized costs of $17 million, and total transition costs of up to $15 million, in each case through the end of the first quarter of 2019.

Adoption of IFRS 15

We adopted IFRS 15, Revenue from Contracts with Customers, effective January 1, 2018.  We elected to apply the retrospective approach and as a result, have restated each of the required comparative reporting periods presented herein and in our Q3 2018 Interim Financial Statements. A description of the impact of our transition to IFRS 15 is included in notes 2 and 3 to our Q3 2018 Interim Financial Statements. 

Anticipated Acquisition Expected to Broaden Capabilities in the Capital Equipment Market

We entered into a definitive agreement, dated as of October 9, 2018, to acquire U.S.- based Impakt, a highly-specialized, vertically integrated company, providing manufacturing solutions for leading OEMs in the semiconductor and display (including LCD and Organic Light Emitting Diode (OLED)) industries, as well as other markets requiring complex fabrication services, with operations in California and South Korea. Through this acquisition, we expect to gain significant, new capabilities in large-format, complex, high-mix manufacturing solutions for multiple industries within our ATS segment, and broaden our precision component manufacturing, full system assembly, integration and machining capabilities. In addition, we expect to benefit from Impakt’s full spectrum of specialized vertical services, including its South Korea-based machining and manufacturing expertise. The purchase price is approximately $329 million (subject to specific adjustments as set forth in the definitive agreement). We intend to pursue the use of the accordion feature under our new credit facility to increase our term loan to finance the acquisition. However, since the accordion feature is on an uncommitted basis, there can be no assurance that any current and/or potential member of our financing syndicate will agree to its use, in the amounts we wish to borrow or at all, or that we will meet the required conditions. In the event that use of the accordion feature is unavailable (in whole or in part), we intend to finance required amounts for the acquisition with cash on hand and/or additional borrowings under our current revolver. The transaction is currently expected to close in the fourth quarter of 2018, subject to receipt of applicable regulatory approvals and satisfaction of other customary closing conditions. There can be no assurance that this acquisition will be financed in the intended manner, or that it will be consummated when anticipated, or at all. 

Intention to Launch New Normal Course Issuer Bid (NCIB)

We intend to file with the Toronto Stock Exchange (TSX) a notice of intention to commence a new NCIB during the fourth quarter of 2018. If this notice is accepted by the TSX, the Company expects to be permitted to repurchase for cancellation, at its discretion during the 12 months following such acceptance, up to 10% of the "public float" (calculated in accordance with the rules of the TSX) of the Company's issued and outstanding subordinate voting shares.  Purchases under the NCIB, if accepted, will be conducted in the open market or as otherwise permitted, subject to the terms and limitations to be applicable to such NCIB, and will be made through the facilities of the TSX. The Company believes that an NCIB is in the interest of the Company and constitutes a desirable use of its funds. 

Fourth Quarter 2018 Outlook

For the quarter ending December 31, 2018, we anticipate revenue to be in the range of $1.70 billion to $1.80 billion, non-IFRS selling, general and administrative expenses (SG&A) to be in the range of $49.0 million to $51.0 million, non-IFRS operating margin to be 3.5% at the mid-point of our revenue and non-IFRS adjusted EPS guidance ranges for the quarter, and non-IFRS adjusted EPS to be in the range of $0.27 to $0.33. We expect a negative $0.14 to $0.20 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 non-IFRS adjusted effective tax rate for the fourth quarter of 2018 to be in the range of 17% to 19%, 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. 

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