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Celestica Announces Fourth Quarter 2019 Financial Results

Celestica Announces Fourth Quarter 2019 Financial Results

(All amounts in U.S. dollars.                                                                                                                                             
Per share information based on diluted                                                                                                                             
shares outstanding unless otherwise noted.)

TORONTO, Jan. 29, 2020 (GLOBE NEWSWIRE) -- Celestica Inc. (CLS.TO)(CLS.TO), a leader in design, manufacturing and supply chain solutions for the world's most innovative companies, today announced financial results for the quarter ended December 31, 2019 (Q4 2019).

Q4 2019 Highlights

  • Revenue: $1.49 billion, within our Q4 2019 guidance range of $1.425 to $1.525 billion, decreased 14% compared to $1.73 billion for the fourth quarter of 2018 (Q4 2018).
     
  • Operating margin (non-IFRS)*: 2.9%, above our Q4 2019 guidance of 2.8% at the mid-point of our revenue and non-IFRS adjusted EPS* guidance ranges, compared to 3.5% for Q4 2018.
     
  • Advanced Technology Solutions (ATS) segment revenue**: increased 3% compared to Q4 2018, and represented 39% of total revenue, compared to 33% of total revenue for Q4 2018; ATS segment margin** was 3.0%, compared to 3.7% for Q4 2018.
     
  • Connectivity & Cloud Solutions (CCS) segment revenue**: decreased 22% compared to Q4 2018, and represented 61% of total revenue, compared to 67% of total revenue for Q4 2018; CCS segment margin** was 2.9%, compared to 3.3% for Q4 2018.
     
  • IFRS earnings (loss) per share: $0.05 loss per share, compared to $0.44 earnings per share (EPS) for Q4 2018.

  • Adjusted EPS (non-IFRS)*: $0.18 per share, at the high end of our Q4 2019 guidance range of $0.12 to $0.18 per share, compared to $0.29 per share for Q4 2018.

  • Adjusted return on invested capital (non-IFRS)*: 10.6%, compared to 15.0% for Q4 2018.

  • Free cash flow (non-IFRS)*: positive $43.8 million, compared to negative $30.4 million for Q4 2018.

"Celestica delivered solid execution of its strategy in the fourth quarter, with non-IFRS adjusted EPS at the high end of our guidance range, and continued sequential expansion of our non-IFRS operating margin," said Rob Mionis, President and CEO.

"In 2019, the Celestica team focused on putting the building blocks in place for long-term success. This included executing actions associated with our CCS portfolio-review program and productivity initiatives, as well as ramping several new programs. While there is still more work to do, we believe that we are entering 2020 with improving financial results, and an increased focus on opportunities better aligned to our strengths and strategy."

*Non-IFRS (International Financial Reporting Standards) 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 U.S. 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 to the most directly comparable IFRS measures. Also see Schedule 1 for a description of recent modifications to our calculation of non-IFRS free cash flow (including in Q4 2019), non-IFRS adjusted return on invested capital (ROIC), and Transition Costs, and the inclusion of Waiver Fees and Post-employment Benefit Plan Losses (each as defined in Schedule 1) in other charges (which are used in the determination of certain non-IFRS measures presented herein) for Q4 2019.

** Our ATS segment consists of our ATS end market, and is comprised of our aerospace and defense (A&D), industrial, energy, healthtech, and capital equipment businesses (consisting of semiconductor, display, and power & signal distribution equipment). Our CCS segment consists of our Communications and Enterprise end markets, and is comprised of our enterprise communications, telecommunications, servers and storage businesses. Segment performance is evaluated based on segment revenue, segment income and segment margin (segment income as a percentage of segment revenue). See note 25 to our 2018 audited consolidated financial statements for further detail.

Segment Updates

ATS Segment: Revenue increased in Q4 2019 compared to Q4 2018, as growth in our capital equipment business and new programs in our industrial and healthtech businesses were partially offset by disengagements in our energy business. The decrease in ATS segment margin in Q4 2019 compared to Q4 2018 was primarily driven by supply chain inefficiencies in our A&D business, partially offset by improvements in our capital equipment business (which had a low single digit million dollar loss for the quarter and was in line with our expectations). Our capital equipment business improved relative to the third quarter of 2019 due to higher demand and the positive impact of our cost reduction initiatives. In the first quarter of 2020 (Q1 2020), we expect to generate a profit for this business in the single-digit million dollar range. Our A&D business continues to be negatively impacted by materials constraints, and we also anticipate that the halt of the Boeing 737 Max program will put some downward pressure on our A&D revenue in 2020, which we have already factored into our Q1 2020 guidance. However, we expect improvements in our other ATS businesses to more than offset the 737 Max impacts in 2020.

CCS Segment: The decrease in CCS segment revenue and margin in Q4 2019 compared to Q4 2018 was primarily due to planned Enterprise end market program disengagements associated with our CCS revenue portfolio review (CCS Review), and continuing demand softness from certain Communications customers. As expected, disengagements stemming from our CCS Review accounted for just over $400 million of the aggregate CCS segment revenue decline for 2019 as compared to 2018. Despite the lower revenue, such disengagements and our cost productivity initiatives had a beneficial impact on our CCS margin. We are focused on completing our portfolio review actions in 2020, and continuing to invest in areas we believe are key to the long-term success of our CCS segment, including our Joint Design and Manufacturing (JDM) offering.

Restructuring Update

We have recorded an aggregate of $81.3 million in restructuring charges from the commencement of our cost efficiency initiative (CEI) in the fourth quarter of 2017 through its completion at the end of Q4 2019, including $11.3 million of restructuring charges recorded in Q4 2019. Aggregate charges under the CEI were above the high end of our previously disclosed range of $50 to $75 million, as we accelerated certain other cost actions, including those related to our disengagement with Cisco Systems, Inc. (Cisco).

We intend to incur $30 million of restructuring charges in 2020, associated primarily with our disengagement from Cisco. We expect to substantially complete this restructuring program by the end of 2020.

Guidance Summary and First Quarter 2020 (Q1 2020) Guidance

  Q4 2019 Guidance (1)   Q4 2019 Actual (1)   Q1 2020 Guidance (2)
IFRS revenue (in billions) $1.425 to $1.525   $ 1.49     $1.325 to 1.425
Non-IFRS operating margin 2.8% at the mid-point of our revenue and non-IFRS adjusted EPS guidance ranges     2.9 %   2.9% at the mid-point of our revenue and non-IFRS adjusted EPS guidance ranges
Non-IFRS adjusted SG&A (in millions) $50.0 to $52.0   $ 52.4     $51.0 to $53.0
Non-IFRS adjusted EPS $0.12 to $0.18   $ 0.18     $0.13 to $0.19

(1) For Q4 2019, our revenue was above the mid-point of our guidance range, primarily due to program-specific demand strength in our Enterprise end market. CCS segment revenue was above our expectations, as stronger-than-expected demand in our Enterprise end market was offset in part by lower-than-expected Communications end market revenue resulting from continued program-specific weakness. ATS segment revenue was in line with our expectations. Non-IFRS operating margin for Q4 2019 was above the mid-point of our revenue and non-IFRS adjusted EPS guidance ranges, and non-IFRS adjusted EPS was at the high end of our guidance range, driven in each case by favorable program mix. Non-IFRS adjusted EPS also included a $0.01 per share favorable taxable foreign exchange impacts (Currency Impacts) arising from the strengthening of various currencies relative to the U.S. dollar (described in note 12 to our December 31, 2019 unaudited interim condensed consolidated financial statements (Q4 2019 Interim Financial Statements)). Non-IFRS adjusted SG&A for Q4 2019 exceeded our guidance range by $0.4 million. Our non-IFRS adjusted effective tax rate for Q4 2019 was 27% (lower than our anticipated estimate of approximately 35%), driven primarily by the Currency Impacts (see note 12 to the Q4 2019 Interim Financial Statements for detail). For FY 2019, our non-IFRS adjusted effective tax rate was 34%, higher than our original anticipated range of between 19% and 21%, mainly due to lower levels of income, or losses, in certain low tax geographies.

IFRS loss per share of $0.05 for Q4 2019 included an aggregate charge of $0.20 (pre-tax) per share for employee stock-based compensation (SBC) expense, amortization of intangible assets (excluding computer software), Transition Costs (defined in Schedule 1), and restructuring charges. See the tables in Schedule 1 and note 11 to our Q4 2019 Interim Financial Statements for per-item charges. This aggregate charge is above the high end of our Q4 2019 guidance range of between $0.12 to $0.18 per share for these items, primarily due to higher-than-expected restructuring charges (see Restructuring Update above).

IFRS loss per share for Q4 2019 included an aggregate $0.15 per share negative impact attributable to other charges, consisting primarily of restructuring charges ($0.09 per share negative impact), Post-employment Benefit Plan Losses ($0.03 per share negative impact) and Waiver Fees ($0.02 per share negative impact). See Schedule 1 for details.

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 Holdings, LLC (Impakt), offset in part by an aggregate $0.12 per share negative impact attributable to other charges.

(2) For Q1 2020, we expect a negative $0.13 to $0.19 per share (pre-tax) aggregate impact on net earnings on an IFRS basis for employee SBC expense, amortization of intangible assets (excluding computer software), Transition Costs (defined in Schedule 1 hereto), and restructuring charges. Based on the projected geographical mix of our profits in Q1 2020, we currently expect our non-IFRS adjusted effective tax rate to be approximately 30%, excluding foreign exchange impacts and any unanticipated tax settlements. We currently expect our full year 2020 non-IFRS adjusted effective tax rate to be in the mid-twenty percent range, with an elevated adjusted effective tax rate in the first half of 2020 due to anticipated geographic mix, and closer to historical rates for the second half of 2020. 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.

Full Year Results

IFRS EPS of $0.53 for the year ended December 31, 2019 (FY 2019) included an aggregate $0.38 per share net benefit attributable to other charges (recoveries), resulting from a $0.75 per share gain on the sale of our Toronto real property in the first quarter of 2019, offset in part by restructuring charges ($0.29 per share negative impact) and Transition Costs ($0.05 per share negative impact), as well as the impact of the Post-employment Benefit Plan Losses and Waiver Fees described above ($0.03 and $0.02 per share negative impact, respectively). See Schedule 1 for the exclusions used to determine non-IFRS adjusted EPS for FY 2019.

IFRS EPS of $0.70 for the year ended December 31, 2018 (FY 2018) included an aggregate $0.43 per share negative impact attributable to other charges, most significantly restructuring charges ($0.25 per share negative impact), and an aggregate $0.08 per share negative tax impact arising from Currency Impacts due to the weakening of various currencies relative to the U.S. dollar, and an increased proportion of profits earned in higher tax rate jurisdictions; 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., and a $0.04 per share tax benefit arising from the reversal of previously-accrued Mexican taxes. See notes 4, 11 and 12 to our Q4 2019 Interim Financial Statements for further detail.  See Schedule 1 for the exclusions used to determine non-IFRS adjusted EPS for FY 2018.

As anticipated, total Company revenue for 2019 declined 11% compared to 2018.

Q4 2019 Webcast

Management will host its Q4 2019 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, including a description of recent modifications to our calculation of each of non-IFRS free cash flow (including in Q4 2019), non-IFRS adjusted ROIC, and Transition Costs, and the inclusion of Post-employment Benefit Plan Losses and Waiver Fees in other charges in Q4 2019.

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

Cautionary Note Regarding Forward-looking Statements

This press release contains forward-looking statements, including, without limitation, those related to our priorities, goals and strategies; trends in the electronics manufacturing services (EMS) industry in general and in each of our segments (including the components thereof), and their anticipated impact on our business; the anticipated impact of specified adverse market conditions in each of our segments (and/or component businesses) and near term expectations; our anticipated financial and/or operational results, and our anticipated Q1 2020 and full year 2020 non-IFRS adjusted effective tax rate;  the timing of the commencement of, and amount of payments under, a lease for our new corporate headquarters; anticipated costs and expenses; the timing and amounts of anticipated restructuring charges; potential  true-up premiums under our U.K. pension plan; and the potential impact of tax and litigation outcomes. 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, including our disengagements from programs with Cisco Systems, Inc. (Cisco) and other CCS Review 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; competitive factors and adverse market conditions affecting the EMS industry in general and our segments in particular; the cyclical nature of our capital equipment business, in particular our semiconductor business; a failure to achieve anticipated benefits from actions associated with our CCS Review (including our disengagement from programs with Cisco) and/or our productivity initiatives; delays in the delivery and availability of components, services and materials; the expansion or consolidation of our operations; defects or deficiencies in our products, services or designs; integrating acquisitions and "operate-in-place" arrangements, and achieving the anticipated benefits therefrom; negative impacts on our business resulting from recent increases in third-party indebtedness; our response to changes in demand, and rapidly evolving and changing technologies; customer, competitor and/or supplier consolidation; challenges associated with new customers or programs, or the provision of new services; the incurrence of future restructuring charges, 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 our/their control and the impact of significant tariffs on items imported into the U.S.; changes to our operating model; changing commodity, materials and component costs as well as labor costs and conditions; retaining or expanding our business due to execution or quality issues (including our ability to successfully resolve these challenges); non-performance by counterparties; 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 any significant uses of cash, securities issuances, and/or additional increases in third-party indebtedness for additional acquisitions or to otherwise fund our operations; our financial exposure to foreign currency volatility; our global operations and supply chain; recruiting or retaining skilled talent; our dependence on industries affected by rapid technological change; our ability to protect intellectual property; increasing taxes, tax audits, and challenges of defending our tax positions; obtaining, renewing or meeting the conditions of tax incentives and credits; computer viruses, malware, hacking attempts or outages that may disrupt our operations; the management of our IT systems and our ability to protect confidential information; the ability to prevent or detect all errors or fraud; the variability of revenue and operating results; compliance with applicable laws, regulations, and government grants; our ability to maintain compliance with the restrictive and financial covenants under our credit facility; deterioration in financial markets or the macro-economic environment; our credit rating; and current or future litigation, governmental actions, and/or changes in legislation or accounting standards. 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 2018 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; global tax legislation changes; our ability to keep pace with rapidly changing technological developments; the timing, execution and effect of restructuring actions; the successful resolution of quality issues that arise from time to time; 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; that we achieve the expected benefits from our recent acquisitions and actions associated with our CCS Review; and the impact of actions associated with the disengagement from our programs with Cisco on our business. Although management believes its assumptions to be reasonable under the current circumstances, they may prove to be inaccurate, which could cause actual results to differ materially (and adversely) from those that would have been achieved had such assumptions been accurate. Forward-looking statements speak only as of the date on which they are made, and we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

Schedule 1

Supplementary Non-IFRS Measures

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. A description of recent modifications to our calculation of adjusted ROIC, free cash flow (including in Q4 2019) and Transition Costs, and the inclusion in Other Charges in Q4 2019 of: (i) Waiver Fees (fees incurred in connection with obtaining the waiver of specified technical covenant defaults under our credit facility (and related cross-defaults) arising from excess share repurchases in May 2019; and (ii) Post-employment Benefit Plan Losses (resulting from $4.1 million in additional post-employment benefit plan obligations arising from recent changes in labor protection laws in Thailand) are also included below. In calculating our non-IFRS financial measures, management excludes the following items, where applicable: employee stock-based compensation (SBC) expense, amortization of intangible assets (excluding computer software), Other Charges, net of recoveries (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 to investors, as they enable investors to evaluate and compare our results from operations in a more consistent manner (by excluding specific items that we do not consider to be reflective of our 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 management’s determination that the facts and circumstances surrounding the excluded charges or recoveries are not indicative of the ordinary course of the ongoing operation of our business.

Non-IFRS measures do not have any standardized meaning prescribed by IFRS and 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 management’s use of non-IFRS financial measures is that the charges or credits excluded from the non-IFRS measures are nonetheless charges or credits that are recognized under IFRS and that have an economic impact on the company. Management compensates for these limitations primarily by issuing IFRS results to show a complete picture of the company’s performance, and reconciling non-IFRS financial measures back to the most directly comparable IFRS financial measures.

The economic substance of the exclusions described above (where applicable to the periods presented) and management’s rationale for excluding them from non-IFRS financial measures is provided below:

Employee SBC expense, which represents the estimated fair value of stock options, restricted share units and performance share units granted to employees, is excluded because grant activities vary significantly from quarter-to-quarter in both quantity and fair value. In addition, excluding this expense allows us to better compare core operating results with those of our competitors who also generally exclude employee SBC expense in assessing operating performance, who may have different granting patterns and types of equity awards, and who may use different valuation assumptions than we do.

Amortization charges (excluding computer software) consist of non-cash charges against intangible assets that are impacted by the timing and magnitude of acquired businesses. Amortization of intangible assets varies among our competitors, and we believe that excluding these charges permits a better comparison of core operating results with those of our competitors who also generally exclude amortization charges in assessing operating performance.

Other Charges, net of recoveries, consist of Restructuring Charges, net of recoveries (defined below), Transition Costs (Recoveries) (defined below); net Impairment charges (defined below); acquisition-related consulting, transaction and integration costs, and when applicable, charges related to the subsequent re-measurement of Impakt indemnification assets (collectively, Acquisition Costs); legal settlements (recoveries); credit facility-related charges (consisting of the accelerated amortization of unamortized deferred financing costs recorded during the second quarter of 2018, and Waiver Fees incurred in Q4 2019); and Post-employment Benefit Plan Losses in Q4 2019. We exclude these 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 or incurrence of the relevant costs. Our competitors may record similar charges at different times, and we believe these exclusions permit a better comparison of our core operating results with those of our competitors who also generally exclude these types of charges, net of recoveries, in assessing operating performance.

Restructuring 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; and reductions in infrastructure.

Transition Costs consist of: (i) costs recorded in connection with the relocation of our Toronto manufacturing operations, and the move of our corporate headquarters into and out of a temporary location during, and upon completion, of the construction of space in a new office building at our former location (all in connection with the sale of our Toronto real property) (collectively, Toronto Transition Costs) and (ii) costs recorded in connection with the transfer of certain capital equipment manufacturing lines from closed sites to other sites within our global network in response to the current capital equipment demand environment (Internal Relocation Costs). Transition Costs consist of relocation and duplicate costs (such as rent expense, utility costs, depreciation charges, and personnel costs) incurred during the transition periods, as well as cease-use costs incurred in connection with idle or vacated portions of the relevant premises that we would not have incurred but for these relocations and transfers. Transition Recoveries consist of the gain we recorded in March 2019 on the sale of our Toronto real property. We believe that excluding these costs and recoveries including Internal Relocation Costs, which commenced in the third quarter of 2019, 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 and manufacturing line transfers are complete, and the recovery pertains only to the first quarter of 2019 (Q1 2019).

Impairment charges, which consist of non-cash charges against goodwill, intangible assets, property, plant and equipment, and ROU assets, result primarily when the carrying value of these assets exceeds their recoverable amount.

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. We exclude the impact of the recognition of these adjustments, when incurred, 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):

  Three months ended December 31   Year ended December 31
  2018   2019   2018   2019
    % of revenue     % of revenue     % of revenue     % of revenue
IFRS revenue $ 1,727.0       $ 1,491.7       $ 6,633.2       $ 5,888.3    
                       
IFRS gross profit $ 120.0   6.9 %   $ 101.8   6.8 %   $ 430.5   6.5 %   $ 384.7   6.5 %
Employee SBC expense 3.8       2.7       14.7       14.6    
   Acquisition inventory fair value adjustment             1.6          
Non-IFRS adjusted gross profit $ 123.8   7.2 %   $ 104.5   7.0 %   $ 446.8   6.7 %   $ 399.3   6.8 %
                       
IFRS SG&A $ 59.6   3.5 %   $ 57.1   3.8 %   $ 219.0   3.3 %   $ 227.3   3.9 %
Employee SBC expense (4.6 )     (4.7 )     (18.7 )     (19.5 )  
Non-IFRS adjusted SG&A $ 55.0   3.2 %   $ 52.4   3.5 %   $ 200.3   3.0 %   $ 207.8   3.5 %
                       
IFRS earnings (loss) before income taxes $ 20.1   1.2 %   $ (0.4 ) %   $ 81.9   1.2 %   $ 99.8   1.7 %
Finance costs 9.2       11.3       24.4       49.5    
Employee SBC expense 8.4       7.4       33.4       34.1    
Amortization of intangible assets (excluding computer software) 5.1       5.8       11.6       24.6    
Other Charges (recoveries) 16.9       19.6       61.0       (49.9 )  
   Acquisition inventory fair value adjustment             1.6          
Non-IFRS operating earnings (adjusted EBIAT) (1) .. $ 59.7   3.5 %   $ 43.7   2.9 %   $ 213.9   3.2 %   $ 158.1   2.7 %
                       
IFRS net earnings (loss) $ 60.1   3.5 %   $ (7.0 ) (0.5 )%   $ 98.9   1.5 %   $ 70.3   1.2 %
Employee SBC expense 8.4       7.4       33.4       34.1    
Amortization of intangible assets (excluding computer software) 5.1       5.8       11.6       24.6    
Other Charges (recoveries) 16.9       19.6       61.0       (49.9 )  
Acquisition inventory fair value adjustment              1.6          
Adjustments for taxes (2) (50.8 )     (2.1 )     (56.7 )     (7.6 )  
Non-IFRS adjusted net earnings  $ 39.7       $ 23.7       $ 149.8       $ 71.5    
                       
Diluted EPS ..                      
Weighted average # of shares (in millions) * 138.0       128.5       140.6       131.8    
IFRS earnings (loss) per share * $ 0.44       $ (0.05 )     $ 0.70       $ 0.53    
Non-IFRS adjusted earnings per share  $ 0.29       $ 0.18       $ 1.07       $ 0.54    
# of shares outstanding at period end (in millions)  136.3       128.8       136.3       128.8    
  (restated)           (restated)        
IFRS cash provided by (used in) operations .. $ (1.9 )     $ 76.5       $ 33.1       $ 345.0    
Purchase of property, plant and equipment, net of sales proceeds (18.8 )     (14.2 )     (78.5 )     36.0    
Lease payments (3) (0.9 )     (8.8 )     (17.0 )     (38.2 )  
Finance costs paid (excluding debt issuance costs and Waiver Fees paid) (3) (8.8 )     (9.7 )     (23.1 )     (41.6 )  
Non-IFRS free cash flow (3)  $ (30.4 )     $ 43.8       $ (85.5 )     $ 301.2    
                       
IFRS ROIC % (4)  5.0 %     (0.1 )%     5.8 %     5.8 %  
Non-IFRS adjusted ROIC % (4)  15.0 %     10.6 %     15.1 %     9.2 %  

*       IFRS earnings (loss) per diluted share is calculated by dividing IFRS net earnings (loss) by the number of diluted weighted average shares outstanding (DWAS). In order to calculate IFRS loss per diluted share for Q4 2019, we used a DWAS of 128.5 million as at December 31, 2019. Because we reported a net loss on an IFRS basis in Q4 2019, the DWAS for such period-end excluded 0.9 million subordinate voting shares underlying in-the-money stock-based awards, as including  these shares would be anti-dilutive. However, we included these shares in the DWAS used to calculate non-IFRS adjusted earnings (per diluted share) for Q4 2019, because such shares were dilutive in relation to this non-IFRS measure.

(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 (loss) before income taxes, finance costs (defined below), employee SBC expense, amortization of intangible assets (excluding computer software), Other Charges (recoveries) (defined above), and in applicable periods, acquisition inventory fair value adjustments. Finance costs consist of interest expense and fees related to our credit facility (including debt issuance and related amortization costs), our interest rate swap agreements, our accounts receivable sales program and customers' supplier financing programs, and, beginning Q1 2019, interest expense on our lease obligations under IFRS 16, net of interest income earned. Waiver Fees are recorded in Other Charges. See note 11 to our Q4 2019 Interim Financial Statements for separate quantification and discussion of the components of 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 in the table below).

(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), lease payments (including $8.9 million and $35.3 million in Q4 2019 and FY 2019, respectively, for lease payments under IFRS 16), and finance costs paid (excluding any debt issuance costs and Waiver Fees paid). As a measure of liquidity, and consistent with the inclusion of our Toronto relocation capital expenditures and Toronto Transition Costs in non-IFRS free cash flow in the periods incurred, we have included the $113.0 million in proceeds from the sale of our Toronto real property in non-IFRS free cash flow in Q1 2019 (the period of receipt). See note 11(c) to the Q4 2019 Interim Financial Statements. We incurred debt issuance costs in connection with our current credit facility (upon execution and subsequent security arrangements), as well as Waiver Fees in Q4 2019, neither of which we consider to be part of our core operating expenses. As a result, we modified our non-IFRS free cash flow calculation: (i) commencing in Q1 2019, to exclude debt issuance costs from total finance costs paid ($0.5 million and $2.9 million in Q4 2019 and FY 2019, respectively, and $5.5 million and $12.9 million in Q4 2018 and FY 2018, respectively); and (ii) in Q4 2019, to exclude the Waiver Fees ($2.0 million in Q4 2019 and FY 2019). Prior period comparatives have been restated, where applicable, to conform to the current presentation. In addition, as of January 1, 2019, as a result of our adoption of IFRS 16 (Leases), we modified our non-IFRS free cash flow calculation to subtract lease payments under IFRS 16, as such payments were previously (but are no longer) reported in cash provided by (used in) operations. IFRS 16 did not require the restatement of prior period financial statements. Accordingly, and in order to preserve comparability with prior calculations, commencing in Q1 2019, such lease payments are subtracted from cash provided by (used in) operations in our determination of non-IFRS free cash flow. See footnote (4) below. 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. 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) is defined as total assets less: cash, ROU assets (described below), 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 (loss) before income taxes by average 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. In connection with our adoption of IFRS 16 as of January 1, 2019, we recognize ROU assets and related lease obligations on the applicable lease commencement dates. See note 2 to the Q4 2019 Interim Financial Statements for further detail. As IFRS 16 did not require the restatement of prior period financial statements, we have not restated prior period calculations of non-IFRS adjusted ROIC to account for ROU assets. Accordingly, and in order to preserve comparability with prior calculations, commencing in Q1 2019, we exclude the impact of our ROU assets from our calculation of net invested capital.

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
  2018 Effective tax rate   2019 Effective tax rate   2018 Effective tax rate   2019 Effective tax rate
                   
IFRS tax expense and IFRS effective tax rate $ (40.0 ) (199 )%   $ 6.6   (1,650 )%   $ (17.0 ) (21 )%   $ 29.5   30 %
                       
Tax costs (benefits) of the following items excluded from IFRS tax expense:                      
Employee SBC expense  1.1       0.4       2.3       1.0    
Net restructuring, impairment and other charges 0.7       1.8       1.4       3.2    
Non-core tax impact related to tax uncertainties*                   3.9    
Non-core tax impact related to fair value adjustments on acquisitions **  49.6             53.3       (1.5 )  
Non-core tax impacts related to restructured sites* (0.6 )     (0.1 )     (0.3 )     1.0    
                       
Non-IFRS adjusted tax expense and non-IFRS adjusted effective tax rate $ 10.8   21 %   $ 8.7   27 %   $ 39.7   21 %   $ 37.1   34 %

* See note 12 to the Q4 2019 Interim Financial Statements.

** Consists of deferred tax adjustments attributable to our Atrenne acquisition (recorded in the second quarter of 2018) and our Impakt acquisition (recorded in Q4 2018, and the second and third quarters of 2019).

The following table sets forth, for the periods indicated, our calculation of IFRS ROIC % and non-IFRS adjusted ROIC % (in millions, except IFRS ROIC % and non-IFRS adjusted ROIC %).

      Three months ended   Year ended
      December 31   December 31
      2018   2019   2018   2019
                   
IFRS earnings (loss) before income taxes    $ 20.1     $ (0.4 )   $ 81.9     $ 99.8  
Multiplier to annualize earnings   4     4     1     1  
Annualized IFRS earnings (loss) before income taxes    $ 80.4     $ (1.6 )   $ 81.9     $ 99.8  
                   
Average net invested capital for the period   $ 1,594.1     $ 1,647.0     $ 1,413.6     $ 1,719.7  
                   
IFRS ROIC % (1)    5.0 %   (0.1 )%   5.8 %   5.8 %
                   
      Three months ended   Year ended
      December 31   December 31
      2018   2019   2018   2019
                   
Non-IFRS operating earnings (adjusted EBIAT)   $ 59.7     $ 43.7     $ 213.9     $ 158.1  
Multiplier to annualize earnings   4     4     1     1  
Annualized non-IFRS adjusted EBIAT   $ 238.8     $ 174.8     $ 213.9     $ 158.1  
                   
Average net invested capital for the period   $ 1,594.1     $ 1,647.0     $ 1,413.6     $ 1,719.7  
                   
Non-IFRS adjusted ROIC % (1)    15.0 %   10.6 %   15.1 %   9.2 %
                   
  December 31
 2018
  March 31
 2019
  June 30
 2019
  September 30
 2019
  December 31
 2019
                   
Net invested capital consists of:                  
Total assets  $ 3,737.7     $ 3,688.1     $ 3,633.7     $ 3,557.6     $ 3,560.7  
Less: cash 422.0     457.8     436.5     448.9     479.5  
Less: right-of-use assets     115.8     116.2     107.8     104.1  
Less: accounts payable, accrued and other current liabilities, provisions and income taxes payable 1,512.6     1,344.8     1,349.2     1,342.3     1,341.7  
Net invested capital at period end (1) $ 1,803.1     $ 1,769.7     $ 1,731.8     $ 1,658.6     $ 1,635.4  
                   
  December 31
 2017
  March 31
 2018
  June 30
 2018
  September 30
 2018
  December 31
 2018
                   
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  

 (1)     See footnote 4 of the previous table.

CELESTICA INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions of U.S. dollars)
(unaudited)

  Note December 31
 2018
  December 31
 2019
         
Assets        
Current assets:        
  Cash and cash equivalents   $ 422.0     $ 479.5  
Accounts receivable 5 1,206.6     1,052.7  
Inventories 6 1,089.9     992.2  
Income taxes receivable   5.0     7.7  
Assets classified as held for sale 7 27.4     0.7  
Other current assets    72.6     59.2  
Total current assets    2,823.5     2,592.0  
         
Property, plant and equipment   365.3     355.0  
Right-of-use assets  2     104.1  
Goodwill  4 198.4     198.3  
Intangible assets  4 283.6     251.3  
Deferred income taxes   36.7     33.6  
Other non-current assets    30.2     26.4  
Total assets    $ 3,737.7     $ 3,560.7  
         
Liabilities and Equity        
Current liabilities:        
Current portion of borrowings under credit facility and lease obligations  9 $ 107.7     $ 132.6  
Accounts payable    1,126.7     898.0  
Accrued and other current liabilities 6 320.4     370.9  
Income taxes payable    42.3     46.7  
Current portion of provisions    23.2     26.1  
Total current liabilities    1,620.3     1,474.3  
         
Long-term portion of borrowings under credit facility and lease obligations 9 650.2     566.1  
Pension and non-pension post-employment benefit obligations   88.8     107.1  
Provisions and other non-current liabilities    20.6     28.6  
Deferred income taxes   25.5     28.4  
Total liabilities    2,405.4     2,204.5  
         
Equity:        
Capital stock  10 1,954.1     1,832.1  
Treasury stock  10 (20.2 )   (14.8 )
Contributed surplus    906.6     982.6  
Deficit   (1,481.7 )   (1,420.1 )
Accumulated other comprehensive loss    (26.5 )   (23.6 )
Total equity    1,332.3     1,356.2  
Total liabilities and equity    $ 3,737.7     $ 3,560.7  
         

   
Commitments and Contingencies (note 14), Transitional adjustment related to adoption of IFRS 16 (note 2), Subsequent event (note 5).
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.


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

    Three months ended   Year ended
    December 31   December 31
  Note 2018   2019   2018   2019
                 
Revenue 3 $ 1,727.0     $ 1,491.7     $ 6,633.2     $ 5,888.3  
Cost of sales 6 1,607.0     1,389.9     6,202.7     5,503.6  
Gross profit   120.0     101.8     430.5     384.7  
Selling, general and administrative expenses (SG&A)    59.6     57.1     219.0     227.3  
Research and development    8.1     7.3     28.8     28.4  
Amortization of intangible assets   6.1     6.9     15.4     29.6  
Other charges (recoveries)  11 16.9     19.6     61.0     (49.9 )
Earnings from operations   29.3     10.9     106.3     149.3  
Finance costs    9.2     11.3     24.4     49.5  
Earnings (loss) before income taxes   20.1     (0.4 )   81.9     99.8  
Income tax expense (recovery)  12              
Current    6.8     1.6     39.7     22.8  
Deferred   (46.8 )   5.0     (56.7 )   6.7  
    (40.0 )   6.6     (17.0 )   29.5  
Net earnings (loss) for the period   $ 60.1     $ (7.0 )   $ 98.9     $ 70.3  
                 
Basic earnings (loss) per share    $ 0.44     $ (0.05 )   $ 0.71     $ 0.54  
Diluted earnings (loss) per share   $ 0.44     $ (0.05 )   $ 0.70     $ 0.53  
                 
Shares used in computing per share amounts (in millions):                
Basic   136.8     128.5     139.4     131.0  
Diluted    138.0     128.5     140.6     131.8  

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


 CELESTICA INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(in millions of U.S. dollars)
(unaudited)

    Three months ended   Year ended
    December 31   December 31
  Note 2018   2019   2018   2019
                 
Net earnings (loss) for the period   $ 60.1     $ (7.0 )   $ 98.9     $ 70.3  
Other comprehensive income (loss), net of tax:                
Items that will not be reclassified to net earnings:                
Gains (losses) on pension and non-pension post-employment benefit plans  8 8.4     (8.7 )   (54.9 )   (8.7 )
Items that may be reclassified to net earnings (loss):                
  Currency translation differences for foreign operations    0.5     0.7     0.1     (0.2 )
  Changes from currency forward derivatives designated as hedges 13 (2.9 )   5.0     (15.5 )   10.8  
  Changes from interest rate swap derivatives designated as hedges  13 (4.8 )   2.4     (4.4 )   (7.7 )
Total comprehensive income (loss) for the period   $ 61.3     $ (7.6 )   $ 24.2     $ 64.5  

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


CELESTICA INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in millions of U.S. dollars)
(unaudited)

  Note Capital  stock
(note 10)
  Treasury stock
 (note 10)
  Contributed
surplus
  Deficit   Accumulated
other
comprehensive
loss (a)
  Total  equity
Balance -- January 1, 2018    $ 2,048.3     $ (8.7 )   $ 863.0     $ (1,525.7 )   $ (6.7 )   $ 1,370.2  
Capital transactions 10                      
Issuance of capital stock    14.9         (14.5 )           0.4  
Repurchase of capital stock for cancellation   (109.1 )    null