UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________________
FORM 20-F
☐ Registration statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
or
☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2021
or
☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
or
☐ Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of event requiring this shell company report:
Commission file number: 1-14832
___________________________________________________________________
CELESTICA INC.
(Exact name of registrant as specified in its charter)
Ontario, Canada
(Jurisdiction of incorporation or organization)
5140 Yonge Street, Suite 1900
Toronto, Ontario, Canada M2N 6L7
(Address of principal executive offices)
Craig Oberg
416-448-2211
clsir@celestica.com
5140 Yonge Street, Suite 1900
Toronto, Ontario, Canada M2N 6L7
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
___________________________________________________________________
SECURITIES REGISTERED OR TO BE REGISTERED
PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class:
Subordinate Voting Shares
Trading Symbol
CLS
Name of each exchange on which registered:
The Toronto Stock Exchange
New York Stock Exchange
___________________________________________________________________
SECURITIES REGISTERED OR TO BE REGISTERED
PURSUANT TO SECTION 12(g) OF THE ACT:
N/A
__________________________________________________________________
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION
PURSUANT TO SECTION 15(d) OF THE ACT:
N/A
___________________________________________________________________
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.
106,111,146 Subordinate Voting Shares
18,600,193
Multiple Voting Shares
0
Preference Shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐
No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of "large accelerated filer,"
"accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-
accelerated filer ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
†The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ Other ☐
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Emerging growth company ☐
TABLE OF CONTENTS
Part I.
Item 1.
Item 2.
Item 3.
Identity of Directors, Senior Management and Advisers
Offer Statistics and Expected Timetable
Key Information
A.
B.
C.
Selected Financial Data
Capitalization and Indebtedness
Reasons for the Offer and Use of Proceeds
D. Risk Factors
Item 4.
Information on the Company
A. History and Development of the Company
B.
Business Overview
C. Organizational Structure
D.
Property, Plants and Equipment
Item 4A. Unresolved Staff Comments
Item 5.
Item 6.
Operating and Financial Review and Prospects
Directors, Senior Management and Employees
A. Directors and Senior Management
B.
C.
D.
E.
Compensation
Board Practices
Employees
Share Ownership
Item 7.
Major Shareholders and Related Party Transactions
A. Major Shareholders
B.
C.
Related Party Transactions
Interests of Experts and Counsel
Item 8.
Financial Information
A. Consolidated Statements and Other Financial Information
Item 9.
B.
Significant Changes
The Offer and Listing
A. Offer and Listing Details
Plan of Distribution
B.
C. Markets
D.
Selling Shareholders
E. Dilution
F.
Expenses of the Issue
Item 10. Additional Information
A.
Share Capital
B. Memorandum and Articles of Incorporation
C. Material Contracts
D.
E.
Exchange Controls
Taxation
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F.
G.
Dividends and Paying Agents
Statements by Experts
H. Documents on Display
I.
Subsidiary Information
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Item 12. Description of Securities Other than Equity Securities
A. Debt Securities
B. Warrants and Rights
C. Other Securities
D. American Depositary Shares
Part II.
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16.
[Reserved]
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions from the Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Part III.
Item 17.
Financial Statements
Item 18.
Financial Statements
Item 19.
Exhibits
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Part I.
In this Annual Report on Form 20-F for the year ended December 31, 2021 (referred to herein as "this Annual Report"),
"Celestica," the "Corporation," the "Company," "we," "us" and "our" refer to Celestica Inc. and its subsidiaries.
In this Annual Report, the United States is referred to as the "U.S.," and all dollar amounts are expressed in U.S. dollars,
except where we state otherwise. All references to "U.S.$" or "$" are to U.S. dollars and all references to "C$" are to Canadian
dollars. Unless we indicate otherwise, any reference in this Annual Report to a conversion between U.S.$ and C$ is a
conversion at the average of the exchange rates in effect for the year ended December 31, 2021. During that period, based on
the relevant noon buying rates in New York City for cable transfers in Canadian dollars, as certified for customs purposes by
the Board of Governors of the U.S. Federal Reserve Bank, the average daily exchange rate was U.S.$1.00 = C$1.2533.
Unless we indicate otherwise, all information in this Annual Report is stated as of February 22, 2022.
Forward-Looking Statements
Item 3(D), "Key Information — Risk Factors," Item 4, "Information on the Company," Item 5, "Operating and Financial
Review and Prospects" and other sections of this Annual Report contain forward-looking statements within the meaning of
Section 27A of the U.S. Securities Act of 1933, as amended, or the U.S. Securities Act, Section 21E of the U.S. Securities
Exchange Act of 1934, as amended, or the U.S. Exchange Act, and forward-looking information within the meaning of
applicable Canadian securities laws (collectively, forward-looking statements), including, without limitation, statements related
to: anticipated and potential adverse impacts resulting from coronavirus disease 2019 and related mutations (COVID-19); our
priorities, intended areas of focus, targets, objectives and goals (including, but not limited to, those set forth under the caption
"Celestica's Strategy" in Item 4(B), and the captions "Operating Goals and Priorities" and "Our Strategy" in Item 5, "Operating
and Financial Review and Prospects"); trends in the electronics manufacturing services (EMS) industry and our segments (and/
or their constituent businesses), and their anticipated impact; the anticipated impact of current market conditions in each of our
segments (and/or constituent businesses) and near-term expectations (positive and negative); anticipated restructuring and
potential divestiture actions; our anticipated financial and/or operating results and outlook; our strategies; our credit risk; the
anticipated impact of acquisitions (including the acquisition of PCI Private Limited (PCI)), and program wins, transfers, losses
or disengagements; materials, component and supply chain constraints; shipping delays; anticipated expenses, capital
expenditures and other working capital requirements and contractual obligations; our intended repatriation of certain
undistributed earnings from foreign subsidiaries (and amounts we do not intend to repatriate in the foreseeable future); diversity
and inclusion; the potential impact of tax and litigation outcomes; our ability to use certain tax losses; intended investments in
our business; the potential impact of the pace of technological changes, customer outsourcing, program transfers, and the global
economic environment; the intended method of funding subordinate voting share (SVS) repurchases and our restructuring
provision; the lease for our temporary and new corporate headquarters; Toronto transition costs; the impact of our outstanding
indebtedness; liquidity and the sufficiency of our capital resources; our intention (when in our discretion) to settle outstanding
equity awards with SVS; our financial statement estimates and assumptions; recently-issued accounting pronouncements and
amendments; the potential impact of price reductions and longer payment terms; our compliance with covenants under our
credit facility; refinancing debt at maturity; interest rates and expense; the potential adverse impacts of events outside of our
control, including, among others: U.S. policies or legislation, U.S. and global tax reform; product/component tariffs on items
imported into the U.S. and related countermeasures, and/or the impact of, in addition to COVID-19, other widespread illness or
disease (External Events); mandatory prepayments under our credit facility; pension plan funding requirements and the impact
of annuity purchases; our income tax incentives; the anticipated impact of COVID-19-related governmental relief measures;
accounts payable cash flow levels; expectations with respect to cash deposits; accounts receivable sales; internal relocation
costs; our cash generating units with goodwill; our future warranty obligations; cybersecurity threats and incidents; our
intentions with respect to environmental assessments for newly-leased or acquired properties; our expectations with respect to
expiring leases; interest rate swap agreements; the pay-for-performance alignment of our executive compensation program; our
intention to retain earnings for general corporate purposes; the timing of finalization of the PCI purchase price allocation and
net working capital adjustment; increases in intangible asset amortization; and costs in connection with our pursuit of
acquisitions and strategic transactions. Such forward-looking statements may, without limitation, be preceded by, followed by,
or include words such as "believes," "expects," "anticipates," "estimates," "intends," "plans," "continues," "target," "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.
1
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, as is described in more detail in
Item 3(D), Key Information — Risk Factors and elsewhere in this Annual Report, risks related to:
RISK FACTOR SUMMARY
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customer and segment concentration; challenges of replacing revenue from completed, lost or non-renewed
programs or customer disengagements;
price, margin pressures, and other competitive factors and adverse market conditions affecting, and the highly
competitive nature of, the EMS industry in general and our segments in particular (including the risk that
anticipated market improvements do not materialize);
delays in the delivery and availability of components, services and materials, as well as their costs and
quality;
our customers' ability to compete and succeed using our products and services;
changes in our mix of customers and/or the types of products or services we provide, including negative
impacts of higher concentrations of lower margin programs;
managing changes in customer demand;
rapidly evolving and changing technologies, and changes in our customers' business or outsourcing strategies;
the cyclical and volatile nature of our semiconductor business;
the expansion or consolidation of our operations;
the inability to maintain adequate utilization of our workforce;
defects or deficiencies in our products, services or designs;
volatility in the commercial aerospace industry;
integrating and achieving the anticipated benefits from acquisitions (including our acquisition of PCI) and
"operate-in-place" arrangements;
compliance with customer-driven policies and standards, and third-party certification requirements;
challenges associated with new customers or programs, or the provision of new services;
the impact of our restructuring actions and/or productivity initiatives, including a failure to achieve
anticipated benefits therefrom;
negative impacts on our business resulting from newly-increased third-party indebtedness;
the incurrence of future restructuring charges, impairment charges, other write-downs of assets or operating
losses;
managing our business during uncertain market, political and economic conditions, including among others,
geopolitical and other risks associated with our international operations, including military actions,
protectionism and reactive countermeasures, economic or other sanctions or trade barriers, including in
relation to the evolving Ukraine/Russia conflict;
disruptions to our operations, or those of our customers, component suppliers and/or logistics partners,
including as a result of External Events;
the scope, duration and impact of the COVID-19 pandemic;
changes to our operating model;
changing commodity, materials and component costs as well as labor costs and conditions;
execution and quality issues (including our ability to successfully resolve these challenges);
non-performance by counterparties;
maintaining sufficient financial resources to fund currently anticipated financial actions and obligations and to
pursue desirable business opportunities;
negative impacts on our business resulting from any significant uses of cash (including for the acquisition of
PCI), securities issuances, and/or additional increases in third-party indebtedness (including as a result of an
inability to sell desired amounts under our uncommitted accounts receivable sales program);
operational impacts that may affect PCI's ability to achieve anticipated financial results;
foreign currency volatility;
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our global operations and supply chain;
competitive bid selection processes;
customer relationships with emerging companies;
recruiting or retaining skilled talent;
our dependence on industries affected by rapid technological change;
our ability to adequately protect intellectual property and confidential information;
increasing taxes, tax audits, and challenges of defending our tax positions;
obtaining, renewing or meeting the conditions of tax incentives and credits;
the management of our information technology systems, and the fact that while we have not been materially
impacted by computer viruses, malware, ransomware, hacking attempts or outages, we have been (and may
continue to be) the target of such events;
the inability to prevent or detect all errors or fraud;
the variability of revenue and operating results;
unanticipated disruptions to our cash flows;
compliance with applicable laws and regulations;
our pension and other benefit plan obligations;
changes in accounting judgments, estimates and assumptions;
our ability to maintain compliance with applicable credit facility covenants;
interest rate fluctuations and the discontinuation of LIBOR;
our ability to refinance our indebtedness from time to time;
deterioration in financial markets or the macro-economic environment;
our credit rating;
the interest of our controlling shareholder;
current or future litigation, governmental actions, and/or changes in legislation or accounting standards;
negative publicity;
the impact of climate change;
that we will not be permitted to, or do not, repurchase SVS under any normal course issuer bid (NCIB); and
our ability to achieve our environmental, social and governance (ESG) initiative goals, including with respect
to diversity and inclusion and climate change.
The foregoing and other material risks and uncertainties are discussed in our public filings, which can be found at
www.sedar.com and www.sec.gov, including in this Annual Report, and subsequent reports on Form 6-K furnished to, the
U.S. Securities and Exchange Commission, and as applicable, the Canadian Securities Administrators.
Our forward-looking statements contained in this Annual Report are based on various assumptions, many of which
involve factors that are beyond our control. Our material assumptions include those related to the following:
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the scope and duration of materials constraints and the COVID-19 pandemic, and their impact on our sites,
customers and suppliers;
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 success of our customers' products;
our ability to retain programs and customers;
the stability of general economic and market conditions, and currency exchange rates;
supplier performance and quality, pricing and terms;
compliance by third parties with their contractual obligations;
the costs and availability of components, materials, services, equipment, labor, energy and transportation;
that our customers will retain liability for product/component tariffs and countermeasures;
global tax legislation changes;
our ability to keep pace with rapidly changing technological developments;
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the timing, execution and effect of restructuring actions;
the successful resolution of quality issues that arise from time to time;
the components of our leverage ratio (as defined in our credit facility);
our ability to successfully diversify our customer base and develop new capabilities;
the availability of cash resources for, and the permissibility under our credit facility of, repurchases of
outstanding SVS under our current NCIB, and compliance with applicable laws and regulations pertaining to
NCIBs;
compliance with applicable credit facility covenants;
anticipated demand strength in certain of our businesses;
anticipated demand weakness in, and/or the impact of anticipated adverse market conditions on, certain of our
businesses;
anticipated financial results by PCI will be achieved; we are able to successfully integrate PCI, further
develop our ATS segment business, and achieve the other expected synergies and benefits from the
acquisition; all financial information provided by PCI is accurate and complete, and all forecasts of PCI’s
operating results are reasonable and were provided to Celestica in good faith; and
we will continue to have sufficient financial resources to fund currently anticipated financial actions and
obligations and to pursue desirable business opportunities.
While management believes these assumptions to be reasonable under 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. You should read this Annual Report, and the documents, if any, that we
incorporate herein by reference, with the understanding that our actual results may be materially different from what we expect.
All forward-looking statements attributable to us are expressly qualified by the cautionary statements included in this
Annual Report.
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A. [Removed and Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
4
D. Risk Factors
Each of the following risk factors, or any combination of them, could have a material adverse effect on our business,
financial condition, and/or operating results. Our shareholders and prospective investors should carefully consider each of the
following risks and all of the other information set forth in this Annual Report.
We are dependent on a limited number of customers and end markets. A decline in revenue from, or the loss of, any
significant customer, could have a material adverse effect on our financial condition and operating results.
We depend upon a small number of customers for a substantial portion of our revenue. Our top 10 customers in 2021
represented 66% (2020 — 66%; 2019 — 65%) of our total revenue. We also remain dependent upon revenue from our
Connectivity and Cloud Solutions (CCS) segment, which represented 59% of our consolidated revenue in 2021 (2020 — 64%;
2019 — 61%). Notwithstanding the expansion of our Advanced Technology Solutions (ATS) segment, our newly-reshaped
CCS segment portfolio, and growth in our Hardware Platform Solutions (HPS) business, we remain dependent on our
traditional CCS business for a large portion of our revenue, which continues to experience slower growth rates, increased
pricing pressures and a highly competitive marketplace, including from original design manufacturers (ODMs).
A decline in revenue from, or the loss of, any significant customer could have a material adverse effect on our financial
condition and operating results. We cannot assure: (i) the replacement of completed, delayed, cancelled or reduced orders with
new business; (ii) that our current customers will continue to utilize our services consistent with historical volumes or at all;
and/or (iii) that our customers will renew their long-term manufacturing or services contracts with us on acceptable terms or at
all. Disengagements resulting from our recent CCS segment portfolio review, including our disengagement from programs with
Cisco Systems, Inc. (Cisco), resulted in an estimated annualized revenue decline of $1.25 billion in 2021, compared to revenue
in 2018, the year such review commenced. Our disengagement from Cisco was completed in the fourth quarter of 2020.
There can also be no assurance that our efforts to secure new customers and programs will succeed in reducing our
customer concentration. Failure to secure business from existing or new customers in any of our end markets would adversely
impact our operating results.
Any of the foregoing may adversely affect our margins, cash flow, and our ability to grow our revenue, and may increase
the variability of our operating results from period to period. See "Our revenue and operating results may vary significantly
from period to period" below.
We operate in an industry comprised of numerous competitors and aggressive pricing dynamics.
We operate in a highly competitive industry. Our competitors include large global EMS companies, ODMs that specialize
in providing internally designed products and manufacturing services, smaller EMS companies that often have a regional,
product, service or industry-specific focus, as well as component and sub-system suppliers, distributors and/or systems
integrators. In addition, our HPS offering may compete with our traditional customers' hardware offerings. Offering products or
services that compete with the offerings of our customers may negatively impact our relationship with, or result in a loss of
business from, such customers. We face indirect competition from current and prospective customers who decide to
manufacture products internally, or insource previously outsourced business. In addition to the foregoing, we may face
competition from distribution and logistics providers expanding their services across the supply chain.
The competitive environment in our industry is intense and aggressive pricing is a common business dynamic. Some of
our competitors have greater scale and offer a broader range of services. Additionally, our current or potential competitors may:
be more effective than we are in increasing or shifting their presence in new lower-cost, lower-tariff or tariff-free regions to try
to offset continuous competitive pressure and increasing labor costs or to secure new business; develop or acquire services
comparable or superior to ours; consolidate to form larger competitors; have greater name recognition, critical mass and/or
geographic market presence; have greater manufacturing, research and development (R&D) and marketing resources; be better
able to take advantage of acquisition opportunities; be willing to, or able to make sales or provide services at lower margins
than we do; or adapt more quickly than we do to new technologies, evolving industry trends and changing customer
requirements. In addition, our competitors may be more effective than we are in investing in information technology solutions
to differentiate their offerings. Some of our competitors have increased their vertical capabilities by manufacturing modules or
components used in the products they assemble. Although we have also expanded our capabilities, including through
acquisitions and "operate-in-place" arrangements, our competitors' expansion efforts may be more successful than ours.
5
Competition may cause pricing pressures, reduced profits or a loss of market share (for example, from program losses, non-
renewals or customer disengagements). We may not be able to compete successfully against our current and future competitors.
We are dependent on third parties to supply certain materials, and our results can be negatively affected by the quality,
availability and cost of such materials.
The purchase of materials and electronic components represents a significant portion of our costs. We rely on third parties
to provide such items. Materials shortages or other issues affecting timely access to these materials (which often occur in our
industry) may impact our ability to successfully complete a program. A delay or interruption in supply from a component
supplier, especially for single-sourced components, could have a significant impact on our operations and on our customers if
we are unable to deliver finished products in a timely manner. If the amount we are required to pay for equipment and supplies
exceeds what we have estimated, especially in a fixed price contract, we may suffer losses on these contracts. If a supplier or
manufacturer fails to provide components, supplies or equipment as required under a contract, we may be required to source
these items from other third parties on a delayed basis or on less favorable terms, which could impact our profitability.
Additionally, quality or reliability issues at any of our component providers, or financial difficulties that affect their production
and ability to supply us with components, could halt or delay production of a customer's product, or result in claims against us
for failure to meet required customer specifications, which could materially adversely impact our operating results. Shortages
may also result in our carrying higher levels of inventory and extended lead-times, or result in increased component prices,
which may require price increases in the products and services that we provide. Any increase in our costs that we are unable to
recover would negatively impact our margins and operating results. Changes in forecasted volumes or in our customers'
requirements can also negatively affect our ability to obtain components and adversely impact our operating results. We
continue to experience materials constraints in both of our segments, due to global supply shortages for many electronic
components, which have been significantly exacerbated during 2020 and 2021 as a result of COVID-19. Materials shortages
have been aggravated by the significant impact of COVID-19-related workforce constraints on the factories of certain of our
suppliers. We also recognize that some sub-tier suppliers providing raw materials such as palladium, neon gas and high-grade
aluminum are partially dependent on supply from Russia/Ukraine. We will closely monitor the supply availability and price
fluctuations of these raw materials. In addition, as a result of the evolving situation in Ukraine, we may experience, among
other impacts, export restrictions and increases to fuel costs. As we are dependent on our suppliers to prioritize their
manufacturing to produce the products we need to fulfill our customer orders, these shortages have caused delays in the
production of customer products in both of our segments, and in combination with volatile market demand, negatively impacted
our margins and resulted in higher-than-expected levels of inventory in 2020 and 2021. To address these adverse market
conditions, which are expected to continue throughout 2022, we are placing purchase orders with longer-than-usual lead times
(in some cases in excess of one year), in order to secure materials needed for production. See Item 5, Operating and Financial
Review and Prospects — MD&A, "Recent Developments – Segment Environment" and "Liquidity — Contractual
Obligations."
We are dependent on our customers' ability to compete and succeed in the marketplace using our products and services.
Our operating results are highly dependent upon our customers' ability to compete and succeed in the marketplace using
our products and services. Factors that may adversely affect our customers include: rapid changes in technology; evolving
industry standards; seasonal demand; their failure to successfully market, and/or a lack of widespread commercial acceptance
of, their products; supply chain issues; dramatic shifts in demand which may cause them to lose market share or exit businesses;
recessionary periods in our customers' markets; short product lifecycles resulting from continuous improvements in products
and services, commoditization of certain products, changes in preferences by end customers, and the emergence of new entrants
or competitors with disruptive products, services, or new business models that de-emphasize traditional original equipment
manufacturer (OEM) solutions and distribution channels. In addition, certain of our customers have experienced, and may in the
future experience, severe revenue erosion, pricing, margin and cash flow pressures, and excess inventories that, in turn, have
adversely affected (and in the future may adversely affect) our operating results. If technologies or standards supported by our
customers' products and services or their business models become obsolete, fail to gain widespread acceptance or are canceled,
our business would be adversely affected. For example, declines in end-market demand for customer-specific proprietary
systems in favor of open systems with standardized technologies has had an adverse impact on certain of our customers, and
consequently, our business. See "Our revenue and operating results may vary significantly from period to period" below.
6
A change in the mix of customers and/or the types of products or services we provide could have a material adverse effect on
our financial condition and operating results.
The mix of our customers and the type of products or services we provide may have an impact on our financial condition
and operating results from period-to-period. For example, a higher concentration of lower-margin programs will have an
adverse impact on our operating results in the relevant period. See Item 5, "Operating and Financial Review and Prospects —
Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) — Recent Developments"
for a discussion of the impact on our operating results of customer and service mix during 2021. In addition, certain customer
agreements require us to provide specific price reductions over the contract term, which negatively impact our financial
condition and operating results if they are not offset.
Inherent challenges in managing changes in customer demand may impact our planning, supply chain execution and
manufacturing, and may adversely affect our operating performance and results.
Our customers typically do not commit to production schedules for more than 30 to 90 days in advance (however, due to
global supply shortages, some customers have provided us with longer commitments), and we often experience volatility in
customer orders and inventory levels. Customers may terminate their agreements with us prior to scheduled expiration, fail to
renew such agreements upon expiration, or significantly change, reduce or delay the volume of manufacturing or other services
they order from us, any of which would adversely affect our operating results. Customers may also shift business to our
competitors, in-source programs, or adjust the concentration of their supplier base. The global economic environment, adverse
market conditions, political and geopolitical pressures, negative sentiment from our customers' customers or changes made by
local governments (such as tax benefits or tariffs) may also impact our customers' business decisions. These and other factors
could adversely affect the rate of outsourcing to EMS providers generally or to us in particular. A significant portion of our
revenue can occur in the last month of the quarter, and purchase orders may be subject to change or cancellation, all of which
affect our operating results when they occur. In 2021, we continued to experience significant demand reductions in certain
markets, particularly in our commercial aerospace business, as a result of COVID-19. Because we cannot predict customer
behavior, or if or when adverse market conditions will reverse, our forecasts of customer orders may be inaccurate, and may
make it difficult to order appropriate levels of materials, schedule production, and maximize utilization of our manufacturing
capacity and resources.
Our customers may change their forecasts, production quantities or product type requirements, or may accelerate, delay or
cancel production quantities. When customers change production volumes or request different products to be manufactured
from those in their original forecast, the unavailability of components and materials for such changes could also adversely
impact our revenue and working capital performance. See "We are dependent on third parties to supply certain materials, and
our results can be negatively affected by the quality, availability and cost of such materials" above.
Further, to guarantee continuity of supply for many of our customers, we are required to manufacture and warehouse
specified quantities of finished goods. The uncertainty of demand in our customers' end markets, intense competition in our
customers' industries and general order volume volatility may result in customers delaying or canceling the delivery of products
we manufacture for them or placing purchase orders for lower volumes of products than previously anticipated. This may result
in higher than expected levels of inventory, which could in turn have a material adverse impact on our operating results and
working capital performance. Although the levels of inventory we carry in any period reflect inventory required to support new
program ramps, inventory levels are also impacted by demand volatility and significant product mix changes, including late
changes from customers, as well as materials constraints from suppliers (which persisted throughout 2021). As a result of global
supply constraints, and related customer requests for us to order sufficient components, there has been a significant increase in
our purchase order obligations from prior periods. We may not be able to return or re-sell excess inventory resulting from these
factors, or we may be required to hold such inventory for a period of time, any of which may result in higher working capital
needs (offset in part by customer cash deposits), and/or a requirement to record additional (and higher-than-typical) reserves for
excess or obsolete inventory (as occurred in 2020). Order cancellations and delays could also lower our asset utilization,
resulting in higher levels of unproductive assets, lower inventory turns, and lower margins.
The semiconductor industry is cyclical and volatile in nature.
The semiconductor industry is highly cyclical and has experienced significant economic downturns, often in connection
with, or in anticipation of, maturing product cycles or a decline in general economic conditions. These downturns are
characterized by diminished product demand, lower volumes and rapid erosion of average selling prices, resulting in revenue
declines, production overcapacity, and excess inventory (as was the case throughout 2019). The timing, length and volatility of
these cycles are difficult to predict. The quick onset of demand changes, as well as the high level of fixed costs associated with
this business, exacerbate the adverse impact of these downturns on our operating results. Actions taken to reduce our costs may
be insufficient to align our structure with prevailing business conditions, and we may be unable to invest in R&D and
7
engineering at the levels we believe are necessary to maintain our competitive position. On the other hand, in the event of a
significant upturn, we may not be able to expand our workforce and operations in a sufficiently timely manner, procure
adequate resources and raw materials, or locate suitable third-party suppliers to respond effectively to changes in demand for
our existing products or to the demand for new products requested by our customers. See Item 5, "Operating and Financial
Review and Prospects — MD&A — Recent Developments – Segment Environment." Any of the foregoing may adversely
affect our margins, cash flow, and our ability to grow our revenue, and may increase the variability of our operating results
from period to period.
We may encounter difficulties expanding or consolidating our operations or introducing new competencies or new offerings,
which could adversely affect our operating results.
As we expand our business, open new sites, enter into new markets, products and technologies, invest in research, design
and development, acquire new businesses or capabilities, transfer business within our network, consolidate certain operations,
and/or introduce new business models or programs, we may encounter difficulties that result in higher than expected costs
associated with such activities. Potential difficulties related to such activities include our ability: to manage growth effectively;
to maintain existing business relationships during periods of transition; to anticipate disruptions in our operations that may
impact our ability to deliver to customers on time, produce quality products and ensure overall customer satisfaction; and to
respond rapidly to changes in customer demand or volumes. For example, our profitability was adversely impacted during 2020
and 2021 as a result of significant reduced demand in our aerospace and defense (A&D) business, due in part to COVID-19,
requiring cost reduction actions to appropriately adjust our cost base.
We may also encounter difficulties in ramping and executing new programs. Ramping new programs can range from
several months to over a year before production starts, and often requires significant up-front investments and increased
working capital. These programs may generate lower margins or losses during and/or following the ramp period, or may not
achieve the expected financial performance, due to production ramp inefficiencies, lower than expected volume, or delays in
ramping to volume. In addition, our customers may significantly change these programs, or even cancel them altogether, due to
decreases in their end-market demand or in the actual or anticipated success of their products in the marketplace. We may incur
increased ramping costs as we further expand our ATS segment, and ramp new programs, including in the facility formerly
used for programs with Cisco. There can be no assurance that our increased investments will benefit us or result in business
growth. As we pursue opportunities in new markets or technologies, we may encounter challenges due to our limited
knowledge or experience in these areas. In addition, the success of new business models or programs depends on a number of
factors including: understanding the new business or markets; timely and successful product development; market acceptance;
the effective management of purchase commitments and inventory levels in line with anticipated demand; the development or
acquisition of appropriate intellectual property and capital investments, to the extent required; the availability of materials in
adequate quantities and at appropriate costs to meet anticipated demand; and the risk that new offerings may have quality or
other defects in the early stages of introduction. Any of these factors could prevent us from realizing the anticipated benefits of
growth in new markets or technologies, which could materially adversely affect our business and operating results.
As part of our strategy to enhance our end-to-end service offerings, we intend to continue to expand our design and
engineering capabilities. Providing these services may expose us to different or greater potential risks than those we face when
providing our manufacturing services. Our design services require significant investments in R&D, technology licensing,
testing and tooling equipment, patent applications and talent recruitment. Our margins may be adversely impacted if we incur
higher than expected investment costs, or if our customers are not satisfied with our progress, or do not approve our completed
designs. In addition, our design activities often require the purchase of inventory for initial production runs before we have a
firm purchase commitment from a customer. Furthermore, we face increased competition with respect to this offering, as well
as the recruitment of our HPS talent, from ODMs and other companies providing similar services. As we continue to grow our
HPS business, costs required to support our design and engineering capabilities are expected to increase (for example, we
expanded our HPS engineering network at our Richardson, Texas facility in 2021), and adversely impact our profitability. In
addition, some of the products we design and develop must satisfy safety and regulatory standards and/or receive government
certifications. If we fail to obtain these approvals or certifications on a timely basis, we would be unable to sell these products,
which would harm our revenues, profitability and reputation.
There can be no assurance that our expansion into new markets or new business will be successful, or that we will achieve
the anticipated benefits.
In addition, there is no assurance that we will find suitable new acquisition targets, that we will be able to consummate
any such transactions on terms and conditions acceptable to us, or that we will be able to fund any such acquisitions with
existing cash resources or through financing provided by external lenders. We may be unable to obtain additional capital if and
8
when required on terms acceptable to us or at all. If we are unable to consummate an acquisition we have deemed desirable, we
may not be able to implement our intended business plan, which could adversely affect our business, results of operations and
financial condition. In addition, we may incur costs to support our pursuit of acquisitions and/or other strategic opportunities,
which may adversely impact our operating results, and may not result in the consummation of any such transactions. See "We
have incurred substantial third-party debt to fund acquisitions, which has increased our debt service requirements, may
reduce our ability to fund future acquisitions and/or to respond to unexpected capital requirements, and may have other
adverse impacts on our business" below.
Our profitability could suffer if we are not able to maintain adequate utilization of our workforce.
The cost of providing our services, including the extent to which we utilize our workforce, affects our profitability. Our
workforce utilization rate is affected by a number of factors, including: our ability to transition employees from completed
projects to new programs and to hire and assimilate new employees; our ability to forecast demand for our services and thereby
maintain an appropriate headcount in each of our geographies and operating sites; our ability to manage attrition; our need to
devote time and resources to training and development; and our ability to match the skill sets of our employees to the needs of
the marketplace. If we over-utilize our workforce, our employees may become disengaged, which could impact employee
attrition. If we under-utilize our workforce, our margins and profitability could suffer. Manufacturing shut-downs and
restrictions due to COVID-19 resulted in the incurrence of certain idled labor costs, which adversely impacted our financial
results in 2020 and 2021.
There may be problems with the products we design or manufacture that could result in liability/warranty claims against us,
which may reduce demand for our services, damage our reputation, and/or cause us to incur significant costs.
In most of our sales contracts, we provide warranties against defects or deficiencies in our products, services, or designs.
We generally design and manufacture products to our customers' specifications, many of which are highly complex, and include
products for regulated industries, such as HeathTech and A&D. The customized design solutions that form a part of our HPS
offering also subject us to the risk of liability claims if defects are discovered or alleged. Despite our quality control and
assurance efforts, problems may occur or be alleged, in or resulting from the design and/or manufacturing of these products.
Whether or not we are responsible, problems in the products we design and/or manufacture, or in products which include
components we manufacture, whether real or alleged, whether caused by faulty customer specifications, the design or
manufacturing processes or a component defect, may result in increased costs to us, as well as delayed shipments to our
customers, and/or reduced or canceled customer orders. These potential claims may include damages for the recall of a product
and/or injury to person or property, including consequential and/or punitive damages.
Even if customers or third parties, such as component suppliers, are responsible for defects, they may not, or may not be
able to, assume responsibility for any such costs or required payments to us. While we seek to insure against many of these
risks, insurance coverage may be inadequate, not cost effective or unavailable, either in general or for particular types of
products or issues.
As we expand our service offerings (including our HPS offerings) and pursue business in new end markets, our warranty
obligations have increased and we may not be successful in pricing our products to appropriately cover our warranty costs. A
successful claim for damages arising from defects or deficiencies for which we are not adequately insured, and for which
indemnification from a third party is not timely (or otherwise) available, could have a material adverse effect on our reputation
and/or our operating results and financial condition.
We are subject to demand volatility in the commercial aerospace industry, and the sustained downturn in this industry as a
result of COVID-19 has adversely impacted the revenues of our A&D business.
Our A&D business may be affected by certain characteristics and trends of the commercial aerospace industry, such as
fluctuations in its business cycle, varying fuel and labor costs, intense price competition and regulatory scrutiny, certain trends,
including a possible decrease in aviation activity and a decrease in outsourcing by aircraft manufacturers or the failure of
projected market growth to materialize or continue. In the event that these characteristics and trends adversely affect customers
in the commercial aerospace industry, they may reduce the overall demand for our commercial aerospace services. The Boeing
737 Max program halt led to demand reductions in our commercial aerospace business in 2020, which have not yet recovered.
In addition, the severe and prolonged adverse impact of COVID-19 on the commercial aerospace industry due to quarantines,
travel restrictions, business curtailments, resurgences and mutations of the virus and safety concerns had a material and adverse
impact on our commercial aerospace revenues during 2020 and 2021.
9
We may encounter integration and other significant challenges with respect to our acquisitions and strategic transactions
which could adversely affect our operating results.
We have (and may continue to) expand our network, capabilities and presence in new regions and end markets through
acquisitions and/or strategic transactions, including multi-year "operate-in-place" arrangements, where we manage certain
production, assembly or other services for customers directly from their locations, acquire their inventory, equipment and/or
other assets, hire their employees, and lease or acquire their manufacturing sites. Potential challenges related to these
acquisitions and transactions include: integrating acquired operations, systems and businesses (which may include transferring
production from acquired operations to our existing network, or downsizing or closing acquired locations, in each case to obtain
anticipated operational synergies); meeting customers' expectations as to volume, product quality and timeliness; supporting
legacy contractual obligations; retaining customer, supplier, employee or other business relationships of acquired operations;
addressing unforeseen liabilities of acquired businesses; limited experience with new technologies and markets; failure to
realize anticipated benefits, such as cost savings and revenue enhancements; failure to achieve anticipated business volumes or
operating margins; valuation methodologies not accurately capturing the value of the acquired business; the effects of diverting
management's attention from day-to-day operations to matters involving the integration of acquired businesses; incurring
potentially substantial transaction costs associated with these transactions; increased burdens on our staff and on our
administrative, internal control and operating systems, which may hinder our legal and regulatory compliance activities;
overpayment for an acquisition; and potential impairments resulting from post-acquisition deterioration in, or reduced benefit
from, an acquired business. While we often obtain indemnification rights from the sellers of acquired businesses, such rights
may be difficult to enforce, the losses may exceed any dedicated escrow funds, and the indemnitors may not have the ability to
financially support the indemnity. Any of these factors may prevent us from realizing the anticipated benefits of an acquisition,
including additional revenue, operational synergies, and/or economies of scale. Any delay or failure to realize the anticipated
benefits of acquisitions may adversely affect our business and operating results and may require us to write-down the carrying
value of any related goodwill and intangible assets in periods subsequent to the acquisitions. For example, our profitability was
adversely impacted during 2020 and 2021 as a result of significant reduced demand in our A&D business, due in part to
COVID-19, requiring related cost reduction actions to adjust our cost base. Acquisitions may also involve businesses we are not
familiar with, and expose us to additional business risks that are different than those we have traditionally experienced or
anticipated at the time of acquisition.
Any failure to comply with customer-driven policies and standards, and third party certification requirements could
adversely affect our business and reputation.
In addition to government regulations and industry standards, our customers may require us to comply with their own
climate change, social responsibility, conflict minerals, quality or other business policies or standards, which may be more
restrictive than current laws and regulations and our pre-existing policies. Such policies or standards may be customer-driven,
established by the industries in which we operate, or imposed by third party organizations. For example, we are a member of
the Responsible Business Alliance (RBA). The RBA is a non-profit coalition of electronics companies that, among other things,
establishes standards for its members in responsible and ethical practices in the areas of labor, environmental compliance,
employee health and safety, ethics and social responsibility. Our compliance with these policies, standards and third-party
certification requirements could be costly, and our failure to comply could adversely affect our operations, customer
relationships, reputation and profitability.
Challenges associated with new customers or programs, or the provision of new services, could adversely affect our
operations and financial results.
In determining whether to pursue a potential new customer, program or service, we evaluate whether it fits with our value
proposition as well as its potential end-market success. Where we proceed, our goal is to ensure that our terms of engagement
appropriately reflect anticipated costs, risks and rewards. The failure to make prudent engagement decisions or to establish
appropriate contractual terms could adversely affect our profitability and margins.
10
There are also risks associated with the timing and ultimate realization of anticipated revenue from a new program or
service. Certain new programs or services require us to devote significant capital and personnel to new technologies and
competencies. We may not meet customer expectations, which could damage our relationships with such customers and impact
our ability to timely deliver conforming products or services. The success of new programs may also depend heavily on factors
including product reliability, supply chain dynamics, market acceptance, regulatory approvals and/or economic conditions. Any
failure to meet expectations on these factors could adversely affect our results of operations.
We have incurred significant restructuring charges in recent periods, and expect to incur further restructuring charges
during 2022; we may not achieve some or all of the expected benefits from our restructuring activities, these activities may
adversely affect our business, and additional restructuring actions may be required once currently-contemplated actions are
complete.
We incurred restructuring charges of $10.5 million in 2021, $25.8 million in 2020, and $37.9 million in 2019, and expect
to incur incremental restructuring charges in 2022. See Item 5, "Operating and Financial Review and Prospects — MD&A —
Operating Results — Other charges (recoveries)." Implementation of our restructuring activities may be costly and disruptive to
our business, and we may not achieve the cost savings and benefits anticipated from such activities. We may not be able to
retain or expand existing business due to execution issues relating to anticipated headcount reductions, plant closures or
product/service transfers, and we may incur higher operating expenses during the periods of transition. Additionally,
restructuring actions may result in a loss of continuity and accumulated knowledge in our workforce and related operational
inefficiencies, as well as negative publicity. Headcount reductions can also have a negative impact on morale and our ability to
attract and hire new qualified personnel in the future. Our restructuring activities require a significant amount of management
and other employees’ time and focus, which may divert attention from operating and growing our business. Any failure to
achieve some or all of the expected benefits of our restructuring activities, including any delay in implementing planned related
restructuring actions, may have a material adverse effect on our competitive position and operating results. In addition, we may
implement additional future restructuring actions or divestitures as a result of changes in our business, the marketplace and/or
our exit from less profitable, under-performing, non-core or non-strategic operations.
We have incurred substantial third-party debt to fund acquisitions, which has increased our debt service requirements, may
reduce our ability to fund future acquisitions and/or to respond to unexpected capital requirements, and may have other
adverse impacts on our business.
Our outstanding indebtedness, together with the mandatory prepayment provisions of our credit facility, require us to
dedicate a portion of our cash flow to make interest and principal payments on such indebtedness, thereby limiting the
availability of our cash flow for other purposes, and may reduce our ability to fund future acquisitions and/or to respond to
unexpected capital requirements. Such indebtedness (which may increase if we are unable to sell desired amounts under our
uncommitted accounts receivable sales program) may also: require us to pursue additional term financing for potential
investments, which may not be available on acceptable terms or at all; limit our ability to obtain additional financing for
working capital, business activities, and other general corporate requirements; limit our ability to refinance our indebtedness on
terms acceptable to us or at all; limit our flexibility to plan for and adjust to changing business and market conditions; and
increase our vulnerability to general adverse economic and industry conditions. In addition, such indebtedness could have a
variety of other adverse effects, including: (i) default and foreclosure on our assets if we have insufficient funds to repay the
debt obligations; (ii) acceleration of such indebtedness or cross-defaults if we breach financial or other covenants under
applicable debt agreements and such breaches are not waived; (iii) increased vulnerability to adverse changes in competitive
conditions or government regulation; and (iv) other disadvantages compared to our competitors who have less debt. Our credit
facility also prohibits share repurchases for cancellation if our leverage ratio (as defined in such facility) exceeds a specified
amount (this restriction is not currently, and during 2021 was not, in effect).
In addition, our credit ratings impact the cost and availability of future borrowings and, accordingly, our cost of capital.
Our ratings reflect the opinions of the ratings agencies of our financial strength, operating performance and ability to meet our
debt obligations. There can be no assurance that we will achieve a particular rating or maintain a particular rating in the future,
which could place us at a disadvantage compared to our competitors and prevent us from taking actions that could benefit us in
the long term. Any negative change in our credit rating or outlook may make it more expensive for us to raise additional capital
in the future on terms that are acceptable to us, if at all. We may not be able to obtain financing arrangements on acceptable
terms or in amounts sufficient to meet our needs in the future, which could harm our ability to grow our business, internally or
through acquisitions.
11
We have incurred impairment charges and operating losses in certain of our businesses, and may incur such charges and
losses in future periods.
We have from time to time recorded impairment charges when we have determined that the carrying amount of our assets,
or related cash generating unit or units (CGUs), may not be recoverable (last recorded in 2015). We have also recorded charges
(including during 2019 - 2021) to write-down specified assets in connection with our restructuring actions (described in note 15
to the Consolidated Financial Statements in Item 18). Determining the recoverable amount of our assets and CGUs is subjective
and requires management to exercise significant judgment in estimating future growth, profitability, discount and terminal
growth rates, and in projecting future cash flows, among other factors, including the impact of market conditions on
management's assumptions. Future events and changing market conditions may impact our assumptions as to prices, costs, or
other factors that may result in changes to our estimates of future cash flows, which may in turn result in impairment charges,
which could be substantial and adversely affect our financial results. Factors that might reduce the recoverable amount of these
assets below their respective carrying values include declines in our stock price and market capitalization, reduced future cash
flow estimates, slower growth rates, or significant operating losses in any of our businesses. Sustained market price decreases,
demand softness, and/or failure to realize future revenue at an appropriate profit margin in any CGU could negatively impact
our operating results, including the incurrence of restructuring charges and/or impairment losses for such CGU or operating
losses for the relevant business. Similar risks apply to assessing the recoverability of our deferred tax assets.
We continue to operate in an uncertain global economic and political environment.
Concerns over global economic conditions, financial markets, geopolitical issues, energy costs, inflation, and the
availability and cost of credit, have contributed to increased global economic and political uncertainty. The political
environment in the U.S., tensions between the U.S. and other countries, and the evolving Russia/Ukraine conflict, have
contributed to such uncertainty. Trade actions between the U.S. and China have made our production from China less cost-
competitive than other low-cost countries in recent periods. These geopolitical events, which are outside our control, have
adversely impacted, and are expected to continue to adversely impact, our China operations. See "Our operations have been
and could continue to be adversely affected by events outside our control" and "U.S. policies or legislation could have a
material adverse effect on our business, results of operations and financial condition" below. Uncertain global economies
have adversely impacted, and may continue to unpredictably impact, currency exchange rates. See "We are exposed to
translation and transaction risks associated with foreign currency exchange rate fluctuations; hedging instruments may not
be effective in mitigating such risks" below. Financial market instability may result in lower returns on our financial
investments, and lower values on some of our assets. Alternately, inflation may lead to higher costs for materials and/or
increase our costs of borrowing and raising capital, and we have experienced wage and materials price inflation during 2021.
Uncertainty surrounding the global economic environment and geopolitical outlook may impact current and future demand for
some of the products we manufacture or services we provide, the financial condition of our customers and/or suppliers, as well
as the number and pace of customer consolidations. If any of the foregoing impacts the financial condition of our customers,
they may delay payments to us or request extended payment terms, which could have an adverse effect on our financial
condition and working capital. If any of the foregoing impacts the financial condition of our suppliers, this may have an adverse
effect on our operations, financial condition and/or customer relationships. We cannot predict the precise nature, extent, or
duration of these economic or political conditions or if they will have any impact on our financial results. A deterioration in the
economic environment may exacerbate the effect of the various risk factors described in this Annual Report and could result in
other unforeseen events that may adversely impact our business and financial condition.
Our operations have been and could continue to be adversely affected by events outside our control.
Our operations and those of our customers, component suppliers and/or our logistics partners may be disrupted by global
or local events outside our control, including: natural disasters and related disruptions; political instability; geopolitical
dynamics; terrorism; armed conflict; labor or social unrest; criminal activity; disease or illness that affects local, regional,
national or international economies (see below); unusually adverse weather conditions; cybersecurity incidents (see "Our
operations and our customer relationships may be adversely affected by disruptions to our information technology (IT)
systems, including disruptions from cybersecurity breaches of our IT infrastructure" below); and other risks present in the
jurisdictions in which we, our customers, our suppliers and/or our logistics partners operate. These types of events could disrupt
operations at one or more of our sites or those of our customers, component suppliers and/or our logistics partners. These events
could also lead to higher costs or supply shortages, and may disrupt the delivery of components to us or our ability to provide
finished products or services to our customers, any of which could adversely affect our operating results materially. We carry
insurance to cover damage to our sites and interruptions to our operations, including those that may occur as a result of natural
disasters, such as flooding, earthquakes or other events. Our insurance policies, however, are subject to deductibles, coverage
limitations and exclusions, and may not provide adequate (or any) coverage should such events occur.
12
Our business and operations could be materially and adversely affected by the effects of a widespread outbreak of a
contagious disease or other adverse public health developments. These effects could (and with respect to COVID-19, did and
continue to) include disruptions or restrictions on our employees’ and other service providers’ ability to travel, as well as
temporary closures of our facilities or the facilities of our customers, suppliers, or other vendors in our supply chain, including
single source suppliers, and shipping delays and premiums. In addition, a significant outbreak of contagious diseases in the
human population could (and with respect to COVID-19, did and continues to) result in a widespread health crisis that
adversely affects the economies and financial markets of many countries, resulting in an economic downturn that affects
demand for our end customers’ products and in turn adversely impacts our operating results. See "The effect of COVID-19 on
our operations and the operations of our customers, suppliers and logistics providers has had, and may continue to have, a
material and adverse impact on our financial condition and results of operations" below for a discussion of the actual and
potential impact of COVID-19 on our business.
Increased international political volatility, including changes to previously accepted trading or other government policies
or legislation in the U.S. and Europe, instability in parts of Europe and the Middle East, as well as the ongoing refugee crisis,
anti-immigrant activities, social unrest and fears of terrorism, enhanced national security measures, armed conflicts (including
the evolving situation in Ukraine), security issues at the U.S./Mexico border related to illegal immigration or criminal activities
associated with illegal drug activities, labor or social unrest, strained international relations, including tensions between the U.S.
and other countries, and any related decline in consumer confidence arising from these and other factors may materially hinder
our ability to conduct business, or may reduce demand for our products or services. Any escalation in these events or similar
future events may disrupt our operations or those of our customers and suppliers and could adversely affect the availability of
materials needed to manufacture our products or the means to transport those materials to manufacturing sites and finished
products to customers. Changes in policies by the U.S. or other governments could negatively affect our operating results due to
changes in duties, tariffs or taxes, or limitations on currency or fund transfers, as well as government-imposed restrictions on
producing certain products in, or shipping them to, specific countries. Also see "U.S. policies or legislation could have a
material adverse effect on our business, results of operations and financial condition," "Our ability to successfully manage
unexpected changes or risks inherent in our global operations and supply chain may adversely impact our financial
performance," "We continue to operate in an uncertain global economic and political environment," and Item 5, "Operating
and Financial Review and Prospects — MD&A — External Factors that May Impact our Business."
We rely on a variety of common carriers for the transportation of materials and products and for their ability to route
these materials and products through various international ports and other transportation hubs. A work stoppage, strike or
shutdown of any important supplier's site or operations, or at any major port or airport, or the inability to access any such site
for any reason, could result in manufacturing and shipping delays or expediting charges, which could have a material adverse
effect on our operating results.
The foregoing events have had and may in the future have an adverse impact on the U.S. and global economy in general,
and on consumer confidence and spending, which may adversely affect our revenue and financial results. Such events could
increase the volatility of the market price of our securities and may limit the capital resources available to us and our customers
and suppliers.
The effect of COVID-19 on our operations and the operations of our customers, suppliers and logistics providers has had,
and may continue to have, a material and adverse impact on our financial condition and results of operations.
COVID-19 had a material and adverse impact on our operations during 2020 and 2021. In addition to the impact of
demand reductions due to COVID-19 on our revenue (most significantly in our Industrial and commercial aerospace
businesses), we experienced significant adverse revenue impacts across our businesses resulting from materials constraints
(including as a result of COVID-19). See Item 5, "Operating and Financial Review and Prospects — MD&A — Recent
Developments — Segment Environment" for further detail. As a result of supply chain and workforce constraints, we were
negatively impacted by approximately $32 million and $37 million during 2021 and 2020, respectively, in estimated
COVID-19-related costs, comprised of both direct and indirect costs, including manufacturing inefficiencies related to lost
revenue due to our inability to secure materials, idled labor costs resulting from shelter-in-place orders and manufacturing
capacity restrictions, and incremental costs for labor, expedite fees and freight premiums, cleaning supplies, personal protective
equipment, and IT-related services to support our work-from-home arrangements (collectively, COVID-19 Costs). Although we
expect to continue to incur COVID-19 Costs in 2022, stemming most significantly from manufacturing inefficiencies related to
lost revenue due to our inability to secure materials, we cannot quantify anticipated amounts. Adverse COVID-19-related
impacts were mitigated in part by an aggregate of $11 million and $34 million in COVID-19-related government subsidies,
grants or credits and $1 million and $3 million of COVID-19-related customer recoveries we recognized in 2021 and 2020,
respectively. However, we do not anticipate that such relief will be available to us in 2022.
13
We have experienced (and continue to experience) shipping surcharges on ocean freight, premiums on air freight, and
increased transit times in receiving certain raw materials as a result of shipping delays due to, among other things, additional
safety requirements imposed by port authorities, closures of or congestion at ports, reduced availability of commercial
transportation, border restrictions and capacity constraints for air freight as a result of COVID-19, which have had an adverse
impact on our ability to obtain materials and, at times, deliver our products in a timely manner, and consequently, our results of
operations. Shipping delays and increased shipping costs are anticipated to continue to disrupt our operations, and have an
adverse effect on our business, financial condition and results of operations, until ocean and air freight capacity is no longer
constrained.
The pandemic has impacted our customers and may create unpredictable reductions or increases in demand for our
services. See Item 5, "Operating and Financial Review and Prospects — MD&A — Recent Developments — Segment
Environment." In addition, the ability of our employees to work may be significantly impacted by individuals contracting or
being exposed to COVID-19. While we are following the requirements of governmental authorities and taking preventative and
protective measures to prioritize the safety of our employees (including periodic cessations (other than very limited essential
inter-regional travel) of employee travel, a global work-from-home policy for applicable employees, and for all other
employees, physical distancing, enhanced screening, mandatory mask and use of other personal protective equipment, shift-
splitting, and organization of vaccine clinics in regions where vaccines were not readily available, including Malaysia and
Thailand), these measures may not be successful, and we may be required to temporarily close facilities or take other measures.
If factory closures or significant reductions in capacity utilization occur, we would incur additional inefficiencies and direct
costs, as well as a loss of revenue. If our suppliers experience additional closures or reductions in their capacity utilization
levels, we may have further difficulty sourcing materials necessary to fulfill production requirements. A material adverse effect
on our employees, customers, suppliers and/or logistics providers could have a material adverse effect on us.
In addition to the potential items noted above, future impacts from the pandemic may also include: (i) a further decrease in
short-term and/or a decrease in long-term demand and/or pricing for certain of our products; (ii) further reductions in
production levels and R&D activities; (iii) further increased costs resulting from our efforts to mitigate the impact of
COVID-19; (iv) deterioration of worldwide credit and financial markets that could limit our ability to obtain external financing
to fund our operations and capital expenditures, could result in losses on our holdings of cash and investments due to failures of
financial institutions and other parties, and could result in a higher rate of losses on our accounts receivable (A/R) due to credit
defaults; (v) further disruptions to our supply chain, including as a result of shipping delays; (vi) write-downs and/or
impairments of assets; (vii) diversion of management’s attention from our key strategic priorities, causing us to reduce, delay,
alter or abandon initiatives that may otherwise increase our long-term value or otherwise disrupt our business operations; and/or
(viii) adverse impacts on our information technology systems and our internal control systems as a result of continued remote
work arrangements.
In addition, to the extent government-required vaccine mandates in jurisdictions in which our businesses operate become
effective, it could create operational burdens necessary to track vaccination status and/or enforce COVID-19 testing of non-
vaccinated employees. We cannot predict with certainty the impact that any such regulations would have on our workforce. Our
implementation of applicable requirements may result in workforce attrition or difficulty securing future labor needs, which
could have a material adverse effect on our business, financial condition, and results of operations.
The ultimate size of the impact of the COVID-19 pandemic on our business and its duration will depend on future
developments which cannot currently be predicted, including infection resurgences and mutations, government responses, the
speed at which our suppliers and logistics providers can return to and maintain full production, the status of labor shortages and
the impact of supplier prioritization of backlog. Even after the COVID-19 pandemic has subsided, we may experience
significant adverse impacts to our businesses as a result of its global economic impact, including any related recession, as well
as lingering impacts on our suppliers, third-party service providers and/or customers (including movement of production in-
country to decrease global exposures).
U.S. policies or legislation could have a material adverse effect on our business, results of operations and financial
condition.
The former U.S. administration created uncertainty with respect to, among other things, trade agreements and free trade
generally, and imposed significant increases on tariffs on goods imported into the U.S. from specified countries, each of which
has imposed retaliatory tariffs on specified items. These actions, and/or other governmental actions related to tariffs or
international trade agreements, have increased (and could further increase) the cost to our U.S. customers who use our non-U.S.
manufacturing sites and components, and vice versa, which may materially and adversely impact demand for our services, our
14
results of operations or our financial condition. Although we have transferred numerous customer programs to countries
unaffected by these tariffs (including Thailand), we anticipate continued actions from non-China based customers to exit China
to avoid the impact of these additional tariffs. Given the uncertainty regarding the scope and duration of these (or further) trade
actions, whether trade tensions will escalate further, and whether our customers will continue to bear the cost of the tariffs and/
or avoid such costs by in-sourcing or shifting business to other providers, their impact on our operations and results for future
periods cannot be currently quantified, but may be material. See Item 5, "Operating and Financial Review and Prospects —
MD&A — External Factors that May Impact our Business" for further detail.
In addition, it is unknown at this time to what extent new U.S. laws will be passed or new regulatory proposals will be
adopted, if any (or whether current laws or regulations will be rolled back), or the effect that such events may have on the
economy and/or our business. However, changes in U.S. social, political, regulatory and economic conditions or in laws and
policies governing foreign trade, taxes, manufacturing, clean energy, the healthcare industry, development and investment in
the jurisdictions in which we and/or our customers or suppliers operate, could materially adversely affect our business, results
of operations and financial condition. See "We are subject to the risk of increasing income and other taxes, tax audits, and
the challenges of successfully defending our tax positions, and obtaining, renewing or meeting the conditions of tax
incentives and credits, any of which may adversely affect our financial performance."
Changes to our operating model may adversely affect our business.
We continuously work to improve our productivity, quality, delivery performance and flexibility through various
operational initiatives, including our recent CCS segment portfolio review (including our disengagement from programs with
Cisco), which resulted in an estimated annualized aggregate CCS segment revenue decline of $1.25 billion in 2021 compared to
revenue in 2018, the year such review commenced. We may be unable to replace all of such revenue in a timely manner or on
acceptable terms.
Implementation of these initiatives also presents a number of risks, including: (i) failure to achieve anticipated margin
improvements from such actions; (ii) actual or perceived disruption of service or reduction in service levels to customers;
(iii) potential adverse effects on our internal control environment with respect to general and administrative functions during
transitions resulting from such initiatives; (iv) actual or perceived disruption to suppliers, distribution networks and other
important operational relationships and the inability to resolve potential conflicts in a timely manner; (v) diversion of
management attention from ongoing business activities and strategic objectives; and (vi) failure to retain key employees.
Because of these and other factors, we cannot predict whether we will fully realize the purpose and anticipated benefits or cost
savings of these initiatives and, if we do not, our business and results of operations may be adversely affected. Furthermore,
adverse changes to our business may require additional restructuring or reorganization activities in the future. See "We have
incurred significant restructuring charges in recent periods, and expect to incur further restructuring charges during 2022;
we may not achieve some or all of the expected benefits from our restructuring activities, these activities may adversely affect
our business, and additional restructuring actions may be required once currently-contemplated actions are complete"
above.
Our results may be negatively affected by rising labor costs.
There is some uncertainty with respect to the pace of rising labor costs (including minimum wage increases that may be
government-mandated from time to time), and increasing competition for specific talent/resources in various regions in which
we operate. The competition for talent has been heightened as a result of COVID-19, due to government-imposed border
controls, which limit the supply of foreign labor, and require us to rely on more expensive talent solutions. COVID-19 has also
impacted our labor costs due to employees' idled time and paid time off to receive vaccines and/or stay in quarantine. Any
increase in labor costs that we are unable to recover in our pricing to our customers would negatively impact our margins and
operating results.
Volatility in commodity prices may negatively impact our operating results.
We rely on various energy sources in our production and transportation activities. Increases in prices for energy and other
commodities have resulted in, and may result in further increased raw material and component costs and transportation costs.
Any increase in our costs that we are unable to recover in our pricing to our customers would negatively impact our margins
and operating results.
15
Quality and execution issues may reduce demand for our services, damage our reputation, and/or have a material adverse
effect on our business and operating results.
In any given quarter, we can experience quality and process variances related to materials, testing, or other manufacturing
or supply chain activities. Although we are successful in resolving the majority of such issues, the existence of these variances
could cause us to incur significant costs in relation to corrective actions, have a material adverse impact on the demand for our
services in future periods from any affected customers, damage our reputation, and/or have a material adverse effect on our
business and operating results.
We are subject to financial and reputational risk due to non-performance by counterparties.
A failure by counterparties, including customers, suppliers, financial institutions (including the issuers of our purchased
annuities), or other third parties with whom we conduct business, to fulfill their contractual obligations, may result in financial
loss to us and may have adverse effects on our business.
If a key supplier, or any company within such supplier's supply chain, experiences financial or other difficulties, such
difficulties may affect their ability to supply us with materials, components or services, which could halt or delay the
production of a customer's products, and/or have a material adverse impact on our operations, financial results, and customer
relationships. In addition, our ability to collect outstanding A/R depends, in part, on the financial strength of our customers. See
Item 5, "Operating and Financial Review and Prospects — MD&A — External Factors that May Impact our Business" for
further detail. In each of 2021 and 2020, we had two customers individually representing 10% or more of total A/R. If a
customer bankruptcy occurs, our profitability may be adversely impacted if affected A/R are in excess of our allowance for
doubtful accounts. Additionally, our future revenues could be adversely impacted by a customer bankruptcy. Inability to collect
A/R and/or the loss of one or more major customers could adversely impact our operating results, financial position and cash
flows. We cannot reasonably determine the extent to which a customer or supplier may have financial difficulties, or whether
we will be required to adjust customer pricing, payment terms and/or the amounts we pay to suppliers for materials and
components.
To mitigate the actuarial and investment risks of our defined benefit pension plans, we purchase annuities (using existing
plan assets) from time to time from third party insurance companies for certain, or all, of our obligations under specified
pension plans. Failure by the insurance companies to fulfill their contractual obligations would result in a significant financial
loss to us, as we retain ultimate responsibility for the payment of benefits to plan participants unless and until such pension
plans are wound-up.
We may use cash on hand, issue debt or equity securities, and/or incur additional third-party debt (or any combination
thereof) to complete future acquisitions or otherwise fund our operations, which may adversely affect our liquidity, credit
ratings, financial condition and/or results of operations.
Any significant use of cash (for future acquisitions or otherwise) would adversely impact our cash position and liquidity.
In addition, we may choose to issue debt securities or otherwise incur additional debt to fund future acquisitions or otherwise
fund our operations. Any additional incurrence of debt (either through the issuance of debt securities or through a new or
refinanced credit facility) would increase our debt leverage and debt service requirements (necessitating the use of additional
cash flow for this purpose), may reduce our debt agency ratings, may further adversely impact our ability to fund future
acquisitions and/or respond to unexpected capital requirements, may impose additional restrictions on our operations, and may
have a variety of additional adverse effects, including, but not limited to, those described in "We have incurred substantial
third-party debt to fund acquisitions, which has increased our debt service requirements, may reduce our ability to fund
future acquisitions and/or to respond to unexpected capital requirements, and may have other adverse impacts on our
business" above. To the extent we sell equity or convertible debt securities, the issuance of these securities (the pricing of
which would be subject to market conditions at the time of issuance) could result in material dilution to our stockholders. Sales
of our equity securities or convertible debt, or the perception that these sales could occur, could also cause the market price for
our subordinate voting shares (SVS) to fall, and new securities could have rights, preferences and privileges senior to the
holders of our SVS.
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We are exposed to translation and transaction risks associated with foreign currency exchange rate fluctuations; hedging
instruments may not be effective in mitigating such risks.
Global currency markets can be volatile. Although we conduct the majority of our business in U.S. dollars, our global
operations subject us to translation and transaction risks associated with fluctuations in currency exchange rates that could have
a material adverse impact on our operating results and/or financial condition. A significant portion of our operational costs
(including payroll, pensions, site costs, costs of locally sourced supplies and inventory, and income taxes) are denominated in
various currencies other than the U.S. dollar. Fluctuations in currency exchange rates may significantly increase the amount of
translated U.S. dollars required for costs incurred in other currencies or significantly decrease the U.S. dollars received from
non-U.S. dollar revenues.
Although our functional currency is the U.S. dollar, currency risk on our income tax expense arises as we are generally
required to file our tax returns in the local currency for each particular country in which we have operations. A weakening of
the local currency against the U.S. dollar could have a negative impact on our income taxes payable (related to increased local-
currency taxable profits) and on our deferred tax costs (primarily related to the revaluation of non-monetary foreign assets from
historical average exchange rates to the period-end exchange rates). See note 20 to the Consolidated Financial Statements in
Item 18. While our hedging program is designed to mitigate currency risk vis-à-vis the U.S. dollar, we remain subject to taxable
foreign exchange impacts in our translated local currency financial results relevant for tax reporting purposes.
As part of our risk management program, we enter into foreign currency forward and swap contracts to lock in the
exchange rates for future foreign currency transactions, which is intended to reduce the foreign currency risk related to our
operating costs and future cash flows denominated in local currencies. While these contracts are intended to reduce the effects
of fluctuations in foreign currency exchange rates, our hedging strategy does not mitigate the longer-term impacts of changes to
foreign exchange rates. In addition, these instruments are subject to transaction costs, credit requirements and counterparty risk.
If our hedging program is not successful, or if we change our hedging activities in the future, we may experience significant
unexpected expenses from fluctuations in exchange rates.
Our financial results have been adversely impacted by negative foreign currency translation effects, and such adverse
effects, some of which may be substantial, are likely to recur in the future.
Our ability to successfully manage unexpected changes or risks inherent in our global operations and supply chain may
adversely impact our financial performance.
We have sites in the following countries: Canada, the U.S., China, Ireland, Japan, Laos, Malaysia, Mexico, Romania,
Singapore, South Korea, Spain, Indonesia, India, Philippines and Thailand. During 2021, approximately 80% of our revenue
was produced at locations outside of North America. We also purchase the majority of our components and materials from
international suppliers.
Global operations are subject to inherent risks which may adversely affect us, including:
• changes in local tax rates and tax incentives and the adverse tax consequences of repatriating earnings;
• labor unrest and differences in regulations and statutes governing employee relations, including increased
scrutiny of labor practices within our industry;
• cultural differences and/or differences in local business customs;
• negative impacts, or ineffectiveness, of our restructuring activities;
• changes in regulatory requirements;
• inflationary trends and rising costs;
• changes in international political relations;
• difficulty in staffing (including skilled labor availability and cost) and managing foreign operations;
• challenges in building and maintaining infrastructure to support operations;
• compliance with a variety of foreign laws, including import and export tariffs and regulations;
• adverse changes in trade policies and/or agreements between countries in which we maintain operations;
• changes in logistics costs;
• changes in the availability, lead time, and cost of components and materials;
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• weaker laws protecting intellectual property rights and/or greater difficulty enforcing such rights;
• global economic, political and/or social instability, including military actions, protectionism and reactive
countermeasures, economic or other sanctions or trade barriers;
• potential restrictions on the transfer of funds and/or other restrictive actions by foreign governments;
• the effects of terrorist activity, armed conflict, natural disasters and epidemics (including COVID-19); and
• global currency fluctuations.
Any of these risks could disrupt the supply of our components or materials, slow or stop our production, and/or increase
our costs. Compliance with trade and foreign tax laws may increase our costs and actual or alleged violations of such laws
could result in enforcement actions or financial penalties that could result in substantial costs. In addition, the introduction or
expansion of certain social programs in foreign jurisdictions may increase our costs, and certain supplier's costs, of
doing business.
In particular, a significant portion of our manufacturing, design, support and storage operations are conducted in our
facilities in China, and revenues associated with our China operations are important to our success (2021 — 16%; 2020 —
20%). Therefore, our business, financial condition and results of operations may be materially adversely affected by economic,
political, legal, regulatory, competitive and other factors in China. The Chinese economy differs from the economies of most
developed countries in many respects, including the level of government involvement and control over economic growth. In
addition, our operations in China are governed by Chinese laws, rules and regulations, some of which are relatively new. The
Chinese legal system continues to rapidly evolve, which may result in uncertainties with respect to the interpretation and
enforcement of Chinese laws, rules and regulations that could have a material adverse effect on our business. China experiences
high turnover of direct labor in the manufacturing sector, and engineers in our design centers, due to the intensely competitive
and fluid market for labor, and the retention of adequate labor is a challenge. If our labor turnover rates are higher than we
expect, or we otherwise fail to adequately manage our labor needs, then our business and results of operations could be
adversely affected. We are also subject to risks associated with our subsidiaries organized in China. For example, regulatory
and registration requirements and government approvals affect the financing that we can provide to our subsidiaries. If we fail
to receive required registrations and approvals to fund our subsidiaries organized in China, or if our ability to remit currency out
of China is limited, then our business and liquidity could be adversely affected.
In addition, international trade disputes with China have resulted in increased tariffs and other measures that have, and
may continue to, adversely affect the Company’s business. Our production from China has become less cost-competitive than
other low-cost countries in recent periods, and we anticipate continued actions from non-China based customers to exit China to
avoid the impact of additional tariffs. More generally, changes to, among other things, laws or policies in the U.S. regarding
foreign trade, import/export duties, tariffs or taxes, manufacturing and/or investments, or other events outside of our control,
could materially adversely affect our U.S. and foreign operations. See "U.S. policies or legislation could have a material
adverse effect on our business, results of operations and financial condition" and "Our operations have been and could
continue to be adversely affected by events outside our control" above, and Item 5, "Operating and Financial Review and
Prospects — MD&A — External Factors that May Impact our Business."
Our business is dependent on us winning competitive bid selection processes.
These selection processes are typically lengthy and can require us to dedicate significant development expenditures and
engineering resources in pursuit of a single customer opportunity. Failure to obtain a particular design win may prevent us from
obtaining design wins in subsequent generations of a particular product. This can result in lost revenue and could weaken our
position in future competitive bid selection processes.
Customer relationships with emerging companies may present more risks than with established companies.
Customer relationships with emerging companies present special risks because we do not have an extensive product or
customer relationship history. There is less demonstration of market acceptance of their products making it harder for us to
anticipate requirements than with established customers. Our credit risk on these customers, especially in A/R and inventories,
and the risk that these customers will be unable to fulfill indemnification obligations to us are potentially increased.
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If we are unable to recruit or retain highly skilled talent, our business could be adversely affected.
The recruitment of personnel in the EMS and ODM industry is highly competitive. We believe that our future success
depends, in part, on our ability to attract and retain highly skilled executive, technical and management talent in the various
geographies in which we operate. Competitive dynamics, as well as the time required to replace or redistribute responsibilities
related to the loss of the services of certain executive, management and technical employees, individually or in the aggregate,
could have a material adverse effect on our operations, and there can be no assurance that we will be able to retain their
services. Regional competitive dynamics may also impact our ability to retain and acquire talent. Organizational changes may
impact our relationships with customers, vendors, and employees, potentially resulting in loss of business, loss of vendor
relationships, and the loss of key employees or declines in employee productivity. Uncertainties associated with any senior
management transitions could lead to concerns from current and potential third parties with whom we do business, any of which
could hurt our business prospects. Turnover in key leadership positions within the Company, or any failure to successfully
integrate key new hires or promoted employees, may adversely impact our ability to manage the Company efficiently and
effectively, could be disruptive and distracting to management and may lead to additional departures of existing personnel, any
of which could have a material adverse effect on our business, operating results, financial results and internal controls over
financial reporting.
We may not keep pace with rapidly evolving technology.
Many of the markets for our manufacturing and engineering services are characterized by rapidly changing technology
and evolving process development, and we cannot assure that we will maintain or develop the capabilities required by our
customers in the future. The emergence of new technologies, industry standards or customer requirements may render our
equipment, designs, inventory or processes obsolete or noncompetitive. In addition, we may have to invest in new processes,
capabilities or equipment to support new technologies used in our customers' current or future products, and to support their
supply chain processes. Additionally, as we expand our service offerings or pursue business in new markets where our
experience may be limited, we may be less effective in adapting to technological change. Our manufacturing, engineering,
supply chain processes, and test development efforts and design capabilities may not be successful due to rapid technological
shifts in any of these areas. The acquisition and implementation of new technologies and equipment and the offering of new or
additional services to our customers may require significant expense or capital investment, which could reduce our operating
margins and our operating results. Our failure to anticipate and adapt to our customers' changing technological needs and
requirements or to hire and retain a sufficient number of engineers and maintain our engineering, technological and
manufacturing expertise could have a material adverse effect on our operations.
Various industry-specific standards, qualifications and certifications are required to produce certain types of products for
our customers. Failure to obtain or maintain those certifications may adversely affect our ability to maintain existing levels of
business or win new business.
We may not adequately protect our intellectual property or the intellectual property of others.
We believe that certain of our proprietary intellectual property rights and information provide us with a competitive
advantage. Accordingly, we take steps to protect this proprietary information, including obtaining patents to safeguard our HPS
intellectual property, entering into non-disclosure agreements with customers, suppliers, employees and other parties, and by
implementing security measures. However, these measures may not be sufficient to prevent or detect the misappropriation or
unauthorized use or disclosure of our intellectual property or information. We also conduct business in some countries where
the extent of effective legal protection for intellectual property rights is uncertain. Even if we have intellectual property rights,
there is no guarantee that such rights will provide adequate protection of items we consider to be proprietary. We may also be
required to compromise protections or yield rights to technology, data or intellectual property in order to conduct business in or
access markets in certain jurisdictions, either through formal written agreements or due to legal or administrative requirements
in the host nation. If we are not able to protect our intellectual property rights, our business, financial condition and results of
operations may be adversely affected.
There is also a risk that claims of intellectual property infringement could be brought against us, our customers and/or our
suppliers. If such claims are successful, we may be required to spend significant time and financial resources to develop non-
infringing processes, technology or information or to obtain appropriate licenses from the owner. We may not be successful in
such development, or any such licenses may not be available on commercially acceptable terms, if at all. In addition, any
litigation could be lengthy and costly and could adversely affect us even if we are successful. As we expand our service
offerings, we may be less effective in anticipating or mitigating the intellectual property risks related to new manufacturing,
design and other services, which could be significant.
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We are subject to the risk of increasing income and other taxes, tax audits, and the challenges of successfully defending our
tax positions, and obtaining, renewing or meeting the conditions of tax incentives and credits, any of which may adversely
affect our financial performance.
We conduct business operations in a number of countries where tax incentives have been extended to encourage foreign
investment or where income tax rates are low. Our income tax expense could increase significantly if certain tax incentives
from which we benefit are retracted. A retraction could occur if we fail to satisfy the conditions on which these tax incentives
are based, or if they are not renewed or replaced upon expiration. Our income tax expense could also increase if tax rates
applicable to us in such jurisdictions are otherwise increased, or due to changes in legislation or administrative practices.
Changes in our outlook in any particular country could impact our ability to meet the required conditions. See Item 5,
"Operating and Financial Review and Prospects — MD&A — Operating Results — Income taxes" and note 19 to the
Consolidated Financial Statements in Item 18 for a discussion of recently expired tax incentives, the status of existing
tax incentives, and a challenge to our Brazilian sales tax levy rates and our Romanian tax position.
We develop our tax filing positions based upon the anticipated nature and structure of our business and the tax laws,
administrative practices and judicial decisions currently in effect in the jurisdictions in which we have assets or conduct
business, all of which are subject to change or differing interpretations, possibly with retroactive effect. The U.S. Biden
administration has proposed legislative tax changes. Although such proposals, if adopted as currently contemplated, would not
have a significant tax impact on our operations, we cannot predict the likelihood, timing or substance of U.S. tax reform. If the
recent global minimum tax agreement is implemented in the jurisdictions in which we do business, it could, among other things,
increase cash taxes, increase audit risk, and increase our worldwide corporate effective tax rate. In addition, the Organization
for Economic Cooperation and Development continues to issue guidelines and proposals related to Base Erosion and Profit
Shifting which may result in legislative changes that could reshape international tax rules in numerous countries and negatively
impact our effective tax rate. We cannot predict the outcome of any specific legislative proposals or initiatives, and we cannot
provide assurance that any such legislation or initiative will not apply to us. Legislation or other changes in U.S. and/or
international tax laws could increase our tax liability or adversely affect our overall profitability and results of operations.
Certain of our subsidiaries provide financing or products and services to, and may from time-to-time undertake certain
significant transactions with, other subsidiaries in different jurisdictions. Moreover, several jurisdictions in which we operate
have tax laws with detailed transfer pricing rules which require that all transactions with non-resident related parties be priced
using arm's-length pricing principles, and that contemporaneous documentation must exist to support such pricing.
We are subject to tax audits in various jurisdictions, which could result in additional tax expense in future periods related
to prior results. Any such increase in our income tax expense and related interest and/or penalties could have a significant
adverse impact on our future earnings and future cash flows. The successful pursuit of assertions made by any tax authority
could result in our owing significant amounts of tax, interest, and possibly penalties. We believe we adequately accrue for any
probable potential adverse tax ruling. However, there can be no assurance as to the final resolution of any claims and any
resulting proceedings. If any claims and any ensuing proceedings are determined adversely to us, the amounts we may be
required to pay could be material, and in excess of amounts accrued.
As at December 31, 2021, a significant portion of our cash and cash equivalents was held by foreign subsidiaries outside
of Canada, a large part of which may be subject to withholding taxes upon repatriation under current tax laws. We repatriated in
2021, and currently expect to repatriate in the foreseeable future, an aggregate of approximately $290 million from various
foreign subsidiaries (December 31, 2020 — expected to repatriate $300 million).
Our operations and our customer relationships may be adversely affected by disruptions to our information technology (IT)
systems, including disruptions from cybersecurity breaches of our IT infrastructure.
As a complex, global company, we are heavily dependent on our IT systems to support our customers' requirements and
to successfully manage our business. Any inability to successfully manage the procurement, development, implementation,
execution or maintenance of such systems, including matters related to system and data security, cybersecurity, privacy,
reliability, compliance, performance and access, as well as any inability of these systems to fulfill their intended purpose, could
have an adverse effect on our business.
We are increasingly reliant on IT networks and systems, including our own and those of third-party service providers, to
process, transmit and store electronic information. In particular, we depend on our IT infrastructure for a variety of functions,
including (among others), product manufacturing, worldwide financial reporting, inventory and other data management,
procurement, invoicing, employee payroll and benefits administration, and email communications. All of these systems are
susceptible to outages due to fire, floods, power loss, telecommunications failures, terrorist attacks, sabotage and similar events.
20
These systems are also susceptible to cybersecurity threats and incidents, ranging from uncoordinated individual attempts to
gain unauthorized access to our IT systems to sophisticated and targeted measures known as 'advanced persistent threats', and
may include industrial espionage attacks, data theft, malware, phishing, ransomware attacks (which are becoming increasingly
prevalent), or other cybersecurity threats or incidents. Similarly, third parties and infrastructure in our supply chain may become
compromised or contain exploitable defects (of which we may be unaware) that could result in a breach or disruption of our
systems and networks or the systems or networks of third parties that support us. We believe attempts to gain unauthorized
access through the Internet or to introduce malicious software to our information systems are increasing in number and in
technical sophistication.
If our security measures are compromised, or the security, confidentiality, integrity or availability of, our IT, software,
services, communications or data is compromised, limited or fails, it could result in: damage to our system infrastructure;
significant business interruption, delays or outages, either internally or at our third-party providers; data loss or leakage
(including exposure to unauthorized persons or the public of sensitive data, including our intellectual property, trade secrets or
personal information of our employees, customers or other business partners); significant extra expense to restore data or
systems; reputational loss; significant fines, penalties and liability; breach or triggering of data protection laws, privacy policies
and/or data protection obligations (discussed below); loss of customers or sales, and in the case of our defense business,
debarment from future participation in U.S. government programs. In addition, we may be required to expend significant
resources, change our business practices or modify our operations in an effort to protect against security breaches and to
mitigate, detect, and remediate actual and potential vulnerabilities that could adversely affect our business and operations and/or
result in the loss of critical or sensitive information. If we are perceived to be unable to prevent or promptly identify and
remedy such outages and breaches, this could result in reputational loss and/or loss of customers or sales.
While we have invested, and continue to invest, in the protection of our data and IT infrastructure, we regularly face
attempts by others to access our information systems in an unauthorized manner, to introduce malicious software to such
systems or both, and while we have not been materially impacted by computer viruses, malware, ransomware, hacking
attempts, outages, or unauthorized access to data, we have been (and may continue to be) the target of such events. In addition,
there can be no assurance that our efforts will prevent further service interruptions or identify breaches in our systems that could
adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could result in
financial, legal, business or reputational harm to us (as described above). Although this has not been an issue to date, our
liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cybersecurity
attacks and other related breaches.
We expect that risks and exposures related to cybersecurity attacks will remain high for the foreseeable future due to the
rapidly evolving nature and sophistication of these threats, and the enhanced risk resulting from the number of employees
currently working remotely due to COVID-19, through the increased use of home networks that may lack encryption or secure
password protection, virtual meeting/conference security concerns and increase of phishing/cyber-attacks around COVID-19
digital resources.
We are also subject to increasing expectations and data security requirements from our customers, including those related
to the U.S. Federal Acquisition Regulation, U.S. Defense Federal Acquisition Regulation Supplement, and U.S. Cybersecurity
Maturity Model Certification. In addition, we must comply with increasingly complex and rigorous regulatory standards
enacted to protect business and personal data in various jurisdictions. For example, the European Union's General Data
Protection Regulation, and similar legislation in other jurisdictions in which we operate, impose additional obligations on
companies regarding the handling of personal data and provide certain individual privacy rights to persons whose data is stored.
Compliance with customer expectations and existing, proposed and recently enacted laws and regulations can be costly; any
failure to comply with these expectations and regulatory standards could subject us to legal and reputational risks. Misuse of or
failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against the
Company by governmental entities or others, fines and penalties, damage to our reputation and credibility and could have a
negative impact on our business and results of operations.
We may not be able to prevent or detect all errors or fraud.
Due to the inherent limitations of internal control systems, misstatements due to error or fraud may occur and may not be
detected in a timely manner or at all. Accordingly, we cannot provide absolute assurance that all control issues, errors or
instances of fraud, if any, impacting us have been or will be prevented or detected. In addition, over time, certain aspects of a
control system may become inadequate because of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate, which we may not be able to address quickly enough to prevent all instances of error or fraud. In
connection with our on-going assessment of the effectiveness of our internal control over financial reporting, we may discover
“material weaknesses” in our internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual
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or interim financial statements will not be prevented or detected on a timely basis. The existence of any material weakness may
require management to devote significant time and incur significant remediation expense. The existence of any material
weakness in our internal control over financial reporting may result in errors in our financial statements that could require us to
make corrective adjustments, restate our financial statements, cause us to fail to meet our reporting obligations, and cause
shareholders to lose confidence in our reported financial information, all of which could materially and adversely affect the
market price of our securities. If we are unable to successfully identify and remediate any material weaknesses that may arise in
a timely manner, the accuracy and timing of our financial reporting may be adversely affected, and we may be unable to
maintain compliance with securities law requirements regarding timely filing of periodic reports and applicable stock exchange
listing requirements.
Our revenue and operating results may vary significantly from period to period.
Our quarterly and annual results may vary significantly depending on various factors, certain of which are described
below, and many of which are beyond our control.
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the volume and timing of customer demand relative to our capacity;
the typical short life cycle, and success in the marketplace, of our customers' products;
the cyclical nature of customer demand in several of our businesses;
customers' financial condition;
changes to our mix of customers, programs and/or end market demand;
how well we execute on our operational strategies, and the impact of changes to our business model;
varying revenues and gross margins among geographies and programs for the products or services
we provide;
pricing pressures, the competitive environment and contract terms and conditions;
upfront investments and challenges associated with the ramping of programs for new or existing customers;
provisions or charges resulting from unexpected changes in market conditions impacting our industry or the
end markets we serve;
customer disengagements or terminations or non-renewal of customer programs, arrangements or agreements;
the timing of expenditures in anticipation of future orders;
our effectiveness in planning production and managing inventory, fixed assets and manufacturing processes;
operational inefficiencies and disruptions in production at individual sites;
unanticipated disruptions to our cash flows;
changes in cost and availability of commodities, materials, components, services and labor;
current or future litigation;
seasonality in quarterly revenue patterns across some of our businesses;
governmental actions or changes in legislation;
currency fluctuations; and
changes in global economic and political conditions and world events, including the impact of External
Events.
See Item 5, "Operating and Financial Review and Prospects — MD&A — Overview" for a discussion of additional
factors, including rapid shifts in technology, model obsolescence, commoditization of certain products, and the emergence of
new business models, that contribute to the complexity of managing our operations and fluctuations in our financial results.
Compliance with governmental laws and obligations could be costly and may negatively impact our financial performance.
We are subject to various federal/national, state/provincial, local, foreign and supra-national environmental laws and
regulations. Our environmental management systems and practices have been designed to provide for compliance with these
laws and regulations. Maintaining compliance with and responding to increasingly stringent environmental regulations requires
a significant investment of time and resources and may restrict our ability to modify or expand our manufacturing sites or to
continue production. Any failure to comply with these laws and regulations may result in significant fines and penalties, our
operations may be suspended or subjected to increased oversight, and our cost of related investigations could be material in
any period.
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More complex and stringent environmental legislation continues to be imposed globally, including laws that place
increased responsibility and requirements on the "producers" of electronic equipment and, in turn, their providers and suppliers.
Such laws may relate to product inputs (such as hazardous substances and energy consumption), product use (such as energy
efficiency and waste management/recycling), and/or operational outputs/by-products from our manufacturing processes that can
result in environmental contamination (such as waste water, air emissions and hazardous waste). Noncompliance with these
requirements could result in substantial costs, including fines and penalties, and we may incur liability to our customers
and consumers.
Even where compliance responsibility rests primarily with our customers, they may request our assistance in meeting
their obligations. Our customers remain focused on issues such as waste management (including recycling), climate change
(including the reduction of carbon emissions) and product stewardship, and expect their EMS providers to be environmental
leaders. We strive to meet such customer expectations, although these demands may extend beyond our regulatory obligations
and require significant investments of time and resources to attract and retain customers.
We generally conduct environmental assessments, or review assessment reports undertaken by others, for our
manufacturing sites at the time of acquisition or leasing. However, such assessments may not reveal all environmental
liabilities, and assessments have not been obtained for all sites. In addition, some of our operations involve the use of hazardous
substances that could cause environmental impacts. While we have operational systems to provide environmental management,
we cannot rule out all risk of non-compliance and could incur substantial costs to comply. Although if deemed necessary, we
may investigate, remediate or monitor emissions and site conditions at some of our owned or leased sites (such as air, soil and/
or groundwater conditions), we may not be aware of, or adequately address, all such emissions and conditions, and we may
incur significant costs should such work be required. In many jurisdictions in which we operate, environmental laws impose
liability for the costs of removal, remediation or risk assessment of hazardous or toxic substances on an owner, occupier or
operator of real estate, even if such person or company was unaware of or not responsible for the discharge or migration of such
substances. In some instances, where soil or groundwater contamination existed prior to our ownership or occupation, landlords
or former owners may have retained some contractual responsibility or regulatory liability, but this may not provide sufficient
protection to reduce or eliminate our liability. Third-party claims for damages or personal injury are also possible and could
result in significant costs to us. If more stringent compliance or cleanup standards under environmental laws or regulations are
imposed, or the results of future testing and analyses at our current or former operating sites indicate that we are responsible for
the release of hazardous substances into the air, ground and/or water, we may be subject to additional liability. Additional
environmental matters may arise in the future at sites where no problem is currently known or at sites that we may acquire in
the future.
Our HealthTech business is subject to regulation by the U.S. Food and Drug Administration (FDA), Health Canada, the
European Medicines Agency, the Brazilian Health Surveillance Agency, and similar regulatory bodies in other jurisdictions,
relating to the medical devices and hardware we manufacture for our customers. Our sites that deliver products to the healthcare
industry are certified or registered in quality management standards applicable to the healthcare industry. We are required to
comply with various statutes and regulations related to the design, development, testing, manufacturing and labeling of our
medical devices in addition to reporting of certain information with respect to the safety of such products. Any failure to
comply with these regulations could result in fines, injunctions, product recalls, import detentions, additional regulatory
controls, suspension of production, and/or the shutting down of one or more of our sites, among other adverse outcomes.
Failure to comply with these regulations may also materially affect our reputation and/or relationships with customers
and regulators.
We provide design, engineering and manufacturing related services to our customers in the A&D business. As part of
these services, we are subject to substantial regulation from government agencies including the U.S. Department of Defense
(DOD) and the U.S. Federal Aviation Administration. Our A&D sites are certified in quality management standards applicable
to the A&D industry. Failure to comply with these regulations or the loss of any of our quality management certifications may
result in fines, penalties and injunctions, and could prevent us from executing on current or winning future contracts, any of
which may materially adversely affect our financial condition and operating results. In addition to quality management
standards, there are several other U.S. regulations with which we are required to comply, including the Federal Acquisition
Regulations (FAR), which provides uniform policies and procedures for acquisition; the Defense Federal Acquisition
Regulation Supplement, a DOD agency supplement to the FAR that provides DOD-specific acquisition regulations that DOD
government acquisition officials, and those contractors doing business with DOD, must comply with in the procurement process
for goods and services; and the Truth in Negotiations Act, which requires full and fair disclosure by contractors in the conduct
of negotiations with the government and its prime contractors. These rules are complex, our performance under them is subject
to audit by the U.S. Defense Contract Audit Agency, the U.S. Office of Federal Contract Compliance Programs and other
government regulators, and in most cases must be complied with by our suppliers. If an audit or investigation reveals a failure
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to comply with regulations, we could become subject to civil or criminal penalties and administrative sanctions by either the
government or the prime customer, including government pre-approval of our government contracting activities, termination of
the contract, payment of fines and suspension or debarment from doing further business with the U.S. government. Any of these
actions could increase our expenses, reduce our revenue and damage our reputation as a reliable U.S. government supplier. We
are also subject to the export control laws and regulations of the countries in which we operate, including, but not limited to, the
U.S. International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR).
Our international operations require us to comply with various anti-bribery laws, including the U.S. Foreign Corrupt
Practices Act (FCPA) and the Corruption of Foreign Public Officials Act (Canada) (CFPOA). In some countries in which we
operate, it may be customary for businesses to engage in business practices that are prohibited by the FCPA, CFPOA or other
laws and regulations. Although we have implemented policies and procedures designed to ensure compliance with the FCPA,
CFPOA and similar laws in other jurisdictions, there can be no assurance that all of our employees and agents, as well as those
companies to which we outsource certain business operations, will not be in violation of these laws and our policies or
procedures. In addition to the difficulty of monitoring compliance, any suspected or alleged activity would require a costly
investigation by us and may result in the diversion of management's time, resources and attention. Failure to comply with these
laws may subject us to, among other things, adverse publicity, penalties and legal expenses that may harm our reputation and
have a material adverse effect on our business, financial condition and operating results.
As a public company, we are subject to stringent laws, regulations and other requirements, including the U.S. Sarbanes-
Oxley Act and the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), affecting, among other
areas, our accounting, internal controls, corporate governance practices, securities disclosures and reporting. For example, due
to our complex supply chain, compliance with Dodd-Frank diligence, disclosure and reporting requirements with respect to
defined "conflict minerals" is time-consuming and costly. If we are unable to ascertain the origins of all such minerals used in
the manufacturing of our products through the due diligence procedures we implement, we may be unable to satisfy our
customers' certification requirements. This may harm our reputation, damage our customer relationships and result in a loss of
revenue. If the U.S. Securities and Exchange Commission rules or other new social or environmental standards limit our pool of
suppliers in order to produce "conflict free" or "socially responsible" products, or otherwise adversely affect the sourcing,
supply and pricing of materials used in our products, we could also experience cost increases and a material adverse impact on
our operating results.
In addition, whenever we pursue business in new end markets, or our customers pursue new technologies or businesses,
we are required to navigate the potentially heavy regulatory and legislative burdens of such end markets or technologies, as well
as applicable quality standards with respect thereto.
The regulatory climate can itself affect the demand for our services. For example, government reimbursement rates and
other regulations, as well as the financial health of healthcare providers, changes in how healthcare in the U.S. is structured, and
how medical devices are taxed, could affect the willingness and ability of end customers to purchase the products of our
customers in this market as well as impact our margins.
Our customers are also required to comply with various government regulations, legal requirements and industry
standards, including many of the industry-specific regulations discussed above. Our customers' failure to comply could affect
their businesses, which in turn would affect our sales to them. In addition, if our customers are required by regulation or other
requirements to make changes in their product lines, these changes could significantly disrupt particular programs for these
customers and create inefficiencies in our business.
In addition, a failure by a supplier or manufacturer to comply with applicable laws, regulations or customer requirements
could negatively impact our business, and for governmental customers, could result in fines, penalties, suspension or even
debarment being imposed on us, which could have a material adverse impact on our business, financial condition and results of
operations.
Compliance or the failure to comply with employment laws and regulations may negatively impact our financial
performance.
We are subject to a variety of domestic and foreign employment laws, including those related to: workplace safety,
discrimination, harassment, whistle-blowing, wages and overtime, personal taxation, classification of employees, work
authorizations and severance. Compliance with such laws may increase our costs. In addition, such laws are subject to change,
and enforcement activity relating to these laws, particularly outside of the U.S., may increase as a result of greater media
attention due to alleged violations by other companies, changes in law, political and other factors. There can be no assurance
that, in the future, we will not be found to have violated elements of such laws. Any such violations could lead to the
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assessment of fines or damages against us by regulatory authorities or claims by employees, any of which could adversely
affect our operating results and/or our reputation.
We may be required to make larger contributions to our defined benefit pension and other benefit plans in the future.
We maintain defined benefit and defined contribution pension plans, as well as other benefit plans globally. Our pension
obligations are based on certain assumptions relating to plan asset performance, salary changes, employee turnover, retirement
ages, life expectancy, expected healthcare costs, the performance of the financial markets, future interest rates, and plan and
legislative changes. If actual results or future expectations differ from these assumptions or if statutory funding requirements
change, the amounts we are obligated to contribute to the pension plans may increase and such increase could be significant.
We are also required to contribute amounts to our other benefit plans to meet local statutory or such plans' funding
requirements. The amounts we are obligated to contribute may increase due to legislative or other changes.
There are inherent uncertainties involved in the judgments, estimates, and assumptions used in the preparation of our
financial statements. Any changes in judgments, estimates and assumptions could have a material adverse effect on our
financial position and results of operations.
Our Consolidated Financial Statements in Item 18 are prepared in accordance with IFRS, which requires management to
make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amounts of
assets, liabilities, revenues and expenses. Judgments, estimates, and assumptions are inherently subject to change in future
periods, which could have a material adverse effect on our financial position and results of operations.
Our credit agreement contains restrictive and financial covenants that may impair our ability to conduct business, and the
failure to comply with such covenants could cause our outstanding debt to become immediately payable.
Our credit agreement contains restrictive covenants that limit our management's discretion with respect to certain
business matters. Among other factors, these covenants limit our ability and our subsidiaries' ability to incur additional debt,
create liens or other encumbrances, change the nature of our business, sell or otherwise dispose of assets, make certain
investments and payments, repurchase SVS for cancellation if a defined leverage ratio exceeds a specified amount, merge or
consolidate with other entities, or effect specified changes in control. This agreement also contains certain financial covenants
related to indebtedness and interest coverage. If we are not able to comply with these covenants, our outstanding debt could
become immediately due and payable, and the incurrence of additional debt under our revolving credit facility may not be
allowed, either of which could have a material adverse effect on our liquidity and ability to conduct our business.
We are subject to interest rate fluctuations.
Borrowings under our credit agreement generally bear interest at a selected rate (depending on the currency of the
borrowing and our election for such currency), plus a margin (based on the rate we select and a defined consolidated leverage
ratio). Our term loans currently bear interest at LIBOR plus a specified margin (2.125% for one term loan and 2.0% for the
other). These borrowings (which increased in 2021 compared to 2020 to fund a portion of our PCI acquisition) expose us to
interest rate risks due to fluctuations in these rates and margins, and our interest rate swap agreements only apply to a portion of
the total borrowings under our term loans. Significant interest rate fluctuations may adversely affect our business, operating
results and financial condition.
The discontinuation of LIBOR may negatively impact us.
Global reform of major interest rate benchmarks is currently underway, including the anticipated replacement of some
Interbank Offered Rates (including LIBOR) with alternative nearly risk-free rates. We have obligations under our credit facility
and certain lease arrangements and derivative instruments that are indexed to LIBOR (LIBOR Agreements), and most
(including our credit facility), have not yet transitioned to alternative benchmark rates. The interest rates under these agreements
are subject to change when relevant LIBOR benchmark rates cease to exist. See note 20 to our Consolidated Financial
Statements in Item 18 for a discussion of the status of interest rate transitions under applicable agreements. We cannot assure
that any applicable alternative reference rates under the LIBOR Agreements that have not yet transitioned from LIBOR will
result in substantially similar interest rate calculations under such agreements. If any such alternative reference rates are higher
than LIBOR, interest rates under the affected LIBOR Agreements would increase, which would adversely impact our interest
expense, results of operations and cash flows. In addition, with respect to our interest rate swap agreements, hedge
ineffectiveness could result due to the cessation of LIBOR if such agreements transition using a different benchmark or spread
adjustment as compared to the underlying hedged debt. We will continue to monitor developments with respect to the cessation
of LIBOR, and will evaluate potential impacts on the LIBOR Agreements and our financial results. However, we are currently
unable to predict what the future replacement rates or consequences on our operations or financial results will be.
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We anticipate that we will refinance outstanding indebtedness from time to time, and an inability to refinance on favorable
terms, or at all, would have a material adverse effect on our operating results and financial condition.
We anticipate that we will repay outstanding debt from time to time through refinancing. The amount of our existing
indebtedness may impede our ability to obtain such refinancing on acceptable terms, or at all. If we cannot refinance, extend, or
pay principal payments due at maturity with the proceeds of other capital transactions, our cash flows may not be sufficient to
repay our debt upon maturity. In such event, we may be forced to dispose of one or more assets on disadvantageous terms. In
addition, refinanced debt may carry higher interest rates and have more restrictive covenants than our current outstanding
indebtedness. Although we anticipate that we will be able to repay or refinance our existing indebtedness when it matures, there
can be no assurance we will be able to do so, or that the terms of any such refinancing will be favorable. An inability to
refinance, extend or otherwise satisfy our debt as it matures would have a material adverse effect on our business, contracts,
financial condition, operating results, cash flow, liquidity and prospects.
Deterioration in financial markets or in the macro-economic environment may adversely affect our ability to raise funds or
increase the cost of raising funds.
Our ability to borrow or raise capital, or refinance or increase our third-party indebtedness may be impacted if financial
markets are unstable. Disruptions in the capital and credit markets could adversely affect our ability to draw on our revolver (or
any successor or additional facility). Our access to funds under our credit facility (or any successor or additional facility) will be
dependent on the ability of our senior lenders to meet their funding commitments. They may not be able to meet their funding
commitments to us if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing
requests from us and other borrowers within a short period of time. Longer term disruptions in the capital and credit markets as
a result of uncertainty, changing or increased regulation, reduced alternatives, or failures of significant financial institutions
could adversely affect our access to liquidity needed for our business. Any disruption could require us to take measures to
conserve cash until the markets stabilize or until alternative credit arrangements or other funding sources can be arranged. Such
measures could include deferring capital expenditures, and reducing or eliminating discretionary uses of cash.
Our credit rating may be downgraded.
Any negative change in our credit rating or outlook may make it more expensive for us to raise additional capital in the
future on terms that are acceptable to us, if at all.
The interest of our controlling shareholder, Onex Corporation, with an 81.5% voting interest, may conflict with the interests
of other shareholders.
Onex Corporation (Onex) beneficially owns all of our outstanding multiple voting shares (MVS) and less than 1% of our
outstanding SVS. The number of SVS and MVS beneficially owned by Onex represents 81.5% of the voting interest in
Celestica. Accordingly, Onex has the ability to exercise significant influence over our business and affairs and generally has the
power to determine all matters submitted to a vote of our shareholders where our shares vote together as a single class. Onex
may make decisions regarding Celestica and our business that are opposed to other shareholders' interests or with which other
shareholders may disagree. Onex's voting power could have the effect of deterring or preventing a change in control of our
Corporation that might otherwise be beneficial to our other shareholders. Through its shareholdings, Onex has the power to
elect our directors and its approval is required for significant corporate transactions such as certain amendments to our Restated
Articles of Incorporation (Articles), the sale of all or substantially all of our assets and plans of arrangement. The directors so
elected have the authority, subject to applicable laws, to appoint or replace senior management, cause us to issue additional
SVS or MVS or repurchase SVS or MVS, declare dividends or take other actions.
Gerald W. Schwartz, the Chairman of the Board and Chief Executive Officer of Onex, indirectly owns shares
representing the majority of the voting rights of the shares of Onex. The interests of Onex and Mr. Schwartz may differ from
the interests of the remaining holders of SVS. For additional information about our principal shareholders, see Item 7(A),
"Major Shareholders." Also see Item 7(B), "Related Party Transactions" for a description of related party transactions involving
Onex and/or Mr. Schwartz.
Onex has, from time-to-time, issued debentures exchangeable and redeemable under certain circumstances for our SVS,
entered into forward equity agreements with respect to our SVS, sold our SVS (after exchanging MVS for SVS), or redeemed
these debentures through the delivery of our SVS, and could take similar actions in the future. These sales may impact our share
price or have consequences on our debt and ownership structure.
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We are subject to litigation and proceedings, which may result in substantial expenses, settlement costs or judgments,
require the time and attention of key management resources, and result in adverse publicity, any of which may negatively
impact our financial performance.
We are from time to time party to various copyright, patent and trademark infringement, unfair competition, breach of
contract, customs, employment and other legal actions incidental to our business, as plaintiff or defendant, as well as various
other claims, suits, investigations and legal or governmental proceedings (including securities class action and shareholder
derivative lawsuits which have been settled or dismissed). Additional legal claims or regulatory matters may arise in the future
and could involve matters relating to commercial disputes, government regulation and compliance, intellectual property,
antitrust, tax, employment or shareholder issues, product liability claims and other issues on a global basis. Regardless of the
merits of the claims, litigation or governmental proceedings may be both time-consuming and disruptive to our business. The
defense and ultimate outcome of any lawsuits or other legal proceedings may result in higher expenses, which could have a
material adverse effect on our business, financial condition, or results of operations. We cannot predict the final outcome of
such lawsuits or proceedings or the likelihood that other proceedings will be initiated against us. Accordingly, the cost of
defending against such lawsuits or proceedings, or any future lawsuits or proceedings may be high and, in any event, these legal
proceedings may result in the diversion of our management's time and attention away from our business. In the event that there
is an adverse ruling in any legal proceeding, we may be required to make payments to third parties that could be in excess or
any amounts accrued, and could have a material adverse effect on our reputation, financial condition and/or results
of operations.
Changes in accounting standards enacted by the relevant standard-setting bodies may adversely affect our reported
operating results, profitability and financial performance.
Accounting standards are revised periodically and/or expanded upon by applicable standard-setting bodies. While these
accounting changes do not typically affect the economics of our business, such standards have in the past, and may in the
future, have a significant effect on our accounting methods and reported results. Our Consolidated Financial Statements are
prepared in accordance with IFRS, and as such, may not be comparable to the information reported by our competitors or other
public companies that use different accounting standards.
The market price of our SVS has been volatile.
Volatility in our business can result in significant SVS price and volume fluctuations. Factors such as changes in our
operating results, announcements by our customers, competitors or other events affecting companies in the electronics industry,
currency fluctuations, general market fluctuations, macro-economic conditions, and External Events may cause the market price
of our SVS to decline. In addition, if our operating results do not meet the expectations of securities analysts or investors, the
price of our SVS could decline. Furthermore, the existence of our NCIB may cause our SVS price to be higher than it would be
in the absence of such a program, and repurchases under the NCIB expose us to risks resulting from a reduction in the size of
our "public float," which may reduce our trading volume as well as our SVS price.
There can be no assurance that we will continue to repurchase SVS for cancellation.
Although we currently have an NCIB in effect, whether we repurchase SVS under such NCIB for cancellation, and the
amount and timing of any such repurchases, is subject to the restrictions under our credit facility, capital availability and
periodic determinations by our Board of Directors (Board) that SVS repurchases are in the best interest of our shareholders and
are in compliance with all applicable laws and agreements. Any future permitted SVS repurchases, including their timing and
amount, may be affected by, among other factors: our consolidated leverage ratio (as defined in our credit facility); our views
on potential future capital requirements for strategic transactions, including acquisitions; debt service requirements; our credit
rating; changes to applicable tax laws or corporate laws; and changes to our business model. In addition, the amount we spend
and the number of SVS we are able to repurchase for cancellation under any NCIB or substantial issuer bid may further be
affected by a number of other factors, including the SVS we repurchase to satisfy stock-based compensation awards, the price
of our SVS and blackout periods in which we are restricted from repurchasing SVS. Our SVS repurchases may change from
time to time, and even if permitted under our credit facility, we cannot provide assurance that we will continue to repurchase
SVS for cancellation in any particular amounts or at all. A reduction in or elimination of our SVS repurchases could have a
negative effect on our stock price.
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Potential unenforceability of judgments.
We are incorporated under the laws of the Province of Ontario, Canada. Our controlling persons, half of our directors,
and one of our executive officers are residents of (or are organized in) Canada. Also, a substantial portion of our assets and the
assets of these persons are located outside of the U.S. As a result, it may be difficult to effect service of process within the U.S.
upon those directors, officers, or controlling persons who are not residents of the U.S, or to enforce judgments in the U.S.
obtained in courts of the U.S. It may also be difficult for shareholders to enforce a U.S. judgment in Canada predicated upon the
civil liability provisions of U.S. federal or state securities laws or to succeed in a lawsuit in Canada based only on U.S. federal
or state securities laws.
Negative publicity could adversely affect our reputation as well as our business, financial results and share price.
Unfavorable media related to our industry, company, brand, marketing, personnel, operations, business performance, or
prospects may affect our share price and the performance of our business, regardless of its accuracy or inaccuracy. The speed at
which negative publicity can be disseminated has increased dramatically with the capabilities of electronic communication,
including social media outlets, websites, blogs, and newsletters. Our success in maintaining, extending, and expanding our
brand image depends on our ability to adapt to this rapidly changing media environment. Adverse publicity or negative
commentary from any media outlet could damage our reputation and reduce the demand for our products, which would
adversely affect our business.
Climate change could adversely affect our business, results of operations and financial condition.
There is increasing concern that a gradual increase in global average temperatures due to increased concentration of
carbon dioxide and other greenhouse gases in the atmosphere will cause significant changes in weather patterns around the
globe and an increase in the frequency and severity of natural disasters. Changes in weather patterns and an increased
frequency, intensity and duration of extreme weather conditions could, among other things, impair our production capabilities,
disrupt the operation of our supply chain, and impact our customers and their demand for our services. As a result, the effects of
climate change could have a long-term adverse impact on our business, results of operations and financial condition.
Our business and operations could be adversely impacted by environmental, social and governance (ESG) initiatives.
Concern over climate change has led to international legislative and regulatory initiatives directed at limiting carbon
dioxide and other greenhouse gas emissions. Proposed and existing efforts to address climate change by reducing greenhouse
gas emissions could directly or indirectly affect our costs of energy, materials, manufacturing, distribution, packaging and other
operating costs, which could adversely impact our business and financial results.
Further, investors are placing a greater emphasis on non-financial factors, including ESG factors, when evaluating
investment opportunities. Although we actively manage a broad range of ESG matters, including the potential impact of our
business on society and the environment, and matters relating to diversity and inclusion, there can be no certainty that we will
manage such issues effectively, or that we will successfully meet society’s expectations in this regard. The perception of our
operations held by our shareholders, potential investors, suppliers, customers, other stakeholders, or the communities in which
we do business may depend, in part, on the ESG standards we have chosen to aspire to meet, whether or not we meet these
standards on a timely basis or at all, and whether or not we meet external ESG factors they deem relevant. In addition,
notwithstanding our achievements in these regards, the subjective nature and wide variety of methods and processes used by
various stakeholders, including investors, to assess a company with respect to ESG criteria can result in the perception of
negative ESG factors or a misrepresentation of our ESG policies and practices. In addition, by electing to set and publicly share
our ESG standards, our business may face increased scrutiny related to ESG activities. As a result, our reputation could be
harmed if we fail to act effectively in the areas in which we report. In addition, our failure to achieve progress on our ESG
policies and practices on a timely basis, or at all, or to meet ESG criteria set by third parties, could adversely affect our SVS
price, business, financial performance, or growth.
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Item 4. Information on the Company
A. History and Development of the Company
We were incorporated in Ontario, Canada on September 27, 1996. Our legal and commercial name is Celestica Inc. We
are a corporation domiciled in the Province of Ontario, Canada and operate under the Business Corporations Act (Ontario)
(OBCA). Our principal executive offices are located at 5140 Yonge Street, Suite 1900, Toronto, Ontario, Canada M2N 6L7.
Our telephone number is (416) 448-5800, and our internet address is www.celestica.com. Information on our website is not
incorporated by reference into this Annual Report.
Prior to our incorporation, we were an IBM manufacturing unit that provided manufacturing services to IBM for more
than 75 years. In 1993, we began providing electronics manufacturing services to non-IBM customers. In October 1996, we
were purchased from IBM by an investor group led by Onex, and in 1998, we completed our initial public offering.
A description of our acquisition activities (including our acquisition of PCI in November of 2021), our principal capital
expenditures (including property, plant and equipment), and our financing activities over the last three financial years is set
forth in notes 3, 4, 6, 11, 12, 21, and 24 to the Consolidated Financial Statements in Item 18, and Item 5, "Operating and
Financial Review and Prospects — MD&A."
A description of our divestiture activities (including our restructuring activities) over the last three financial years is set
forth in notes 6 and 15 to the Consolidated Financial Statements in Item 18, and Item 5, "Operating and Financial Review and
Prospects — MD&A," including a discussion of the 2019 sale of our real property located in Toronto, Ontario, and related
transition matters. Item 5, "Operating and Financial Review and Prospects — MD&A" also describes principal divestitures
(primarily our restructuring activities) currently in progress.
A description of our significant commitments for capital expenditures as at December 31, 2021 and those currently in
progress and planned for 2022 is set forth in Item 5, "Operating and Financial Review and Prospects — MD&A — Liquidity —
Contractual Obligations: Additional Commitments."
See "Overview — Celestica's business" and "Recent Developments" in Item 5, "Operating and Financial Review and
Prospects — MD&A" for a discussion of the estimated annualized impact of disengagements associated with the review of our
CCS segment portfolio; as well as recent trends impacting our businesses, including the impact of global supply constraints, due
in part to COVID-19.
There were no public takeover offers by third parties in respect of the Corporation's SVS or MVS or by the Corporation
in respect of other companies' shares which occurred during the last or current financial year.
The U.S. Securities and Exchange Commission (SEC) maintains an internet site that contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is
http://www.sec.gov.
B. Business Overview
General
We deliver innovative supply chain solutions globally to customers in two operating and reporting segments: Advanced
Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS).
Our ATS segment consists of our ATS end market, and is comprised of our A&D, Industrial, Energy, HealthTech, and
Capital Equipment businesses. Our Capital Equipment business is comprised of our semiconductor, display, and power &
signal distribution equipment businesses. Our CCS segment consists of our Communications and Enterprise end markets. Our
Enterprise end market is comprised of our servers and storage businesses. All period percentages and financial information in
this Annual Report reflect the current presentation. See note 25 to the Consolidated Financial Statements in Item 18.
Our customers include original equipment manufacturers (OEMs), cloud-based and other service providers, including
hyperscalers, and other companies in a wide range of industries. Our global headquarters is located in Toronto, Ontario,
Canada. We operate a network of sites and centers of excellence (discussed below) strategically located in North America,
Europe and Asia, with specialized end-to-end supply chain capabilities tailored to meet specific market and customer product
lifecycle requirements.
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We offer a comprehensive range of product manufacturing and related supply chain services to customers in both of our
segments, including design and development, new product introduction, engineering services, component sourcing, electronics
manufacturing and assembly, testing, complex mechanical assembly, systems integration, precision machining, order
fulfillment, logistics, asset management, product licensing, and after-market repair and return services. Our HPS offering,
within our CCS segment, includes the development of hardware platforms, design solutions and software services that can be
used as-is, or customized for specific applications in collaboration with our customers, and management of program design and
aspects of the supply chain, manufacturing, and after-market support.
We believe our services and solutions create value for our customers by enabling their strategies, while accelerating their
time-to-market, and by providing higher quality, lower cost, and reduced cycle times (as compared to insourcing) in our
customers' supply chains. We believe this results in lower total cost of ownership, greater flexibility, higher return on invested
capital and improved competitive advantage for our customers in their respective markets.
We depend on a small number of customers for a substantial portion of our revenue. In the aggregate, our top
10 customers represented 66% of our total 2021 revenue (2020 — 66%). In 2021 and 2020, no customer individually
represented 10% or more of total revenue. Cisco (a former CCS segment customer) accounted for 9% of total 2020 revenue,
and 12% of total 2019 revenue (and was the only customer in 2019 that individually represented 10% or more of total revenue).
Significant reductions in, or the loss of, revenue from these or any of our major customers may have a material adverse effect
on us. See Item 3(D), Key Information — Risk Factors — "We are dependent on a limited number of customers and end
markets. A decline in revenue from, or the loss of, any significant customer, could have a material adverse effect on our
financial condition and operating results." Disengagements resulting from our recent CCS segment portfolio review resulted
in an estimated annualized revenue decline of $1.25 billion compared to revenue in 2018, the year such review commenced.
Products and services in our ATS 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
A&D customers; high-precision semiconductor and display equipment and integrated subsystems; a wide range of industrial
automation, controls, test and measurement devices; engineering-focused engagements, including full product development in
the areas of telematics, human machine interface (HMI), Internet-of-Things (IoT) and embedded systems; 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 higher margin profiles and margin volatility, higher
working capital requirements, and longer product life cycles than the businesses in our CCS segment. Products and services in
our CCS segment consist predominantly of enterprise-level data communications and information processing infrastructure
products and systems, and can include routers, switches, data center interconnects, edge solutions, and servers and storage-
related products used by a wide range of businesses and cloud-based and other service providers to manage digital connectivity,
commerce and social media applications. Our CCS segment businesses typically have lower margin profiles, lower working
capital requirements, and higher volumes than the businesses in our ATS segment. Within our CCS segment, however, our HPS
business (which includes firmware/software enablement across all primary IT infrastructure data center technologies and after-
market services) typically has a higher margin profile than our traditional CCS businesses, but also requires specific
investments (including R&D) and higher working capital. Our CCS segment generally experiences a high degree of volatility in
terms of revenue and product/service mix, and as a result, our CCS segment margin can fluctuate from period to period. In
recent periods, we have experienced an increasing shift in the mix of our programs towards cloud-based and other service
providers, which are cyclically different from our traditional OEM customers, creating more volatility and unpredictability in
our revenue patterns, and additional challenges with respect to the management of our supply chain and working capital
requirements.
We remain committed to making the investments we deem necessary to support our long-term growth strategy,
strengthen our competitive position, enhance customer satisfaction, and increase long-term shareholder value. Within both of
our segments, we are focused on: increased penetration in our end markets; diversifying our customer mix and product
portfolios, including increasing design and development, engineering, and after-market services (higher value-added services);
and diversifying our capabilities and supply chains. In response to slower growth rates and increased pricing pressures in our
traditional markets, which continue to account for a substantial portion of our revenue, we intend to continue to concentrate on
expanding our business beyond such traditional markets, including through CCS segment growth initiatives focused on our
newly-reshaped CCS segment portfolio, and by continuing to pursue new customers and acquisition opportunities in our ATS
segment. See "Celestica’s Strategy" below for a discussion of our strategy, and Item 5, "Operating and Financial Review and
Prospects — MD&A — Operating Goals and Priorities" for a discussion of our current priorities.
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Electronics Manufacturing Services Industry
Overview
Leading EMS companies manage global networks that are capable of delivering customized supply chain solutions. They
offer end-to-end services for the entire product lifecycle, including design and engineering services, manufacturing, assembly,
testing, systems integration, fulfillment and after-market services. Our customers, which include OEMs, cloud-based and other
service providers (including hyperscalers), and other companies in a wide range of industries, outsource these services to
address challenges related to cost, asset utilization, quality, time-to-market, demand volatility, customer support, and rapidly
changing technologies. In particular, service providers have utilized our services to expand and optimize their data centers to
enable their strategies.
We believe outsourcing by these companies will continue across a number of industries as a means to:
Reduce Operating Costs and Invested Capital. Global EMS companies can provide access to a network of manufacturing
sites with supply chain management expertise, advanced engineering capabilities, flexible capacity and economies of scale. As
a result, outsourcing to such companies can reduce customers' overall product lifecycle and operating costs, working capital,
and property, plant and equipment investment requirements.
Focus Resources on Core Competencies. EMS customers are able to prioritize their resources on product development,
sales, marketing and customer service by outsourcing design, engineering, manufacturing, supply chain, product lifecycle
management, and other product support requirements.
Improve Time-to-Market. We believe that companies can significantly improve their product development cycles and
enhance time-to-market by benefiting from the expertise and infrastructure of EMS providers, including their capabilities
relating to design and engineering services, prototyping and the rapid ramp-up of new products to high-volume production, all
with the critical support of global supply chain management and manufacturing networks.
Utilize EMS Companies' Procurement, Inventory Management and Logistics Expertise. We believe that the successful
manufacturing of electronic products requires significant resources to manage the complexities in planning, procurement and
inventory management, frequent design changes, short product lifecycles and product demand fluctuations. Companies can help
manage these complexities by outsourcing to those EMS providers that (i) possess sophisticated IT systems and global supply
chain management capabilities and (ii) can leverage significant component procurement advantages to lower product costs.
Access Leading Engineering Capabilities and Technologies. EMS providers can assist companies in the development of
new product concepts, the re-design of existing products, and improvements with respect to the performance, cost and time
required to bring products to market. In addition, companies can gain access to high-quality manufacturing expertise and
capabilities in the areas of advanced process, interconnect and test technologies.
Improve Access to Global Markets. EMS companies with global infrastructure and support capabilities help to provide
customers with efficient world-wide manufacturing solutions, distribution capabilities and after-market services.
Access Value-Added Service Offerings. EMS providers strive to expand their offerings to include services such as design,
fulfillment and after-market services, including repair and recycling, to encourage companies to outsource more of their cost of
goods sold.
Celestica's Strategy
We constantly seek to advance our quality, engineering, manufacturing, HPS, and supply chain capabilities. We will
continue to focus on our pursuit of the following, intended to strengthen our competitive position and enhance customer
satisfaction and shareholder value:
Increase Penetration in our End Markets/Offerings. We strive to further diversify our portfolio. Our goal is to increase
our presence across our high-value end markets, with particular emphasis on HPS business within our CCS segment, and
expanding our ATS segment, both organically and through acquisitions. Revenue from our HealthTech and Capital Equipment
businesses for 2021 increased by an aggregate of approximately 30% from 2020. Within our CCS segment, we continue to
expand our HPS offering, which accounted for 20% of our total 2021 revenue, up from 15% in 2020. We intend to continue to
expand our portfolio in higher margin service offerings (including HPS).
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Our end market revenue as a percentage of total revenue is as follows:
ATS ................................................................................................................................
Communications ............................................................................................................
Enterprise .......................................................................................................................
2019
39%
40%
21%
2020
36%
42%
22%
2021
41%
40%
19%
Selectively Pursue Acquisitions and Strategic Transactions. We will continue to selectively seek acquisition opportunities
and strategic transactions in order to (i) profitably grow our revenue, (ii) further develop strategic relationships with customers
in our end markets; (iii) enhance the scope of our capabilities and service offerings, (iv) enhance our intellectual property
portfolio, and (v) expand our capabilities and offerings to include further after-market services and product licensing
opportunities.
Continuously Improve Operational Performance. We will continue to focus on: (i) managing our mix and volume of
business and service offerings to improve our overall margins, (ii) leveraging our supply chain practices globally to lower
materials costs, minimize lead times and improve our planning cycle to better meet volatility in customer demand and improve
asset utilization and inventory levels, (iii) successfully ramping new programs, and (iv) improving operating efficiencies to
reduce costs and improve margins. In order to help us streamline our processes, we continue to invest in our "digital factory,"
which automates and connects our equipment, people and systems throughout our global network, including our customers and
suppliers. Although our overall revenues decreased in 2021 compared to 2020, our mix of programs, and volume leverage
across several of our businesses had a favorable impact on our gross margin in 2021. In addition, our cost reductions initiatives,
intended to further streamline our business, increase operational efficiencies and improve our productivity, had a favorable
impact on our profitability in 2021.
Develop and Grow Trusted Relationships with Leading Customers. We continue to pursue profitable, strategic
relationships with industry leaders that we believe can benefit from our services and solutions. We strive to respond to our
customers' needs with speed, flexibility and predictability. We have established and maintain strong relationships with a diverse
mix of leading OEMs, cloud-based and other service providers and other companies across our end markets. We believe that
our customer base is a strong potential source of growth for us as we seek to strengthen these relationships through the delivery
of additional services.
Expand Range of Service Offerings and Continue to Invest in Developing New Technology, Quality Products and Supply
Chain Solutions and Services. We continually seek to expand the services we offer to our customers, and we are committed to
meeting our customers' needs in the areas of technology, engineering, quality, product lifecycle management and supply chain
management. We believe our expertise in these areas enables us to meet the rigorous demands of our customers, allows us to
produce a variety of electronic products ranging from high-volume electronics to highly complex technology infrastructure
products used in a broad array of end markets, and allows us to deliver consistently reliable products to our customers. We also
believe the systems and collaborative processes associated with our expertise in supply chain management help us to adjust our
operations to meet customer lead time requirements, and quickly and effectively deliver products directly to end customers. We
collaborate with our suppliers to influence component design for the benefit of our customers. As a result of the successes that
we have had in these areas, we have been recognized with numerous customer and industry achievement awards.
See Item 5, "Operating and Financial Review and Prospects — MD&A — Operating Goals and Priorities" for a
discussion of our current priorities and areas of focus.
Celestica's Business
Innovative Supply Chain Solutions and Services
We are a global provider of innovative supply chain solutions. We offer a range of services including design and
development, engineering services, supply chain management, new product introduction, component sourcing, electronics
manufacturing, assembly, testing, complex mechanical assembly, systems integration, precision machining, order fulfillment,
logistics, asset management, product licensing, and after-market repair and return services. Our design and development
services include our HPS offering, which consists of developing hardware platforms, design solutions and software services in
collaboration primarily with CCS segment customers, as well as managing aspects of the supply chain and manufacturing,
including firmware/software enablement across all primary IT infrastructure data center technologies, and after-market support.
We believe that our HPS offering helps to differentiate us from other EMS providers, by encompassing advanced technology
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design solutions that customers can tailor to their specific platform applications. We execute our business in our global network
of sites, including our designated centers of excellence, strategically located in North America, Europe and Asia. We leverage
these sites and centers of excellence, information technology, and our supply chain expertise using collaborative processes and
a team of highly skilled, customer-focused employees. We believe that our ability to deliver a range of supply chain and
hardware solutions to our customers provides them with a competitive lead time, and advantages in quality, flexibility and total
cost of ownership.
The objective of our centers of excellence program is to help ensure that our operations reflect a solid understanding of
the markets we serve, have current capabilities and standardized practices, and are positioned to provide efficiency, consistency,
and value to our customers around the globe. To obtain "center of excellence" status, our sites must meet our defined criteria
pertaining to quality, supply chain capabilities, Lean and Six Sigma, market specific certifications (to the extent applicable), and
other matters regarding their operations. In September 2021, we assumed manufacturing, warehousing, and customer return
goods activity under an outsourcing arrangement with Fujitsu Network Communications, Inc. (FNC), and signed a 10-year
lease agreement for a portion of FNC's Richardson, Texas facility. We also established a center of excellence at the FNC
facility, expanding our HPS engineering network and increasing our North America manufacturing capacity. In addition, we
have established a Master Validation Plan to help ensure that our IT systems that support regulated industries, including
HealthTech and A&D, are compliant with customer expectations with respect to data security.
Quality, Lean and Six Sigma Culture
We believe one of our strengths is our ability to consistently deliver high-quality services and products. We have an
extensive quality management system that focuses on continual process improvement and achieving high levels of customer
satisfaction. We employ a variety of advanced statistical engineering techniques and other tools to assist in improving product
and service quality. Most of our principal sites are ISO 9001 and ISO 14001 certified (international quality management
standards), and have other required industry-specific certifications.
Our Celestica Operating System (COS) consists of the application of global standard processes to all critical aspects of
our operations, including quality, supply and operations planning, new product introduction, daily visual performance
management, and continuous operational improvement through a “Plan Do Check Adjust” cycle. The COS is intended to
improve cost productivity, create accountable teams, and assure consistent performance.
In addition to these standards, we deploy Lean initiatives to help drive manufacturing efficiencies, cycle times velocities
and improved product quality, and use Six Sigma extensively in an effort to reduce process variation and to drive root cause
problem-solving. Lean and Six Sigma methods are also used in non-production areas to streamline our processes and eliminate
waste. We apply the knowledge we gain in our after-market services to help improve the quality and reliability of next-
generation products. We believe that success in these areas helps our customers to lower their costs, positioning them more
competitively in their respective markets.
Design and Engineering Services
Our global design teams are focused on delivering flexible solutions and expertise, intended to help customers reduce
overall product costs, improve time-to-market, introduce competitively differentiated products, and drive hardware innovations.
For customer-owned designs, we augment their design teams, and utilize our proprietary design analysis tools to minimize
design revisions and to achieve improved manufacturing yields. Our HPS offering includes the development of hardware
platforms and design solutions in collaboration with customers, managing aspects of the supply chain, manufacturing their
products and providing asset management services (including IT asset disposition). Our HPS offering is an engineering-led,
intellectual-property-based offering that allows us to drive hardware innovation and solutions for our customers and further
broaden our value proposition by leveraging our ecosystem partners and broad range of capabilities across the product lifecycle.
We continue to invest in leading-edge product roadmaps and design capabilities aligned with both market standards and
emerging technologies in support of our HPS offering. We are currently delivering both partially customized HPS products, and
complete hardware platform solutions to customers in the storage, servers, and communications markets. These products and
solutions are intended to help our customers reach their markets faster and enable their strategies, while reducing total costs,
increasing supply chain resilience and building valuable intellectual property for their product portfolios and/or data centers.
Through our collective experience with common technologies across multiple industries and product groups, we believe we
provide quality and cost-focused solutions for a wide range of our customers' design needs and strategies. Revenue attributable
to our HPS business has more than doubled since 2019, due in part to increased demand resulting from COVID-19 in 2020 and
2021.
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We collaborate with some of our core customers' product designers in the early stages of product development, using
advanced tools to enable new product ideas to progress from electrical and application-specific integrated circuit design, to
simulation, physical layout and design review, all intended to ensure readiness for manufacturing. We use our design expertise
to create innovative technologies and hardware product solutions, and leverage key ecosystem partners to drive both innovation
and supply chain leverage. Our HPS offering encompasses advanced technology hardware design solutions that customers can
tailor to their specific applications. We believe that collaboration between our customers' teams, key ecosystem partners, and
our design and manufacturing groups helps to ensure that new designs are released rapidly, smoothly and cohesively into
production.
Our engineering services team works with our customers throughout the product life-cycle. We believe our engineering
expertise and experience in product and process design, design review, product test solutions, assembly technology, automation,
and quality and reliability, position us to deliver the services required to address the challenges facing our customers. We
maintain ties with key industry associations and engineering firms to help us stay apprised of advances in technical knowledge.
Prototyping and New Product Introduction
Prototyping is a critical early-stage process in the development of new products. Our engineers collaborate with our
customers' engineers to provide quick responses in the early stages of the product development lifecycle.
Supply Chain Management and Services
We use advanced planning, analytics, enterprise resource planning, and supply chain management systems to optimize
materials management from suppliers to our customers' customers. We believe that the effective management of the supply
chain is critical to our customers' success, as it directly impacts the time and cost required to deliver products to market and the
capital requirements associated with carrying inventory.
We strive to reduce our customers' total cost of ownership by providing lower costs and reduced cycle times in their
supply chain, and by delivering higher quality products. We also strive to align our preferred suppliers in close proximity to our
centers of excellence to increase the speed and flexibility of our supply chain, to deliver higher quality products and to reduce
time-to-market.
Through our global supply chain management processes and integrated IT tools, we endeavor to provide our customers
with enhanced visibility to balance their global demand and supply requirements, including inventory and order management.
Manufacturing Services
Printed Circuit Board Assembly
Printed circuit board (PCB) assembly includes the attachment of electronic components, such as capacitors,
microprocessors, resistors and memory modules, to PCBs. Our global network of engineers helps us to provide our customers
with full PCB assembly technology capabilities. These capabilities include design for manufacturing, PCB layout, packaging,
assembly (circuit card assembly or CCA), lead-free soldering, test development, and data analytics for complex flexible and
rigid-flex circuits and hybrid PCBs.
Complex Mechanical Assembly
We provide systems integration and precision machined components to our Capital Equipment customers. Complex
mechanical systems integration consists of multiple interconnected subsystems that interact with various materials, e.g., fluids,
solids, particles and rigid bodies. Such systems are often used in advanced manufacturing applications such as semiconductor
manufacturing, display manufacturing (including LCD, OLED, QLED and other displays), medical applications using robotics,
and other applications such as cash handling machines where precise standards are required. We also provide complex
mechanical assembly primarily to our aerospace customers, including wire harness assembly, systems integration, sheet metal
fabrication, welding and machining.
Precision Machining
We utilize specialized computer-controlled machines to manufacture high quality components to tight tolerance
requirements. Such components are often used in applications similar to those noted above for complex mechanical assembly.
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Energy Services
We provide integrated solutions and services to our renewable energy customers in the areas of power generation,
conversion and monitoring. Our energy portfolio includes power inverters, energy storage products, smart meters and other
electronic componentry, and encompasses complete product lifecycle solutions, including design, manufacturing and reliability
services.
Systems Assembly and Testing
We use sophisticated technologies in the assembly and testing of our products. We continue to make investments in the
development of automated solutions, as well as new assembly and test process techniques intended to enhance product quality,
reduce cost and improve delivery time to customers. We work independently and also collaborate with customers and suppliers
to develop assembly and test technologies. Systems assembly and testing require sophisticated logistics capabilities to rapidly
procure components, assemble products, perform complex testing and distribute products to customers around the world. Our
full systems assembly services involve combining and testing a wide range of sub-assemblies and components before shipping
them to their final destination. Some customers require custom build-to-order system solutions with very short lead times, and
we are focused on using our advanced supply chain management capabilities to respond to our customers' needs.
Quality and Product Assurance
We provide complete product reliability testing, inspection and qualification capabilities to support our customers' full
product lifecycle requirements. Our quality and product assurance teams perform product testing to ensure that designs meet or
exceed required specifications. We are capable of testing to various industry standards, and we work closely with our customers
to execute unique test protocols. We believe that this service allows our customers to assess certification risks early in the
product development lifecycle, reducing cost and time-to-market.
Failure Analysis and After-Market Services
Our extensive failure analysis capabilities concentrate on identifying the root cause of product failures and determining
corrective actions. Products are subjected to various environmental extremes, including temperature, humidity, vibration,
voltage and contamination. Field conditions are simulated in failure analysis laboratories which employ electron microscopes,
spectrometers and other advanced equipment. Our engineers work proactively in partnership with suppliers and customers in an
effort to discover product failures before products are shipped, and to develop and implement solutions if required.
We also seek to provide value to our customers through our after-market services offerings which include repair,
fulfillment, reverse logistics, asset management and disposition, reclamation and returns processing and prevention. Our
fulfillment offering includes the design and management of integrated supply chain and materials management for light
manufacturing and final assembly and reclamation. Our reverse logistics offering includes the design and management of
transportation networks, warehousing and distribution of products, asset recovery services, and transportation and supply chain
event monitoring. Our returns processing and prevention offering provides our customers with product screening and testing
and product design and process analysis. Our reclamation offering includes product disassembly, reassembly and re-use, as well
as certified scrap disposition processing. We offer these services individually or integrated through a 'Control Tower' model
which coordinates our people, systems and processes with those of our customers to improve service levels by providing an
increased level of visibility and analytics throughout the entire after-market value chain.
Product Licensing
With respect to our partners that are seeking to rationalize their product lines, licensing to us provides them with an
alternative to sale or discontinuation. Celestica manages the entire business process for the licensed product or product line,
including order acceptance, customer service, engineering, supply chain, obsolescence management, manufacturing, logistics,
service parts offering, and after-market services. This allows our partners to continue to serve their customers while maintaining
ownership of their intellectual property, and to redeploy their resources for other uses.
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Geographies
For each of 2019, 2020 and 2021, approximately 70% of our revenue was produced in Asia and approximately 20% of
our revenue was produced in North America. Revenue produced in Canada represented 7% of revenue in 2021 (2020 — 6%;
2019 — 8%). Our property, plant and equipment in Canada represented 7% of our property, plant and equipment at
December 31, 2021 (December 31, 2020 — 8%; December 31, 2019 — 10%). A listing of our principal locations is included in
Item 4(D), "Information on the Company — Property, Plants and Equipment." Certain geographic information for countries
with 10% or more of our external revenue, property, plant and equipment and ROU assets, and intangible assets and goodwill is
set forth in note 25 to the Consolidated Financial Statements in Item 18.
Marketing and Customer Experience
We structure our business development teams by end market, with a focus on offering market insight and expertise, and
complete manufacturing, HPS (in the case of our CCS segment) and supply chain solutions to our customers. We have
customer-focused teams, each headed by a group general manager who oversees the global relationship with our key customers.
These teams work with our subject matter experts to meet the requirements of each customer's product or supply chain. Our
global network is comprised of such customer-focused teams, as well as operational and project managers, supply chain
management teams, and senior executives.
We provide comprehensive support before, during and after the delivery of our products and services. We seek to deepen
and grow our customer relationships by providing consistent, high-quality implementation and customer support services,
which we believe drives customer retention and additional opportunities within our existing customer base.
Customer Concentration and Relationship Management
We target industry-leading customers in each of our segments. Our current CCS segment customers include Dell
Technologies, Hewlett-Packard Enterprise, Hewlett-Packard Inc., IBM Corporation, Juniper Networks, Inc., NEC Corporation,
Oracle Corporation, and Polycom, Inc. Our current ATS segment customers include Applied Materials, Inc., Honeywell Inc.,
Lam Research and Raytheon Company. We are focused on strengthening our relationships with strategic customers through the
delivery of new and expanding end-to-end solutions.
No customer individually represented 10% or more of total revenue in 2020 or 2021. Cisco (a former CCS segment
customer) was the only customer that individually represented 10% or more of total revenue for 2019 (12%).
Our top 10 customers represented 66%, 66% and 65% of total revenue for 2021, 2020 and 2019, respectively.
We generally enter into master supply agreements with our customers that provide the framework for our overall
relationship, although such agreements do not typically guarantee a particular level of business or fixed pricing. Instead, we bid
on a program-by-program basis and typically receive customer purchase orders for specific quantities and timing of products.
We believe that our customer-focused factories are flexible and can be reconfigured as needed to meet customer-specific
product requirements and fluctuations in volumes (although we do incur increased production costs from time to time in
connection with unexpected demand changes). A majority of these supply agreements also require the customer to purchase
unused inventory that we have purchased to fulfill that customer's forecasted manufacturing demand. Some of these agreements
require us to provide specific price reductions to our customers over the term of the contracts, which has had (and is expected to
continue to have) a significant adverse impact on our revenues, gross margin and operating results. Also see Item 3(D), Key
Information — Risk Factors — "Inherent challenges in managing changes in customer demand may impact our planning,
supply chain execution and manufacturing, and may adversely affect our operating performance and results."
Research and Technology Development
We use advanced technology to design, assemble and test the products we manufacture. We continue to invest in our
global design services and capabilities to conceive differentiated HPS product solutions for our customers.
We have extensive capabilities across a broad range of specialized assembly, configuration and test processes. We work
with a variety of substrates based on the products we build for our customers, from thin, flexible PCBs to highly complex,
dense multi-layer PCBs, as well as a broad array of advanced component and attachment technologies employed in our
customers' products and our own product designs. We believe that increasing demand for full-system assembly solutions
continues to drive technical advancement in complex mechanical assembly and configuration. We also develop and
manufacture sub-components, such as optical modules and complex machined parts, intended to drive targeted technical
advancements to support these opportunities.
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Our automated electronics assembly lines are continuously refreshed with the latest generation technology, with a focus
on flexible lines with quick changeover, large board capability, and small component capability. Our assembly capabilities are
complemented by advanced test capabilities. The technologies we use include high-speed functional testing, optical, burn-in,
vibration, radio frequency, and in-circuit and in-situ dynamic thermal cycling stress testing. Our inspection technology includes
X-ray computed tomography, advanced automated optical inspection, three-dimensional paste volumetric inspection and
scanning electron microscopy. We work directly with leaders in the equipment industry to optimize their products and solutions
or to jointly design solutions to meet the needs of our customers. We apply automation solutions for higher volume products,
where possible, to help improve product quality, lower product costs, and increase manufacturing efficiencies.
Our ongoing R&D activities include the development of processes, test technologies, and hardware platform solutions,
spanning core data center technologies, that can be used as-is or customized to optimize a customer's specific applications. Our
HPS offering is focused on developing design solutions and subsequently managing the other aspects of the supply chain,
including product manufacturing and after-market services. We focus our solutions on developing current and next generation
storage, server and communications products (in particular, elements of data centers, which include the development of
complete hardware platform solutions to reduce product costs and accelerate time to market, and which we believe will
continue to grow). We work directly with our customers to understand their product roadmaps and requirements, and to develop
technology solutions intended to meet their particular needs. We are proactive in developing manufacturing techniques that take
advantage of the latest component, product and packaging designs. We have worked with, and have taken leadership roles in,
industry and academic groups that strive to advance the state of technology in the industry. As we continue to pursue deeper
relationships with our customers, and participate in additional services and revenue opportunities with them, we anticipate an
increase in our spending in these areas.
Supply Chain Management
We share data electronically with our key suppliers, and help ensure speed of supply through strong relationships with
our component suppliers and logistics partners. We view the size and scale of our procurement activities, including our IT
systems, as an important competitive advantage, as they enhance our ability to obtain better pricing, influence component
packaging and designs, and obtain a supply of components in constrained markets. We procure substantially all of our materials
and components on behalf of our customers pursuant to individual purchase orders that are generally short-term in nature.
Components and raw materials are sourced globally, with a majority of electronic components originating from Asian
countries. See Item 3(D), Key Information — Risk Factors — "Our ability to successfully manage unexpected changes or
risks inherent in our global operations and supply chain may adversely impact our financial performance" for a discussion
of various risks related to our foreign operations. All of the products we manufacture or assemble require one or more
components. In many cases, there may be only one supplier of a particular component. Some of these components could be
rationed in response to supply shortages. We work with our suppliers and customers to attempt to ensure continuity in the
supply of these components. In cases where unanticipated customer demand or supply shortages occur, we attempt to arrange
for alternative sources of supply, where available, or defer planned production in response to the availability of the critical
components. Notwithstanding these efforts, however, we experienced materials constraints from certain suppliers in both of our
segments in recent years, due in part to global supply shortages for many electronic components. These constraints were also
significantly exacerbated with respect to several of our businesses during 2020 and 2021 as a result of COVID-19. These
shortages have been aggravated by the significant impact of COVID-19-related workforce constraints on the factories of certain
of our suppliers. As we are dependent on our suppliers to prioritize their manufacturing to produce the products we need to
fulfill our customer orders, these shortages caused delays in the production of customer products in both of our segments, and in
combination with volatile market demand, negatively impacted our margins and led to higher-than-expected levels of inventory
in 2020 and 2021, and resulted in operational and materials inefficiencies and a continued backlog of orders. See Item 5,
"Operating and Financial Review and Prospects — MD&A — Recent Developments — Segment Environment" for a discussion
of the impact of materials constraints (including due to COVID-19) on our business during 2020 and 2021. See Item 3(D), Key
Information — Risk Factors, "We are dependent on third parties to supply certain materials, and our results can be
negatively affected by the quality, availability and cost of such materials." We recognize that some sub-tier suppliers
providing raw materials such as palladium, neon gas and high-grade aluminum are partially dependent on supply from Russia/
Ukraine. We will closely monitor the supply availability and price fluctuations of these raw materials. While the prices of
principal raw materials are generally not volatile, price increases have resulted from materials shortages in recent periods. Price
increases resulting from such shortages and/or other factors which we cannot recover from our customers have, and may
continue to, adversely impact our results of operations.
We utilize our enterprise systems, as well as specific supply chain IT tools, to provide comprehensive information on our
logistics, financial and engineering support functions. These systems provide management with the data and analytics required
to manage the logistical complexities of our business and are augmented by and integrated with other applications, such as shop
floor controls, component and product database management, and design tools.
37
To minimize the risk associated with inventory, we primarily order materials and components only to the extent
necessary to satisfy existing customer orders and forecasts covered by the applicable customer contract terms and conditions.
However, in light of the constrained materials environment in recent periods, we have also been placing additional orders to
secure supply, offset in part by the receipt of cash deposits from the relevant customers. We have implemented specific
inventory management strategies with certain suppliers, such as "supplier managed inventory" (pulling inventory at the
production line on an as-needed basis) and on-site stocking programs. Our initiatives in Lean and Six Sigma also focus on
eliminating excess inventory throughout the supply chain. Notwithstanding the foregoing, however, as a result of demand
volatility from our customers and the materials constraints from certain suppliers discussed above, we carried higher than
expected levels of certain inventory at December 31, 2021.
Intellectual Property
We hold licenses to various technologies which we have acquired in connection with acquisitions. In addition, we believe
that we have secured access to technology sufficient for the current conduct of our business.
We regard our manufacturing processes and certain designs as proprietary trade secrets and confidential information. We
rely largely upon a combination of trade secret laws, non-disclosure agreements with our customers, suppliers, employees and
other parties, and upon our internal security systems, confidentiality procedures and employee confidentiality agreements to
maintain the trade secrecy of our designs and manufacturing processes. Although we take steps to protect our trade secrets and
other intellectual property, we cannot assure that misappropriation will not occur. See Item 3(D), Key Information — Risk
Factors, "We may not adequately protect our intellectual property or the intellectual property of others."
Our increased research and design activities have resulted in the growth of our dependence on our patent portfolio. We
have over 280 hardware patents that are integral to our HPS business. We anticipate that such growth (and importance) will
continue as we expand our business activities. In addition, we currently have a limited number of other patents and patent
applications pending to protect our intellectual property. Other factors significant to our proprietary rights include the
knowledge and experience of management and personnel, and our ability to develop, enhance and market electronics
manufacturing services.
Each of our customers typically provides us with a license to its technology for use in providing electronics
manufacturing services to such customer. Generally, the agreements governing such technology grant to us non-exclusive,
worldwide licenses with respect to the subject technologies, are typically provided without charge, and terminate upon a
material breach by us of the terms of such agreements, or termination of the program to which such licenses relate.
We also license some technology from third parties that we use in providing electronics manufacturing services to our
customers. We believe that such licenses are generally available on commercial terms from a number of licensors. Generally,
the agreements governing such technology grant to us non-exclusive, worldwide licenses with respect to the subject
technologies and terminate upon expiration, or a material breach by us of the terms, of such agreements.
Competition
The EMS industry is highly competitive with multiple global EMS providers competing for customers and programs. Our
competitors include Benchmark Electronics, Inc., Flex Ltd., Hon Hai Precision Industry Co., Ltd., Jabil Inc., Plexus Corp., and
Sanmina Corporation, as well as smaller EMS companies that often have a regional, product, service or industry-specific focus,
and ODMs (including Quanta Computer Inc., Wistron Corp., Delta Network, Inc., and Accton Technology Corp.) that provide
internally designed products and manufacturing services. We provide hardware platform solutions as part of our HPS offering.
There may be instances where our hardware platform solutions compete with a customer's hardware offerings.
We also face indirect competition from current and prospective customers who evaluate our capabilities and commercial
models against the merits of manufacturing products internally, and from distribution and logistics providers expanding their
services across the supply chain, including assembly, fulfillment, logistics and in some cases, engineering services. We compete
with different companies depending on the type of service or geographic area. Some of our competitors have greater scale and
provide a broader range of services than we provide. We believe our competitive advantage is our track record in manufacturing
technology, quality, complexity, responsiveness and cost-effective, value-added services. To remain competitive, we believe we
must continue to provide technologically advanced manufacturing services and solutions, maintain quality levels, offer flexible
delivery schedules, deliver finished products and services on time and compete favorably on price.
The competitive landscape in our CCS segment remains aggressive, as demand growth continues to move from
traditional enterprise network infrastructure providers to cloud-based and other service providers, resulting in aggressive
bidding from EMS providers and increased competition from ODMs as they further penetrate these markets. As a result of the
high concentration of our business in the CCS marketplace, these competitive pressures, aggressive pricing and technology-
38
driven demand shifts, have negatively impacted, and may continue to negatively impact our CCS businesses in future periods.
We intend to continue to monitor these dynamics and focus on cost and portfolio management, including HPS growth
initiatives, in response to these factors. To enhance our competitiveness, we continue to focus on expanding our service
offerings and capabilities beyond our traditional areas of EMS expertise, including expanding our HPS and after-market
services offerings.
See Item 3(D), Key Information — Risk Factors — "We operate in an industry comprised of numerous competitors
and aggressive pricing dynamics" and Item 5, "Operating and Financial Review and Prospects — MD&A — Overview —
Overview of business environment and Recent Developments."
Environmental Matters
We are subject to various federal/national, state/provincial, local, foreign and supra-national laws and regulations,
including environmental measures relating to the release, use, storage, treatment, transportation, discharge, disposal and
remediation of contaminants, hazardous substances and waste, and health and safety measures related to practices and
procedures applicable to the construction and operation of our sites. We have management systems in place designed to
maintain compliance with such laws and regulations.
Our past operations and the historical operation by others of our sites may have resulted in soil and groundwater
contamination on our sites, and in many jurisdictions in which we operate, environmental laws impose liability for the costs of
removal, remediation or risk assessment of hazardous or toxic substances on an owner, occupier or operator of real property
even if such person or company was unaware of or not responsible for the discharge or migration of such substances. From
time-to-time we investigate, remediate and monitor soil and groundwater contamination at certain operating sites. We generally
obtain Phase I or similar environmental assessments (which involve general inspections without soil sampling or groundwater
analysis), or review assessment reports undertaken by others, for our manufacturing sites at the time of acquisition or leasing.
However, such assessments may not reveal all environmental liabilities (due, for example, to limited available information
about prior operations at the properties or other gaps in information at the time we acquire or lease such sites), and assessments
have not been obtained for all sites. Where contamination is suspected at sites being acquired or leased, Phase II intrusive
environmental assessments (that can include soil and/or groundwater testing) are usually performed. We expect to conduct
Phase I or similar environmental assessments in respect of future property acquisitions or leases and intend to perform Phase II
assessments where appropriate. Past environmental assessments have not revealed any environmental liability that we believe
will have a material adverse effect on our operating results or financial condition, in part because of contractual retention of
liability by landlords and former owners at certain sites. However, any such contractual retention of liability may not provide
sufficient protection to reduce or eliminate our liability. Third‑party claims for damages or personal injury are also possible and
could result in significant costs to us. If more stringent compliance or cleanup standards under environmental laws or
regulations are imposed, or the results of future testing and analyses at our current or former sites indicate that we are
responsible for the release of hazardous substances into the air, ground and/or water, we may be subject to additional liability.
Environmental matters may arise at sites where no problem is currently known or at sites that we may acquire in the future. See
Item 3(D), Key Information — Risk Factors — "Compliance with governmental laws and obligations could be costly and
may negatively impact our financial performance."
Environmental legislation also occurs at the product level. Celestica works with its customers in connection with
compliance with applicable product-level environmental legislation in the jurisdictions where products are manufactured and/or
offered for use and sale by our customers.
Backlog
Our A&D business continued to be negatively impacted by materials shortages during 2021, most significantly with
respect to the availability of certain high reliability parts and machined components, resulting in, among other things, a
continued backlog of orders.
Although we obtain purchase orders from our customers, they typically do not commit to delivery of products more than
30 to 90 days in advance. However, due to global supply shortages, some customers have provided us with longer
commitments. We do not believe that the backlog of expected product sales covered by purchase orders is a meaningful
measure of future sales, since generally orders may be rescheduled or canceled.
39
Seasonality
Seasonality is reflected in the mix of products we manufacture from quarter-to-quarter. From time to time, we experience
some level of seasonality in our quarterly revenue patterns across certain of our businesses. The addition of new customers has
introduced different demand cycles. For example, cloud-based service providers have increased their use of products in our
CCS segment in recent periods. These customers and markets are cyclically different from our traditional OEM customers,
creating more volatility and unpredictability in our revenue patterns, and additional challenges with respect to the management
of our working capital requirements. The pace of technological change, the frequency of customers transferring business among
EMS and/or ODM competitors and the constantly changing dynamics of the global economy will also continue to impact us. As
a result of these factors, the impact of new program wins or program losses or non-renewals, overall demand variability, and
limited visibility in technology end markets, it is difficult to isolate the impact of seasonality on our business. Recently, revenue
from our Enterprise end market has decreased in the first quarter of the year compared to the previous quarter, and then
increased in the second quarter, reflecting an increase in customer demand. In addition, we typically experience our lowest
overall revenue levels during the first quarter of each year. There is no assurance that this pattern will continue. See also
Item 3(D), Key Information — Risk Factors — "Our revenue and operating results may vary significantly from period
to period."
Controlling Shareholder Interest
Onex is our controlling shareholder with an 81.5% voting interest in Celestica. Accordingly, Onex has the ability to
exercise a significant influence over our business and affairs and generally has the power to determine all matters submitted to a
vote of our shareholders where the SVS and MVS vote together as a single class. Such matters include electing our Board and
thereby influencing significant corporate transactions, including mergers, acquisitions, divestitures and financing arrangements.
Gerald W. Schwartz, the Chairman of the Board and Chief Executive Officer of Onex, indirectly owns shares representing the
majority of the voting rights of the shares of Onex. For further details, refer to Item 3(D), Key Information — Risk
Factors — "The interest of our controlling shareholder, Onex Corporation, with an 81.5% voting interest, may conflict with
the interests of other shareholders" and footnotes 2 and 3 of Item 7(A) "Major Shareholders and Related Party
Transactions — Major Shareholders."
Government Regulation
Information regarding material effects of government regulations on Celestica's business is provided in the risk factors
entitled "We are subject to the risk of increasing income and other taxes, tax audits and the challenges of successfully
defending our tax positions, and obtaining, renewing or meeting the conditions of tax incentives and credits, any of which
may adversely affect our financial performance," "Compliance with governmental laws and obligations could be costly and
may negatively impact our financial performance," "Compliance or the failure to comply with employment laws and
regulations may negatively impact our financial performance," "U.S. policies or legislation could have a material adverse
effect on our business, results of operations and financial condition," and "Our business and operations could be adversely
impacted by environmental, social and governance (ESG) initiatives" in Item 3(D), Key Information — Risk Factors.
Sustainability
We are committed to driving sustainability initiatives through collaboration with our employees, customers, suppliers
and local communities. Our Sustainability Report, which is published annually, outlines our sustainability strategy, the progress
we have made as a socially responsible organization, and the key activities and milestones we are working to achieve for each
of our focus areas: our planet, our products and services, our people and our communities. Our most recent Sustainability
Report, as well as our Corporate Values, can be found on our website: www.celestica.com (information on our website is not
incorporated by reference into this Annual Report).
We strive to minimize the impact of our operations on the environment by working to make our infrastructure sustainable
and by reducing our greenhouse gas (GHG) emissions. Since 2009, we have published annual reports documenting our
corporate social responsibility programs and environmental sustainability initiatives. We currently report in accordance with the
guidance of the Global Reporting Initiative (GRI), and our most recent Sustainability Report includes disclosures aligned with
the standards of the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial
Disclosures (TCFD). We are committed to reporting our GHG emissions annually, and have included third-party assurance of
our GHG emissions in our annual report since 2013. Since 2010, we have responded to the CDP Climate Change questionnaire,
which enables engagement on environmental issues worldwide. Our GHG emissions reduction target has been approved by the
Science Based Targets initiative (SBTi). In 2021, we increased the number of United Nations Sustainable Development Goals
(SDGs) which we have adopted as part of our sustainability strategy (increasing from four goals to ten goals). Although all 17
SDGs are relevant to Celestica, our communities, and our stakeholders, we have prioritized ten goals we believe present
opportunities for us to affect the greatest change. We determine this annually through our materiality assessment and during
40
stakeholder conversations. The new goals reflect our commitment to diversity and inclusion, investments in our employees,
continued focus on climate action and increased focus on water. We have an established Conflict Minerals Policy in accordance
with Dodd-Frank. We fully support the objectives of the conflict minerals legislation, which aims to minimize violence in the
Democratic Republic of Congo and adjoining countries, and expect our suppliers to provide all requested declarations.
Diversity and Inclusion
We believe in building an inclusive culture that encourages diversity of thought and attributes while allowing employees
to thrive, be valued and celebrated. In our view, diversity includes, but is not limited to, gender or gender identity, race, age,
ethnicity, religious or cultural background, disability, marital or family status, sexual orientation, education, experiences,
perspectives, language and other areas of potential difference. In furtherance of these beliefs, we have adopted a Diversity and
Inclusion Policy, under which we are committed to providing a work environment in which everyone feels accepted and valued,
by being treated fairly and with respect across the enterprise. Our Diversity and Inclusion Steering Committee (D&I Steering
Committee) is comprised of three members of senior management and is co-chaired by our Chief Executive Officer (CEO) and
Chief Human Resources Officer. The D&I Steering Committee oversees diversity and inclusion at Celestica and seeks to ensure
that diversity and inclusion are incorporated into Celestica’s culture, workplace and talent practices. The D&I Steering
Committee has designated a Diversity and Inclusion Committee (D&I Committee) for the purpose of developing and promoting
diversity. Celestica’s diversity & inclusion practice (D&I Practice) is led by a Diversity and Inclusion Leader to drive our
diversity and inclusion strategy. Employees were invited to participate in a global Diversity and Inclusion survey in November
2020, which provided the opportunity to anonymously provide perspectives on diversity and inclusion at Celestica, and thereby
establish a baseline to measure progress as our D&I Practice matures. Management reviewed the survey data and identified key
focus areas for action plans. The results of the survey and management’s action plans were reviewed with the Human Resources
and Compensation Committee in April 2021, and were also shared with employees. In addition, the following actions were
taken in 2021 with respect to diversity and inclusion at Celestica:
•
•
•
•
launched diversity and inclusion training to our global workforce in order to raise employee awareness of
diversity and inclusion and how we can effect change within the organization;
held our first “Celestica Day for Diversity and Inclusion Awareness” to highlight the value of equity and
reveal issues of inequity that may be unnoticed and unaddressed, understand diverse teams, cultural
differences to develop intercultural fluency, spark ways of thinking about inclusion within Celestica and
reinforce the value of diverse teams in the workplace;
reviewed our policies and practices to ensure they support our diversity and inclusion agenda, remove
perception of favoritism and uphold equity; and
created four employee-led employee resource groups (Celestica Women’s Network, Celestica Black
Employee Network, Celestica Pride Network and Celestica Indigenous Affinity Group).
In furtherance of Board diversity, the Board adopted a new Board Diversity Policy in January 2021. In accordance with
the Board Diversity Policy, Celestica aspires to attain by its annual meeting in 2023, and thereafter maintain, a Board
composition in which at least 30% of the Board are women. Further, when identifying candidates for election or appointment to
the Board of Directors, the Board and its Nominating and Corporate Governance Committee (NCGC) will:
•
•
•
•
•
consider candidates who are qualified based on a balance of skills, background, experience and knowledge;
take into account diversity considerations such as age, geographical representation from the regions in which
Celestica operates, cultural heritage (including Aboriginal peoples (as defined in the Employment Equity Act
(Canada) and members of visible minorities) and different abilities (including persons with disabilities);
strive to use, to their fullest potential, the Board’s network of relationships, in addition to using third-party
organizations, that may help identify diverse candidates for joining the Board;
ensure that the initial candidate list is comprised of no less than 50% women; and
periodically review recruitment and selection protocols to ensure diversity remains an important component
of the Board.
Two director nominees at our upcoming 2022 Annual Meeting of Shareholders (2022 Meeting) are women (22%),
including the current Chair of the Audit Committee. Three of our other director nominees self-identify as members of visible
minorities (33%) and none of the nominees self-identify as Aboriginal peoples or as persons with disabilities (each as defined
under the Employment Equity Act (Canada)).
41
From time to time, the Board will review the Board Diversity Policy and assess its effectiveness in promoting a diverse
Board. We adhered to the Board Diversity Policy with respect to identifying women and other diverse candidates for our 2021
director search. An initial candidate list of 50% women was developed by our Director Search Committee with the assistance of
a director search firm tasked with this objective. Suitable candidates were interviewed by the members of our Director Search
Committee. Ultimately, Dr. Müller was appointed to the Board effective August 31, 2021 on the basis that he will make a
strong contribution and provide the diversity, background, skills and experience needed by the Board in view of the
Corporation’s strategy. We maintain our commitment to the 2023 target of 30% women on the Board and intend to commence a
search for a new director, following the 2022 Meeting, with an initial candidate list comprised of no less than 50% women in
accordance with our Board Diversity Policy.
COVID-19 Response
Celestica established a COVID-19 response committee in early 2020, which included members of our regional human
resources, health and safety, IT and operations teams. During 2021, we maintained a robust COVID-19 business continuity
management program to minimize disruptions during the pandemic and to minimize impacts to employee health and well-being
across our global network. We continue to follow the requirements of governmental authorities and maintain preventative and
protective measures to prioritize the safety of our employees, including a range of health and safety protocols such as a
cessation of employee travel (other than very limited essential inter-regional travel), a global work-from-home policy for
applicable employees, and for all other employees: physical distancing, enhanced screening, mandatory mask and use of other
personal protective equipment, and shift splitting. We have also strongly encouraged vaccination for all of our employees and
we organized vaccination clinics in regions where vaccines were not readily available, including Malaysia and Thailand.
Employee Engagement
At Celestica, we know our success depends on our talented people and their commitment to excellence. We believe
employee engagement is crucial for employee performance and productivity, and strong business outcomes. We therefore
continually strive to enhance employee engagement.
In support of our efforts to foster a high-performing and engaged workforce, we launched a global employee engagement
survey in 2021 in order to measure overall engagement and identify our strengths and areas for improvement. The results of the
survey were reviewed by management and compared against the last employee engagement survey conducted in 2018.
Management reviewed the survey results, together with management’s strategy to continue to improve engagement levels in
response to the survey feedback, with the Human Resources and Compensation Committee. Employee engagement activities
initiated during 2021 included:
•
•
•
•
•
diversity and inclusion training modules;
a formalized mentorship program and an enhanced leadership training program;
an enhanced Women In Action program;
a global wellness program; and
a “Grow Together” program to support ongoing talent development emphasizing growth opportunities for
employees by providing specialized speaking events, leadership academies and modernized online learning
experiences.
Celestica’s rewards and recognition programs acknowledge employees who are achieving business results by living our
brand and values, and embracing the characteristics of our Leadership Imperatives. We encourage business and people leaders
to acknowledge individual and team success in quarterly town halls, and in more formal ways through our Bravo! and Ignition
Awards programs. Acknowledging the challenges presented by the lack of in-person connection as a result of the pandemic, we
continually look for ways to reward our employees with virtual recognitions.
We believe that employee engagement and well-being is strengthened through healthy, supportive and safe workplaces.
Globally, we have established a framework whereby all sites are required to measure and report on their environmental, health
and safety performance regularly.
Community Engagement
We strive to support the local communities in which we live and work. We encourage all full-time employees to take up
to 16 hours of paid time off per year to volunteer through our Time Off to Volunteer program. This program gives employees
the opportunity to become involved in their communities in a meaningful way and to help those in need.
42
United Way is a federated network of 71 local United Way Centraide offices serving more than 5,000 communities across
Canada, each registered as its own non-profit organization. In 2021, Celestica’s annual United Way fundraising campaign
raised C$240,000 plus a match of C$120,000 for a total of C$360,000, which brings Celestica’s lifetime fundraising amount to
C$12.3 million.
Ethical Labor Practices
We maintain a Business Conduct Governance (BCG) Policy, which outlines the ethics and practices we consider
necessary for a positive working environment, as well as the high legal and ethical standards to which our employees are held
accountable. 100% of our employees have completed BCG Policy training, and we conduct annual re-certifications. Our BCG
Policy is available on our website: www.celestica.com (information on our website is not incorporated by reference into this
Annual Report).
In addition, we have well-established policies regarding fair labor practices and guidelines intended to create a respectful,
safe and healthy work environment for our employees globally.
We are a founding (and remain a) member of the RBA, a non-profit coalition of electronics companies that, among other
things, establishes standards for its members in responsible and ethical practices in the areas of labor, environmental
compliance, employee health and safety, ethics and social responsibility. The RBA Code of Conduct outlines industry standards
intended to ensure that working conditions in the supply chain are safe, workers are treated with respect and dignity, and
manufacturing processes are environmentally responsible. We continually work to implement, manage and audit our
compliance with the RBA Code of Conduct.
We are committed to the development and fair treatment of our global workforce, including promotion of a diverse
workforce, an inclusive work environment, equal employment opportunity hiring practices and policies, and anti-harassment,
workforce safety and anti-reprisal policies.
Financial Information Regarding Geographic Areas
Details of our financial information regarding geographic areas are disclosed in note 25 to the Consolidated Financial
Statements in Item 18, in Item 4(B) "Information on the Company — Business Overview — Geographies," and in Item 4(D)
"Information on the Company — Property, Plants and Equipment." Risks associated with our foreign operations are disclosed
in Item 3(D), Key Information — Risk Factors, including "Our ability to successfully manage unexpected changes or risks
inherent in our global operations and supply chain may adversely impact our financial performance."
C. Organizational Structure
Onex, an Ontario corporation, is the Corporation's controlling shareholder with an 81.5% voting interest in Celestica
(via its direct and indirect beneficial ownership of approximately 18.6 million (100%) of the Corporation's MVS, and
approximately 0.4 million of the Corporation's SVS). Gerald W. Schwartz is the Chairman of the Board and Chief Executive
Officer of Onex, and indirectly owns multiple voting shares of Onex representing the majority of the voting rights of the shares
of Onex (also see footnotes 2 and 3 to the Major Shareholders Table in Item 7(A) below).
Celestica conducts its business through subsidiaries operating on a worldwide basis. The following companies are
considered significant subsidiaries of Celestica, and each of them is wholly-owned, directly or indirectly, by Celestica:
Celestica Cayman Holdings 1 Limited, a Cayman Islands corporation;
Celestica Hong Kong Limited, a Hong Kong corporation;
Celestica LLC, a Delaware, U.S. limited liability company;
Celestica (Thailand) Limited, a Thailand corporation;
Celestica (USA) Inc., a Delaware, U.S. corporation;
2480333 Ontario Inc., an Ontario, Canada corporation; and
Celestica Electronics (M.) Sdn. Bhd., a Malaysia corporation.
43
D. Property, Plants and Equipment
The following table summarizes our principal owned and leased properties as of February 22, 2022. These sites are used
to provide manufacturing services and solutions, including the manufacture of PCBs, assembly and configuration of final
systems, complex mechanical assembly, precision machining, as well as other related services and customer support activities,
including design and development, warehousing, distribution, fulfillment and after-market services, with a total of
approximately 7.0 million square feet of productive capacity.
Major locations
Square Footage(1)
Segment
Owned/Leased
Lease Expiration Dates
.................................
....................................
........................................
...............................
......................................
Canada (3)(5)
Arizona .......................................
California(3)
.................................
China(3)(4)
India ............................................
Indonesia(3)(4)
Ireland(3)
Japan(3)
Laos .............................................
Malaysia(2)(3)(4)
............................
Massachusetts(2)
Minnesota(3)
Mexico(3)
Oregon(3)
Romania ......................................
Singapore(3)(4)
..............................
South Korea(3)
Spain ...........................................
Texas(6)
Thailand(3)(4)
........................................
................................
..........................
................................
......................................
.....................................
.............................
341
111
179
979
5
204
82
594
121
ATS/CCS
ATS
ATS/CCS
ATS/CCS
CCS
ATS
ATS/CCS
ATS/CCS
CCS
Leased
Leased
Leased
between 2025 and 2028
2027
between 2022 and 2026
Owned/Leased
between 2023 and 2056
Leased
2024
Owned/Leased
between 2022 and 2028
Leased
between 2024 and 2030
Owned/Leased
between 2022 and 2023
Leased
between 2022 and 2023
1,451
ATS/CCS
Owned/Leased
between 2022 and 2060
60
244
498
240
260
171
207
109
191
982
ATS
ATS/CCS
ATS/CCS
ATS
ATS/CCS
ATS/CCS
ATS
ATS
CCS
Owned
Leased
Leased
Leased
Owned
Owned/Leased
Owned/Leased
Owned
Leased
N/A
between 2022 and 2032
between 2022 and 2027
2026
N/A
between 2022 and 2053
2026
N/A
2032
ATS/CCS
Owned/Leased
between 2022 and 2048
(1)
(2)
(3)
(4)
(5)
(6)
Represents estimated square footage (in thousands) being used.
Owned real properties are pledged as security under our credit facility.
Represents multiple locations.
With respect to these locations, the land is leased, and the buildings are either owned or leased by us.
As part of our 2019 Toronto real property sale, we entered into a 10-year lease in March 2019 with the purchaser of such property for our new
corporate headquarters (to be built by such purchaser on the site of our former location). The commencement date of this lease is currently targeted to
be May 2023, with occupancy to commence in November 2023. In connection therewith, we completed a temporary relocation of our corporate
headquarters in the second quarter of 2019. Although we expect to incur certain capitalized and transition costs once the move into our new corporate
headquarters commences, such costs cannot be estimated at this time, but are expected to be funded from cash on hand. See Item 5, "Operating
and Financial Review and Prospects — MD&A — Liquidity — Toronto Real Property and Related Transactions and Cash Requirements —
Contractual Obligations."
In connection with an outsourcing arrangement and 10-year lease agreement with FNC, we will occupy additional space at this site starting April 2022.
See Item 5, "Operating and Financial Review and Prospects — MD&A — Liquidity — Cash Requirements — Contractual Obligations."
We consider each of the properties in the table above to be adequate for its purpose and suitably utilized according to the
individual nature and requirements of the relevant operations. We currently expect to be able to extend the terms of expiring
leases or to find replacement sites on commercially acceptable terms. Also see "Environmental Matters" in Item 4(B) above.
Our principal executive office is located at 5140 Yonge Street, Suite 1900, Toronto, Ontario, Canada M2N 6L7. Our material
tangible fixed assets (of which approximately one-third is pledged as security under our credit agreement) are described in
note 6 to the Consolidated Financial Statements in Item 18.
Item 4A. Unresolved Staff Comments
None.
44
Item 5. Operating and Financial Review and Prospects
CELESTICA INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2021
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
should be read in conjunction with our 2021 audited consolidated financial statements (2021 AFS), which we prepared in
accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards
Board (IASB). Unless otherwise noted, all dollar amounts are expressed in United States (U.S.) dollars. The information in this
discussion is provided as of February 22, 2022 unless we indicate otherwise.
Certain statements contained in this MD&A constitute forward-looking statements within the meaning of Section 27A
of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (U.S.
Exchange Act), and contain forward-looking information within the meaning of Canadian securities laws. Such forward-
looking information includes, without limitation, statements related to: anticipated and potential adverse impacts resulting from
coronavirus disease 2019 and related mutations (COVID-19); our priorities, intended areas of focus, targets, objectives, and
goals; trends in the electronics manufacturing services (EMS) industry and our segments (and/or their constituent businesses)
and their anticipated impact; the anticipated impact of current market conditions on each of our segments (and/or their
constituent businesses) and near term expectations (positive and negative); anticipated restructuring and potential divestiture
actions; our anticipated financial and/or operating results and outlook; our strategies; our credit risk; the anticipated impact
of acquisitions (including the acquisition of PCI Private Limited (PCI)) and program wins, transfers, losses or disengagements;
materials, component and supply chain constraints; shipping delays; anticipated expenses, capital expenditures and other
working capital requirements and contractual obligations; the impact of our price reductions; our intended repatriation of
certain undistributed earnings from foreign subsidiaries (and amounts we do not intend to repatriate in the foreseeable future);
the potential impact of tax and litigation outcomes; our ability to use certain tax losses; intended investments in our business;
the potential impact of the pace of technological changes, customer outsourcing, program transfers, and the global economic
environment; the intended method of funding subordinate voting share (SVS) repurchases and our restructuring provision; the
lease for our temporary and new corporate headquarters; Toronto transition costs; the impact of our outstanding indebtedness;
liquidity and the sufficiency of our capital resources; our intention (when in our discretion) to settle outstanding equity awards
with SVS; our financial statement estimates and assumptions; recently-issued accounting pronouncements and amendments;
our compliance with covenants under our credit facility; interest rates and expense; interest rate swap agreements; the
potential adverse impacts of events outside of our control, including, among others: U.S. policies or legislation, U.S. and global
tax reform, product/component tariffs on items imported into the U.S. and related countermeasures, and/or the impact of, in
addition to COVID-19, other widespread illness or disease (External Events); mandatory prepayments under our credit facility;
income tax incentives; COVID-19-related governmental relief measures; accounts payable cash flow levels; expectations with
respect to cash deposits; and accounts receivable sales. Such forward-looking statements may, without limitation, be preceded
by, followed by, or include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “continues,”
“project,”“target,”“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, 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:
customer and segment concentration; price, margin pressures, and other competitive factors and adverse market conditions
affecting, and the highly competitive nature of, the EMS industry in general and our segments in particular (including the risk
that anticipated market improvements do not materialize); delays in the delivery and availability of components, services and/
or materials, as well as their costs and quality; challenges of replacing revenue from completed, lost or non-renewed programs
or customer disengagements; our customers' ability to compete and succeed using our products and services; changes in our
mix of customers and/or the types of products or services we provide, including negative impacts of higher concentrations of
45
lower margin programs; managing changes in customer demand; rapidly evolving and changing technologies, and changes in
our customers' business or outsourcing strategies; the cyclical and volatile nature of our semiconductor business; the
expansion or consolidation of our operations; the inability to maintain adequate utilization of our workforce; defects or
deficiencies in our products, services or designs; volatility in the commercial aerospace industry; integrating and achieving the
anticipated benefits from acquisitions (including our acquisition of PCI) and "operate-in-place" arrangements; compliance
with customer-driven policies and standards, and third-party certification requirements; challenges associated with new
customers or programs, or the provision of new services; the impact of our restructuring actions, and/or productivity
initiatives, including a failure to achieve anticipated benefits therefrom; negative impacts on our business resulting from newly-
increased third-party indebtedness; the incurrence of future restructuring charges, impairment charges, other write-downs of
assets or operating losses; managing our business during uncertain market, political and economic conditions, including
among others, geopolitical and other risks associated with our international operations, including military actions,
protectionism and reactive countermeasures, economic or other sanctions or trade barriers, including in relation to the
evolving Ukraine/Russia conflict; disruptions to our operations, or those of our customers, component suppliers and/or
logistics partners, including as a result of External Events; the scope, duration and impact of the COVID-19 pandemic;
changes to our operating model; changing commodity, materials and component costs as well as labor costs and conditions;
execution and/or quality issues (including our ability to successfully resolve these challenges); non-performance by
counterparties; maintaining sufficient financial resources to fund currently anticipated financial actions and obligations and to
pursue desirable business opportunities; negative impacts on our business resulting from any significant uses of cash (including
for the acquisition of PCI), securities issuances, and/or additional increases in third-party indebtedness (including as a result
of an inability to sell desired amounts under our uncommitted accounts receivable sales program); operational impacts that
may affect PCI’s ability to achieve anticipated financial results; foreign currency volatility; our global operations and supply
chain; competitive bid selection processes; customer relationships with emerging companies; recruiting or retaining skilled
talent; our dependence on industries affected by rapid technological change; our ability to adequately protect intellectual
property and confidential information; increasing taxes, tax audits, and challenges of defending our tax positions; obtaining,
renewing or meeting the conditions of tax incentives and credits; the management of our information technology systems, and
the fact that while we have not been materially impacted by computer viruses, malware, ransomware, hacking attempts or
outages, we have been (and may continue to be) the target of such events; the inability to prevent or detect all errors or fraud;
the variability of revenue and operating results; unanticipated disruptions to our cash flows; compliance with applicable laws
and regulations; our pension and other benefit plan obligations; changes in accounting judgments, estimates and assumptions;
our ability to maintain compliance with applicable credit facility covenants; interest rate fluctuations and the discontinuation of
LIBOR; our ability to refinance our indebtedness from time to time; deterioration in financial markets or the macro-economic
environment; our credit rating; the interest of our controlling shareholder; current or future litigation, governmental actions,
and/or changes in legislation or accounting standards; negative publicity; that we will not be permitted to, or do not,
repurchase SVS under any normal course issuer bid (NCIB); the impact of climate change; and our ability to achieve our
environmental, social and governance (ESG) initiative goals, including with respect to diversity and inclusion and climate
change. The foregoing and other material risks and uncertainties are discussed in our public filings at www.sedar.com and
www.sec.gov, including in this MD&A, our most recent Annual Report on Form 20-F filed with, and subsequent reports on
Form 6-K furnished to, the U.S. Securities and Exchange Commission (SEC), and as applicable, the Canadian Securities
Administrators.
Our forward-looking statements are based on various assumptions, many of which involve factors that are beyond our
control. Our material assumptions include those related to the following: the scope and duration of materials constraints and
the COVID-19 pandemic, and their impact on our sites, customers and our suppliers; 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 success of our customers’ products; our ability to retain programs and customers; the stability of
general economic and market conditions, and currency exchange rates; supplier performance and quality, pricing and terms;
compliance by third parties with their contractual obligations; the costs and availability of components, materials, services,
equipment, labor, energy and transportation; that our customers will retain liability for product/component 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;
the components of our leverage ratio (as defined in our credit facility); our ability to successfully diversify our customer base
and develop new capabilities; the availability of cash resources for, and the permissibility under our credit facility of,
repurchases of outstanding SVS under NCIBs, and compliance with applicable laws and regulations pertaining to NCIBs;
compliance with applicable credit facility covenants; anticipated demand strength in certain of our businesses; anticipated
demand weakness in, and/or the impact of anticipated adverse market conditions on, certain of our businesses; and that:
anticipated financial results by PCI will be achieved; we are able to successfully integrate PCI, further develop our ATS
segment business, and achieve the other expected synergies and benefits from the acquisition; all financial information
provided by PCI is accurate and complete, and all forecasts of PCI’s operating results are reasonable and were provided to
46
Celestica in good faith; and we will continue to have sufficient financial resources to fund currently anticipated financial
actions and obligations and to pursue desirable business opportunities. 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.
Overview
Celestica's business:
We deliver innovative supply chain solutions globally to customers in two operating and reportable segments:
Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS). Our ATS segment consists of our ATS end
market, and is comprised of our Aerospace and Defense (A&D), Industrial, Energy, HealthTech, and Capital Equipment
businesses. Our Capital Equipment business is comprised of our semiconductor, display, and power & signal distribution
equipment businesses. Our CCS segment consists of our Communications and Enterprise end markets. Our Enterprise end
market is comprised of our servers and storage businesses. Additional information regarding our reportable segments is
included in note 25 to the 2021 AFS.
Our customers include original equipment manufacturers (OEMs), cloud-based and other service providers, including
hyperscalers, and other companies in a wide range of industries. Our global headquarters is located in Toronto, Ontario,
Canada. We operate a network of sites and centers of excellence strategically located in North America, Europe and Asia, with
specialized end-to-end supply chain capabilities tailored to meet specific market and customer product lifecycle requirements.
We offer a comprehensive range of product manufacturing and related supply chain services to customers in both of
our segments, including design and development, new product introduction, engineering services, component sourcing,
electronics manufacturing and assembly, testing, complex mechanical assembly, systems integration, precision machining,
order fulfillment, logistics, asset management, product licensing, and after-market repair and return services. Our Hardware
Platform Solutions (HPS) offering (within our CCS segment) includes the development of hardware platforms, design solutions
and software services, that can be used as-is, or customized for specific applications in collaboration with our customers, and
management of program design and aspects of the supply chain, manufacturing, and after-market support.
Products and services in our ATS 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 A&D customers; high-precision semiconductor and display equipment and integrated subsystems; a wide range of industrial
automation, controls, test and measurement devices; engineering-focused engagements, including full product development in
the areas of telematics, human machine interface (HMI), Internet-of-Things (IoT) and embedded systems; 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 higher margin profiles and margin volatility, higher
working capital requirements, and longer product life cycles than the businesses in our CCS segment.
Products and services in our CCS segment consist predominantly of enterprise-level data communications and
information processing infrastructure products and systems, and can include routers, switches, data center interconnects, edge
solutions, and servers and storage-related products used by a wide range of businesses and cloud-based and other service
providers to manage digital connectivity, commerce and social media applications. Our CCS segment is subject to negative
pricing pressures driven by the highly competitive nature of this market and is experiencing technology-driven demand shifts,
which are not expected to abate. Our CCS segment businesses typically have lower margin profiles, lower working capital
requirements, and higher volumes than the businesses in our ATS segment. Within our CCS segment, however, our HPS
business (which includes firmware/software enablement across all primary IT infrastructure data center technologies and
aftermarket services) typically has a higher margin profile than our traditional CCS businesses, but also requires specific
investments, including research and development (R&D), and higher working capital. Our CCS segment generally experiences
a high degree of volatility in terms of revenue and product/service mix, and as a result, our CCS segment margin can fluctuate
from period to period. In recent periods, we have experienced an increasing shift in the mix of our programs towards cloud-
47
based and other service providers, which are cyclically different from our traditional OEM customers, creating more volatility
and unpredictability in our revenue patterns, and additional challenges with respect to the management of our supply chain and
working capital requirements.
Overview of business environment:
The EMS industry is highly competitive. Demand can be volatile from period to period, and aggressive pricing is a
common business dynamic. Customers may shift production between EMS providers for a number of reasons, including
changes in demand for their products, pricing concessions, more favorable terms and conditions, execution or quality issues,
their preference or need to modify or consolidate their supply chain capacity or change their supply chain partners, tax benefits,
new trade policies or legislation, or consolidation among customers. Customers may also change the amount of business they
outsource, or the concentration or location of their EMS suppliers. As a result, customer and segment revenue and mix, as well
as overall profitability, are difficult to forecast. The loss of one or more major customers could have a material adverse effect on
our operating results, financial position and cash flows.
Managing our operations is complex, and our financial results often fluctuate, in each case as a result of, among other
factors, product lifecycles in the markets we serve, production lead times required by our customers, our ability to secure
materials and components, our ability to manage staffing and talent dynamics, rapid shifts in technology, model obsolescence,
commoditization of certain products, the emergence of new business models, shifting patterns of demand, the proliferation of
software-defined technologies enabling the disaggregation of software and hardware, product oversupply, changing supply
chains and customer supply chain requirements, and the build-up by customers of inventory buffers. For example, the shift from
traditional network infrastructures to highly virtualized and cloud-based environments, and declines in end-market demand for
proprietary systems in favor of open systems with standardized technologies in recent periods, have adversely impacted some of
our traditional CCS segment customers, and favorably impacted our service provider customers and our HPS business. We
continue to experience operational challenges as a result of global supply chain constraints, and to a lesser extent, from periodic
COVID-19-related regional lockdowns and workforce constraints. In addition, notwithstanding recent increases in travel, our
A&D business continues to experience reduced demand resulting from the prolonged impact of COVID-19, particularly in the
commercial aerospace market (see "Recent Developments — Segment Environment" below).
Capacity utilization, customer mix and the types of products and services we provide are important factors affecting
our financial performance. The number of sites, the location of qualified personnel, the manufacturing and engineering capacity
and network, and the mix of business through that capacity are vital considerations for EMS and original design manufacturing
(ODM) providers in terms of supporting their customers and generating appropriate returns. Because the EMS industry is
working capital intensive, we believe that non-IFRS adjusted return on invested capital (adjusted ROIC), which is primarily
based on non-IFRS operating earnings (each discussed in "Non-IFRS Financial Measures" below) and investments in working
capital and equipment, is an important metric for measuring an EMS provider’s financial performance.
See "Recent Developments" and "External Factors that May Impact our Business" below for a discussion of certain
factors, including COVID-19 and the impact of global supply chain constraints, that have (and/or may in the future), adversely
impact our business.
Recent Developments
Segment Environment:
ATS Segment
ATS segment revenue for 2021 increased 11% ($0.2 billion) to $2.3 billion compared to $2.1 billion in 2020,
exceeding our long-term 10% annual revenue growth target. The increase was driven by strong revenue growth in our
HealthTech and Capital Equipment businesses, returning growth in our base Industrial business, and the addition of PCI in
November 2021. See "Operating Results" below. These increases more than offset adverse demand and revenue impacts
resulting primarily from supply chain constraints (which impacted each such year). See "Operational Impacts" below. ATS
segment margin increased to 4.5% for 2021 compared to 3.3% for 2020, primarily due to profitable growth in our Capital
Equipment business, partially offset by headwinds in our A&D business. Our ATS segment margin for the fourth quarter of
2021 (Q4 2021) was 5.6%, and was within our target range of 5% to 6%. This marked the seventh consecutive quarter of
sequential ATS segment margin expansion.
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Revenue from our Capital Equipment business for 2021 was approximately $750 million, representing growth of more
than 30% compared to 2020, driven by continued strong end market demand from our semiconductor capital equipment
customers, in combination with new program wins and market share gains. We expect the strong demand backdrop to continue
into 2022.
While we continued to experience soft demand in our commercial aerospace business in 2021 as a result of
COVID-19, our A&D business is stabilizing. Although we do not expect our commercial aerospace business to return to pre-
COVID-19 levels in the near term, we expect modest sequential and year-over-year quarterly growth in 2022, supported by new
program wins.
Revenue in our Industrial business increased in 2021 compared to 2020, as a result of growth in our base Industrial
business, and the addition of PCI. We expect quarterly year-over-year growth to continue throughout 2022 on an organic basis,
supported by new program wins and a general recovery in demand, as well as growth from PCI.
Our HealthTech business benefited from program ramps in 2021 compared to 2020, attributable in part to new
program wins to support the fight against COVID-19. However, certain COVID-19-related programs have ramped down in the
latter half of 2021. For 2022, we expect revenue growth in our HealthTech business to moderate as new program ramps are
expected to be largely offset by a reduction in COVID-19-related programs from the prior year.
In general, we continue to pursue new customers and invest in our ATS segment to expand our market share, to
diversify our end market mix, and to enhance and add new technologies and capabilities to our offerings.
CCS Segment
CCS segment revenue for 2021 decreased 9% ($0.3 billion) to $3.3 billion compared to 2020, primarily due to the
impact of our disengagement from programs with Cisco Systems, Inc. (Cisco) (Cisco Disengagement), completed in the fourth
quarter of 2020 (Q4 2020). We also had adverse revenue impacts in each of 2020 and 2021 resulting from materials constraints.
See "Operational Impacts" below. These revenue declines were partially offset by strong demand from service provider
customers, including in our HPS business. HPS revenue for 2021 increased 34% to $1.15 billion compared to 2020, and
accounted for 20% of our total 2021 revenue. Although CCS segment revenue decreased in 2021 from 2020, Q4 2021 marked
the first quarter of year-over-year revenue growth for the segment since the completion of the Cisco Disengagement. CCS
segment margin increased to 3.9% for 2021 (4.4% in Q4 2021) compared to 3.5% for 2020, primarily due to more favorable
mix, driven by an increased concentration of revenue from our HPS business. Q4 2021 represents our seventh consecutive
quarter with CCS segment margin above our 2% to 3% target range.
Operational Impacts
Global supply chain constraints (including as a result of COVID-19) continued to impact both of our segments in
2021, resulting in extended lead times for certain components, and impacting the availability of materials required to support
customer programs. Our advanced planning processes, supply chain management, and collaboration with our customers and
suppliers has helped to partially mitigate the impact of these constraints on our revenue. We expect this pressure to persist
throughout 2022. While we have incorporated these dynamics into our 2022 annual outlook to the best of our ability, their
adverse impact (in terms of duration and severity) cannot be estimated with certainty, and may be materially in excess of our
expectations. We recognize that some sub-tier suppliers providing raw materials such as palladium, neon gas and high-grade
aluminum are partially dependent on supply from Russia/Ukraine. We will closely monitor the supply availability and price
fluctuations of these raw materials.
As a result of supply chain constraints that prevented us from fulfilling customer orders, we estimated the following
adverse revenue impacts for 2021: Q4 2021 — approximately $55 million; third quarter of 2021 (Q3 2021) — approximately
$30 million; second quarter of 2021 (Q2 2021) — approximately $30 million; first quarter of 2021 (Q1 2021) — approximately
$12 million. As a result of such supply chain constraints, as well as Workforce Constraints (defined below), we estimated the
following adverse revenue impacts for 2020: Q4 2020 — approximately $9 million; third quarter of 2020 (Q3 2020) —
approximately $16 million; and second quarter of 2020 (Q2 2020) — approximately $56 million. See "Operating Results —
Revenue" below for the estimated adverse revenue impact of such matters on each of our segments for each of the foregoing
periods.
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As a result of resurgences of COVID-19 outbreaks, governments of various jurisdictions have mandated periodic
lockdowns or workforce constraints (collectively, Workforce Constraints). However, because Celestica’s operations have been
considered an essential service by relevant local government authorities to date, our manufacturing sites have generally
continued to operate in impacted countries at reduced capacities (due to reduced attendance, shift reductions or temporary
shutdowns). Although these Workforce Constraints present a challenge to our business performance when in force, due to
effective resource management and planning, we have been able to largely mitigate the impact of these actions to date on our
manufacturing capacity and our revenues. But see "Future Uncertainties" below.
As a result of supply chain constraints and Workforce Constraints, we were negatively impacted in 2021 by
approximately $32 million (2020 — approximately $37 million) in estimated COVID-19 Costs1
. COVID-19 Costs were
partially offset in 2021 by the recognition of $11 million (2020 — $34 million) of COVID-19-related government subsidies,
grants and/or credits (COVID Subsidies, described in note 23 to the 2021 AFS) and $1 million (2020 — $3 million) of
COVID-19-related customer recoveries (Customer Recoveries) (collectively with COVID Subsidies, COVID Recoveries). The
most significant of the COVID Subsidies we recognized were provided under the Canadian Emergency Wage Subsidy
(CEWS). Due to changes in legislation, however, we have not applied for further COVID Subsidies under the CEWS since June
2021.
In late December 2021, we experienced a brief IT outage that temporarily impacted our operations. Based on the
nature of the incident, and our timely response, it did not have a material impact on our financial results for Q4 2021. Our
operations are functioning at normal capacity and we do not expect any material impact on our financial results for 2022 from
this brief outage.
Future Uncertainties:
The global supply chain constraints and the pandemic have impacted our operations and created (and may continue to
create) unpredictable reductions or increases in demand for our services. In addition, the ability of our employees to work may
be significantly impacted by individuals contracting or being exposed to COVID-19. While we are following the requirements
of governmental authorities and taking preventative and protective measures (including organizing vaccine clinics in regions
where vaccines were not readily available, including Malaysia and Thailand) to prioritize the safety of our employees, these
measures may not be successful, and we may be required to temporarily close facilities or take other measures. If factory
closures or significant reductions in capacity utilization occur, we would incur additional inefficiencies and direct costs, as well
as a loss of revenue. If our suppliers experience additional closures or reductions in their capacity utilization levels (as a result
of COVID-19 or otherwise), we may have further difficulty sourcing materials necessary to fulfill production requirements,
especially in an already constrained materials environment. A material adverse effect on our employees, customers, suppliers
and/or logistics providers could have a material adverse effect on us.
The ultimate magnitude of the impact of global supply chain constraints and COVID-19 on our business will depend
on future developments which cannot currently be predicted, including the speed at which our suppliers and logistics providers
can return to and/or maintain full production, the impact of supplier prioritization of backlog, infection resurgences,
government responses, and the status of labor shortages. While we expect that our financial results for 2022 (and potentially
beyond) will continue to be adversely affected by global materials constraints and COVID-19 (albeit to a lesser extent than in
2021), we cannot currently estimate the overall severity or duration of the impact, which may be material. While we have been
successful in largely mitigating the impact of supply constraints and COVID-19 on our productivity, and are currently operating
near pre-COVID-19 production capacity, the continued spread, resurgence and mutation of the virus may make our mitigation
efforts more challenging. Even after these issues have subsided, we may experience significant adverse impacts to our
businesses as a result of their global economic impact, including any related recession, as well as lingering impacts on our
suppliers, third-party service providers and/or customers (including movement of production in-country, particularly in North
America, to decrease global exposures). Also see Item 3(D), Key Information — Risk Factors, "The effect of COVID-19 on
our operations and the operations of our customers, suppliers and logistics providers has had, and may continue to have, a
material and adverse impact on our financial condition and results of operations" and "We are dependent on third-parties to
supply certain materials, and our results can be negatively affected by the quality, availability and cost of such materials" of
our Annual Report on Form 20-F for the year ended December 31, 2021 (2021 Annual Report), of which this MD&A is a part.
1 COVID-19 Costs consists of both direct and indirect costs, including manufacturing inefficiencies related to lost revenue due to our inability to secure
materials, idled labor costs, and incremental costs for labor, expedite fees and freight premiums, cleaning supplies, personal protective equipment, and IT-
related services to support our work-from-home arrangements.
50
PCI Acquisition:
On November 1, 2021, we completed the acquisition of 100% of the shares of PCI, a fully integrated design,
engineering and manufacturing solutions provider with five manufacturing and design facilities across Asia. The purchase price
for PCI was $314.7 million, net of $11.4 million of cash acquired, and including a preliminary net working capital adjustment.
The purchase price was funded with a combination of cash and borrowings of $220.0 million under the revolving portion of our
credit facility. We recorded $126.0 million of goodwill in connection with this acquisition (on a preliminary basis). We expect
to finalize the net working capital adjustment by the end of the first quarter of 2022 (Q1 2022).
Credit Facility Amendment:
On December 6, 2021, we amended our credit facility, inter alia: to provide a new $365 million term loan; to increase
the commitments under our revolving facility from $450 million to $600 million and extend its maturity date to at least 2025;
and to ease certain covenant restrictions. Net proceeds from the new term loan were used to repay all remaining amounts
outstanding under our November 2018 term loan ($145 million outstanding at the time of repayment), terminating such loan,
and substantially all of the $220 million borrowed under our revolving facility to finance a portion of the PCI acquisition price.
See "Liquidity — Cash provided by (used in) financing activities — Financing and Finance Costs" below.
Senior Management Changes:
Effective January 1, 2022, Mr. Todd Cooper was appointed President, ATS and Mr. Yann Etienvre was appointed
Chief Operations Officer. Mr. Lawless stepped down from his position as President, ATS effective December 31, 2021, but
continues to serve as a special advisor to Mr. Mionis.
Restructuring Update:
We recorded $10.5 million in net restructuring charges during 2021. Our restructuring activities consisted primarily of
actions to adjust our cost base to address reduced levels of demand in certain of our businesses and geographies.
SVS Repurchases:
On December 2, 2021, the Toronto Stock Exchange accepted our notice to launch a new normal course issuer bid
(NCIB). This NCIB (2021 NCIB) allows us to repurchase, at our discretion, from December 6, 2021 until the earlier of
December 5, 2022 or the completion of purchases thereunder, up to approximately 9.0 million SVS in the open market, or as
otherwise permitted, subject to the normal terms and limitations of such bids. The maximum number of SVS we are permitted
to repurchase for cancellation under the 2021 NCIB will be reduced by the number of SVS we purchase in the open market
during the term of the 2021 NCIB to satisfy delivery obligations under our stock-based compensation (SBC) plans. From the
commencement of the 2021 NCIB through February 22, 2022, we paid a total of approximately $4.1 million (including
transaction fees) to repurchase 0.4 million SVS, at a weighted average price of $11.23 per share, for cancellation under the 2021
NCIB and approximately $38.7 million (including transaction fees) to purchase 3.4 million SVS for delivery obligations under
our SBC plans.
During 2021, we paid an aggregate of $35.9 million (including transaction fees) to repurchase and cancel 4.37 million
SVS under a previous NCIB (2020 NCIB) through its expiration on November 23, 2021, at a weighted average price of $8.21
per share. We also paid an aggregate of $10.4 million to purchase 0.9 million SVS in the open market during the term of the
2020 NCIB for delivery obligations under our SBC plans.
See note 12 to our 2021 AFS for details regarding automatic share purchase plans (ASPPs) we entered into in 2021
and 2020, and SVS purchases made thereunder.
Operating Goals and Priorities
Our current operating goals and priorities are set forth below.
Evolving our Revenue Portfolio — To evolve our revenue portfolio, we intend to continue to focus on: (i) pursuing
more diversified revenue, (ii) driving sustainable, profitable revenue growth, (iii) growing our ATS segment revenue
organically by an average of 10% per year over the long term, (iv) supplementing our organic growth with disciplined and
targeted acquisitions intended to expand capabilities, and (v) optimizing our portfolio to drive more consistent returns and
profitability.
51
Margins — We intend to continue to focus on improvements to our segment margins† and our non-IFRS operating
margin*.
The duration and impact of global supply constraints, the COVID-19 pandemic, and other industry market conditions
are not within our control, and may therefore impact our ability to achieve our revenue and margin goals. See "Recent
Developments" above.
Balanced Approach to Capital Allocation — We are focused on maintaining a strong balance sheet, generating non-
IFRS free cash flow* and balancing our debt and capital levels, while maintaining optimal financial flexibility. In terms of
capital allocation, our goal is to: (i) return approximately 50% of non-IFRS free cash flow* to shareholders annually, on
average and when permitted, over the long term, (ii) generally invest 1.5% to 2.0% of annual revenue in capital expenditures to
support our organic growth, and (iii) pursue potential strategic acquisitions as part of a disciplined capital allocation framework.
The foregoing priorities and areas of intended focus constitute our objectives and goals, and are not intended to
be projections or forecasts of future performance. Our future performance is subject to risks, uncertainties and other
factors that could cause actual outcomes and results to differ materially from the goals and priorities described above.
* Operating margin (a ratio based on a non-IFRS financial measure) and free cash flow are non-IFRS financial measures
without standardized meanings, and may not be comparable to similar measures presented by other companies. See "Non-IFRS
Financial Measures" below for the definitions and uses of these non-IFRS financial measures, and a reconciliation of these non-
IFRS financial measures to the most directly-comparable financial measures determined under IFRS for specified periods. 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.
† Segment performance is evaluated based on segment revenue, segment income and segment margin (segment income as a
percentage of segment revenue), each of which is defined in "Operating Results — Segment income and margin" below.
Our Strategy
We remain committed to making the investments we believe are required to support our long-term objectives and to
create shareholder value, while simultaneously managing our costs and resources to maximize our efficiency and productivity.
Within both of our segments, we are focused on: increasing penetration in our end markets; diversifying our customer mix and
product portfolios, including increasing design and development, engineering, and after-market services (higher value-added
services); and diversifying our capabilities. The costs of investments that we deem desirable may be prohibitive, however, and
therefore prevent us from achieving our diversification objectives. In addition, the ramping activities associated with
investments that we do make may be significant and could negatively impact our margins in the short and medium term. To
counteract these factors, we continue to invest in and deploy automation and digital factory solutions and capabilities
throughout our network to improve quality and productivity. The focus and scale of our Celestica Operating System, which
standardizes best practices and processes across our network, continued to drive operational optimization and improved supply
chain resiliency during 2021. Our recent productivity initiatives and related restructuring actions were also intended to further
streamline our business and increase operational efficiencies.
In support of our expansion efforts, we recently:
•
•
•
•
assumed manufacturing, warehousing, and customer return goods activity under an outsourcing arrangement
with Fujitsu Network Communications, Inc. (FNC) and signed a 10-year lease agreement for a portion of FNC's
Richardson, Texas facility;
established a center of excellence at such facility to expand our HPS engineering network and increase our North
America manufacturing capacity;
opened a state-of-the-art facility in Minnesota for our Atrenne Integrated Solutions, Inc. (Atrenne) business; and
acquired PCI in November 2021 (in our ATS segment), expanding our capabilities, product portfolio and
customer base in key markets.
As we expand our business, open new sites, or transfer business within our network to accommodate growth or
achieve synergies and supply chain resilience, we may encounter difficulties that result in higher than expected costs associated
with such activities. Potential difficulties related to such activities are described in Item 3(D), Key Information — Risk Factors,
"We may encounter difficulties expanding or consolidating our operations or introducing new competencies or new
offerings, which could adversely affect our operating results" of our 2021 Annual Report, of which this MD&A is a part. Any
52
such difficulties could prevent us from realizing the anticipated benefits of growth in our business, including in new markets or
technologies, which could materially adversely affect our business and operating results.
We may, at any time, be in discussions with respect to possible acquisitions or strategic transactions. There can be no
assurance that any of these discussions will result in a definitive agreement and, if they do, what the terms or timing of any such
agreement would be. There can also be no assurance that any acquisition or other strategic transaction will be successfully
integrated or will generate the returns we expect. We may fund our acquisitions and other strategic transactions from cash on
hand, third-party borrowings, the issuance of securities, or a combination thereof.
External Factors that May Impact our Business
Uncertainty in the global economy and financial markets may impact current and future demand for our customers'
products and services, and consequently, our operations. Inflationary pressures could adversely impact our financial results by
increasing costs for labor and materials. Our operating costs have increased, and may continue to increase, due to the recent
growth in inflation due to, among other things, the continuing impacts of the pandemic and uncertain economic environment.
We may not fully offset these higher costs with increased pricing for our products and services, which could adversely impact
our margins. Further, our customers may choose to reduce their business with us if we increase our pricing. We continue to
monitor the dynamics and impacts of the global economic and financial environment and work to manage our priorities, costs
and resources to anticipate and prepare for any changes we deem necessary.
Other external factors that could adversely impact the EMS industry and our business include government regulations
or policies, supplier or customer financial difficulties, natural disasters and related disruptions, political instability, geopolitical
dynamics, terrorism, armed conflict (including the evolving situation in Ukraine), labor or social unrest, criminal activity,
cybersecurity incidents, unusually adverse weather conditions, disease or illness that affects local, regional, national or
international economies, and other risks present in the jurisdictions in which we, our customers, our suppliers, and/or our
logistics partners operate. These events could lead to higher costs or supply shortages and may disrupt the delivery of
components to us, or our ability to provide finished products or services to our customers, any of which could adversely affect
our operating results. See "Recent Developments — "Segment Environment" above for a discussion of the impact of materials
constraints and COVID-19 on our business during 2021.
In addition, uncertainties resulting from government policies or legislation, and/or increased political tensions between
countries, may adversely affect our business, results of operations and financial condition. In general, changes in social,
political, regulatory and economic conditions or in laws and policies governing foreign trade, taxation, manufacturing, clean
energy, the healthcare industry, and/or development and investment in the jurisdictions in which we, and/or our customers or
suppliers operate, could materially adversely affect our business, results of operations and financial condition. See Item 3(D),
Key Information — Risk Factors, "Our operations have been and could continue to be adversely affected by events outside
our control" of our 2021 Annual Report, of which this MD&A is a part, for further detail.
Governmental actions related to increased tariffs and/or international trade agreements have increased (and could
further increase) the cost to our U.S. customers who use our non-U.S. manufacturing sites and components, and vice versa,
which may materially and adversely impact demand for our services, our results of operations or our financial condition. We
currently ship a significant portion of our worldwide production to customers in the U.S. from other countries. Increased tariffs
and/or changes to international trade agreements, as well as regional supply concentrations, have and may continue to cause our
U.S. customers to in-source programs previously outsourced to us, transfer manufacturing to (or request us to have duplicate
capabilities in) locations within our global network that are not impacted by such actions (potentially increasing production
costs), and/or shift their business to other providers. Additionally, tariffs on imported components for use in our U.S.
production could have an adverse impact on demand for such production. Retaliatory tariffs could reduce demand for our U.S.-
based production or make such production less profitable. Production from China has become less cost-competitive than other
low-cost countries in recent periods as a result of these geopolitical pressures. In connection therewith, we have transferred
numerous customer programs, primarily located in China, to countries unaffected by these tariffs (including Thailand).
However, as tariffs are typically borne by the customers, we anticipate continued actions from non-China-based customers to
exit China to avoid these added costs. We review our site production strategies on an ongoing basis, including with respect to
our China production. We have increased the resilience of our global network to manage this dynamic, including our recent
expansion efforts in North America and Asia (see "Overview — Our Strategy" above). Given the uncertainty regarding the
scope and duration of these (or further) trade actions, whether trade tensions will escalate further, and whether our customers
will continue to bear the cost of the tariffs and/or avoid such costs by in-sourcing or shifting business to other providers, their
53
impact on the demand for our services, our operations and results for future periods cannot be currently quantified, but may be
material. We will continue to monitor the scope and duration of trade actions by the U.S. and other governments on our
business, including China's recent policy supporting its private sector businesses.
If a key supplier (or any company within such supplier's supply chain) experiences financial or other difficulties, this
may affect its ability to supply us with materials, components or services, which could halt or delay the production of a
customer's products, and/or have a material adverse impact on our operations, financial results and customer relationships.
Shipping delays and increased shipping costs have had an adverse impact on our operations. During 2020 and 2021, as
a result of COVID-19, we experienced, among other things, shipping surcharges on ocean freight, premiums on air freight, and
increased transit times in receiving certain raw materials, as well as additional safety requirements imposed by port authorities,
closures of or congestion at ports, reduced availability of commercial transportation, border restrictions and capacity constraints
for air freight. These conditions had an adverse impact on our ability to obtain materials and at times, deliver our products in a
timely manner during 2020 and 2021, and are expected to continue until ocean and air freight capacity is no longer constrained.
In order to help mitigate disruptions to our supply chains caused by COVID-19, including freight premiums and surcharges, as
well as component shortages due to these supply chain disruptions, we have taken steps to enhance the resilience of our supply
chain, including: implementation of a global risk mitigation strategy to proactively manage risk and supply chain disruptions,
enhanced communication with suppliers through bi-weekly market updates, enhanced forecasting and lead-time management
processes and systems, strategic purchases of certain critical commodities, and devotion of increased resources to further
develop a diverse network of suppliers that have robust mitigation plans to address these and other supply chain disruptions.
See "Recent Developments — Segment Environment" above.
We rely on IT networks and systems, including those of third-party service providers, to process, transmit and store
electronic information. In particular, we depend on our IT infrastructure for a variety of functions, including product
manufacturing, worldwide financial reporting, inventory and other data management, procurement, invoicing and email
communications. Any of these systems are susceptible to outages due to fire, floods, power loss, telecommunications failures,
terrorist attacks, sabotage, cybersecurity threats and incidents, and similar events. In order to mitigate certain geopolitical risks
related to our IT systems, we completed a relocation of our Hong Kong data center in 2021. Although we have not been
materially impacted by computer viruses, malware, ransomware, hacking attempts or outages, we have been (and may continue
to be) the target of such events.
Insufficient customer liquidity may result in significant delays in or defaults on payments owed to us. In addition,
customer financial difficulties or changes in demand for our customers' products may result in order cancellations and higher
than expected levels of inventory, which could have a material adverse impact on our operating results and working capital
performance. We may not be able to return or resell this inventory, or we may be required to hold the inventory for an extended
period of time, any of which may result in our having to record additional inventory reserves. We may also be unable to recover
all of the amounts owed to us by a customer, including amounts to cover unused inventory or capital investments we incurred to
support that customer's business. Our failure to collect amounts owed to us and/or the loss of one or more major customers
could have a material adverse effect on our operating results, financial position and cash flows. See "Capital Resources —
Financial instruments and financial risks" below for a discussion of customer credit risk reviews we conduct. No significant
credit adjustments were recorded in 2021 or to date.
Our inventory levels have increased in recent periods, due in part to strategic inventory purchases we have made in
light of ongoing materials constraints. In connection therewith, we continue to work with our customers to obtain cash deposits
to help mitigate the impact of increased inventory.
Customer decisions to shift production between EMS providers, or to change the amount of business they outsource or
the concentration or location of their EMS suppliers, have impacted and may continue to impact, among other items, our
revenue and margins, the need for future restructuring, the level of capital expenditures and our cash flows.
54
Summary of Key Operating Results and Financial Information
Our consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB and
accounting policies we adopted in accordance with IFRS. Such consolidated financial statements reflect all adjustments that are,
in the opinion of management, necessary to present fairly our financial position as at December 31, 2021 and 2020 and the
financial performance, comprehensive income and cash flows for each of the years in the three-year period ended December 31,
2021. On January 1, 2019, we adopted IFRS 16, Leases, and no restatement of comparative period financial information was
required in connection therewith. We also adopted Interest Rate Benchmark Reform Phase 1 amendments to IFRS 9, IAS 39,
and IFRS 7 effective January 1, 2020, and Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 effective
January 1, 2021, neither of which had a significant impact on our disclosures or the amounts reported in our consolidated
financial statements for the years ended December 31, 2020 or December 31, 2021, as applicable. See "Recently issued
accounting standards and amendments" in note 2 to our 2021 AFS. See "Recent Developments — "Segment Environment"
above for a discussion of materials constraints and COVID-19 impacts on our 2021 financial results. The following tables set
forth certain key operating results and financial information for the periods indicated (in millions, except per share amounts and
percentages):
Year ended December 31
2019
2020
2021
% Change
2020 v. 2019
% Change
2021 v. 2020
Revenue ............................................................................................ $ 5,888.3
$ 5,748.1 $ 5,634.7
Gross profit .......................................................................................
Selling, general and administrative expenses (SG&A) ....................
Other charges (recoveries) ................................................................
Net earnings ......................................................................................
384.7
227.3
(49.9)
70.3
437.6
230.7
23.5
60.6
487.0
245.1
10.3
103.9
Diluted earnings per share ................................................................ $
0.53
$
0.47 $
0.82
(2) %
14 %
1 %
(147) %
(14) %
(11) %
(2) %
11 %
6 %
(56) %
71 %
74 %
Segment revenue* as a percentage of total revenue:
Year ended December 31
2020
2021
2019
ATS revenue (% of total revenue) .....................................................................................................
CCS revenue (% of total revenue) .....................................................................................................
39%
61%
36%
64%
41%
59%
Segment income and segment margin*:
2019
2020
2021
Year ended December 31
ATS segment .......................................................................... $
CCS segment ..........................................................................
64.2
93.9
2.8%
2.6%
$
69.7
129.3
3.3%
3.5%
$
105.0
128.9
4.5%
3.9%
* Segment performance is evaluated based on segment revenue, segment income and segment margin (segment income as a percentage of segment revenue),
each of which are defined in "Operating Results — Segment income and margin" below.
Segment
Margin
Segment
Margin
Segment
Margin
Cash and cash equivalents ........................................................................................................................... $
Total assets ...................................................................................................................................................
Borrowings under term loans .......................................................................................................................
Borrowings under revolving credit facility* ................................................................................................
463.8 $
3,664.1
470.4
—
394.0
4,666.9
660.4
—
* excluding ordinary course letters of credit.
December 31
2020
December 31
2021
55
Cash provided by operating activities
............................................................................................. $
345.0
$
239.6 $
226.8
Year ended December 31
2020
2021
2019
SVS repurchase activities:
Aggregate cost (1) of SVS repurchased for cancellation (2)
# of SVS repurchased for cancellation (in millions)(3)
............................................................... $
....................................................................
67.3
$
0.1 $
8.3
0.0062
8.15
$
7.45 $
9.2
1.2
$
19.1 $
2.9
35.9
4.37
8.21
20.6
1.9
.............................................................................................................................................. $
Weighted average price per share for repurchases .......................................................................... $
Aggregate cost (1) of SVS repurchased for delivery under stock-based compensation (SBC)
plans(4)
# of SVS repurchased for delivery under SBC plans (in millions)(5)
(1)
(2)
..............................................
Includes transaction fees.
For 2020, excludes an accrual of $15.0 million we recorded at December 31, 2020 for the estimated contractual maximum of permitted SVS repurchases
(Contractual Maximum) for cancellation under an ASPP executed in December 2020. For 2021, excludes a $7.5 million accrual for the estimated
Contractual Maximum of SVS purchases for cancellation under an ASPP executed in December 2021. See note 12 to the 2021 AFS.
Includes approximately 1.7 million ASPP purchases of SVS for cancellation in 2021 (there were no ASPP purchases in 2020 or 2019). See note 12 to the
2021 AFS.
For 2021, excludes a $33.8 million accrual as of December 31, 2021 for the estimated Contractual Maximum of SVS purchases to settle awards under
our SBC plans under an ASPP executed in December 2021. See note 12 to the 2021 AFS.
Includes 0.7 million ASPP purchases of SVS for SBC delivery obligations in 2021 (there were no ASPP purchases in 2020 or 2019).
(3)
(4)
(5)
A discussion of the foregoing information is set forth under "Operating Results" below.
Other performance indicators:
In addition to the key operating results and financial information described above, management reviews the following
measures:
Cash cycle days:
1Q20
2Q20
3Q20
4Q20
1Q21
2Q21
3Q21
4Q21
Days in accounts receivable (A/R) ........................................
Days in inventory ..................................................................
Days in accounts payable (A/P) ............................................
Days in cash deposits* ..........................................................
70
77
(68)
(10)
Cash cycle days .....................................................................
69
Inventory turns ......................................................................
4.8x
65
75
(68)
(12)
60
4.9x
67
77
(69)
(14)
61
4.7x
73
82
(68)
(14)
73
4.4x
76
90
(69)
(15)
82
4.0x
66
83
(64)
(14)
71
4.4x
69
89
(70)
(16)
72
4.1x
73
103
(78)
(23)
75
3.5x
* We receive cash deposits from certain of our customers primarily to help mitigate the impact of higher inventory levels carried due to the current
constrained materials environment, and to reduce risks related to excess and/or obsolete inventory. See "Customer Cash Deposits" in the table below.
March
31
June
30
2020
September
30
December
31
March
31
June
30
2021
September
30
December
31
A/R Sales (in millions) ......................... $
40.7 $
80.5 $
101.0 $
119.7 $
92.2 $
79.1 $
91.5 $
45.8
Supplier Financing Programs* (in
millions) .......................................
146.1
94.5
76.9
65.3
84.5
70.0
47.6
98.0
Total (in millions) ................................ $ 186.8 $ 175.0 $
177.9 $
185.0 $ 176.7 $ 149.1 $
139.1 $
143.8
Customer Cash Deposits (in millions) . $ 134.9 $ 222.2 $
207.2 $
174.7 $ 190.3 $ 207.3 $
264.7 $
434.0
* Represents A/R sold to third party banks in connection with the uncommitted supplier financing programs (SFPs) of two customers through Q3 2021, and
of three customers in Q4 2021, including an SFP for a PCI customer. The amounts we sell under our A/R sales program and the SFPs can vary from quarter to
quarter depending on our working capital and other cash requirements, including by geography. See "Capital Resources" below.
56
Days in A/R is defined as the average A/R for the quarter divided by the average daily revenue. Days in inventory,
days in A/P and days in cash deposits are calculated by dividing the average balance for each item for the quarter by the average
daily cost of sales. Cash cycle days is defined as the sum of days in A/R and days in inventory minus the days in A/P and days
in cash deposits. Inventory turns are determined by dividing 365 by the number of days in inventory. A lower number of days in
A/R, days in inventory, and cash cycle days, and a higher number of days in A/P, days in cash deposits, and inventory turns
generally reflect improved cash management performance.
Cash cycle days increased by 2 days in Q4 2021 compared to Q4 2020, due primarily to higher days in inventory,
offset in part by higher days in A/P and days in cash deposits. Days in A/R for Q4 2021 remained flat from Q4 2020 at 73 days.
Days in inventory for Q4 2021 increased 21 days from Q4 2020 to 103 days primarily due to higher average inventory levels at
the end of Q4 2021, offset in part by higher cost of sales for Q4 2021 compared to Q4 2020. We carried higher inventory levels
at the end of Q4 2021 compared to Q4 2020 primarily to support the ramping of new programs and anticipated future demand,
including for our HPS business, and to help secure supply to mitigate the impact of global supply chain constraints and longer
lead times for certain components. In certain cases, we received cash deposits from our customers to help alleviate the impact of
such purchases on our cash flows. The acquisition of PCI also contributed to an increase in inventory days in Q4 2021
compared to the prior year period. Days in A/P increased 10 days from Q4 2020 to 78 days in Q4 2021 mainly due to higher
average A/P balances in Q4 2021, primarily due to the higher level of inventory purchases in Q4 2021, offset in part by the
impact of higher cost of sales in Q4 2021. Days in cash deposits increased 9 days from Q4 2020 to 23 days in Q4 2021
primarily due to a higher customer cash deposit balance in Q4 2021, as a result of increased inventory purchases for certain
customers as described above. Our customer cash deposit balance fluctuates depending on the levels of inventory we have been
asked to procure by certain customers (to secure supply for future demand), or as we utilize the inventory in production. Cash
cycle days increased by 3 days sequentially due to higher days in A/R and days in inventory in Q4 2021 compared to Q3 2021,
offset in part by higher days in A/P and days in cash deposits. Days in A/R for Q4 2021 increased 4 days sequentially primarily
due to higher average A/R balances in Q4 2021 compared to Q3 2021, reflecting the timing of revenue and collections. Days in
inventory for Q4 2021 increased 14 days sequentially primarily due to higher average inventory levels at the end of Q4 2021
compared to Q3 2021. Days in A/P for Q4 2021 increased 8 days sequentially primarily due to higher average A/P levels at the
end of Q4 2021 compared to Q3 2021. Days in cash deposits for Q4 2021 increased 7 days sequentially primarily due to higher
average cash deposit levels at the end of Q4 2021 compared to Q3 2021. Sequentially, the acquisition of PCI also impacted
each of the cash cycle day components for Q4 2021.
We believe that cash cycle days (and the components thereof) and inventory turns are useful measures in providing
investors with information regarding our cash management performance and are accepted measures of working capital
management efficiency in our industry.
Critical Accounting Estimates
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 related disclosures with respect to contingent assets and liabilities. We base our judgments, estimates and
assumptions on current facts (including, in recent periods, the prolonged impact of COVID-19 and materials constraints),
historical experience and various other factors that we believe are reasonable under the circumstances. The economic
environment could also impact certain estimates and discount rates necessary to prepare our consolidated financial statements.
Our assessment of these factors forms the basis for our judgments on the carrying values of our assets and liabilities, and the
accrual of our costs and expenses. Actual results could differ materially from our estimates and assumptions. We review our
estimates and underlying assumptions on an ongoing basis and make revisions as determined necessary by management.
Revisions are recognized in the period in which the estimates are revised and may also impact future periods.
Our review of the estimates, judgments and assumptions used in the preparation of our financial statements for 2021
included those relating to, among others: our determination of the timing of revenue recognition, the determination of whether
indicators of impairment existed for our assets and cash generating units (CGUs2), our measurement of deferred tax assets and
liabilities, our estimated inventory provisions and expected credit losses, customer creditworthiness, and the determination of
the fair value of assets acquired and liabilities assumed in connection with a business combination. Any revisions to estimates,
judgments or assumptions may result in, among other things, write-downs or impairments to our assets or CGUs, and/or
adjustments to the carrying amount of our A/R and/or inventories, or to the valuation of our deferred tax assets and/or pension
obligations, any of which could have a material impact on our financial performance and financial condition. While we
2
CGUs are the smallest identifiable group of assets that cannot be tested individually and generate cash inflows that are largely independent of those of other
assets or groups of assets, and can be comprised of a single site, a group of sites, or a line of business.
57
continue to believe the COVID-19 pandemic and materials constraints to be temporary, the situation remains dynamic and their
impact on our financial performance and financial condition, including their impact on overall customer demand, and/or our
ability to fulfill customer demand, cannot be reasonably estimated at this time. See "Recent Developments — Segment
Environment" above. However, we continue to believe that our long-term estimates and assumptions are appropriate.
Significant accounting policies and methods used in the preparation of our consolidated financial statements are
described in note 2 to our 2021 AFS. The following is a discussion of accounting estimates which management considers to be
"critical," defined as accounting estimates made in accordance with IFRS that involve a significant level of estimation
uncertainty, and have had, or are reasonably likely to have, a material impact on the Company's financial condition or results of
operations.
Key sources of estimation uncertainty and judgment: We have applied significant estimates, judgments and assumptions in
the following areas which we believe could have a significant impact on our reported results and financial position: our
determination of the timing of revenue recognition; whether events or changes in circumstances are indicators that an
impairment review of our assets or CGUs should be conducted; the measurement of our CGUs' recoverable amounts, which
includes estimating future growth, profitability, and discount and terminal growth rates; and the allocation of the purchase price
and other valuations related to our business acquisitions.
Revenue recognition:
Where products are custom-made to meet a customer's specific requirements, and such customer is 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. We apply significant estimates, judgment and
assumptions in interpreting our customer contracts, determining the timing of revenue recognition and measuring work in
progress.
Impairment of goodwill, intangible assets, property, plant and equipment, and right-of-use (ROU) assets:
We review the carrying amounts of goodwill, intangible assets, property, plant and equipment, and ROU assets for
impairment whenever events or changes in circumstances (triggering events) indicate that the carrying amount of such assets, or
the related CGU or CGUs, may not be recoverable. We determined that no triggering event had occurred in 2021 that would
require an impairment assessment for our assets or CGUs. In addition to an assessment of triggering events during the year, we
conduct an annual impairment assessment of CGUs with goodwill in the fourth quarter of the year (Annual Impairment
Assessment). Judgment is required in the determination of whether events or changes in circumstances are indicators that a
review for impairment should be conducted.
We recognize an impairment loss when the carrying amount of an asset, CGU or group of CGUs exceeds its
recoverable amount. The recoverable amount of an asset, CGU or group of CGUs is measured as the greater of its expected
value-in-use and its estimated fair value less costs of disposal. Determining the recoverable amount is subjective and requires
management to exercise significant judgment in estimating future growth, profitability, discount and terminal growth rates, and
in projecting future cash flows, among other factors. Future events and changing market conditions may impact our
assumptions as to prices, costs or other factors that may result in changes to our estimates of future cash flows. Our expected
value-in-use is determined based on a discounted cash flow analysis. Determining estimated fair value less costs of disposal
requires valuations and use of appraisals. At each reporting date, we assess whether triggering events that could change our
estimates of the recoverable amount of the relevant assets have occurred. Failure to realize the assumed revenues at an
appropriate profit margin of a CGU could result in impairment losses in such CGU in future periods.
Business combinations:
We use judgment to determine the estimates used to value identifiable assets and liabilities, and the fair value of
contingent consideration and other contingencies, if applicable, at the acquisition date. We have engaged third parties to
determine the fair value of certain inventory, property, plant and equipment and intangible assets. We use estimates to
determine cash flow projections, including the period of expected future benefit, and future growth and discount rates, among
other factors, to value intangible assets and contingent consideration. The fair value of acquired tangible assets are measured by
applying the market, cost or replacement cost, or the income approach (using discounted cash flows and forecasts by
management), as appropriate.
58
Operating Results
Our product and service volumes, revenue and annual and quarterly operating results are affected by, among other
factors: the level and timing of customer orders; our customer and business mix and the types of products or services we
provide; the rate at which, the costs associated with, and the execution of, new program ramps; demand volumes and the
seasonality of our business; price competition and other competitive factors; the mix of manufacturing or service value-add;
manufacturing capacity, utilization and efficiency; the degree of automation used in the assembly process; the availability of
components or labor; the location of qualified personnel; costs and inefficiencies of transferring programs between sites;
program completions or losses, or customer disengagements and the timing and the margin of follow-on business or any
replacement business; the impact of foreign exchange fluctuations; the performance of third-party providers; our ability to
manage inventory, production location and equipment effectively; our ability to manage changing labor, component, energy and
transportation costs effectively; fluctuations in variable compensation costs; the timing of our expenditures in anticipation of
forecasted sales levels; and the timing of any acquisitions and related integration costs. Significant period-to-period variations
can also result from the timing of new programs reaching full production or programs reaching end-of-life, the timing of
follow-on or next generation programs and/or the timing of existing programs being fully or partially transferred internally or to
a competitor. See "Overview — Overview of business environment" and "Recent Developments" above for a discussion of
recent market conditions, including global supply chain constraints and the COVID-19 pandemic, impacting our segments and
our business.
Operating results expressed as a percentage of revenue:
Revenue ..............................................................................................................................
Cost of sales ........................................................................................................................
Gross profit .........................................................................................................................
SG&A .................................................................................................................................
Research and development costs ........................................................................................
Amortization of intangible assets .......................................................................................
Other charges (recoveries) ..................................................................................................
Finance costs .......................................................................................................................
Earnings before income tax ................................................................................................
Income tax expense ............................................................................................................
Year ended December 31
2020
2019
2021
100.0%
93.5
100.0%
100.0%
92.4
91.4
6.5
3.9
0.4
0.5
(0.8)
0.8
1.7
0.5
7.6
4.0
0.5
0.4
0.4
0.7
1.6
0.5
8.6
4.3
0.7
0.4
0.2
0.6
2.4
0.6
Net earnings ........................................................................................................................
1.2%
1.1%
1.8%
Revenue:
Revenue of $5.6 billion for 2021 decreased 2% compared to 2020. ATS segment revenue increased 11% in 2021
compared to 2020, and CCS segment revenue decreased 9% in 2021 compared to 2020.
Revenue of $5.7 billion for 2020 decreased 2% compared to 2019. ATS segment revenue decreased 9% in 2020
compared to 2019, and CCS segment revenue increased 2% in 2020 compared to 2019.
59
The following table sets forth segment revenue information (in millions, except percentages) for the periods indicated:
2019
2020
2021
% of total
% of total
% of total
ATS segment revenue .................................................. $
2,285.6
CCS segment revenue .................................................. $
3,602.7
39%
61%
$
$
2,086.3
3,661.8
36%
64%
$
$
2,315.1
3,319.6
41%
59%
Communications .....................................................
Enterprise ................................................................
2,346.4
1,256.3
40 %
2,434.8
42 %
2,259.9
21 %
1,227.0
22 %
1,059.7
40 %
19 %
Total revenue .............................................................. $
5,888.3
100%
$
5,748.1
100%
$
5,634.7
100%
ATS segment revenue for 2021 increased $228.8 million (11%) compared to 2020, due to strong revenue growth in
our HealthTech and Capital Equipment businesses (aggregate growth of approximately 30% compared to 2020), driven by new
program ramps and continued demand strength in the semiconductor market, returning growth in our base Industrial business
and the addition of PCI in November 2021. These increases were partially offset by adverse demand impacts related to
COVID-19 in our commercial aerospace business and the adverse impacts of materials constraints. We estimated adverse
revenue impacts for 2021 of approximately $73 million on our ATS segment revenue (Q4 2021 — approximately $20 million;
Q3 2021 — approximately $21 million; Q2 2021 — approximately $21 million; Q1 2021— approximately $11 million) as a
result of supply chain constraints, and approximately $23 million in 2020 (Q4 2020 — approximately $8 million; Q3 2020 —
approximately $7 million; Q2 2020 — approximately $8 million) as a result of supply chain constraints (due in part to
COVID-19) and Workforce Constraints. For both years, these disruptions had the most significant adverse impact on our
Industrial and A&D revenues.
ATS segment revenue for 2020 decreased $199.3 million (9%) compared to 2019, as revenue growth in our
HealthTech and Capital Equipment businesses (aggregate growth of approximately 30% compared to 2019), driven by new
program ramps and continued demand strength in the semiconductor market, were more than offset by adverse COVID-19-
related demand impacts in our commercial aerospace and Industrial businesses, and in addition with respect to our A&D
business, the impact of the Boeing 737 Max program halt. In addition to COVID-19-related demand reductions, we estimated
aggregate adverse revenue impacts across our ATS segment of approximately $23 million in 2020 (described above) as a result
of supply chain constraints (due in part to COVID-19) and Workforce Constraints.
CCS segment revenue for 2021 decreased $342.2 million (9%) compared to 2020, primarily due to the Cisco
Disengagement (representing an approximate $500 million decline in 2021 compared to 2020) and the adverse impact of
materials constraints, partly offset by strong demand from service provider customers, including in our HPS business. We
estimated adverse impacts for 2021 of approximately $54 million on our CCS segment revenue (Q4 2021 — approximately $35
million; Q3 2021 — approximately $9 million; Q2 2021 — approximately $9 million; Q1 2021 — approximately $1 million) as
a result of supply chain constraints and approximately $58 million in 2020 (Q4 2020 — approximately $1 million; Q3 2020 —
approximately $9 million; Q2 2020 — approximately $48 million) as a result of supply chain constraints (due in part to
COVID-19) and Workforce Constraints. Communications end market revenue for 2021 decreased $174.9 million (7%)
compared to 2020 primarily due to the Cisco Disengagement, partially offset by demand increases from service providers,
including in our HPS business. Demand from service providers continues to be strong as they expand and upgrade their data
centers in support of continued cloud and on-line requirements. Enterprise end market revenue for 2021 decreased $167.3
million (14%) compared to 2020, due to program-specific demand softness from several server customers. Our HPS business
experienced strong demand in 2021, increasing 34% compared to 2020 to $1.15 billion, and accounting for 20% of our total
2021 revenue.
CCS segment revenue for 2020 increased $59.1 million (2%) compared to 2019. Communications end market revenue
for 2020 increased $88.4 million (4%) compared to 2019, reflecting strength in our HPS business, including increased demand
from service providers, which more than offset an approximate $200 million revenue decline from disengagements stemming
from our CCS portfolio review (CCS Review Disengagements). Enterprise end market revenue for 2020 decreased $29.3
million (2%) compared to 2019, as demand strength in our HPS business was more than offset by an approximate $100 million
revenue decline from CCS Review Disengagements, as well as demand softness across a number of customers. In addition, we
estimated aggregate adverse revenue impacts across our CCS segment in 2020 of approximately $58 million (described above)
as a result of supply chain constraints (due in part to COVID-19) and Workforce Constraints.
60
We depend on a small number of customers for a substantial portion of our revenue. In the aggregate, our top
10 customers represented 66% of total revenue for 2021 (2020 — 66%; 2019 — 65%).
No customer individually represented 10% or more of total revenue in 2021 or 2020. Cisco (a former CCS segment
customer) was the only customer that individually represented 10% or more of total revenue in 2019 (12% of total revenue).
We generally enter into master supply agreements with our customers that provide the framework for our overall
relationship, although such agreements do not typically guarantee a particular level of business or fixed pricing. Instead, we bid
on a program-by-program basis and receive customer purchase orders for specific quantities and timing of products. We cannot
assure that our current customers will continue to award us with follow-on or new business. Customers may also cancel
contracts, and volume levels can be changed or delayed, any of which could have a material adverse impact on our results of
operations, working capital performance (including requiring us to carry higher than expected levels of inventory, particularly
in a supply-constrained environment, to enable us to meet demand requirements), and result in lower asset utilization and lower
margins. We cannot assure the replacement of completed, delayed, cancelled or reduced orders, or that our current customers
will continue to utilize our services, or renew their long-term manufacturing or services contracts with us on acceptable terms or
at all. In addition, in any given quarter, we can experience quality and process variances related to materials, testing or other
manufacturing or supply chain activities. Although we are successful in resolving the majority of these issues, the existence of
these variances could have a material adverse impact on the demand for our services in future periods from any affected
customers. Further, some of our customer agreements require us to provide specific price reductions to our customers over the
term of the contracts, which has significantly impacted revenue and our margins. Continuing market shifts to disaggregated
solutions and open hardware platforms are adversely impacting demand from our traditional OEM Communications customers,
but favorably impacting our service provider customers and our HPS business. There can be no assurance that revenue from any
of our major customers will continue at historical levels or will not decrease in absolute terms or as a percentage of total
revenue. A significant revenue decrease or pricing pressures from these or other customers, or a loss of a major customer or
program, could have a material adverse impact on our business, our operating results and our financial position. The CCS
Review Disengagements (which began in the second half of 2018) had an estimated annualized revenue decline of $1.25 billion
once completed.
Materials constraints can also cause delays in production and could have a material and adverse impact on our
operations. As noted above, materials constraints adversely impacted our revenues and inventory levels over recent years, and
we anticipate that materials constraints (and longer lead-times for high-demand components and materials) will continue
throughout 2022, adversely impacting our revenue and working capital performance.
Gross profit:
The following table shows gross profit and gross margin (gross profit as a percentage of total revenue) for the periods
indicated:
Year ended December 31
2020
2019
2021
Gross profit (in millions) ................................................................................................................... $
Gross margin .....................................................................................................................................
384.7
$
437.6
$
487.0
6.5 %
7.6 %
8.6 %
Gross profit for 2021 increased $49.4 million (11%), compared to 2020, primarily due to a higher concentration of
HPS business, growth in our ATS segment, and lower variable spend, which more than offset the reduced profits in A&D.
Gross profit for 2021 also includes a $12.1 million reduction in net inventory provisions compared to 2020 (2021— $4.9
million; 2020 — $17.0 million, described below). Gross profit in 2021 was adversely impacted by approximately $31 million of
estimated COVID-19 Costs recorded in cost of sales (2020 — $33 million). However, we also recognized an aggregate of $9
million of COVID Recoveries in cost of sales in 2021 (2020 — $30 million), mitigating such adverse impacts. Approximately
70% and 60% of both the COVID-19 Costs and COVID Recoveries recorded in 2021 and 2020, respectively, pertained to our
ATS segment. Gross margin increased to 8.6% in 2021 from 7.6% in 2020 primarily driven by growth in our ATS segment, and
improved CCS performance, including higher HPS revenue concentration.
61
Gross profit for 2020 increased $52.9 million (14%), compared to 2019, primarily due to improvements in our CCS
segment, despite a $12.9 million increase in net inventory provisions recorded in 2020 compared to 2019. Our 2020 inventory
provisions of $17.0 million were due in part to reduced demand, including as a result of the deterioration of the commercial
aerospace market due to COVID-19, to certain aged inventory in our CCS segment, and to specific disengaging customers in
both of our segments. We recorded $33 million of COVID-19 Costs in cost of sales in 2020. We also recognized an aggregate
of $30 million of COVID Recoveries in cost of sales in 2020, mitigating such adverse impact. Approximately 60% of both the
COVID-19 Costs and COVID Recoveries recorded in 2020 pertained to our ATS segment. Despite overall lower revenue, the
increase in gross margin to 7.6% in 2020 compared to 6.5% in 2019 was primarily driven by improved mix, productivity and
volume leverage across several of our businesses.
Certain of our customer agreements require us to provide specific price reductions over the contract term, which has
significantly impacted revenue and margins. This adverse impact is expected to continue. In general, multiple factors can cause
gross margin to fluctuate from period to period including, among others: volume and mix of products or services; higher/lower
revenue concentration in lower gross margin products and businesses; pricing pressures; contract terms and conditions;
production management; utilization of manufacturing capacity; changing material and labor costs, including variable labor costs
associated with direct manufacturing employees; manufacturing and transportation costs; start-up and ramp-up activities; new
product introductions; disruption in production at individual sites, including as a result of program transfers; cost structures at
individual sites; foreign exchange volatility; and the availability of components and materials. Order cancellations and delays
could also lower our asset utilization, resulting in lower margins. Significant period-to-period changes in margins can also
occur if new program wins or follow-on business are more competitively priced than past programs. In addition, customers
from time to time shift programs to us from other service providers, including some for lower complexity, light touch programs
that are aggressively priced, which can adversely impact future operating results. Our gross profit and SG&A expenses
(discussed below) are also impacted by the level of variable compensation expense (including awards under our incentive and
SBC plans) we record in each period.
Selling, general and administrative expenses (SG&A):
SG&A for 2021 of $245.1 million (4.3% of total revenue) increased $14.4 million compared to $230.7 million (4.0%
of total revenue) for 2020, primarily due to higher variable compensation, lower COVID Subsidies recorded in SG&A (2021 —
$3 million; 2020 — $7 million), and approximately $2 million in SG&A attributable to the PCI acquisition.
SG&A for 2020 of $230.7 million (4.0% of total revenue) increased $3.4 million compared to $227.3 million (3.9% of
total revenue) for 2019, primarily due to higher variable compensation and variable spend (including IT-related COVID-19
Costs), offset in part by the recognition of approximately $7 million of COVID Subsidies in SG&A, and $2.2 million in lower
foreign exchange losses in 2020.
Segment income and margin:
Segment performance is evaluated based on segment revenue (set forth above), 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 (defined under "Finance Costs" below),
employee SBC expense, amortization of intangible assets (excluding computer software), and Other Charges (recoveries)
(described under "Other charges (recoveries)" below), as these costs and charges/recoveries are managed and reviewed by our
Chief Executive Officer at the company level. See the reconciliation of segment income to our earnings before income taxes for
2019 — 2021 in note 25 to the 2021 AFS. 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.
62
ATS segment income for 2021 increased $35.3 million (51%) compared to 2020. ATS segment margin increased from
3.3% in 2020 to 4.5% in 2021. The increase in ATS segment income for 2021 as compared to 2020 was primarily due to
revenue increases noted above, which more than offset the reduced profit contribution from our A&D business. The increase in
ATS segment margin for 2021 compared to 2020 was primarily due to profitable growth in our Capital Equipment business.
See "Recent Developments" above.
ATS segment income for 2020 increased $5.5 million (9%) compared to 2019. ATS segment margin increased from
2.8% in 2019 to 3.3% in 2020, despite the lower revenue. The increase in ATS segment income for 2020 as compared to 2019
was due primarily to the Capital Equipment revenue increases discussed above and improved productivity across a number of
our ATS segment businesses. The increase in ATS segment margin for 2020 compared to 2019 was primarily due to
improvements in our Capital Equipment business, driven by improved productivity, the beneficial impact of our cost reduction
initiatives, and volume leverage, partly offset by reduced profit contribution from our A&D business.
CCS segment income for 2021 decreased $0.4 million (0.3%) compared to 2020 as a result of the lower revenue levels
described above, driven primarily by the Cisco Disengagement. Despite the lower revenue levels, CCS segment margin
increased from 3.5% in 2020 to 3.9% in 2021, primarily due to more favorable mix, driven by our portfolio reshaping activities,
and a higher concentration of revenue from our HPS business.
CCS segment income for 2020 increased $35.4 million (38%) compared to 2019. CCS segment margin increased from
2.6% in 2019 to 3.5% in 2020. These increases were primarily due to favorable mix, including increased HPS programs, and
the positive impact of our productivity initiatives.
SBC expense:
Our SBC expense may fluctuate from period to period to account for, among other things, new grants, forfeitures
resulting from employee terminations or resignations, and the recognition of accelerated SBC expense for employees eligible
for retirement (generally in the first quarter of the year associated with our annual grants). The portion of our employee SBC
expense that relates to performance-based compensation is subject to adjustment in any period to reflect changes in the
estimated level of achievement of pre-determined performance goals and financial targets.
The following table shows employee SBC expense (with respect to restricted share units (RSUs) and performance
share units (PSUs) granted to employees) and director SBC expense (with respect to deferred share units (DSUs) and RSUs
issued to directors as compensation) for the periods indicated (in millions):
Year ended December 31
2020
2021
2019
Employee SBC expense in cost of sales ..................................................................................... $
14.6 $
11.1 $
Employee SBC expense in SG&A .............................................................................................
19.5
14.7
Total ............................................................................................................................................ $
34.1 $
25.8 $
Director SBC expense in SG&A (1)
............................................................................................ $
2.4 $
2.0 $
(1)
Expense consists of director compensation to be settled with SVS, or SVS and cash, as elected by each director.
13.0
20.4
33.4
2.1
The increase in employee SBC expense for 2021 as compared to 2020 was primarily the result of an $8.4 million
expense reversal recorded in 2020 to reflect a reduction in the estimated number of PSUs expected to vest at the end of January
2021 (SBC Reversal). The decrease in employee SBC expense for 2020 as compared to 2019 was due primarily to the 2020
SBC Reversal. Unless a grantee has been authorized, and elects, to settle these awards in cash, Celestica intends to settle all
outstanding RSUs and PSUs with SVS purchased in the open market by a broker, or issued from treasury. Accordingly, we
account for these share unit awards as equity-settled awards. See "Cash requirements" below.
63
Other charges (recoveries):
(i)
Restructuring charges:
We recorded the following restructuring charges for the periods indicated (in millions):
Year ended December 31
2019
2020
2021
Restructuring charges .........................................................................................................
$
37.9 $
25.8 $
10.5
We perform ongoing evaluations of our business, operational efficiency and cost structure, and implement
restructuring actions as we deem necessary. Our restructuring activities in 2021 consisted primarily of actions to adjust our cost
base to address reduced levels of demand in certain of our businesses and geographies, due in part to the impact of COVID-19,
including actions in the first half of 2021 to right-size our commercial aerospace facilities. Our 2020 restructuring actions were
associated primarily with the Cisco Disengagement, as well as other actions intended to adjust our cost base similar to (and for
the same reasons as) those taken in 2021.
We recorded net restructuring charges of $10.5 million in 2021, consisting of cash restructuring charges of $9.8
million, primarily for employee termination costs, and net non-cash charges of $0.7 million (consisting of non-cash
restructuring charges of $1.5 million and non-cash restructuring recoveries of $0.8 million). The non-cash restructuring
recoveries in 2021 primarily reflect gains on the sale of surplus equipment. The non-cash restructuring charges recorded in
2021 consisted primarily of the write-down of equipment related to disengaged programs. Approximately one half of our 2021
restructuring charges were associated with our ATS segment, and included actions related to our A&D business. Our
restructuring provision at December 31, 2021 was $6.1 million (December 31, 2020 — $4.7 million; December 31, 2019 —
$11.2 million). All cash outlays have been, and the balance is expected to be, funded with cash on hand.
We recorded restructuring charges of $25.8 million in 2020, consisting of cash charges of $23.3 million, primarily for
employee termination costs, and non-cash charges of $2.5 million. The non-cash restructuring charges recorded in 2020
represented the write-down of certain equipment related to disengaged programs, and the write down of ROU assets ($1.1
million) in connection with vacated properties, resulting in part from certain sublet recoveries that were lower than the carrying
value of the related leases (Sublet Losses), offset in part by $0.3 million in gains on the disposition of surplus equipment.
Approximately two-thirds of our 2020 restructuring charges were associated with our CCS segment.
At the end of 2019, we completed our cost efficiency initiative (CEI), which commenced in the fourth quarter of 2017,
and consisted of restructuring actions related to our CCS segment portfolio review and our Capital Equipment business. The
CEI resulted in reductions to our workforce, as well as consolidation of certain sites to better align capacity and infrastructure
with then-anticipated customer demand, related transfers of customer programs and production, re-alignment of business
processes, management reorganizations, and other associated activities. We recorded restructuring charges of $37.9 million in
2019, all in connection with our CEI, consisting of cash charges of $28.1 million, primarily for employee termination costs, and
non-cash charges of $9.8 million. The non-cash restructuring charges recorded in 2019 represented the write-down of certain
equipment, primarily related to our Capital Equipment business (ATS segment) and disengaged programs, and the write-down
of ROU assets ($1.0 million) pertaining to vacated properties, resulting in part from Sublet Losses. Approximately two-thirds of
our 2019 restructuring charges were associated with our CCS segment.
We may also implement additional future restructuring actions or divestitures as a result of changes in our business,
the marketplace and/or our exit from less profitable, under-performing, non-core or non-strategic operations. In addition, an
increase in the frequency of customers transferring business to our competitors, changes in the volumes they outsource, pricing
pressures, or requests to transfer their programs among our sites or to lower-cost locations, may also result in our taking future
restructuring actions. We may incur higher operating expenses during periods of transitioning programs within our network or
to our competitors. Any such restructuring activities, if undertaken at all, could adversely impact our operating and financial
results, and may require us to further adjust our operations.
64
(ii)
Asset impairment:
We review the carrying amounts of goodwill, intangible assets, property, plant and equipment, and ROU assets for
impairment whenever events or changes in circumstances (triggering events) indicate that the carrying amount of such assets, or
the related CGU(s), may not be recoverable. In addition to an assessment of triggering events during the year, we conduct an
annual impairment assessment of CGUs with goodwill in the fourth quarter of each year (Annual Impairment Assessment). See
"Critical Accounting Estimates" above and note 2(j) to our 2021 AFS. We did not identify any triggering events during 2019,
2020 or 2021 indicating that the carrying amount of our assets or CGUs may not be recoverable. However, we recorded non-
cash restructuring charges to write-down equipment and ROU assets during such periods in connection with our restructuring
activities. See paragraph (i) above and footnote (ii) in note 7 to the 2021 AFS. As a result of our 2019, 2020 and 2021 Annual
Impairment Assessment for CGUs with goodwill, we determined that there was no impairment, as the recoverable amount of
our CGUs exceeded their respective carrying values.
See notes 2(j) and 8 to our 2021 AFS for a discussion of when impairment losses for our assets and CGUs are
recognized, and how we determine our cash flow projections for our impairment assessments, as well as the cash flow
projection periods, growth rates, and discount rates used in our Annual Impairment Assessments of CGUs with goodwill for
each of 2019, 2020 and 2021.
Our goodwill balance is allocated to the following CGUs (in millions):
...................................................................................................................... $
Capital Equipment (1)
A&D (2)
Atrenne (3)
PCI (4)
...........................................................................................................................................
.......................................................................................................................................
..............................................................................................................................................
December 31
2019
2020
2021
132.0 $
132.3 $
131.9
3.7
62.6
—
3.7
62.6
—
$
198.3 $
198.6 $
3.7
62.6
126.0
324.2
(1)
(2)
(3)
(4)
Consists of goodwill attributable to our 2018 acquisition of Impakt Holdings, LLC (Impakt), as well as prior acquisitions.
Consists of goodwill attributable to our 2016 acquisition of Lorenz, Inc. and Suntek Manufacturing Technologies, SA de CV, collectively known as
Karel Manufacturing.
Consists of goodwill attributable to our 2018 acquisition of Atrenne.
Consists of our preliminary allocation of goodwill attributable to our 2021 acquisition of PCI. The purchase price adjustment and allocation for PCI
has not yet been finalized.
As part of our Annual Impairment Assessment of CGUs with goodwill, we also performed a sensitivity analysis for the
relevant CGUs in order to identify the impact of changes in key assumptions, including projected growth rates, profitability,
discount and terminal growth rates. We did not identify any key assumptions where a reasonable possible change would have
resulted in material impairments to the above goodwill balances in 2019, 2020 or 2021. Future growth in revenue and margins
for these CGUs is supported by new business awarded recently, customer forecasts, assumptions for additional future program
wins based on our current revenue pipeline, margin improvements based on recent restructuring actions, growth due to our
acquisitions and external industry outlooks. Assumptions for our Capital Equipment CGU for our 2021 Annual Impairment
Assessment reflect the continued recovery of, and demand strength (including from new programs and market share gains) in
our semiconductor business in 2021 (which is expected to continue). We have also assumed margin expansion for this CGU
during the forecast period based on anticipated increased productivity driven by expected additional volumes. Assumptions for
our Atrenne CGU for our 2021 Annual Impairment Assessment reflect an expected broad-based market recovery from the
impact of COVID-19, as well as anticipated accelerated growth over the 5-year forecast period primarily in our defense
business, resulting from expected new program wins following the investment in, and expansion of, a facility (opened in 2021)
to accommodate additional capacity for our defense customers and our licensing business. Although our A&D CGU was
adversely affected by COVID-19 in 2021, particularly our commercial aerospace business, our assumptions for this CGU for
our 2021 Annual Impairment Assessment reflect industry expectations for a recovery of demand within the 5-year forecast
period. The discount rate for our PCI CGU reflects the risks inherent in the PCI business. Impairment assessments inherently
involve judgment as to assumptions about expected future cash flows and the impact of market conditions on those
assumptions. See "Critical Accounting Estimates" above.
65
(iii)
Losses on post-employment benefit plan (Post-employment Benefit Plan Losses):
During the fourth quarter of 2019 (Q4 2019), we recorded non-cash charges of $4.1 million, representing additional
obligations under our Thailand post-employment benefit plan as a result of changes in labor protection laws in Thailand that
increased the severance benefits for specified employees upon termination.
(iv)
Transition Costs (Recoveries):
Transition Costs consist of Toronto Transition Costs and Internal Relocation Costs, each of which are defined under
the caption "Non-IFRS Financial Measures" below. We incurred no Toronto Transition Costs during 2021 or 2020 (2019 —
$3.8 million). We do not expect to incur further Toronto Transition Costs until the move into our new corporate headquarters
commences. We recorded $1.2 million of Internal Relocation Costs in 2021 (2020 — de minimus; 2019 — $2.4 million).
Transition Recoveries consist of the $102.0 million gain (Property Gain) we recorded on the sale of our Toronto real property in
the first quarter of 2019 (Q1 2019). See "Liquidity — Toronto Real Property and Related Transactions" below for a discussion
of the sale of our Toronto real property and related relocations.
(v)
Credit facility-related charges:
Credit facility-related charges for 2021 consist primarily of a $2.6 million charge to accelerate the amortization of
unamortized deferred financing costs upon the termination of a prior term loan in connection with our December 2021
amendment to our credit agreement. See "Liquidity — Cash provided by (used in) financing activities — Financing and
Finance Costs" for a discussion of such amendment and "Finance Costs" below for related debt-issuance costs. During Q4
2019, we incurred $2.0 million in fees in connection with obtaining waivers in October 2019 related to our non-compliance
with certain restrictive covenants under our credit facility (Waiver Fees). See "Capital Resources" below.
(vi)
Acquisition Costs and Other:
We incur consulting, transaction and integration costs relating to potential and completed acquisitions. We also incur
charges or releases related to the subsequent re-measurement of indemnification assets or the release of indemnification or other
liabilities recorded in connection with acquisitions. Collectively, these costs, charges and releases are referred to as Acquisition
Costs (Recoveries). During 2021, we recorded $7.3 million of net Acquisition Costs related to acquisition activities, including
$4.8 million in connection with the acquisition of PCI, offset in part by a $1.2 million release in Q1 2021 of certain indirect tax
liabilities previously recorded in connection with our acquisition of Impakt. During 2020, we recorded $0.2 million of
Acquisition Costs related to potential acquisitions (2019 — $3.9 million, including $2.2 million of such remeasurement charges
related to our Impakt acquisition). See note 3 to our 2021 AFS.
Other consists of legal recoveries in connection with the settlement of class action lawsuits in which we were a
plaintiff (2021 — $10.5 million; 2020 — $2.5 million; 2019 — $2.0 million).
Losses on pension annuity purchases:
To mitigate the actuarial and investment risks of our defined benefit pension plans, we purchase annuities from time to
time (using existing plan assets) from third party insurance companies for certain, or all, plan participants. The purchase of
annuities by the pension plan substantially hedges the financial risks associated with the related pension obligations. In August
2020, the trustees of our defined benefit pension plan for employees in the United Kingdom (U.K.) purchased annuities to
hedge the pension benefits payable to newly-retired members of such plan. The 2020 annuity purchase resulted in a non-cash
loss of $0.2 million in 2020, which we recorded in other comprehensive income (loss) (OCI) and simultaneously re-classified to
deficit. We completed the wind-up of a former supplementary pension plan for our U.K. employees in 2019.
Finance Costs:
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 A/R sales program, customer SFPs, and interest expense on our lease
obligations, net of interest income earned. During 2021, we paid Finance Costs of $26.0 million (2020 — $29.5 million; 2019
— $44.5 million), including $3.6 million in debt issuance costs paid in 2021 (2020 — $0.6 million; 2019 — $2.9 million). The
decrease in Finance Costs paid from 2021 to 2020 was primarily due to lower amounts outstanding under our credit facility for
most of the year (until Q4 2021 when borrowings increased to fund a portion of the PCI acquisition), a reduction in interest
66
rates compared to 2020, and lower amounts of swap interest due to the cancellation of a portion of the notional amount of our
interest rate swaps in December 2020 and September 2021. The decrease in Finance Costs paid from 2020 to 2019 was
primarily due to lower borrowings under our credit facility, and a reduction in interest rates compared to 2019. We also paid
$2.0 million in Waiver Fees in Q4 2019, which we recorded in other charges.
Income taxes:
For 2021, we had a net income tax expense of $32.1 million on earnings before tax of $136.0 million, compared to a
net income tax expense of $29.6 million on earnings before tax of $90.2 million for 2020, and a net income tax expense of
$29.5 million on earnings before tax of $99.8 million for 2019. Our 2019 earnings before tax included the Property Gain, which
had no net tax impact, as such gain was offset by previously unrecognized tax losses.
Our net income tax expense of $32.1 million for 2021 was favorably impacted by a $7.6 million deferred tax recovery
recorded in connection with the revaluation of certain temporary differences using the future effective tax rate of our Thailand
subsidiary in connection with the upcoming transition from a 100% income tax exemption to a 50% exemption in 2022 under
an applicable tax incentive (Revaluation Impact), largely offset by a $6.0 million tax expense arising from taxable temporary
differences associated with the anticipated repatriation of undistributed earnings from certain of our Chinese subsidiaries. We
currently expect to repatriate cash from certain of our Chinese subsidiaries in the near future and have recorded a $15.3 million
deferred tax liability in connection therewith. Upon such repatriation, we will reverse this deferred tax liability and record a
current income tax expense for withholding taxes. Our functional and reporting currency is the U.S. dollar; however, our
income tax expense is based primarily on taxable income determined in the currency of the country of origin. As a result,
foreign currency translation differences impact our income tax expense from period to period. Taxable foreign exchange
impacts were not significant in 2021.
Our net income tax expense of $29.6 million for 2020 included $18.3 million of tax expenses relating to current and
future withholding taxes associated with repatriations of undistributed earnings from certain of our Chinese and Thai
subsidiaries that occurred in 2020 or were then-anticipated to occur in the foreseeable future, offset in large part by the
following favorable impacts: (i) $4.1 million in tax benefits related to return-to-provision adjustments for changes in estimates
related to prior years based on changes in facts or circumstances (RTP Adjustments), (ii) the recognition of $2.6 million of
previously unrecognized deferred tax assets of our Japanese subsidiary, (iii) $5.1 million in favorable foreign exchange impacts
(Currency Impacts) arising primarily from the strengthening of the Chinese renminbi relative to the U.S. dollar, and (iv) a $5.7
million reversal of tax uncertainties in certain of our Asian subsidiaries in Q1 2020.
Our net income tax expense for 2019 of $29.5 million was favorably impacted by $6.4 million in tax benefits arising
from RTP Adjustments, and an aggregate of $4.5 million in reversals of certain previously-recorded tax liabilities and
uncertainties, offset in part by $6.0 million in withholding taxes associated with the then-anticipated repatriations of
undistributed earnings with respect to certain of our Chinese and Thai subsidiaries. Upon repatriating the cash in 2020, we
reversed the related deferred tax liability previously recorded in 2019 and recorded a current income tax expense for
withholding taxes in 2020. Overall net Currency Impacts for 2019 were not significant.
In response to the COVID-19 pandemic, certain jurisdictions in which we operate have implemented certain tax relief
measures, including deferral of value-added tax payments (such as VAT or GST) and additional tax deductions. However, these
tax relief measures have not provided us with significant tax benefits to date. We do not currently expect that these tax relief
measures will have a significant impact on our global tax rate. However, see "Recent Developments — Segment Environment
— Operational Impacts" above and note 23 to the 2021 AFS for a discussion of COVID Subsidies recorded in 2021 and 2020
that subsidized or offset qualifying expenses, including payroll costs/taxes and social insurance program contributions.
We conduct business operations in a number of countries, including countries where tax incentives have been extended
to encourage foreign investment or where income tax rates are low. Our effective tax rate can vary significantly from period to
period for various reasons, including as a result of the mix and volume of business in various tax jurisdictions, and in
jurisdictions with tax holidays, and tax incentives that have been negotiated with the respective tax authorities (see discussion
below). Our effective tax rate can also vary due to the impact of restructuring charges, foreign exchange fluctuations, operating
losses, cash repatriations, certain tax exposures, the time period in which losses may be used under tax laws and whether
management believes it is probable that future taxable profit will be available to allow us to recognize deferred income
tax assets.
67
Certain countries in which we do business grant tax incentives to attract and retain our business. Our tax expense could
increase significantly if certain tax incentives from which we benefit are retracted. A retraction could occur if we fail to satisfy
the conditions on which these tax incentives are based, or if they are not renewed or replaced upon expiration. Our tax expense
could also increase if tax rates applicable to us in such jurisdictions are otherwise increased, or due to changes in legislation or
administrative practices. Changes in our outlook in any particular country could impact our ability to meet the required
conditions.
The U.S. Biden administration has proposed tax legislative changes. Although such proposals, if adopted as currently
contemplated, would not have a significant tax impact on our operations, we cannot predict the likelihood, timing or substance
of U.S. tax reform. If the recent global minimum tax agreement is implemented in the jurisdictions in which we do business, it
could, among other things, increase cash taxes, increase audit risk, and increase our worldwide corporate effective tax rate. In
addition, the Organization for Economic Cooperation and Development continues to issue guidelines and proposals related to
Base Erosion and Profit Shifting which may result in legislative changes that could reshape international tax rules in numerous
countries and negatively impact our effective tax rate. We cannot predict the outcome of any specific legislative proposals or
initiatives, and we cannot provide assurance that any such legislation or initiative will not apply to us. Legislation or other
changes in U.S. and/or international tax laws could increase our tax liability or adversely affect our overall profitability and
results of operations. We will continue to monitor the progress of U.S. tax reform, as well as other global tax reform agreements
and initiatives.
Our tax incentives currently consist of tax exemptions for the profits of, and for dividend withholding taxes for, our
Thailand and Laos subsidiaries. We have two income tax incentives in Thailand. One of these incentives initially allowed for a
100% income tax exemption (including distribution taxes), but transitioned to a 50% income tax exemption in January 2022 for
the next five years (excluding distribution taxes) until its expiration in 2027. The impact of this transition on our 2021 net
income tax expense is discussed above (see Revaluation Impact). The second incentive allows for a 100% income tax
exemption (including distribution taxes) for eight years, and expires in 2028. Upon full expiry of each of the incentives, taxable
profits associated with such incentives become fully taxable. During 2020 and 2021, we successfully transitioned a portion of
our Thailand business under recently expired incentives to our remaining two incentives, and we are monitoring for further
optimization on a continuous basis. Our tax incentive in Laos allows for a 100% income tax exemption (including distribution
taxes) until 2025, and a reduced income tax rate of 8% thereafter. Our tax expense could increase significantly if certain tax
incentives from which we benefit are retracted. The aggregate tax benefit arising from all of our tax incentives was
approximately $15 million for 2021 (2020 — $10 million; 2019 — $1.5 million).
We received an approval from the Malaysian authorities in Q4 2020 for an income tax incentive for one of our
Malaysian subsidiaries, which provides for a 50% income tax exemption for a period of five years for certain product sets
manufactured by such subsidiary. The commencement date of this incentive has yet to be determined by the Malaysian
authorities. Although a significant portion of this incentive may be retroactively applicable to past periods, we cannot assure
that this will be the case. Due to uncertainty of the period for which this incentive applies, we cannot currently quantify the
applicable benefit.
In certain jurisdictions, primarily in the Americas and Europe, we currently have significant net operating losses and
other deductible temporary differences, some of which we expect will be used to reduce taxable income in these jurisdictions in
future periods, although not all are currently recognized as deferred tax assets. In addition, the tax benefits we are able to record
related to restructuring charges and SBC expenses may be limited, as a significant portion of such amounts are incurred in
jurisdictions with unrecognized loss carryforwards. Tax benefits we are able to record related to the accounting amortization of
intangible assets are also limited based on the structure of our acquisitions. We review our deferred income tax assets at each
reporting date and reduce them to the extent we believe it is no longer probable that we will realize the related tax benefits.
We develop our tax filing positions based upon the anticipated nature and structure of our business and the tax laws,
administrative practices and judicial decisions currently in effect in the jurisdictions in which we have assets or conduct
business, all of which are subject to change or differing interpretations, possibly with retroactive effect. We are subject to tax
audits in various jurisdictions which could result in additional tax expense in future periods relating to prior results. Reviews by
tax authorities generally focus on, but are not limited to, the validity of our inter-company transactions, including financing and
transfer pricing policies which generally involve subjective areas of taxation and significant judgment. Any such increase in our
income tax expense and related interest and/or penalties could have a significant adverse impact on our future earnings and
future cash flows.
68
In 2017, the Brazilian Ministry of Science, Technology, Innovation and Communications (MCTIC) issued assessments
seeking to disqualify certain of our R&D expenses for the years 2006 to 2009, which entitled our Brazilian subsidiary (which
ceased operations in 2009) to charge reduced sales tax levies to its customers. We received lower re-assessments for 2007 and
2008 during Q1 2020 in response to our initial appeal, and in Q4 2021, the MCTIC accepted our appeal in respect of 2006
resulting in no adjustment to our original filing position for such year. We intend to continue to appeal the original assessments
for 2009 and the re-assessments for 2007 and 2008. As of December 31, 2021, the assessments and re-assessments, including
interest and penalties, total approximately 12 million Brazilian real (approximately $2 million at year-end exchange rates) for
all such years, reduced from original assessments totaling approximately 39 million Brazilian real (approximately $7 million at
year-end exchange rates).
In Q3 2021, the Romanian tax authorities issued a final tax assessment in the aggregate amount of approximately 31
million Romanian leu (approximately $7 million at year-end exchange rates), for additional income and value-added taxes for
one of our Romanian subsidiaries for the 2014 to 2018 tax years. In order to advance our case to the appeals phase and reduce
or eliminate potential interest and penalties, we paid the Romanian tax authorities the full amount assessed in 2021 (without
agreement to all or any portion of such assessment). We believe that our originally-filed tax return positions are in compliance
with applicable Romanian tax laws and regulations, and intend to vigorously defend our position through all necessary appeals
or other judicial processes.
The successful pursuit of assertions made by any government authority, including tax authorities, could result in our
owing significant amounts of tax or other reimbursements, interest and possibly penalties. We believe we adequately accrue for
any probable potential adverse ruling. However, there can be no assurance as to the final resolution of any claims and any
resulting proceedings. If any claims and any ensuing proceedings are determined adversely to us, the amounts we may be
required to pay could be material, and in excess of amounts accrued.
Net earnings:
Net earnings for 2021 increased $43.3 million compared to 2020. The increase was primarily due to $49.4 million in
higher gross profit and an aggregate of $19.2 million in lower other charges (recoveries) and Finance Costs, offset in part by
$14.4 million in higher SG&A expense and $8.5 million in higher R&D costs (in support of our HPS business) in 2021 as
compared to 2020.
Net earnings for 2020 decreased $9.7 million compared to 2019. The decrease was primarily due to the $102.0 million
Property Gain recorded in Q1 2019, offset in part by $52.9 million in higher gross profit, $12.1 million in lower restructuring
charges, and $11.8 million in lower Finance Costs in 2020 as compared to 2019.
Liquidity and Capital Resources
Liquidity
The following tables set forth key liquidity metrics for the periods indicated (in millions):
Cash and cash equivalents .......................................................................................................... $
Borrowings under credit facility* ...............................................................................................
* excluding ordinary course letters of credit.
December 31
2019
2020
2021
479.5 $
463.8 $
592.3
470.4
394.0
660.4
69
Cash provided by operating activities ......................................................................................... $
Cash provided by (used in) investing activities ...........................................................................
Cash provided by (used in) financing activities ..........................................................................
Changes in non-cash working capital items (included in operating activities above):
A/R............................................................................................................................................... $
Inventories ...................................................................................................................................
Other current assets .....................................................................................................................
A/P, accrued and other current liabilities and provisions ............................................................
Year ended December 31
2019
2020
2021
345.0 $
239.6 $
226.8
38.7
(326.2)
(51.0)
(204.3)
(364.3)
67.7
153.7 $
(40.7) $
(102.4)
97.7
16.5
(158.8)
(99.3)
(0.5)
117.0
(521.9)
(11.5)
556.9
Working capital changes ............................................................................................................. $
109.1 $
(23.5) $
(78.9)
Cash provided by operating activities:
In 2021, we generated $226.8 million of cash from operating activities compared to $239.6 million in 2020. The $12.8
million decrease in cash from operating activities in 2021 as compared to 2020 was primarily due to $55.4 million in higher
working capital requirements, offset in significant part by $43.3 million higher net earnings in 2021 compared to 2020. Higher
working capital requirements for 2021 as compared to 2020 primarily reflect a $61.7 million reduction in A/R cash flows and a
$422.6 million reduction in inventory cash flows, which more than offset a $439.9 million improvement in A/P cash flows. The
reduction in A/R cash flows was due to the timing of collections, as well as higher A/R levels carried at the end of 2021
compared to the end of 2020, resulting from higher revenue earned in Q4 2021 compared to Q4 2020. The reduction in
inventory cash flows was due to higher inventory levels carried at the end of 2021 compared to the end of 2020. We carried
higher inventory levels at the end of 2021 primarily to support the ramping of new programs and anticipated future demand,
including for our HPS business, to help secure supply to mitigate the impact of global supply chain constraints and longer lead
times for certain components, and as a result of the PCI acquisition. However, a significant portion of our inventory purchases
were covered by cash deposits received from our customers, which helped to alleviate the impact of such purchases on our cash
flows. Improvement in A/P cash flows was due to an increase in these cash deposits, as well as timing of payments (see
"Summary of Key Operating Results and Financial Information" above). Our A/P cash flow levels may decrease in subsequent
periods as payments are made, and as cash deposit balances change.
In 2020, we generated $239.6 million of cash from operating activities compared to $345.0 million in 2019. The
$105.4 million decrease in cash from operating activities in 2020 as compared to 2019 was primarily due to $132.6 million in
higher working capital requirements. Higher working capital requirements for 2020 as compared to 2019 reflect a $197.0
million reduction in inventory cash flows, a $194.4 million reduction in A/R cash flows, and a $17.0 million reduction in other
current assets cash flows, which more than offset a $223.0 million improvement in A/P cash flows (reflecting the timing of
purchases and payments) and $52.8 million in higher customer cash deposits at the end of 2020 compared to the end of 2019
(described below). The decrease in inventory cash flows for 2020 as compared to 2019 primarily reflects the higher inventory
levels carried in 2020 to support new program ramps and anticipated future demand, including for our HPS business. In certain
cases, we received cash deposits from our customers to help alleviate the impact of such purchases on our cash flows ($174.7
million as at December 31, 2020, compared to $121.9 million as at December 31, 2019). The reduction in A/R cash flows was
the result of higher outstanding A/R balances at the beginning of 2019 compared to the beginning of 2020, as well as lower
2020 revenue levels and the timing of collections.
From time to time, we extend payment terms applicable to certain customers, and/or provide longer payment terms to
new customers. To substantially offset the effect of extended payment terms for particular customers on our working capital, we
participate in three customer supplier financing programs (SFPs), pursuant to which we sell A/R from such customers to third-
party banks on an uncommitted basis to receive earlier payment. One SFP is for a CCS segment customer, and the other two are
for ATS segment customers, including an SFP for a PCI customer. At December 31, 2021, we sold $98.0 million of A/R under
the three SFPs, including $21.5 million of A/R under the PCI customer's SFP (December 31, 2020 — $65.3 million under two
SFPs). The A/R are sold net of discount charges, which are recorded as Finance Costs in our consolidated statement of
operations.
70
Free cash flow (non-IFRS):
Free cash flow is a non-IFRS financial measure without a standardized meaning and may not be comparable to similar
measures presented by other companies. We define non-IFRS free cash flow as cash provided by or used in operations after the
purchase of property, plant and equipment (net of proceeds from the sale of certain surplus equipment and property, including
our Toronto real property in 2019), lease payments, and Finance Costs paid (excluding debt issuance costs and when applicable,
Waiver Fees paid). As we do not consider debt issuance costs paid ($3.6 million in 2021; $0.6 million in 2020; $2.9 million in
2019); or Waiver Fees paid ($2.0 million in 2019, recorded in other charges) to be part of our ongoing financing expenses, these
costs are excluded from total Finance Costs paid in our determination of non-IFRS free cash flow. Note, however, that non-
IFRS free cash flow does not represent residual cash flow available to Celestica for discretionary expenditures. Management
uses non-IFRS free cash flow as a measure, in addition to IFRS cash provided by or used in operations (described above), to
assess our operational cash flow performance. We believe non-IFRS free cash flow provides another level of transparency to
our liquidity. A reconciliation of this measure to cash provided by operating activities measured under IFRS is set forth below
(in millions):
Year ended December 31
2020
2021
2019
IFRS cash provided by operations .............................................................................................. $
Purchase of property, plant and equipment, net of sales proceeds ..........................................
Lease payments ........................................................................................................................
Finance Costs paid (excluding debt issuance costs and Waiver Fees paid) .............................
Non-IFRS free cash flow ............................................................................................................ $
345.0 $
36.0
(38.2)
(41.6)
301.2 $
239.6 $
(51.0)
(33.7)
(28.9)
126.0 $
226.8
(49.6)
(40.0)
(22.4)
114.8
Our non-IFRS free cash flow of $114.8 million for 2021 decreased $11.2 million compared to 2020, due primarily to
$12.8 million in lower cash generated from operating activities in 2021 (as described above). In addition, the higher lease
payments in 2021 compared to 2020 were offset by lower Financing Costs, each as set forth above.
Our non-IFRS free cash flow of $126.0 million for 2020 decreased $175.2 million compared to 2019, primarily due to
the $113.0 million in proceeds (Toronto Proceeds) we received in Q1 2019 for the sale of our Toronto real property (included in
"purchase of property, plant and equipment, net of sales proceeds" in the table above), and $105.4 million of lower cash
generated from operating activities in 2020, offset in part by $27.7 million of lower capital expenditures in 2020 as compared to
2019.
Cash provided by (used in) investing activities:
Our capital expenditures for 2021 were $52.2 million (2020 — $52.8 million; 2019 — $80.5 million), primarily to
enhance our manufacturing capabilities in various geographies and to support new customer programs (split approximately
evenly between our segments in each such year). Our capital expenditures for 2021 included the expansion of an Atrenne
facility in the U.S. (Minnesota) to accommodate additional capacity for our A&D customers and customers in other highly-
regulated markets, and to support CCS segment growth, particularly our HPS business (including additional manufacturing
lines at our former Cisco facility). Overall capital expenditures in 2021 and 2020 were lower than originally anticipated, as a
result of delays or the shifting of programs or spending to future periods. See footnote (iii) to the "Additional Commitments"
table below for information with respect to commitments for capital expenditures as of December 31, 2021.
In 2019, we incurred capital expenditures in connection with relocations related to the sale of our Toronto real property
as follows: $5.0 million related to our temporary corporate headquarters, and $1.2 million in building improvements and new
machinery at our new Toronto manufacturing site. We fund our capital expenditures from cash on hand and through the
financing arrangements described under "Capital Resources" below. From time-to-time, we receive cash proceeds from the sale
of surplus equipment and property (2021 — $2.6 million; 2020 — $1.8 million; 2019 — $116.5 million). The Toronto Proceeds
were recorded as cash provided by investing activities in 2019.
On November 1, 2021, we completed the acquisition of PCI. The purchase price for PCI was $314.7 million, net of
$11.4 million of cash acquired, and including a preliminary net working capital adjustment, which is subject to finalization in
Q1 2022.
71
Cash provided by (used in) financing activities:
SVS repurchases:
See "Summary of Key Operating Results and Financial Information" above for a table detailing repurchases of SVS
during each of 2019, 2020 and 2021.
Financing and Finance Costs:
We are party to a credit agreement with Bank of America, N.A., as Administrative Agent, and the other lenders party
thereto, which prior to the amendment described below, provided a term loan in the original principal amount of $350.0 million
(Initial Term Loan) and a term loan in the original principal amount of $250.0 million (First Incremental Term Loan), each of
which was scheduled to mature in June 2025, and a $450.0 million revolving credit facility (Revolver) that was scheduled to
mature in June 2023. On December 6, 2021, the credit agreement was amended (as so amended, the Credit Facility) primarily:
(i) to provide a new term loan (Second Incremental Term Loan) in the original principal amount of $365.0 million (all of which
was drawn on the amendment date, and used as described below); (ii) to increase the commitments under the Revolver to
$600.0 million and extend its maturity date (see below), (iii) to ease certain covenant restrictions; and (iv) to include specified
LIBOR successor provisions. The Initial Term Loan and the Second Incremental Term Loan are collectively referred to as the
Term Loans.
The Initial Term Loan was unchanged by the December 2021 amendment to the Credit Facility, and continues to
mature in June 2025. The Second Incremental Term Loan and the Revolver each mature on March 28, 2025, unless either (i)
the Initial Term Loan has been prepaid or refinanced or (ii) commitments under the Revolver are available and have been
reserved to repay the Initial Term Loan in full, in which case such obligations mature on December 6, 2026.
The Second Incremental Term Loan requires quarterly principal repayments (commencing March 31, 2022) of
$4.5625 million, and each of the Term Loans requires a lump sum repayment of the remainder outstanding at maturity. The
Initial Term Loan required quarterly principal repayments of $0.875 million, and the First Incremental Term Loan required
quarterly principal repayments of $0.625 million, all of which (in each case) were paid by the end of the first half of 2020. We
are also required to make annual prepayments of outstanding obligations under the Credit Facility (applied first to the Term
Loans, then to the Revolver, in the manner set forth in the Credit Facility) ranging from 0% — 50% (based on a defined
leverage ratio) of specified excess cash flow (ECF) for the prior fiscal year. A mandatory prepayment of $107.0 million (ECF
Amount) was required and paid during the first half of 2020 based on this provision. No prepayments based on 2020 ECF were
required in 2021, or will be required in 2022 based on 2021 ECF. In addition, prepayments of outstanding obligations under the
Credit Facility (applied as described above) may also be required in the amount of specified net cash proceeds received above a
specified annual threshold (including proceeds from the disposal of certain assets). No Credit Facility prepayments based on
2020 net cash proceeds were required in 2021, or will be required in 2022 based on 2021 net cash proceeds. Any outstanding
amounts under the Revolver are due at maturity. Interest rates applicable to borrowings under our Credit Facility as of
December 31, 2021, are described under "Capital Resources" below.
In Q1 2021, we repaid an aggregate of $30.0 million under the First Incremental Term Loan. On October 27, 2021, we
borrowed $220.0 million under the Revolver to fund a portion of the purchase price for our November 2021 acquisition of PCI.
On December 6, 2021, upon receipt of the net proceeds from the $365.0 million Second Incremental Term Loan, we repaid all
remaining amounts outstanding under the First Incremental Term Loan ($145.0 million outstanding at the time of repayment),
terminating such loan, and repaid $215.0 million of the $220.0 million borrowed under the Revolver. On December 29, 2021,
we repaid the remaining $5.0 million outstanding under the Revolver with available cash.
During the first quarter of 2020 (Q1 2020), we made the scheduled quarterly principal repayment of $0.875 million
under the Initial Term Loan, and also prepaid an aggregate of $60.0 million under the First Incremental Term Loan. On April
27, 2020, we prepaid $47.0 million under the Initial Term Loan. These two prepayments were first applied to all remaining
scheduled quarterly principal repayments of the Initial Term Loan and First Incremental Term Loan prior to maturity, as
applicable, and thereafter to remaining applicable principal amounts outstanding thereunder. These prepayments also
represented payment in full of the ECF Amount. In June 2020, we prepaid an additional $1.5 million under the Initial Term
Loan and $12.5 million under the First Incremental Term Loan. No further prepayments were required or made thereafter
during 2020.
During 2019, we borrowed $48.0 million under the Revolver, primarily to fund share repurchases in Q1 2019 and
repaid an aggregate of $207.0 million of the amount then-outstanding under the Revolver (including by use of $110.0 million of
72
the Toronto Proceeds). We made scheduled principal repayments of $1.5 million in each quarter of 2019 under the Initial Term
Loan and the First Incremental Term Loan.
Activity under our Credit Facility for the periods indicated is set forth below (in millions):
Revolver
Term loans
Outstanding balances as of December 31, 2018 .......................................................................... $
159.0
$
598.3
Amount borrowed in Q1 2019 .....................................................................................................
Amount repaid in Q1 2019 ..........................................................................................................
Amount repaid in Q2 2019 ..........................................................................................................
Amount repaid in Q3 2019 ..........................................................................................................
Amount repaid in Q4 2019 ..........................................................................................................
Outstanding balances as of December 31, 2019 .......................................................................... $
Amount repaid in Q1 2020 ..........................................................................................................
Amount repaid in Q2 2020 ..........................................................................................................
Outstanding balances as of December 31, 2020 .......................................................................... $
Amount repaid in Q1 2021 ..........................................................................................................
Amount borrowed in Q4 2021 .....................................................................................................
Amount repaid in Q4 2021 ..........................................................................................................
Outstanding balances as of December 31, 2021 .......................................................................... $
48.0
(110.0)
(44.0)
(53.0)
—
—
—
—
—
—
220.0
(220.0)
—
$
$
$
—
(1.5)
(1.5)
(1.5)
(1.5)
592.3
(60.9)
(61.0)
470.4
(30.0)
365.0
(145.0)
660.4
Interest expense under the Credit Facility, including the impact of our interest rate swap agreements (described below),
was $20.7 million in 2021 (2020 — $26.0 million; 2019 — $36.8 million). Any increase in prevailing interest rates, margins, or
amounts outstanding, would cause this amount to increase (see discussion below). Commitment fees (see footnote (i) to the
"Contractual Obligations" table below) paid during 2021 were $1.8 million (2020 — $1.9 million; 2019 — $1.3 million). We
incurred debt issuance costs of approximately $4 million in connection with the December 2021 amendment to the Credit
Facility. Debt issuance costs are deferred on our consolidated balance sheet and amortized to Finance Costs. In December 2021,
we accelerated the amortization of $2.6 million of unamortized deferred financing costs upon termination of the First
Incremental Term Loan, which we recorded in other charges. During Q4 2019, we incurred $2.0 million in Waiver Fees which
we recorded in other charges. See "Operating Results — Finance Costs" above for a description of Finance Costs paid in 2021,
2020 and 2019.
Our Credit Facility, including outstanding balances thereunder and interest rates as of December 31, 2021, are
described under "Capital Resources" below.
Lease payments:
During 2021, we paid $40.0 million (2020 — $33.7 million; 2019 — $38.2 million) in lease payments. Lease
payments in 2020 were lower compared to 2019 and 2021 primarily as a result of tenant improvement allowances of $4.2
million received in 2020 with respect to a new building lease for one of our Atrenne sites. Lease payments reduce our non-IFRS
free cash flow. See "Non-IFRS free cash flow" above.
Cash requirements:
Our working capital requirements can vary significantly from month-to-month due to a range of business factors,
including the ramping of new programs, expansion of our services and business operations, timing of purchases, higher levels
of inventory for new programs and anticipated customer demand, timing of payments and A/R collections, and customer
forecasting variations. The international scope of our operations may also create working capital requirements in certain
countries while other countries generate cash in excess of working capital needs. Moving cash between countries on a short-
term basis to fund working capital is not always expedient due to local currency regulations, tax considerations, and other
factors. To meet our working capital requirements and to provide short-term liquidity, we may draw on the Revolver, and/or
sell A/R through our A/R sales program or participate in customer SFPs, when permitted. The timing and the amounts we
borrow or repay under these facilities can vary significantly from month-to-month depending upon our cash requirements.
73
Based on our current cash flow budgets and forecasts of our short-term and long-term liquidity needs, we continue to believe
that our current and projected sources of liquidity will be sufficient to fund our anticipated liquidity needs for 2022 and beyond.
Specifically, we continue to believe that cash flow from operating activities, together with cash on hand, availability under the
Revolver ($579.0 million at December 31, 2021), potential availability under uncommitted intraday and overnight bank
overdraft facilities, and cash from accepted sales of A/R, will be sufficient to fund our anticipated working capital needs,
planned capital spending (including the contractual commitments described below and other commitments described elsewhere
herein), and other cash requirements (including any required SBC share repurchases, debt repayments and interest expense).
See "Capital Resources" below. Notwithstanding the foregoing, although we anticipate that we will be able to repay or
refinance outstanding obligations under our Credit Facility when they mature (our primary current long-term cash liquidity
requirement), there can be no assurance we will be able to do so, or that the terms of any such refinancing will be favorable. In
addition, we may require additional capital in the future to fund capital expenditures, acquisitions (including contingent
consideration payments), strategic transactions or other investments. We will continue to assess our liquidity position and
potential sources of supplemental liquidity in view of our objectives, operating performance, economic and capital market
conditions and other relevant circumstances. Our operating performance may also be affected by matters discussed under the
Risk Factors section of our 2021 Annual Report, of which this MD&A is a part. These risks and uncertainties may adversely
affect our long-term liquidity.
Contractual Obligations:
As at December 31, 2021, we had known contractual obligations that require future payments as follows (in millions):
.......................
...............................................
Borrowings under Credit Facility(i)
Lease obligations(ii)
Pension plan contributions(iii)
Non-pension post-employment plan payments .....
Binding purchase order obligations (iv)
Purchase obligations under IT support
agreements .........................................................
Total(v)
...................................................................
................................
.................
Total
2022
2023
2024
2025
2026
Thereafter
$
660.4 $
18.25 $ 18.25 $ 18.25 $ 313.65 $ 292.0 $
225.5
14.5
51.7
43.0
14.5
4.5
37.3
—
3.8
2,693.5
2,244.6
379.0
126.7
27.3
23.5
26.5
—
4.1
69.8
20.9
21.5
18.2
—
4.4
0.1
—
4.6
—
16.8
13.3
$ 3,772.3 $ 2,352.15 $ 461.85 $ 139.55 $ 356.45 $ 328.1 $
—
79.0
—
30.3
—
24.9
134.2
(i)
(ii)
Represents annual amortization of the Second Incremental Term Loan, as well as principal repayment obligations at maturity (June 2025 for our
borrowings under the Initial Term Loan and an assumed maturity date of December 2026 for the Second Incremental Term Loan , based on amounts
outstanding as of December 31, 2021, but excludes related interest and fees. The Second Incremental Term Loan matures in March 2025, unless
either (i) the Initial Term Loan has been prepaid or refinanced or (ii) commitments under the Revolver are available and have been reserved to repay
the Initial Term Loan in full, in which case such obligations mature on December 6, 2026 (we have assumed that the conditions required for a
December 2026 maturity date will have been satisfied). Under the Credit Facility, we are required to pay a commitment fee on the unused portion of
the Revolver, which is calculated based on our consolidated leverage ratio (as defined in the Credit Facility) and the daily balance outstanding (2021
— $1.8 million; 2020 — $1.9 million, 2019 — $1.3 million). Any borrowings under the Revolver are due upon maturity (March 2025, or under
specified circumstances described above, December 2026). See "Financing Arrangements" below for a description of mandatory prepayments
required under the Credit Facility. No mandatory principal prepayments of the Term Loans based on specified excess cash flow or net cash proceeds
will be required for 2022, but we are currently unable to determine whether any such prepayments will be required thereafter. The Initial Term Loan
currently bears interest at LIBOR plus 2.125%. The Second Incremental Term Loan currently bears interest at LIBOR plus 2.0%. Annual interest
expense and fees under the Credit Facility were approximately $21 million for 2021. Any increase in prevailing interest rates, margins, or amounts
outstanding would cause this amount to increase. Payment defaults under the Credit Facility will incur interest on unpaid amounts at an annual rate
equal to the sum of (i) 2%, plus (ii) the rate per annum otherwise applicable to such unpaid amounts, or if no rate is specified or available, the rate
per annum applicable to Base Rate revolving loans. If an event of default occurs and is continuing (and is not waived), the administrative agent may
declare all amounts under the Credit Facility to be immediately due and payable, and may cancel the lenders' commitments to make further advances
thereunder. See "Capital Resources" below and note 11 to our 2021 AFS for a description of the Credit Facility, including amounts outstanding
thereunder, repayment dates and applicable interest rates and margins.
Includes real property lease commitments in effect as of December 31, 2021, but unrecognized as liabilities in our financial statements because the
relevant leases had not yet commenced. Specifically, in September 2021, in connection with our outsourcing arrangement with FNC, we agreed to
lease a portion of their Richardson, Texas facility for a 10-year period. The commencement dates for certain portions of the lease do not begin until
April 2022 and April 2027. However, we have included the following minimum lease obligations for such portions in the above table (an aggregate
of $45.5 million): $2.6 million in 2022; $3.5 million in 2023; $3.6 million in 2024; $3.7 million in 2025, $3.8 million in 2026 and $28.3 million
thereafter. In addition, in connection with the 2019 sale of our Toronto real property, we entered into a 10-year lease for our new corporate
headquarters, targeted to commence in May 2023. Upon such commencement, our estimated annual basic rent will be approximately $2.1 million
Canadian dollars for each of the first five years, and approximately $2.2 million Canadian dollars for each of the remaining five years (also included
in the table above). See "Toronto Real Property and Related Transactions" below and note 24 to our 2021 AFS.
74
(iii)
(iv)
(v)
Based on our latest actuarial valuations, we estimate our funding requirement for 2022 to be $14.5 million (2021 — funding requirement of $15.4
million; 2020 — funding requirement of $13.1 million). See note 18 to our 2021 AFS. A significant deterioration in the asset values or asset returns
could lead to higher than expected future contributions. Adjustments to actuarial valuation measurements may also result in higher future cash
contributions. We fund our pension contributions from cash on hand. Although we have defined benefit plans that are currently in a net unfunded
position, we do not expect our pension obligations will have a material adverse impact on our future results of operations, cash flows or liquidity.
Represents outstanding purchase orders with suppliers primarily to acquire inventory. As of December 31, 2021, our purchase order obligations
have significantly increased compared to just under $1 billion as at December 31, 2020, primarily as a result of supply chain constraints, new
business, and the addition of PCI. Although previously, purchase orders were generally short-term in nature (less than a year), we are currently
placing many orders with lead times in excess of one year, in order to secure the materials needed for production. In addition, purchase obligations
at December 31, 2020 were lower than usual as a result of the Cisco Disengagement, and have since increased as a result of the addition of
replacement business. A substantial portion of these purchase orders are for standard inventory items which we have procured for specific customers
based on their purchase orders or forecasts, under which such customers have contractually assumed liability for such material, if not consumed. In
some cases, we have cash deposits from customers to help mitigate our exposures to these increased inventory levels.
This table excludes $60.2 million of long-term deferred income tax liabilities and $39.8 million of provisions and other non-current liabilities
primarily pertaining to warranties and asset retirement obligations, as we are unable to reliably estimate the timing of any future payments related
thereto. However, long-term liabilities included in our consolidated balance sheet include these items. In addition, at December 31, 2021, our
interest rate swap agreements require us to pay a fixed rate of interest with respect to an aggregate of $200.0 million outstanding under the Term
Loans. These payments, however, are partially offset by related interest we receive, based on the variable interest rates swapped. As the offsets are
not determinable and vary from quarter to quarter, this table also excludes the interest payments on our interest rate swap agreements. See "Capital
Resources" below for a description of additional interest rate swap agreements we entered into in February 2022.
Additional Commitments:
As at December 31, 2021, we had additional commitments that expire as follows (in millions):
Total
2022
2023
2024
2025
2026
Thereafter
Foreign currency contracts and swaps(i)
Letters of credit, letters of guarantee and
surety bonds(ii)
Capital expenditures(iii)
........................................................
.............................................
...................
$ 539.5 $ 539.5 $ — $ — $ — $ — $
48.1
10.1
20.5
10.1
1.9
—
—
—
0.1
—
21.0
—
Total .........................................................................
$ 597.7 $ 570.1 $
1.9 $ — $
0.1 $
21.0 $
—
4.6
—
4.6
(i)
Represents the aggregate notional amounts of our forward currency contracts and swaps.
(ii)
(iii)
Includes $21.0 million in letters of credit issued under our Revolver, with an assumed maturity of December 2026. The Revolver matures in March
2025, unless either (i) the Initial Term Loan has been prepaid or refinanced or (ii) commitments under the Revolver are available and have been
reserved to repay the Initial Term Loan in full, in which case such obligations mature in December, 2026. We have assumed that the conditions
required for a December 2026 maturity date will have been satisfied.
As at December 31, 2021, management had approved $45.9 million for capital expenditures, primarily for machinery and equipment to support new
customer programs (approximately 40% of which is committed for the Americas, approximately 45% of which is committed for Asia, and the
remainder of which is committed for Europe). Of such approved amount, $10.1 million in purchase orders had been issued to third-party vendors as
of December 31, 2021. Our capital spending varies each period based on, among other things, the timing of new business wins and forecasted sales
levels. Based on our current plans, we anticipate capital spending for 2022 to be approximately 1.5% to 2.0% of revenue, and expect to fund these
expenditures from cash on hand and through the financing agreements described below under "Capital Resources." Our intended 2022 capital
spending includes expenditures to support growth in our HPS business and our ATS segment.
Cash outlays for our contractual obligations and commitments identified in the tables above are expected to be funded
from cash on hand and through the financing agreements described below under "Capital Resources."
Financing Arrangements:
The Second Incremental Term Loan requires quarterly principal repayments (commencing March 31, 2022) of
$4.5625 million, and each of the Term Loans requires a lump sum repayment of the remainder outstanding at maturity. As
described above, we are also required to make annual prepayments of outstanding obligations under the Credit Facility based on
specified ECF and net cash proceeds. Although no such prepayments will be required in 2022, mandatory Credit Facility
prepayments based on ECF and/or net cash proceeds may be required in future years. Any outstanding amounts under the
Revolver are due at maturity. Annual interest expense and fees under the Credit Facility, including the impact of our interest
rate swap agreements, based on amounts and swap agreements outstanding as of December 31, 2021, are approximately $21
million. Interest rates applicable to borrowings under the Credit Facility are described under "Capital Resources" below.
75
We do not believe that the aggregate amounts outstanding under our Credit Facility as at December 31, 2021 ($660.4
million under the Term Loans, and $21.0 million in ordinary course letters of credit), had or will have a material adverse impact
on our liquidity, our results of operations or financial condition (unless our debt obligations mature without refinancing). In
addition, although our cash balance decreased by approximately $110 million in connection with our acquisition of PCI, our
availability under the Revolver increased by $150.0 million as part of our December 2021 amendment to the Credit Facility.
See "Capital Resources" below for a description of our available sources of liquidity. We believe that our current level of
leverage is acceptable for a company of our size.
However, our current outstanding indebtedness, and the mandatory prepayment provisions of the Credit Facility
(described above), require us to use a portion of our cash flow to service such debt, and may reduce our ability to fund future
acquisitions and/or to respond to unexpected capital requirements; limit our ability to obtain additional financing for future
investments, working capital, or other corporate purposes; limit our ability to refinance our indebtedness on terms acceptable to
us or at all; limit our flexibility to plan for and adjust to changing business and market conditions; increase our vulnerability to
general adverse economic and industry conditions; and/or reduce our debt agency ratings. Existing or increased third-party
indebtedness could have a variety of other adverse effects, including: (i) default and foreclosure on our assets if refinancing is
unavailable on acceptable terms and we have insufficient funds to repay the debt obligations when due; and (ii) acceleration of
such indebtedness or cross-defaults if we breach applicable financial or other covenants and such breaches are not waived.
In addition, the Credit Facility contains restrictive covenants that limit our ability to engage in specified types of
transactions and prohibit share repurchases for cancellation if our leverage ratio (as defined in such facility) exceeds a specified
amount, as well as specified financial covenants (described in "Capital Resources" below). We expect to remain in compliance
with restrictive and financial covenants under the Credit Facility. However, our ability to maintain compliance with such
financial covenants will depend on our ongoing financial and operating performance, which, in turn, may be impacted by
economic conditions and financial, market, and competitive factors, many of which are beyond our control. A breach of any
such covenants could result in a default under the instruments governing our indebtedness. See "Capital Resources" below for a
discussion of certain covenant waivers obtained in Q4 2019.
At December 31, 2021, $45.8 million of A/R were sold under our current A/R sales program (December 31, 2020 —
$119.7 million; December 31, 2019 — $90.6 million). We currently use, and may in future periods increase the amounts we
offer to sell under, our A/R sales program as a cost-effective alternative to drawing additional amounts on our Revolver to meet
our ordinary course cash requirements. In order to offset the impact of extended payment terms for particular customers on our
working capital, we also participate in three customer SFPs (including an SFP for a PCI customer as of the PCI acquisition
date), pursuant to which we sell A/R from such customers to third-party banks on an uncommitted basis to receive earlier
payment. At December 31, 2021, an aggregate of $98.0 million of A/R were sold under the three SFPs, including $21.5 million
sold under the SFP for the PCI customer (December 31, 2020 — $65.3 million sold under two SFPs; December 31, 2019 —
$50.4 million sold under two SFPs). See "Capital Resources" below for a description of our A/R sales program and SFPs.
Repatriations:
As at December 31, 2021, a significant portion of our cash and cash equivalents was held by foreign subsidiaries
outside of Canada, a large part of which may be subject to withholding taxes upon repatriation under current tax laws. Cash and
cash equivalents held by subsidiaries, which we do not intend to repatriate in the foreseeable future, are not subject to these
withholding taxes. We repatriated approximately $90 million of cash in 2021 from various of our foreign subsidiaries, and
remitted related previously-accrued withholding taxes (approximately $7 million). We currently expect to repatriate an
aggregate of approximately $200 million of cash in the foreseeable future from various foreign subsidiaries, and have recorded
anticipated related withholding taxes as deferred income tax liabilities (approximately $15 million). While some of our
subsidiaries are subject to local governmental restrictions on the flow of capital into and out of their jurisdictions (including in
the form of cash dividends, loans or advances to us), which is required or desirable from time to time to meet our international
working capital needs and other business objectives (as described above), these restrictions have not had (and are not
reasonably likely to have) a material impact on our ability to meet our cash obligations. At December 31, 2021, we had
approximately $250 million (December 31, 2020 — $320 million) of cash and cash equivalents held by foreign subsidiaries
outside of Canada that we do not intend to repatriate in the foreseeable future.
76
Capital Expenditures:
Our capital spending varies each period based on, among other things, the timing of new business wins and forecasted
sales levels. See footnote (iii) to the "Additional Commitments" table above for a description of approved capital expenditure
amounts as of December 31, 2021, and anticipated capital expenditures for 2022. We expect to fund these expenditures from
cash on hand and through the financing agreements described below under "Capital Resources."
SVS Repurchases:
We have funded and intend to continue to fund our SVS repurchases under our NCIBs, from cash on hand, borrowings
under the Revolver, or a combination thereof. We have funded, and expect to continue to fund, SVS repurchases to satisfy
delivery obligations under SBC plan awards from cash on hand. The timing of, and the amounts paid for, these repurchases can
vary from period to period. See "Cash provided by (used in) financing activities" above. Also see "Recent Developments" and
note 12 to our 2021 AFS.
Restructuring Provision:
Our restructuring provision as of February 22, 2022 is approximately $6 million. We expect to incur incremental
restructuring charges in 2022. We have funded and intend to continue to fund our restructuring provisions from cash on hand.
Lease Obligations:
At December 31, 2021, we had a total of $138.6 million in lease obligations outstanding (December 31, 2020 —
$122.7 million; December 31, 2019 — $116.1 million). Also see footnote (ii) to the "Contractual Obligations" table above.
Toronto Real Property and Related Transactions:
On March 7, 2019, we completed the sale of our Toronto real property (which included the site of our corporate
headquarters and our Toronto manufacturing operations) and received the $113.0 million in Toronto Proceeds. The $102.0
million Property Gain was recorded in other charges (recoveries) in Q1 2019. Also see "Related Party Transactions" below.
Related relocations, and capitalized costs and transition costs incurred in connection therewith (including a total of $10.0
million of such costs in 2019), are described under the caption "Cash requirements — Toronto Real Property and Related
Transactions" of Item 5, Operating and Financial Review and Prospects, of our 2020 Annual Report on Form 20-F. As part of
the property sale, we entered into a 10-year lease in March 2019 with the purchaser of the property for our new corporate
headquarters. The commencement date of this lease will be determined by such purchaser based on completion of construction
of the new building, and is currently targeted for May 2023, with occupancy in November 2023. Our estimated annual basic
rent will be approximately $2.1 million Canadian dollars for each of the first five years, and approximately $2.2 million
Canadian dollars for each of the remaining five years. We may, at our option, extend this lease for two further consecutive five-
year periods. Our temporary headquarters lease expires in January 2023, but can be extended for an additional one-year period.
We intend to exercise this extension option.
COVID-19 Costs:
Although we expect to continue to incur COVID-19 Costs in 2022, particularly related to manufacturing inefficiencies
resulting from continuing global supply constraints, we cannot quantify anticipated amounts. Adverse COVID-19-related
impacts were in part mitigated by COVID Recoveries recorded in 2020 and 2021, however, we do not anticipate that such relief
will be available to us in 2022.
Litigation and contingencies (including indemnities):
In the normal course of our operations, we may be subject to lawsuits, investigations and other claims, including
environmental, labor, product, customer disputes, and other matters. Management believes that adequate provisions have been
recorded where required. Although it is not always possible to estimate the extent of potential costs, if any, management
believes that the ultimate resolution of all such pending matters will not have a material adverse impact on our financial
performance, financial position or liquidity. See "Operating Results — Income Taxes" above for a description of a Brazilian
sales tax matter and a Romanian income and value-added tax matter.
77
We provide routine indemnifications, the terms of which range in duration and scope, and often are not explicitly
defined, including for third-party intellectual property infringement, certain negligence claims, and for our directors and
officers. We have also provided indemnifications in connection with the sale of certain assets. The maximum potential liability
from these indemnifications cannot be reasonably estimated. In some cases, we have recourse against other parties or insurance
to mitigate our risk of loss from these indemnifications. Historically, we have not made significant payments relating to these
types of indemnifications.
Also see note 24 to the 2021 AFS.
Capital Resources
Our capital resources consist of cash provided by operating activities, access to the Revolver, uncommitted intraday
and overnight bank overdraft facilities, an uncommitted A/R sales program, three uncommitted SFPs, and our ability to issue
debt or equity securities. We regularly review our borrowing capacity and make adjustments, as permitted, for changes in
economic conditions and changes in our requirements. We centrally manage our funding and treasury activities in accordance
with corporate policies, and our main objectives are to ensure appropriate levels of liquidity, to have funds available for
working capital or other investments we determine are required to grow our business, to comply with debt covenants, to
maintain adequate levels of insurance, and to balance our exposures to market risks.
At December 31, 2021, we had cash and cash equivalents of $394.0 million (December 31, 2020 — $463.8 million),
the majority of which was denominated in U.S. dollars. We also held cash and cash equivalents in the following currencies:
British pound sterling, Brazilian real, Canadian dollar, Chinese renminbi, Czech koruna, Euro, Hong Kong dollar, Indian rupee,
Indonesian rupiah, Japanese yen, Korean won, Lao kip, Malaysian ringgit, Mexican peso, Philippines peso, Romanian leu,
Singapore dollar, Taiwan dollar, and Thai baht. Our cash and cash equivalents are subject to intra-quarter swings, generally
related to the timing of A/R collections, inventory purchases and payments, and other capital uses.
As of December 31, 2021, an aggregate of $660.4 million was outstanding under the Term Loans, and other than
ordinary course letters of credit, no amounts were outstanding under the Revolver (December 31, 2020 — $470.4 million was
outstanding under the Initial Term Loan and the First Incremental Term Loan, and other than ordinary course letters of credit,
no amounts were outstanding under the Revolver). See "Liquidity — Cash provided by (used in) financing activities —
Financing and Finance Costs" above for a discussion of amounts borrowed and repaid under our Credit Facility during 2019,
2020 and 2021. Except under specified circumstances, and subject to the payment of breakage costs (if any), we are generally
permitted to make voluntary prepayments of outstanding amounts under the Revolver and the Term Loans without any other
premium or penalty. Repaid amounts on the Term Loans may not be re-borrowed. Repaid amounts on the Revolver may be re-
borrowed. At December 31, 2021, we had $579.0 million available under the Revolver for future borrowings, after reflecting
outstanding letters of credit issued under the Credit Facility (December 31, 2020 — $428.7 million of availability).
The Credit Facility has an accordion feature that allows us to increase the term loans and/or revolving loan
commitments thereunder by $150.0 million, plus an unlimited amount to the extent that a specified leverage ratio on a pro
forma basis does not exceed specified limits, in each case on an uncommitted basis and subject to the satisfaction of certain
terms and conditions. The Revolver also includes a $50.0 million sub-limit for swing line loans, providing for short-term
borrowings up to a maximum of ten business days, as well as a $150.0 million sub-limit for letters of credit, in each case subject
to the overall Revolver credit limit. The Revolver permits us and certain designated subsidiaries to borrow funds (subject to
specified conditions) for general corporate purposes, including for capital expenditures, certain acquisitions, and working
capital needs.
Borrowings under the Revolver bear interest, depending on the currency of the borrowing and our election for such
currency, at LIBOR, Base Rate, Canadian Prime, an Alternative Currency Daily Rate, or an Alternative Currency Term Rate
(each as defined in the Credit Facility) plus a specified margin. The margin for borrowings under the Revolver and the Second
Incremental Term Loan ranges from 1.50% to 2.25% for LIBOR borrowings and Alternative Currency borrowings, and from
0.50% to 1.25% for Base Rate and Canadian Prime borrowings, in each case depending on the rate we select and our
consolidated leverage ratio (as defined in the Credit Facility). Commitment fees range from 0.30% to 0.45% depending on our
consolidated leverage ratio. The Initial Term Loan currently bears interest at LIBOR plus 2.125%. The Second Incremental
Term Loan currently bears interest at LIBOR plus 2.0%. See "Financial instruments and financial risks" below for a
description of the LIBOR successor provisions under the Credit Facility. Prior to the December 2021 Credit Facility
78
amendment, the margin for borrowings under the Revolver ranged from 0.75% to 2.5%, commitment fees ranged from 0.35%
to 0.50%, in each case depending on the rate we selected and our consolidated leverage ratio, the Initial Term Loan bore interest
at LIBOR plus 2.125%, and the First Incremental Term Loan bore interest at LIBOR plus 2.5%.
As part of our risk management program, we attempt to mitigate interest rate risk through interest rate swaps. At
December 31, 2021, we had: (i) interest rate swaps hedging the interest rate risk associated with $100.0 million of our Initial
Term Loan borrowings that expire in August 2023 (Initial Swaps), and additional interest rate swaps hedging the interest rate
risk associated with $100.0 million of our Initial Term Loan borrowings, for which the cash flows commence upon the
expiration of the Initial Swaps and continue through June 2024 (First Extended Initial Swaps) and (ii) interest rate swaps
hedging the interest rate risk associated with $100.0 million of our Second Incremental Loan borrowings, which expire in
December 2023 (Incremental Swaps). Prior to repayment in full of the First Incremental Term Loan on December 6, 2021, we
had interest rate swaps hedging the interest rate risk associated with $100.0 million of outstanding borrowings thereunder,
which were scheduled to expire in December 2023. As the First Incremental Term Loan and the Second Incremental Term Loan
have the same interest rate risk, these interest rate swaps continued, and now cover $100.0 million of outstanding borrowings
under the Second Incremental Term Loan. At December 31, 2021, the interest rate risk related to $460.4 million of borrowings
under the Credit Facility was unhedged (December 31, 2020 — $195.4 million unhedged). In February 2022, we entered into
the following additional interest rate swaps with various third-party banks: (i) interest rate swaps hedging the interest rate risk
associated with $100.0 million of our Initial Term Loan borrowings (and any subsequent term loans replacing the Initial Term
Loan), for which the cash flows commence upon expiration of the First Extended Initial Swaps and continue through December
2025 (Second Extended Initial Swaps), (ii) interest rate swaps hedging the interest rate risk associated with $100.0 million of
our Second Incremental Term Loan borrowings, for which the cash flows commence upon expiration of the Incremental Swaps
and continue through December 2025 (First Extended Incremental Swaps), and (iii) interest rate swaps hedging the interest rate
risk associated with another $130.0 million of our Second Incremental Term Loan borrowings (Additional Incremental Swaps)
effective from February 2022 through December 2025. We have an option to cancel up to $50.0 of the notional amount of the
Additional Incremental Swaps from January 2024 through October 2025. A one-percentage point increase in applicable interest
rates would increase interest expense, based on the outstanding borrowings under the Credit Facility and swap agreements at
December 31, 2021, by $4.6 million annually, and by $6.6 million annually, without accounting for such swap agreements.
Upon execution of the Additional Incremental Swaps, our unhedged obligations under the Credit Facility were reduced from
$460.4 million to $330.4 million. A one-percentage point increase in applicable interest rates would increase interest expense,
based on the outstanding borrowings under the Credit Facility and swap agreements at February 22, 2022, by $3.3 million
annually. See note 20(b) to our 2021 AFS for further information regarding our interest rate swap agreements.
We are required to comply with certain restrictive covenants under the Credit Facility, including those relating to the
incurrence of certain indebtedness, the existence of certain liens, the sale of certain assets, specified investments and payments,
sale and leaseback transactions, and certain financial covenants relating to a defined interest coverage ratio and leverage ratio
that are tested on a quarterly basis. Our Credit Facility also prohibits share repurchases for cancellation if our leverage ratio (as
defined in such facility) exceeds a specified amount (Repurchase Restriction). At December 31, 2021, we were in compliance
with all restrictive and financial covenants under the Credit Facility. As previously disclosed, we were not in compliance with
certain restrictive covenants related to the Repurchase Restriction with respect to approximately $17.0 million in excess share
purchases made in May 2019 under our then-current NCIB. These defaults, as well as related cross defaults, were waived in
October 2019. The Repurchase Restriction is not currently in effect, nor was it in effect during 2020 or 2021 (or at
December 31, 2021). The obligations under the Credit Facility are guaranteed by us and certain specified subsidiaries. Subject
to specified exemptions and limitations, all assets of the guarantors are pledged as security for the obligations under the Credit
Facility. The Credit Facility contains customary events of default. If an event of default occurs and is continuing (and is not
waived), the administrative agent may declare all amounts outstanding under the Credit Facility to be immediately due and
payable and may cancel the lenders’ commitments to make further advances thereunder. In the event of a payment or other
specified defaults, outstanding obligations accrue interest at a specified default rate.
At December 31, 2021, we had $21.0 million outstanding in letters of credit under the Revolver (December 31, 2020
— $21.3 million). We also arrange letters of credit and surety bonds outside of the Revolver. At December 31, 2021, we had
$27.1 million of such letters of credit and surety bonds outstanding (December 31, 2020 — $20.2 million).
At December 31, 2021, we also had a total of $198.5 million in uncommitted bank overdraft facilities available for
intraday and overnight operating requirements (December 31, 2020 — $162.7 million). There were no amounts outstanding
under these overdraft facilities at December 31, 2021 or December 31, 2020.
Although our leverage increased with the additional borrowings to finance the PCI acquisition, our priority continues
to be to improve our leverage and reduce our future interest costs.
79
We entered into an agreement in March 2020 with a third-party bank to sell up to $300.0 million in A/R on an
uncommitted basis, subject to pre-determined limits by customer. This one-year agreement provides for automatic annual one-
year extensions, and was so extended in each of March 2021 and March 2022. This agreement may be terminated at any time
by the bank or by us upon 3 months' prior notice, or by the bank upon specified defaults. We also participate in three SFPs
(including an SFP for a PCI customer as a result of our acquisition in November 2021), pursuant to which we sell A/R from the
relevant customer to third-party banks on an uncommitted basis to receive earlier payment (substantially offsetting the effect of
such customer's extended payment terms on our working capital for the period). The SFPs have indefinite terms and may be
terminated at any time by the customer or by us upon specified prior notice. A/R are sold under these arrangements net of
discount charges. As our A/R sales program and the SFPs are on an uncommitted basis, there can be no assurance that any of
the banks will purchase any of the A/R we intend to sell to them thereunder. However, as the A/R that we offer to sell under
these programs are largely from customers we deem to be creditworthy, we believe that such offers will continue to be accepted
notwithstanding the current environment. See "Cash Requirements — Financing Arrangements" above for a description of A/R
amounts sold under these arrangements during 2019 through 2021.
The timing and the amounts we borrow and repay under our Revolver and overdraft facilities, or sell under the SFPs or
our A/R sales program, can vary significantly from month-to-month depending on our working capital and other cash
requirements. We may increase the amounts we offer to sell under our A/R sales program in future periods as a cost-effective
alternative to drawing amounts on our Revolver to meet our ordinary course cash requirements.
Our strategy on capital risk management has not changed significantly since the end of 2020. Other than the restrictive
and financial covenants associated with our Credit Facility noted above, we are not subject to any contractual or regulatory
capital requirements. While some of our international operations are subject to government restrictions on the flow of capital
into and out of their jurisdictions, these restrictions have not had a material impact on our operations or cash flows.
Financial instruments and financial risks:
We are exposed to a variety of risks associated with financial instruments and otherwise.
Currency risk: Due to the global nature of our operations, we are exposed to exchange rate fluctuations on our
financial instruments denominated in various currencies. Although the majority of our cash balances, pricing to customers, and
materials costs are denominated in U.S. dollars, a significant portion of our non-materials costs (including payroll, pensions,
site costs, costs of locally sourced supplies and inventory, and income taxes) are denominated in various other currencies. As a
result, we may experience foreign exchange gains or losses on translation or transactions due to currency fluctuations. The
majority of our currency risk is driven by such costs, incurred in local currencies by our subsidiaries. As part of our risk
management program, we attempt to mitigate currency risk through a hedging program using forecasts of our anticipated future
cash flows and monetary assets and monetary liabilities denominated in foreign currencies. We enter into foreign currency
forward contracts to hedge our cash flow exposures and swaps to hedge our exposures of monetary assets and monetary
liabilities (Economic Hedges), generally for periods of up to 12 months, to lock in the exchange rates for future foreign
currency transactions, which is intended to reduce the foreign currency risk related to our operating costs and future cash flows
denominated in local currencies. Economic Hedges are based on our forecasts of the future position of anticipated monetary
assets and monetary liabilities denominated in foreign currencies, and therefore may not mitigate the full impact of any
translation impacts in the future. As for our cash flow hedges, while these contracts are intended to reduce the effects of
fluctuations in foreign currency exchange rates on our operating costs and cash flows, our hedging strategy does not mitigate
the longer-term impacts of changes to foreign exchange rates. Although our functional currency is the U.S. dollar, currency risk
on our income tax expense arises as we are generally required to file our tax returns in the local currency for each particular
country in which we have operations. While our hedging program is designed to mitigate currency risk vis-à-vis the U.S. dollar,
we remain subject to taxable foreign exchange impacts in our translated local currency financial results relevant for tax
reporting purposes. We do not use derivative financial instruments for speculative purposes.
See note 20 to our 2021 AFS for a listing of our foreign currency forwards and swaps to trade U.S. dollars in exchange
for specified currencies at December 31, 2021. The fair value of the outstanding contracts at December 31, 2021 was a net
unrealized gain of $1.2 million (December 31, 2020 — net unrealized gain of $23.3 million), resulting from fluctuations in
foreign exchange rates between the contract execution and the period-end date. There can be no assurance that our hedging
transactions will be successful in mitigating our foreign exchange risk.
80
We cannot predict changes in currency exchange rates, the impact of exchange rate changes on our operating results,
nor the degree to which we will be able to manage the impact of currency exchange rate changes. Such changes could have a
material effect on our business, results of operations and financial condition.
Interest rate risk: Borrowings under the Credit Facility bear interest at specified rates, plus specified margins
(described above). We have entered into agreements to swap the variable interest rates with fixed rates of interest with respect
to a portion of the amounts outstanding under the Term Loans (described above). Unhedged borrowings ($460.4 million at
December 31, 2021) expose us to interest rate risk due to the potential variability in market interest rates. A one-percentage
point increase in applicable interest rates would increase interest expense, based on outstanding borrowings under the Credit
Facility and interest rate swap agreements at December 31, 2021, by $4.6 million annually, and by $6.6 million annually,
without accounting for such swap agreements. At December 31, 2021, the fair value of our interest rate swap agreements was a
net unrealized loss of $6.9 million (December 31, 2020 — aggregate unrealized loss of $16.5 million, which we record on our
consolidated balance sheet. The change in the fair value of the swaps is partly a result of the recent increases in the forward
interest rates compared to our fixed rates. An increase in forward interest rates would cause a further reduction in the amount of
the loss.
Global reform of major interest rate benchmarks is currently underway, including the anticipated replacement of some
Interbank Offered Rates (including LIBOR) with alternative nearly risk-free rates. We have obligations under our Credit
Facility, and certain lease arrangements and derivative instruments, that are indexed to LIBOR (LIBOR Agreements). The
interest rates under these agreements are subject to change when relevant LIBOR benchmark rates cease to exist. There remains
uncertainty over the timing and methods of transition to such alternate rates.
Our Credit Facility provides that when the administrative agent, the majority of lenders or we determine that LIBOR
(or the corresponding rate for any Alternative Currency, as defined in the Credit Facility), is unavailable or being replaced (or,
in the case of LIBOR borrowings under the Revolver and the Second Incremental Term Loan, at our joint election with the
administrative agent), then we and the administrative agent may amend the underlying credit agreement to reflect a successor
rate as specified therein. Once LIBOR becomes unavailable, if no successor rate has been established, applicable loans under
the Credit Facility accruing interest at LIBOR will convert to Base Rate loans. The Credit Facility has not yet been amended to
reflect a successor rate for LIBOR. Certain of our lease arrangements that include progress payments provide that a successor
rate will be determined by the lessor when LIBOR ceases to be available or is no longer representative, or if earlier, by
mutually-agreed amendments to the lease agreement to adopt a replacement benchmark. It remains uncertain when the
benchmark transitions will be complete or what replacement rates will be used.
Our variable rate Term Loans are partially hedged with interest rate swap agreements. Hedge ineffectiveness could
result due to the cessation of LIBOR, if such agreements transition using a different benchmark or spread adjustment as
compared to the underlying hedged debt. The Second Extended Initial Swaps, the First Extended Incremental Swaps and the
Additional Incremental Swaps mirror the LIBOR successor provisions under the Credit Facility. As of February 22, 2022, we
are in the process of negotiating a successor rate to LIBOR with one of the two counterparty banks under the Incremental
Swaps (with a notional amount of $50.0 million), to ensure that such agreements mirror the LIBOR successor provisions under
the Credit Facility. However, we cannot assure the outcome of these negotiations, or what the LIBOR successor provisions will
be. We have not begun the process to amend relevant LIBOR provisions with the other counterparty bank, or the counterparty
banks under the Initial Swaps or the First Extended Initial Swaps. As a result, we cannot assure that benchmark transitions
under all of our interest rate swap agreements will be successful, or if so, what replacement rates will be used.
In addition to the LIBOR Agreements described above, our A/R sales program and three customers SFPs have
transitioned to alternative benchmark rates with predetermined spreads, with no significant impact on our consolidated financial
statements for the year ended December 31, 2021.
While we expect that reasonable alternatives to LIBOR benchmarks will be implemented in advance of their cessation
dates, we cannot assure that this will be the case. If LIBOR is no longer available and the alternative reference rate is higher,
interest rates under the affected LIBOR Agreements would increase, which would adversely impact our interest expense, our
financial performance and cash flows. We will continue to monitor developments with respect to the cessation of LIBOR, and
will evaluate potential impacts on our LIBOR Agreements, processes, systems, risk management methodology and valuations,
financial reporting, taxes, and financial results. We are currently unable to predict what the future replacement rates or
consequences on our operations or financial results will be.
81
Credit risk: Credit risk refers to the risk that a counterparty may default on its contractual obligations resulting in a
financial loss to us. We believe our credit risk of counterparty non-performance continues to be relatively low. We are in
regular contact with our customers, suppliers and logistics providers, and have not experienced significant counterparty credit-
related non-performance during 2021 or to date. However, if a key supplier (or any company within such supplier's supply
chain) or customer fails to comply with their contractual obligations, this could result in a significant financial loss to us. We
would also suffer a significant financial loss if an institution from which we purchased foreign currency exchange contracts or
swaps, interest rate swaps, or annuities for our pension plans defaults on their contractual obligations. With respect to our
financial market activities, we have adopted a policy of dealing only with credit-worthy counterparties to help mitigate the risk
of financial loss from defaults. We monitor the credit risk of the counterparties with whom we conduct business, through a
combined process of credit rating reviews and portfolio reviews.
We also provide unsecured credit to our customers in the normal course of business. Customer exposures that
potentially subject us to credit risk include our A/R, inventory on hand, and non-cancellable purchase orders in support of
customer demand. From time to time, we extend the payment terms applicable to certain customers, and/or provide longer
payment terms when deemed commercially reasonable. Longer payment terms could adversely impact our working capital
requirements, and increase our financial exposure and credit risk. We attempt to mitigate customer credit risk by monitoring our
customers’ financial condition and performing ongoing credit evaluations as appropriate. In certain instances, we obtain letters
of credit or other forms of security from our customers. We may also purchase credit insurance from a financial institution to
reduce our credit exposure to certain customers. We consider credit risk in determining our allowance for doubtful accounts,
and we believe that such allowance, as adjusted from time to time, is adequate. In light of COVID-19, we assessed the financial
stability and liquidity of our customers in Q1 2020 to identify customers we believe to be at greatest risk of default. We also
enhanced the monitoring of, and/or developed plans intended to mitigate, the limited number of identified exposures in Q1
2020, which enhancements and plans remain in effect. No significant adjustments were made to our allowance for doubtful
accounts during 2021 in connection with our on-going assessments and monitoring initiatives. At December 31, 2021, less than
2% of our gross A/R were over 90 days past due (December 31, 2020 — 1%). A/R are net of an allowance for doubtful
accounts of $5.7 million at December 31, 2021 (December 31, 2020 — $5.0 million).
Liquidity risk: Liquidity risk is the risk that we may not have cash available to satisfy our financial obligations as they
come due. The majority of our financial liabilities recorded in accounts payable, accrued and other current liabilities and
provisions are due within 90 days. We manage liquidity risk by maintaining a portfolio of liquid funds and investments and
having access to a revolving credit facility, uncommitted intraday and overnight bank overdraft facilities, an A/R sales program
and three customer SFPs. Since our A/R sales program and customer SFPs are each uncommitted, there can be no assurance
that any participant bank will purchase any of the A/R that we wish to sell. We believe, however, that cash flow from operating
activities, together with cash on hand, cash from accepted sales of A/R, and borrowings available under the Revolver and
potentially available under uncommitted intraday and overnight bank overdraft facilities are sufficient to fund our currently
anticipated financial obligations, and will remain available in the current environment. See "Cash Requirements" above.
Commodity price risk: We are exposed to market risk with respect to commodity price fluctuations for components
used in the manufacture of our products. These components are impacted by global pricing pressures, general economic
conditions, market conditions, geopolitical issues, weather, changes in tariff rates, and other factors which are neither
predictable nor within our control. While generally we have been able to offset inflation and other changes in the costs of key
operating resources through price increases, productivity improvements, greater economies of scale, supplier negotiations and
global sourcing initiatives, there can be no assurance that we will be able to continue to do so in the future. We do not engage in
hedging activities for commodity price risk. Competitive conditions may limit our pricing flexibility, and macroeconomic
conditions may make additional price increases imprudent. Increases in commodity prices that we cannot recover from our
customers would adversely impact our operating results. We are also exposed to fluctuations in transportation costs, which have
recently increased based on freight carrier capacity and fuel prices. We manage transportation costs by optimizing logistics and
supply chain planning. We continue to invest in supply chain initiatives to address industry-wide capacity challenges.
See note 20 to the 2021 AFS for further detail.
82
Related Party Transactions
Onex Corporation (Onex) beneficially owns, controls, or directs, directly or indirectly, all of our outstanding multiple
voting shares (MVS). Accordingly, Onex has the ability to exercise significant influence over our business and affairs and
generally has the power to determine all matters submitted to a vote of our shareholders where the SVS and MVS vote together
as a single class. Mr. Gerald Schwartz, the Chairman of the Board and Chief Executive Officer of Onex, indirectly owns shares
representing the majority of the voting rights of the shares of Onex.
Onex has entered into an agreement with Celestica and with Computershare Trust Company of Canada (as successor to
the Montreal Trust Company of Canada), as trustee for the benefit of the holders of the SVS, to ensure that such holders will
not be deprived of any rights under applicable take-over bid legislation to which they would be otherwise entitled in the event
of a take-over bid (as defined in such legislation) if MVS and SVS were of a single class of shares. Subject to certain permitted
forms of sale, such as identical or better offers to all holders of SVS, Onex has agreed that it, and any of its affiliates that may
hold MVS from time to time, will not sell any MVS, directly or indirectly, pursuant to a take-over bid (as that term is defined
under applicable securities legislation) under circumstances in which any applicable securities legislation would have required
the same offer or a follow-up offer to be made to holders of SVS if the sale had been a sale of SVS rather than MVS, but
otherwise on the same terms.
We are party to a Services Agreement with Onex for the services of Mr. Tawfiq Popatia, an officer of Onex, as a
director of Celestica, pursuant to which Onex receives an annual fee of $235,000, payable in DSUs in equal quarterly
installments in arrears, as compensation for such services. The Services Agreement automatically renews for successive one-
year terms unless either party provides a notice of intent not to renew. The Services Agreement terminates automatically and
the rights of Onex to receive compensation (other than accrued and unpaid compensation) will terminate (a) 30 days after the
first day on which Onex ceases to hold at least one MVS of Celestica or any successor company or (b) the date Mr. Popatia
ceases to be a director of Celestica for any reason.
A consortium of four real estate partnerships, approximately 27% of the interests of which are held by a privately-held
partnership in which Mr. Schwartz has a material interest; and approximately 25% of the interests of which are held by a
partnership in which Mr. Schwartz has a non-voting interest, holds a 5% non-voting interest in the purchaser of our former
Toronto real property.
Outstanding Share Data
As of February 22, 2022, we had 105,891,214 outstanding SVS and 18,600,193 outstanding MVS. As of such date, we
also had 404,353 outstanding stock options, 4,665,123 outstanding RSUs, 5,519,307 outstanding PSUs assuming vesting of
100% of the target amount granted (PSUs that will vest range from 0% to 200% of the target amount granted), and 2,215,089
outstanding DSUs; each vested option or unit entitling the holder thereof to receive one SVS (or in certain cases, cash) pursuant
to the terms thereof, subject to certain time or performance-based vesting conditions.
Controls and Procedures
Evaluation of disclosure controls and procedures:
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the U.S. Exchange Act) designed to ensure that information we are required
to disclose in the reports that we file or submit under the U.S. Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by
an issuer in the reports that it files or submits under the U.S. Exchange Act is accumulated and communicated to the issuer's
management, including its principal executive officer or officers and principal financial officer or officers, or persons
performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
83
Management, under the supervision of and with the participation of our principal executive officer and principal
financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of
December 31, 2021. Based on that evaluation, our principal executive officer and principal financial officer have concluded
that, as of December 31, 2021, our disclosure controls and procedures are effective to meet the requirements of Rules 13a-15(e)
and 15d-15(e) under the U.S. Exchange Act.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance
that its objectives are met. Due to inherent limitations in all such systems, no evaluation of controls can provide absolute
assurance that all control issues within a company have been detected. Accordingly, our disclosure controls and procedures are
designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met.
Changes in internal control over financial reporting:
We did not identify any change in our internal control over financial reporting in connection with our evaluation
thereof that occurred during the year ended December 31, 2021 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
On November 1, 2021, we completed the acquisition of PCI, and are in the process of assessing its processes and
internal controls. Although this assessment may result in changes to our internal control over financial reporting, we do not
currently anticipate that the integration of PCI will result in changes that would materially affect, or would be reasonably likely
to materially affect, our internal control over financial reporting.
Management’s report on internal control over financial reporting:
Reference is made to our Management’s Report on Internal Control over Financial Reporting on page F-1 of our 2021
Annual Report, of which this MD&A is a part. Our auditors, KPMG LLP, an independent registered public accounting firm,
have issued an audit report on our internal control over financial reporting as of December 31, 2021, which appears on page F-2
of such 2021 Annual Report.
Unaudited Quarterly Financial Highlights (in millions, except percentages and per share amounts):
First
Quarter
Revenue ...................................................... $ 1,318.6
Gross margin ..............................................
Net earnings (loss) ...................................... $
Weighted average # of basic shares ...........
129.0
6.9 %
2020
2021
Second
Quarter
Third
Quarter
Fourth
Quarter
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 1,492.4
$ 1,550.5
$ 1,386.6
$ 1,234.9
$ 1,420.3
$ 1,467.4
$ 1,512.1
7.3 %
8.0 %
8.2 %
8.2 %
8.3 %
8.5 %
9.4 %
(3.2) $ 13.3
$ 30.4
$ 20.1
$ 10.5
$ 26.3
$ 35.2
$ 31.9
129.1
129.1
129.1
128.9
127.6
125.4
124.8
Weighted average # of diluted shares ........
# of shares outstanding ...............................
IFRS earnings (loss) per share:
129.0
129.1
129.1
129.1
129.0
127.6
125.5
124.8
129.1
129.1
129.1
129.1
128.4
126.8
124.7
124.7
basic ......................................................... $ (0.02) $ 0.10
diluted ...................................................... $ (0.02) $ 0.10
$ 0.24
$ 0.16
$ 0.08
$ 0.21
$ 0.28
$ 0.26
$ 0.24
$ 0.16
$ 0.08
$ 0.21
$ 0.28
$ 0.26
All quarters in the table above have been impacted by restructuring charges, the amounts of which vary from quarter to
quarter.
84
Q4 2021 compared to Q4 2020:
Revenue of $1.51 billion for Q4 2021 increased $125.5 million, or 9% compared to Q4 2020, primarily due to revenue
increases in our ATS segment. ATS segment revenue increased $119.6 million (23%) in Q4 2021 compared to Q4 2020, driven
by continued strength in our Capital Equipment business, organic growth in our base Industrial business and two months of
contribution from the PCI acquisition. Compared to Q4 2020, CCS segment revenue in Q4 2021 increased $5.9 million (1%),
primarily due to strong demand from service provider customers, including in our HPS business, which was largely offset by
the Cisco Disengagement and the impact of materials constraints. HPS revenue for Q4 2021 was approximately $350 million,
and increased 66% from Q4 2020. Demand from service providers continues to be strong as they expand and upgrade their data
centers in support of continued cloud and on-line requirements. Our Communications end market revenue increased $4.9
million (1%) in Q4 2021 as compared to the prior year period, and Enterprise end market revenue was flat in Q4 2021
compared to the prior year period. Gross profit increased $28.3 million in Q4 2021 compared to Q4 2020, and gross margin for
Q4 2021 increased to 9.4% compared to 8.2% for Q4 2020. The increases in gross profit and gross margin were primarily due
to a higher concentration of HPS business, strong contribution from our Capital Equipment business, and lower variable spend.
CCS segment income for Q4 2021 increased to $38.9 million from $30.0 million in Q4 2020. CCS segment margin for Q4 2021
increased to 4.4% of segment revenue, compared to 3.4% for Q4 2020. These increases were primarily due to more favorable
mix, driven by an increased concentration of revenue from our HPS business. ATS segment income for Q4 2021 increased to
$35.4 million from $20.0 million in Q4 2020, and ATS segment margin increased from 3.9% of segment revenue for Q4 2020
to 5.6% for Q4 2021, primarily due to profitable growth in our Capital Equipment business and the addition of PCI, partially
offset by headwinds in our A&D business. Net earnings increased to $31.9 million for Q4 2021 compared to net earnings of
$20.1 million in Q4 2020, due primarily to the $28.3 million of higher gross profit in Q4 2021, offset in part by $6.1 million in
higher SG&A expense and $2.9 million in higher other charges, for 2021 as compared to the prior year period.
Q4 2021 compared to Q3 2021:
Revenue for Q4 2021 increased $44.7 million, or 3% compared to Q3 2021, as a result of revenue increases in our
ATS segment. ATS segment revenue increased $44.4 million (8%) sequentially, driven by continued strength in our Capital
Equipment business and two months of contribution from the PCI acquisition. Compared to the previous quarter, CCS segment
revenue was flat. Sequentially, our Communications end market revenue increased $20.7 million (4%), and our Enterprise end
market revenue decreased $20.4 million (7%). Gross profit increased $16.7 million in Q4 2021 as compared to Q3 2021,
primarily as a result of higher revenue in Q4 2021. Gross margin increased to 9.4% in Q4 2021 compared to 8.5% in Q3 2021,
due to higher volumes and favorable mix across several businesses. CCS segment income increased sequentially by $2.7
million to $38.9 million for Q4 2021, and CCS segment margin for Q4 2021 increased to 4.4% of segment revenue compared to
4.1% for Q3 2021, primarily due to improved mix and demand strength in HPS. ATS segment income increased sequentially by
$10.3 million to $35.4 million in Q4 2021, and ATS segment margin increased from 4.3% in Q3 2021 to 5.6% for Q4 2021,
primarily due to profitable growth in our base Industrial business and the addition of PCI. Net earnings of $31.9 million for Q4
2021 decreased from Q3 2021 net earnings of $35.2 million, primarily due to $14.8 million in higher other charges and SGA in
Q4 2021, offset in part by higher gross profit. Other charges (recoveries) for Q3 2021 benefited from $9.2 million in legal
recoveries (none in Q4 2021), which was offset in part by $4.7 million in higher acquisition costs, primarily related to PCI.
Selected Q4 2021 IFRS results (in millions, except percentages and per share amount, or as otherwise noted):
IFRS revenue (in billions) ..........................................................................................................................................................
IFRS earnings before income taxes ............................................................................................................................................
IFRS earnings before income taxes as a % of revenue ...............................................................................................................
IFRS SG&A ...............................................................................................................................................................................
IFRS net earnings .......................................................................................................................................................................
IFRS earnings per share (EPS)* (diluted) ..................................................................................................................................
Actual
$1.51
$41.6
2.8%
$65.5
$31.9
$0.26
* IFRS EPS for Q4 2021 included an aggregate charge of $0.16 (pre-tax) per share for employee SBC expense, amortization of
intangible assets (excluding computer software), and restructuring charges. This aggregate charge was within our Q4 2021
guidance range of between $0.11 to $0.17 per share for these items.
85
Q4 2021 actual compared to Q4 2021 guidance (in millions, except percentages and per share amounts, or as otherwise
noted):
IFRS revenue (in billions) ........................................................................................................
Non-IFRS operating margin* ..........................................................................
Q4 2021
Guidance
$1.425 to $1.575
4.5% at the mid-point of
our revenue and non-IFRS
adjusted EPS guidance
ranges
Non-IFRS adjusted SG&A* .....................................................................................................
Non-IFRS adjusted net earnings* .............................................................................................
Non-IFRS adjusted EPS* (diluted) .................................................................................
$62 to $64
N/A
$0.35 to $0.41
* See above for the most directly-comparable IFRS financial measures.
Actual
$1.51
4.9%
$59.9
$55.2
$0.44
For Q4 2021, our revenue was in-line with the mid-point of our guidance range and reflected anticipated growth from
our ATS segment and contributions from our PCI acquisition. Non-IFRS adjusted EPS exceeded the high end of our guidance
range, and our non-IFRS operating margin exceeded the mid-point of our revenue and non-IFRS adjusted EPS guidance ranges,
each of which benefited from strong performance in both of our segments, despite adverse revenue impacts attributable to
materials shortages. Our non-IFRS adjusted SG&A was slightly below our guidance range. Our IFRS effective tax rate for Q4
2021 was 23%. Our non-IFRS adjusted effective tax rate for Q4 2021 was 16%, lower than our anticipated estimate of
approximately 19%, primarily due to favorable jurisdictional profit mix.
Select 2021 results compared to 2020 (in millions, except percentages and per share amounts, or as otherwise noted):
IFRS revenue (in billions) ...................................................................................................................
IFRS earnings before income taxes .....................................................................................................
IFRS earnings before income taxes as a % of revenue .......................................................................
Non-IFRS operating earnings* ............................................................................................................
Non-IFRS operating margin* ..............................................................................................................
IFRS income tax expense ....................................................................................................................
IFRS effective tax rate (income tax expense as a percentage of IFRS earnings before income
taxes) ...................................................................................................................................................
Non-IFRS adjusted tax expense* ........................................................................................................
Non-IFRS adjusted effective tax rate (non-IFRS adjusted tax expense as a percentage of non-
IFRS adjusted net earnings before income taxes)* .............................................................................
IFRS net earnings ................................................................................................................................
IFRS EPS (diluted) ..............................................................................................................................
Non-IFRS adjusted net earnings* .......................................................................................................
Non-IFRS adjusted EPS (diluted)* ....................................................................................................
IFRS cash provided by operations ......................................................................................................
Non-IFRS free cash flow* ...................................................................................................................
2021
$5.63
$136.0
2.4%
$233.9
4.2%
$32.1
24%
$37.9
19%
$103.9
$0.82
$164.3
$1.30
$226.8
$114.8
2020
$5.75
$90.2
1.6%
$199.0
3.5%
$29.6
33%
$34.7
22%
$60.6
$0.47
$126.6
$0.98
$239.6
$126.0
As anticipated, 2021 revenue declined relative to 2020, reflecting the completion of the Cisco Disengagement in Q4
2020, offset in part by higher than expected growth in our HPS business and ATS segment revenue. 2021 non-IFRS operating
margin and non-IFRS adjusted EPS* increased relative to 2020, due in part to the achievement of ATS segment margin within
our target range of 5% to 6% during Q4 2021, and the high end of our target CCS segment margin range of 2% to 3%
throughout 2021. Our IFRS effective tax rate for 2021 was 24%. Our 2021 non-IFRS adjusted effective tax rate of 19%, was
lower than the mid-twenty-percent range previously anticipated, mainly due to favorable jurisdictional profit mix and tax items
described in "Operating Results — Income Taxes" above. We generated $114.8 million of non-IFRS free cash flow*, delivering
on our target of at least $100 million in non-IFRS free cash flow* for 2021.
* These are non-IFRS financial measures without standardized meanings and may not be comparable to similar measures
presented by other companies. A discussion of non-IFRS financial measures included herein, and a reconciliation of historical
non-IFRS financial measures to the most directly-comparable IFRS financial measures, is set forth below.
86
Non-IFRS Financial Measures:
Management uses adjusted net earnings and the other non-IFRS financial measures (including ratios where applicable)
described herein (i) to assess operating performance and the effective use and allocation of resources, (ii) to provide more
meaningful period-to-period comparisons of operating results, (iii) to enhance investors' understanding of the core operating
results of our business, and (iv) to set management incentive targets. We believe the non-IFRS financial measures we present
herein are useful to investors, as they enable investors to evaluate and compare our results from operations in a more consistent
manner (by excluding specific items that we do not consider to be reflective of our core operations), to evaluate cash resources
that we generate from our business each period, and to provide an analysis of operating results using the same measures our
chief operating decision makers use to measure performance. In addition, management believes that the use of a non-IFRS
adjusted tax expense and a non-IFRS adjusted effective tax rate provide improved insight into the tax effects of our core
operations, and are useful to management and investors for historical comparisons and forecasting. These non-IFRS financial
measures result largely from management's determination that the facts and circumstances surrounding the excluded charges or
recoveries are not indicative of our core operations.
We believe investors use both IFRS and non-IFRS financial measures to assess management's past, current and future
decisions associated with our priorities and our allocation of capital, as well as to analyze how our business operates in, or
responds to, swings in economic cycles or to other events that impact our core operations.
Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and therefore may not be
comparable to similar measures presented by other companies that report under IFRS, or who report under U.S. GAAP and use
non-GAAP financial measures to describe similar financial metrics. Non-IFRS financial measures are not measures of
performance under IFRS and should not be considered in isolation or as a substitute for any IFRS financial measure. The most
significant limitation to management's use of non-IFRS financial measures is that the charges or credits excluded from the non-
IFRS financial measures are nonetheless recognized under IFRS and have an economic impact on us. Management
compensates for these limitations primarily by issuing IFRS results to show a complete picture of our performance, and
reconciling non-IFRS financial measures back to the most directly comparable IFRS financial measures.
The following non-IFRS financial measures are included in this MD&A: adjusted gross profit, adjusted gross margin
(adjusted gross profit as a percentage of revenue), adjusted SG&A, adjusted SG&A as a percentage of revenue, operating
earnings (or adjusted EBIAT), operating margin (operating earnings or adjusted EBIAT as a percentage of revenue), adjusted
net earnings, adjusted EPS, 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 indicated in the table
below: employee SBC expense, amortization of intangible assets (excluding computer software), Other Charges, net of
recoveries (defined below), Finance Costs (defined below) and acquisition inventory fair value adjustments, all net of the
associated tax adjustments (quantified 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).
The economic substance of these exclusions (where applicable to the periods presented) and management's rationale
for excluding them from non-IFRS financial measures is provided below:
Employee SBC expense, which represents the estimated fair value of stock options, RSUs and PSUs 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, when applicable: Restructuring Charges, net of recoveries (defined
below); Transition Costs (defined below); net Impairment charges (defined below); Acquisition Costs (Recoveries); legal
settlements (recoveries); specified credit facility-related charges (consisting primarily of the accelerated amortization of
87
unamortized deferred financing costs, and credit agreement-related waiver fees); and post-employment benefit plan losses. 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 2019 sale of our Toronto
real property) (collectively, Toronto Transition Costs) and (ii) costs recorded in connection with the transfer of manufacturing
lines from closed sites to other sites within our global network (Internal Relocation Costs). Transition Costs consist of direct
relocation and duplicate costs (such as rent expense, utility costs, depreciation charges, and personnel costs) incurred during the
transition periods, as well as cease-use 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. We believe that excluding these costs 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.
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.
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 A/R sales program and customers' SFPs, and interest expense on our
lease obligations, net of interest income earned. We believe that excluding these costs provides useful insight for assessing the
performance of our core operations.
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 financial measures discussed above, and
a reconciliation of non-IFRS financial measures to the most directly comparable IFRS financial measures (in millions, except
percentages and per share amounts):
88
Three months ended December 31
Year ended December 31
2020
2021
2020
2021
% of
revenue
% of
revenue
% of
revenue
% of
revenue
IFRS revenue ................................................................ $ 1,386.6
$ 1,512.1
$ 5,748.1
$ 5,634.7
IFRS gross profit ......................................................... $ 113.8
8.2% $ 142.1
9.4% $ 437.6
7.6% $ 487.0
8.6%
Employee SBC expense .............................................
2.2
3.6
11.1
13.0
Non-IFRS adjusted gross profit/adjusted gross
margin .................................................. $ 116.0
8.4% $ 145.7
9.6% $ 448.7
7.8 % $ 500.0
IFRS SG&A .................................................................. $
59.4
4.3% $
65.5
4.3% $ 230.7
4.0% $ 245.1
Employee SBC expense .............................................
(2.9)
(5.6)
(14.7)
(20.4)
Non-IFRS adjusted SG&A .......................................... $
56.5
4.1% $
59.9
4.0% $ 216.0
3.8 % $ 224.7
IFRS earnings before income taxes ............................ $
26.4
1.9% $
41.6
2.8% $
Finance costs ..............................................................
Employee SBC expense .............................................
Amortization of intangible assets (excluding
computer software) .....................................................
Other Charges .............................................................
9.1
5.1
4.9
4.5
8.3
9.2
7.8
7.4
90.2
37.7
25.8
21.8
23.5
1.6% $ 136.0
31.7
33.4
22.5
10.3
Non-IFRS operating earnings (adjusted EBIAT)/
operating margin (1)
........................................... $
50.0
3.6 % $
74.3
4.9% $ 199.0
3.5% $ 233.9
IFRS net earnings ........................................................ $
20.1
1.4 % $
31.9
2.1 % $
8.9%
4.3%
4.0%
2.4%
4.2%
1.8%
Employee SBC expense .............................................
Amortization of intangible assets (excluding
computer software) .....................................................
Other Charges ............................................................
Adjustments for taxes (2)
.............................................
5.1
4.9
4.5
(1.3)
Non-IFRS adjusted net earnings ................................ $
33.3
Diluted EPS ..................................................................
Weighted average # of shares (in millions) ...............
129.1
IFRS earnings per share ............................................ $
Non-IFRS adjusted earnings per share ....................... $
0.16
0.26
# of shares outstanding at period end (in millions) ....
129.1
IFRS cash provided by operations ............................. $
49.7
Purchase of property, plant and equipment, net of
sales proceeds ............................................................
Lease payments (3)
Finance Costs paid (excluding debt issuance costs
paid) (3)
........................................................................
......................................................
Non-IFRS free cash flow (3)
......................................... $
IFRS ROIC % (4)
Non-IFRS adjusted ROIC % (4)
..........................................................
......................
(18.8)
(5.8)
(6.6)
18.5
6.6%
12.4%
9.2
7.8
7.4
(1.1)
$
55.2
$
$
124.8
0.26
0.44
124.7
$
65.8
(14.3)
(10.0)
(5.9)
$
35.6
9.3%
16.6%
60.6
25.8
21.8
23.5
(5.1)
1.1 % $ 103.9
33.4
22.5
10.3
(5.8)
$ 126.6
$ 164.3
$
$
129.1
0.47
0.98
129.1
$ 239.6
(51.0)
(33.7)
(28.9)
$ 126.0
5.6%
12.4%
$
$
126.7
0.82
1.30
124.7
$ 226.8
(49.6)
(40.0)
(22.4)
$ 114.8
8.1%
13.9%
(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 above), employee SBC expense, amortization of intangible assets
(excluding computer software), Other Charges (recoveries) (defined above), and in applicable periods, acquisition inventory fair value adjustments. See
"Operating Results — Other charges (recoveries)" 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 (see 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:
89
Three months ended
December 31
Year ended
December 31
2020
Effective
tax rate
2021
Effective
tax rate
2020
Effective
tax rate
2021
Effective
tax rate
IFRS tax expense and IFRS effective tax rate ....................... $
6.3
24% $
9.7
23% $ 29.6
33% $ 32.1
24%
Tax costs (benefits) of the following items excluded from
IFRS tax expense: ..................................................................
Employee SBC expense .........................................................
Amortization of intangible assets (excluding computer
software) .............................................................................
Other Charges .......................................................................
0.5
—
0.2
Non-core tax impacts related to tax uncertainties* ................
(1.1)
Non-core tax impact related to prior acquisition** ...............
Non-core tax impact related to restructured sites*** ............
Non-IFRS adjusted tax expense and non-IFRS adjusted
effective tax rate ..................................................................... $
1.7
—
7.6
(0.1)
0.5
0.7
—
—
—
1.7
—
2.4
(0.7)
1.7
—
2.8
0.5
1.4
—
—
1.1
19% $ 10.8
16% $ 34.7
22% $ 37.9
19%
* Consists of the reversal of certain tax uncertainties related to a prior acquisition that became statute-barred in such periods and related settlements.
** Consists of deferred tax adjustments attributable to our acquisition of Impakt .
*** Consists of the reversals of tax uncertainties related to one of our Asian subsidiaries that completed its liquidation and dissolution during Q1 2021.
(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 and Finance Costs paid (excluding any debt issuance costs and when applicable, Waiver Fees paid). We do not consider debt
issuance costs ($3.6 million paid in Q4 2021 and the full year 2021; nil and $0.6 million paid in Q4 2020 and the full year 2020, respectively) or such
Waiver Fees (when applicable) to be part of our ongoing financing expenses. As a result, these costs are excluded from total Finance Costs paid in our
determination of non-IFRS free cash flow. Note, however, that non-IFRS free cash flow does not represent residual cash flow available to Celestica for
discretionary expenditures.
(4) Management uses non-IFRS adjusted ROIC as a measure to assess the effectiveness of the invested capital we use to build products or provide services to
our customers, by quantifying how well we generate earnings relative to the capital we have invested in our business. Non-IFRS adjusted ROIC is
calculated by dividing non-IFRS adjusted EBIAT by average net invested capital. Net invested capital (calculated in the table below) is derived from
IFRS measures, and is defined as total assets less: cash, ROU assets, accounts payable, accrued and other current liabilities, provisions, and income taxes
payable. We use a two-point average to calculate average net invested capital for the quarter and a five-point average to calculate average net invested
capital for the year. For example, the average net invested capital for Q4 2021 is calculated using the average of the net invested capital as at September
30, 2021 and December 31, 2021. A comparable measure under IFRS would be determined by dividing IFRS earnings (loss) before income taxes by
average net invested capital.
90
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 %).
IFRS earnings before income taxes ............................................
Multiplier to annualize earnings .................................................
Annualized IFRS earnings before income taxes ........................
Average net invested capital for the period ...............................
IFRS ROIC % (1)
........................................................................
Non-IFRS operating earnings (adjusted EBIAT) .......................
Multiplier to annualize earnings .................................................
Annualized non-IFRS adjusted EBIAT ......................................
Average net invested capital for the period ................................
Three months ended
December 31
Year ended
December 31
2020
2021
2020
2021
26.4
4
105.6
1,610.0
$
$
$
41.6
4
166.4
1,794.9
$
$
$
90.2
1
90.2
1,600.1
$
$
$
136.0
1
136.0
1,682.2
6.6%
9.3%
5.6%
8.1%
Three months ended
December 31
Year ended
December 31
2020
2021
2020
2021
50.0
4
200.0
1,610.0
$
$
$
74.3
4
297.2
1,794.9
$
$
$
199.0
1
199.0
1,600.1
$
$
$
233.9
1
233.9
1,682.2
$
$
$
$
$
$
Non-IFRS adjusted ROIC % (1)
..................................................
12.4%
16.6%
12.4%
13.9%
December 31
2020
March 31
2021
June 30
2021
September 30
2021
December 31
2021
Net invested capital consists of:
Total assets .................................................... $
3,664.1 $
3,553.4
$
3,745.4
$
4,026.1
$
4,666.9
Less: cash ......................................................
Less: ROU assets ..........................................
Less: accounts payable, accrued and other
current liabilities, provisions and
income taxes payable ............................
463.8
101.0
449.4
98.4
467.2
100.5
477.2
115.4
1,478.4
1,407.0
1,575.8
1,800.8
Net invested capital at period end (1)
............. $
1,620.9 $
1,598.6
$
1,601.9
$
1,632.7
$
394.0
113.8
2,202.0
1,957.1
December 31
2019
March 31
2020
June 30
2020
September 30
2020
December 31
2020
Net invested capital consists of:
Total assets .................................................... $
3,560.7 $
3,537.8
$
3,788.1
$
3,789.3
$
3,664.1
Less: cash ......................................................
Less: ROU assets ..........................................
Less: accounts payable, accrued and other
current liabilities, provisions and
income taxes payable ............................
479.5
104.1
472.1
96.9
435.9
94.4
451.4
101.2
1,341.7
1,397.5
1,684.1
1,637.6
Net invested capital at period end (1)
............. $
1,635.4 $
1,571.3
$
1,573.7
$
1,599.1
$
463.8
101.0
1,478.4
1,620.9
(1)
See footnote 4 on the previous page.
91
Recently issued accounting pronouncements:
See note 2 to the 2021 AFS for a discussion of the following: our adoption of IFRS 16, Leases, effective as of January 1,
2019, our adoption of Interest Rate Benchmark (IBOR) Reform (Phase 1 amendments to IFRS 9, IAS 39, and IFRS 7) effective
January 1, 2020, and our adoption of IBOR Reform (Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, and IFRS 16)
effective January 1, 2021. Upon initial adoption of IFRS 16, we recognized ROU assets of $111.5 million and related lease
obligations of $112.0 million, and reduced our accrued liabilities by $0.5 million on our consolidated balance sheet as of
January 1, 2019. The Phase 1 IBOR Reform amendments did not have a significant impact on our disclosures or the amounts
reported in our consolidated financial statements for the year ended December 31, 2020. The Phase 2 IBOR Reform
amendments did not have a significant impact on our disclosures or the amounts reported in our consolidated financial
statements for the year ended December 31, 2021. We will continue to monitor relevant developments, and will evaluate the
impact of the Phase 2 amendments on our consolidated financial statements as IBOR reform progresses. We do not believe that
there are any recently issued accounting pronouncements that are not yet effective that will have a material impact on our
consolidated financial statements upon adoption.
Research and development, patents and licenses, etc.
The information required by this item is set forth above in Item 4(B) "Information on the Company — Business
Overview — Research and Technology Development."
Trend Information
The information required by this item is set forth above in "Overview," "Operating Results," and "Liquidity and Capital
Resources," in Item 3(D), Key Information — Risk Factors, and in Item 4(B), Information on the Company — Business
Overview.
Critical Accounting Estimates
See "Critical Accounting Estimates" above.
Off-Balance Sheet Arrangements
Not applicable.
92
Residence
Alberta, Canada
Florida, U.S.
Ontario, Canada
Georgia, U.S.
Florida, U.S.
California, U.S.
Ontario, Canada
Ontario, Canada
Ontario, Canada
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
Each director of Celestica is elected by the shareholders to serve until the close of the next annual meeting of
shareholders or until a successor is elected or appointed, unless such office is earlier vacated in accordance with the
Corporation's by-laws. The following table sets forth certain information regarding the current directors and executive officers
of Celestica as of February 22, 2022.
Name
Michael M. Wilson(1)
............................................
Director
Since
2011
Age
70
Position with Celestica
Chair of the Board
Robert A. Cascella ................................................
Deepak Chopra ......................................................
Daniel P. DiMaggio ..............................................
Laurette T. Koellner ..............................................
Luis A. Müller(2)
...................................................
Carol S. Perry ........................................................
Tawfiq Popatia ......................................................
Eamon J. Ryan(3)
...................................................
Robert A. Mionis ...................................................
67
58
71
67
52
71
47
76
59
2019
2018
2010
2009
2021
2013
2017
2008
2015
Director
Director
Director
Director
Director
Director
Director
Director
Director, President and Chief
Executive Officer
New Hampshire, U.S.
Name
Executive
Officer
Since
Age
Position with Celestica
Residence
Mandeep Chawla ................................................... 45
2017
Chief Financial Officer
Ontario, Canada
Yann Etienvre(4)
Todd C. Cooper(4)
..................................................... 48
.................................................. 52
2022
2018
Chief Operations Officer
Massachusetts, U.S.
President, ATS
Connecticut, U.S.
Jason Phillips ......................................................... 47
2019
President, CCS
North Carolina, U.S.
(1)
(2)
(3)
(4)
Mr. Wilson was appointed Chair of the Board effective January 29, 2020.
Appointed as a director effective August 31, 2021.
Mr. Ryan is not standing for re-election to the Board of Directors at the Corporation’s 2022 Annual Meeting of Shareholders.
Effective January 1, 2022, Mr. Cooper was appointed President, ATS and Mr. Etienvre was appointed Chief Operations Officer. Mr. Lawless
stepped down from his position as President, ATS effective December 31, 2021, but continues to serve as a special advisor to Mr. Mionis.
The following is a brief biography of each of Celestica's directors, director nominees and executive officers:
Michael M. Wilson. Mr. Wilson is Chair of the Board. He has served on the Board since 2011, and has been a corporate
director since 2013. Until his retirement in December 2013, he was the President and Chief Executive Officer, and a director, of
Agrium Inc. (a public agricultural crop inputs company that subsequently merged with Potash Corporation of Saskatchewan
Inc. to form Nutrien Ltd.). He has over 30 years of international and executive management experience. Prior to joining
Agrium Inc., Mr. Wilson served as President of Methanex Corporation (a public company), and held various senior positions in
North America and Asia during his 18 years with The Dow Chemical Company (a public company). Mr. Wilson also currently
serves (since 2014) on the board of directors of Air Canada and Suncor Energy Inc., and previously served on the board of
directors of Finning International Inc. (each a public company), and was also the past Chair of the Calgary Prostate Cancer
Centre. He holds a degree in Chemical Engineering from the University of Waterloo.
93
Robert A. Cascella. Mr. Cascella retired from Royal Philips, a public Dutch multinational healthcare company, in 2021,
where he most recently served as Special Advisor and Strategic Business Development Leader. From 2015 to 2020, he served
as Executive Vice President of Royal Philips and Chief Executive Officer of Philips’ Diagnosis and Treatment businesses,
including businesses serving Radiology, Cardiology and Oncology, as well as Enterprise Diagnostic Informatics. Mr. Cascella
has also served on Philips’ Executive Committee from 2016 to 2021. Since 2021, he has served on the board of directors of
Neuronetics, Inc., a Nasdaq-listed medical device company, Mirion Technologies, a NYSE-listed provider of nuclear and
radiation measurement and detection systems, and Metabolon Inc., a private company using metabolomics to assist in the
discovery of biomarkers. Mr. Cascella served as the President and Chief Executive Officer of Hologic, Inc., a public medical
device and diagnostics company, from 2003 to 2013. He has also held senior leadership positions at CFG Capital, NeoVision
Corporation and Fischer Imaging Corporation. Mr. Cascella served on Hologic, Inc.’s board of directors from 2008 to 2013. He
also previously served on the board of Tegra Medical and acted as chair of the boards of Dysis Medical and Mirada Medical.
He holds a Bachelor’s degree in Accounting from Fairfield University.
Deepak Chopra. Mr. Chopra most recently served as President and Chief Executive Officer of Canada Post Corporation
from February 2011 to March 2018. He has more than 30 years of global experience in the financial services, technology,
logistics and supply-chain industries. Mr. Chopra worked for Pitney Bowes Inc., an NYSE-traded technology company known
for postage meters, mail automation and location intelligence services, for more than 20 years. He served as President of Pitney
Bowes Canada and Latin America from 2006 to 2010. He held a number of increasingly senior executive roles internationally,
including President of its new Asia Pacific and Middle East region from 2001 to 2006 and Chief Financial Officer for the
Europe, Africa and Middle East (EAME) region from 1998 to 2001. He has previously served on the boards of Canada Post
Corporation, Purolator Inc., SCI Group, the Canada Post Community Foundation, the Toronto Region Board of Trade and the
Conference Board of Canada. He currently sits on the board of The North West Company Inc., a Toronto Stock Exchange
(TSX)-traded retailer (since 2018), The Descartes Systems Group Inc. a TSX and Nasdaq-listed logistics company (since 2020),
and Sun Life Financial Inc., a TSX and NYSE-listed international financial services organization (since 2021). Mr. Chopra is a
Fellow of the Institute of Chartered Professional Accountants of Canada and has a Bachelor’s degree in Commerce (Honours)
and a Master’s Degree in Business Management (PGDBM).
Daniel P. DiMaggio. Mr. DiMaggio is a corporate director. Prior to retiring in 2006, he spent 35 years with United Parcel
Services (UPS) (a public company), most recently as Chief Executive Officer of the UPS Worldwide Logistics Group. Prior to
leading UPS' Worldwide Logistics Group, Mr. DiMaggio held a number of positions at UPS with increasing responsibility,
including leadership roles for the UPS International Marketing Group, as well as the Industrial Engineering function. In
addition to his senior leadership roles at UPS, Mr. DiMaggio was a member of the board of directors of Greatwide Logistics
Services, Inc. and CEVA Logistics (a public company). He holds a Bachelor of Science degree from the Lowell Technological
Institute (now the University of Massachusetts Lowell).
Laurette T. Koellner. Ms. Koellner is a corporate director. She most recently served as Executive Chairman of
International Lease Finance Corporation, an aircraft leasing subsidiary of American International Group, Inc. (AIG) from 2012
until its sale in 2014. Ms. Koellner retired as President of Boeing International, a division of The Boeing Company, in 2008.
While at Boeing, she was a member of the Office of the Chairman and served as the Executive Vice President, Internal
Services, Chief Human Resources and Administrative Officer, President of Shared Services, and Corporate Controller.
Ms. Koellner currently serves on the board of directors of Papa John's International, Inc. (since 2014), The Goodyear Tire &
Rubber Company (since 2015), and Nucor Corporation (since 2015), all public companies. Ms. Koellner previously served on
the board of directors and was the Chair of the Audit Committee of Hillshire Brands Company (a public company, formerly
Sara Lee Corporation and now merged with Tyson Foods, Inc.), and on the board of directors of AIG (a public company). She
holds a Bachelor of Science degree in Business Management from the University of Central Florida and a Master of Business
Administration from Stetson University, as well as a Certified Professional Contracts Manager designation from the National
Contracts Management Association.
Luis A. Müller. Dr. Müller has 25 years of business and technical leadership in the semiconductor industry. In 2014, he
assumed his current role as Chief Executive Officer and board member of Cohu, Inc. a Nasdaq-listed global leader in back-end
semiconductor equipment and services. Prior to joining Cohu, Dr. Müller cofounded Kinetrix, Inc. and later joined Teradyne, a
Nasdaq-listed advanced test solutions company, when it acquired Kinetrix. Dr. Müller has a PhD in mechanical engineering
from the Massachusetts Institute of Technology and a BS and MS in mechanical engineering from Universidade Federal Santa
Catarina.
94
Carol S. Perry. Ms. Perry is a corporate director. She most recently served on the Independent Review Committees of
mutual funds managed by 1832 Asset Management L.P., a mutual fund manager and wholly-owned affiliate of The Bank of
Nova Scotia (2011-2020), and of investment funds managed by Jarislowsky Fraser Limited and MD Financial Management
Inc., which are subsidiaries of The Bank of Nova Scotia (2018-2020). Previously, she was a Commissioner of the Ontario
Securities Commission, and has served on adjudicative panels and acted as a director and Chair of its Governance and
Nominating Committee. With over 20 years of experience in the investment industry as an investment banker, Ms. Perry held
senior positions with leading financial services companies including RBC Capital Markets, Richardson Greenshields of Canada
Limited and CIBC World Markets and later founded MaxxCap Corporate Finance Inc., a financial advisory firm. She is a
former director of Softchoice Corporation, Atomic Energy of Canada Limited and DALSA Corporation. Ms. Perry has a
Bachelor of Engineering Science (Electrical) degree from the University of Western Ontario and a Master of Business
Administration degree from the University of Toronto. She also holds the professional designation ICD.D from the Institute of
Corporate Directors.
Tawfiq Popatia. Mr. Popatia has been a Senior Managing Director of Onex* since 2020 and leads its efforts in
automation, aerospace and defense, and other transportation-focused industries. He joined Onex in 2007, and has led several of
Onex Partners' investments in these sectors. He previously served as a Managing Director of Onex from 2014 to 2020. Prior to
joining Onex, Mr. Popatia worked at the private equity firm of Hellman & Friedman LLC and in the Investment Banking
Division of Morgan Stanley & Co. Mr. Popatia currently serves on the boards of WestJet, a Canadian airline, Advanced
Integration Technology, an aerospace automation company, and BBAM, a provider of commercial jet aircraft leasing, financing
and management. He previously served on the board of Spirit AeroSystems (a public company), and is a former Employer
Trustee of the International Association of Machinists National Pension Fund. Mr. Popatia holds a Bachelor of Science degree
in Microbiology and a Bachelor of Commerce degree in Finance from the University of British Columbia.
*
Onex holds an 81.5% voting interest in Celestica. See "Controlling Shareholder Interest" under Item 4(B) above.
Eamon J. Ryan. Mr. Ryan is a corporate director. He is the former Vice President and General Manager, Europe, Middle
East and Africa for Lexmark International Inc. (a public company). Prior to that, he was the Vice President and General
Manager, Printing Services and Solutions Manager, Europe, Middle East and Africa. Mr. Ryan joined Lexmark
International Inc. in 1991 as the President of Lexmark Canada. Prior to that, he spent 22 years at IBM Canada, where he held a
number of sales and marketing roles in its Office Products and Large Systems divisions. Mr. Ryan's last role at IBM Canada
was Director of Operations for its Public Sector, a role he held from 1986 to 1990. He holds a Bachelor of Arts degree from the
University of Western Ontario.
Robert A. Mionis. Mr. Mionis has been President and CEO of the Corporation since August 1, 2015. Mr. Mionis is
responsible for the Corporation's overall leadership, strategy and vision. In conjunction with the Board of Directors, he develops
the Corporation's overall strategic plan, including the corporate goals and objectives as well as our approach to risk
management. He is focused on positioning the Corporation for long-term profitable growth and ensuring the success of
Celestica's customers around the world. From July 2013 until August 2015, he was an Operating Partner at Pamplona Capital
Management (Pamplona), a global private equity firm, where he supported several companies across a broad range of
industries, including the industrial, aerospace, healthcare and automotive industries. Before joining Pamplona, Mr. Mionis
served as President and CEO of StandardAero, leading the company through a period of significant revenue and profitability
growth. Over the course of his career, he has held a number of operational and service roles at companies in the aerospace,
industrial and semiconductor markets, including General Electric and Axcelis Technologies (each a public company),
AlliedSignal, and Honeywell. Mr. Mionis served on the board of directors of Shawcor Ltd., a TSX-listed energy services
company, from 2018 through 2021. He holds a Bachelor of Science in Electrical Engineering from the University of
Massachusetts.
Mandeep Chawla. Mr. Chawla has been Chief Financial Officer (CFO) of the Corporation since October 2017. Mr.
Chawla is responsible for the planning and management of short and long-term financial performance and reporting activities.
He assists the CEO in setting the strategic direction and financial goals of the Corporation, and manages overall capital
allocation activities in order to maximize shareholder value. He provides oversight on risk management and governance
matters, and leads the communication and relationship management activities with key financial stakeholders. Since joining
Celestica in 2010, Mr. Chawla has held progressively senior roles in the Corporation before assuming the role of CFO in 2017.
Prior to joining Celestica, he held senior financial management roles with MDS Inc., Tyco International, and General Electric.
Mr. Chawla was appointed to the Board of Directors of Sleep Country Canada Holdings Inc., a TSX-listed mattress and
bedding retailer, effective August 20, 2020. Mr. Chawla holds a Master of Finance degree from Queen's University and a
Bachelor of Commerce degree from McMaster University. He is a CPA, CMA.
95
Todd C. Cooper. Mr. Cooper joined Celestica as Chief Operations Officer in 2018, and held that role until January 1,
2022, when he was appointed President, ATS. As Chief Operations Officer, Mr. Cooper was responsible for driving operational
and supply chain excellence, quality and technology innovation throughout the Corporation, as well as for the enablement of
processes that drive value creation. He also led the Corporation's operations, supply chain, quality, global business services and
information technology teams. As President, ATS, Mr. Cooper is responsible for strategy development, deployment and
execution of Celestica's A&D, Capital Equipment, HealthTech, Industrial and Energy businesses, as well as for PCI. Mr.
Cooper has over 25 years of experience in operations leadership and advisory roles, including considerable experience in
developing and implementing operational strategies to drive large-scale improvements for global organizations. Prior to joining
Celestica, Mr. Cooper led supply chain, procurement, logistics, and sustainability value creation efforts at KKR, a global
investment firm, from 2008 to 2018. Prior to that, he was the Vice President of Global Sourcing in Honeywell's Aerospace
Division. He previously held various management roles at Storage Technology Corporation, McKinsey & Company, and served
as a Captain in the U.S. Army. He holds a Bachelor of Science in Engineering from the U.S. Military Academy at West Point, a
Master of Science in Mechanical Engineering from the Massachusetts Institute of Technology and an MBA from the MIT Sloan
School of Management.
Yann Etienvre. Mr. Etienvre was appointed as Chief Operations Officer effective January 1, 2022 after serving as a
special advisor upon joining Celestica on November 27, 2021. As Chief Operations Officer, he is responsible for driving
operational and supply chain excellence, quality and technology innovation throughout the Corporation, as well as for the
enablement of processes that drive value creation. As part of his role, he leads the operations, supply chain, quality, global
business services and information technology teams. Prior to joining Celestica, he held various leadership roles with Sensata
Technologies, an NYSE-listed global technology company, from 2013 to 2021. Most recently from 2019 to 2021, he served as
Executive Vice-President where he was responsible for global operations, sourcing, logistics and compliance. Mr. Etienvre has
held commercial and operational leadership roles throughout Asia, Europe and the Americas, and has worked in various
business sectors, such as automotive, healthcare, industrial equipment and electrical controls. He holds an EMBA from
Marquette University and Bachelor of Science in Mechanical Engineering from the National Institute of Applied Sciences in
Lyon, France.
Jason Phillips. Mr. Phillips was appointed President, CCS, effective January 1, 2019. In this role, he is responsible for
strategy and technology development, deployment and execution for Celestica's enterprise and communications businesses. His
responsibilities include the strategic development of our HPS business (which includes firmware/software enablement across all
primary IT infrastructure data center technologies and aftermarket services) and our new center of excellence in Richardson,
Texas, which expands our HPS engineering network and increases our North America manufacturing capacity. Mr. Phillips
joined Celestica in 2008 and held progressively senior roles within the Corporation’s CCS business, most recently as Senior
Vice President, Enterprise and Cloud Solutions. Prior to joining Celestica, he held the role of Vice President and General
Manager, Personal Communications at Elcoteq, and spent five years at Solectron in senior roles spanning sales, global account
management, business unit leadership, and operations. Mr. Phillips holds a Bachelor of Science in Business Administration
from the University of North Carolina, Chapel Hill.
There are no family relationships among any of the foregoing persons, and there are no arrangements or understandings
with any person pursuant to which any of our directors or executive officers were selected.
None of the directors of the Corporation during 2021, current directors or 2022 Meeting nominees serve together as
directors of other corporations.
96
The following table identifies the functional competencies, expertise and qualifications of the Corporation's 2022 Meeting
nominees pursuant to a skills matrix developed by the NCGC to identify functional competencies, expertise and qualifications
that our Board would ideally possess:
97
B. Compensation
Director Compensation
Director compensation is set by the Board on the recommendation of the Human Resources and Compensation
Committee (HRCC) and in accordance with director compensation guidelines and principles established by the NCGC. Under
these guidelines and principles, the Board seeks to maintain director compensation at a level that is competitive with director
compensation at comparable companies, and requires a substantial portion of such compensation to be taken in the form of
DSUs (or, at a director’s election, RSUs, if the Director Share Ownership Guidelines described below have been met). The
director fee structure for 2021 is set forth in Table 1 below.
Table 1: Directors’ Fees(1)
Element
Annual Board Retainer(3)
Travel Fees(4)
Annual Retainer for the Audit Committee Chair
Annual Retainer for the HRCC Chair
Annual Retainer for the NCGC Chair(5)
Director Fee Structure for 2021(2)
$360,000 — Board Chair
$235,000 — Directors
$2,500
$20,000
$15,000
—
(1) Does not include Mr. Mionis, President and CEO of the Corporation, whose compensation is set out in Table 16. Does not include fees payable to
Onex for the service of Mr. Popatia as a director, which are described in footnote 9 to Table 2.
(2) Directors may also receive further retainers and meeting fees for participation on ad hoc committees. No incremental fees were paid to directors for
their participation on the Director Search Committee during 2021. The Board has the discretion to grant supplemental equity awards to individual
directors as deemed appropriate (no such discretion was exercised in 2021).
(3)
(4)
(5)
Paid on a quarterly basis.
Payable only to directors who travel outside of their home state or province to attend a Board or Committee meeting. Travel fees were suspended as of
March 2020 as Board/Committees meetings had been held virtually due to COVID-19. However, travel fees were paid to directors who traveled
outside of their home state or province to attend in person the October 2021 Board meetings, which were held as hybrid virtual and in-person meetings.
The Chair of the Board also served as the Chair of the NCGC in 2021, for which no additional fee was paid.
DSU/RSU Election
Each director must elect to receive 0%, 25% or 50% of their annual board fees, committee chair retainer fees and
travel fees (collectively, Annual Fees) in cash, with the balance in DSUs, until such director has satisfied the requirements of
the Director Share Ownership Guidelines described (and defined) under Director Share Ownership Guidelines below. Once a
director has satisfied such requirements, the director may then elect to receive 0%, 25% or 50% of their Annual Fees in cash,
with the balance either in DSUs or RSUs. If a director does not make an election, 100% of such director’s Annual Fees will
be paid in DSUs.
Annual Fee Election
Prior to Satisfaction of Director
Share Ownership Guidelines
After Satisfaction of Director
Share Ownership Guidelines
Option 1
Option 2
Option 1
Option 2
Option 3
100% DSUs
(i) 25% Cash +
75% DSUs
or
(ii) 50% Cash +
50% DSUs
(i) 100% DSUs
or
(ii) 100% RSUs
(i) 25% Cash +
75% DSUs
or
(ii) 50% Cash +
50% DSUs
(i) 25% Cash +
75% RSUs
or
(ii) 50% Cash +
50% RSUs
98
Subject to the terms of the Directors’ Share Compensation Plan, each DSU represents the right to receive one SVS
or an equivalent value in cash (at the Corporation’s discretion) when the director (a) ceases to be a director of the Corporation
and (b) is not an employee of the Corporation or a director or employee of any corporation that does not deal at arm’s-length
with the Corporation (collectively, Retires). RSUs granted to directors are governed by the terms of the Corporation’s Long-
Term Incentive Plan (LTIP). Each quarterly grant of RSUs will vest in installments of one-third per year on the first, second
and third anniversary dates of the grant. Each vested RSU entitles the holder thereof to one SVS; however, if permitted by the
Corporation under the terms of the grant, a director may elect to receive a payment of cash in lieu of SVS. Unvested RSUs
will vest immediately on the date that the director Retires. DSUs that vest on retirement will be settled on the date that is
45 days following the date on which the director Retires, or the following business day if the 45th day is not a business day
(Valuation Date), or as soon as practicable thereafter. The amount used to cash-settle DSUs (if applicable) will be based on
the closing price of the SVS on the Valuation Date. DSUs will in all cases be redeemed and payable on or prior to the
90th day following the date on which the director Retires.
Grants of DSUs and RSUs to directors are credited quarterly in arrears. The number of DSUs and RSUs, as
applicable, granted is calculated by multiplying the amount of such director’s Annual Fees for the quarter by the percentage
of the Annual Fees that the director elected to receive in the form of DSUs or RSUs, as applicable, and dividing the product
by the closing price of the SVS on the New York Stock Exchange (NYSE) on the last business day of the quarter for DSUs
and the closing price of the SVS on the NYSE on the trading day preceding the date of grant for RSUs.
Directors’ Fees Earned in 2021
All compensation paid in 2021 by the Corporation to its directors is set out in Table 2, except for the compensation
of Mr. Mionis, President and CEO of the Corporation, which is set out in Table 16. The Board earned $1,888,587 in Total
Annual Fees in respect of 2021, including total grants of $897,707 in DSUs and $482,473 in RSUs (excluding fees paid to
Mr. Mionis, whose compensation is set out in Table 16, and fees payable to Onex for the service of Mr. Popatia as a director,
which are described in footnote 9 to Table 2).
Table 2: Director Fees Earned in Respect of 2021
Annual Fees Earned
Allocation of Annual Fees(1)(2)
Annual
Board
Retainer
$235,000
$235,000
$235,000
$235,000
$78,546
$235,000
—
$235,000
$360,000
Annual
Committee
Chair
Retainer
$10,096 (5)
—
—
$20,000 (7)
—
—
—
$4,945(5)
—
Travel
Fees
$2,500(6)
—
—
—
—
—
—
—
$2,500(6)
Total Fees
DSUs(3)
RSUs(3)
Cash(4)
$247,596
$235,000
$235,000
$255,000
$78,546
$235,000
—
$239,945
$362,500
$123,798
$176,250
$176,250
$127,500
$58,909
$235,000
—
—
—
—
—
—
—
—
—
—
$119,973(10)
$362,500
$123,798
$58,750
$58,750
$127,500
$19,637
—
—
$119,972
—
Name
Robert A. Cascella
Deepak Chopra
Daniel P. DiMaggio
Laurette T. Koellner
Luis A. Müller(8)
Carol S. Perry
Tawfiq Popatia(9)
Eamon J. Ryan
Michael M. Wilson
(1) Directors who had not satisfied the requirements of the Director Share Ownership Guidelines described below were required to elect to receive 0%,
25% or 50% of their 2021 Annual Fees (set forth in the “Total Fees” column above) in cash, with the balance in DSUs. Directors who had satisfied
such requirements were required to elect to receive 0%, 25% or 50% of their 2021 Annual Fees in cash, with the balance either in DSUs or RSUs. The
Annual Fees received by directors in DSUs for 2021 were credited quarterly, and the number of DSUs granted in respect of the amounts credited
quarterly was determined using the closing price of the SVS on the NYSE on the last business day of each quarter, which was $8.37 on March 31,
2021, $7.85 on June 30, 2021, $8.88 on September 30, 2021 and $11.13 on December 31, 2021. The Annual Fees received by directors in RSUs for
2021 were credited quarterly, and the number of RSUs granted in respect of the amounts credited quarterly was determined using the closing price of
the SVS on the NYSE on the last business day of each quarter for the first two quarters, which was $8.37 on March 31, 2021 and $7.85 on June 30,
2021, and was determined using the closing price of the SVS on the NYSE on the trading day preceding the day of the grant for the last two quarters,
which was $9.00 on September 29, 2021 and $11.03 on December 30, 2021.
99
(2)
For 2021, the directors elected to receive their Annual Fees as follows:
Director
Robert A. Cascella
Deepak Chopra
Daniel P. DiMaggio
Laurette T. Koellner
Luis A. Müller
Carol S. Perry
Eamon J. Ryan
Michael M. Wilson
Cash
50%
25%
25%
50%
25%
—
50%
—
DSUs
50%
75%
75%
50%
75%
100%
—
—
RSUs
—
—
—
—
—
—
50%
100%
(3) Amounts in this column represent the grant date fair value of the units issued in respect of 2021 Annual Fees which is the same as their accounting
value.
(4) Amounts in this column represent the portion of 2021 Annual Fees paid in cash.
(5) Represents the annual retainer for the Chair of the HRCC. Mr. Ryan served as Chair of the HRCC from January 1 to April 29, 2021 and received a
prorated annual Chair retainer as appropriate. Mr. Cascella was appointed Chair of the HRCC effective as of the close of the Annual Meeting of
Shareholders held on April 29, 2021, and received a prorated annual Chair retainer as appropriate.
(6)
Travel fees were suspended in March 2020 as Board/Committee meetings have been held virtually due to COVID-19; however, travel fees were paid to
directors who traveled outside of their home state or province to attend in person the October 2021 Board meetings, which were held as hybrid virtual
and in-person meetings.
(7) Represents the annual retainer for the Chair of the Audit Committee.
(8) Dr. Müller was appointed to the Board of Directors effective August 31, 2021. For August 31, 2021 to September 30, 2021, Dr. Müller received a
prorated quarterly annual Board retainer.
(9) Mr. Popatia is an officer of Onex and did not receive any compensation in his capacity as a director of the Corporation in 2021; however, Onex
received compensation for providing the services of Mr. Popatia as a director in 2021 pursuant to a Services Agreement between the Corporation and
Onex, entered into on January 1, 2009 (as amended January 1, 2017, the Services Agreement). The Services Agreement automatically renews for
successive one-year terms unless the Corporation or Onex provide notice of intent not to renew. The Services Agreement terminates automatically and
the rights of Onex to receive compensation (other than accrued and unpaid compensation) will terminate (a) 30 days after the first day on which Onex
ceases to hold at least one MVS of Celestica or any successor company or (b) the date Mr. Popatia ceases to be a director of Celestica, for any reason.
Onex receives compensation under the Services Agreement in an amount equal to $235,000 per year (consistent with current annual Board retainer
fees) payable in DSUs in equal quarterly installments in arrears. The number of DSUs is determined using the closing price of the SVS on the NYSE
on the last day of the fiscal quarter in respect of which the instalment is to be credited.
(10)
In 2021, 12,770 of the RSUs previously issued to Mr. Ryan vested and were settled in SVS (on a one-for-one basis) at his election.
Directors’ Ownership of Securities
Outstanding Share-Based Awards
Information concerning all outstanding share-based awards as of December 31, 2021 made by the Corporation to
each director (other than Mr. Mionis, whose information is set out in Table 17), including awards granted prior to 2021, is set
out in Table 3. Such awards consist of DSUs and RSUs. DSUs granted to the individuals set forth below may only be settled
in SVS purchased in the open market or an equivalent value in cash (at the discretion of the Corporation). RSUs granted to
directors are governed by the terms of the LTIP. Each vested RSU entitles the holder thereof to one SVS; however, if
permitted by the Corporation under the terms of the grant, a director may elect to receive a payment of cash in lieu of SVS.
No options to acquire SVS may currently be granted to directors under the LTIP, and no options previously granted to
directors (or former directors) under the LTIP remain outstanding.
100
Table 3: Outstanding Share-Based Awards
Name
Robert A. Cascella
Deepak Chopra
Daniel P. DiMaggio
Laurette T. Koellner
Luis A. Müller(2)
Carol S. Perry
Tawfiq Popatia(3)
Eamon J. Ryan
Michael M. Wilson
Number of
Outstanding Securities
Market Value of
Outstanding Securities(1)
($)
DSUs
(#)
50,883
68,612
262,270
267,099
5,629
222,127
—
262,768
283,131
RSUs
(#)
—
—
—
—
—
—
—
33,549
40,602
DSUs
($)
$566,328
$763,651
$2,919,065
$2,972,812
$62,651
$2,472,274
—
$2,924,608
$3,151,248
RSUs
($)
—
—
—
—
—
—
—
$373,400
$451,900
(1)
The market value of DSUs and unvested RSUs was determined using a share price of $11.13, which was the closing price of the SVS on the NYSE on
December 31, 2021.
(2) Dr. Müller was appointed to the Board of Directors effective August 31, 2021.
(3) No share-based awards have been made to Mr. Popatia; however 317,564 DSUs have been issued to Onex (and are outstanding) pursuant to the
Services Agreement since its inception, including 26,396 DSUs issued to Onex for the services of Mr. Popatia as a director of the Corporation in 2021.
For further information see footnote 9 to Table 2.
Director Share Ownership Guidelines
All directors must meet our Director Share Ownership Guidelines within five years of joining the Board (unless they
are employees or officers of the Corporation or Onex). The Director Share Ownership Guidelines require that a director hold
SVS, DSUs and/or unvested RSUs with an aggregate value equal to 150% of the annual retainer and that the Chair of the
Board hold SVS, DSUs and/or unvested RSUs with an aggregate value equal to 187.5% of the annual retainer of the Chair of
the Board.
Each director’s holdings of securities are reviewed annually as of December 31. The following table sets out
whether each director standing for election at the next Annual Meeting of Shareholders was in compliance with the Director
Share Ownership Guidelines as of December 31, 2021.
Table 4: Shareholding Requirements
Shareholding Requirements
Target Value as of
December 31, 2021
$352,500
Value as of
December 31, 2021(2)
$566,328
Met Target as of
December 31, 2021
Yes
$352,500
$352,500
$352,500
$352,500
$352,500
$675,000
$763,651
$2,919,065
$2,972,812
$62,651
$2,472,274
$3,825,748
Yes
Yes
Yes
N/A
Yes
Yes
Director(1)
Robert A. Cascella
Deepak Chopra
Daniel P. DiMaggio
Laurette T. Koellner
Luis A. Müller(3)
Carol S. Perry
Michael M. Wilson
(1) As President and CEO of the Corporation, Mr. Mionis is subject to the Executive Share Ownership Guidelines – see Executive Share Ownership. As an
officer of Onex, Mr. Popatia is not subject to the Director Share Ownership Guidelines. Directors have five years from their appointment to comply
with the Director Share Ownership Guidelines. Although applicable directors will not be deemed to have breached such Guidelines by reason of a
decrease in the market value of the Corporation’s securities, such directors are required to purchase further securities within a reasonable period of time
after such occurrence to comply with the Director Share Ownership Guidelines.
(2)
The value of the aggregate number of SVS, DSUs and/or unvested RSUs held by each director is determined using a share price of $11.13, which was
the closing price of the SVS on the NYSE on December 31, 2021.
(3) Dr. Müller was appointed to the Board of Directors effective August 31, 2021 and he is required to comply with the Director Share Ownership
Guidelines within five years of his appointment.
101
Director Attendance
Directors are expected to be prepared for and attend all Board and respective committee meetings. The following
table sets forth the attendance of directors at Board meetings and at meetings of those standing committees of which they are
members, from January 1, 2021 to February 22, 2022. All then-members of the Board attended the Corporation’s 2021
Annual Meeting of Shareholders.
Table 5: Directors’ Attendance at Board and Committee Meetings
Director
Robert A. Cascella
Deepak Chopra
Daniel P. DiMaggio
Laurette T. Koellner
Robert A. Mionis
Luis A. Müller(1)
Carol S. Perry
Tawfiq Popatia
Eamon J. Ryan
Michael M. Wilson
Board
13 of 13
12 of 13
13 of 13
13 of 13
13 of 13
4 of 4
12 of 13
13 of 13
13 of 13
13 of 13
Audit
Committee
HRCC
NCGC
6 of 6
6 of 6
6 of 6
6 of 6
—
2 of 2
6 of 6
—
6 of 6
6 of 6
6 of 6
6 of 6
6 of 6
6 of 6
—
3 of 3
6 of 6
—
6 of 6
6 of 6
5 of 5
5 of 5
5 of 5
5 of 5
—
2 of 2
5 of 5
—
5 of 5
5 of 5
Meetings Attended %
Board
100%
92%
100%
100%
100%
100%
92%
100%
100%
100%
Committee
100%
100%
100%
100%
—
100%
100%
—
100%
100%
(1)
Dr. Müller was appointed to the Board of Directors effective August 31, 2021.
In response to the COVID-19 pandemic, all Board and Committee meetings noted in the above table were held
virtually by electronic means other than the October 2021 meetings which were held as hybrid in-person and virtual
meetings.
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis sets out the policies of the Corporation for determining compensation
paid to the Corporation’s CEO, its CFO, and the three other most highly compensated executive officers (collectively, Named
Executive Officers or NEOs). The NEOs who are the subject of this Compensation Discussion and Analysis are:
Robert A. Mionis — President and Chief Executive Officer
Mr. Mionis is responsible for Celestica’s overall leadership, strategy and vision. In
conjunction with the Board of Directors, he develops the Corporation’s overall strategic plan,
including the corporate goals and objectives as well as our approach to risk management. He
is focused on positioning the Corporation for long-term profitable growth and ensuring the
success of Celestica’s customers around the world.
Prior to joining Celestica, Mr. Mionis was an Operating Partner at Pamplona, a global private equity firm where he
supported several companies across a broad range of industries, including the industrial, aerospace, healthcare and
automotive industries. Before joining Pamplona, Mr. Mionis served as President and CEO of StandardAero, leading the
company through a period of significant revenue and profitability growth. Over the course of his career he has held a
number of operational and service roles at companies in the aerospace, industrial and semiconductor markets, including
General Electric, Axcelis Technologies, AlliedSignal and Honeywell. From 2018 to 2021, Mr. Mionis served on the board
of Shawcor Ltd., a Canadian oilfield services company listed on the TSX.
Mr. Mionis is a member of the Board of Directors. He holds a Bachelor of Science in Electrical Engineering from the
University of Massachusetts.
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Mandeep Chawla — Chief Financial Officer
Mr. Chawla is responsible for the planning and management of short and long-term
financial performance and reporting activities. He assists the CEO in setting the strategic
direction and financial goals of the Corporation, and manages overall capital allocation
activities in order to maximize shareholder value. He provides oversight on risk
management and governance matters, and leads the communication and relationship
management activities with key financial stakeholders.
Mr. Chawla joined Celestica in 2010 and held progressively senior roles in the Corporation before assuming the role of
CFO in 2017. Prior to joining Celestica, he held senior financial management roles with MDS Inc., Tyco International, and
General Electric. Mr. Chawla was appointed to the Board of Directors of Sleep Country Canada Holdings Inc., a TSX-
listed mattress and bedding retailer, effective August 20, 2020.
Mr. Chawla holds a Master of Finance degree from Queen’s University and a Bachelor of Commerce degree from
McMaster University. He is a CPA, CMA.
Jason Phillips — President, CCS
Mr. Phillips was appointed President, CCS, effective January 1, 2019. In this role, he is
responsible for strategy and technology development, deployment and execution for Celestica's
enterprise and communications businesses. His responsibilities include the strategic development
of our HPS business (which includes firmware/software enablement across all primary IT
infrastructure data center technologies and aftermarket services) and our new center of
excellence in Richardson, Texas, which expands our HPS engineering network and increases our
North America manufacturing capacity.
Mr. Phillips joined Celestica in 2008 and held progressively senior roles within the Corporation’s CCS business, most
recently as Senior Vice President, Enterprise and Cloud Solutions. Prior to joining Celestica, he held the role of Vice
President and General Manager, Personal Communications at Elcoteq, and spent five years at Solectron in senior roles
spanning sales, global account management, business unit leadership, and operations.
Mr. Phillips holds a Bachelor of Science in Business Administration from the University of North Carolina, Chapel Hill.
John “Jack” J. Lawless — Former President, ATS
Mr. Lawless was responsible for strategy development, deployment and execution of
Celestica’s A&D, Industrial, HealthTech, Energy and Capital Equipment businesses. Mr.
Lawless stepped down from his position as President, ATS effective December 31, 2021 but
continues to serve as a special advisor to Mr. Mionis.
Prior to joining Celestica, Mr. Lawless was the CEO of Associated Air Center, a subsidiary of
StandardAero, where he was responsible for strategy, sales, marketing, human resources,
information technology and operations. At the same time, he held the role of Chief Operating
Officer of StandardAero. Prior to StandardAero, Mr. Lawless held a number of Vice President-level roles with Honeywell.
Before joining Honeywell, he held progressively senior positions with companies in the aerospace, industrial and
semiconductor markets, including Axcelis Technologies, General Cable and AlliedSignal.
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Todd C. Cooper — Former Chief Operations Officer; current President, ATS
During 2021, Mr. Cooper served as Chief Operations Officer and was responsible for driving
operational and supply chain excellence, quality and technology innovation throughout the
Corporation, as well as for the enablement of processes that drive value creation. As part of his
role, he also led the operations, supply chain, quality, global business services and information
technology teams. Effective January 1, 2022, Mr. Cooper was appointed President, ATS. As
President, ATS, Mr. Cooper is responsible for strategy development, deployment and execution
of Celestica’s A&D, Capital Equipment, HealthTech, Industrial and Energy businesses, as well
as for PCI.
Mr. Cooper has over 25 years’ experience in operations leadership and advisory roles, including considerable experience
in developing and implementing operational strategies to drive large-scale improvements for global organizations. Prior to
joining Celestica, Mr. Cooper led supply chain, procurement, logistics, and sustainability value creation efforts at KKR, a
global investment firm. Prior to that, he was the Vice President of Global Sourcing in Honeywell’s Aerospace Division.
He previously held various management roles at Storage Technology Corporation, McKinsey & Company, and served as a
Captain in the U.S. Army.
He holds a Bachelor of Science in Engineering from the U.S. Military Academy at West Point, a Master of Science in
Mechanical Engineering from the Massachusetts Institute of Technology and an MBA from the MIT Sloan School
of Management.
Note Regarding Non-IFRS Financial Measures
This Compensation Discussion and Analysis contains references to operating margin and adjusted return on invested
capital (ROIC), each of which is a non-IFRS financial measure (i.e., a ratio based on a non-IFRS financial measure). With
respect to all references to these measures (wherever used herein), please note the following:
• Non-IFRS operating margin is defined as non-IFRS operating earnings divided by revenue. Non-IFRS operating
earnings is defined as earnings (loss) before income taxes, Finance Costs (defined below), employee stock-based
compensation expense, amortization of intangible assets (excluding computer software) and Other Charges
(recoveries) (as defined below).
• Non-IFRS adjusted ROIC is determined by dividing non-IFRS operating earnings by average net invested capital,
which is derived from IFRS financial measures and is defined as total assets less: cash, right-of-use assets, accounts
payable, accrued and other current liabilities and provisions, and income taxes payable, using a five-point average to
calculate average net invested capital for the year.
• 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 customer supplier
financing programs, and interest expense on our lease obligations, net of interest income earned.
• Other Charges (recoveries) consist of restructuring charges, net of recoveries, transition costs (costs related to, when
applicable: the relocation of our Toronto manufacturing operations and the move of our corporate headquarters into
and out of a temporary location; and manufacturing line transfers from closed sites); net impairment charges;
Acquisition Costs (as defined below); legal settlements (recoveries); and specified credit facility-related charges.
• Acquisition Costs consist of acquisition-related consulting, transaction and integration costs, and charges or releases
related to the remeasurement of indemnification assets or the release of indemnification or other liabilities recorded in
connection with acquisitions.
See “Non-IFRS Financial Measures” in Item 5 of this Annual Report for, among other things, a discussion of the
exclusions used to determine these non-IFRS financial measures, how these non-IFRS financial measures are used, and a
reconciliation of historical non-IFRS operating margin and non-IFRS adjusted ROIC to the most directly comparable IFRS
financial measures, which reconciliations are incorporated herein by reference. These non-IFRS financial measures do not
have any standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by
other companies.
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A description and explanation of the significant elements of compensation awarded to the foregoing NEOs during
2021 is set forth below under 2021 Compensation Decisions.
Compensation Objectives
The Corporation’s executive compensation philosophy is to attract, motivate and retain the leaders who drive the
success of the Corporation. In light of this philosophy, we have designed our executive compensation programs and practices
to pay for performance, adhere to the Corporation’s risk profile, align the interests of executives and shareholders, incentivize
executives to work as a team to achieve our strategic objectives, ensure direct accountability for annual and long-term
operating results, and to reflect both business strategy and market norms. The HRCC reviews compensation policies and
practices regularly, considers related risks, and makes any adjustments it deems necessary to ensure our compensation
policies are not reasonably likely to have a material adverse effect on the Corporation.
A substantial portion of the compensation of our executives is linked to the Corporation’s performance. The HRCC
establishes total target compensation and certain elements of compensation (base salary, short-term incentives and long-term
incentives) for the NEOs with reference to the median compensation of the Comparator Group, and other factors including
experience, internal pay equity, work location, tenure, and role. Rather than setting pay formulaically to match the median
exactly, the Comparator Group is primarily used for setting an anchor point by which to test the reasonableness of
compensation. NEOs have the opportunity for higher compensation for performance that exceeds target performance goals,
and will receive lower compensation for performance that is below target performance goals.
What We Do
Pay for performance
Focus on long-term compensation using a
balanced mix of compensation elements
Ensure the mix of executive compensation balances
long-term success, annual performance, and adequate
fixed compensation
Consider market norms and competitive pay
practices
What We Don’t Do
No repricing of options
No hedging or pledging by executives of
Celestica securities
No steep payout cliffs at certain performance
levels that may encourage short-term business
decisions to meet payout thresholds
No multi-year guarantees
Mitigate undue risk in compensation programs
No uncapped incentive plans
X
X
X
X
X
Retain an independent advisor to the HRCC
Stress-test compensation plan designs
Apply stringent share ownership policies and post-
employment hold period for the CEO’s
shares
Clawback incentive-based compensation under specified
circumstances
Maintain equity plans that provide for change of control
treatment for outstanding equity based on a
“double trigger” requirement
Set minimum corporate profitability
requirement for CTI payments
Establish caps on PSU payout factors
Provide annual shareholder “say-on-pay” advisory vote
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The 2021 compensation package was designed to:
• ensure executives are compensated fairly and in a way that does not result in the Corporation incurring undue risk or
encouraging executives to take inappropriate risks;
• provide competitive fixed compensation (i.e., base salary and benefits), as well as a substantial amount of at-risk pay
through our annual and equity-based incentive plans;
• reward executives for: achieving short-term operational and financial results through annual cash incentives based on
the Corporation’s Annual Operating Plan (AOP); achieving long-term operational and financial results as well as
superior share price performance relative to a group of technology hardware and equipment companies (through
PSUs); and sustained, long-term leadership (through RSUs);
• align the interests of executives and shareholders through long-term equity-based compensation;
• recognize tenure and utilize a multi-year approach for setting and transitioning target compensation for executives
who are new in their role;
• reflect internal equity, recognize fair and appropriate compensation levels relative to differing roles and
responsibilities, and encourage executives to work as a team to achieve corporate results; and
• ensure direct accountability for the annual operating results and the long-term financial performance of the
Corporation.
Independent Advice
The HRCC, which has the sole authority to retain and terminate an executive compensation consultant to the HRCC,
has engaged Willis Towers Watson (Compensation Consultant) since 2006 as its independent compensation consultant to
assist in identifying appropriate comparator companies against which to evaluate the Corporation’s compensation levels, to
provide data about those companies, and to provide observations and advice with respect to the Corporation’s compensation
practices versus those of chosen comparator companies and the market in general.
The Compensation Consultant also provides advice (upon request) to the HRCC on the policy recommendations
prepared by management and keeps the HRCC apprised of market trends in executive compensation. The Compensation
Consultant attended portions of all HRCC meetings held in 2021, in person, by telephone or virtually, as requested by the
Chair of the HRCC. At each of its meetings, the HRCC held an in camera session with the Compensation Consultant without
any member of management being present. Decisions made by the HRCC, however, are the responsibility of the HRCC and
may reflect factors and considerations supplementary to the information and advice provided by the Compensation
Consultant.
Each year, the HRCC reviews the scope of activities of the Compensation Consultant and, if it deems appropriate,
approves the corresponding budget. During such review, the HRCC also considers the independence factors required to be
considered by the NYSE prior to the selection or receipt of advice from a compensation consultant. After consideration of
such independence factors and prior to engaging the Compensation Consultant in 2021, the HRCC determined that the
Compensation Consultant was independent. The Compensation Consultant meets with the Chair of the HRCC and
management at least annually to identify any initiatives requiring external support and agenda items for each HRCC meeting
throughout the year. The Compensation Consultant reports directly to the Chair of the HRCC and is not engaged by
management. The Compensation Consultant may, with the approval of the HRCC, assist management in reviewing and,
where appropriate, developing and recommending compensation programs to align the Corporation’s practices with
competitive practices. Any such service in excess of $25,000 provided by the Compensation Consultant relating to executive
compensation must be pre-approved by the Chair of the HRCC. In addition, any non-executive compensation consulting
service in excess of $25,000 must be submitted by management to the HRCC for pre-approval, and any services that will
cause total non-executive compensation consulting fees to exceed $25,000 in aggregate in a calendar year must also be pre-
approved by the HRCC.
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The following table sets out the fees paid by the Corporation to the Compensation Consultant in each of the past
two years:
Table 6: Fees of the Compensation Consultant
Executive Compensation-Related Fees(1)
All Other Fees(2)
Year Ended
December 31
2021
C$272,238
C$14,980
2020
C$299,264
C$11,626
(1)
Services for 2021 and 2020 included support on executive compensation matters that are part of the HRCCs annual agenda (e.g., executive
compensation competitive market analysis, review of trends in executive compensation, peer group review, pay for performance analysis and
assistance with executive compensation-related disclosure, annual valuation of PSUs for accounting purposes, attendance at all HRCC meetings, and
support with ad-hoc executive compensation issues that arose throughout the year). Services for 2020 also included the comprehensive Comparator
Group review, market benchmark data for certain executives, and PSU valuation and estimated fair values.
(2) Other fees for 2021 included a competitive market analysis for certain of our businesses. Other fees for 2020 included an abridged director
compensation review.
Compensation Process
Executive compensation is determined as part of an annual process followed by the HRCC, supported by the
Compensation Consultant. The HRCC reviews and approves compensation for the CEO and the other NEOs, including base
salaries, target annual incentive awards under the CTI and equity-based incentive grants. The HRCC evaluates the
performance of the CEO relative to financial and business goals and objectives approved by the Board from time to time for
such purpose. The HRCC reviews data for the Comparator Group and other competitive market data, and consults with the
Compensation Consultant before exercising its independent judgment to determine appropriate compensation levels. The
CEO reviews the performance evaluations of the other NEOs with the HRCC and provides compensation recommendations.
The HRCC considers these recommendations, reviews market compensation information, consults with the Compensation
Consultant, and then exercises its independent judgment to determine if any adjustments are required prior to approval of the
compensation of such other NEOs. The CEO and the other NEOs are not present at the HRCC meetings when their respective
compensation is discussed.
The HRCC generally meets five times a year, in January, April, July, October and December. The annual executive
compensation process typically follows the calendar outlined below:
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January
• Determine achievement of the corporate performance factor (based on the Corporation’s year end results as
approved by the Audit Committee) and the individual performance factors for CTI payments for the previous year
• Determine achievement of performance for the PSUs that vest in the current year based on the applicable
performance period
• Approve corporate performance objectives for the CTI for the current year
• Approve performance goals for PSUs granted in the current year
• Review individual target compensation levels and approve base salary, target under the CTI and long-term
incentives for the current year
• Conduct risk assessment of compensation programs
• Review scope of activity of Compensation Consultant and approve fees for the current year
• Review executive compensation disclosure
• Review the corporate goals and objectives relevant to CEO compensation and evaluate CEO performance in light of
the financial and business goals and objectives approved by the Board for the previous year
• Review and approve total compensation package for CEO for the current year, including stress-test of performance-
April
July
October
December
based compensation
• Annual compensation policy review and pension plan review
• Assess performance of Compensation Consultant
• Diversity and inclusion update
• Review and consider shareholder feedback from say-on-pay vote
• Review trends and “hot topics” in compensation governance
• Review and approve Comparator Group for the following year (based on the recommendation of the Compensation
Consultant)
• Review talent management strategy and succession plans
• Conduct pay for performance alignment review
• Review market benchmark reports for the CEO and other NEOs
• Review and evaluate interim performance relative to corporate goals and objectives for the current year
• Conduct risk assessment of compensation programs
• Review and evaluate updated interim performance relative to corporate goals and objectives for the current year
• Review preliminary compensation recommendations and performance objectives for the following year, including
base salary recommendations and
incentives (NEO compensation
recommendations are developed by the CEO. The CEO’s compensation recommendations are determined by the
HRCC in consultation with the Compensation Consultant and the CHRO).
the value and mix of equity-based
• By reviewing the compensation proposals in advance, the HRCC is afforded sufficient time to discuss and provide
input regarding proposed compensation changes prior to the January meeting at which time the HRCC approves the
compensation proposals, revised as they deem appropriate, based on input provided at the December meeting.
Preliminary evaluation of individual performance relative to objectives
•
HRCC Discretion
The HRCC may exercise its discretion to either award compensation absent attainment of a relevant performance
goal or similar condition, or to reduce or increase the size of any award or payout to any NEO. The HRCC did not exercise
such discretion for 2021 compensation with respect to any NEO.
Compensation Risk Assessment and Governance Analysis
The HRCC, in performing its duties and exercising its powers under its mandate, considers the implications of the
risks associated with the Corporation’s compensation policies and practices. This includes: identifying any such policies or
practices that encourage executive officers to take inappropriate or excessive risks; identifying risks arising from such
policies and practices that are reasonably likely to have a material adverse effect on the Corporation; and considering the risk
implications of the Corporation’s compensation policies and practices and any proposed changes to them.
The Corporation’s compensation programs are designed with a balanced approach aligned with its business strategy
and risk profile. A number of compensation practices have been implemented to mitigate potential compensation policy risk.
It is the HRCC’s view that the Corporation’s 2021 compensation policies and practices did not promote excessive risk-taking
that would be reasonably likely to have a material adverse effect on the Corporation, and that appropriate risk mitigation
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features are in place within the Corporation’s compensation program. In reaching its opinion, the HRCC reviewed key risk-
mitigating features in the Corporation’s compensation governance processes and compensation structure including
the following:
Governance
Corporate Strategy
Alignment
•
Our executive compensation program is designed to link executive compensation outcomes with
the execution of business strategy and align with shareholder interests.
Compensation Decision-
Making Process
• We have formalized compensation objectives to help guide compensation decisions and incentive
design and to effectively support our pay for performance policy (see Compensation Objectives).
Shareholder Engagement
Non-binding Shareholder
Advisory Vote on Executive
Compensation
Annual Review of Incentive
Programs
External Independent
Compensation Advisor
Overlapping Committee
Membership
Compensation Program Design
Review of Incentive
Programs
Fixed versus Variable
Compensation
“One-company” Annual
Incentive Plan
Balance of Financial
Performance Metrics as well
as Absolute and Relative
Performance Metrics
Minimum Performance
Requirements and
Maximum Payout Caps
• We have a shareholder outreach program through which we solicit feedback on our corporate
governance, executive compensation program, and other matters.
• We annually hold an advisory vote on executive compensation, allowing shareholders to express
approval or disapproval of our approach to executive compensation.
•
Each year, we review and set performance measures and targets for the CTI and for PSU grants
under the long-term incentive plans that are aligned with the business plan and our risk profile to
ensure continued relevance and applicability.
• When new compensation programs are considered, they are stress-tested to ensure potential
payouts would be reasonable within the context of the full range of performance outcomes. CEO
compensation is stress-tested annually in addition to any stress-tests for new compensation
programs.
On an ongoing basis, the HRCC retains the services of an independent compensation advisor to
provide an external perspective as to marketplace changes and best practices related to
compensation design, governance and compensation risk management.
•
•
•
•
•
•
•
•
•
•
•
•
•
All of our independent directors sit on the HRCC to provide continuity and to facilitate
coordination between the Committee’s and the Board’s respective oversight responsibilities.
At appropriate intervals, we conduct a review of our compensation strategy, including pay
philosophy and program design, in light of business requirements, shareholder views, market
practice and governance considerations.
For the NEOs, a significant portion of target total direct compensation is delivered through
variable compensation (CTI and long-term, equity-based incentive plans).
The majority of the value of target variable compensation is delivered through grants under long-
term, equity-based incentive plans which are subject to time and/or performance vesting
requirements.
The mix of variable compensation provides a strong pay for performance relationship.
The NEO compensation package provides a competitive base level of compensation through
salary, and mitigates the risk of encouraging the achievement of short-term goals at the expense
of creating and sustaining long-term shareholder value, as NEOs benefit if shareholder value
increases over the long-term.
Celestica’s “one-company” annual incentive plan (CTI) helps to mitigate risk-taking by
tempering the results of any one business unit on Celestica’s overall corporate performance, and
aligning executives and employees in the various business units and regions with corporate goals.
is assessed based on business
The CTI ensures a balanced assessment of performance with ultimate payout tied to measurable
corporate financial metrics.
Individual performance
teamwork and key
accomplishments, and market performance is captured through RSUs as well as PSUs (which
vest based on performance relative to both absolute and relative financial targets).
A corporate profitability requirement must be met for any payout to occur under the CTI.
Additionally, target performance on a second performance measure must be achieved for
payment above target on any other performance measure.
Each of the CTI and PSU payouts have a maximum payout of two times target.
results,
109
Share Ownership
Requirement
Anti-hedging and Anti-
pledging Policy
Clawback Policy and
Provisions
“Double Trigger”
Severance Protection
Pay For Performance
Analysis
•
•
•
•
•
•
•
•
Our share ownership guidelines require executives to hold a significant amount of our securities
to help align their interests with those of shareholders’ and our long-term performance.
This practice also mitigates against executives taking inappropriate or excessive risks to improve
short-term performance at the expense of longer-term objectives.
In the event of the cessation of Mr. Mionis’ employment with us for any reason, he will be
required to retain the share ownership level set out in the Executive Share Ownership Guidelines
on his termination date for the 12 month period immediately following his termination date as set
out in Mr. Mionis’ amended CEO employment agreement effective August 1, 2016 (CEO
Employment Agreement).
Executives and directors are prohibited from: entering into speculative transactions and
transactions designed to hedge or offset a decrease in the market value of our securities;
purchasing our securities on margin; borrowing against our securities held in a margin account;
and pledging our securities as collateral for a loan.
The Clawback Policy provides for recoupment of incentive compensation from the NEOs if the
Corporation is required to restate financial statements due to, directly or indirectly, one or more
NEOs having engaged in fraud, intentional misconduct or gross negligence or committed a
material breach of the BCG Policy. Additionally, incentive compensation is subject to clawback
if an executive has committed a material breach of certain post-employment provisions. See
Clawback Policy and Provisions below.
The LTIP and Celestica Share Unit Plan (CSUP) provide for change-of-control treatment for
outstanding equity based on a “double trigger” requirement.
NEOs’ entitlements on termination without cause are in part contingent on complying with
confidentiality, non-solicitation and non-competition obligations.
Periodic scenario-testing of the executive compensation programs is conducted, including a pay
for performance analysis.
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Comparator Group
Global Presence
While the Corporation is incorporated and headquartered in Canada, we have a global business strategy and we
compete for executive talent worldwide. We operate a network of sites and centers of excellence strategically located in
North America, Europe and Asia, with specialized end-to-end supply chain capabilities tailored to meet specific market and
customer product lifecycle requirements.
The EMS industry is highly competitive, and certain of our businesses are extensively technical and highly
specialized requiring a highly skilled leadership team.
Broadly diversified footprint operating globally across 40+ sites
2021 Comparator Group
Celestica’s approach to executive pay benchmarking has evolved over time and reflects the changes in Corporation’s
strategic direction. The evolution of our business model, as well as external market conditions, led us to reconsider the
companies comprising the Comparator Group. Specifically, it is important to Celestica that the Comparator Group reflect the
global scale of executive talent required to drive our strategic vision. We therefore undertook a comprehensive review during
2020 of our approach to the companies comprising our Comparator Group to ensure that it properly reflected our market for
executive talent and the financial characteristics and highly specialized and diversified operations of the Corporation as it
progressed from a transformative phase to an anticipated growth phase.
A majority of our current executive officers were not recruited from the Canadian market. Our three most recent
CEOs (including Mr. Mionis) and three of the four other NEOs have come from the U.S. We have no EMS competitors in
Canada, and non-EMS companies of similar size, that are based exclusively within Canada do not provide the desired EMS
business and operational knowledge required for the complexity of our business.
The Compensation Consultant prepared an in-depth review of potential changes to the Comparator Group, which
was presented to the HRCC, with consideration for the following criteria:
111
revenue is the driver of relative scope/complexity and is the financial measure that is
most strongly correlated with executive pay
the range of revenue of the Comparator Group is provided below; Celestica’s 2020
revenue was above the median:
Financial performance
•
•
•
•
Company size and complexity •
Industry
•
Peers of peers
Input from management
other financial indicators were used in addition to revenue, such as market
capitalization, earnings before interest and taxes (EBIT) margin and other financial
indicators which align with our strategic direction
these financial attributes ensure the alignment of executive pay with that of companies
with similar financial characteristics as well as affordability of incentive plans
companies with similar size and complexity recruit from the same executive talent
pool
similarly sized industry comparables were further refined based on other financial
indicators
review of technology companies associated with the EMS industry
•
• analysis of the comparator groups of certain peer companies within the EMS industry
•
perspectives of management regarding which organizations were most relevant from a
business operations and talent competitor perspective
Based on these criteria, the Compensation Consultant recommended and the HRCC approved the following
Comparator Group, which is comprised of U.S.-based technology companies, to be used in the determination of 2021
executive compensation:
Table 7: Comparator Group
Benchmark Electronics Inc.
Ciena Corp.
CommScope Holdings Company, Inc.
Curtiss-Wright Corporation
Diebold Nixdorff, Incorporated
Juniper Networks, Inc.
Keysight Technologies Inc.
NCR Corporation
NetApp, Inc.
ON Semiconductor Corporation
Plexus Inc.
Sanmina Corporation
ScanSource Inc.
Seagate Technology PLC
Trimble Inc.
Xerox Holdings Corporation
During 2021, the HRCC reviewed the Comparator Group for 2022 executive compensation, and no changes were
made.
Additionally, broader market compensation survey data for other similarly-sized organizations as well as U.S.
technology companies and Canadian general industry companies with global operations provided by the Compensation
Consultant is analyzed in accordance with a process approved by the HRCC. The HRCC also considered proxy disclosure for
companies in the Comparator Group, as well as survey data, among other factors, in making compensation decisions for the
CEO and the other NEOs.
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Anti-Hedging and Anti-Pledging Policy
Our Insider Trading Policy prohibits executives from, among other things, entering into speculative transactions and
transactions designed to hedge or offset a decrease in the market value of securities of the Corporation. Accordingly,
executive officers may not sell short the Corporation’s securities, buy or sell put or call options on the Corporation’s
securities, or purchase financial instruments (including prepaid variable contracts, equity swaps, collars or units of exchange
funds) which are designed to hedge or offset a decrease in the market value of the Corporation’s securities. Executive officers
are also prohibited from purchasing the Corporation’s securities on margin, borrowing against the Corporation’s securities
held in a margin account, or pledging the Corporation’s securities as collateral for a loan. The directors of the Corporation
also must comply with the provisions of the Insider Trading policy which prohibit hedging and/or pledging of the
Corporation’s securities.
Clawback Policy and Provisions
In 2021, the HRCC approved a new Clawback Policy applicable to the NEOs which provides that if the Corporation
is required to restate financial statements due to, directly or indirectly, one or more NEOs having (a) engaged in fraud,
intentional misconduct or gross negligence or (b) committed a material breach of the BCG Policy, the following clawbacks
will apply: (i) reduction of the number or value of, or cancellation or termination of, all or any portion of incentive
compensation awarded or granted to the breaching NEO in the 12 months prior to date of breach; and (ii) disgorgement or
reimbursement of all or any portion of any incentive compensation paid, awarded or granted to such executive, as well as
proceeds realized from any such award or grant in the 12 months prior to the date of breach.
Additionally, the Executive Policy Guidelines were updated in 2021 to include provisions that all incentive
compensation paid or awarded to executives (including the NEOs) may be subject to clawback in the event an executive has
committed a material breach of certain post-employment provisions (non-competition, non-solicitation or disclosure of
confidential information). The clawbacks include reduction of the number or value of, or cancellation and termination, of all
or any portion of any incentive compensation that was awarded or granted to the executive or vested, in each case in the two-
year period prior to the date of breach and/or disgorgement or reimbursement of all or any portion of any incentive
compensation paid, awarded or granted to such executive, as well as proceeds realized from any such award or grant, in each
case in the two year period prior to the date of breach.
For the purposes of these clawbacks and recoupment, incentive compensation means, without limitation, short-term
cash incentives, equity-based incentives and any other incentive-based compensation.
In addition, under the terms of all equity grants made to employees (including the NEOs) under the LTIP and the
CSUP, an amount equal to the market value of the shares (or in the case of options, the intrinsic value realized by the
executive) at the time of release, net of taxes, is required to be repaid to the Corporation if, within 12 months of the release
date, there was a breach of certain post-employment provisions (non-competition, non-solicitation or disclosure of
confidential information).
Executives who are terminated for cause also forfeit all unvested RSUs, PSUs and stock options as well as all vested
and unexercised stock options.
Executive Share Ownership
The Corporation has executive share ownership guidelines (Executive Share Ownership Guidelines) which require
specified executives to hold a multiple of their base salary in specified securities of the Corporation as shown in Table 8.
Executives subject to the Executive Share Ownership Guidelines are expected to achieve the specified ownership within a
period of five years following the later of: (i) the date of hire, or (ii) the date of promotion to a level subject to the ownership
guidelines. Compliance is reviewed annually as of December 31 of each year. The HRCC reviewed the Executive Share
Ownership Guidelines in July 2021 and no policy changes were made. The table below sets forth the compliance status of the
applicable NEOs with the Executive Share Ownership Guidelines as of December 31, 2021:
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Table 8: Executive Share Ownership Guidelines
Name
Robert A. Mionis(2)
Mandeep Chawla
Jason Phillips
Jack J. Lawless
Todd C. Cooper
Executive Share Ownership
Guidelines
$4,750,000
(5 × salary)
$1,650,000
(3 × salary)
$1,455,000
(3 × salary)
$1,380,000
(3 × salary)
$1,455,000
(3× salary)
Share and Share Unit
Ownership
(Value)(1)
$20,193,237
Share and Share Unit
Ownership
(Multiple of Salary)
21.3x
$3,973,477
$3,217,561
$4,846,392
$5,291,491
7.2x
6.6x
10.5x
10.9x
(1) Consists of: (i) SVS beneficially owned as of December 31, 2021, (ii) all unvested RSUs held as of December 31, 2021, and (iii) PSUs that settled on
February 6, 2022 at 74% of target, which, on December 31, 2021, was the Corporation’s anticipated payout and at vesting was the actual payout; the
value of which was determined using a share price of $11.13, the closing price of SVS on the NYSE on December 31, 2021.
(2)
For additional details regarding Mr. Mionis’ share and share unit ownership, see Table 17 and Item 6.E. of this Annual Report.
The CEO Employment Agreement provides that, in the event of the cessation of Mr. Mionis’ employment with the
Corporation for any reason, he will be required to retain the share ownership level set out in the Executive Share Ownership
Guidelines on his termination date for the 12-month period immediately following his termination date.
Compensation Elements for the Named Executive Officers
Our executive compensation program is comprised of the following elements:
Elements
Base Salary
Annual Cash Incentives
Equity-Based Incentives
• RSUs
• PSUs
Benefits
Pension
Perquisites
Compensation Element Mix
Rationale
Provides a fixed level of compensation intended to reflect the scope of an executive’s
responsibilities and level of experience and to reward sustained performance over time, as well
as to approximate competitive base salary levels
Aligns executive performance with the Corporation’s annual goals and objectives
Provides a strong incentive for long-term executive retention
Aligns executives’ interests with shareholder interests and provides incentives for long-term
performance
Designed to help ensure the health and wellness of executives
Designed to assist executives in saving for their retirement
Perquisites are provided to executives on a case-by-case basis as considered appropriate and in
the interests of the Corporation
In order to ensure that our executive compensation program is market competitive, we annually review the program
design and pay levels of companies in the Comparator Group and other competitive market data. We assess total target direct
compensation (base salary, annual cash incentive and equity grants) as well as specific elements of compensation when
reviewing market information relative to our executive compensation program. The HRCC uses the median of the
Comparator Group as a guideline when determining total target direct compensation but is not bound to any target percentile
for any specific element of compensation. In addition to competitive market data, we also consider executive compensation in
the context of an executive’s level of responsibility, experience, performance relative to their internal peers and succession
planning. In determining appropriate positioning relative to the Comparator Group and internal peers, we utilize a multi-year
approach for setting and transitioning target compensation for executives who are new in their role.
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The at-risk portion of total compensation varies by role and executive level, but has the highest weighting at the
most senior levels of management. CTI awards and certain equity-based incentive plan awards are contingent upon the
Corporation’s financial and operational performance and are therefore at-risk. By making a significant portion of total target
direct compensation variable, the Corporation intends to continue to align NEO compensation with shareholder interests.
At-Risk Compensation
The vast majority of compensation paid to the NEOs is in the form of compensation that is variable and at-risk based
on performance. A significant component of our executive at-risk pay is equity-based incentives, whose value is linked
directly to the value of our SVS, ensuring alignment with the interests of shareholders. Further, CTI awards are contingent
upon the Corporation’s financial and operational performance and are therefore also at-risk.
Base Salary
The objective of base salary is to attract, reward and retain top talent. Base salaries for executive positions are
determined with consideration given to the market median of the Comparator Group. Base salaries are reviewed annually and
adjusted if appropriate, to reflect individual performance, relevant knowledge, experience and the executive’s level of
responsibility within the Corporation.
Celestica Team Incentive Plan
The CTI is a broad-based annual incentive program for all eligible employees, including the NEOs. The objective of
the CTI is to motivate employees to achieve our short-term corporate goals, and to reward them accordingly. The payout
amount for each participant in the CTI is based on actual achievement levels with respect to: (i) a corporate performance
factor (CPF), which is based on the achievement of specified corporate goals; and (ii) an individual performance factor (IPF),
which is based on achievement of individual performance goals. Payouts can vary from 0% to 200% of the Target Award (as
defined below) depending on performance.
Payments under the CTI are made in cash and are determined in accordance with the following formula:
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CPF
IPF
Target Incentive
At the beginning of the performance period, management sets certain corporate financial targets in alignment
with the Board-approved AOP. The HRCC approves such targets once finalized, and the Corporation’s results
relative to the approved targets are measured to determine the CPF at the end of the performance period.
The CPF can vary from 0% to 200%, depending on the level of achievement of the corporate financial targets,
subject to the following two parameters (CTI Parameters):
(1) a separate minimum corporate profitability requirement must be achieved for the CPF to exceed zero; and
(2) target non-IFRS operating margin must be achieved for any other measures under the CPF to pay above
target.
The CTI Parameters are set in addition to the achievement of CPF corporate financial targets in order to ensure
challenging goals are reflective of our current business environment and that CTI aligns with our pay for
performance philosophy.
The CPF must be greater than zero for an executive to receive any CTI payment.
Individual contribution is recognized through the IPF component of the CTI. At the beginning of the performance
period, eligible employees, including the NEOs, set individual specific goals and objectives to be achieved in the
year which include both quantitative and qualitative objectives. NEOs also review their goals and objectives with
the CEO in order to align the goals and objectives of the executive leadership team, and once finalized are
approved by the CEO. The goals and criteria may include, for example, individual performance relative to
segment or company business results, ESG metrics, teamwork, leadership, execution of responsibilities and key
accomplishments.
At the end of the year, an NEO’s IPF is determined through the annual performance review process which is
based on an evaluation of the NEO’s performance measured against the NEO’s specific goals and criteria and is
approved by the HRCC as recommended by the CEO.
The IPF can increase an NEO’s CTI award by a factor of up to 1.5x, subject to an overall CTI award cap of two
times the Target Award, or reduce an NEO’s CTI award to zero depending on individual performance. An IPF of
less than 1.0 will result in a reduction of the CTI award payment otherwise payable, and an IPF of zero will result
in no CTI Payment.
The Target Incentive is a percentage of a NEO’s base salary and is determined based on competitive market data.
Target Award
The Target Award is a NEO’s Target Incentive multiplied by their base salary.
Maximum Award
Although the combination of a CPF of 200% and an IPF of 1.5x may mathematically result in an amount in
excess of two times the Target Award, all CTI awards are capped at two times the Target Award.
Equity-Based Incentives
The Corporation’s equity-based incentives for the NEOs consist of RSUs, PSUs and/or stock options. The objectives
of equity-based compensation are to:
• align the NEOs’ interests with those of shareholders and incent appropriate behaviour for long-term performance;
• reward the NEOs’ contributions to the Corporation’s long-term success; and
• enable the Corporation to attract, motivate and retain qualified and experienced employees.
At the January meeting, the HRCC determines the dollar value and mix of the equity-based grants to be awarded to
the NEOs, if any. On the grant date, the dollar value is converted into the number of units that will be granted using the
closing price of the SVS on the trading day prior to the grant date. The annual grants are made following the blackout period
that ends not less than 48 hours after the Corporation’s year-end results have been released. The mix of equity-based
incentives is reviewed and approved by the HRCC each year, and is based on factors including competitive grant practices,
balance between performance incentive and retention value, and the effectiveness of each equity vehicle for motivating and
retaining critical leaders.
Target equity-based incentives are determined using a variety of factors, including, the median awards of the
Comparator Group as well as individual performance, experience and anticipated contribution to the Corporation’s strategy.
In establishing the grant value of the annual equity awards for each of the NEOs, we start by assessing the median total target
direct compensation of the equivalent position at companies in the Comparator Group. This data is then compared over a
number of years for additional context and market trends. The HRCC also considers individual performance, the need to
retain experienced and talented leaders to execute the Corporation’s business strategies and the executive’s potential to
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contribute to long-term shareholder value. Also considered are the executive’s role and responsibilities, internal equity and
the level of previous long-term incentive awards. Once all of these factors are taken into consideration, the grant value of the
annual equity-based awards for the NEOs is set.
In addition to the annual equity grants, management may award equity-based incentives in order to attract new
executive hires and to retain current executives in special circumstances. Such grants are reviewed in advance with the Chairs
of the Board and HRCC, and are subject to ratification by the HRCC. No such grants were made to NEOs in 2021, with the
exception of an additional grant to Mr. Cooper of 24,691 RSUs – see 2021 Compensation Decisions below for a description
of this award.
RSUs
NEOs may be granted RSUs under either the LTIP or the CSUP as part of the Corporation’s annual equity grant.
Such awards may be subject to vesting requirements, including time-based or other conditions as may be determined by the
HRCC in its discretion. RSUs granted by the Corporation generally vest in instalments of one-third per year, over three years,
based on continued employment with the Corporation. The payout value of the award is based on the number of RSUs being
released and the market price of the SVS at the time of release. The Corporation has the right under the CSUP to settle RSUs
in either cash or SVS. Under the LTIP, the Corporation may, at the time of grant, authorize grantees to settle vested RSUs
either in cash or in SVS (on a one-for-one basis). Absent such permitted election, grants under the LTIP will be settled in
SVS. If the Corporation has authorized a settlement in SVS or cash, the holder can choose which of these the holder receives.
See Executive Compensation — Equity Compensation Plans.
PSUs
NEOs may be granted PSUs under the LTIP or the CSUP as part of the Corporation’s annual equity grant. The
vesting of such awards requires the achievement of specified performance-based conditions over a specified time period, as
determined by the HRCC in its discretion. PSUs granted by the Corporation generally vest at the end of a three-year
performance period subject to pre-determined performance criteria. The payout value of the award is based on the number of
PSUs that vest (which ranges from 0% to 200% of the target amount granted) and the market price of the SVS at the time of
release. The Corporation has the right under the CSUP to settle vested PSUs in either cash or SVS (on a one-for-one-basis).
Under the LTIP, the Corporation may, at the time of grant, authorize grantees to settle PSUs either in cash or in SVS. Absent
such permitted election, grants under the LTIP will be settled in SVS. If the Corporation has authorized a settlement in SVS
or cash, the holder can choose which of these the holder receives. See Executive Compensation — Equity Compensation
Plans.
Stock Options
NEOs may be granted stock options under the LTIP (no stock options have been granted to the NEOs after 2015).
The exercise price of a stock option is the closing market price on the business day prior to the date of the grant. Stock
options granted by the Corporation generally vest at a rate of 25% annually on each of the first four anniversaries of the date
of grant and expire after a ten-year term. The LTIP is not an evergreen plan and no stock options have been re-priced.
Other Compensation
Benefits
NEOs participate in the Corporation’s health, dental, pension, life insurance and long-term disability programs.
Benefit programs are determined with consideration given to market median levels in the local geographic region.
Perquisites
Perquisites are provided to executives on a case-by-case basis as considered appropriate in the interests of the
Corporation. NEOs are entitled to an annual comprehensive medical examination at a private health clinic. Where applicable,
tax equalization is provided to all NEOs as an integral part of the Corporation’s Short-Term Business Travel Program and is
designed to maintain an individual’s tax burden at approximately the same level it would have otherwise been had they
remained in their home country. Due largely to variables such as timing and tax rate differences between Canada and the
U.S., tax equalization amounts may vary from year to year. While the Corporation is incorporated and headquartered in
Canada, our business is global and we compete for executive talent worldwide. In addition, our executives are often required
to travel extensively. As a result, we believe it is appropriate to make tax equalization payments in order to attract and retain
non-Canadian executive officers with specific capabilities as well as to ensure that our executives do not incur any additional
tax burden as a result of the business travel necessitated by the global nature of our business. Although we also cover housing
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expenses for Mr. Mionis while in Canada, we are re-evaluating his housing requirements in light of changes to business travel
requirements.
2021 Compensation Decisions
Each element of compensation is considered independently of the other elements. However, the total package is
reviewed to ensure that the achievement of target levels of corporate and individual performance will result in total
compensation that is generally comparable to the median total compensation of the Comparator Group.
Base Salary
The base salaries for the NEOs were reviewed during 2021, taking into account individual performance and
experience, level of responsibility and median competitive data. The HRCC approved the increases shown in the following
table for Messrs. Chawla, Phillips and Cooper in 2021 in order to align their respective base salaries with the median base
salary of executives with similar roles within the Comparator Group.
The following table sets forth the annual base salary for the NEOs for the years ended December 31, 2019 through
December 31, 2021:
Table 9: NEO Base Salary Changes
NEO
Robert A. Mionis
Mandeep Chawla
Jason Phillips
Jack J. Lawless
Todd C. Cooper
Year
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
Salary
($)
$950,000
$950,000
$950,000
$550,000
$500,000
$460,000
$485,000
$460,000
$460,000
$460,000
$460,000
$460,000
$485,000
$460,000
$460,000
% Increase
—
—
—
10%
9%
2%
5%
—
8%
—
—
—
5%
—
—
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Annual Incentive Award (CTI)
2021 Company Performance Factor
The CPF component of the CTI for 2021 was based on the achievement of specified corporate financial targets for
the year (2021 Targets). The 2021 Targets were revenue (Revenue Target) and non-IFRS operating margin (OM Target), as
these measures were determined to be aligned with the Corporation’s continuing key objectives of driving profitable growth
on both a “top line” and “bottom line” basis. As both measures were deemed to be equally important, the same weight was
given to each target. The same measures and associated weight were used in 2020.
Targets were initially considered in January 2021 in conjunction with the establishment of the 2021 AOP and in the
context of the continued uncertainty regarding the impacts of COVID-19 on our business. As the year progressed, actions
were taken to enhance the resiliency of our supply chain, while simultaneously sharpening its focus on investments in our
value-added businesses to grow the business. The executive team took proactive steps to improve the organization’s focus in
this regard. In determining the final targets, the HRCC considered the positive impact of these actions on the 2021 AOP as
well as shareholder expectations that were expressed in our shareholder engagement initiatives with respect to the need to
ensure alignment of executive pay with company performance. As a result, the final 2021 Revenue Target was set higher than
the corresponding revenue target in 2020 and actual 2020 revenue, and at a level that was determined to be both challenging,
yet attainable. The 2021 OM Target was finalized as originally considered since it was determined to satisfactorily represent
achievement of the expected value in 2021, and demonstrate growth from the prior year’s results. The 2021 Revenue Target
and the 2021 OM Target were approved by the HRCC and used to determine the CPF for 2021 CTI awards.
The CTI Parameters that specifically indicate that no minimum CTI payments are guaranteed, and there is a
maximum CTI payout of two times the Target Award for which the CTI cannot exceed. Under the first CTI Parameter, a
minimum corporate profitability requirement must be achieved in order for any CTI award to be payable at all. That
requirement was achieved in 2021 and therefore CTI awards were payable. Under the second CTI Parameter, a cap applies
such that, in order for the revenue component of the CPF to pay above target (regardless of the actual revenue achievement
level), target non-IFRS operating margin must be achieved, which it was. The percentage achievement for each measure was
then determined by interpolating between the factor that corresponds to threshold, target and maximum, as applicable. Each
achievement factor was then multiplied by its weight (50%) in order to determine the weighted achievement.
The CPF for 2021 was based on 116% based on the results in the following table:
Table 10: Company Performance Factor
Measure
Non-IFRS operating margin
IFRS revenue
CPF
Weight
50%
50%
Threshold
2.95%
$5,336M
Target
3.7%
$5,800M
Maximum
4.45%
$6,264M
Achieved
Results
4.2%
$5,635M
Weighted
Achievement
159%
73%
116%
2021 Individual Performance Factor
The IPF can increase an executive’s CTI award by a factor of up to 1.5x or reduce the CTI award to zero depending
on individual performance (an IPF of less than 1.0 will result in a reduction of the CTI award otherwise payable).
Notwithstanding the foregoing, CTI payments are subject to an overall maximum cap of 200% of the Target Award. The IPF
is determined through the annual performance review process.
At the beginning of each year, the HRCC and the CEO agree on performance goals for the CEO that are then
approved by the Board. Goals for the other NEOs that align with the CEO’s goals are then established and agreed to between
the CEO and the respective NEOs. The performance of the CEO and the other NEOs is measured against the established
goals and also contains qualitative elements, such that criteria for, and the amount of, the IPF remains at the discretion of the
HRCC. However, the CPF must be greater than zero for an executive to be entitled to any CTI payment.
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In 2021, the HRCC approved an increase in Mr. Chawla’s Target Incentive from 80% (initially established upon his
appointment as CFO in 2017) to 100%. As part of our multi-year approach for setting target compensation and to better align
his target short-term incentives with those of CFOs within the Comparator Group, the HRCC approved this increase.
CEO
In assessing Mr. Mionis’ individual performance, the HRCC considers the Corporation’s objectives and results
achieved, personal performance objectives as determined annually, as well as other factors the Committee considers relevant
to the role of CEO. Key results that were considered in determining Mr. Mionis’ IPF for 2021 are included below:
Objective
Meet Our
Commitments
Return to
Growth
Optimize
Operations
•
•
•
•
•
•
•
2021 Performance Results
• Met or exceeded a number of financial performance goals for 2021
•
Focused on operational cost productivity and continued to drive improved and more predicable ramp
performance
Realized robust bookings aligned with growth aspirations in both of our ATS and CCS segments
Completed long-term strategic objective of transitioning to higher value markets
Achieved a return to top-line year-over-year revenue growth in Q4 2021
Non-IFRS operating margin of 4.2% was up 70 basis points compared to 2020
HPS business achieved a record $1.15 billion in revenue in 2021
Celestica Operating System continued to drive optimization of operations through standardized best practices
Advanced planning processes, supply chain management, and collaboration with our customers and suppliers
helped to partially mitigate the impact of materials constraints
• While inventory performance fell below expectations (due to carrying higher inventory levels to mitigate the
impact of supply chain constraints), achieved cash cycle days in line with plan
Enhanced talent practices and improved succession readiness
•
• Made significant progress on our three-year roadmap to entrench diversity and inclusion into our culture
•
•
•
Development of specific actions in response to D&I Survey and Employee Engagement survey
Embedded ESG strategy and oversight into our management system
Created operational plans and reporting mechanisms to achieve our target of 30% reduction in GHG emissions
by 2025
Successfully completed enterprise-enablement initiatives, including mitigating compliance risks and improving
connectivity and data analytics platforms
Continued to prioritize the health and safety of employees during the pandemic while meeting customer
commitments
As a result of operational resilience and safety measures, operated at near pre-COVID-19 production capacity
at most of our sites during 2021
Enable the
Enterprise
•
•
•
Despite a number of significant challenges in 2021, including materials constraints and the ongoing impacts from
COVID-19 in select locations, the Corporation achieved strong financial results led by year-over-year improvements in our
ATS segment and another solid year in our CCS segment driven by strength in HPS business. Our bookings continued to
outperform our expectations, our quality and productivity performance was further strengthened, and we expanded our
technology capabilities, people practices, and focus on ESG matters. In addition, the HRCC and the Board believe that the
growth initiatives undertaken in both segments, led by the PCI acquisition in our ATS segment and HPS roadmap in our CCS
segment, have placed the Corporation into an even better position to drive profitable growth in 2022 and beyond. As a result,
the HRCC and the Board determined that Mr. Mionis exceeded expectations for the year, and approved an IPF of 1.3 for
2021.
Other NEOs
The performance of the NEOs other than the CEO is assessed at year-end relative to objective measures that align
with the targets for the CEO. The CEO assesses each other NEO’s contributions to the Corporation’s results, including such
NEO’s contributions as a part of the senior leadership team. Based on the CEO’s assessment, the HRCC considered each
NEO to have met or exceeded expectations for 2021 based on each of their individual performance and contribution to
corporate goals and objectives. Factors considered in the evaluation of each NEO’s IPF included the following:
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Mandeep Chawla •
Jason Phillips
Jack J. Lawless
Todd C. Cooper
•
•
•
•
•
•
•
•
•
•
•
Rigorously evaluated financial liquidity needs during the strategic transformation and led the enhancements to
our current credit facility, including an expansion of our borrowing capacity with improved terms
Effectively managed the negotiation and closing of the PCI acquisition
Partnered with the CEO and business leaders to successfully complete the Corporation’s strategic transformation
in pursuit of profitable growth, shareholder value creation and enhanced transparency to stakeholders
Drove record HPS revenue of $1.15 billion, representing growth of 34% compared to 2020, led by demand
strength and new program ramps with service providers and supported by continuing data center growth
Achieved CCS segment margin of 4.4% in Q4 2021 (highest since 2015) driven by strength in HPS business
Established a center of excellence in Richardson, Texas, expanding our HPS engineering network and increasing
our North America manufacturing capacity
ATS segment saw strong revenue growth in 2021, driven by continued strength in our Capital Equipment
business and organic growth in our Industrial business
Successfully contributed to our portfolio diversification efforts by supporting the PCI acquisition
Expanded our engineering services business and grew engineering led bookings compared to 2020
Successfully led advanced planning processes, supply chain management, and collaboration with our customers
and suppliers to mitigate the impact of global supply chain constraints on our revenue
Achieved meaningful progress in the integration of the Celestica Operating System to drive continuous
improvements and consistent processes across the Celestica network to increase operational efficiencies
Led Celestica’s robust COVID-19 business continuity management program to minimize disruptions during the
pandemic and to minimize impacts to employee health and well-being across our global network
2021 CTI Awards
The following table sets forth information with respect to the potential and actual awards under the CTI for the
NEOs during 2021:
Table 11: 2021 CTI Awards
Potential
Award for
Below
Threshold
Performance
$0
$0
$0
$0
$0
Target
Incentive
%(1)
125%
100%
80%
80%
80%
Potential
Award for
Threshold
Performance(2)
$296,875
$134,589
$95,836
$92,000
$95,836
Potential
Award for
Target
Performance(2)
$1,187,500
$538,356
$383,342
$368,000
$383,342
Potential
Maximum
Award(2)
$2,375,000
$1,076,712
$766,685
$736,000
$766,685
Amount
Awarded
$1,790,750
$736,902
$569,187
$426,880
$511,379
Amount
Awarded
as a %
of Base
Salary
189%
134%
117%
93%
105%
Name
Robert A. Mionis
Mandeep Chawla
Jason Phillips
Jack J. Lawless
Todd C. Cooper
(1)
The Target Incentive for each NEO was not changed from 2021 except for Mr. Chawla whose Target Incentive was increased from 80% to 100%.
(2) Award amounts in these columns are calculated based on an IPF of 1.0.
NEO Equity Awards and Mix
Target equity-based incentives were determined for the NEOs with reference to the median awards of the
Comparator Group. Consideration was also given to individual performance, the roles and responsibilities of the NEOs,
retention value and market trends. The mix of equity in respect of 2021 compensation was comprised of 40% RSUs and 60%
PSUs (in accordance with executive compensation program design changes implemented in 2018). See Compensation
Elements for the Named Executive Officers — Equity-Based Incentives for a general description of the process for
determining the amounts of these awards.
In addition to the annual grant to the NEOs, Mr. Cooper received a grant of 24,691 RSUs on February 2, 2021 based
on a share price of $8.10, which was the closing price of the SVS on the NYSE on February 1, 2021. The RSUs will vest in
their entirety on the second anniversary of the grant. This award was made to Mr. Cooper in order to recognize his leadership
through unprecedented, prolonged conditions within our operations as a result of COVID-19.
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The following table sets forth equity awards granted to the NEOs on February 2, 2021 as part of their 2021
compensation as well as the additional RSU award granted to Mr. Cooper:
Table 12: NEO Equity Awards
Name
Robert A. Mionis
Mandeep Chawla
Jason Phillips
Jack J. Lawless
Todd C. Cooper
RSUs
(#)(1)
355,555
96,296
83,950
86,419
108,641
PSUs
(#)(2)
533,333
144,444
125,925
129,629
125,925
Stock Options
(#)
—
—
—
—
—
Value of Equity
Award(3)
$7,200,000
$1,950,000
$1,700,000
$1,750,000
$1,900,000
(1)
(2)
(3)
Grants were based on a share price of $8.10, which was the closing price of the SVS on the NYSE on February 1, 2021 (the last business day
before the date of grant).
Assumes achievement of 100% of target level performance.
Represents the aggregate grant date fair value of the RSUs and PSUs.
The RSUs granted in 2021 vest rateably over a three-year period, commencing on the first anniversary of the date of
grant (other than the additional award of RSUs granted to Mr. Cooper in February 2021). The value of the RSUs granted on
February 2, 2021 was determined at the January 2021 meeting of the HRCC. The number of RSUs granted was determined
using the closing price of the SVS on February 1, 2021 (the day prior to the date of grant) on the NYSE of $8.10.
PSUs set forth in the table above vest at the end of a three-year period subject to pre-determined performance
criteria. For such awards, each NEO was granted a target number of PSUs (Target Grant). The number of PSUs that will
actually vest ranges from 0% to 200% of the Target Grant and will be primarily based on the Corporation’s non-IFRS
operating margin in the final year of the three-year performance period (OM Result), subject to modification by the
Corporation’s average annual non-IFRS adjusted ROIC achievement over the performance period (ROIC Factor) and relative
TSR achievement (TSR Factor) over the performance period in accordance with the following:
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Formula
Description
Preliminary Vesting % based
on OM Result
The percentage of PSUs that will vest based on the OM Result (Preliminary Vesting %) can range
between 0% and 200% of the Target Grant. The Preliminary Vesting % will be subject to initial
adjustment based on the ROIC Factor and further adjustment based on the TSR Factor, as described
below, provided that the maximum number of PSUs that may vest will not exceed 200% of the Target
Grant.
Preliminary Vesting % subject
to modification by a factor of
either −25%, 0% or +25%
based on ROIC Factor
The Corporation’s ROIC Factor will be measured relative to a pre-determined non-IFRS adjusted ROIC
range approved by the Board. The Preliminary Vesting % will not be modified if the ROIC Factor is
within that pre-determined range. The Preliminary Vesting % will be increased or decreased by 25% if
the ROIC Factor is above or below that predetermined range, respectively (as so adjusted, the Secondary
Vesting %). The ROIC Factor cannot increase the actual number of PSUs that vest to more than 200% of
the Target Grant.
Secondary Vesting % subject
to modification by a factor
ranging from −25% to +25%
based on TSR Factor
TSR measures the performance of a company’s shares over time. It combines share price appreciation
and dividends, if any, paid over the relevant period to determine the total return to the shareholder
expressed as a percentage of the share price at the beginning of the performance period. With respect to
each TSR Comparator (as defined below), TSR is calculated as the change in share price over the three-
year performance period (plus any dividends) divided by the share price at the beginning of the period,
where the average daily closing share price for the month of December 2020 is the beginning share price
and the average daily closing price for the month of December 2023 will be the ending share price. The
TSR of the Corporation is calculated in the same manner in respect of the SVS (the Corporation does not
currently pay dividends).
For purposes of determining modifications to the Secondary Vesting % based on the TSR Factor, the
HRCC determined that for PSUs granted in 2021, the Corporation’s TSR will be measured relative to the
S&P Americas BMI Technology Hardware & Equipment Index as of January 1, 2021 (BMI Index), with
the addition of Flex Ltd. (the only EMS-peer company not already included in the BMI Index), that
remain publicly traded on an established U.S. stock exchange for the entire performance period (TSR
Comparators). The BMI Index is comprised of technology hardware and equipment subsector companies
with business diversification. The HRCC determined that the attributes of the BMI Index, including its
alignment with both the U.S. technology peers used for overall executive compensation benchmarking
and Celestica’s business models made it appropriate for PSU vesting determinations. The Corporation’s
market capitalization is positioned around the median of the TSR Comparators.
After calculating the percentile rank for each TSR Comparator (by arranging the TSR results from
highest to lowest), the Corporation’s TSR will be ranked against that of each of the TSR Comparators.
The Secondary Vesting % will then be subject to modification (ranging from a decrease of 25% to an
increase of 25%) by interpolating between the corresponding percentages immediately above and
immediately below Celestica’s percentile position as set out in the table below, provided that the
Corporation’s TSR performance cannot increase the actual number of PSUs that will vest to more than
200% of the Target Grant.
Celestica’s TSR Positioning
90th Percentile
50th Percentile
10th Percentile
TSR Modification Factor
25%
0%
-25%
Summary
Total PSU Vesting Percentage =
(1) Preliminary Vesting % based on OM Result;
(2) Preliminary Vesting % is subject to modification by a factor of either −25%, 0% or +25%, based on
ROIC Factor (Secondary Vesting %); and
(3) Secondary Vesting % is subject to modification by a factor ranging from −25% to +25% based on
TSR Factor.
Note Regarding the Use of Non-IFRS Operating Margin
Non-IFRS operating margin is utilized as a performance measure in both the CPF of the CTI and for PSU
performance as we believe it closely aligns with both our short-term and long-term profitability goals and is a key metric to
measure the value we deliver to shareholders. In the CTI, annual non-IFRS operating margin is used (together with revenue)
to measure short-term profitable growth. For PSUs, the non-IFRS operating margin target is based on the Corporation’s long-
term strategic plan, as it is not measured until the last year of the performance period, and vesting is subject to modification
based on other measures (including TSR). As a result, the non-IFRS operating margin target and the relevant time-period for
achievement, are different under the CTI and PSUs (one year for CTI and three years for PSUs), and therefore we do not
consider the use of non-IFRS operating margin to be duplicative.
123
Realized and Realizable Compensation
CEO Realized and Realizable Compensation
The following table is a look back at CEO compensation that compares the total target direct compensation awarded
to Mr. Mionis for the years ended December 31, 2017 through December 31, 2021 to his realized and realizable
compensation for each such year.
Table 13: CEO Realized and Realizable Compensation
Total Target Direct Compensation(1)
Realized and Realizable Compensation(2)
Realized and Realizable Compensation as
a % of Total Target Direct Compensation
2017
$7,582,021
$4,433,564(3)
58%
Fully Realized
2018
$9,337,500
$5,090,158(3)
55%
Not Fully Realized
2019
$9,337,500
$ 9,340,985(3)
100%
2020
$9,337,500
$12,075,427(4)
129%
2021
$9,337,500
$12,634,073(4)
135%
(1)
(2)
(3)
(4)
The total target direct compensation value represents Mr. Mionis’ salary, target CTI award and the target value of share-based awards (i.e., 100%
for PSUs).
The realized and realizable value for 2017 - 2019 represents actual salary paid, actual CTI award paid and share based awards at vest date value
(and demonstrates fully-realized compensation, as the vesting or performance period for all equity grants in such years has ended). The realized
and realizable value for 2020 and 2021 represents actual salary paid, actual CTI award paid, vest-date value for the portion of RSU grants which
had vested by December 31, 2021, and for the portion of share-based awards which had not vested by such date, an assumed value of $11.13 per
share (the closing price of the SVS on the NYSE on December 31, 2021) and assumed vesting of PSUs at target performance of 100%, which
may not be the ultimate amount earned.
Compensation for 2020 and 2021 has only been partially realized, such that a significant portion remains realizable and is “at-risk” as described
in footnote 4 below.
The following table includes the CPF for CTI awards actually paid and the vesting percentage of PSUs granted in each year:
Year
2017
2018
2019
2020
2021
CPF under CTI
83%
80%
34%
182%
116%
PSUs as % of
Target
40%
26%
74%
Mr. Mionis’ 2020 and 2021 compensation has not been fully realized and a significant portion remains “at-risk” as follows (representing the
December 31, 2021 value of: PSUs whose performance period does not conclude until the end of 2022 and 2023, respectively, and RSUs granted
in each such year that remain unvested):
Year
2020
2021
Amount Still “At-Risk”
$7,812,281
$9,893,323
124
NEO Realized and Realizable Compensation
The following table is a look back at compensation for all NEOs that compares the total target direct compensation
awarded to the NEOs for the years ended December 31, 2017 through December 31, 2021 to their realized and realizable
compensation for each such year.
Table 14: NEO Realized and Realizable Compensation
Total Target Direct Compensation(1)
Realized and Realizable Compensation(2)
Realized and Realizable Compensation as a % of
Total Target Direct Compensation
2017
$16,088,075
$10,113,460(3)
63%
Fully Realized
2018
$19,049,426
$10,972,171(3)
58%
Not Fully Realized
2019
$19,155,708
$18,973,951(3)
99%
2020
$19,904,386
$25,698,446(4)
129%
2021
$20,267,253
$26,865,812(4)
133%
(1)
(2)
(3)
(4)
The total target direct compensation value represents the NEOs’ salary, target CTI award and the target value of share-based awards (i.e., 100%
for PSUs).
The realized and realizable value for 2017 - 2019 represents actual salary paid, actual CTI award paid and share based awards at vest date value
(and demonstrates fully-realized compensation, as the vesting or performance period for all equity grants in such years has ended). The realized
and realizable value for 2020 and 2021 represents actual salary paid, actual CTI award paid, vest-date value for the portion of RSU grants which
had vested by December 31, 2021, and for the portion of share-based awards which had not vested by such date, an assumed value of $11.13 per
share (the closing price of the SVS on the NYSE on December 31, 2021) and assumed vesting of PSUs at target performance of 100%, which
may not be the ultimate amount earned. Compensation for 2020 and 2021 has only been partially realized, such that a significant portion remains
realizable and is “at-risk” as described in footnote 4 below.
The following table includes the CPF for CTI awards actually paid and the vesting percentage of PSUs granted in each year:
Year
2017
2018
2019
2020
2021
CPF under CTI
83%
80%
34%
182%
116%
PSUs as % of
Target
40%
26%
74%
The NEOs’ 2020 and 2021 compensation has not been fully realized and a significant portion remains “at-risk” as follows (representing the
December 31, 2021 value of: PSUs whose performance period does not conclude until the end of 2022 and 2023, respectively, and RSUs granted
in each such year that remain unvested):
Year
2020
2021
Amount Still “At-Risk”
$15,528,303
$19,924,002
125
Total Shareholder Return
Table 15: TSR vs. NEO Compensation(1)
The following graph compares the five-year trend in the Corporation’s TSR to both total target direct compensation
and the realized and realizable compensation for the NEOs for each year. This look back at compensation demonstrates the
comparison between actual pay and total target compensation intended at the time of grant. The difference between total
target direct compensation and realized and realizable compensation was driven by the performance of the SVS and
achievement relative to CTI and PSU performance measures, as well as changes in the reported NEOs in applicable years.
(1)
NEO total target direct compensation value represents salary, target CTI award and the target value of share-based awards (i.e., 100% for PSUs)
and option awards (if applicable) for all NEOs reported in the Corporation’s Annual Report on Form 20-F each year. NEO realized and realizable
value represents actual salary paid, actual CTI award paid and share-based awards at vest date value (and for the portion of share-based awards
that had not vested as of December 31, 2021, at an assumed value of $11.13 per share, the closing price of the SVS on the NYSE on
December 31, 2021, and assumed vesting of PSUs at target performance of 100%, which may not be the ultimate amount earned).
A significant portion of NEO compensation is at-risk to support our pay for performance culture. We believe the
realized value of the long-term incentives granted to NEOs, and the performance of the PSUs in particular (the value of
which will not be realized, if at all, until the end of the relevant three-year performance period), more closely mirror the trend
in share price movement and serve to better demonstrate the alignment of the interests of management with those of our
shareholders than total target direct compensation.
126
EXECUTIVE COMPENSATION
This section contains references to operating margin and adjusted ROIC, which are non-IFRS financial measures
(i.e., ratios based on non-IFRS financial measures). See Compensation Discussion and Analysis — Note Regarding Non-IFRS
Measures for definitions of such non-IFRS financial measures, and where to find a discussion of the exclusions used to
determine such measures, how they are used, as well as a reconciliation of historical non-IFRS operating margin and non-
IFRS adjusted ROIC to the most directly comparable IFRS financial measures.
Summary Compensation Table
The following table sets forth the compensation of the NEOs for the years ended December 31, 2019 through
December 31, 2021.
Table 16: Summary Compensation Table
Non-equity
Incentive Plan
Compensation
Name & Principal Position
Robert A. Mionis
Year
2021
Salary
($)
$950,000
Share-
based
Awards
($)(1)(2)
$7,200,000
Option-
based
Awards
($)(3)
—
Annual
Incentive
Plans
($)(4)
$1,790,750
Pension
Value
($)(5)
$249,200
All Other
Compensation
($)(6)
$292,382
President and Chief Executive
2020
$950,000
$7,200,000
Officer
Mandeep Chawla(7)
2019
$950,000
$7,200,000
2021
$538,356
$1,950,000
Chief Financial Officer
2020
$490,492
$1,850,000
Jason Phillips(7)
President, CCS
Jack J. Lawless(8)
President, ATS
Todd C. Cooper(9)
2019
$457,534
$1,600,000
2021
$479,178
$1,700,000
2020
$460,000
$2,000,000
2019
$438,137
$1,600,000
2021
$460,000
$1,750,000
2020
$460,000
$1,750,000
2019
$460,000
$1,750,000
2020
$479,178
$1,900,000
Chief Operations Officer
2020
$460,000
$1,600,000
2019
$460,000
$1,600,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$2,375,000
$89,735
$383,562
$131,850
$736,902
$110,942
$784,787
$118,227
$569,187
$736,000
$113,215
$426,880
$636,272
$118,864
$511,379
$736,000
$118,864
$46,876
$61,346
$80,342
$29,057
$31,828
$70,902
$29,509
$46,357
$80,342
$29,509
$52,058
$500,220
$691,354
$3,901
$4,399
$1,462
$26,925
$27,594
$58,826
$21,432
$16,512
$19,247
$48,664
$17,100
$16,800
Total
Compensation
($)
$10,482,332
$11,114,955
$9,356,766
$3,340,101
$3,176,554
$2,238,569
$2,855,632
$3,252,651
$2,242,006
$2,729,214
$2,892,293
$2,394,468
$3,019,563
$2,842,609
$2,247,722
(1) All amounts in this column represent the grant date fair value of share-based awards. Amounts in this column for 2021 represent RSU and PSU grants
to all NEOs, and the additional RSU grant (with a grant date fair value of $200,000) to Mr. Cooper, all made on February 2, 2021, which was made to
Mr. Cooper in order to recognize his leadership through unprecedented, prolonged conditions within our operations as a result of COVID-19. Grants
were based on a share price of $8.10, which was the closing price of the SVS on the NYSE on February 1, 2021 (the day prior to the date of the grant).
Amounts in this column for 2020 represent RSU and PSU grants to all NEOs, and the additional grant to Mr. Phillips’ of a performance award of
$400,000 in PSUs, all made on February 4, 2020. The 2020 grants were based on a share price of $8.89, which was the closing price of the SVS on the
NYSE on February 3, 2020 (the day prior to the date of the grant). Amounts in this column for 2019 represent RSU and PSU grants made on
February 6, 2019 to all NEOs and an additional grant of 22,124 RSUs made to Mr. Phillips on August 6, 2019 in recognition of his expanded
responsibilities. The February 2019 grants were based on a share price of $8.04, which was the closing price of the SVS on the NYSE on February 5,
2019 (the day prior to the date of the grant) and the August 2019 grant to Mr. Phillips was based on a share price of $6.78, which was the closing price
of the SVS on the NYSE on August 5, 2019 (the day prior to the date of the grant). See Compensation Discussion and Analysis — Compensation
Elements for the Named Executive Officers — Equity-Based Incentives for a description of the process followed in determining the grants for 2021, and
see Compensation Discussion and Analysis — 2021 Compensation Decisions — Equity-Based Incentives for a description of the vesting terms of the
RSU and PSU awards. Grants made in-year are reported for such year.
(2)
The estimated accounting fair value of the share based awards is calculated using the market price of SVS as defined under each of the plans and in the
case of PSUs, various fair value pricing models may apply. The accounting fair values for the PSU portion of the share based awards in Table 16
reflect various assumptions as to estimated vesting for such awards in accordance with applicable accounting standards. The grant date fair value of the
RSU portion of the share based awards in Table 16 is the same as their accounting fair value. The grant date fair value for the PSU portion of the share
based awards reflects the dollar amount of the award intended for compensation purposes, based on the market value of the underlying shares on the
grant dates based on an assumption of the vesting of 100% of the target number of PSUs granted. The accounting fair value for all share based awards
in the table assumed a zero forfeiture rate. The number of PSUs granted in 2019 – 2021 that will actually vest will range from 0% to 200% of the target
number granted and will be primarily based on the Corporation’s OM Result in the final year of the three-year performance period, subject to
127
modification by the Corporation’s ROIC Factor and TSR Factor over the performance period, as described in detail under NEO Equity Awards and
Mix above. 74% of the target amount of PSUs granted in 2019 settled in February 2022. For PSUs granted in 2019 – 2021, the Corporation’s TSR was
measured relative to that of companies in the BMI Index, with the addition of Flex Ltd, that remain publicly traded on an established U.S. stock
exchange for the entire performance period. The Corporation estimated the grant date fair value of the TSR Factor using a Monte Carlo simulation
model. The number of awards expected to be earned was factored into the grant date Monte Carlo valuation for the award. The accounting grant date
fair value is not subsequently adjusted regardless of the eventual number of awards that are earned based on TSR. The grant date fair value for the non-
TSR based performance measurement and modifier was based on the market value of our SVS at the time of grant and may be adjusted in subsequent
periods to reflect a change in the estimated level of achievement related to the applicable performance condition. The accounting grant date fair value is
not subsequently adjusted regardless of the eventual number of awards that were earned based on the market performance condition.
(3)
There were no stock options granted to the NEOs in 2019, 2020 or 2021.
(4) Amounts in this column represent CTI incentive payments made to NEOs. See Compensation Discussion and Analysis — Compensation Elements for
the Named Executive Officers — Celestica Team Incentive Plan for a description of the CTI.
(5) Amounts in this column represent Celestica’s contributions to defined contribution pension plans (other than 401(k) plans) on behalf of the NEOs —
see Pension Plans for a full description of the plans. Contributions for Messrs. Mionis, Phillips, Lawless and Cooper are reported in U.S. dollars.
Contributions for Mr. Chawla are reported in U.S. dollars, having been converted from Canadian dollars at the average exchange rate for 2021 of $1.00
equals C$1.2533.
(6) Amounts in this column for Mr. Mionis include amounts for items provided for under the CEO Employment Agreement, which for 2021 consisted of
tax equalization payments of $189,260, housing expenses of $75,080 while in Canada, group life insurance premiums of $7,482 and a 401(k)
contribution of $17,400. For 2020, the amount in this column for Mr. Mionis consisted of tax equalization payments of $400,602, housing expenses of
$72,196 while in Canada, group life insurance premiums of $7,482 and a 401(k) contribution of $17,100. For 2019, the amount in this column for Mr.
Mionis consisted of tax equalization payments of $578,947, housing expenses of $72,569 while in Canada, group life insurance premiums of $8,105
and a 401(k) contribution of $16,800. Amounts in this column for Mr. Chawla for 2021 include a tax equalization payment of $2,311. Amounts in this
column for Mr. Chawla for 2020 include a tax equalization payment of $2,582. Amounts in this column for Mr. Phillips for 2021 include a tax
equalization payment of $9,340 and a 401(k) contribution of $17,085. Amounts in this column for Mr. Phillips for 2020 consisted of a tax equalization
payment of $10,121 and a 401(k) contribution of $16,973. For 2019, the amount in this column for Mr. Phillips include a tax equalization payment of
$41,719 and a 401(k) contribution of $16,607. Amounts in this column for Mr. Lawless for 2021 consisted of a tax equalization payment of $4,770 and
a 401(k) contribution of $16,662. Amounts in this column for Mr. Lawless for 2020 consisted of a 401(k) contribution of $16,512. For 2019, the
amount in this column for Mr. Lawless include tax equalization payments of $3,451 and a 401(k) contribution of $15,796. Amounts in this column for
Mr. Cooper for 2021 consisted of a tax equalization payment of $31,264 and a 401(k) contribution of $17,400. Amounts in this column for Mr. Cooper
for 2020 consisted of a 401(k) contribution of $17,100. For 2019, the amount in this column for Mr. Cooper include a 401(k) contribution of $16,800.
In accordance with the Corporation’s Short-Term Business Travel Program, tax equalization payments for all NEOs were made to maintain each
NEO’s tax burden at approximately the same level it would have otherwise been had they remained in their home country. Due largely to variables
such as timing and tax rate differences between Canada and the U.S., tax equalization amounts may vary from one year to the next and the net benefit
may be positive or negative in the year. While the Corporation is incorporated and headquartered in Canada, our business is global, and we compete for
executive talent worldwide. As a result, we believe it is appropriate to make tax equalization payments under certain circumstances in order to attract
and retain non-Canadian executive officers with specific capabilities and to ensure that our executives do not incur any additional tax burden as a result
of the business travel necessitated by the global nature of our business.
(7)
In 2021, the HRCC approved increases to the base salaries of Messrs. Chawla, Phillips and Cooper in order to align their respective base salaries with
the median base salary of executives with similar roles within the Comparator Group. In April 2020, Mr. Chawla’s base salary was increased to better
align it with the median base salary of CFOs within the Comparator Group, and to reflect the expanded scope of his responsibilities to include
additional functional areas. In 2019, the HRCC approved an increase in Mr. Chawla’s base salary. Mr. Phillips was appointed President, CCS effective
January 1, 2019 and his base salary increased as a result. In August 2019, Mr. Phillips’ base salary was increased to reflect his significantly expanded
responsibilities.
(8) Mr. Lawless stepped down from his position as President, ATS Celestica effective December 31, 2021, but continues to serve as a special advisor to
Mr. Mionis.
(9) Mr. Cooper was appointed President, ATS effective January 1, 2022.
128
Option-Based and Share-Based Awards
The following table provides details of each stock option grant outstanding (vested and unvested) and the aggregate
number of unvested share-based awards for each of the NEOs as of December 31, 2021.
Table 17: Outstanding Option-Based and Share-Based Awards(1)
Option-Based Awards
Share-Based Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
Value of
Unexercised
In-the-
Money
Options
($)
Number of
Shares or
Units that
have not
Vested
(#)(2)
Name
Robert A. Mionis
Aug. 1, 2015
Feb. 6, 2019
Feb. 4, 2020
Feb. 2, 2021
Total
Mandeep Chawla
Feb. 6, 2019
Feb. 4, 2020
Feb. 2, 2021
Total
Jason Phillips
Feb. 6, 2019
Aug. 6, 2019
Feb. 4, 2020
Feb. 2, 2021
Total
Jack J. Lawless
Feb. 6, 2019
Feb. 4, 2020
Feb. 2, 2021
Total
Todd C. Cooper
Feb. 6, 2019
Feb. 4, 2020
Feb. 2, 2021
Total
298,954
C$17.52 Aug. 1, 2025
—
—
—
298,954
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Payout
Value of
Share-
Based
Awards
that
have not
Vested at
Minimum
($)(3)
—
—
$2,403,779
$3,957,327
Payout
Value of
Share-
Based
Awards
that
have not
Vested at
Target
($)(3)
—
$5,980,294
$7,812,281
$9,893,323
—
537,313
701,912
888,888
2,128,113
$6,361,106
$23,685,898
119,402
180,352
240,740
540,494
108,208
14,749
186,328
209,875
519,160
130,597
170,603
216,048
517,248
119,402
155,980
234,566
509,948
—
$624,313
$1,083,359
$1,707,672
—
$164,156
$534,173
$934,364
$1,632,693
—
$584,247
$961,843
$1,546,090
—
$534,173
$1,209,174
$1,743,347
$1,343,308
$2,029,014
$2,708,397
$6,080,719
$1,204,355
$164,156
$2,073,831
$2,335,909
$5,778,251
$1,453,545
$1,898,811
$2,404,614
$5,756,970
$1,328,944
$1,736,057
$2,610,720
$5,675,721
Payout
Value of
Share-Based
Awards that
have not
Vested at
Maximum
($)(3)
—
$11,960,587
$13,220,782
$15,829,319
$41,010,688
$2,686,616
$3,433,715
$4,333,435
$10,453,766
$2,408,710
$164,156
$3,275,715
$3,737,454
$9,586,035
$2,907,089
$3,213,376
$3,847,385
$9,967,850
$2,657,889
$2,937,942
$4,012,265
$9,608,096
Payout
Value of
Vested
Share-Based
Awards
Not Paid
Out or
Distributed
($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1)
(2)
(3)
See Compensation Discussion and Analysis — 2021 Compensation Decisions — Equity-Based Incentives for a discussion of the equity-based grants.
Includes unvested RSUs, as well as PSUs assuming achievement of 100% of target level performance.
Payout values at minimum vesting include the value of RSUs only, as the minimum value of PSUs would be $0.00 if the minimum performance
condition is not met. Payout value at target vesting is determined assuming vesting of 100% of the target number of PSUs granted and payout values at
maximum vesting is determined assuming vesting of 200% of the target number of PSUs granted. Payout values for Mr. Chawla were determined using
a share price of C$14.10, which was the closing price of the SVS on the TSX on December 31, 2021, converted to U.S. dollars at the average exchange
rate for 2021 of $1.00 equals C$1.2533. Payout values for Messrs. Mionis, Phillips, Lawless and Cooper were determined using a share price of
$11.13, which was the closing price of the SVS on the NYSE on December 31, 2021.
129
The following table provides details for each NEO of the value of option-based and share-based awards that vested
during 2021 and the value of annual incentive awards earned in respect of 2021 performance.
Table 18: Incentive Plan Awards — Value Vested or Earned in 2021
Name
Robert A. Mionis
Mandeep Chawla
Jason Phillips
Jack J. Lawless
Todd C. Cooper
Option-based Awards —
Value Vested During
the Year
($)
—
—
—
—
Share-based Awards —
Value Vested During
the Year
($)(1)
$4,097,987
$944,908
$1,457,901
$984,218
Non-equity Incentive
Plan Compensation —
Value Earned During
the Year
($)(2)
$1,790,750
$736,902
$569,187
$426,880
—
$910,652
$511,379
(1) Amounts in this column reflect: (i) share-based awards released in 2021 for Messrs. Mionis, Lawless, Phillips and Cooper based on the price of the
SVS on the NYSE as follows:
Type of Award
PSU
RSU
RSU
RSU
PSU
RSU
Vesting Date
February 1, 2021
February 4, 2021
February 5, 2021
February 8, 2021
April 1, 2021
Price
$7.96
$8.69
$8.99
$9.14
$8.48
December 1, 2021
$10.20
and (ii) share-based awards released in 2021 for Mr. Chawla based on the price of the SVS on the TSX as follows:
Type of Award
PSU
RSU
RSU
RSU
Vesting Date
February 1, 2021
February 4, 2021
February 8, 2021
December 1, 2021
Price
C$10.23
C$11.15
C$11.60
C$13.08
Certain values in this column were converted to U.S. dollars from Canadian dollars at the average exchange rate for 2021 of $1.00 equals C$1.2533.
With respect to previously-issued PSUs that vested in 2021, the overall vesting percentage was 26% based on the Corporation’s non-IFRS operating
margin, non-IFRS adjusted ROIC and TSR performance.
(2) Consists of payments under the CTI made on February 18, 2022 in respect of 2021 performance. See Compensation Discussion and Analysis — 2021
Compensation Decisions — Annual Incentive Award — Target Award. These are the same amounts as disclosed in Table 16 under the column “Non-
equity Incentive Plan Compensation — Annual Incentive Plans”.
No gains were realized by NEOs from exercising stock options in 2021.
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Securities Authorized for Issuance Under Equity Compensation Plans
Table 19: Equity Compensation Plans as at December 31, 2021(1)
Plan Category
Equity Compensation Plans
Approved by Securityholders
LTIP (Options)
LTIP (RSUs)
LTIP (PSUs)
Total(4)
Securities to be
Issued Upon Exercise
of Outstanding
Options, Warrants
and Rights
(#)
417,353
74,151
—
491,504
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
($)
C$16.05
N/A
N/A
C$16.05
Securities Remaining
Available for Future
Issuance Under
Equity Compensation
Plans(2)
(#)
N/A(3)
N/A(3)
N/A(3)
9,519,069
(1)
(2)
(3)
(4)
This table sets forth information, as of December 31, 2021, with respect to SVS authorized for issuance under the LTIP, and does not include SVS
purchased (or to be purchased) in the open market to settle equity awards under the LTIP or the Corporation’s other equity compensation plans. The
LTIP, which was approved by the Corporation’s shareholders, is the only equity compensation plan pursuant to which the Corporation may issue new
SVS to settle equity awards.
Excluding securities that may be issued upon exercise of outstanding stock options, warrants and rights.
The LTIP provides for a maximum number of securities that may be issued from treasury, but does not provide separate maximums for each type of
award thereunder.
The total number of securities issuable upon the exercise/settlement of outstanding grants under all equity compensation plans approved by
shareholders represents 0.394% of the total number of outstanding shares at December 31, 2021 (LTIP (Options) — 0.335%; LTIP (RSUs) — 0.059%;
and LTIP (PSUs) — 0.00%).
Equity Compensation Plans
Long-Term Incentive Plan
The LTIP (which was approved by the Corporation’s shareholders) is the only securities-based compensation plan
providing for the issuance of securities from treasury under which grants have been made and continue to be made by the
Corporation since it was listed on the TSX and the NYSE. Under the LTIP, the Board of Directors may in its discretion from
time to time grant stock options, share units (in the form of RSUs and PSUs) and stock appreciation rights (SARs) to
employees and consultants of the Corporation and affiliated entities.
Up to 29,000,000 SVS may be issued from treasury pursuant to the LTIP. The number of SVS that may be issued
from treasury under the LTIP to directors is limited to 2,000,000; however, the Corporation decided in 2004 that stock option
grants under the LTIP would no longer be made to directors. Under the LTIP, as of February 22, 2022, 19,231,148 SVS have
been issued from treasury, 404,353 SVS are issuable under outstanding stock options, 74,151 SVS are issuable under
outstanding RSUs, and no SVS are issuable under outstanding PSUs. Accordingly, as of February 22, 2022, 9,768,852 SVS
are reserved for issuance from treasury pursuant to current and potential future grants of securities-based compensation under
the LTIP. In addition, the Corporation may satisfy obligations under the LTIP by acquiring SVS in the open market.
As of February 22, 2022, the Corporation had a “gross overhang” of 7.3% under the LTIP. “Gross overhang” refers
to the total number of shares reserved for issuance from treasury under equity plans at any given time relative to the total
number of shares outstanding, including shares reserved for outstanding equity-based awards under the LTIP. The
Corporation’s “net overhang” (i.e. the total number of shares that have been reserved for issuance from treasury to satisfy
outstanding equity grants to employees and outstanding RSU grants to directors relative to the total number of shares
outstanding) was 0.4%.
As of December 31, 2021, the Corporation had an “overhang” for stock options of 8.0%, representing the number of
shares reserved for issuance from treasury for outstanding stock options as at such date, together with shares reserved for
potential future grants of stock options, relative to the total number of shares outstanding as at such date.
The Corporation had a “burn rate” for the LTIP for each of the years 2021, 2020 and 2019, of 0.1%, 0.0% and 0.0%,
respectively. “Burn rate” is calculated by dividing the number of awards granted during the applicable year (including the
target amount of PSUs granted), by the weighted average number of securities outstanding for the applicable year.
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The LTIP limits the number of SVS that may be (a) reserved for issuance to insiders (as defined under TSX rules for
this purpose), and (b) issued within a one-year period to insiders pursuant to stock options, rights or share units granted
pursuant to the LTIP, together with SVS reserved for issuance under any other employee-related plan of the Corporation or
stock options for services granted by the Corporation, in each case to 10% of the aggregate issued and outstanding SVS and
MVS of the Corporation. The LTIP also limits the number of SVS that may be reserved for issuance to any one participant
pursuant to stock options, SARs or share units granted pursuant to the LTIP, together with SVS reserved for issuance under
any other employee-related equity plan of the Corporation or stock options for services granted by the Corporation, to 5% of
the aggregate issued and outstanding SVS and MVS.
Vested stock options issued under the LTIP may be exercised during a period determined as provided in the LTIP,
which may not exceed ten years. The LTIP also provides that, unless otherwise determined by the Board of Directors, stock
options will terminate within specified time periods following the termination of employment of an eligible participant with
the Corporation or affiliated entities, including in connection with a change of control. The exercise price for stock options
issued under the LTIP is the closing price for SVS on the last business day prior to the grant date. The TSX closing price is
used for Canadian employees and the NYSE closing price is used for all other employees. The exercise of stock options may
be subject to vesting conditions, including specific time schedules for vesting and performance-based conditions such as
share price and financial results. The grant of stock options to, or exercise of stock options by, an eligible participant may
also be subject to certain share ownership requirements.
The interest of any participant under the LTIP is generally not transferable or assignable. However, the LTIP does
provide that a participant may assign his or her rights to a spouse, or a personal holding company or family trust controlled by
the participant, of which any combination of the participant, the participant’s spouse, minor children or grandchildren are
shareholders or beneficiaries, as applicable.
Under the LTIP, eligible participants may be granted SARs, a right to receive a cash amount equal to the amount, if
any, by which the market price of the SVS at the time of exercise of the SAR exceeds the market price of the SVS at the time
of the grant. The market price used for this purpose is the weighted average price for SVS during the five trading days
preceding the date of determination. The TSX market price is used for Canadian employees and the NYSE market price is
used for all other employees. Such amounts may also be payable by the issuance of SVS (at the discretion of the
Corporation). The exercise of SARs may also be subject to conditions similar to those which may be imposed on the exercise
of stock options. To date, the Corporation has not granted any SARs under the LTIP.
Under the LTIP, eligible participants may be allocated share units in the form of PSUs or RSUs. Each vested RSU
and PSU entitles the holder to receive one SVS on the applicable release date (however, the number of PSUs that may vest
range from 0% to 200% of a target amount). The issuance of such shares may be subject to vesting requirements similar to
those described above with respect to the exercisability of stock options and SARs, including such time or performance-based
conditions as may be determined by the Board of Directors in its discretion. Under the LTIP, the Corporation may authorize
grantees to settle vested RSUs or PSUs either in cash or SVS. Absent such permitted election, RSUs and PSUs will be settled
in SVS. The number of SVS that may be issued to any one person pursuant to the share unit program shall not exceed 1% of
the aggregate issued and outstanding SVS and MVS. The number of SVS that may be issued under share units in the event of
termination of employment without cause, death or long-term disability is subject to pro-ration, unless otherwise determined
by the Corporation. The LTIP provides for the express designation of share units as either RSUs, which have time-based
vesting conditions or PSUs, which have performance-based vesting conditions over a specified period. In the event a holder
of PSUs retires, unless otherwise determined by the Corporation, the pro-rated vesting of such PSUs shall be determined
based on the actual performance achieved during the period specified for the grant by the Corporation.
The following types of amendments to the LTIP or the entitlements granted under it require the approval of the
holders of the voting securities by a majority of votes cast by shareholders present or represented by proxy at a meeting:
(a) increasing the maximum number of SVS that may be issued under the LTIP;
(b) reducing the exercise price of an outstanding stock option (including cancelling and, in conjunction therewith,
regranting a stock option at a reduced exercise price);
(c) extending the term of any outstanding stock option or SAR;
(d) expanding the rights of participants to assign or transfer a stock option, SAR or share unit beyond that currently
contemplated by the LTIP;
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(e) amending the LTIP to provide for other types of security-based compensation through equity issuance;
(f) permitting a stock option to have a term of more than ten years from the grant date;
(g) increasing or deleting the percentage limit on SVS issuable or issued to insiders under the LTIP;
(h) increasing or deleting the percentage limit on SVS reserved for issuance to any one person under the LTIP
(being 5% of the Corporation’s total issued and outstanding SVS and MVS);
(i) adding to the categories of participants who may be eligible to participate in the LTIP; and
(j) amending the amendment provision,
subject to the application of the anti-dilution or re-organization provisions of the LTIP.
The Board may approve amendments to the LTIP or the entitlements granted under it without shareholder approval,
other than those specified above as requiring approval of the shareholders, including, without limitation:
(a) clerical changes (such as a change to correct an inconsistency or omission or a change to update an
administrative provision);
(b) a change to the termination provisions for the LTIP or for a stock option as long as the change does not permit
the Corporation to grant a stock option with a termination date of more than ten years from the date of grant or
extend an outstanding stock option’s termination date beyond such date; and
(c) a change deemed necessary or desirable to comply with applicable law or regulatory requirements.
Celestica Share Unit Plan
The CSUP provides for the issuance of RSUs and PSUs in the same manner as provided in the LTIP, except that the
Corporation may not issue shares from treasury to satisfy its obligations under the CSUP and there is no limit on the number
of share units that may be issued as RSUs and PSUs under the terms of the CSUP. Issuances under the CSUP may be settled
in cash or SVS at the discretion of the Corporation. The share units may be subject to vesting requirements, including any
time-based conditions established by the Board of Directors at its discretion. The vesting of PSUs also requires the
achievement of specified performance-based conditions as determined by the HRCC. There is no “burn rate” for the CSUP
because issuances under the CSUP are not from treasury and are therefore non-dilutive.
Pension Plans
The following table provides details of the amount of Celestica’s contributions to its defined contribution pension
plans on behalf of the NEOs, and the accumulated value thereunder as of December 31, 2021 for each NEO.
Table 20: Defined Contribution Pension Plan
Name
Robert A. Mionis(2)
Mandeep Chawla(2)
Jason Phillips
Jack J. Lawless
Todd C. Cooper
Accumulated Value
at Start of Year
($)
$1,064,437
$410,949
$409,841
$344,590
$122,376
Compensatory
($)
$249,200
$110,942
$80,342
$70,902
$80,342
Accumulated Value
at End of Year(1)
($)
$1,530,246
$570,771
$583,149
$495,480
$224,811
(1)
(2)
The difference between (i) the sum of the Accumulated Value at Start of Year column plus the Compensatory column and (ii) the Accumulated Value
at End of Year column is attributable to non-compensatory changes in the Corporation’s accrued obligations during the year ended December 31, 2021.
The difference between the Accumulated Value at Start of Year reported here and the Accumulated Value at End of Year reported in our 2020 Annual
Report on Form 20-F for Messrs. Mionis and Chawla is attributable to different exchange rates used in our 2020 Annual Report on Form 20-F and in
this Annual Report. The exchange rate used in our 2020 Annual Report on Form 20-F was $1.00 = C$1.3422.
133
Canadian Pension Plans
Mr. Chawla participates in the Corporation’s registered pension plan for Canadian employees (Canadian Pension
Plan) which is a defined contribution plan. The Canadian Pension Plan allows employees to choose how the Corporation’s
contributions are invested on their behalf within a range of investment options provided by third-party fund managers.
Retirement benefits depend upon the performance of the investment options chosen. Mr. Chawla also participates in an
unregistered supplementary pension plan (Canadian Supplementary Plan). This is also a defined contribution plan through
which the Corporation provides an annual contribution of an amount equal to the difference between (i) the maximum annual
contribution limit as determined in accordance with the formula set out in the Canadian Pension Plan and with Canada
Revenue Agency rules and (ii) 8% of the total base salary and paid annual incentives. Notional accounts are maintained for
each participant in the Canadian Supplementary Plan. Participants are entitled to select from among the investment options
available in the Canadian Pension Plan for the purpose of determining the return on their Canadian Supplementary Plan
notional accounts.
U.S. Pension Plans
Messrs. Mionis, Phillips, Lawless and Cooper participate in the Corporation’s U.S. pension plans comprised of two
defined contribution retirement programs, one of which qualifies as a deferred salary arrangement under section 401(k) of the
U.S. Internal Revenue Code (401(k) Plan). Under the 401(k) Plan, participating employees may defer 100% of their pre-tax
earnings subject to any statutory limitations. The Corporation may make contributions for the benefit of eligible employees.
The 401(k) Plan allows employees to choose how their account balances are invested on their behalf within a range of
investment options provided by third-party fund managers. The Corporation contributes: (i) 3% of eligible compensation for
the participant, and (ii) up to an additional 3% of eligible compensation by matching 50% of the first 6% contributed by the
participant. The maximum contribution of the Corporation to the 401(k) Plan, based on the Internal Revenue Code rules and
the 401(k) Plan formula for 2021 was $19,500 (plus an additional $6,500 for an individual over the age of 50).
Messrs. Mionis, Phillips, Lawless and Cooper also participate in a supplementary retirement plan that is also a defined
contribution plan (U.S. Supplementary Plan). Under the U.S. Supplementary Plan, the Corporation contributes to the
participant an annual amount equal to the difference between 8% of the participant’s salary and paid incentive and the
amount that Celestica would contribute to the 401(k) Plan assuming the participant contributes the amount required to receive
the matching 50% contribution by Celestica. A notional account is maintained for Messrs. Mionis, Lawless and Cooper, and
they are entitled to select from among the investment options available in the 401(k) Plan for the purpose of determining the
return on their notional accounts.
Termination of Employment and Change in Control Arrangements with
Named Executive Officers
The Corporation has entered into employment agreements with certain of its NEOs in order to provide certainty to
the Corporation and such NEOs with respect to issues such as obligations of confidentiality, non-solicitation and non-
competition after termination of employment, the amount of severance to be paid in the event of termination of the NEO’s
employment, and to provide a retention incentive in the event of a change in control scenario.
Mr. Mionis
The CEO Employment Agreement provides that Mr. Mionis is entitled to certain severance benefits if, during a
change of control period or a potential change of control period at the Corporation, he is terminated without cause or resigns
for good reason as defined in his agreement (a “double trigger” provision) where good reason includes, without limitation, a
material adverse change in position or duties or a specified reduction(s) in total compensation (including base salary, equity
and CTI award). A change of control period is defined in his agreement as the 12-month period following a change of
control. A potential change of control period is defined in his agreement as the period beginning upon the occurrence of a
potential change of control and ending on the earlier of: (i) the end of the 6-month period following a potential change of
control; and (ii) a change of control.
134
The amount of the severance payment for Mr. Mionis is equal to: (i) base salary up to and including the termination
date; (ii) a lump sum amount equal to his target payment under the CTI prorated to the date of termination; (iii) a lump sum
amount equal to any payments accrued under the CTI in respect of the fiscal year preceding the fiscal year during which his
termination occurs, if any; (iv) a lump sum amount equal to two times his eligible earnings (such eligible earnings calculated
as his annual base salary plus the lesser of (a) his target payment under the CTI for the fiscal year during which his
termination occurs based on target achievement of the CPF of 1.0 and an IPF of 1.0, and (b) payment received under the CTI
for the fiscal year preceding the fiscal year during which termination occurs); (v) vacation pay earned but unpaid up to and
including the date of termination; (vi) a lump sum cash settlement of contributions to, or continuation of his pension and
retirement plans for a two-year period; and (vii) a one-time lump sum payment of $100,000 in lieu of all future benefits and
perquisites. In addition, upon a change of control and termination without cause or for good reason (a) the stock options
granted to him vest immediately, (b) the unvested PSUs granted to him vest immediately at the target level of performance
specified in the terms of the PSU grant, and (c) the RSUs granted to him shall vest immediately.
Outside a change in control period, upon termination without cause or resignation for good reason as defined in his
agreement, the amount of the severance payment for Mr. Mionis is equal to: (a) base salary up to and including the
termination date; (b) a lump sum amount equal to any payments accrued under the CTI in respect of the fiscal year preceding
the fiscal year during which his termination occurs; (c) a lump sum amount equal to two times his eligible earnings
(as calculated in the paragraph above); (d) vacation pay earned but unpaid up to and including the date of termination; (e) a
one-time lump sum payment of $100,000 in lieu of all future benefits and perquisites; and (f) a lump sum cash settlement of
contributions to, or continuation of his pension and retirement plans for a two-year period. In addition, (a) vested stock
options may be exercised for a period of 30 days and unvested stock options are forfeited on the termination date, (b) RSUs
shall vest immediately on a pro rata basis based on the ratio of (i) the number of full years of employment completed
between the date of grant and termination of employment, to (ii) the number of years between the date of grant and the
vesting date, and (c) PSUs vest based on actual performance on a pro rata basis based on the ratio of (i) the number of full
years of employment completed between the date of grant and the termination of employment, to (ii) the number of years
between the date of grant and the vesting date.
The foregoing entitlements are conferred on Mr. Mionis in part upon his fulfillment of certain confidentiality, non-
solicitation and non-competition obligations for a period of two years following termination of employment. In the event of a
breach of such obligations, the Corporation is entitled to seek appropriate legal, equitable and other remedies, including
injunctive relief.
The following table summarizes the incremental payments and benefits to which Mr. Mionis would have been
entitled upon a change in control occurring on December 31, 2021, or if his employment had been terminated on
December 31, 2021 as a result of a change in control, retirement or termination without cause (or with good reason).
Table 21: Mr. Mionis’ Benefits
Termination without Cause/with Good Reason or
Change in Control with Termination
Cash
Portion
$4,275,000
Value of Option-Based and
Share-Based Awards(1)
—
Other
Benefits(2)
$633,200
Total
$4,908,200
Change in Control with no Termination or Retirement
—
—
—
—
(1) No incremental amount would be received in respect of accelerated vesting of options, RSUs and PSUs, if any, on the assumption that the discount rate
applied to calculate the net present value of the accelerated entitlements is not greater than the rate at which the SVS would otherwise be expected to
appreciate over the period of acceleration.
(2) Other benefits consist of group health benefits and pension plan contributions.
135
Messrs. Chawla, Phillips, Lawless and Cooper
Messrs. Chawla, Phillips, Lawless and Cooper are subject to the Executive Policy Guidelines which provide
the following:
Termination without cause
Termination without cause within two
years following a change in control of
the Corporation (“double trigger”
provision)
Termination with cause
Retirement
Resignation
• eligible to receive a severance payment up to two times annual base salary and the lower of
target or actual annual incentive for the previous year (Eligible Earnings), subject to
adjustment for factors including length of service, together with a portion of their annual
incentive for the year, prorated to the date of termination
• (a) vested stock options may be exercised for a period of 30 days and unvested stock
options are forfeited on the termination date, (b) RSUs shall vest immediately on a pro rata
basis based on the ratio of (i) the number of full years of employment completed between the
date of grant and termination of employment, to (ii) the number of years between the date of
grant and the vesting date, and (c) PSUs vest based on actual performance on a pro rata basis
based on the ratio of (i) the number of full years of employment completed between the date
of grant and the termination of employment, to (ii) the number of years between the date of
grant and the vesting date
• eligible to receive a severance payment up to two times Eligible Earnings, subject to
adjustment for factors including length of service, together with a portion of their annual
incentive for the year, prorated to the date of termination
• (a) all unvested stock options vest on the date of change in control, (b) all unvested RSUs
vest on the date of change in control, and (c) all unvested PSUs vest on the date of change in
control at target level of performance unless the terms of a PSU grant provide otherwise, or
on such other more favourable terms as the Board may in its discretion provide
• no severance benefit is payable
• all unvested equity is forfeited on the termination date
• (a) stock options continue to vest and are exercisable until the earlier of three years following
retirement and the original expiry date, (b) RSUs will continue to vest on their vesting dates,
and (c) PSUs vest based on actual performance on a pro rata basis based on the percentage
represented by the number of days between the date of grant and the date of retirement as
compared to the total number of days from the date of grant to the scheduled release date for
the issuance of shares in respect of vested PSUs
• no severance benefit is payable
• (a) vested stock options may be exercised for a period of 30 days and unvested stock options
are forfeited on the resignation date and (b) all unvested RSUs and PSUs are forfeited on the
resignation date
Additionally, the Executive Policy Guidelines provide that executives whose employment has been terminated will
have their pension and benefits coverage treated according to the terms of the plans in which they participate.
The entitlements described in the above table are only conferred on eligible executives who fulfill certain
confidentiality, non-solicitation and non-competition obligations for a period of two years following termination of their
employment.
The following tables summarize the incremental payments to which Messrs. Chawla, Phillips, Lawless and Cooper
would have been entitled upon a change in control occurring on December 31, 2021, or if their employment had been
terminated on December 31, 2021 as a result of a change in control, retirement or termination without cause.
Table 22: Mr. Chawla’s Benefits
Termination without Cause or Change in Control with
Termination
Change in Control with no Termination or Retirement
Cash
Portion(1)
$2,200,000
Value of Option-Based and
Share-Based Awards(2)
—
Other
Benefits
—
Total
$2,200,000
—
—
—
—
(1) Amounts in this column assume a maximum severance payment of two times Eligible Earnings but the actual amounts payable could be less.
(2) No incremental amount would be received in respect of accelerated vesting of options, RSUs and PSUs, if any, on the assumption that the discount rate
applied to calculate the net present value of the accelerated entitlements is not greater than the rate at which the SVS would otherwise be expected to
appreciate over the period of acceleration.
136
Table 23: Mr. Phillips’ Benefits
Termination without Cause or Change in Control with
Termination
Change in Control with no Termination or Retirement
Cash
Portion(1)
$1,746,000
Value of Option-Based and
Share-Based Awards(2)
—
Other
Benefits
—
Total
$1,746,000
—
—
—
—
(1) Amounts in this column assume a maximum severance payment of two times Eligible Earnings but the actual amounts payable could be less.
(2) No incremental amount would be received in respect of accelerated vesting of options, RSUs and PSUs, if any, on the assumption that the discount rate
applied to calculate the net present value of the accelerated entitlements is not greater than the rate at which the SVS would otherwise be expected to
appreciate over the period of acceleration.
Table 24: Mr. Lawless’ Benefits
Termination without Cause or Change in Control with
Termination
Change in Control with no Termination or Retirement
Cash
Portion(1)
$1,656,000
Value of Option-Based and
Share-Based Awards(2)
—
Other
Benefits
—
Total
$1,656,000
—
—
—
—
(1) Amounts in this column assume a maximum severance payment of two times Eligible Earnings but the actual amounts payable could be less.
(2) No incremental amount would be received in respect of accelerated vesting of options, RSUs and PSUs, if any, on the assumption that the discount rate
applied to calculate the net present value of the accelerated entitlements is not greater than the rate at which the SVS would otherwise be expected to
appreciate over the period of acceleration.
Table 25: Mr. Cooper’s Benefits
Termination without Cause or Change in Control with
Termination
Change in Control with no Termination or Retirement
Cash
Portion(1)
$1,746,000
Value of Option-Based and
Share-Based Awards(2)
—
Other
Benefits
—
Total
$1,746,000
—
—
—
—
(1) Amounts in this column assume a maximum severance payment of two times Eligible Earnings but the actual amounts payable could be less.
(2) No incremental amount would be received in respect of accelerated vesting of options, RSUs and PSUs, if any, on the assumption that the discount rate
applied to calculate the net present value of the accelerated entitlements is not greater than the rate at which the SVS would otherwise be expected to
appreciate over the period of acceleration.
Performance Graph
The following chart compares the cumulative TSR of C$100 invested in SVS with the cumulative TSR of the S&P/
TSX Composite Total Return Index for the period from December 31, 2016 to December 31, 2021.
Table 26: Performance Graph
137
An investment in the Corporation on December 31, 2016 would have resulted in an 11% decrease in value over the
five-year period ended December 31, 2021 compared with a 61% increase that would have resulted from an investment in the
S&P/TSX Composite Total Return Index over the same period. Over the same period, annual total direct compensation for
NEOs (actual salary paid, actual CTI awards paid and the value of long-term incentive awards (at target in the case of PSUs)
granted in the respective years) increased by 27%.
In 2021, we met or exceeded a number of our financial performance goals, realized a 38% increase in our share price
(from $8.07 on December 31, 2020 to $11.13 on December 31, 2021 on the NYSE), and our TSR outperformed the S&P/
TSX Composite Total Return Index by 13% and the Global Industry Classification (GICS) 4520 – Technology Hardware and
Equipment TSR by 22%. We believe that these 2021 results validate the successful execution of our strategic transformation,
and that the Corporation is now positioned for profitable growth. We further believe that the Corporation’s strategic
transformation, in addition to materials constraints, and demand reductions and other adverse impacts on our business related
to COVID-19 resulted in significant price and volume fluctuations in the market price of our SVS, and negatively impacted
our TSR in recent years.
In the medium to long-term, compensation of the NEOs is directly impacted by the market value of the SVS, as a
significant portion of such NEO compensation is comprised of RSUs and PSUs with realized compensation tied to the market
value of the SVS (and in the case of PSUs, tied to other financial performance metrics of the Corporation over a three-year
performance period). We believe the realized value of the long-term incentives granted to NEOs, and the performance of the
PSUs in particular, serve to better demonstrate the alignment of pay for performance. In addition to share performance, the
achievement of the Corporation’s strategic objectives and other financial measures (such as revenue and non-IFRS operating
margin) are used to assess the alignment our executive pay with the Corporation’s performance. See Realized and Realizable
Compensation above.
C. Board Practices
Members of the Board are elected until the close of the next annual meeting of shareholders or until their successors are
elected or appointed (unless such position is earlier vacated in accordance with the Corporation's by-laws). Each member of
our senior management is appointed to serve at the discretion of our Board (subject to the terms and conditions of their
respective employment agreements, if any). See Item 6(A), "Directors and Senior Management" for details for the period
during which each director and executive officer has served in such capacity. Our independent directors (as defined under
Canadian rules and NYSE listing standards) meet separately in camera (and without our CEO, CFO or other members of
management present) as part of every Board meeting to consider such matters as they deem appropriate. The presiding
director at these in camera sessions is the Chair of the Board, or in the absence of the Chair of the Board, another
independent director selected by those in attendance. The independent directors can set their own agenda, maintain minutes,
and report back to the Board as a whole. Among the items that the independent directors meet privately in camera to review
is the performance of the CEO. Each of our standing Board committees, which consist solely of independent directors (as
defined under applicable Canadian and SEC rules, and NYSE listing standards), also meet separately (without our CEO, CFO
or other members of management present) as part of each committee meeting.
The Board has determined that Mr. Cascella, Mr. Chopra, Mr. DiMaggio, Ms. Koellner, Dr. Müller, Ms. Perry,
Mr. Ryan and Mr. Wilson (constituting a majority of the Board) are independent directors under applicable independence
standards in Canada and under NYSE listing standards.
Except for the right to receive deferred compensation, no director is entitled to benefits from Celestica under any
service contracts when they cease to serve as a director. See Item 6(B), "Compensation."
Communications with the Board
Shareholders and other interested parties may confidentially communicate directly with the Chair of the Board, or all
non-management directors (directors who are not executive officers of the Company) or independent directors individually or
as a group, by writing to any of the foregoing c/o Investor Relations, Celestica Inc., 5140 Yonge Street, Suite 1900, Toronto,
Ontario, Canada M2N 6L7; phone 416-448-2211. Any such letters will be delivered unopened to the Chair of the Board or to
the appropriate addressee(s) or their designees.
138
Shareholders and other interested parties who have concerns or complaints relating to accounting, internal accounting
controls or other matters may also contact the Audit Committee by writing to the address set out above or by reporting the
matter through our Ethics Hotline toll free at 1-888-312-2689. Callers outside the U.S. or Canada can place a collect call to
1-503-726-2457. Alternatively, concerns or complaints can be reported using a secure on-line web-based tool at
www.ethics.celestica.com.
All communications will be handled in a confidential manner, to the degree that applicable laws allow.
Communications may be made on an anonymous basis; however, in these cases the reporting individual must provide
sufficient details for the matter to be reviewed and resolved. The Corporation will not tolerate any retaliation against an
employee who makes a good faith report.
Board Committees
The Board has three standing committees, each with a specific mandate (charter): the Audit Committee, the Human
Resources and Compensation Committee (HRCC), and the Nominating and Corporate Governance Committee (NCGC). All
of these committees are composed solely of independent directors (as that term is defined by applicable Canadian and SEC
rules and in the NYSE listing standards, as applicable).
Audit Committee
The Audit Committee in 2021 consisted of Ms. Koellner (Chair), Mr. Cascella, Mr. Chopra, Mr. DiMaggio, Dr. Müller
(commencing upon his appointment to the committee effective August 31, 2021), Ms. Perry, Mr. Ryan and Mr. Wilson, all of
whom the Board determined to be independent directors for audit committee purposes (as that term is defined by applicable
Canadian and SEC rules and in the NYSE listing standards) and financially literate. All of the audit committee members have
held executive positions with large corporations or financial services companies. The Audit Committee has a well-defined
mandate which, among other things, sets out its relationship with, and expectations of, the external auditors, including the
determination of the independence of the external auditors and approval of any non-audit services of the external auditor; the
engagement, evaluation, remuneration and termination of the external auditor; its relationship with, and expectations of, the
internal auditor function and its oversight of internal control; and the disclosure of financial and related information. In
addition to fulfilling the responsibilities as set forth in its mandate, the Audit Committee has established procedures to review
the qualifications, expertise, resources and the overall performance of the Corporation's external auditor. The Audit
Committee has direct communication channels with the internal and external auditors to discuss and review specific issues
and has the authority to retain and fund such independent legal, accounting, or other advisors as it may consider appropriate.
The Audit Committee reviews and approves the mandate and plan of the internal audit department on an annual basis. The
Audit Committee's duties include responsibility for reviewing financial statements with management and the auditors,
monitoring the adequacy of Celestica's internal control procedures, and reviewing the adequacy of Celestica's processes for
identifying and managing risk.
The Audit Committee has established procedures for: (i) receipt, retention, and treatment of complaints regarding
accounting, internal accounting controls, or auditing matters and (ii) confidential, anonymous submission by employees of
concerns regarding questionable accounting or auditing matters. A copy of the Audit Committee Mandate is available on our
website at www.celestica.com.
Members of the Audit Committee do not serve on more than three audit committees of public companies, including that
of Celestica. See Item 16A "Audit Committee Financial Expert" for a discussion of the Corporation's Audit Committee
Financial Experts.
Audit Committee Report:
The Audit Committee has reviewed and discussed the audited financial statements with management;
The Audit Committee has discussed with the independent auditors the matters required to be discussed by the
applicable requirements of the Public Company Accounting Oversight Board (PCAOB) and the SEC;
The Audit Committee has received the written disclosures and the letter from the independent accountant as required
by applicable requirements of the PCAOB regarding the independent accountant's communications with the Audit Committee
concerning
independent accountant's
the
independence; and
independence, and has discussed with
independent accountant
the
139
Based on such review and discussions, the Audit Committee recommended to the Board that the audited financial
statements be included in this Annual Report for the year ended December 31, 2021 for filing with the SEC.
The Audit Committee:
Mr. Cascella
Mr. Chopra
Mr. DiMaggio
Ms. Koellner
Dr. Müller
Ms. Perry
Mr. Ryan
Mr. Wilson
Human Resources and Compensation Committee
The HRCC in 2021 consisted of Mr. Cascella (Chair as of April 29, 2021), Mr. Ryan (Chair through April 29, 2021),
Mr. Chopra, Mr. DiMaggio, Dr. Müller (commencing upon his appointment to the committee effective August 31, 2021),
Ms. Koellner, Ms. Perry and Mr. Wilson, all of whom the Board determined to be independent directors for compensation
committee purposes pursuant to the applicable Canadian and SEC rules and the NYSE listing standards. It is the
responsibility of the HRCC to define and communicate compensation policies and principles that reflect and support our
strategic direction, business goals and desired culture. Pursuant to its mandate, the HRCC: reviews and approves Celestica's
overall reward/compensation policy, including an executive compensation policy that is consistent with competitive practice
and supports organizational objectives and shareholder interests; reviews the corporate goals and objectives relevant to the
compensation of the CEO, as approved by the Board, evaluates the CEO's performance in light of these goals and objectives,
and sets the compensation of the CEO based on this evaluation; reviews and approves the appointment and terms of
employment (or any material changes to terms of employment) and, upon recommendation of the CEO, any changes to the
base salary for all senior executive positions that report to the CEO and certain other senior executive positions, as well as
any separation agreement or compensation arrangement for any such executive whose employment has been terminated;
reviews, modifies, and approves the elements of the Corporation's incentive-based plans and equity-based plans, including
plan design, performance targets, administration and total funds/shares reserved for payment; makes recommendations to the
Board regarding director compensation in accordance with principles and guidelines established by the NCGC; maintains and
reviews succession plans for the CEO, all positions that report to the CEO, and certain other executive positions; reviews and
approves, in conjunction with management, public disclosure relating to executive compensation in accordance with
applicable rules and regulations and prepares any report required by any applicable securities regulatory authority or stock
exchange requirement to be included in applicable public disclosure documents; reviews the Corporation's talent management
strategy and practices; reviews and approves insider trading and share ownership policies; regularly reviews the risks
associated with the Corporation's compensation policies and practices; and performs any other activities consistent with the
HRCC's mandate. See Item 6(B), "Compensation" for details regarding our processes and procedures for the consideration
and determination of executive and director compensation and the role of our Compensation Consultant in making
recommendations to the HRCC regarding executive officer and director compensation.
A copy of the HRCC Mandate is available on our website at www.celestica.com.
Human Resources and Compensation Committee Report:
The HRCC has reviewed and discussed the Compensation Discussion and Analysis with management and based on
such review and discussions, the HRCC recommended to the Board that the Compensation Discussion and Analysis be
included in this Annual Report for the year ended December 31, 2021.
The Human Resources and Compensation Committee:
Mr. Cascella
Mr. Chopra
Mr. DiMaggio
Ms. Koellner
Dr. Müller
Ms. Perry
Mr. Ryan
Mr. Wilson
140
Nominating and Corporate Governance Committee
The NCGC in 2021 consisted of Mr. Wilson (Chair), Mr. Cascella, Mr. Chopra, Mr. DiMaggio, Ms. Koellner, Dr.
Müller (commencing upon his appointment to the committee effective August 31, 2021), Ms. Perry, and Mr. Ryan, all of
whom were determined by the Board to be independent directors pursuant to applicable Canadian rules and NYSE listing
standards. The NCGC is responsible for developing and recommending governance guidelines for the Corporation (and
recommending changes to those guidelines), identifying individuals qualified to become members of the Board, and
recommending director nominees to be put before the shareholders at each annual meeting. The duties and responsibilities of
the NCGC include: reviewing the Corporation's Corporate Governance Guidelines; creating a formal, rigorous and
transparent procedure for the appointment of new directors to the Board; identifying and recommending new director
nominees; annually assessing the effectiveness of the Board's Diversity Policy and its effectiveness in promoting a diverse
Board, and monitoring compliance with disclosure and any other requirements under applicable corporate and securities laws
and regulations, as well as any applicable stock exchange requirements, regarding diversity; developing a director orientation
program; developing a director continuing education program; developing position descriptions for the Chair, the CEO and
the chair of each committee; developing and overseeing annual director evaluations, including assessing the performance of
the Board, the committees, and individual directors and through peer review; reviewing director compensation guidelines;
overseeing the Corporation’s general strategy, policies and initiatives relating to ESG matters, including, among other things,
sustainability, and reviewing the risks related to ESG matters; and annual director independence reviews.
A copy of the NCGC Mandate is available on our website at www.celestica.com.
D. Employees
As of December 31, 2021, we employed 23,915 permanent and temporary (contract) employees worldwide
(December 31, 2020 — 20,550; December 31, 2019 — approximately 24,600). Some of our employees in China, Japan,
Mexico, Romania, Singapore and Spain are represented by unions or are covered by collective bargaining agreements. We
believe we have a productive and collaborative working relationship between management and the relevant unions. We
believe that our employee relationships are generally positive and stable.
The following table sets forth information concerning our employees (permanent and temporary) by geographic
location for the past three financial years:
Date
Americas
Number of Employees
Europe
Asia
December 31, 2019 ..........................................................................
December 31, 2020 ..........................................................................
December 31, 2021 ..........................................................................
5,500
4,998
5,243
3,100
2,361
2,347
16,000
13,191
16,325
Total
24,600
20,550
23,915
Given the variable nature of our project flow and the quick response time required by our customers, it is critical that
we quickly adjust our production up or down to maximize efficiency. To achieve this, our approach has been to employ a
skilled temporary labor force, as required. As at December 31, 2021, 5,272 temporary (contract) employees (December 31,
2020 — 2,324; December 31, 2019 — approximately 3,100) were engaged by us worldwide. We employed, on average for
the year, 3,053 temporary (contract) employees in 2021. The total number of employees (permanent and temporary)
decreased by 4,050 from December 31, 2019 to December 31, 2020 and increased by 3,365 from December 31, 2020 to
December 31, 2021. The increase in total number of employees (permanent and temporary) in 2021 is primarily due to our
PCI acquisition.
See Item 4(B), “Business Overview” under the following captions: “Diversity and Inclusion,” “COVID-19 Response,”
“Employee Engagement,” “Community Engagement,” and “Ethical Labor Practices” for information on our approach to
those topics.
141
E. Share Ownership
The following table sets forth certain information concerning the direct and beneficial ownership of shares of Celestica at
February 22, 2022 by each director, each NEO, each non-NEO executive officer, and all directors and executive officers of
Celestica as a group as of such date. The address of each shareholder named below is Celestica's principal executive office.
Name of Beneficial Owner(1)(2)
Number of
Shares(3)
Percentage
of Class
Percentage of
All Equity
Shares(4)
Percentage of
Voting Power
Robert A. Cascella ....................................................................
Deepak Chopra .........................................................................
Daniel P. DiMaggio ..................................................................
Laurette T. Koellner .................................................................
Luis A. Müller ..........................................................................
Carol S. Perry ...........................................................................
Tawfiq Popatia ..........................................................................
0 SVS
0 SVS
0 SVS
0 SVS
0 SVS
0 SVS
0 SVS
Eamon J. Ryan ..........................................................................
18,240 SVS
Michael M. Wilson ...................................................................
20,000 SVS
—
—
—
—
—
—
—
*
*
Robert A. Mionis ...................................................................... 1,044,121 SVS
1%
Mandeep Chawla ......................................................................
92,003 SVS
Todd C. Cooper ........................................................................
257,853 SVS
Yann Etienvre ...........................................................................
0 SVS
John ("Jack") J. Lawless ...........................................................
271,900 SVS
Jason Phillips ............................................................................
139,010 SVS
*
*
—
*
*
—
—
—
—
—
—
—
*
*
*
*
*
—
*
*
All directors and executive officers as a group (14 persons) .... 1,571,227 SVS
1.5%
1.3%
—
—
—
—
—
—
—
*
*
*
*
*
—
*
*
*
*
(1)
(2)
(3)
(4)
Less than 1%.
As used in this table, beneficial ownership means sole or shared power to vote or direct the voting of the security, or the sole or shared investment
power with respect to a security (i.e., the power to dispose, or direct a disposition, of a security). A person is deemed at any date to have beneficial
ownership of any security that such person has a right to acquire within 60 days of such date. More than one person may be deemed to have
beneficial ownership of the same securities. Information with respect to stock options held by each executive officer, including exercise price and
expiration date, is included in footnote 3 below.
Information as to shares beneficially owned or shares over which control or direction is exercised is not within Celestica's knowledge. Except as
otherwise disclosed, such information has been provided by each individual.
With respect to Mr. Mionis, includes SVS subject to a total of 298,954 vested stock options issued on August 1 2015, all of which have an exercise
price of C$17.52 and an expiration date of August 1, 2025.
Represents the percentage beneficial ownership of the Company's SVS and MVS in the aggregate.
MVS and SVS have different voting rights. MVS entitle the holder to 25 votes per share and SVS entitle the holder to one
vote per share. SVS represent 18.5% of the aggregate voting rights attached to Celestica's shares. MVS represent 81.5% of the
voting rights attached to Celestica's shares. See Item 10(B), "Additional Information — Memorandum and Articles of
Incorporation."
At February 22, 2022, 3 persons (Mr. Mionis, one retired executive officer, and one employee) held stock options to
acquire an aggregate of 404,353 SVS. The options held by Mr. Mionis are described in footnote (3) to the table above.
Elizabeth DelBianco, a former executive officer of the Company who retired as of December 31, 2020, holds 10,881 vested
stock options, which have an exercise price of C$8.29 and an expiration date of January 28, 2023. Another Celestica employee
was granted 94,518 stock options with an exercise price of $10.58 on November 5, 2021. These options vest ratably over a
four-year period commencing on the first anniversary of the date of grant and expire on November 5, 2031. All stock options
were issued under the LTIP. No other stock options issued by the Company to employees are outstanding as of February 22,
2022. See Item 6(B), "Compensation" and note 12(b) to the Consolidated Financial Statements in Item 18 for a discussion of
the different types of equity awards, including stock options, RSUs and PSUs, issued and issuable to our employees.
142
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
The following table sets forth certain information concerning the direct and beneficial ownership of the shares of
Celestica as of February 22, 2022 by each person known to Celestica to own beneficially, directly or indirectly, 5% or more of
the SVS or MVS. MVS and SVS have different voting rights (see Item 6(E) above). SVS represent 18.5% of the aggregate
voting rights attached to Celestica's shares, and MVS represent 81.5% of the aggregate voting rights attached to Celestica's
shares. See footnotes (2) and (3) below and Item 4(B) "Information on the Company — Business Overview — Controlling
Shareholder Interest" above for additional information regarding our controlling shareholder, and Item 10(B), "Additional
Information — Memorandum and Articles of Incorporation" for additional information regarding our share capital.
Name of Beneficial Owner(1)
Onex Corporation(2)
Gerald W. Schwartz(3)
Letko, Brosseau & Associates Inc.(4)
Pzena Investment Management, LLC (5)
Number of
Shares
18,600,193 MVS
397,045 SVS
18,600,193 MVS
517,702 SVS
13,251,527
7,593,324 SVS
Percentage of
Class
100%
*
100%
*
12.5%
7.2%
Percentage of
All Equity Shares
14.9%
*
14.9%
*
10.6%
6.1%
Percentage of
Voting Power
81.5%
*
81.5%
*
2.3%
1.0%
Total percentage of all equity shares and total percentage of voting power
32.0%
84.9%
*
(1)
(2)
Less than 1%.
As used in this table, beneficial ownership means sole or shared power to vote or direct the voting of the security, or the sole or shared investment
power with respect to a security (i.e., the power to dispose, or direct a disposition, of a security). A person is deemed at any date to have beneficial
ownership of any security that such person has a right to acquire within 60 days of such date. More than one person may be deemed to have
beneficial ownership of the same securities.
Includes 945,010 MVS held by a wholly-owned subsidiary of Onex. 814,546 of the MVS beneficially owned by Onex are subject to options granted
to certain officers of Onex pursuant to certain Onex management investment plans, which options may be exercised upon specified dispositions by
Onex (directly or indirectly) of Celestica's securities, with respect to which Onex has the right to vote or direct the vote ("MIP Options"), including
688,807 MIP Options granted to Mr. Schwartz (each of which MVS will, upon exercise of such options, be automatically converted into an SVS).
The percentage ownership of SVS beneficially owned by Onex (assuming conversion of all MVS) was 14.7% as of February 19, 2020, 14.7% as of
February 22, 2021, and 15.2% as of February 22, 2022.
The Corporation's Restated Articles of Incorporation (Articles) provide "coat-tail" protection to the holders of the SVS by providing that the MVS
will be converted automatically into SVS upon any transfer thereof, except (i) a transfer to Onex or any affiliate of Onex or (ii) a transfer of 100% of
the outstanding MVS to a purchaser who also has offered to purchase all of the outstanding SVS for a per share consideration identical to, and
otherwise on the same terms as, that offered for the MVS, and the MVS held by such purchaser thereafter shall be subject to the share provisions
relating to conversion (including with respect to the provisions described herein) as if all references to Onex were references to such purchaser. In
addition, if (i) any holder of any MVS ceases to be an affiliate of Onex, or (ii) Onex and its affiliates, collectively, cease to have the right, in all
cases, to exercise the votes attached to, or to direct the voting of, any of the MVS held by Onex and its affiliates, such MVS shall convert
automatically into SVS on a one-for-one basis. For these purposes, (i) Onex includes any successor corporation resulting from an amalgamation,
merger, arrangement, sale of all or substantially all of its assets, or other business combination or reorganization involving Onex, provided that such
successor corporation beneficially owns directly or indirectly all MVS beneficially owned directly or indirectly by Onex immediately prior to such
transaction and is controlled by the same person or persons as controlled Onex prior to the consummation of such transaction; (ii) a corporation shall
be deemed to be a subsidiary of another corporation if, but only if, (a) it is controlled by that other, or that other and one or more corporations each
of which is controlled by that other, or two or more corporations each of which is controlled by that other, or (b) it is a subsidiary of a corporation
that is that other's subsidiary; (iii) "affiliate" means a subsidiary of Onex or a corporation controlled by the same person or company that controls
Onex; and (iv) "control" means beneficial ownership of, or control or direction over, securities carrying more than 50% of the votes that may be cast
to elect directors if those votes, if cast, could elect more than 50% of the directors. For these purposes, a person is deemed to beneficially own any
security which is beneficially owned by a corporation controlled by such person. In addition, if at any time the number of outstanding MVS shall
represent less than 5% of the aggregate number of the outstanding MVS and SVS, all of the outstanding MVS shall be automatically converted at
such time into SVS on a one-for-one basis. Onex, which beneficially owns, controls or directs, directly or indirectly all of the outstanding MVS, has
entered into an agreement with Celestica and Computershare Trust Company of Canada (as successor to the Montreal Trust Company of Canada), as
trustee for the benefit of the holders of the SVS, for the purpose of ensuring that the holders of SVS will not be deprived of any rights under
applicable take-over bid legislation to which they would be otherwise entitled in the event of a take-over bid (as that term is defined in applicable
securities legislation) if MVS and SVS were of a single class of shares. Subject to certain permitted forms of sale, such as identical or better offers to
all holders of SVS, Onex has agreed that it, and any of its affiliates that may hold MVS from time to time, will not sell any MVS, directly or
indirectly, pursuant to a take-over bid (as that term is defined under applicable securities legislation) under circumstances in which any applicable
securities legislation would have required the same offer or a follow-up offer to be made to holders of SVS if the sale had been a sale of SVS rather
than MVS, but otherwise on the same terms.
143
(3)
(4)
(5)
The address of Onex is: c/o Onex Corporation, 161 Bay Street, P.O. Box 700, Toronto, Ontario, Canada M5J 2S1.
The number of shares beneficially owned, controlled or directed, directly or indirectly, by Mr. Schwartz consists of 120,657 SVS owned by a
company controlled by Mr. Schwartz, and all of the 18,600,193 MVS and 397,045 SVS beneficially owned, or controlled or directed, directly or
indirectly, by Onex (as described in note (2) above). Mr. Schwartz is the Chairman of the Board and Chief Executive Officer of Onex. In addition,
he indirectly owns multiple voting shares of Onex carrying the right to elect a majority of the Onex board of directors. Accordingly, under
applicable securities laws, Mr. Schwartz is deemed to be the beneficial owner of the Celestica shares owned by Onex; Mr. Schwartz has advised
Celestica, however, that he disclaims beneficial ownership of such shares. The percentage ownership of SVS beneficially owned by Mr. Schwartz
(assuming conversion of all MVS) was 14.8% as of each of February 19, 2020, and February 22, 2021, and 15.3% as of February 22, 2022.
The address of Mr. Schwartz is: 161 Bay Street, P.O. Box 700, Toronto, Ontario, Canada M5J 2S1.
Letko, Brosseau & Associates Inc. (Letko) is the beneficial owner of 13,251,527 SVS and has sole voting and dispositive power over these shares.
Pursuant to the Schedule 13G/A filed by Letko with the SEC on February 11, 2022, reporting beneficial ownership as of December 31, 2021: clients
of Letko have the right to receive or the power to direct the receipt of dividends from, or the proceeds from sale of, the SVS reported as beneficially
owned by Letko; and no clients of Letko beneficially own more than five percent of the SVS. The address of Letko is: 1800 McGill College Avenue,
Suite 2510, Montréal, Québec, Canada H3A 3J6. The number of shares reported as owned by Letko in this Major Shareholders Table is based on the
alternative monthly report it filed on SEDAR on February 8, 2022, reporting investment control as of January 31, 2022. The percentage ownership
of SVS beneficially owned by Letko was 18.6% as of February 19, 2020, 14.8% as of February 22, 2021, and 12.5% as of February 22, 2022.
Pzena Investment Management, LLC (Pzena) is the beneficial owner of 7,593,324, and has sole voting power over 5,848,722 of such shares and sole
dispositive over all of such shares. Clients of the filing investment manager have the right to receive and the ultimate power to direct the receipt of
dividends from, or the proceeds of sale of, such SVS. No interest of any one of such clients relates to more than 5% of the class. The number of
shares reported as owned by Pzena in this Major Shareholders Table and the information in this footnote is based on the Schedule 13G/A filed by
Pzena with the SEC on January 20, 2022, reporting beneficial ownership as of December 31, 2021. The address of Pzena is: 320 Park Avenue, 8th
Floor, New York, NY 10022. The percentage ownership of SVS beneficially owned by Pzena was 7.0% as of February 22, 2021, and 7.2% as of
February 22, 2022. This is the second year in the past three years that Pzena has been listed in this Major Shareholders Table.
There are no arrangements known to the Corporation, the operation of which may at a subsequent date result in a change
in control of the Corporation.
Holders
As of February 22, 2022, based on information provided to us by our transfer agent, there were 1,639 holders of record of
SVS, of which 378 holders, holding approximately 87.7% of the outstanding SVS, were resident in the U.S. and 364 holders,
holding approximately 12.2% of the outstanding SVS, were resident in Canada. These numbers are not representative of the
number of beneficial holders of our SVS nor are they representative of where such beneficial holders reside, since many of such
shares are held of record by brokers or other nominees. The Corporation does not have knowledge of the identities of the
beneficial owners of SVS registered through intermediaries. No MVS are held in the U.S.
B. Related Party Transactions
Onex, which beneficially owns, controls or directs, directly or indirectly, all of our outstanding MVS, has entered into an
agreement with Celestica and with Computershare Trust Company of Canada (as successor to the Montreal Trust Company of
Canada), as trustee for the benefit of the holders of the SVS, for the purpose of ensuring that the holders of SVS will not be
deprived of any rights under applicable take-over bid legislation to which they would be otherwise entitled in the event of a
take-over bid (as that term is defined in applicable securities legislation) if MVS and SVS were of a single class of shares.
Subject to certain permitted forms of sale, such as identical or better offers to all holders of SVS, Onex has agreed that it, and
any of its affiliates that may hold MVS from time to time, will not sell any MVS, directly or indirectly, pursuant to a take-over
bid (as that term is defined under applicable securities legislation) under circumstances in which any applicable securities
legislation would have required the same offer or a follow-up offer to be made to holders of SVS if the sale had been a sale of
SVS rather than MVS, but otherwise on the same terms.
We are party to a Services Agreement with Onex for the services of Mr. Tawfiq Popatia, an officer of Onex, as a director
of Celestica, pursuant to which Onex receives compensation for such services. This agreement automatically renews for
successive one-year terms unless either party provides a notice of intent not to renew. Under such agreement, the annual fee
payable to Onex is $235,000, payable in DSUs in equal quarterly installments in arrears. The Services Agreement terminates
automatically and the rights of Onex to receive compensation (other than accrued and unpaid compensation) will terminate (a)
30 days after the first day on which Onex ceases to hold at least one MVS of Celestica or any successor company or (b) the date
Mr. Popatia ceases to be a director of Celestica for any reason.
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On March 7, 2019, we completed the sale of our Toronto real property and received the Toronto Proceeds. As part of the
property sale, we entered into a 10-year lease (with two 5-year options to renew) in March 2019 with the purchaser of the
property for our new corporate headquarters, which is currently targeted to commence in May 2023. Upon such
commencement, our estimated annual basic rent will be approximately $2.1 million Canadian dollars for each of the first five
years, and approximately $2.2 million Canadian dollars for each of the remaining five years. A consortium of four real estate
partnerships, approximately 27% of the interests of which are held by a partnership in which Mr. Schwartz has a material
interest; and approximately 25% of the interests of which are held by a partnership in which Mr. Schwartz has a non-voting
interest, holds a 5% non-voting interest in such purchaser. See Item 5, "Operating and Financial Review and
Prospects — MD&A — Liquidity and Capital Resources — Toronto Real Property and Related Transactions" above.
Compensation arrangements with our directors and executive officers are described under Item 6(B), “Directors, Senior
Management and Employees — Compensation” above.
Indebtedness of Related Parties
As at February 22, 2022, other than inter-company loans among Celestica and its wholly-owned subsidiaries, no related
parties (as defined in Form 20-F), were indebted to Onex, Celestica or its subsidiaries.
C. Interests of Experts and Counsel
Not applicable.
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
See Item 18, "Financial Statements."
Export Sales
For the year ended December 31, 2021, we had approximately $5.4 billion of export sales (i.e., sales to customers located
outside of Canada), constituting approximately 95% of our $5.6 billion in total sales for the year. For further information
regarding the allocation of our revenues by geographic region over the last three years, see Item 4, "Information on the
Company — Business Overview — Geographies."
Litigation
We are party to litigation from time-to-time. We are not currently (nor have we been) party to any legal or arbitration
proceedings (including governmental proceedings pending or known to be contemplated) which management expects may have
(or which have had in the recent past) significant effects on Celestica's financial position or profitability. There are no material
proceedings in which any of our affiliates, directors, or members of senior management is either a party adverse to us or our
subsidiaries or has a material interest adverse to us or our subsidiaries.
Information concerning the status of certain tax matters is disclosed in Item 5, "Operating and Financial Review and
Prospects — MD&A — Liquidity and Capital Resources — Litigation and contingencies (including indemnities)" and note 24
to the Consolidated Financial Statements in Item 18.
Dividend Policy
We have not declared or paid any dividends to our shareholders. We intend to retain earnings for general corporate
purposes to promote future growth; as such, our Board does not anticipate paying any dividends at this time. Our Board will
review this policy from time-to-time, having regard to our financial condition, financing requirements and other relevant
factors.
B. Significant Changes
Except as otherwise disclosed in this Annual Report, no significant change has occurred since December 31, 2021.
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Item 9. The Offer and Listing
A. Offer and Listing Details
Market Information
The SVS are listed on the NYSE and the TSX (in each case under the symbol "CLS").
B. Plan of Distribution
Not applicable.
C. Markets
See Item 9A. — "Offer and Listing Details" above.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Incorporation
Objects and Purposes
Celestica (Ontario Corporation No. 1201522) can engage in any legal activity permitted under the OBCA. As set forth in
Item 6 of our Restated Articles of Incorporation (Articles), there are no restrictions on the business we may carry on or on the
powers we may exercise.
Certain Powers of Directors
Celestica's by-laws provide that the directors shall from time to time determine by resolution the remuneration to be paid
to the directors, which shall be in addition to the salary paid to any officer or employee of Celestica who is also a director. The
directors may also, by resolution, award special remuneration to any director in undertaking any special services on Celestica's
behalf other than the normal work ordinarily required of a director of Celestica. The by-laws provide that confirmation of any
such resolution by Celestica's shareholders is not required.
The Articles provide that the Board may, without shareholder authorization, from time to time in such amounts and on
such terms as it deems expedient: (i) borrow money upon the credit of Celestica; (ii) issue, reissue, sell or pledge debt
obligations of Celestica; (iii) give a guarantee on behalf of Celestica to secure performance of an obligation of any person; and
(iv) mortgage, hypothecate, charge, pledge or otherwise create a security interest in all or any currently owned or subsequently
acquired real and personal, movable and immovable, property of Celestica, including book debts, rights, powers, franchises and
undertakings, to secure Celestica's obligations.
There is no provision in our Articles or by-laws imposing a requirement for retirement or non-retirement of directors
under an age limit requirement. However, the Board has a retirement policy which provides that, unless the Board authorizes an
exception, a director shall not stand for re-election after his or her 75th birthday.
Section 132 of the OBCA provides, among other things, that a material contract between Celestica and one or more of
its directors, or between Celestica and another person of which a director of Celestica is a director or officer or in which he or
she has a material interest, is neither void nor voidable by reason only of that relationship or by reason only that the director is
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present at or is counted to determine the presence of a quorum at a meeting of directors or committee of directors that
authorized the contract, if the director disclosed his or her interest, in accordance with the applicable provisions of the OBCA,
and the contract or transaction was reasonable and fair to Celestica at the time it was approved. In addition, notwithstanding the
other conflict of interest provisions in Section 132 of the OBCA, where such director is acting honestly and in good faith, such
contract, if it was reasonable and fair to Celestica at the time it was approved, is neither void nor voidable by reason only of the
director's interest therein where the contract is confirmed or approved by special resolution at a meeting of shareholders and the
nature and extent of the director's interest in the contract is disclosed in reasonable detail in the notice calling the meeting or the
applicable information circular.
Share Ownership
The OBCA provides that unless the articles of a corporation otherwise provide, a director of a corporation is not required
to hold shares issued by the corporation. There is no provision in the Articles imposing a requirement that a director hold any
shares issued by Celestica. Our Board, however, has established guidelines setting out minimum shareholding requirements for
directors who are not employees or officers of Celestica or Onex. See the section entitled "Director Share Ownership
Guidelines" under Item 6, "Directors, Senior Management and Employees — Compensation" for a summary of these minimum
shareholding requirements.
Shareholder Rights and Limitations
The rights and preferences attached to our SVS and MVS, as well as additional information required by this Item 10(B),
is included in Exhibit 2.3 attached to this Annual Report, which Exhibit is incorporated herein by reference thereto.
C. Material Contracts
Information with respect to material contracts, other than contracts entered into in the ordinary course of business, to
which Celestica or its subsidiaries is a party, for the two years immediately preceding the publication of this Annual Report, is
included in Item 5, "Operating and Financial Review and Prospects — MD&A — Liquidity and Capital Resources," Item 6(B),
"Compensation," and note 4 to the Consolidated Financial Statements in Item 18. These contracts include equity compensation
plans, agreements related to our credit facility, our March 2020 A/R sales program agreement, and our acquisition agreement
with PCI. Material contracts to be performed in whole or in part at or after the filing of this Annual Report are included as
exhibits to this Annual Report. See Item 19, "Exhibits."
D. Exchange Controls
Canada has no system of exchange controls. We are not aware of any governmental laws, decrees, regulations or other
legislation in Canada that restrict the export or import of capital, including the availability of cash and cash equivalents for use
by our affiliated companies, or that affect the remittance of dividends, interest, royalties or similar payments to non-resident
holders of Celestica's securities, although there may be Canadian and other foreign tax considerations. See Item 10(E) —
"Taxation."
E. Taxation
Material Canadian Federal Income Tax Considerations
The following is a summary of the material Canadian federal income tax considerations generally applicable to a person
(a "U.S. Holder"), who acquires SVS and who, for purposes of the Income Tax Act (Canada) (the "Canadian Tax Act") and the
Canada-United States Income Tax Convention (1980) (as amended, the "Tax Treaty") at all relevant times is resident in the
U.S. and is neither resident nor deemed to be resident in Canada, is eligible for benefits under the Tax Treaty, deals at arm's
length and is not affiliated with Celestica, holds such SVS as capital property, and does not use or hold, and is not deemed to
use or hold, the SVS in carrying on business in Canada. Special rules, which are not discussed in this summary, may apply to a
U.S. Holder that is a financial institution (as defined in the Canadian Tax Act), or is an insurer to whom the SVS are designated
insurance property (as defined in the Canadian Tax Act).
This summary is based on Celestica's understanding of the current provisions of the Tax Treaty, the Canadian Tax Act
and the regulations thereunder, all specific proposals to amend the Canadian Tax Act or the regulations publicly announced by
the Minister of Finance (Canada) prior to February 22, 2022, and the current published administrative policies and assessing
practices of the Canada Revenue Agency.
This summary does not express an exhaustive discussion of all possible Canadian federal income tax considerations and,
except as mentioned above, does not take into account or anticipate any changes in law, whether by legislative, administrative
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or judicial decision or action, nor does it take into account the tax legislation or considerations of any province or territory of
Canada or any jurisdiction other than Canada, which may differ significantly from the considerations described in
this summary.
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax
advice to any particular holder, and no representation with respect to the Canadian federal income tax consequences to
any particular holder is made. Consequently, U.S. Holders of SVS should consult their own tax advisors with respect to
the income tax consequences to them having regard to their particular circumstances.
All amounts relevant in computing a U.S. Holder's liability under the Canadian Tax Act are to be computed in Canadian
dollars.
Taxation of Dividends
By virtue of the Canadian Tax Act and the Tax Treaty, dividends (including stock dividends) on SVS paid or credited or
deemed to be paid or credited to a U.S. Holder who is the beneficial owner of such dividends will generally be subject to
Canadian non-resident withholding tax at the rate of 15% of the gross amount of such dividends. Under the Tax Treaty, the rate
of withholding tax on dividends is reduced to 5% if that U.S. Holder is a company that beneficially owns (or is deemed to
beneficially own) at least 10% of the voting stock of Celestica. Moreover, under the Tax Treaty, dividends paid to certain
religious, scientific, literary, educational or charitable organizations and certain pension organizations that are resident in, and
generally exempt from tax in, the U.S., generally are exempt from Canadian non-resident withholding tax. Provided that certain
administrative procedures are observed by such an organization, Celestica would not be required to withhold such tax from
dividends paid or credited to such organization. Any such organization that has suffered withholding tax should consult its own
advisors about the possibility of seeking a refund.
Disposition of SVS
A U.S. Holder will not be subject to tax under the Canadian Tax Act in respect of any gain realized on the disposition or
deemed disposition of SVS unless the SVS constitute or are deemed to constitute "taxable Canadian property" other than
"treaty-protected property," as defined in the Canadian Tax Act, at the time of such disposition. Generally, SVS will not be
"taxable Canadian property" to a U.S. Holder at a particular time, where the SVS are listed on a designated stock exchange
(which currently includes the TSX and NYSE) at that time, unless at any time during the 60-month period immediately
preceding that time: (A) the U.S. Holder, persons with whom the U.S. Holder did not deal at arm's length, partnerships of which
the U.S. Holder or persons not dealing at arm's length with the U.S. Holder holds a membership interest (directly or indirectly
through another partnership) or the U.S. Holder together with all such persons or partnerships, owned 25% or more of the
issued shares of any class or series of shares of the capital stock of Celestica; and (B) more than 50% of the fair market value of
the SVS was derived directly or indirectly from one or any combination of (i) real or immoveable properties situated in Canada,
(ii) "Canadian resource properties", (iii) "timber resource properties" and (iv) options in respect of, or interests in, property
described in (i) to (iii), in each case as defined in the Canadian Tax Act. In certain circumstances set out in the Canadian
Tax Act, the SVS of a particular U.S. Holder could be deemed to be "taxable Canadian property" to that holder. Even if the
SVS are "taxable Canadian property" to a U.S. Holder, they generally will be "treaty-protected property" to such holder by
virtue of the Tax Treaty if the value of such shares at the time of disposition is not derived principally from "real property
situated in Canada" as defined for these purposes under the Tax Treaty and the Canadian Tax Act. It is expected that the value
of the SVS should not be considered derived principally from such "real property situated in Canada" at any relevant time;
accordingly, any gain realized by the U.S. Holder upon the disposition of the SVS generally should be exempt from tax under
the Canadian Tax Act.
Material U.S. Federal Income Tax Considerations
The following discussion describes the material U.S. federal income tax consequences to U.S. Holders (as defined below).
For purposes of this discussion, a U.S. Holder means a beneficial owner of SVS that is a citizen or resident of the U.S., a
corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) that is created or organized in or
under the laws of the U.S. or of any state thereof, an estate, the income of which is includible in gross income for U.S. federal
income tax purposes regardless of its source, or a trust, if either (i) a court within the U.S. is able to exercise primary
supervision over the administration of the trust and one or more "United States persons" (within the meaning of Section
7701(a)(30) of the U.S. Internal Revenue Code of 1986, as amended (Internal Revenue Code)) have the authority to control all
substantial decisions of the trust, or (ii) the trust has made an election under applicable U.S. Department of the Treasury
regulations (Treasury Regulations) to be treated as a domestic trust for U.S. federal income tax purposes. If a partnership
(or any other entity that is treated as a partnership for U.S. federal income tax purposes) holds SVS, the tax treatment of an
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equity owner of the partnership (or other entity that is treated as a partnership for U.S. federal income tax purposes) generally
will depend upon the status of the equity owner and upon the activities of the partnership (or other entity that is treated as a
partnership for U.S. federal income tax purposes). If you are an equity owner of a partnership (or other entity that is treated as a
partnership for U.S. federal income tax purposes) holding SVS, we suggest that you consult with your tax advisor. This
summary is for general information purposes only. It does not purport to be a comprehensive description of all of the tax
considerations that may be relevant to your decision to purchase, hold or dispose of SVS. This summary considers only U.S.
Holders who will own SVS as capital assets within the meaning of Section 1221 of the Internal Revenue Code. In this context,
the term "capital assets" means, in general, assets held for investment by a taxpayer. A "Non-U.S. Holder" means a beneficial
owner of SVS that is (i) not a U.S. Holder and (ii) not a partnership for U.S. federal income tax purposes. Certain material
aspects of U.S. federal income tax relevant to Non-U.S. Holders are also discussed below.
This discussion is based on current provisions of the Internal Revenue Code, current and proposed Treasury Regulations
promulgated thereunder, administrative rulings and pronouncements of the U.S. Internal Revenue Service (IRS), and judicial
decisions, all as of February 22, 2022, and all of which are subject to change, possibly on a retroactive basis. This discussion
does not address all aspects of U.S. federal income taxation that may be relevant to any particular U.S. Holder based on the U.S.
Holder's individual circumstances. In particular, this discussion does not address the potential application of the alternative
minimum tax or U.S. federal income tax consequences to U.S. Holders who are subject to special treatment, including, without
limitation, taxpayers who are broker dealers or insurance companies, taxpayers who have elected mark-to-market accounting,
individual retirement and other tax-deferred accounts, tax-exempt organizations, financial institutions or "financial services
entities," real estate investment trusts, regulated investment companies, taxpayers subject to special accounting rules under
Section 451(b) of the Internal Revenue Code, taxpayers who hold SVS as part of a "straddle," "hedge" or "conversion
transaction" with other investments, taxpayers owning directly, indirectly or by attribution at least 10% of the voting power or
value of our share capital, and taxpayers whose functional currency (as defined in Section 985 of the Internal Revenue Code) is
not the U.S. dollar.
This discussion does not address any aspect of U.S. federal gift or estate tax or state, local or non-U.S. tax laws.
Additionally, the discussion does not consider the tax treatment of persons who hold SVS through a partnership or other pass-
through entity (such as an S corporation). For U.S. federal income tax purposes, income earned through a non-U.S. or domestic
partnership or similar entity generally is attributed to its owners. You are advised to consult your own tax advisor with respect
to the specific tax consequences to you of purchasing, holding or disposing of SVS.
Taxation of Dividends Paid on SVS
Subject to the discussion of the passive foreign investment company (PFIC) rules below, in the event that we pay a
dividend, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on
SVS, including any Canadian taxes withheld from the amount paid, on the date the distribution is received, to the extent that the
distribution is paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes.
In addition, distributions of the Corporation's current or accumulated earnings and profits will be foreign source "passive
category income" for U.S. foreign tax credit purposes and generally will not qualify for the dividends received deduction
available to corporations. Distributions in excess of such earnings and profits will be applied against and will reduce the U.S.
Holder's tax basis in the SVS and, to the extent in excess of such basis, will be treated as capital gain.
Distributions of current or accumulated earnings and profits paid in Canadian dollars to a U.S. Holder will be includible in
the income of the U.S. Holder in a dollar amount calculated by reference to the exchange rate on the date the distribution is
received. A U.S. Holder who receives a distribution of Canadian dollars and converts the Canadian dollars into U.S. dollars
subsequent to receipt will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the
Canadian dollar against the U.S. dollar. Such gain or loss will generally be ordinary income and loss and will generally be
U.S. source gain or loss for U.S. foreign tax credit purposes. U.S. Holders should consult their own tax advisors regarding the
treatment of a foreign currency gain or loss.
U.S. Holders will generally have the option of claiming the amount of any Canadian income taxes withheld either as a
deduction from gross income or as a dollar-for-dollar credit against their U.S. federal income tax liability, subject to specified
conditions and limitations. Individuals who do not claim itemized deductions, but instead utilize the standard deduction, may
not claim a deduction for the amount of the Canadian income taxes withheld, but these individuals generally may still claim a
credit against their U.S. federal income tax liability. The amount of foreign income taxes that may be claimed as a credit in any
year is subject to complex limitations and restrictions, which must be determined on an individual basis by each shareholder.
The total amount of allowable foreign tax credits in an income category in any year cannot exceed the pre-credit U.S. tax
liability for the year attributable to foreign source taxable income in such income category and further limitations may apply to
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individuals under the alternative minimum tax. A U.S. Holder will be denied a foreign tax credit with respect to Canadian
income tax withheld from dividends received on SVS to the extent that he or she has not held such SVS for at least 16 days of
the 31-day period beginning on the date which is 15 days before the ex-dividend date or to the extent that he or she is under an
obligation to make related payments with respect to substantially similar or related property. Instead, a deduction may be
allowed. Any days during which a U.S. Holder has substantially diminished his or her risk of loss on his or her SVS are not
counted toward meeting the 16-day holding period.
Individuals, estates or trusts who receive "qualified dividend income" (excluding dividends from a PFIC) generally will be
taxed at a current maximum U.S. federal income tax rate of 20% (rather than the higher tax rates generally applicable to items
of ordinary income) provided certain holding period requirements are met. Subject to the discussion of the PFIC rules below,
Celestica believes that dividends paid by it with respect to its SVS should constitute "qualified dividend income" for U.S.
federal income tax purposes and that holders who are individuals (as well as certain trusts and estates) should be entitled to the
reduced rate of tax, as applicable. Holders are urged to consult their own tax advisors regarding the impact of the "qualified
dividend income" provisions of the Internal Revenue Code on their particular situations, including related restrictions and
special rules.
Dividends received by certain individuals, trusts and estates with income above certain thresholds will also be subject to a
3.8% unearned Medicare contribution tax on passive income.
Taxation of Disposition of SVS
Subject to the discussion of the PFIC rules below, upon the sale, exchange or other disposition of SVS, a U.S. Holder will
recognize capital gain or loss in an amount equal to the difference between his or her adjusted tax basis in his or her shares and
the amount realized on the disposition.
A U.S. Holder's adjusted tax basis in SVS will generally be the initial cost, but may be adjusted for various reasons
including the receipt by such U.S. Holder of a distribution that was not made up wholly of earnings and profits as described
above under the heading "Taxation of Dividends Paid on SVS." A U.S. Holder that uses the cash method of accounting
calculates the U.S. dollar value of the proceeds received on the sale as of the date that the sale settles, while a U.S. Holder who
uses the accrual method of accounting generally calculates the U.S. dollar value of the sale proceeds as of the trade date, unless
he or she has elected to use the settlement date to determine his or her U.S. dollar proceeds of the sale. Capital gain from the
sale, exchange or other disposition of shares held more than one year is long-term capital gain. Long-term capital gain that is
recognized by non-corporate taxpayers is eligible for a current maximum 20% U.S. federal income tax rate plus a 3.8% tax on
passive income derived by certain individuals, trusts and estates with income above certain thresholds. A reduced rate does not
apply to capital gains realized by a U.S. Holder that is a corporation. Capital losses are generally deductible only against capital
gains and not against ordinary income. In the case of an individual, however, unused capital losses in excess of capital gains
may offset up to $3,000 annually of ordinary income. Gain or loss recognized by a U.S. Holder on a sale, exchange or other
disposition of SVS generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes. A U.S. Holder
who receives foreign currency upon disposition of SVS and converts the foreign currency into U.S. dollars subsequent to
receipt will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency
against the U.S. dollar. U.S. Holders should consult their own tax advisors regarding the treatment of a foreign currency gain
or loss.
Tax Consequences if We Are a Passive Foreign Investment Company
A non-U.S. corporation will be a passive foreign investment company, or PFIC, if, in general, either (i) 75% or more of its
gross income in a taxable year, including its pro rata share of the gross income of any U.S. or foreign company in which it is
considered to own 25% or more of the shares by value, is passive income or (ii) 50% or more of its assets in a taxable year
(determined based on a quarterly average), and ordinarily determined based on fair market value and including its pro rata share
of the assets of any company in which it is considered to own 25% or more of the shares by value, are held for the production
of, or produce, passive income. If Celestica were a PFIC for any taxable year during which a U.S. Holder holds SVS and such
U.S. Holder did not make an election to treat the Corporation as a "qualified electing fund" and did not make a "mark-to-
market" election, each as described below, then:
•
Such U.S. Holder would be subject to special and adverse tax rules with respect to any "excess distribution"
received from Celestica. "Excess distributions" are amounts received by a U.S. Holder with respect to SVS in
any taxable year that exceed 125% of the average distributions received by the U.S. Holder from the
Corporation in the shorter of either the three previous years or his or her holding period for his or her shares
before the present taxable year. Excess distributions must be allocated ratably to each day that a U.S. Holder
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has held SVS. A U.S. Holder must include amounts allocated to the current taxable year and to any non-PFIC
years in his or her gross income as ordinary income for that year. A U.S. Holder must pay tax on amounts
allocated to each prior taxable PFIC year at the highest marginal tax rate in effect for that year on ordinary
income and the tax is subject to an interest charge at the rate applicable to deficiencies for income tax.
The entire amount of gain that is realized by a U.S. Holder upon the sale or other disposition of shares would
also be considered an excess distribution and would be subject to tax as described above.
A U.S. Holder's tax basis in shares that were acquired from a decedent that is a United States person generally
would not receive a step-up to fair market value as of the date of the decedent's death but instead would be
equal to the decedent's tax basis, if lower than such value.
•
•
The special PFIC rules do not apply to a U.S. Holder if the U.S. Holder makes an election to treat the Corporation as a
"qualified electing fund" in the first taxable year in which Celestica is a PFIC during the period that he or she owns SVS and if
we comply with reporting requirements as described below. Instead, a shareholder of a qualified electing fund is required for
each taxable year to include in income a pro rata share of the ordinary earnings of the qualified electing fund as ordinary
income and a pro rata share of the net capital gain of the qualified electing fund as long-term capital gain, subject to a separate
election to defer payment of taxes, which deferral is subject to an interest charge. We have agreed to supply U.S. Holders with
the information needed to report income and gain pursuant to this election in the event that we are classified as a PFIC. The
election is made on a shareholder-by-shareholder basis and may be revoked only with the consent of the IRS. A shareholder
makes the election by attaching a completed IRS Form 8621, reflecting the information contained in the PFIC annual
information statement, to a timely filed U.S. federal income tax return. Even if an election is not made, a shareholder in a PFIC
who is a U.S. Holder generally must file a completed IRS Form 8621 every year.
A U.S. Holder who owns PFIC shares that are publicly traded could elect to mark the shares to market annually,
recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between
the fair market value of the PFIC shares and the U.S. Holder's adjusted tax basis in the PFIC shares, provided, that, in the case
of any loss, it can be recognized only to the extent of any net mark-to-market income recognized in prior years. On an annual
basis, a U.S. Holder's adjusted tax basis in SVS will be increased by the amount of any income inclusion and decreased by the
amount of any deductions under the mark-to-market rules. If the mark-to-market election were made, then the rules set forth
above would not apply for periods covered by the election. SVS would be treated as publicly traded for purposes of the mark-
to-market election and, therefore, such election could be made if Celestica were classified as a PFIC. A mark-to-market election
is, however, subject to complex and specific rules and requirements, and U.S. Holders are strongly urged to consult their tax
advisors concerning this election if Celestica is classified as a PFIC.
Despite the fact that we are engaged in an active business, we are unable to conclude that Celestica was not a PFIC in 2021
or in prior years, though we believe, based on our internally performed analysis, that such status is unlikely. The tests for
determining PFIC status include the determination of the value of all assets of the Corporation which is highly subjective.
Further, the tests for determining PFIC status are applied annually, and it is difficult to make accurate predictions of future
income and assets, which are relevant to the determination as to whether we will be a PFIC in the future. Accordingly, it is
possible that Celestica could be a PFIC in 2022 or in a future year. A U.S. Holder who holds SVS during a period in which we
are a PFIC will be subject to the PFIC rules, even if we cease to be a PFIC, unless he or she has made a qualified electing fund
election. Although we have agreed to supply U.S. Holders with the information needed to report income and gain pursuant to
this election in the event that Celestica is classified as a PFIC, if Celestica was determined to be a PFIC with respect to a year in
which we had not thought that it would be so treated, the information needed to enable U.S. Holders to make a qualified
electing fund election would not have been provided. U.S. Holders are strongly urged to consult their tax advisors about the
PFIC rules, including the consequences to them of making a mark-to-market or qualified electing fund elections with respect to
SVS in the event that Celestica is treated as a PFIC.
Tax Consequences for Non-U.S. Holders of SVS
Except as described in "Information Reporting and Backup Withholding" below, a Non-U.S. Holder will not be subject to
U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, SVS unless:
•
the item is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the U.S.
and, generally, in the case of a resident of a country that has an income treaty with the U.S., such item is
attributable to a permanent establishment in the U.S.;
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•
•
the Non-U.S. Holder is an individual who holds SVS as a capital asset, is present in the U.S. for 183 days or
more in the taxable year of the disposition and satisfies certain other requirements; or
the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax law applicable to U.S. expatriates
who expatriated prior to June 17, 2008.
Information Reporting and Backup Withholding
Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends and proceeds arising from certain
sales or other taxable dispositions of SVS will be subject to information reporting. Backup withholding tax, at the then
applicable rate, will apply if a U.S. Holder (a) fails to furnish the U.S. Holder's correct U.S. taxpayer identification number
(generally on an IRS Form W-9), (b) is notified by the IRS that the U.S. Holder has previously failed to properly report items
subject to backup withholding tax, or (c) fails to certify, under penalty of perjury, that the U.S. Holder has furnished the U.S.
Holder's correct U.S. taxpayer identification number and that the IRS has not notified the U.S. Holder that the U.S. Holder is
subject to backup withholding tax. However, U.S. Holders that are corporations generally are excluded from these information
reporting and backup withholding tax rules. Any amounts withheld under the U.S. backup withholding tax rules will be allowed
as a credit against a U.S. Holder's U.S. federal income tax liability, if any, or will be refunded, if the U.S. Holder follows the
requisite procedures and timely furnishes the required information to the IRS. U.S. Holders should consult their own tax
advisors regarding the information reporting and backup withholding tax rules.
U.S. individuals and "specified domestic entities" generally are required to report an interest in any "specified foreign
financial asset" if the aggregate value of such assets owned by such person exceeds $50,000 on the last day of the taxable year
or $75,000 at any time during the taxable year (or such higher threshold as may apply to a particular taxpayer pursuant to the
instructions to IRS Form 8938). Stock issued by a non-U.S. corporation is treated as a specified foreign financial asset for
this purpose.
Non-U.S. Holders generally are not subject to information reporting or backup withholding with respect to dividends paid
on or upon the disposition of shares, provided, in some instances, that the Non-U.S. Holder certifies to his foreign status or
otherwise establishes an exemption.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
Any statement in this Annual Report about any of our contracts or other documents is not exhaustive. If the contract or
document is filed as an exhibit to this Annual Report or is incorporated herein by reference thereto, the contract or document is
deemed to modify our description. You must review the exhibits themselves for a complete description of the contract
or document.
You may access this Annual Report, including exhibits, on our website at www.celestica.com, or request a copy free of
charge through our website. Requests may also be directed: (i) to clsir@celestica.com; (ii) by mail to Celestica Investor
Relations, to: 5140 Yonge Street, Suite 1900, Toronto, Ontario, Canada M2N 6L7; or (iii) by telephone at 416-448-2211.
The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information
regarding registrants. You may access the documents we file with or furnish to the SEC at that website (for submissions
commencing November 2000, the date we began to file electronically with the SEC). Our SEC filings are also available from
commercial document retrieval services.
We also file reports, statements and other information with the Canadian Securities Administrators, or the CSA, and these
can be accessed electronically at the CSA's System for Electronic Document Analysis and Retrieval website (www.sedar.com).
You may access other information about Celestica on our website at www.celestica.com. Information on our website is not
incorporated by reference into this Annual Report.
152
I. Subsidiary Information
Not applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Market risk is the potential loss arising from changes in market rates and market prices. Our market risk exposure results
primarily from fluctuations in foreign currency exchange rates and interest rates.
We do not hold financial instruments for speculative trading purposes.
Exchange Rate Risk
Conducting business in currencies other than the U.S. dollar subjects us to translation and transaction risks associated with
fluctuations in currency exchange rates. Although we conduct the majority of our business in U.S. dollars (our functional
currency), our global operations subject us to foreign currency volatility. Our non-U.S. currency exposures consist of the British
pound sterling, Brazilian real, Canadian dollar, Chinese renminbi, Czech koruna, Euro, Hong Kong dollar, Indian rupee,
Indonesian rupiah, Japanese yen, Korean won, Lao kip, Malaysian ringgit, Mexican peso, Philippines peso, Romanian leu,
Singapore dollar, Taiwan dollar, and Thai baht.
As part of our risk management program, we enter into foreign currency forward contracts and swaps, generally for periods
up to 12 months, intended to hedge foreign currency transaction risk and local currency denominated balance sheet exposures.
These contracts include, to varying degrees, elements of market risk. We enter into these contracts to lock in the exchange rates
for future foreign currency transactions and balance sheet balances, which is intended to reduce the foreign currency risk related
to our operating costs and future cash flows denominated in local currencies. While these contracts are intended to reduce the
effects of fluctuations in foreign currency exchange rates, our hedging strategy does not mitigate the longer-term impacts of
changes to foreign exchange rates.
Currency risk on our income tax expense arises as we are generally required to file our tax returns in the local currency for
each particular country in which we have operations. Exchange rate volatility between the relevant local currency and the
U.S. dollar will affect the recorded amounts of our foreign assets, liabilities, revenues and expenses in local currency for
statutory financial statement purposes. In addition, we earn revenues and incur expenses in foreign currencies as part of our
global operations. As a result, we are also exposed to foreign currency exchange transaction risk, such that fluctuations in
currency exchange rates may significantly impact the amount of translated U.S. dollars required for expenses incurred in other
currencies or received from non-U.S. dollar revenues. While our hedging program is designed to mitigate currency risk vis-à-
vis the U.S. dollar, we remain subject to taxable foreign exchange impacts in our translated local currency financial results
relevant for tax reporting purposes.
The table below presents the notional amounts (the U.S. dollar equivalent amounts of the foreign currency buy/sell
contracts at hedge rates), weighted average exchange rates by expected (contractual) maturity dates, and the fair values of our
outstanding foreign currency forward contracts and swaps at December 31, 2021. These notional amounts are used to calculate
the contractual payments to be exchanged under the contracts. At December 31, 2021, we had foreign currency contracts and
swaps covering various currencies in an aggregate notional amount of $539.5 million (December 31, 2020 — $562.6 million).
These contracts had a fair value net unrealized gain of $1.2 million at December 31, 2021 (December 31, 2020 — $23.3 million
net unrealized gain), resulting from fluctuations in foreign exchange rates between the contract execution and year-end date.
153
At December 31, 2021, we had foreign currency forward contracts and swaps to trade U.S. dollars in exchange for the
following currencies:
Expected Maturity Date
2022
2023
2024 and
thereafter
Total
Fair Value
Gain (Loss)
(in millions)
Currency Forward and Swap Agreements
(Contract amounts in millions)
Receive C$/Pay U.S.$
Contract amount ........................................................ $
195.5 $
— $
— $
195.5 $
0.6
Average exchange rate ..............................................
0.79
Receive Thai Baht/Pay U.S.$
Contract amount ........................................................ $
109.9
Average exchange rate ..............................................
0.03
Receive Malaysian Ringgit/Pay U.S.$
Contract amount ........................................................ $
Average exchange rate ..............................................
Receive Mexican Peso/Pay U.S.$
Contract amount ........................................................ $
Average exchange rate ..............................................
Receive Chinese Renminbi/Pay U.S.$
Contract amount ........................................................ $
Average exchange rate ..............................................
Pay Euro/Receive U.S.$
Contract amount ........................................................ $
Average exchange rate ..............................................
Receive Romanian Leu/Pay U.S.$
Contract amount ........................................................ $
Average exchange rate ..............................................
Receive Singapore Dollar/Pay U.S.$
Contract amount ........................................................ $
Average exchange rate ..............................................
Pay Japanese Yen/Receive U.S.$
48.8
0.24
23.5
0.05
55.2
0.15
20.6
1.14
40.6
0.23
27.8
0.74
Contract amount ........................................................ $
Average exchange rate ..............................................
11.6
0.0088
Pay Korean Won/Receive U.S.$
Contract amount ........................................................ $
6.0
Average exchange rate ..............................................
0.0008
—
—
—
—
—
—
—
—
—
— $
109.9 $
(1.0)
— $
48.8 $
0.2
— $
23.5 $
0.2
— $
55.2 $
1.2
— $
20.6 $
0.6
— $
40.6 $
(1.1)
— $
27.8 $
—
— $
11.6 $
0.5
— $
6.0 $
—
1.2
Total ............................................................................. $
539.5 $
— $
— $
539.5 $
Interest Rate Risk
Borrowings under the Credit Facility bear interest at specified rates, plus specified margins. See note 11 to the
Consolidated Financial Statements in Item 18. Our borrowings under this facility at December 31, 2021 totaled $660.4 million,
comprised of amounts outstanding under our Term Loans, and other than ordinary course letters of credit, no amounts
outstanding under the Revolver. These borrowings expose us to interest rate risk due to the potential variability in market
interest rates. Assuming our outstanding aggregate borrowings under the Credit Facility as at December 31, 2021 as described
154
above (December 31, 2020 — aggregate outstanding borrowings of $470.4 million), and without accounting for the interest rate
swap agreements described below, a one-percentage point increase in applicable interest rates would increase our interest
expense by $6.6 million annually (December 31, 2020 — an increase of $4.7 million annually). Including the impact of interest
rate swap agreements outstanding as of December 31, 2021, a one-percentage point increase in relevant interest rates would
increase interest expense, based on the outstanding borrowings under the Credit Facility at December 31, 2021, by $4.6 million
annually (December 31, 2020 — $2.0 million). The change in our exposure to interest rate risk as of December 31, 2021 as
compared to December 31, 2020 is attributable to the general increase in borrowings from 2020.
As of December 31, 2021, we were party to agreements with syndicates of third-party banks to swap the variable
interest rate (based on LIBOR plus a margin) with a fixed rate of interest on $100.0 million of the total borrowings outstanding
under the Initial Term Loan (Initial Swaps), which expire in August 2023 (reflecting our exercise of a partial cancellation
option in September 2021), additional interest rate swaps hedging the interest rate risk associated with $100.0 million of our
Initial Term Loan borrowings for which cash flows commence upon the expiration of the Initial Swaps and continue through
June 2024, and interest rate swaps hedging the interest rate risk associated with $100.0 million of our Second Incremental Term
Loan borrowings, which expire in December 2023. As the First Incremental Term Loan and the Second Incremental Term Loan
have the same interest rate risk, these interest rate swaps continued, and now cover $100.0 million of outstanding borrowings
under the Second Incremental Term Loan. At December 31, 2021, the interest rate risk related to $460.4 million of borrowings
under the Credit Facility was unhedged, consisting of unhedged amounts outstanding under the Term Loans and no amounts
outstanding (other than ordinary course letters of credit) under the Revolver (December 31, 2020 — $195.4 million, consisting
of unhedged amounts under the Term Loans and no amounts outstanding (other than ordinary course letters of credit) under the
Revolver).
See Item 5, "Operating and Financial Review and Prospects — MD&A — Capital Resources — Financial instruments and
financial risks" for a discussion of risks related to the phase-out of LIBOR, as well as note 20 to the Consolidated Financial
Statements in Item 18.
Credit and Counterparty Risk
Management monitors the institutions that hold our cash and cash equivalents. Management's emphasis is primarily on
safety of principal. Management, in its discretion, has diversified our cash and cash equivalents among banking institutions to
adjust our exposure to levels they deem acceptable with respect to any one of these entities. To date, we have experienced no
loss or lack of access to our invested cash or cash equivalents; however, we cannot assure that access to these holdings will not
be impacted by adverse conditions in the financial markets, or that third party institutions will retain acceptable credit ratings or
investment practices.
Cash balances held at banking institutions in the U.S. with which we do business may exceed the Federal Deposit
Insurance Corporation (FDIC) insurance limits. While management monitors the cash balances in these bank accounts, such
cash balances could be impacted if the underlying banks were to become insolvent or could be subject to other adverse
conditions in the financial markets.
Credit risk refers to the risk that a counterparty may default on its contractual obligations resulting in a financial loss to us.
We believe our risk of counterparty non-performance continues to be relatively low. We are in regular contact with our
customers, suppliers and logistics providers, and to date have not experienced significant counterparty credit-related non-
performance. However, if a key supplier (or any company within such supplier's supply chain) or customer experiences
financial difficulties or fails to comply with their contractual obligations, this could result in a significant financial loss to us.
We would also suffer a significant financial loss if an institution from which we purchased foreign exchange contracts or swaps,
interest rate swaps, or annuities for our pension plans defaults on their contractual obligations (with respect to pension
obligations, we retain ultimate responsibility for the payment of benefits to plan participants unless and until such pension plans
are wound-up). With respect to our financial market activities, we have adopted a policy of dealing only with credit-worthy
counterparties to help mitigate the risk of financial loss from defaults. We monitor the credit risk of the counterparties with
whom we conduct business, through a combined process of credit rating reviews and portfolio reviews. See note 20 to the
Consolidated Financial Statements in Item 18 for further information. We also provide unsecured credit to our customers in the
normal course of business. From time to time, we extend the payment terms applicable to certain customers and/or provide
longer payment terms when deemed commercially reasonable. Longer payment terms could adversely impact our working
capital requirements, and increase our financial exposure and credit risk. We attempt to mitigate customer credit risk by
monitoring our customers' financial condition and performing ongoing credit evaluations as appropriate. In certain instances,
we obtain letters of credit or other forms of security from our customers. We may also purchase credit insurance from a
financial institution to reduce our credit exposure to certain customers. We consider credit risk in determining our allowance for
doubtful accounts, and we believe that such allowance, as adjusted from time to time, is adequate. In light of COVID-19, we
155
assessed the financial stability and liquidity of our customers beginning in the first quarter of 2020 to identify customers we
believe to be at greatest risk of default. We also enhanced the monitoring of, and/or developed plans intended to mitigate, the
limited number of identified exposures, which enhancements and plans remain in effect. No significant adjustments were made
to our allowance for doubtful accounts in 2021 in connection with our ongoing assessments and monitoring activities.
Commodity Price Risk
We are exposed to market risk with respect to commodity price fluctuations for components used in the manufacture
of our products. These components are impacted by global pricing pressures, general economic conditions, market conditions,
geopolitical issues, weather, changes in tariff rates, and other factors which are neither predictable nor within our control. While
generally we have been able to offset inflation and other changes in the costs of key operating resources through price increases,
productivity improvements, greater economies of scale, supplier negotiations and global sourcing initiatives, there can be no
assurance that we will be able to continue to do so in the future. We do not engage in hedging activities for commodity price
risk. Competitive conditions may limit our pricing flexibility, and macroeconomic conditions may make additional price
increases imprudent. Increases in commodity prices that we cannot recover from our customers would adversely impact our
operating results. We are also exposed to fluctuations in transportation costs, which have recently increased based on freight
carrier capacity and fuel prices. We manage transportation costs by optimizing logistics and supply chain planning. We
continue to invest in supply chain initiatives to address industry-wide capacity challenges.
Item 12. Description of Securities Other than Equity Securities
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Not applicable.
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Part II.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
The information required by this Item concerning our disclosure controls and procedures, and changes in our internal
control over financial reporting, is set forth in Item 5, "Operating and Financial Review and Prospects — MD&A — Liquidity
and Capital Resources — Controls and Procedures."
Management's Report on Internal Control over Financial Reporting is set forth on page F-1 of our Consolidated Financial
Statements in Item 18. The Company completed the acquisition of PCI in November 2021, and as a result, management has
excluded PCI's internal controls from the scope of its assessment, and conclusion on the effectiveness, of the Company's
internal control over financial reporting as of December 31, 2021, and from such report. PCI represented 12% of the Company's
consolidated assets, and 1% of the Company's consolidated revenue as of, and for the year ended, December 31, 2021,
respectively.
The attestation report from our independent auditors, KPMG LLP (KPMG) is set forth on page F-2 of our Consolidated
Financial Statements in Item 18.
156
Item 16. [Reserved]
Item 16A. Audit Committee Financial Expert
The Board has considered the extensive financial experience of Ms. Koellner, Mr. Chopra and Ms. Perry, and has
determined that each of them is an audit committee financial expert within the meaning of Item 16A(b) of Form 20-F, and each
are independent directors, as that term is defined by the applicable Canadian and SEC rules and in the NYSE listing standards.
Item 16B. Code of Ethics
The Board has adopted a Finance Code of Professional Conduct for Celestica's Chief Executive Officer, our senior finance
officers, and all personnel in our finance organization to deter wrongdoing and promote honest and ethical conduct in the
practice of financial management, including the ethical handling of actual or apparent conflicts of interest between personal and
professional relationships; full, fair, accurate, timely and understandable disclosure in reports and documents filed with, or
submitted to, the SEC and in other public communications made by the Corporation; compliance with all applicable laws, rules
and regulations; prompt internal reporting of violations of the code and accountability for adherence to the code. These
professionals are expected to abide by this code as well as Celestica's BCG policy and all of our other applicable business
policies, standards and guidelines.
The Finance Code of Professional Conduct and the BCG policy can be accessed electronically at www.celestica.com.
Celestica will provide a copy of such policies free of charge to any person who so requests. Requests should be directed: (i) to
clsir@celestica.com; (ii) by mail to Celestica Investor Relations to: 5140 Yonge Street, Suite 1900, Toronto, Ontario, Canada
M2N 6L7; or (iii) by telephone at 416-448-2211.
Item 16C. Principal Accountant Fees and Services
The external auditor is engaged to provide services pursuant to pre-approval policies and procedures established by the
Audit Committee of the Board. The Audit Committee approves the external auditor's Audit Plan, the scope of the external
auditor's quarterly reviews and all related fees. The Audit Committee must approve any non-audit services provided by the
auditor and related fees and does so only if it considers that these services are compatible with the external auditor's
independence.
Our auditors are KPMG. KPMG did not provide any financial information systems design or implementation services to us
during 2020 or 2021. The Audit Committee has determined that the provision of the non-audit services by KPMG described
below does not compromise KPMG's independence.
Audit Fees
KPMG billed $3.1 million in 2021 (2020 — $2.9 million) for audit services.
Audit-Related Fees
KPMG billed $0.2 million in 2021 for due diligence services primarily in connection with acquisitions and certain other
specified procedures (2020 — nil).
Tax Fees
KPMG billed $0.1 million in 2021 (2020 — $0.1 million) for tax compliance and tax advisory services.
All Other Fees
KPMG billed no other amounts in either 2021 or 2020.
Pre-approval Policies and Procedures — Percentage of Services Approved by Audit Committee
All KPMG services and fees are approved by the Audit Committee as follows. The Audit Committee has established an
Audit and Non-Audit Services Pre-Approval Policy to pre-approve all permissible audit and non-audit services provided by our
independent auditors. On an annual basis, the Audit Committee reviews and provides pre-approval for certain types of services
that may be rendered by the independent auditors and a budget for audit services for the applicable fiscal year. Upon pre-
approval of the services on the initial list, management may engage the auditor for specific engagements that are within the
definition of the pre-approved services. Any significant service engagements above a certain threshold will require separate pre-
approval. The policy contains a provision delegating pre-approval authority to the Chair of the Audit Committee in instances
157
when pre-approval is needed prior to a scheduled Audit Committee meeting. The Chair of the Audit Committee is required to
report on such pre-approvals at the next scheduled Audit Committee meeting. A final detailed review of all audit and non-audit
services and fees is performed by the Audit Committee prior to the issuance of the audit opinion at year-end.
Percentage of Hours Expended on KPMG's engagement not performed by KPMG's full-time, permanent employees (if greater
than 50%):
Not applicable.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
ISSUER PURCHASES OF EQUITY SECURITIES
(a) Total
number
of SVS
purchased
(in millions)
—
(b) Average
price paid
per SVS
—
(c) Total number of
SVS purchased as
part of publicly
announced plans or
programs
(in millions)
—
(d) Maximum
number of
SVS that may
yet be purchased
under the plans
or programs
(in millions)
9.0
0.3
0.3
0.4
1.2
—
1.2
0.9
—
—
1.2
0.7
6.2
$8.37
$8.33
$8.32
$8.27
—
$7.63
$8.70
—
—
$11.27
$10.66
$9.06
0.3
0.3
0.4
1.2
—
1.2
0.9
—
—
0.9
0.7
5.9
8.7
8.4
8.0
6.8
6.8
5.6
4.7
4.7
4.7
3.8
8.3
8.3
Period
January 1 — 31, 2021(1)
February 1 — 28, 2021(1)
March 1 — 31, 2021(1)(2)
April 1 — 30, 2021(1)(3)
May 1 — 31, 2021(1)(4)
June 1 — 30, 2021(1)
July 1 — 31, 2021(1)(5)
August 1 — 31, 2021(1)
September 1 — 30, 2021(1)
October 1 — 31, 2021(1)
November 1 — 30, 2021 (1)(6)
December 1 — 31, 2021 (6)(7)(8)
Total (7)
(1)
(2)
On November 19, 2020, the TSX accepted our notice to launch, and we announced, a normal course issuer bid (2020 NCIB), which allowed us to
repurchase, at our discretion, from November 24, 2020 until the earlier of November 23, 2021 or the completion of purchases thereunder, up to
9,021,320 of our SVS in the open market, or as otherwise permitted, subject to the normal terms and limitations of such bids. In 2021, we
repurchased and canceled a total of 4.37 million SVS under the 2020 NCIB at a weighted average price of $8.21 per share. The maximum number of
SVS we were permitted to repurchase for cancellation under the 2020 NCIB was reduced by 0.9 million SVS purchased in the open market during
the term of the 2020 NCIB to satisfy delivery obligations under our SBC plans. See footnote (6) below. The 2020 NCIB expired on November 23,
2021.
Includes 0.01 million SVS purchased under an Automatic Share Purchase Plan (ASPP) we entered into in March, 2021 (March 2021 ASPP). The
March 2021 ASPP instructed the broker to purchase, on our behalf for cancellation under the 2020 NCIB, up to the NYSE and TSX daily
maximums at any time through May 3, 2021 (subject to specified conditions).
(3)
Includes 0.4 million SVS purchased under the March 2021 ASPP.
(4)
(5)
(6)
Includes 0.1 million SVS purchased under the March 2021 ASPP.
Includes 1.2 million SVS purchased under an ASPP we entered into in June, 2021, which instructed the broker to purchase, on our behalf for
cancellation under the 2020 NCIB, up to the NYSE and TSX daily maximums at any time through July 28, 2021 (subject to specified conditions).
From time-to-time, a broker has purchased SVS in the open market, on our behalf, to settle vested employee awards under our SBC plans. During
2021, 1.9 million SVS were purchased on our behalf by a broker for such purpose. 0.9 million of such SVS were purchased during the term of the
2020 NCIB, and 0.7 million of such SVS were purchased during the term of the 2021 NCIB (defined in footnote 7 below).
158
(7)
On December 2, 2021, the TSX accepted our notice to launch, and we announced, a new normal course issuer bid (2021 NCIB). The 2021 NCIB
allows us to repurchase, at our discretion, from December 6, 2021 until the earlier of December 5, 2022 or the completion of purchases thereunder,
up to 8,987,310 of our SVS in the open market, or as otherwise permitted, subject to the normal terms and limitations of such bids. In December
2021, we repurchased and canceled a total of 3,550 SVS under the 2021 NCIB at a weighted average price of $10.97 per share. The maximum
number of SVS we are permitted to repurchase for cancellation under the 2021 NCIB will be reduced by the number of SVS purchased in the open
market during the term of the 2021 NCIB to satisfy delivery obligations under our SBC. See footnote (6) above.
(8)
Includes 3,550 SVS purchased under an ASPP we entered into in December, 2021. This ASPP instructed the broker to purchase, on our behalf for
cancellation under the 2021 NCIB, up to the NYSE and TSX daily maximums at any time during specified dates (subject to specified conditions).
Item 16F. Change in Registrant's Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
Corporate Governance
We are subject to a variety of corporate governance guidelines and requirements enacted by the TSX, the CSA, the NYSE
and the SEC under its rules and those mandated by the U.S. Sarbanes Oxley Act of 2002 and Dodd-Frank. We are listed on the
NYSE and, although we are not required to comply with all of the NYSE corporate governance requirements to which we
would be subject if we were a U.S. corporation, our governance practices differ significantly in only one respect from those
required of U.S. domestic issuers by the NYSE, as described below. Celestica complies with TSX rules, which require
shareholder approval of share compensation arrangements involving new issuances of shares, and of certain amendments to
such arrangements, but do not require such approval if the compensation arrangements involve only shares purchased by the
Corporation in the open market. NYSE rules require shareholder approval of all equity compensation plans (and material
revisions thereto), subject to limited exceptions, regardless of whether new issuances or treasury shares are used.
Our Corporate Governance Guidelines are available on our website at www.celestica.com.
Item 16H. Mine Safety Disclosure
Not applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Item 17. Financial Statements
Not applicable.
Item 18. Financial Statements
Part III.
The following financial statements have been filed as part of this Annual Report:
Management's Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm (KPMG LLP, Toronto, Canada, PCAOB ID 85)
Consolidated Balance Sheet as at December 31, 2020 and December 31, 2021
Consolidated Statement of Operations for the years ended December 31, 2019, 2020 and 2021
Consolidated Statement of Comprehensive Income for the years ended December 31, 2019, 2020 and 2021
Consolidated Statement of Changes in Equity for the years ended December 31, 2019, 2020 and 2021
Consolidated Statement of Cash Flows for the years ended December 31, 2019, 2020 and 2021
Notes to the Consolidated Financial Statements
Page
F-1
F-2, F-3
F-5
F-6
F-7
F-8
F-9
F-10
159
Item 19. Exhibits
The following exhibits have been filed as part of this Annual Report:
Exhibit
Number
1.1
1.2
2
2.1
2.2
2.3
4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
Description
Certificate and Restated Articles of
Incorporation effective June 25, 2004
Bylaw No. 1
Instruments defining rights of holders
of equity securities or long-term debt:
See Certificate and Restated Articles
of Incorporation identified above
Form of Subordinate Voting Share
Certificate
Description of Securities
Certain Contracts:
Services Agreement, dated as of
January 1, 2009, between
Celestica Inc. and Onex Corporation
("Services Agreement")
Amending Agreement to Services
Agreement made as of
January 1, 2017
Amended and Restated Celestica Inc.
Long-Term Incentive Plan as of
January 29, 2014
Amended and Restated Celestica Inc.
Long-Term Incentive Plan as of
July 22, 2015
Amended and Restated Celestica Inc.
Long-Term Incentive Plan as of
October 19, 2015
Amended and Restated Celestica Inc.
Long-Term Incentive Plan as of
October 19, 2016
Amended and Restated Celestica
Share Unit Plan as of
January 29, 2014
Amended and Restated Celestica
Share Unit Plan as of July 22, 2015
Amended and Restated Celestica
Share Unit Plan as of
October 19, 2015
Coattail Agreement, dated June 29,
1998, between Onex Corporation,
Celestica Inc. and Montreal Trust
Company of Canada.
Directors' Share Compensation Plan
(2008)
Directors' Share Compensation Plan,
amended and restated as of
July 25, 2013
Directors' Share Compensation Plan,
amended and restated as of
January 1, 2016
Incorporated by Reference
File No.
001-14832 March 23, 2010
Filing Date
Filed
Herewith
Exhibit
No.
1.10
001-14832 March 23, 2010
1.11
Form
20-F
20-F
F-3ASR
333-221144 October 26,
2017
20-F
001-14832 March 16, 2020
4.1
2.3
20-F
001-14832 March 23, 2010
4.1
20-F
001-14832 March 13, 2017
4.2
6-K
001-14832
July 9, 2014
99.1
6-K
001-14832
July 29, 2015
99.1
20-F
001-14832 March 7, 2016
4.5
20-F
001-14832 March 13, 2017
4.7
6-K
001-14832
July 9, 2014
99.2
6-K
20-F
001-14832
July 29, 2015
99.2
001-14832 March 7, 2016
4.8
SC TO-I
005-55523
SC TO-I
005-55523
October 29,
2012
October 29,
2012
(d)(1)
(d)(3)
20-F
001-14832 March 14, 2014
4.16
20-F
001-14832 March 7, 2016
4.22
160
Exhibit
Number
4.14
4.15
4.16
4.17
4.18
4.19
4.20
Description
Directors' Share Compensation Plan,
amended and restated as of January 1,
2019
Credit Agreement, dated as of June
27, 2018, among Celestica Inc, and
the subsidiaries identified therein as
Borrowers, Celestica Inc, and
specified subsidiaries identified
therein as Guarantors, Bank of
America, N.A. as Administrative
Agent, Swing Line Lender and an L/C
Issuer, and the financial institutions
named therein as Lenders
First Incremental Facility
Amendment, dated as of November
14, 2018, by and among Celestica
Inc., Celestica International LP,
Celestica (USA) Inc., the guarantors
party thereto, the Incremental Term
B-2 Lender (as defined therein), and
Bank of America, N.A., as
Administrative Agent
Second Amendment to Credit
Agreement, dated as of December 21,
2018, by and among Celestica Inc.,
Celestica International LP, Celestica
(USA) Inc., the Guarantors party
thereto, and Bank of America, N.A.,
as Administrative Agent
Securities Purchase and Merger
Agreement, dated as of October 9,
2018, by and among Impakt Holdings,
LLC, Graycliff Private Equity
Partners III Parallel (A-1 Blocker)
LLC, Graycliff Private Equity
Partners III Parallel LP, Celestica
(USA) Inc., Iron Man Acquisition
Inc., Iron Man Merger Sub, LLC, and
Fortis Advisors LLC, in its capacity
as Holder Representative†
First Amendment to the Securities
Purchase and Merger Agreement,
dated as of November 9, 2018, by and
among Graycliff Private Equity
Partners III Parallel LP, Iron Man
Acquisition Inc., and Impakt
Holdings, LLC†
Third Amendment and Waiver, dated
as of October 23, 2019, by and among
Celestica Inc., Celestica International
LP, Celestica (USA) Inc., the
Guarantors party hereto, the Lenders
party hereto and Bank of America,
N.A., as Administrative Agent
Incorporated by Reference
Form
20-F
File No.
001-14832 March 11, 2019
Filing Date
Filed
Herewith
Exhibit
No.
4.27
20-F
001-14832 March 11, 2019
4.28
20-F
001-14832 March 11, 2019
4.29
20-F
001-14832 March 11, 2019
4.30
20-F/A
001-14832
April 25, 2019
4.31
20-F/A
001-14832
April 25, 2019
4.32
20-F
001-14832
March 16, 2020
4.21
161
Incorporated by Reference
Form
20-F
File No.
001-14832
Filing Date
March 16, 2020
Filed
Herewith
Exhibit
No.
4.22
20-F
001-14832
March 15, 2021
4.22
X
X
X
Exhibit
Number
4.21
4.22
4.23
4.24
4.25
Description
Revolving Trade Receivables
Purchase Agreement, dated as of
March 6, 2020, among Celestica LLC,
Celestica Holdings Pte Ltd., Celestica
Hong Kong Ltd., Celestica (Romania)
S.R.L., Celestica Japan KK, Celestica
Oregon LLC, Celestica Precision
Machining Ltd., Celestica Electronics
(M.) Sdn. Bhd, and Celestica
International LP, as Sellers, Celestica
Inc., as Servicer, and Credit Agricole
Corporate and Investment Bank, New
York Branch and Credit Agricole
Corporate and Investment Bank
(Canada Branch), as Purchasers
Fourth Amendment to Credit
Agreement, dated as of June 26, 2020
by and among Celestica Inc.,
Celestica International LP, Celestica
(USA) Inc., the Guarantors party
thereto, the Lenders party thereto and
Bank of America, N.A., as
Administrative Agent
Fifth Amendment, dated as of
December 6, 2021, to Credit
Agreement dated as of June 27, 2018
among Celestica Inc. and the
subsidiaries identified therein as
Borrowers, Celestica Inc. and the
subsidiaries identified therein as
Guarantors, Bank of America, N.A.,
as Administrative Agent, Swing Line
Lender and an L/C Issuer, and the
financial institutions named therein as
Lenders
First Amendment to the Revolving
Trade Receivables Purchase
Agreement, dated as of February 4,
2022, among Celestica LLC, Celestica
Holdings Pte Ltd., Celestica Hong
Kong Ltd., Celestica (Romania)
S.R.L., Celestica Japan KK, Celestica
Oregon LLC, Celestica Electronics
(M.) Sdn. Bhd, Celestica Precision
Machining Ltd., and Celestica
International LP, as Sellers, Celestica
Inc., as Servicer, and Credit Agricole
Corporate and Investment Bank, New
York Branch and Credit Agricole
Corporate and Investment Bank
(Canada Branch), as Purchasers
Agreement, dated September 22,
2021, for the Sale and Purchase of the
Entire Issued Share Capital of PCI
Private Limited, between Pagani
Holding III Limited,as Seller,
2863862 Ontario Inc. as Buyer, and
Celestica Inc. as Buyer's Guarantor†
162
Exhibit
Number
8.1
11.1
12.1
12.2
13.1
15.1
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Description
Form
File No.
Filing Date
Incorporated by Reference
Exhibit
No.
Filed
Herewith
X
Subsidiaries of Registrant
Finance Code of Professional Conduct
Principal Executive Officer
Certification pursuant to
Rule 13(a)-14(a)
Principal Financial Officer
Certification pursuant to
Rule 13(a)-14(a)
Certification required by
Rule 13a-14(b) and Section 1350 of
Chapter 63 of Title 18 of the
United States Code*
Consent of KPMG LLP, independent
registered public accounting firm
XBRL Instance Document - the
instance document does not appear in
the Interactive data File because its
XBRL tags are embedded within the
Inline XBRL document
Inline XBRL Taxonomy Extension
Schema Document
Inline XBRL Taxonomy Extension
Calculation Linkbase Document
Inline XBRL Taxonomy Extension
Definition Linkbase Document
Inline XBRL Taxonomy Extension
Label Linkbase Document
Inline XBRL Taxonomy Extension
Presentation Linkbase Document
Cover Page Interactive Data File -
formatted as Inline XBRL and
contained in Exhibit 101
20-F
001-14832 March 23, 2010
11.1
X
X
X
X
X
X
X
X
X
X
X
____________________________________
*
†
Will not be deemed "filed" for purposes of Section 18 of the U.S. Exchange Act, or otherwise subject to the liability of Section 18 of the
U.S. Exchange Act, and will not be incorporated by reference into any filing under the U.S. Securities Act, or the U.S. Exchange Act, except to the
extent that the registrant specifically incorporates it by reference.
Certain portions of this exhibit have been omitted because they are both: (i) not material; and (ii) of the type that the registrant treats as private or
confidential.
163
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
CELESTICA INC.
By:
/s/ Robert Ellis
Robert Ellis
Chief Legal Officer and Corporate Secretary
Date: March 14, 2022
164
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Celestica Inc. (the Company) is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company. The Company’s internal control system is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards
Board (IASB). All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation.
Our internal control over financial reporting includes those policies and procedures that: pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with IFRS as issued by the IASB, and that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2021 based on the criteria set forth in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded
that, as of December 31, 2021, the Company’s internal control over financial reporting is effective.
As discussed in note 3 to the Company's 2021 audited consolidated financial statements, the Company completed
the acquisition of PCI Private Limited (PCI) in November 2021. As a result, management has excluded PCI's internal
controls from the scope of its assessment, and conclusion on the effectiveness, of the Company's internal control over
financial reporting as of December 31, 2021, and from this report. PCI represented 12% of the Company's consolidated assets
and 1% of the Company's consolidated revenue as of, and for the year ended, December 31, 2021, respectively.
The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by
KPMG LLP, Chartered Professional Accountants, an independent registered public accounting firm, as stated in their report
appearing on page F-2.
March 10, 2022
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Celestica Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Celestica Inc.'s (the Company) internal control over financial reporting as of December 31, 2021, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated
statements of operations, comprehensive income, changes in equity, and cash flows for each of the years in the three-year
period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report
dated March 10, 2022 expressed an unqualified opinion on those consolidated financial statements.
The Company acquired PCI Private Limited (PCI) in November 2021, and management excluded from its assessment of the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, PCI's internal control over
financial reporting. PCI represented 12% of the Company’s consolidated assets, and 1% of the Company’s consolidated
revenue as of, and for the year ended, December 31, 2021, respectively. Our audit of internal control over financial reporting
of the Company also excluded an evaluation of the internal control over financial reporting of PCI.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s
Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Toronto, Canada
March 10, 2022
/s/ KPMG LLP
Chartered Professional Accountants,
Licensed Public Accountants
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Celestica Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Celestica Inc. (the Company) as of December 31, 2021
and 2020, the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for
each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated
financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2021 and 2020, and its financial performance and its cash flows for each of the
years in the three-year period ended December 31, 2021, in conformity with International Financial Reporting Standards as
issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 10, 2022 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We
believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective,
or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate
opinions on the critical audit matter or on the accounts or disclosures to which they relate.
Valuation of goodwill for the capital equipment cash generating unit
As discussed in Notes 2(j) and 8 to the consolidated financial statements, the Company conducts an annual impairment
assessment of cash generating units (CGUs) with goodwill. In addition, the Company also reviews the CGUs for impairment
whenever events or changes in circumstances (triggering events) indicate that their carrying amount may not be recoverable.
As of December 31, 2021, the Company had $324.2 million of goodwill, which included $131.9 million related to its capital
equipment CGU.
F-3
We identified the valuation of goodwill for the capital equipment CGU as a critical audit matter. Subjective and challenging
auditor judgment was required to evaluate certain assumptions in the impairment model used in the Company’s estimate of
the recoverable amount of the capital equipment CGU. Specifically, certain assumptions used to estimate the recoverable
amount were challenging to assess, as minor changes to the future revenue growth rate, profitability, and the discount rate
assumptions could have had a significant effect on the recoverable amount.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls related to the critical audit matter. This included controls related
to the approval of the future revenue growth rate, profitability, and the discount rate assumptions used in the impairment
model. We assessed the Company’s future revenue growth rates and profitability by comparing them to the underlying
forecast, evidence of future customer demand, industry reports and historical results. We compared the Company’s historical
forecasts of the capital equipment CGU to actual results to assess the Company’s ability to accurately forecast. We involved
valuation professionals with specialized skills and knowledge, who assisted in the evaluation of the discount rate, by
comparing it to a discount rate range that was independently developed using publicly available market data for comparable
entities.
Toronto, Canada
March 10, 2022
/s/ KPMG LLP
Chartered Professional Accountants,
Licensed Public Accountants
We have served as the Company's auditor since 1997.
F-4
CELESTICA INC.
CONSOLIDATED BALANCE SHEETS
(in millions of U.S. dollars)
Note
December 31
2020
December 31
2021
Assets
Current assets:
Cash and cash equivalents ...............................................................................................
Accounts receivable .........................................................................................................
Inventories .......................................................................................................................
Income taxes receivable ..................................................................................................
Other current assets ..........................................................................................................
Total current assets .............................................................................................................
Property, plant and equipment .............................................................................................
Right-of-use assets ...............................................................................................................
Goodwill ..............................................................................................................................
Intangible assets ...................................................................................................................
Deferred income taxes .........................................................................................................
Other non-current assets .....................................................................................................
Total assets ..........................................................................................................................
20
4
5
6
7
8
8
19
9
$
$
Liabilities and Equity
Current liabilities:
Current portion of borrowings under credit facility & lease obligations ........................
Accounts payable ............................................................................................................
Accrued and other current liabilities ...............................................................................
Income taxes payable .......................................................................................................
Current portion of provisions ...........................................................................................
Total current liabilities ........................................................................................................
Long-term portion of borrowings under credit facility & lease obligations .......................
Pension and non-pension post-employment benefit obligations .........................................
Provisions and other non-current liabilities .........................................................................
Deferred income taxes .........................................................................................................
Total liabilities ....................................................................................................................
Equity:
Capital stock ....................................................................................................................
Treasury stock ..................................................................................................................
Contributed surplus .........................................................................................................
Deficit .............................................................................................................................
Accumulated other comprehensive loss ..........................................................................
Total equity .........................................................................................................................
Total liabilities and equity ..................................................................................................
11
$
19
10
11
18
10
19
12
12
13
$
463.8 $
1,093.4
1,091.5
6.8
81.7
2,737.2
332.5
101.0
198.6
229.4
39.9
25.5
3,664.1 $
99.8 $
854.5
553.1
51.8
19.0
1,578.2
486.1
117.3
41.2
32.3
2,255.1
1,834.2
(15.7)
974.5
(1,368.8)
(15.2)
1,409.0
3,664.1 $
394.0
1,260.3
1,697.0
8.6
75.4
3,435.3
338.7
113.8
324.2
382.0
47.7
25.2
4,666.9
51.5
1,238.3
884.3
62.3
17.1
2,253.5
742.9
107.5
39.8
60.2
3,203.9
1,764.5
(48.9)
1,029.8
(1,255.6)
(26.8)
1,463.0
4,666.9
Commitments, contingencies and guarantees (note 24), Subsequent events (notes 4 and 20)
Signed on behalf of the Board of Directors
[Signed] Michael M. Wilson, Director
[Signed] Laurette T. Koellner, Director
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CELESTICA INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions of U.S. dollars, except per share amounts)
Year ended December 31
Note
2019
2020
2021
$
Revenue ........................................................................................................
Cost of sales ................................................................................................. 5 & 14
Gross profit ..................................................................................................
Selling, general and administrative expenses (SG&A) ................................
Research and development ..........................................................................
Amortization of intangible assets .................................................................
Other charges (recoveries) ............................................................................
Earnings from operations .............................................................................
Finance costs .................................................................................................
Earnings before income taxes ......................................................................
Income tax expense (recovery) .....................................................................
Current ....................................................................................................
Deferred ..................................................................................................
14
8
15
16
19
Net earnings .................................................................................................
Basic earnings per share ...............................................................................
Diluted earnings per share ...........................................................................
Shares used in computing per share amounts (in millions):
$
$
$
5,888.3 $
5,748.1 $
5,503.6
5,310.5
5,634.7
5,147.7
384.7
227.3
28.4
29.6
(49.9)
149.3
49.5
99.8
22.8
6.7
29.5
437.6
230.7
29.9
25.6
23.5
127.9
37.7
90.2
32.9
(3.3)
29.6
487.0
245.1
38.4
25.5
10.3
167.7
31.7
136.0
40.9
(8.8)
32.1
70.3 $
60.6 $
103.9
0.54 $
0.47 $
0.53 $
0.47 $
0.82
0.82
126.7
126.7
Basic .........................................................................................................
Diluted ......................................................................................................
22
22
131.0
131.8
129.1
129.1
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CELESTICA INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions of U.S. dollars)
Year ended December 31
Note
2019
2020
2021
Net earnings ........................................................................................................
$
70.3 $
60.6 $
103.9
Other comprehensive income (loss), net of tax...................................................
13
Items that will not be reclassified to net earnings:
Gains (losses) on pension and non-pension post-employment benefit
plans ...........................................................................................................
Items that may be reclassified to net earnings:
Currency translation differences for foreign operations ............................
Changes from currency forward derivative hedges ...................................
Changes from interest rate swap derivative hedges ..................................
18
20
Total comprehensive income ............................................................................
$
(8.7)
(9.3)
9.3
(0.2)
10.8
(7.7)
64.5 $
4.3
8.5
(4.4)
(7.7)
(13.5)
9.6
59.7 $
101.6
The accompanying notes are an integral part of these consolidated financial statements.
F-7
CELESTICA INC.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in millions of U.S. dollars)
Balance — December 31, 2018 ...................................................
$ 1,954.1 $
(20.2) $
906.6 $ (1,481.7) $
(26.5) $ 1,332.3
Note
Capital
stock
Treasury
stock
Contributed
surplus
Deficit
AOC
loss (a)
Total
equity
Capital transactions:
12
Issuance of capital stock ....................................................
Repurchase of capital stock for cancellation .....................
Purchase of treasury stock for stock-based plans ..............
Equity-settled stock-based compensation (SBC) ...............
Total comprehensive income:
Net earnings for 2019 .........................................................
Losses on pension and non-pension post-employment
benefit plans ........................................................................
18
Currency translation differences for foreign operations .....
Changes from currency forward derivative hedges ............
Changes from interest rate swap derivative hedges ............
Balance — December 31, 2019 ...................................................
Capital transactions:
Issuance of capital stock ....................................................
Repurchase of capital stock for cancellation(b)
Purchase of treasury stock for stock-based compensation
plans ...................................................................................
..................
Equity-settled SBC ............................................................
Total comprehensive income:
Net earnings for 2020 .........................................................
Losses on pension and non-pension post-employment
benefit plans ........................................................................
Currency translation differences for foreign operations .....
Changes from currency forward derivative hedges ............
Changes from interest rate swap derivative hedges ............
Balance — December 31, 2020 ...................................................
Capital transactions:
12
18
20
12
Issuance of capital stock ....................................................
Repurchase of capital stock for cancellation (c)
Purchase of treasury stock for stock-based plans(d)
Equity-settled SBC ............................................................
.................
...........
Total comprehensive income:
Net earnings for 2021 .........................................................
Gains on pension and non-pension post-employment
benefit plans ........................................................................
18
Currency translation differences for foreign operations .....
Changes from currency forward derivative hedges ............
Changes from interest rate swap derivative hedges ............
20
10.4
(132.4)
—
—
—
—
—
—
—
$ 1,832.1 $
2.2
(0.1)
—
—
—
—
—
—
—
—
—
(9.2)
14.6
—
—
—
—
—
(14.8) $
—
—
(19.1)
18.2
—
—
—
—
—
(10.4)
65.1
—
21.3
—
—
—
—
—
—
—
—
—
70.3
(8.7)
—
—
—
982.6 $ (1,420.1) $
(2.2)
(15.0)
—
9.1
—
—
—
—
—
—
—
—
—
60.6
(9.3)
—
—
—
—
—
—
—
—
—
(0.2)
10.8
—
(67.3)
(9.2)
35.9
70.3
(8.7)
(0.2)
10.8
(7.7)
(7.7)
(23.6) $ 1,356.2
—
—
—
—
—
—
4.3
8.5
(4.4)
—
(15.1)
(19.1)
27.3
60.6
(9.3)
4.3
8.5
(4.4)
$ 1,834.2 $
(15.7) $
974.5 $ (1,368.8) $
(15.2) $ 1,409.0
0.3
(70.0)
—
—
—
—
—
—
—
—
—
(54.4)
21.2
—
—
—
—
—
(0.1)
41.6
—
13.8
—
—
—
—
—
—
—
—
—
103.9
9.3
—
—
—
—
—
—
—
—
—
(7.7)
(13.5)
9.6
0.2
(28.4)
(54.4)
35.0
103.9
9.3
(7.7)
(13.5)
9.6
Balance — December 31, 2021 ...................................................
$ 1,764.5 $
(48.9) $
1,029.8 $ (1,255.6) $
(26.8) $ 1,463.0
(a)
Accumulated other comprehensive (AOC) loss is net of tax. See note 13.
(b) Includes $15.0 accrued as of December 31, 2020 for the estimated contractual maximum of permitted subordinate voting share (SVS) repurchases
(Contractual Maximum) for cancellation under an automatic share purchase plan (ASPP) executed in December 2020. See note 12.
(c) We paid $35.9 to repurchase SVS for cancellation in 2021. Also includes $7.5 accrued as of December 31, 2021 for the estimated Contractual
Maximum for cancellation under an ASPP executed in December 2021. See note 12.
(d) Includes $33.8 accrued as of December 31, 2021 for the estimated Contractual Maximum to settle awards under our SBC plans under an ASPP
executed in December 2021. See note 12.
The accompanying notes are an integral part of these consolidated financial statements.
F-8
CELESTICA INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions of U.S. dollars)
Cash provided by (used in):
Year ended December 31
Note
2019
2020
2021
$
70.3 $
60.6 $
103.9
Operating activities:
Net earnings ........................................................................................................
Adjustments to net earnings for items not affecting cash:
Depreciation and amortization .......................................................................
Equity-settled employee SBC .........................................................................
Other charges (recoveries) (a)
..........................................................................
Finance costs ..................................................................................................
Income tax expense .......................................................................................
12
15
Other ...................................................................................................................
Changes in non-cash working capital items:
Accounts receivable .......................................................................................
Inventories ......................................................................................................
Other current assets ........................................................................................
Accounts payable, accrued and other current liabilities and provisions ........
Non-cash working capital changes .....................................................................
Net income tax paid ............................................................................................
Net cash provided by operating activities ..........................................................
Investing activities:
Acquisitions ........................................................................................................
Purchase of computer software and property, plant and equipment ..................
Proceeds from sale of assets ...............................................................................
Net cash provided by (used in) investing activities ............................................
Financing activities:
Borrowings under revolving loans .......................................................................
Repayments under revolving loans ......................................................................
Borrowing under term loans ................................................................................
Repayments under term loans ..............................................................................
Lease payments ....................................................................................................
Issuance of capital stock ......................................................................................
Repurchase of capital stock for cancellation ........................................................
Purchase of treasury stock for stock-based plans .................................................
Finance costs and waiver fees paid (b)
.................................................................
Net cash provided by (used in) financing activities ............................................
Net increase (decrease) in cash and cash equivalents .........................................
Cash and cash equivalents, beginning of year .....................................................
3
6
11
11
11
11
11
12
12
12
135.4
34.1
(86.1)
49.5
29.5
24.2
153.7
97.7
16.5
(158.8)
109.1
(21.0)
345.0
2.7
(80.5)
116.5
38.7
—
—
48.0
(213.0)
(38.2)
—
(67.3)
(9.2)
(46.5)
(326.2)
57.5
422.0
124.7
25.8
2.5
37.7
29.6
10.0
(40.7)
(99.3)
(0.5)
117.0
(23.5)
(27.8)
239.6
—
(52.8)
1.8
(51.0)
—
—
—
(121.9)
(33.7)
—
(0.1)
(19.1)
(29.5)
(204.3)
(15.7)
479.5
126.3
33.4
2.5
31.7
32.1
15.2
(102.4)
(521.9)
(11.5)
556.9
(78.9)
(39.4)
226.8
(314.7)
(52.2)
2.6
(364.3)
220.0
(220.0)
365.0
(175.0)
(40.0)
0.2
(35.9)
(20.6)
(26.0)
67.7
(69.8)
463.8
394.0
Cash and cash equivalents, end of year ...............................................................
$
479.5 $
463.8 $
(a) Other charges (recoveries) in 2019 consists primarily of a $102.0 gain on the sale of our Toronto real property.
(b) Finance costs paid include debt issuance costs paid of $3.6 in 2021 (2020 — $0.6; 2019 — $2.9). We also paid $2.0 in credit-facility-related waiver
fees in 2019, recorded as other charges.
The accompanying notes are an integral part of these consolidated financial statements.
F-9
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
1.
REPORTING ENTITY:
Celestica Inc. (Celestica) is incorporated in Ontario with its corporate headquarters located in Toronto, Ontario,
Canada. Celestica’s subordinate voting shares (SVS) are listed on the Toronto Stock Exchange (TSX) and the New York
Stock Exchange (NYSE). Celestica's operating and reportable segments consist of its Advanced Technology Solutions (ATS)
segment and its Connectivity & Cloud Solutions (CCS) segment. See note 25 for further detail regarding segment
information.
2.
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES:
Statement of compliance:
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The consolidated financial statements
were authorized for issuance by our Board of Directors on March 10, 2022.
Functional and presentation currency:
The consolidated financial statements are presented in United States (U.S.) dollars, which is also Celestica's
functional currency. Unless otherwise noted, all financial information is presented in millions of U.S. dollars (except
percentages and per share amounts).
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 related disclosures with respect to contingent assets and liabilities. We base our judgments, estimates and
assumptions on current facts (including, in recent periods, the prolonged impact of coronavirus disease 2019 and related
mutations (COVID-19) and materials constraints), historical experience and various other factors that we believe are
reasonable under the circumstances. The economic environment also impacts certain estimates and discount rates necessary
to prepare our consolidated financial statements, including significant estimates and discount rates applicable to the
determination of the recoverable amounts used in the impairment testing of our non-financial assets. Our assessment of these
factors forms the basis for our judgments on the carrying values of our assets and liabilities, and the accrual of our costs and
expenses. Actual results could differ materially from our estimates and assumptions. We review our estimates and underlying
assumptions on an ongoing basis and make revisions as determined necessary by management. Revisions are recognized in
the period in which the estimates are revised and may also impact future periods.
Our review of the estimates, judgments and assumptions used in the preparation of our financial statements for
2021 included those relating to, among others: our determination of the timing of revenue recognition, the determination of
whether indicators of impairment existed for our assets and cash generating units (CGUs1), our measurement of deferred tax
assets and liabilities, our estimated inventory provisions and expected credit losses, customer creditworthiness, and the
determination of the fair value of assets acquired and liabilities assumed in connection with a business combination. Any
revisions to estimates, judgments or assumptions may result in, among other things, write-downs or impairments to our assets
or CGUs, and/or adjustments to the carrying amount of our accounts receivable (A/R) and/or inventories, or to the valuation
of our deferred tax assets and/or pension obligations, any of which could have a material impact on our financial performance
and financial condition.
_____________________
1 CGUs are the smallest identifiable group of assets that cannot be tested individually and generate cash inflows that are largely independent of those of other
assets or groups of assets, and can be comprised of a single site, a group of sites, or a line of business.
Key sources of estimation uncertainty and judgment: We have applied significant estimates, judgments and
assumptions in the following areas which we believe could have a significant impact on our reported results and financial
position: our determination of the timing of revenue recognition; whether events or changes in circumstances are indicators
that an impairment review of our assets or CGUs should be conducted; the measurement of our CGUs' recoverable amounts,
F-10
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
which includes estimating future growth, profitability, and discount and terminal growth rates; and the allocation of the
purchase price and other valuations related to our business acquisitions.
We describe our use of judgment and estimation uncertainties in greater detail in the accounting policies described
under “Significant Accounting Policies” below.
Recently issued accounting standards and amendments:
Interest Rate Benchmark Reform (Amendments to IFRS 9 (Financial Instruments), IAS 39 (Financial Instruments:
Recognition and Measurement) and IFRS 7 (Financial Instruments: Disclosures):
In September 2019, the IASB issued amendments to IFRS 9, IAS 39, and IFRS 7, effective January 1, 2020,
representing phase one of its response to the effects of the Interbank Offered Rates (IBOR) reform on financial reporting.
These amendments allow entities to assume that the interest rate benchmark on which hedged cash flows and hedged risk are
based, and the interest rate benchmark on which the cash flows of the hedging instrument are based, are not altered as a result
of IBOR reform. The amendments provide temporary relief that allows hedge accounting to continue, and any hedge
ineffectiveness to continue to be recorded in the income statement, during the period of uncertainty before the replacement of
existing interest rate benchmarks. The amendments apply to all hedging relationships that are directly affected by IBOR
reform, and application of the relief is mandatory. A hedging relationship is affected if the reform gives rise to uncertainties
about the timing and/or amount of benchmark-based cash flows of the hedged item or the hedging instrument. The relief will
cease to apply when the uncertainty arising from IBOR reform is no longer present. On January 1, 2020, and in accordance
with applicable transition provisions, we adopted the amendments retrospectively to hedging relationships that existed at the
start of the reporting period or were designated thereafter, and we continue to apply hedge accounting to the amount in
accumulated other comprehensive income (loss) (OCI) with respect to our interest rate swap cash flow hedges. The
amendments also contain specific disclosure requirements for hedging relationships to which the relief is applied. See note
20(b) for disclosure of interest rate risks related to IBOR reform. The amendments did not have a significant impact on our
disclosures or the amounts reported in our consolidated financial statements for the year ended December 31, 2020.
In August 2020, the IASB issued Interest Rate Benchmark Reform-Phase 2, which amends IFRS 9, IAS 39, IFRS 4,
Insurance Contracts, IFRS 7, and IFRS 16, Leases. The amendments complement those issued in 2019 and focus on the
effects on financial statements when a company replaces a previous interest rate benchmark with an alternative benchmark
rate as a result of IBOR reform. We adopted the Phase 2 amendments as of January 1, 2021. The adoption of the Phase 2
amendments had no significant impact on our consolidated financial statements for the year ended December 31, 2021. See
note 20 for further detail. We will continue to monitor relevant developments and will evaluate the impact of the Phase 2
amendments on our consolidated financial statements as IBOR reform progresses.
Initial adoption and application of IFRS 16, Leases:
Effective January 1, 2019, we adopted IFRS 16, Leases, which brought most leases on-balance sheet for lessees
under a single model, eliminating the distinction between operating and finance leases. IFRS 16 superseded IAS 17, Leases,
and related interpretations. In connection therewith, as of such date, we recognize right-of-use (ROU) assets and related lease
obligations as of the applicable lease commencement date. In adopting this standard, we applied the modified retrospective
approach, permitting us to recognize the cumulative effect of such adoption as an adjustment to our opening balance sheet as
of January 1, 2019, without restatement of prior period comparative information. In connection therewith, we recognized
ROU assets of $111.5 and related lease obligations of $112.0, and reduced our accrued liabilities by $0.5 on our consolidated
balance sheet as of January 1, 2019. There was no net impact on our deficit as of January 1, 2019. We discounted our lease
payments using a weighted-average rate of 4.7% as of January 1, 2019. In computing the initial adjustment, we elected to
apply the practical expedients available under IFRS 16, and accordingly expense the costs of low-value and short-term leases
in our consolidated statement of operations on a straight-line basis over the lease term. The amortization of the ROU assets is
recognized as a depreciation charge, and the interest expense on the related lease obligations is recognized as finance costs in
our consolidated statement of operations. Prior to the adoption of IFRS 16, 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. There
were no changes to our finance leases required by the adoption of IFRS 16, which we continue to capitalize at their
commencement (included in property, plant and equipment on our consolidated balance sheet), and include the corresponding
liability, net of finance costs, on our consolidated balance sheet (see note 11).
F-11
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies below are in compliance with IFRS as issued by the IASB and have been applied
consistently to all periods presented in these consolidated financial statements.
(a)
Basis of measurement:
These consolidated financial statements have been prepared primarily on the historical cost basis. Other
measurement bases, where used, are described in the applicable notes.
(b)
Basis of consolidation:
These consolidated financial statements include our direct and indirect subsidiaries, all of which are wholly-owned.
Any subsidiaries that are formed or acquired during the year are consolidated from their respective dates of formation or
acquisition. Inter-company transactions and balances are eliminated on consolidation.
(c)
Business combinations:
We use the acquisition method to account for any business combinations. All identifiable assets and liabilities are
recorded at fair value on our consolidated balance sheet as of the acquisition date. Any goodwill that arises from business
combinations is tested annually for impairment (see note 2(j)). Potential obligations for contingent consideration and other
contingencies are also recorded at fair value on our consolidated balance sheet as of the acquisition date. We record
subsequent changes in the fair value of such potential obligations from the date of acquisition to the settlement date in our
consolidated statement of operations. We expense integration costs (for the establishment of business processes,
infrastructure and information systems for acquired operations) and acquisition-related consulting and transaction costs as
incurred in our consolidated statement of operations.
We use judgment to determine the estimates used to value identifiable assets and liabilities, and the fair value of
potential obligations, if applicable, at the acquisition date. We may engage third parties to determine the fair value of certain
inventory, property, plant and equipment and intangible assets. We use estimates to determine cash flow projections,
including the period of expected future benefit, and future growth and discount rates, among other factors, to value intangible
assets and contingent consideration. The fair value of acquired tangible assets are measured by applying the market, cost or
replacement cost, or the income approach (using discounted cash flows and forecasts by management), as appropriate. The
fair value of acquired intangible assets are measured by applying the income approach using a discounted cash flow model
and forecasts based on management's estimates and assumptions.
(d)
Foreign currency translation:
The majority of our subsidiaries have a U.S. dollar functional currency, which represents the currency of the primary
economic environment in which they operate. For these subsidiaries, we translate monetary assets and liabilities denominated
in foreign currencies into U.S. dollars at the period-end exchange rates. We translate non-monetary assets and liabilities
denominated in foreign currencies into U.S. dollars at historic rates, and we translate revenue and expenses into U.S. dollars
at the average exchange rates prevailing during the month of the transaction. Exchange gains and losses also arise on the
settlement of foreign-currency denominated transactions. We recognize foreign currency differences arising on translation in
our consolidated statement of operations.
Upon consolidation, for our subsidiaries with a non-U.S. dollar functional currency, we translate assets and
liabilities denominated in foreign currencies into U.S. dollars using the period-end exchange rates, and we translate revenue
and expenses into U.S. dollars at the average exchange rates prevailing during the month of the transaction. We defer gains
and losses arising from the translation of these operations in the foreign currency translation account included in accumulated
OCI. For the purposes of foreign currency translation of transactions at our subsidiaries with a non-U.S. dollar functional
currency, we translate foreign currency transactions into the relevant non-U.S. dollar functional currency using the exchange
rate prevailing during the month of the transaction for revenues and expenses or the exchange rate as at period end for the
translation of these foreign currency denominated monetary assets and liabilities, and such gains and losses arising from these
translations are recorded in the statement of operations in their non-U.S. dollar functional currency before translation into
U.S. dollar for consolidation purposes.
F-12
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
(e)
Cash and cash equivalents:
Cash and cash equivalents include cash on account and short-term investments with original maturities of three
months or less. Cash and cash equivalents are classified as financial assets measured at fair value through profit or loss (see
paragraph (o) below). These instruments are subject to an insignificant risk of change in fair value over their terms and, as a
result, we carry cash and cash equivalents at cost.
(f)
Inventories:
We procure inventory and manufacture products based on specific customer orders and forecasts, and value our
inventory on a first-in, first-out basis at the lower of cost and net realizable value. The cost of our finished goods and work in
progress includes direct materials, labor and overhead. We may require valuation adjustments if actual market conditions or
demand for our customers' products or services are less favorable than originally projected. The determination of net
realizable value involves significant management judgment and estimation. When estimating the net realizable value of our
inventory, we consider factors such as shrinkage, the aging of and future demand for the inventory, and contractual
arrangements with customers. We attempt to utilize excess inventory in other products we manufacture or return such
inventory to the relevant suppliers or customers. We use future sales volume forecasts to estimate excess inventory on-hand.
A change to these assumptions may impact our inventory valuation and our gross margins. We adjust previous write-downs
in our consolidated statement of operations in the period a change in estimate occurs.
(g)
Property, plant and equipment:
We carry property, plant and equipment at cost less accumulated depreciation and accumulated impairment losses.
Cost consists of expenditures directly attributable to the acquisition or construction of the asset, and costs directly attributable
to bringing the asset to the condition necessary for its intended use. We capitalize the cost of an asset when the economic
benefits associated with that asset are probable and when the cost can be measured reliably. We capitalize the costs of major
renovations and we write-off the carrying amount of replaced assets. We expense all other maintenance and repair costs in
our consolidated statement of operations as incurred. We do not depreciate land. We recognize depreciation expense on a
straight-line basis over the estimated useful life of the asset as follows:
Buildings .......................................................................................................... Up to 40 years
Building/leasehold improvements .................................................................... Up to 40 years or if shorter, term of lease
Machinery and equipment ................................................................................ 3 to 15 years
We estimate the useful life of property, plant and equipment based on the nature of the asset, historical experience,
expected changes in technology, and the expected duration of related customer programs. When major components of an
asset have a significantly different useful life than their primary asset, the components are accounted for and depreciated
separately. We review our estimates of residual values, useful lives and the methods of depreciation annually at year end and,
if required, adjust them prospectively. We determine gains and losses on the disposal or retirement of property, plant and
equipment by comparing the proceeds from disposal with the carrying amount of the asset and we recognize these gains and
losses in our consolidated statement of operations in the period of disposal or retirement. Also see note 2(j).
(h)
Leases:
We are the lessee of property, plant and equipment, primarily buildings and machinery. At the inception of a
contract, we assess whether an arrangement is, or contains, a lease in accordance with IFRS 16. Where we determine there is
a lease under IFRS 16, we recognize an ROU asset (representing our right to use such leased asset) and a related lease
obligation on the applicable lease commencement date. An ROU asset is first measured based on the initial amount of the
related lease obligation, subject to certain adjustments, if any, and then subsequently measured at such cost less accumulated
depreciation and accumulated impairment losses (see note 2(j)). Depreciation expense on an ROU asset is recorded on a
straight-line basis over the lease term in cost of sales or SG&A in our consolidated statement of operations, primarily based
on the nature and use of the asset. The lease obligation is initially measured at the present value of the unpaid lease payments
on the commencement date, discounted using the interest rate implicit in the lease (if readily determinable) or otherwise on
our incremental borrowing rate (taking country-specific risks into consideration) on the lease commencement date. We
generally use our incremental borrowing rate as the discount rate. The interest expense on the related lease obligation is
F-13
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
recognized as finance costs in our consolidated statement of operations. The lease obligation is remeasured when there are
adjustments to future lease payments arising from a change in applicable indices or rates, changes in the estimated amount
expected to be payable under a residual value guarantee, or if we change our assessments of whether we will exercise an
applicable purchase, extension or termination option. Upon any such remeasurement, a corresponding adjustment is made to
the carrying amount of the related ROU asset, or is recorded in our consolidated statement of operations if the carrying
amount of such ROU asset has been impaired.
We expense the costs of low-value and short-term leases in our consolidated statement of operations on a straight-
line basis over the lease term.
(i)
Goodwill and intangible assets:
Goodwill:
We initially record goodwill related to business acquisitions on our consolidated balance sheet in the amount of the
excess of the fair value of the aggregate consideration paid or payable (including the estimated fair value of any contingent
consideration) over the fair value of the identifiable net assets acquired. In subsequent reporting periods, we measure
goodwill at cost less accumulated impairment losses, if any. We do not amortize goodwill. For purposes of impairment
testing, we allocate goodwill to the CGU, or group of CGUs, that we expect will benefit from the related acquisition. See
note 2(j).
Intangible assets:
We record acquired intangible assets on our consolidated balance sheet at fair value on the date of acquisition. We
capitalize acquired intangible assets when the economic benefits associated with the asset are probable and when the cost can
be measured reliably. We estimate the useful life of acquired intangible assets based on the nature of the asset, historical
experience and the projected period of expected future economic benefits to be provided by the asset. In subsequent reporting
periods, we measure such intangible assets at cost less accumulated amortization and accumulated impairment losses, if any.
We amortize these assets on a straight-line basis over their estimated useful lives as follows:
Intellectual property ........................................................................................................................................... 3 to 5 years
Other intangible assets ........................................................................................................................................ 4 to 15 years
Computer software assets ................................................................................................................................... 1 to 10 years
Intellectual property assets consist primarily of certain acquired non-patented intellectual property and process
technology. Other intangible assets consist primarily of customer relationships and contract intangibles. Computer software
assets consist primarily of software licenses. We review our estimates of residual values, useful lives and the methods of
amortization annually at year end and, if required, adjust for these prospectively. We reflect changes in useful lives on a
prospective basis.
(j)
Impairment of goodwill, intangible assets, property, plant and equipment, and ROU assets:
We review the carrying amount of goodwill, intangible assets, property, plant and equipment, and ROU assets for
impairment whenever events or changes in circumstances (triggering events) indicate that the carrying amount of such assets,
or the related CGU or CGUs, may not be recoverable. If any such indication exists, we test the carrying amount of such assets
or CGUs for impairment. In addition to an assessment of triggering events during the year, we conduct an annual impairment
assessment of CGUs with goodwill in the fourth quarter of each year to correspond with our annual planning cycle (Annual
Impairment Assessment). Judgment is required in the determination of: (i) our CGUs, which includes an assessment of
whether the relevant asset, or group of assets, largely generates independent cash inflows, and an evaluation of how
management monitors the business operations pertaining to such asset, or asset group; and (ii) whether events or changes in
circumstances during the year are indicators that a review for impairment should be conducted.
We recognize an impairment loss when the carrying amount of an asset, CGU or group of CGUs exceeds its
recoverable amount. The recoverable amount of an asset, CGU or group of CGUs is measured as the greater of its expected
value-in-use and its estimated fair value less costs of disposal. Determining the recoverable amount is subjective and requires
F-14
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
management to exercise significant judgment in estimating future growth, profitability, discount and terminal growth rates,
and in projecting future cash flows, among other factors. Determination of our expected value-in-use is based on a discounted
cash flow analysis of the relevant asset, CGU or group of CGUs. Determining estimated fair value less costs of disposal
requires valuations and use of appraisals. Future events and changing market conditions may impact our assumptions as to
prices, costs or other factors that may result in changes to our estimates of future cash flows. Where applicable, we engage
independent brokers to obtain market prices to estimate our real property and other asset values. We recognize impairment
losses in our consolidated statement of operations. If it is determined that an impairment exists, we first allocate the
impairment losses to the relevant CGU (or group of CGUs) to reduce the carrying amount of its (or their) goodwill, if any. If
the goodwill is reduced to nil and the impairment losses have not been fully allocated, we then reduce the carrying amount of
other assets in such CGU (or group of CGUs), generally on a pro-rata basis, until the impairment losses have been recognized
in full. See notes 6, 7, and 8.
We do not reverse impairment losses for goodwill in future periods. We reverse impairment losses for property,
plant and equipment, ROU assets and intangible assets if the events or conditions that resulted in such losses in prior periods
no longer exist or have decreased as a result of changes in circumstances. At each reporting date, we review for indicators
that could change the estimates we used to determine the recoverable amount of the relevant assets. The amount of the
reversal will be limited to the carrying amount that would have been determined, net of depreciation or amortization, had we
recognized no impairment loss in prior periods.
(k)
Provisions:
We recognize a provision for legal or constructive obligations arising from past events when the amount can be
reliably estimated and it is probable that an outflow of resources will be required to settle an obligation. The nature and type
of provisions vary and management judgment is required to determine the extent of an obligation and whether the outflow of
resources is probable. At the end of each reporting period, we evaluate the appropriateness of the remaining balances. We
may be required to adjust recorded amounts to reflect actual experience or changes in estimates in future periods.
Restructuring:
We incur restructuring charges relating to workforce reductions, site consolidations, and costs associated with
businesses we are downsizing or exiting. Our restructuring charges include employee severance and benefit costs, consultant
costs, gains, losses or impairments related to owned sites and equipment we no longer use and which are available for sale,
impairment of related intangible assets, and costs or impairments related to leased sites and equipment we no longer use.
The recognition of restructuring charges requires management to make certain judgments and estimates regarding
the nature, timing and amounts associated with our restructuring actions. Our assumptions include the timing of employee
terminations, the measurement of termination costs, any anticipated sublease recoveries from exited sites, the timing of
dispositions, and the estimated fair values less costs of disposal for assets we no longer use and which are available for sale.
We develop detailed plans and record termination costs in the period that employees are informed of their termination. For
owned sites and equipment that are no longer in use and are available for sale, we recognize an impairment loss based on
their estimated fair value less costs of disposal, with estimated fair value based on market prices for similar assets. We may
engage third parties to assist in the determination of the estimated fair values less costs of disposal for these assets. For leased
sites that we intend to exit in connection with restructuring activities, we assess the recoverability of our ROU assets, and
write down such assets (recorded as restructuring charges) if the carrying value exceeds any estimated sublease recoveries.
To estimate future sublease recoveries, we may engage independent brokers to determine the estimated tenant rents we can
expect to realize. At the end of each reporting period, we evaluate the appropriateness of our restructuring charges and
balances. We may be required to adjust recorded amounts to reflect actual experience or changes in estimates for future
periods. See note 15(a).
Legal and other contingencies:
In the normal course of our operations, we may be subject to lawsuits, investigations and other claims, including, but
not limited to, environmental, labor, product, customer disputes, and other matters. The filing of a suit or formal assertion of a
claim does not automatically trigger a requirement to record a provision. We record a provision for loss contingencies,
including legal claims, based on management’s estimate of the probable outcome. Judgment is required when there is a range
F-15
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
of possible outcomes. Management considers the degree of probability of the outcome and the ability to make a reasonable
estimate of the loss. We may also use third party advisors in making our determination. The ultimate outcome, including the
amount and timing of any payments required, may vary significantly from our original estimates. Potential material legal and
other material contingent obligations that have not been recognized as provisions, as the outcome is remote or not probable,
or the amount cannot be reliably estimated, are disclosed as contingent liabilities. See note 24.
Warranty:
We offer product and service warranties to our customers. We record a provision for future warranty costs based on
management’s estimate of probable claims under these warranties. In determining the amount of the provision, we consider
several factors including the terms of the warranty (which vary by customer, product or service), the current volume of
products sold or services rendered during the warranty period, and historical warranty information. We review and adjust
these estimates as necessary to reflect our experience and new information. The amount and aging of our provision will vary
depending on various factors including the length of the warranty offered, the remaining life of the warranty and the extent
and timing of warranty claims. We classify the portion of our warranty provision for which payment is expected in the next
12 months as current, and the remainder as non-current.
(l)
Employee benefits:
Pension and non-pension post-employment benefits:
We classify pension and non-pension post-employment benefits as either defined contribution plans or defined
benefit plans.
Under defined contribution plans, our obligation is to make a fixed contribution to a separate entity. The related
investment risk is borne by the employee. We recognize our obligations to make contributions to defined contribution plans
as an employee benefit expense in our consolidated statement of operations in the period the employee services are rendered.
Under defined benefit plans, our obligation is to provide an agreed-upon benefit to specified plan participants. We
remain exposed to both actuarial and investment risks with respect to defined benefit plans. Our obligation is actuarially
determined using the projected unit credit method, based on service and management’s estimates. Actuarial valuations
require management to make judgments and estimates relating to salary escalation, compensation levels at the time of
retirement, retirement ages, the discount rate used in measuring the net interest on the net defined benefit asset or liability,
and expected healthcare costs (as applicable). These actuarial assumptions could change from period-to-period and actual
results could differ materially from the estimates originally made by management. We evaluate our assumptions on a regular
basis, taking into consideration current market conditions and historical data. Market-driven changes may affect the actual
rate of return on plan assets compared to our assumptions, as well as our discount rates and other variables which could cause
actual results to differ materially from our estimates. Changes in assumptions could impact our defined benefit pension plan
valuations and our future defined benefit pension expense and required funding.
Our obligation for each defined benefit plan consists of the present value of the defined benefit obligation less the
fair value of plan assets, and is presented on a net basis on our consolidated balance sheet. When the actuarial calculation
results in a benefit, the asset we recognize is restricted to the present value of economic benefits available in the form of
future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic
benefits, we also consider any minimum funding requirements that apply to the plan. An economic benefit is available if it is
realizable during the life of the plan, or on settlement of the plan liabilities.
We recognize past service costs or credits arising from plan amendments, whether vested or unvested, immediately
in our consolidated statement of operations. We determine the net interest expense (income) on the net defined benefit
liability (asset) for each year by applying the discount rate used to measure the defined benefit obligation at the beginning of
the year to the net defined benefit liability (asset) position, taking into account any changes in the net defined benefit liability
(asset) during the year as a result of contributions and benefit payments. Net interest expense and other expenses related to
defined benefit plans are recognized in our consolidated statement of operations. The difference between the interest income
on plan assets and the actual net return on plan assets is included in the re-measurement of the net defined benefit liability
(asset). We recognize actuarial gains and losses on plan assets or obligations, as well as any year-over-year change in the
F-16
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
impairment of the balance sheet position in OCI and we reclassify the amounts to deficit. Curtailment gains or losses may
arise from significant changes to a plan. We record curtailment gains or losses in our consolidated statement of operations
when the curtailment occurs.
To mitigate the actuarial and investment risks of our defined benefit pension plans, we from time to time purchase
annuities (using existing plan assets) from third party insurance companies for certain, or all, plan participants. The purchase
of annuities by the pension plan substantially hedges the financial risks associated with the related pension obligations.
Where the annuities are purchased on behalf of, and held by the pension plan, the relevant employer retains the ultimate
responsibility for the payment of benefits to plan participants, and we retain the pension assets and liabilities on our
consolidated balance sheet. Our annuity purchases have resulted (and future annuity purchases may result) in losses, due to a
reduction in the value of the plan assets relative to plan obligations as of the date of the annuity purchase. We record these
non-cash losses in OCI on our consolidated balance sheet and simultaneously reclassify such amounts to deficit in the same
period. Alternatively, where we purchase annuities from insurance companies on behalf of applicable plan participants with
the intention of winding-up the relevant plan in the future (with the expectation of transferring the annuities to the individual
plan members), the insurance company assumes responsibility for the payment of benefits to the relevant plan participants
once the wind-up is complete. In this case, settlement accounting is applied to the purchase of the annuities and the loss (if
any) is recorded in other charges in our consolidated statement of operations. In addition, both the pension assets and
liabilities will be removed from our consolidated balance sheet once the wind-up of the plan is complete.
Stock-based compensation (SBC):
We generally grant restricted share units (RSUs) and performance share units (PSUs), and from time to time grant
stock options, to employees under our SBC plans. Stock options and RSUs vest in installments over the vesting period. Stock
options generally vest one-quarter per year over a four-year period, and RSUs generally vest one-third per year over a three-
year period. We treat each installment under a grant of stock options and RSUs as a separate grant in determining the
compensation expense. PSUs vest at the end of their respective terms, generally three years from the grant date, to the extent
that specified performance conditions have been met.
Stock options:
Stock options are exercisable for SVS. We recognize the grant date fair value of stock options granted to employees
as compensation expense in our consolidated statement of operations, with a corresponding charge to contributed surplus on
our consolidated balance sheet, over the vesting period. We adjust compensation expense to reflect the estimated number of
options we expect to vest at the end of the vesting period. When options are exercised, we credit the proceeds to capital stock
on our consolidated balance sheet. We measure the fair value of stock options using the Black-Scholes option pricing model.
Measurement inputs include the price of our SVS on the grant date, the exercise price of the stock option, and our estimates
of the following: expected price volatility of our SVS (based on weighted average historic volatility), weighted average
expected life of the stock option (based on historical experience and general option-holder behavior), and the risk-free
interest rate.
RSUs:
The cost we record for RSUs is based on the market value of our SVS at the time of grant. We amortize the cost of
RSUs to compensation expense in our consolidated statement of operations, with a corresponding charge to contributed
surplus on our consolidated balance sheet, over the vesting period. Unless a grantee has been authorized, and elects, to settle
RSUs in cash, we intend to settle these awards with SVS purchased in the open market by a broker, or issued from treasury.
PSUs:
The number of PSUs that will actually vest varies from 0% to 200% of a target amount granted, based on the level
of achievement of a pre-determined non-market performance measurement in the final year of the three-year performance
period, subject to modification by each of a separate pre-determined non-market financial target, and our relative total
shareholder return (TSR), a market performance condition, compared to a pre-defined group of companies over the three-year
performance period. The cost we record for PSUs is based on our estimate of the outcome of the applicable performance
conditions. The grant date fair value of the non-TSR-based performance measurement and modifier is based on the market
F-17
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
value of our SVS at the time of grant and is subject to adjustment in subsequent periods to reflect changes in the estimated
level of achievement related to the applicable performance condition. The grant date fair value of the TSR modifier is based
on a Monte Carlo simulation model. We recognize compensation expense in our consolidated statement of operations on a
straight-line basis over the requisite service period and we reduce this expense for the estimated PSU awards that are not
expected to vest because the employment conditions are not expected to be satisfied. Unless a grantee has been authorized,
and elects, to settle PSUs in cash, we intend to settle these awards with SVS purchased in the open market by a broker or
issued from treasury.
Deferred Share Units (DSUs):
The compensation of our Board of Directors is comprised of annual Board and Board Chair retainer fees, annual
standing Board committee Chair retainer fees (where applicable), and travel fees (collectively, Annual Fees) payable in
quarterly installments in arrears.* Directors must elect to receive 0%, 25% or 50% of their Annual Fees in cash, with the
balance in DSUs, until such director satisfies the requirements of the Company's Director Share Ownership Guidelines. Once
a director has satisfied such requirements, the director may then elect to receive 0%, 25% or 50% of their Annual Fees in
cash, with the balance either in DSUs or in RSUs (if no election is made, 100% of such director's Annual Fees will be paid in
DSUs). The number of DSUs or RSUs we grant is determined by dividing the elected percentage of the dollar value of the
Annual Fees earned in the quarter by the closing price of our SVS on the NYSE on the last business day of such quarter (in
the case of DSUs) or the trading day preceding the date of grant (in the case of RSUs). Each DSU represents the right to
receive one SVS or an equivalent value in cash after the individual ceases to serve as a director, and is neither an employee of
the Company, nor a director or employee of any corporation that does not deal at arm's length with the Company (Retires).
DSUs granted prior to January 1, 2007 may be settled with SVS issued from treasury or purchased in the open market, or
with cash (at the discretion of the Company). DSUs granted after January 1, 2007 may only be settled with SVS purchased in
the open market, or with cash (at the discretion of the Company). RSUs granted to directors vest ratably over a three-year
period and are governed by the terms of our Long-Term Incentive Plan (LTIP). Each vested RSU entitles the holder thereof
to one SVS; however, if permitted by the Company under the terms of the grant, a director may elect to receive a payment of
cash in lieu of SVS. Unvested RSUs vest immediately on the date the director Retires. We expense the cost of director
compensation through SG&A in our consolidated statement of operations in the period the services are rendered.
* Mr. Popatia is an officer of Onex Corporation (Onex) and does not receive compensation as a director of the Company; however, Onex
receives compensation for providing his services as a director, payable in DSUs in equal quarterly installments in arrears. See note 17.
(m)
Deferred financing costs:
Deferred financing costs consist of costs relating to the establishment or amendment of our credit facility (including
in connection with subsequent security arrangements). We defer financing costs related to our revolving facility as other
assets on our consolidated balance sheet, and amortize these costs in our consolidated statement of operations on a straight-
line basis over the term of the revolving facility (or the remainder of the term for amendments or subsequent security
arrangements). We record financing costs relating to the issuance of our term loans as a reduction to the cost of the related
debt (see note 11), which we amortize in our consolidated statement of operations using the effective interest rate method
over the term of the related debt or when the debt is retired, if earlier.
(n)
Income taxes:
Our income tax expense for a reporting period is comprised of current and deferred income taxes. Current income
taxes and deferred income taxes are recognized in our consolidated statement of operations, except to the extent that they
relate to items recognized in OCI or directly in equity, in which case they are recognized in OCI or directly in equity,
respectively.
In the ordinary course of business, there are many transactions for which the ultimate tax outcome is uncertain until
we resolve it with the relevant tax authority, which may take many years. The final tax outcome of these matters may be
different from the estimates management originally made in determining our tax provision. Management periodically
evaluates the positions taken in our tax returns where applicable tax rules are subject to interpretation. We establish
provisions related to tax uncertainties where appropriate, based on our estimate of the amount that ultimately will be paid to
or received from the tax authorities. We recognize accrued interest and penalties relating to tax uncertainties in current
income tax expense. The various judgments and estimates used by management in establishing provisions related to tax
uncertainties can significantly affect the amounts we recognize in our consolidated financial statements.
F-18
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
We use the liability method of accounting for deferred income taxes. Under this method, we recognize deferred
income tax assets and liabilities for future income tax consequences attributable to temporary differences between the
financial statement carrying amounts of assets and liabilities and their respective income tax bases, and on unused tax losses
and tax credit carryforwards. We measure deferred income taxes using tax rates and laws that have been enacted or
substantively enacted at the reporting date and that we expect will apply when the related deferred income tax asset is
realized or the deferred income tax liability is settled. We recognize deferred income tax assets to the extent we believe it is
probable, based on management’s estimates, that future taxable profit will be available against which the deductible
temporary differences as well as unused tax losses and tax credit carryforwards can be utilized. Estimates of future taxable
profit in different tax jurisdictions are an area of estimation uncertainty. We review our deferred income tax assets at each
reporting date and reduce them to the extent we determine it is no longer probable that we will realize the related tax benefits.
Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become
probable that future taxable profits will be available against which they can be used. We recognize the effect of a change in
income tax rates in the period of enactment or substantive enactment.
We do not recognize deferred income taxes if they arise from the initial recognition of goodwill, or for temporary
differences arising from the initial recognition of an asset or a liability in a transaction that is not a business combination and
that affects neither accounting nor taxable profit or loss. We also do not recognize deferred income taxes on temporary
differences relating to investments in subsidiaries to the extent we are able to control the timing of the reversal of the
temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.
During each period, we record current income tax expense or recovery based on taxable income earned or loss
incurred in each tax jurisdiction where we operate, and for any adjustments to taxes payable in respect of previous years,
using tax laws that are enacted or substantively enacted at the balance sheet date.
(o)
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. Also see note 2(q), “Impairment of financial
assets.”
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. 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 (unless they relate to effective hedging relationships for accounting purposes, in which
case the subsequent changes are recorded in OCI). See note 2(p). We expense transaction costs related to financial
instruments classified as FVTPL 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) are measured at amortized cost, and include our A/R, 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. Financial liabilities that are not classified as FVTPL include our accounts payable (A/P),
the majority of our accrued liabilities and certain other provisions, as well as borrowings under our credit facility, including
our term loans. We initially recognize the carrying amount of such liabilities on our consolidated balance sheet at fair value
plus transaction costs that are directly attributable to the issuance of such liabilities. These financial liabilities are measured at
amortized cost subsequent to initial recognition.
F-19
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
(p)
Derivatives and hedge accounting:
We enter into forward exchange and swap contracts to hedge the cash flow risk associated with firm purchase
commitments and forecasted transactions in foreign currencies that we consider to be highly probable, and to hedge foreign-
currency denominated balances. We use estimates to forecast future cash flows and the future financial position of net
monetary assets or liabilities denominated in foreign currencies. We enter into interest rate swap agreements to mitigate the
interest rate risk on a portion of our term loan borrowings. We apply hedge accounting to those hedge relationships that are
considered effective. Management assesses the effectiveness of hedges by comparing actual outcomes against our estimates
on a regular basis. Subsequent revisions in estimates of future cash flow forecasts, if significant, may result in the
discontinuation of hedge accounting for that hedge. We do not enter into derivative contracts for speculative purposes.
At the inception of a hedging relationship, we formally document the relationship between our hedging instrument
and the hedged item, as well as our risk management objectives and strategy for undertaking the various hedge transactions.
Our process includes linking all derivatives to specific assets and liabilities on our consolidated balance sheet or to specific
firm commitments or forecasted transactions. We also formally assess, both at the hedge’s inception and at the end of each
quarter, whether the derivatives used in hedged transactions are highly effective in offsetting changes in the cash flows of the
hedged items. We record the gain or loss from these forward exchange and swap contracts in the same line item where the
underlying exposures are recognized in our consolidated statement of operations.
Forward exchange and swap contracts that are not effective hedges for accounting purposes are marked to market
each period, resulting in a gain or loss in our consolidated statement of operations. We measure all derivative contracts at fair
value on our consolidated balance sheet. The majority of our derivative assets and liabilities arise from the foreign currency
forward and swap contracts and interest rate swaps that we designate as cash flow hedges. In a cash flow hedge, we defer the
changes in the fair value of the hedging derivative, to the extent effective, in accumulated OCI until we recognize the hedged
item in our consolidated statement of operations. Any cash flow hedge ineffectiveness is recognized in our consolidated
statement of operations immediately. For hedging instruments that we discontinue before the end of the original hedge term,
we amortize the unrealized hedge gain or loss in accumulated OCI to our consolidated statement of operations over the
remaining term of the hedging relationship or when the hedged item is recognized in net income, if this occurs prior to the
end of the original term of the hedging relationship. If the hedged item ceases to exist before the end of the original hedge
term, we recognize the unrealized hedge gain or loss in accumulated OCI immediately in our consolidated statement of
operations. For our current foreign currency forward and swap cash flow hedges, the majority of the underlying expenses we
hedge are for inventory, labour and facility costs, which are included in cost of sales in our consolidated statement
of operations. For our interest rate swap agreements, the underlying interest expenses that we hedge are included in finance
costs in our consolidated statement of operations.
We value our derivative assets and liabilities based on inputs that are either readily available in public markets or
derived from information available in public markets. The inputs we use include discount rates, forward exchange rates,
interest rate yield curves and volatility, and credit risk adjustments. Changes in these inputs can cause significant volatility in
the fair value of our financial instruments.
(q)
Impairment of financial assets:
We review financial assets for impairment at each reporting date. Financial assets are deemed to be impaired when
objective evidence resulting from one or more events subsequent to the initial recognition of the asset indicates the estimated
future cash flows of the asset have decreased. We use a forward-looking expected credit loss (ECL) model in determining our
allowance for doubtful accounts as it relates to trade receivables, contract assets (under IFRS 15, Revenue from Contracts
with Customers), 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/location of our customers, among other factors. We measure an impairment
loss as the excess of the carrying amount over the present value of the estimated future cash flows discounted using the
financial asset’s original discount rate, and we recognize this loss in our consolidated statement of operations. A financial
asset is written-off or written-down to its net realizable value as soon as it is determined to be impaired. We adjust previous
write-downs to reflect changes in estimates or actual experience.
F-20
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
(r)
Revenue and deferred investment costs:
We derive the majority of our revenue from the sale of electronic products we manufacture and services we provide
to customer specifications. We recognize revenue from the sale of products and services rendered when our performance
obligations have 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. Where the products are custom-made to meet a customer's
specific requirements, and such customer is 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 other contracts that do not qualify for revenue recognition over time, we recognize revenue at the point
in time where control is passed to the customer, which is generally upon shipment when no further performance obligation
remains except for our standard manufacturing or service warranties. We apply significant estimates, judgment and
assumptions in interpreting our customer contracts, determining the timing of revenue recognition and measuring work in
progress. 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 resulted in unbilled contract assets which we include in A/R on
our consolidated balance sheet.
We record certain investment costs, comprised of contract acquisition or fulfillment costs, to the extent we consider
the recoverability of these costs probable, in other current and non-current assets on our consolidated balance sheet. We
subsequently amortize these investment costs over the projected period of expected future economic benefits, or as recoveries
are realized, from the new contracts. We monitor these deferred costs for potential impairment on a regular basis.
(s)
Government subsidies:
We receive governmental subsidies, grants and credits (collectively, Subsidies), from time to time related to
operating expenditures or equipment purchases. We recognize such Subsidies when there is reasonable assurance that we
qualify for, and have complied with the conditions of, the Subsidy, and that the Subsidy will be received. If we receive a
Subsidy but cannot reasonably assure that we have complied with its conditions, we will defer recognition of the Subsidy and
record a liability on our consolidated balance sheet until the conditions are fulfilled. For Subsidies that relate to operating
expenditures, we recognize the Subsidy as a reduction to the expenditure that the Subsidy was intended to offset, in the period
the cost is incurred or when the conditions are fulfilled if they were not met when the costs were incurred. For Subsidies that
relate to the purchase of equipment, we reduce the cost of the asset in the period the cost is incurred or when the conditions
are fulfilled if they were not met when the costs were incurred, and we calculate amortization on the net amount. See note 23.
3.
ACQUISITIONS:
On November 1, 2021, we completed the acquisition of 100% of the shares of PCI Private Limited (PCI), a fully
integrated design, engineering and manufacturing solutions provider with five manufacturing and design facilities across
Asia. The agreement governing the acquisition of PCI includes a customary post-closing net working capital adjustment
(WCA). The purchase price for PCI was $314.7, net of $11.4 of cash acquired, and including a preliminary net WCA (which
is subject to finalization in the first quarter of 2022). The purchase price was funded with a combination of cash and
borrowings of $220.0 under the revolving portion of our credit facility (see note 11).
Details of our preliminary purchase price allocation in the year of acquisition are as follows:
F-21
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
Accounts receivable and other current assets ..................................................................................................... $
Inventories ..........................................................................................................................................................
Property, plant and equipment ............................................................................................................................
Customer intangible assets .................................................................................................................................
Other non-current assets .....................................................................................................................................
Goodwill .............................................................................................................................................................
Accounts payable and accrued liabilities ............................................................................................................
Other current liabilities .......................................................................................................................................
Deferred income taxes and other long-term liabilities ........................................................................................
$
PCI
68.9
83.6
22.8
173.4
6.9
126.0
(121.3)
(8.1)
(37.5)
314.7
Acquired assets and liabilities are recorded on our consolidated balance sheet at their fair values as of the date of
acquisition. We expect to finalize our purchase price allocation by the end of the first quarter of 2022, once the WCA has
been finalized, and the work of third-party consultants in estimating the fair values of acquired intangible assets (customer
intangible assets) has been completed.
Had the acquisition occurred on January 1, 2021, PCI would have contributed less than 10% to our consolidated
revenue and net earnings for 2021.
Newly-recognized customer intangible assets from the acquisition will be amortized on a straight line basis over an
estimated useful life of 10 years. As a result, our amortization of intangible assets will increase by approximately $17
annually. Goodwill from the acquisition arose primarily from specific knowledge and capabilities of the acquired workforce
and expected synergies from the combination of our operations. Such goodwill is attributable to our ATS segment and is not
tax deductible.
We engaged third-party consultants to provide valuations of certain inventory, property, plant and equipment and
intangible assets in connection with our acquisition of PCI. The fair value of the acquired tangible assets was measured based
on their value in-use, by applying the market (sales comparison, brokers' quotes), cost or replacement cost, or the income
(discounted cash flow) approach, as deemed appropriate. The valuation of the intangible assets by the third-party consultants
will be primarily based on the income approach using a discounted cash flow model and forecasts based on management's
subjective estimates and assumptions. Various Level 2 and 3 data inputs of the fair value measurement hierarchy (defined in
note 20) were (and will be) used in the valuation of the foregoing assets.
We recorded Acquisition Costs (defined in note 15) of $7.3 during 2021, including $4.8 related to our acquisition of
PCI, offset in part by a $1.2 release of certain indirect tax liabilities previously recorded in connection with our acquisition of
Impakt Holdings, LLC (Impakt). We recorded $0.2 of Acquisition Costs in 2020 related to potential acquisitions, and $3.9 of
Acquisition Costs in 2019 (consisting of $1.7 of costs related to potential acquisitions and $2.2 of charges related to the
subsequent re-measurement of indemnification assets recorded in connection with our Impakt acquisition). See note 15(e).
In 2019, we recorded purchase price adjustments totaling $2.7 related to acquisitions completed in 2018 (Atrenne
Integrated Solutions, Inc. (Atrenne) and Impakt). There were no purchase price adjustments related to such acquisitions in
2020 or 2021.
4.
ACCOUNTS RECEIVABLE:
A/R sales program and supplier financing programs (SFPs):
Our previous agreement (Prior Program) to sell up to $250.0 in A/R on an uncommitted basis (subject to pre-
determined limits by customer) to two third-party banks was scheduled to expire in November 2019, but was extended to
January 15, 2020 pursuant to its terms, at which time it expired. Based on a review of our then-requirements, we reduced the
sales program limit from $250.0 to $200.0 during the extension period.
F-22
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
To replace the Prior Program, we entered into an agreement in March 2020 with a third-party bank to sell up to
$300.0 in A/R on an uncommitted basis, subject to pre-determined limits by customer. This one-year agreement provides for
automatic annual one-year extensions, and was so extended in each of March 2021 and March 2022. This agreement may be
terminated at any time by the bank or by us upon 3 months’ prior notice, or by the bank upon specified defaults. We are
required to comply with covenants, including those relating to the fulfillment of payment obligations and restrictions on the
sale, assignment or creation of liens, with respect to A/R sold under this agreement. At December 31, 2021 and December 31,
2020, we were in compliance with these covenants. Under our A/R sales programs, we continue to collect cash from our
customers and remit amounts collected to the bank weekly.
On November 1, 2021, upon consummation of our acquisition of PCI, we commenced participation in an SFP
pertaining to a PCI customer. As a result, as of December 31, 2021, we participated in three SFPs (one with a CCS segment
customer, and two with ATS segment customers), pursuant to which we sell A/R from the relevant customer to third-party
banks on an uncommitted basis. The SFPs have indefinite terms and may be terminated at any time by the customer or by us
upon specified prior notice. We utilize the SFPs to substantially offset the effect of extended payment terms required by these
customers on our working capital for the period. Under our SFPs, the third-party banks collect the relevant receivables
directly from the customers.
At December 31, 2021, we sold $45.8 of A/R under our current A/R sales program (December 31, 2020 — $119.7)
and $98.0 of A/R under our three SFPs, including $21.5 of A/R under the PCI customer's SFP (December 31, 2020 — $65.3
under two SFPs).
The A/R sold under each of these programs are de-recognized from our A/R balance, and the proceeds are reflected
as cash provided by operating activities in our consolidated statement of cash flows. Upon sale, we assign the rights to the
A/R to the banks. A/R are sold net of discount charges, which are recorded as finance costs in our consolidated statement of
operations.
Contract assets:
At December 31, 2021, our A/R balance included $253.5 of contract assets recognized as revenue in accordance
with our revenue recognition accounting policy (December 31, 2020 — $231.8).
5.
INVENTORIES:
Inventories are comprised of the following:
December 31
2020
2021
Raw materials ......................................................................................................................... $
Work in progress .....................................................................................................................
Finished goods ........................................................................................................................
956.2 $
1,585.8
71.5
63.8
71.2
40.0
$
1,091.5 $
1,697.0
We record inventory provisions, net of valuation recoveries, in cost of sales. Inventory provisions reflect write-
downs in the value of our inventory to net realizable value, and valuation recoveries primarily reflect realized gains on the
disposition of previously written-down inventory. During 2021, we recorded net inventory provisions of $4.9, consisting of
$7.2 in inventory provisions pertaining primarily to our ATS segment, offset in part by $2.3 of valuation recoveries in our
CCS segment. During 2020, we recorded net inventory provisions of $17.0, split approximately evenly between our CCS and
ATS segments. Our net inventory provisions for 2019 of $4.1 were comprised of $9.9 in provisions (approximately two-
thirds of which related to specified aged inventory in our ATS segment), which were partially offset by $5.8 of valuation
recoveries (split relatively equally between our segments) recorded in the fourth quarter of 2019. We regularly review the
estimates and assumptions we use to value our inventory through analysis of historical performance, current conditions and
future expectations.
F-23
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
We receive cash deposits from certain of our customers primarily to cover the impact of higher inventory levels
carried due to the current constrained materials environment, and to reduce risks related to excess and obsolete inventory.
Such deposits as of December 31, 2021 totaled $434.0 (December 31, 2020 — $174.7), and were recorded in accrued and
other current liabilities on our consolidated balance sheet.
6.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are comprised of the following:
Land .......................................................................................................... $
Buildings including improvements ..........................................................
Machinery and equipment ........................................................................
36.2 $
12.0 $
360.6
721.8
210.2
563.9
2020
Accumulated
Depreciation and
Impairment
Cost
$
1,118.6 $
786.1 $
2021
Accumulated
Depreciation and
Impairment
Cost
Land ......................................................................................................... $
Buildings including improvements ..........................................................
Machinery and equipment .......................................................................
35.2 $
12.0 $
383.5
739.7
228.0
579.7
$
1,158.4 $
819.7 $
Net Book
Value
24.2
150.4
157.9
332.5
Net Book
Value
23.2
155.5
160.0
338.7
The following table details the changes to the net book value of property, plant and equipment for the years
indicated:
Balance — January 1, 2020 ...........................................................
Additions .......................................................................................
Depreciation ..................................................................................
Write-down of assets and other disposals(i)
Foreign exchange and other ..........................................................
..................................
Balance — December 31, 2020 .....................................................
Additions .......................................................................................
Acquisitions through business combination .................................
Depreciation ..................................................................................
Write-down of assets and other disposals (i)
Foreign exchange and other ..........................................................
Balance — December 31, 2021 .....................................................
..................................
3
Note
Land
Buildings
including
Improvements
Machinery
and
Equipment
Total
$ 23.6 $
154.6 $
176.8 $ 355.0
—
—
—
0.6
24.2
—
—
—
—
(1.0)
$ 23.2 $
16.9
34.5
51.4
(20.9)
(47.9) (68.8)
(0.9)
0.7
150.4
11.0
17.8
(22.0)
(0.8)
(0.9)
155.5 $
(4.3)
(1.2)
(5.2)
0.1
157.9
47.2
5.0
332.5
58.2
22.8
(46.8) (68.8)
(3.1)
(3.9)
(0.2)
(2.1)
160.0 $ 338.7
(i)
Includes the write-down of equipment primarily related to disengaged programs in 2020 and 2021 (recorded in each case as restructuring
charges), as described in note 15(a).
We review the carrying amount of property, plant and equipment for impairment whenever events or changes in
circumstances (triggering events) indicate that the carrying amount of such assets (or the related CGU or CGUs) may not be
recoverable. If any such indication exists, we test the carrying amount of such assets or CGUs for impairment. We did not
identify any triggering event during the course of 2019 through 2021 indicating that the carrying amount of such assets or
related CGUs may not be recoverable.
F-24
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
7.
RIGHT-OF-USE ASSETS:
The following table details the changes to the net book value of ROU assets during the periods shown:
Land
Buildings
Other
Total
..........................................................................
Balance — January 1, 2020 ................................................. $
Additions (i)
Depreciation ........................................................................
Write-down of assets and lease terminations(ii)
Foreign exchange and other ................................................
Balance — December 31, 2020 ...........................................
Additions(i)
..........................................................................
Additions through business combination (note 3) ..............
Depreciation ........................................................................
Write-down of assets and lease terminations(ii)
Foreign exchange and other ................................................
...................
...................
Balance — December 31, 2021 ........................................... $
7.0 $
94.7 $
0.7
(0.6)
—
—
7.1
0.1
4.3
(0.5)
—
(0.3)
10.7 $
26.9
(29.2)
(1.1)
0.4
91.7
42.1
0.8
(31.0)
(0.3)
(2.3)
2.4 $
0.3
(0.5)
—
—
2.2
0.4
—
(0.5)
—
—
104.1
27.9
(30.3)
(1.1)
0.4
101.0
42.6
5.1
(32.0)
(0.3)
(2.6)
113.8
101.0 $
2.1 $
(i)
(ii)
Additions represent new leases and lease renewals as result of extension of lease terms. Additions for 2021 were reduced by $0.4 (2020 — $4.2)
in tenant improvement allowances that we received in connection with a new building lease for one of our Atrenne sites.
During 2021, we recorded $0.3 (2020 — $1.1) (in each case as restructuring charges) to write down certain ROU assets in connection with
restructuring actions pertaining to vacated properties, resulting in part from certain sublet recoveries that were lower than the carrying value of
the related leases (Sublet Losses). See note 15(a).
We review the carrying amount of ROU assets for impairment whenever events or changes in circumstances
(triggering events) indicate that the carrying amount of such assets (or the related CGU or CGUs) may not be recoverable. If
any such indication exists, we test the carrying amount of such assets or CGUs for impairment. We did not identify any
triggering event during the course of 2019, 2020 or 2021 indicating that the carrying amount of our ROU assets or related
CGUs may not be recoverable. However, we recorded non-cash restructuring charges in such years to write-down certain
ROU assets related to vacated properties (resulting in part from Sublet Losses, defined in footnote (ii) above) in connection
with our restructuring activities, as described in footnote (ii) above and note 15(a).
8.
GOODWILL AND INTANGIBLE ASSETS:
Goodwill and intangible assets are comprised of the following:
2020
Accumulated
Amortization
and Impairment
Net Book
Value
Cost
Goodwill ................................................................................................ $
254.0 $
55.4 $
198.6
Intellectual property .............................................................................. $
Other intangible assets ..........................................................................
Computer software assets ......................................................................
111.3 $
111.3 $
503.2
294.4
282.6
285.6
$
908.9 $
679.5 $
—
220.6
8.8
229.4
F-25
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
2021
Accumulated
Amortization
and Impairment
Cost
Net Book
Value
Goodwill ................................................................................................ $
379.6 $
55.4 $
324.2
Intellectual property .............................................................................. $
Other intangible assets ..........................................................................
Computer software assets ......................................................................
111.3 $
111.3 $
676.6
298.8
305.1
288.3
$
1,086.7 $
704.7 $
—
371.5
10.5
382.0
The following table details the changes to the net book value of goodwill and intangible assets for the years
indicated:
Balance — January 1, 2020 .........................................
Additions ....................................................................
Amortization ...............................................................
Foreign exchange and other ........................................
Balance — December 31, 2020 ...................................
Additions ....................................................................
Acquisitions through business combination ..............
Amortization ...............................................................
3
Foreign exchange and other ........................................
Note
Goodwill
Other
Intangible
Assets
Computer
Software
Assets
Total
$
198.3 $
242.3 $
9.0 $
449.6
—
—
0.3
198.6
—
126.0
—
(0.4)
—
(21.8)
0.1
220.6
—
173.4
(22.5)
—
3.5
(3.8)
0.1
8.8
5.0
—
(3.0)
(0.3)
3.5
(25.6)
0.5
428.0
5.0
299.4
(25.5)
(0.7)
Balance — December 31, 2021 ...................................
$
324.2 $
371.5 $
10.5 $
706.2
We review the carrying amounts of goodwill and intangible assets for impairment whenever events or changes in
circumstances (triggering events) indicate that the carrying amount of such assets (or the related CGU or CGUs) may not be
recoverable. If any such indication exists, we test the carrying amount of such assets or CGUs for impairment. No triggering
events occurred during 2019 to 2021. However, see note 15(a) below for a description of write-downs of specified equipment
and ROU assets during such period in connection with our restructuring activities. In addition to an assessment of triggering
events during the year, we conduct an Annual Impairment Assessment of CGUs with goodwill in the fourth quarter of each
year. We recorded no impairment charges against goodwill or intangible assets during 2019 to 2021 as a result of our 2019,
2020 or 2021 Annual Impairment Assessments.
For our Annual Impairment Assessments, we use cash flow projections based primarily on our plan for the following
year, our three-year strategic plan, and other financial projections. Our plans, which are primarily based on financial
projections submitted by our subsidiaries along with input from our customer teams, are reviewed by various levels of
management as part of our annual planning cycle. Our three-year strategic plan and other financial projections were presented
to our Board of Directors in July 2021. Our plan for 2022 was approved by management and presented to our Board of
Directors in December 2021.
Determining the recoverable amount of a CGU is subjective and requires management to exercise significant
judgment in estimating, among other things, future growth, profitability, and discount and terminal growth rates. The
assumptions used in our 2021 Annual Impairment Assessment were determined based on past experiences adjusted for
expected changes in future conditions. Where applicable, we also engaged independent brokers to obtain market prices to
estimate our real property and other asset values. For our 2021 Annual Impairment Assessment, we used cash flow
projections over a 5-year period, and applied a perpetuity growth rate of 2% thereafter (consistent with long-term inflation
guidance).
F-26
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
Our goodwill balance at December 31, 2021 was $324.2 (December 31, 2020 — $198.6; December 31, 2019 —
$198.3). At December 31, 2021, our Capital Equipment CGU consisted of $112.4 of goodwill attributable to our November
2018 acquisition of Impakt and $19.5 attributable to prior acquisitions; our A&D CGU consisted of goodwill of $3.7
attributable to our November 2016 acquisition of Lorenz, Inc. and Suntek Manufacturing Technologies, SA de CV (Karel
Manufacturing); our Atrenne CGU consisted of goodwill of $62.6 attributable to our April 2018 acquisition of Atrenne; and
our PCI CGU consisted of goodwill of $126.0 attributable to our November 2021 acquisition of PCI (based on our
preliminary assessment, described in note 3).
We used the following assumptions for purposes of our Annual Impairment Assessments of goodwill for the periods
shown:
Assumption
Capital Equipment CGU
A&D CGU
Atrenne CGU
PCI CGU
Annual revenue
growth rate .........
2021 — 10% over 5 year
period;
2020 — 13% over 5 year
period;
2019 — 13% over 5 year
period
2021 — 11% over 5 year period;
2020 — 8% over 5 year period;
2019 — modest growth over 5
year period
2021 — 19% over 5 year
period;
2020 — 9% over 5 year
period;
2019 — 4% over 5 year
period
2021 — 9% over 5
year period;
2020 — N/A;
2019 — N/A
Average annual
CGU margins
over the 5-year
period ................
2021 — above total company
margin(i);
2020 — above total company
margin(i);
2019 — above total company
margin(i)
2021 — slightly above total
company margin(i);
2020 — slightly above total
company margin(i);
2019 — slightly above total
company margin(i)
2021 — above total
company margin(i);
2020 — above total
company margin(i);
2019 — above total
company margin(i)
2021 — above total
company margin(i);
2020 — N/A;
2019 — N/A
Discount rate (ii)
..
2021 — 11%;
2020 — 12%;
2019 — 13%
2021 — 11%;
2020 — 11%;
2019 — 10%
2021 — 10%;
2020 — 10%;
2019 — 10%
2021 — 15%;
2020 — N/A;
2019 — N/A
(i) Total company margin is defined as total segment income as a percentage of total revenue. See note 25.
(ii) For 2021, the pre-tax discount rate by CGU is as follows: Capital Equipment CGU — 14%; A&D CGU — 13%; Atrenne CGU — 13%; and PCI CGU
— 18%.
Future growth in revenue and margins for these CGUs is supported by new business awarded recently, customer
forecasts, assumptions for additional future program wins based on our current revenue pipeline, margin improvements based
on restructuring actions implemented, growth due to acquisitions (if included in a CGU), and external industry outlooks.
Assumptions for our Capital Equipment CGU for our 2021 Annual Impairment Assessment reflect the continued recovery of,
and demand strength (including from new programs and market share gains) in our semiconductor business in 2021 (which is
expected to continue). We have also assumed margin expansion for this CGU during the forecast period based on anticipated
increased productivity driven by expected additional volumes. Assumptions for our Atrenne CGU for our 2021 Annual
Impairment Assessment reflect an expected broad-based market recovery from the impact of COVID-19, as well as
anticipated accelerated growth over the 5-year forecast period primarily in our defense business, resulting from expected new
program wins following the investment in, and expansion of, a facility (opened in 2021) to accommodate additional capacity
for our defense customers and our licensing business. Although our A&D CGU was adversely affected by COVID-19 in
2021, particularly our commercial aerospace business, our assumptions for this CGU for our 2021 Annual Impairment
Assessment reflect industry expectations for a recovery of demand within the 5-year forecast period. The discount rate for our
PCI CGU reflects the risks inherent in the PCI business.
Future events and changing market conditions may impact our assumptions as to prices, costs or other factors that
may result in changes to our estimates of future cash flows. Failure to realize the assumed revenues at an appropriate profit
margin of a CGU could result in impairment losses in such CGU in future periods.
F-27
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
9.
OTHER NON-CURRENT ASSETS:
Net pension assets .......................................................................................................
Land rights .................................................................................................................
Deferred investment costs ..........................................................................................
Deferred financing costs .............................................................................................
Other ...........................................................................................................................
December 31
Note
2020
2021
18
$
5.6 $
9.3
1.8
1.5
7.3
5.1
8.9
2.4
2.3
6.5
$
25.5 $
25.2
10.
PROVISIONS:
Our provisions include restructuring, warranty, legal and other provisions (described in note 2(k)). We include
details of our restructuring provision in note 15(a). The following chart details the changes in our provisions for the year
indicated:
Restructuring Warranty
Legal (i)
Other(ii)
Total
Balance — December 31, 2020 .............................. $
Provisions ..............................................................
Reversal of prior year provisions(iii)
......................
Payments/usage ......................................................
Accretion, foreign exchange and other ..................
Current ................................................................... $
Non-current(iv) .....................................................
December 31, 2021 ................................................. $
4.7 $
28.8 $
0.8 $
8.9 $
10.3
(0.5)
(8.4)
—
11.9
(7.0)
(4.8)
0.1
6.1 $
10.2 $
—
18.8
—
—
—
—
0.8 $
0.8 $
—
0.7
—
(0.2)
(0.2)
9.2 $
— $
9.2
6.1 $
29.0 $
0.8 $
9.2 $
43.2
22.9
(7.5)
(13.4)
(0.1)
45.1
17.1
28.0
45.1
Balance — December 31, 2021 .............................. $
6.1 $
29.0 $
(i)
(ii)
(iii)
Legal represents our aggregate provisions recorded for various legal actions based on our estimates of the likely outcomes.
Other represents our asset retirement obligations relating to properties that we currently lease.
During 2021, we reversed prior year warranty provisions primarily as a result of expired warranties and changes in estimated costs based on
historical experience.
(iv)
Non-current balances are included in provisions and other non-current liabilities on our consolidated balance sheet.
At the end of each reporting period, we evaluate the appropriateness of our provisions, and may make adjustments to
reflect actual experience or changes in our estimates.
F-28
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
11.
CREDIT FACILITIES AND LEASE OBLIGATIONS:
We are party to a credit agreement with Bank of America, N.A., as Administrative Agent, and the other lenders
party thereto, which prior to the amendment described below, provided a term loan in the original principal amount of $350.0
(Initial Term Loan) and a term loan in the original principal amount of $250.0 (First Incremental Term Loan), each of which
was scheduled to mature in June 2025, and a $450.0 revolving credit facility (Revolver) that was scheduled to mature in June
2023. On December 6, 2021, the credit agreement was amended (as so amended, the Credit Facility) primarily: (i) to provide
a new term loan (Second Incremental Term Loan) in the original principal amount of $365.0 (all of which was drawn on the
amendment date and used as described below); (ii) to increase the commitments under the Revolver to $600.0 and extend its
maturity date (see below), (iii) to ease certain covenant restrictions; and (iv) to include specified LIBOR successor provisions
(see note 20). The Initial Term Loan and the Second Incremental Term Loan are collectively referred to as the Term Loans.
The Initial Term Loan was unchanged by the December 2021 amendment to the Credit Facility, and continues to
mature in June 2025. The Second Incremental Term Loan and the Revolver each mature on March 28, 2025, unless either (i)
the Initial Term Loan has been prepaid or refinanced or (ii) commitments under the Revolver are available and have been
reserved to repay the Initial Term Loan in full, in which case such obligations mature on December 6, 2026.
The Second Incremental Term Loan requires quarterly principal repayments (commencing March 31, 2022) of
$4.5625, and each of the Term Loans requires a lump sum repayment of the remainder outstanding at maturity. The Initial
Term Loan required quarterly principal repayments of $0.875, and the First Incremental Term Loan required quarterly
principal repayments of $0.625, all of which (in each case) were paid by the end of the first half of 2020. We are also
required to make annual prepayments of outstanding obligations under the Credit Facility (applied first to the Term Loans,
then to the Revolver, in the manner set forth in the Credit Facility) ranging from 0% — 50% (based on a defined leverage
ratio) of specified excess cash flow (ECF) for the prior fiscal year. A mandatory prepayment of $107.0 (ECF Amount) was
required and paid during the first half of 2020 based on this provision. No such prepayments based on 2020 ECF were
required in 2021, or will be required in 2022 based on 2021 ECF. In addition, prepayments of outstanding obligations under
the Credit Facility (applied as described above) may also be required in the amount of specified net cash proceeds received
above a specified annual threshold (including proceeds from the disposal of certain assets). No Credit Facility prepayments
based on 2020 net cash proceeds were required in 2021, or will be required in 2022 based on 2021 net cash proceeds. Any
outstanding amounts under the Revolver are due at maturity. Except under specified circumstances, and subject to the
payment of breakage costs (if any), we are generally permitted to make voluntary prepayments of outstanding amounts under
the Revolver and the Term Loans without any other premium or penalty. Repaid amounts on the Term Loans may not be re-
borrowed.
At December 31, 2021, the aggregate remaining mandatory principal repayments under the Credit Facility are as
follows (assuming no further mandatory principal repayments are required based on ECF or net cash proceeds):
Initial Term Loan .......................................... $
Second Incremental Term Loan (i)
................. $
295.4 $
— $
— $
— $
295.4 $
—
365.0 $
18.25 $
18.25 $
18.25 $
18.25 $
292.0
Total
2022
2023
2024
2025
2026
(i) This assumes that the conditions required for a December 2026 maturity date are satisfied.
The Credit Facility has an accordion feature that allows us to increase the term loans and/or revolving loan
commitments thereunder by $150.0, plus an unlimited amount to the extent that a specified leverage ratio on a pro forma
basis does not exceed specified limits, in each case on an uncommitted basis and subject to the satisfaction of certain terms
and conditions. The Revolver also includes a $50.0 sub-limit for swing line loans, providing for short-term borrowings up to
a maximum of ten business days, as well as a $150.0 sub-limit for letters of credit, in each case subject to the overall
Revolver credit limit. The Revolver permits us and certain designated subsidiaries to borrow funds (subject to specified
conditions) for general corporate purposes, including for capital expenditures, certain acquisitions, and working capital needs.
F-29
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
Borrowings under the Revolver bear interest, depending on the currency of the borrowing and our election for such
currency, at LIBOR, Base Rate, Canadian Prime, an Alternative Currency Daily Rate, or an Alternative Currency Term Rate
(each as defined in the Credit Facility) plus a specified margin. The margin for borrowings under the Revolver and the
Second Incremental Term Loan ranges from 1.50% to 2.25% for LIBOR borrowings and Alternative Currency borrowings,
and from 0.50% to 1.25% for Base Rate and Canadian Prime borrowings, in each case depending on the rate we select and
our consolidated leverage ratio (as defined in the Credit Facility). Commitment fees range from 0.30% to 0.45% depending
on our consolidated leverage ratio. The Initial Term Loan currently bears interest at LIBOR plus 2.125%. The Second
Incremental Term Loan currently bears interest at LIBOR plus 2.0%. See note 20 for a description of the LIBOR successor
provisions under the Credit Facility. Prior to the December 2021 Credit Facility amendment, the margin for borrowings under
the Revolver ranged from 0.75% to 2.5%, commitment fees ranged from 0.35% to 0.50%, in each case depending on the rate
we selected and our consolidated leverage ratio, the Initial Term Loan bore interest at LIBOR plus 2.125%, and the First
Incremental Term Loan bore interest at LIBOR plus 2.5%. We have entered into interest rate swap agreements to hedge
against our exposures to the interest rate variability on a portion of our Term Loans. See note 20 for further detail.
We are required to comply with certain restrictive covenants under the Credit Facility, including those relating to the
incurrence of certain indebtedness, the existence of certain liens, the sale of certain assets, specified investments and
payments, sale and leaseback transactions, and certain financial covenants relating to a defined interest coverage ratio and
leverage ratio that are tested on a quarterly basis. Our Credit Facility also prohibits share repurchases for cancellation if our
leverage ratio (as defined in such facility) exceeds a specified amount (Repurchase Restriction). At December 31, 2021 and
December 31, 2020, we were in compliance with all restrictive and financial covenants under the Credit Facility, and the
Repurchase Restriction was not in effect. In the third quarter of 2019, we were not in compliance with certain restrictive
covenants related to the Repurchase Restriction. These defaults, as well as related cross defaults, were waived in October
2019 (Waivers). Also see note 15(d) below.
The obligations under the Credit Facility are guaranteed by us and certain specified subsidiaries. Subject to specified
exemptions and limitations, all assets of the guarantors are pledged as security for the obligations under the Credit Facility.
The Credit Facility contains customary events of default. If an event of default occurs and is continuing (and is not waived),
the administrative agent may declare all amounts outstanding under the Credit Facility to be immediately due and payable,
and may cancel the lenders’ commitments to make further advances thereunder. In the event of a payment or other specified
defaults, outstanding obligations accrue interest at a specified default rate. No such defaults occurred during 2020 or 2021.
In the first quarter of 2021 (Q1 2021), we repaid an aggregate of $30.0 under the First Incremental Term Loan. On
October 27, 2021, we borrowed $220.0 under the Revolver to fund a portion of the purchase price for our November 2021
acquisition of PCI (see note 3). On December 6, 2021, upon receipt of the net proceeds from the $365.0 Second Incremental
Term Loan, we repaid all remaining amounts outstanding under the First Incremental Term Loan ($145.0), terminating such
loan, and repaid $215.0 of the $220.0 borrowed under the Revolver. On December 29, 2021, we repaid the remaining $5.0
outstanding under the Revolver.
During the first quarter of 2020 (Q1 2020), we made the scheduled quarterly principal repayment of $0.875 under
the Initial Term Loan, and also prepaid an aggregate of $60.0 under the First Incremental Term Loan. On April 27, 2020, we
prepaid $47.0 under the Initial Term Loan. These two prepayments were first applied to all remaining scheduled quarterly
principal repayments of the Initial Term Loan and First Incremental Term Loan prior to maturity, as applicable, and thereafter
to remaining applicable principal amounts outstanding thereunder. These prepayments also represented payment in full of the
ECF Amount. In June 2020, we prepaid an additional $1.5 under the Initial Term Loan and $12.5 under the First Incremental
Term Loan. No further prepayments were required or made thereafter during 2020.
During 2019, we borrowed $48.0 under the Revolver, primarily to fund share repurchases in the first quarter of 2019
(Q1 2019) (see note 12) and repaid an aggregate of $207.0 of the amount then-outstanding under the Revolver (including by
use of $110.0 of the $113.0 in proceeds we received upon the completion of our 2019 Toronto real property sale (Toronto
Proceeds)). We made scheduled principal repayments of $1.5 in each quarter of 2019 under the Initial Term Loan and First
Incremental Term Loan.
F-30
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
Activity under our Credit Facility for the periods indicated is set forth below:
Revolver
Term loans
Outstanding balances as of December 31, 2018 ................................................................... $
159.0
$
598.3
Amount borrowed in Q1 2019 ..............................................................................................
Amount repaid in Q1 2019 ...................................................................................................
Amount repaid in Q2 2019 ...................................................................................................
Amount repaid in Q3 2019 ...................................................................................................
Amount repaid in Q4 2019 ...................................................................................................
Outstanding balances as of December 31, 2019 ................................................................... $
Amount repaid in Q1 2020 ...................................................................................................
Amount repaid in Q2 2020 ...................................................................................................
Outstanding balances as of December 31, 2020 ................................................................... $
Amount repaid in Q1 2021 ...................................................................................................
Amount borrowed in Q4 2021 ..............................................................................................
Amount repaid in Q4 2021 ...................................................................................................
48.0
(110.0)
(44.0)
(53.0)
—
—
—
—
—
—
$
$
220.0
(220.0)
Outstanding balances as of December 31, 2021 ................................................................... $
—
$
—
(1.5)
(1.5)
(1.5)
(1.5)
592.3
(60.9)
(61.0)
470.4
(30.0)
365.0
(145.0)
660.4
The following table sets forth, at the dates shown: outstanding borrowings under the Credit Facility, excluding
ordinary course letters of credit (L/Cs); notional amounts under our interest rate swaps, outstanding lease obligations; and
information regarding outstanding L/Cs, surety bonds and overdraft facilities:
Outstanding borrowings
December 31
2020
December 31
2021
Notional amounts under
interest rate swaps (note 20)
December 31
December 31
2021
2020
Borrowings under the Revolver (i)
Borrowings under the Term Loans (i)
.......................................... $
Initial Term Loan ............................................................... $
First Incremental Term Loan .............................................
Second Incremental Term Loan ........................................
Total ................................................................................... $
Total borrowings under Credit Facility ................................. $
Unamortized debt issuance costs related to Term Loans (i)
Lease obligations (ii)
....
................................................................
Total Credit Facility and lease obligations: ............................
Current portion ....................................................................... $
Long-term portion ..................................................................
$
L/Cs, surety bonds and overdraft facilities:
Outstanding L/Cs under the Revolver .................................... $
Outstanding L/Cs and surety bonds outside the Revolver .....
Total ....................................................................................... $
$
— $
— $
— $
—
295.4 $
175.0
—
470.4 $
470.4 $
(7.2)
122.7
585.9 $
99.8 $
486.1
585.9 $
21.3 $
20.2
41.5 $
295.4 $
—
365.0
660.4 $
175.0 $
100.0
—
275.0 $
100.0
—
100.0
200.0
660.4
(4.6)
138.6
794.4
51.5
742.9
794.4
21.0
27.1
48.1
Available uncommitted bank overdraft facilities ................... $
Amounts outstanding under available uncommitted bank
overdraft facilities .................................................................. $
162.7 $
198.5
— $
—
F-31
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
(i)
We incur debt issuance costs upon execution and amendment of the Credit Facility. Debt issuance costs incurred in 2021 in
connection with the Revolver totaling $2.2 ($0.3 in 2020; $1.1 in 2019) were deferred as other assets on our consolidated balance
sheets and are amortized on a straight line basis over the term (or remaining term, as applicable) of the Revolver. Debt issuance
costs incurred in 2021 in connection with our term loans totaling $1.8 (nil in 2020; $1.6 in 2019) were deferred as long-term debt
on our consolidated balance sheets and are amortized over their respective terms using the effective interest rate method. In
December 2021, we accelerated the amortization of $2.6 of unamortized deferred financing costs related to the termination of the
First Incremental Term Loan, which we recorded in other charges (see note 15).
(ii)
Our lease obligations above represent the present value of unpaid lease payments which have been discounted using our
incremental borrowing rate on the lease commencement dates. As of December 31, 2021, the current portion of our lease
obligations was $34.5 (2020 — $32.2) and the long-term portion was $104.1 (2020 — $90.5).
At December 31, 2021, the contractual undiscounted cash flows for our lease obligations were as follows:
Years ending December 31
2022 ....................................................................................................................................... $
2023 .......................................................................................................................................
2024 .......................................................................................................................................
2025 .......................................................................................................................................
2026 .......................................................................................................................................
Thereafter ..............................................................................................................................
$
Total
40.4
33.5
21.2
16.1
12.8
39.0
163.0
In addition to the lease obligations we recorded in our financial statements at December 31, 2021 (set forth under
"Lease obligations" and footnote (ii) in the table above), we had commitments under additional real property leases not
recognized as liabilities as of such date because the relevant leases had not yet commenced. A description of, and minimum
lease obligations under, these leases are disclosed in note 24.
Other lease related expenses that were recognized in the consolidated statement of operations are as follows:
Year ended December 31
2019
2020
2021
Interest expense on lease obligations .......................................................................... $
Variable lease payments not included in the measurement of lease obligations ........ $
Expenses relating to short-term leases or low-value leases ........................................ $
6.6 $
0.7 $
4.6 $
6.1 $
0.8 $
3.7 $
6.6
0.9
1.5
See note 16 for a discussion of finance costs.
12.
CAPITAL STOCK:
We are authorized to issue an unlimited number of SVS, which entitle the holder to one vote per share, and an
unlimited number of multiple voting shares (MVS), which entitle the holder to 25 votes per share. The SVS and MVS vote
together as a single class on all matters submitted to a vote of shareholders, including the election of directors, except as
otherwise required by law. The holders of the SVS and MVS are entitled to share ratably, as a single class, in any dividends
declared subject to any preferential rights of any outstanding preferred shares in respect of the payment of dividends. Each
MVS is convertible at any time at the option of the holder thereof and automatically, under certain circumstances, into one
SVS. We are also authorized to issue an unlimited number of preferred shares, issuable in series. No preferred shares have
been issued to date.
F-32
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
(a) Capital transactions:
Number of shares (in millions)
SVS
MVS
Issued and outstanding at December 31, 2018 ........................................................................
Issued from treasury(i)
Cancelled under normal course issuer bid (NCIB) .................................................................
.............................................................................................................
Issued and outstanding at December 31, 2019 ........................................................................
Issued from treasury(i)
Cancelled under NCIB ............................................................................................................
.............................................................................................................
Issued and outstanding at December 31, 2020 ........................................................................
Issued from treasury(i)
Cancelled under NCIB ............................................................................................................
.............................................................................................................
Issued and outstanding at December 31, 2021 ........................................................................
117.7
0.8
(8.3)
110.2
0.3
(0.0062)
110.5
0.03
(4.37)
106.1
18.6
—
—
18.6
—
—
18.6
—
—
18.6
(i)
In 2021, 0.02 million SVS were issued from treasury upon the exercise of stock options for aggregate cash proceeds of $0.2. No
SVS were issued from treasury upon the exercise of stock options in either 2020 or 2019. In 2021, we issued 0.01 million (2020
— 0.3 million; 2019 — 0.8 million) SVS from treasury with an ascribed value of $0.1 (2020 — $2.2; 2019 — $10.4) upon the
vesting of certain RSUs and PSUs. We settled other RSUs and PSUs with SVS purchased in the open market (described below).
We have repurchased SVS in the open market and otherwise for cancellation in recent years pursuant to NCIBs,
which allow us to repurchase a limited number of SVS during a specified period. We may not repurchase SVS for
cancellation when the Repurchase Restriction is in effect (during a portion of 2019). The Repurchase Restriction was not in
effect during 2020 or 2021 or at December 31, 2021. The maximum number of SVS we are permitted to repurchase for
cancellation under each NCIB (when permitted) is reduced by the number of SVS purchased by a broker in the open market
during the term of such NCIB to satisfy delivery obligations under our SBC plans. The Repurchase Restriction (when in
effect) is not applicable to open market purchases for this purpose.
On November 19, 2020, the TSX accepted our notice to launch an NCIB (2020 NCIB), which allowed us to
repurchase, at our discretion, from November 24, 2020 until the earlier of November 23, 2021 or the completion of purchases
thereunder, up to approximately 9.0 million SVS in the open market, or as otherwise permitted, subject to the normal terms
and limitations of such bids. As part of the NCIB process, we from time-to-time entered into automatic share purchase plans
(ASPPs) with a broker, instructing the broker to purchase our SVS in the open market on our behalf (for cancellation under
the 2020 NCIB), including during any applicable trading blackout periods (ASPP Purchases), up to specified daily quantities
at specified prices through the term of each ASPP.
In each of December 2020, March 2021, and June 2021 we entered into ASPPs, each of which have since expired.
At December 31, 2020, we had accrued $15.0, representing the estimated contractual maximum number of permitted SVS
repurchases (Contractual Maximum) for cancellation under the December 2020 ASPP (2.0 million SVS). This accrual was
reversed in Q1 2021. No repurchases were made under the December 2020 ASPP prior to its expiration in January 2021.
Repurchases of 1.7 million SVS (for cancellation) were made under the March 2021 and June 2021 ASPPs during 2021.
On December 2, 2021, the TSX accepted our notice to launch a new NCIB (2021 NCIB). The 2021 NCIB allows us
to repurchase, at our discretion, from December 6, 2021 until the earlier of December 5, 2022 or the completion of purchases
thereunder, up to approximately 9.0 million of our SVS in the open market, or as otherwise permitted, subject to the normal
terms and limitations of such bids. As of December 31, 2021, approximately 8.3 million SVS remain available for repurchase
under the 2021 NCIB either for cancellation or SBC delivery purposes.
In December 2021, we entered into an ASPP (NCIB ASPP) with a broker, instructing the broker to purchase on our
behalf (for cancellation under the 2021 NCIB), during specified dates, including during any applicable trading blackout
periods, up to the NYSE and TSX daily maximums (subject to certain conditions) at specified share prices. At December 31,
2021, we recorded an accrual of $7.5 (NCIB Accrual), representing the estimated Contractual Maximum (0.7 million SVS)
for cancellation under the NCIB ASPP. As of December 31, 2021, 0.0036 million SVS were repurchased under the NCIB
ASPP. In December 2021, we entered into an additional ASPP (SBC ASPP) with a broker, instructing the broker to purchase
on our behalf (for delivery obligations under our SBC plans), during specified dates (including during any applicable trading
F-33
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
blackout periods), and subject to certain conditions, up to 3.7 million SVS. As of December 31, 2021, 0.7 million SVS were
repurchased under the SBC ASPP. At December 31, 2021, we recorded an accrual of $33.8 (SBC Accrual), representing the
estimated remaining Contractual Maximum (3.0 million SVS) under the SBC ASPP.
In December 2019, we completed a previous NCIB, which allowed us to repurchase, at our discretion, up to
approximately 9.5 million of our SVS in the open market, or as otherwise permitted. We purchased a total of 8.3 million SVS
for cancellation under this NCIB.
Information regarding share repurchase activities for the years indicated is set forth below:
Year ended December 31
2020
2019
2021
Aggregate cost (1) of SVS repurchased for cancellation (2) .................................... $
67.3 $
0.1 $
Number of SVS repurchased for cancellation (in millions) (3)
Weighted average price per share for repurchases ............................................. $
...........................
Aggregate cost (1) of SVS repurchased for delivery under SBC plans(4)
................. $
Number of SVS repurchased for delivery under SBC plans (in millions)(5)
......
8.3
0.0062
8.15 $
9.2 $
1.2
7.45 $
19.1 $
2.9
35.9
4.37
8.21
20.6
1.9
(1)
(2)
(3)
(4)
(5)
Includes transaction fees.
For 2020, excludes an accrual of $15.0 we recorded at December 31, 2020 for the estimated Contractual Maximum for
cancellation under the December 2020 ASPP. For 2021, excludes the $7.5 NCIB Accrual.
Includes 1.7 million ASPP Purchases of SVS for cancellation in 2021 (there were no ASPP Purchases in 2020 or 2019).
For 2021, excludes the $33.8 SBC Accrual.
Includes 0.7 million ASPP Purchases for SBC delivery obligations in 2021 (there were no ASPP Purchases in 2020 or 2019).
Number of SVS held by trustee for delivery under SBC plans (1)(2) (in millions) ..
Value of SVS held by trustee for delivery under SBC plans (2)
(1)
(2)
For accounting purposes, we classify these shares as treasury stock until they are delivered pursuant to the plans.
SVS held in 2021 exclude the SBC Accrual.
.............................. $
2019
December 31
2020
2021
1.7
14.8 $
2.4
15.7 $
1.4
15.1
(b) Employee SBC:
LTIP:
Under the LTIP, we may grant stock options, stock appreciation rights, RSUs and PSUs to eligible employees,
consultants and directors. We may, at the time of grant, authorize the grantees to settle these awards either in cash or in SVS.
Absent such permitted election, vested grants under the LTIP will be settled in SVS (on a one-for-one basis), either with
SVS purchased in the open market or issued from treasury (up to a maximum aggregate of 29.0 million SVS). As of
December 31, 2021, 10.0 million SVS remain reserved for issuance from treasury under the LTIP, covering potential
issuances of SVS for outstanding awards and for potential future award grants.
Celestica Share Unit Plan (CSUP):
Under the CSUP, we may grant RSUs and PSUs to eligible employees. We have the option to settle vested RSUs
and PSUs issued thereunder in SVS (on a one-for-one basis) purchased in the open market, or in cash.
F-34
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
Employee SBC Expense:
Employee SBC expense may fluctuate from period-to-period to account for, among other things, new grants,
forfeitures resulting from employee terminations or resignations, and the recognition of accelerated SBC expense for
employees eligible for retirement. The portion of employee SBC expense that relates to performance-based compensation is
subject to adjustment in any period to reflect changes in the estimated level of achievement of pre-determined performance
goals and financial targets. No significant adjustments were recorded in 2021 with respect to PSUs expected to vest at the
beginning of February 2022. Based on reviews of the status of the non-market performance vesting condition and modifier,
we recorded an $8.4 expense reversal in 2020 to reflect reductions in the estimated number of PSUs expected to vest at the
end of January 2021.
Information
regarding
employee SBC
expense
for
the years
indicated
is
set
forth below:
Year ended December 31
2020
2019
2021
Employee SBC expense in cost of sales ................................................................. $
Employee SBC expense in SG&A ..........................................................................
Total ........................................................................................................................ $
14.6 $
19.5
34.1 $
11.1 $
14.7
25.8 $
13.0
20.4
33.4
For RSUs and DSUs issued to eligible directors under our Directors’ Share Compensation Plan (DSC Plan), see
paragraph (c) below.
(i) Stock options:
We are permitted to grant stock options under our LTIP. Stock options are granted at prices equal to the closing
market price on the day prior to the grant date and are exercisable during a period not to exceed 10 years from the grant date.
Stock option grants and exercises were as follows for the years indicated:
Outstanding at January 1, 2019 ........................................................................................
Exercised .........................................................................................................................
Outstanding at December 31, 2019 ..................................................................................
Exercised .........................................................................................................................
Outstanding at December 31, 2020 ..................................................................................
Granted ...........................................................................................................................
Exercised .........................................................................................................................
Outstanding at December 31, 2021 ..................................................................................
The following stock options* were outstanding as at December 31, 2021:
Number of
Options
(in millions)
Weighted Average
Exercise Price*
0.3 $
— $
0.3 $
— $
0.3 $
0.09 $
(0.02) $
0.4 $
11.93
—
12.50
—
12.78
10.58
6.54
12.70
Range of Exercise Prices
Outstanding
Options
Weighted Average
Exercise Price
(in millions)
$6.56 to $13.87 .............................
0.4
$12.70
Weighted Average
Remaining Life
of Outstanding Options
(years)
4.9
Weighted
Average
Exercise Price
Exercisable
Options
(in millions)
0.3
$13.33
*
The exercise prices were determined by converting the grant date fair value into U.S. dollars at the year-end exchange rate.
F-35
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
We amortize the estimated grant date fair value of stock options to expense over the vesting period (generally 4
years). The grant date fair value of outstanding stock options was determined using the Black-Scholes option pricing model
and the following assumptions in the year of the grant: risk-free interest rate (based on U.S. government bond yields) of
1.09%, expected volatility of the market price of our shares (based on historical volatility of our share price) of 43%, and the
expected option life of 7 years (based on historical option holder behavior). No stock options were granted in 2020 or 2019.
(ii) RSUs and PSUs:
We grant RSUs and PSUs to employees pursuant to our LTIP and CSUP. Each vested unit generally entitles the
holder to receive one SVS. Under the CSUP, we have the option to satisfy the delivery of shares upon vesting of the awards
by purchasing SVS in the open market or by settling such awards in cash. Under the LTIP, we may (at the time of grant)
authorize the grantees to settle awards in either cash or SVS (absent such permitted election, grants will be settled in SVS
purchased in the open market or issued from treasury, subject to certain limits). We have generally settled these awards with
SVS purchased in the open market by a broker, or issued from treasury. Unless a grantee has been authorized, and elects, to
settle these awards in cash, Celestica intends to settle all outstanding RSUs and PSUs with SVS purchased in the open market
by a broker, or issued from treasury. As a result, we account for these share unit awards as equity-settled awards. We
amortize the grant date fair value of RSUs and PSUs to expense over the vesting period.
The grant date fair value of RSUs is based on the market value of our SVS at the time of grant.
With respect to PSUs, employees are granted a target number of PSUs (set forth for the years indicated in the table
below). The number of PSUs that will actually vest will vary from 0% to 200% of the target amount granted based on the
level of achievement of the relevant performance conditions. PSUs (representing in each case 100% of target) are primarily
granted in the first quarter of each year. These PSUs vest based on the level of achievement of a pre-determined non-market
performance measurement in the final year of the three-year performance period, subject to modification by each of a
separate pre-determined non-market financial target and our relative TSR performance over the three-year vesting period. See
note 2(l). The grant date fair value of the TSR modifier is based on a Monte Carlo simulation model and a premium of 109%
for 2021 (2020 — 112%; 2019 — 102%). The grant date fair value of the non-TSR-based performance measurement and
modifier is based on the market value of our SVS at the time of grant and is subject to adjustment to reflect changes in the
estimated level of achievement related to the applicable performance condition. Vested awards were settled with SVS
purchased in the open market by a broker, or issued from treasury.
The assumptions used in the measurement of the grant date fair values of PSUs were as follows:
Year ended December 31
2020
2019
2021
Expected volatility .................................................................................................
Expected life .........................................................................................................
Risk-free interest rate (based on 3-year Treasury bonds) ......................................
28 %
3 years
2.5 %
30 %
3 years
1.4 %
49 %
3 years
0.2 %
F-36
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
Information regarding aggregate RSU, PSU and stock option grants to employees, as applicable, for the years
indicated is set forth below:
Year ended December 31
2020
2019
2021
RSUs Granted:
Number of awards (in millions) ..............................................................................
Weighted average grant date fair value per unit ..................................................... $
PSUs Granted:
Number of awards (in millions, representing 100% of target) ...............................
Weighted average grant date fair value per unit ..................................................... $
Stock Options Granted:
Number of awards (in millions) ..............................................................................
Weighted average grant date fair value per option ................................................. $
3.0
7.88 $
2.1
8.14 $
—
— $
2.4
8.60 $
1.7
9.88 $
—
— $
3.0
8.36
2.9
9.49
0.09
4.22
December 31
2019
2020
2021
Number of outstanding RSUs (in millions) ............................................................
Number of outstanding PSUs (in millions, representing 100% of target granted) .
4.6
3.8
4.5
4.6
4.6
6.1
(c) Director SBC:
We grant DSUs to certain members of our Board of Directors and Onex under our DSC Plan. We also grant RSUs
(under specified circumstances) to certain directors as compensation under the DSC Plan. RSUs granted to directors vest
ratably over a three-year period and are governed by the terms of our LTIP. Each vested RSU entitles the holder thereof to
one SVS; however, if permitted by the Company under the terms of the grant, a director may elect to receive a payment of
cash in lieu of SVS. Unvested RSUs vest immediately on the date the director Retires. See note 2(l) for additional detail. As
Celestica is permitted to, and intends to, settle DSUs with shares purchased in the open market, we account for these awards
as equity-settled awards. On January 29, 2020, William A. Etherington retired from Celestica’s Board of Directors. In
accordance with the DSC Plan, the DSUs held by Mr. Etherington will be redeemed on or prior to the 90th day following the
date on which he is no longer a director or employee of any corporation that does not deal at arm’s length with the Company.
As of December 31, 2021, Mr. Etherington held 0.475 million DSUs.
Information regarding director SBC expense for the years indicated is set forth below:
................................................................... $
Director SBC expense in SG&A (1)
DSUs Granted:
Number of awards (in millions) ........................................................................
Weighted average grant date fair value per unit ............................................... $
RSUs Granted:
Number of awards (in millions) ........................................................................
Weighted average grant date fair value per unit ............................................... $
Number of DSUs outstanding (in millions) ......................................................
Number of RSUs issued to directors outstanding (in millions) ........................
1.8
0.02
2.0
0.03
(1)
Expense consists of director compensation to be settled with SVS, or SVS and cash, as elected by each director.
F-37
Year ended December 31
2020
2019
2021
2.4 $
2.0 $
2.1
0.2
7.62 $
0.2
5.64 $
0.016
7.62 $
0.022
5.71 $
2019
December 31
2020
0.12
8.98
0.054
8.92
2021
2.2
0.07
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
13.
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX:
Note
2019
Year ended December 31
2020
2021
Opening balance of foreign currency translation account ......................
Foreign currency translation adjustments ...............................................
Closing balance ......................................................................................
Opening balance of unrealized net gain (loss) on currency forward
cash flow hedges ..................................................................................
........................
Net gain (loss) on currency forward cash flow hedges(i)
Reclassification of net loss (gain) on currency forward cash flow
hedges to operations(ii)
Closing balance(iii)
.........................................................................
..................................................................................
Opening balance of unrealized net loss on interest rate swap cash flow
hedges ..................................................................................................
Net gain (loss) on interest rate swap cash flow hedges ..........................
Reclassification of net loss on interest rate swap cash flow hedges to
operations .............................................................................................
Closing balance(iv)
...................................................................................
$
$
$
Actuarial gains (losses) on pension and non-pension post-employment
benefit plans .........................................................................................
Reclassification of actuarial losses (gains) to deficit .............................
18
$
Loss on purchase of pension annuities ..................................................... 18
Reclassification of loss on purchase of pension annuities to deficit ........ 18
Closing balance ......................................................................................
(14.4) $
(0.2)
(14.6)
(7.7) $
6.7
4.1
3.1
(14.6) $
4.3
(10.3)
3.1 $
9.0
(0.5)
11.6
(10.3)
(7.7)
(18.0)
11.6
(5.3)
(8.2)
(1.9)
(4.4) $
(10.2)
(12.1) $
(12.8)
(16.5)
2.4
2.5
8.4
(12.1)
(16.5)
(8.7) $
8.7
—
—
—
(9.1) $
9.1
(0.2)
0.2
—
7.2
(6.9)
9.3
(9.3)
—
—
—
Accumulated other comprehensive loss ................................................
$
(23.6) $
(15.2) $
(26.8)
(i)
(ii)
(iii)
Net of income tax recovery of $0.5 for 2021 (2020 — net of $0.8 income tax expense; 2019 — net of $0.2 income tax expense).
Net of release of $0.6 income tax expense associated with the reclassification of net hedge (gain) loss to the consolidated
statements of operations for 2021 (2020 — net of nil income tax expense; 2019 — net of release of $0.5 of income tax benefit).
Net of income tax recovery of $0.1 as of December 31, 2021 (December 31, 2020 — net of $1.0 of income tax expense;
December 31, 2019 — net of $0.2 of income tax expense).
(iv)
No income tax impact as of December 31, 2021, December 31, 2020 or December 31, 2019.
14.
EXPENSES BY NATURE:
We have presented our consolidated statement of operations by function. Items included in our cost of sales and
SG&A for the years indicated are set forth below:
Year ended December 31
2020
2021
2019
Employee-related costs ............................................................................................ $
815.2 $
810.7 $
SBC expense included in above employee-related costs ......................................
Freight and transportation costs ...............................................................................
Depreciation expense (i)
Rental expense (i)
.....................................................................................................
...........................................................................................
34.1
90.3
105.8
5.3
25.8
107.9
99.1
4.5
819.4
33.4
142.5
100.8
2.4
(i)
The amortization of ROU assets is included in depreciation expense. See note 7. We expense the costs of low-value and short-term leases in our
consolidated statement of operations on a straight-line basis as rental expense. See note 11 for disclosure of these lease expenses.
F-38
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
15.
OTHER CHARGES (RECOVERIES):
Restructuring charges (a) .............................................................................
Losses on post-employment benefit plan (b) ...............................................
Transition costs (recoveries) (c) ...................................................................
Credit Facility-related charges (d) ...............................................................
Acquisition Costs and Other (e) ...................................................................
Note
18
(a)
Restructuring:
Year ended December 31
2020
2019
2021
$
$
37.9 $
4.1
(95.8)
2.0
1.9
(49.9) $
25.8 $
—
—
—
(2.3)
23.5 $
10.5
—
1.2
3.0
(4.4)
10.3
Our restructuring activities in 2021 consisted primarily of actions to adjust our cost base to address reduced levels of
demand in certain of our businesses and geographies, due in part to the impact of COVID-19, including actions in the first
half of 2021 to right-size our commercial aerospace facilities. We implemented restructuring actions in 2020 associated
primarily with our previously-disclosed disengagement from programs with Cisco Systems, Inc., as well as other actions
intended to adjust our cost base similar to (and for the same reasons as) those taken in 2021.
We recorded net restructuring charges of $10.5 in 2021, consisting of cash restructuring charges of $9.8, primarily
for employee termination costs, and net non-cash charges of $0.7 (consisting of non-cash restructuring charges of $1.5 and
non-cash restructuring recoveries of $0.8). The non-cash charges consisted primarily of the write-down of equipment related
to disengaged programs. The non-cash recoveries primarily reflect gains on the sale of surplus equipment. Our restructuring
provision at December 31, 2021 was $6.1 (December 31, 2020 — $4.7; December 31, 2019 — $11.2), which we recorded in
the current portion of provisions on our consolidated balance sheet. See note 10.
We recorded restructuring charges of $25.8 in 2020, consisting of cash charges of $23.3, primarily for employee
termination costs, and non-cash charges of $2.5. The non-cash restructuring charges represented the write-down of ROU
assets ($1.1) in connection with vacated properties (resulting in part from Sublet Losses), and the write-down of certain
equipment related to disengaged programs, offset in part by $0.3 in gains on the disposition of surplus equipment in the
fourth quarter of 2020 (Q4 2020).
At the end of 2019, we completed our cost efficiency initiative (CEI), which commenced in the fourth quarter of
2017, and consisted of restructuring actions related to our CCS segment portfolio review and our Capital Equipment business.
The CEI resulted in reductions to our workforce, as well as consolidation of certain sites to better align capacity and
infrastructure with then-anticipated customer demand, related transfers of customer programs and production, re-alignment of
business processes, management reorganizations, and other associated activities. We recorded restructuring charges of $37.9
in 2019, all in connection with our CEI, consisting of cash charges of $28.1, primarily for employee termination costs, and
non-cash charges of $9.8, representing the write-down of certain equipment, primarily related to our Capital Equipment
business and disengaged programs, and the write-down of ROU assets ($1.0) pertaining to vacated properties, resulting in
part from Sublet Losses.
See notes 2(k) and 10 for further details regarding our restructuring provisions.
(b)
Losses on post-employment benefit plan:
During the fourth quarter of 2019 (Q4 2019), we recorded non-cash charges of $4.1, representing additional
obligations under our Thailand post-employment benefit plan as a result of changes in labor protection laws in Thailand that
increased the severance benefits for specified employees upon termination.
(c)
Transition Costs (Recoveries):
Transition Costs are comprised of transition-related relocation and duplicate costs pertaining to: (i) the relocation of
our Toronto manufacturing operations and our corporate headquarters in connection with the 2019 sale of our Toronto real
property (Toronto Transition Costs); and (ii) the transfer of manufacturing lines from closed sites to other sites within our
F-39
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
global network (Internal Relocation Costs). Transition Costs consist of direct relocation and duplicate costs (such as rent
expense, utility costs, depreciation charges, and personnel costs) incurred during the transition periods, as well as cease-use
costs incurred in connection with idle or vacated portions of the relevant premises. Transition Recoveries consist of the
$102.0 gain (Property Gain) we recorded in Q1 2019 in connection with our Toronto real property sale. See note 7 of our
2019 audited consolidated financial statements. We recorded $1.2 of Internal Relocation Costs in 2021 (2020 — de minimis;
2019 — $2.4).
(d)
Credit Facility-related charges:
Credit Facility-related charges for 2021 consist primarily of a $2.6 charge to accelerate the amortization of
unamortized deferred financing costs upon termination of the First Incremental Term Loan in Q4 2021 in connection with our
December 2021 amendment to the Credit Facility (described in note 11). During Q4 2019, we incurred $2.0 in fees (Waiver
Fees) in connection with obtaining the Waivers in October 2019 (described in note 11).
(e)
Acquisition Costs and Other:
We incur consulting, transaction and integration costs relating to potential and completed acquisitions. We also incur
charges or releases related to the subsequent re-measurement of indemnification assets or the release of indemnification or
other liabilities recorded in connection with acquisitions, when applicable. Collectively, these costs, charges and releases are
referred to as Acquisition Costs (Recoveries).
We recorded net Acquisition Costs in 2021 of $6.1, consisting of $7.3 in costs related to acquisition activities,
including the acquisition of PCI, offset in part by a $1.2 release of certain indirect tax liabilities previously recorded in
connection with our acquisition of Impakt. We recorded $0.2 of Acquisition Costs in 2020 related to potential acquisitions,
and $3.9 of Acquisition Costs in 2019 (consisting of $1.7 of costs related to potential acquisitions and $2.2 of charges related
to the subsequent re-measurement of indemnification assets recorded in connection with our Impakt acquisition).
Other consists of legal recoveries (for prior period component parts in 2021 and 2020 and prior period freight
charges in 2019) in connection with the settlement of class action lawsuits in which we were a plaintiff (2021 — $10.5; 2020
— $2.5; 2019 — $2.0).
16.
FINANCE COSTS:
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 A/R sales program and SFPs, and interest expense on our lease
obligations, net of interest income earned. See notes 4 and 11. We paid finance costs of $26.0 in 2021 (2020 — $29.5; 2019
— $44.5), including $3.6 in debt issuance costs in 2021 (2020 — $0.6; 2019 — $2.9). We also paid $2.0 in Waiver Fees in
2019, which we recorded in other charges (recoveries) (see note 15(d)).
17.
RELATED PARTY TRANSACTIONS:
Onex beneficially owns, controls, or directs, directly or indirectly, all of our outstanding MVS. Accordingly, Onex
has the ability to exercise significant influence over our business and affairs and generally has the power to determine all
matters submitted to a vote of our shareholders where the SVS and MVS vote together as a single class. Mr. Gerald Schwartz,
the Chairman of the Board and Chief Executive Officer of Onex, indirectly owns shares representing the majority of the
voting rights of the shares of Onex.
We are party to a services agreement with Onex for the services of Mr. Tawfiq Popatia, an officer of Onex, as a
director of Celestica, pursuant to which Onex receives compensation for such services. This agreement automatically renews
for successive one-year terms unless either party provides a notice of intent not to renew. Under such agreement, the annual
fee payable to Onex is $0.235, payable in DSUs in equal quarterly installments, in arrears. The services agreement terminates
automatically and the rights of Onex to receive compensation (other than accrued and unpaid compensation) will terminate
(a) 30 days after the first day on which Onex ceases to hold at least one MVS of Celestica or any successor company or (b)
the date Mr. Popatia ceases to be a director of Celestica for any reason. The number of DSUs is determined using the closing
price of the SVS on the NYSE on the last day of the fiscal quarter in respect of which the installment is to be credited. DSUs
F-40
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
granted to Onex prior to January 1, 2007 may be settled with SVS issued from treasury or purchased in the open market, or
with cash (at the discretion of the Company). DSUs granted to Onex after January 1, 2007 may only be settled with SVS
purchased in the open market, or with cash (at the discretion of the Company).
A consortium of four real estate partnerships, approximately 27% of the interests of which are held by a privately-
held partnership in which Mr. Schwartz has a material interest; and approximately 25% of the interests of which are held by a
partnership in which Mr. Schwartz has a non-voting interest, holds a 5% non-voting interest in the purchaser of our former
Toronto real property, which we sold in 2019. See note 15(c).
Compensation of key management personnel:
Our key management team consists of directors and senior executive officers. The aggregate compensation expenses
we recognized under IFRS for our directors and senior executive officers for the periods shown were as follows:
Short-term employee benefits and costs ...................................................... $
Post-employment and other long-term benefits ..........................................
SBC (including DSUs and RSUs to eligible directors) ...............................
$
Year ended December 31
2020
2019
2021
4.4 $
0.3
15.6
20.3 $
8.7 $
0.2
12.5
21.4 $
7.3
0.6
17.3
25.2
18.
PENSION AND NON-PENSION POST-EMPLOYMENT BENEFIT PLANS:
(a)
Plan summaries:
We provide pension and non-pension post-employment benefit plans for our employees. At December 31, 2021,
such plans included our pension plan for employees in the United Kingdom (U.K. Main pension plan), which generally
provides participants with stated benefits on retirement based on their pensionable service, either in annuities and/or lump
sum payments. The U.K. Main pension plan is closed to new members, and approximately 1% of such plan members remain
active employees of the Company. Our previous supplementary pension plan for employees in the United Kingdom (U.K.)
was wound-up in 2019. Defined contribution pension plans are offered to certain employees, mainly in Canada and the U.S.
We provide non-pension post-employment benefits (under other benefit plans) to retired and terminated employees in
Canada, the U.S., Mexico, Thailand and South Korea. These benefits may include one-time retirement and specified
termination benefits, medical, surgical, hospitalization coverage, supplemental health, dental and/or group life insurance.
To mitigate the actuarial and investment risks of our defined benefit pension plans, we purchase annuities from time
to time (using existing plan assets) from third party insurance companies for certain, or all, plan participants. The purchase of
annuities by the pension plan substantially hedges the financial risks associated with the related pension obligations.
In August 2020, the trustees of our U.K. Main pension plan purchased annuities to hedge the pension benefits
payable to newly-retired members of such plan. The purchase of the annuity resulted in a non-cash loss of $0.2 for the third
quarter of 2020 (Q3 2020) which we recorded in OCI and simultaneously re-classified to deficit.
The overall governance of our pension plans is conducted by our Human Resources and Compensation Committee
which, through annual reviews, approves material plan changes, reviews funding levels, investment performance, compliance
matters and plan assumptions, and ensures that the plans are administered in accordance with local statutory requirements.
We have established a Canadian Pension Committee to govern our Canadian pension plans. The U.K. Main pension plan is
governed by a Board of Trustees, composed of employee and company representation. Both the Canadian Pension Committee
and the U.K. Board of Trustees review funding levels, investment performance and compliance matters for their respective
plans. Our pension funding policy is to contribute amounts sufficient, at minimum, to meet local statutory funding
requirements. For our defined benefit pension plans (primarily our U.K. Main pension plan), local regulatory bodies either
define the minimum funding requirement or approve the funding plans submitted by us. We may make additional
discretionary contributions taking into account actuarial assessments and other factors. The contributions that we make to
support ongoing plan obligations are recorded in the respective asset or liability accounts on our consolidated balance sheet.
F-41
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
Our U.K. Main pension plan requires an actuarial valuation to be completed every three years. The actuarial
valuation was completed using a measurement date of April 2019; the next valuation will have a measurement date of
April 2022.
We currently fund our non-pension post-employment benefit plans as we incur benefit payment obligations
thereunder. Excluding our mandatory plans, the most recent actuarial measurements for our largest non-pension post-
employment benefit plans were completed using valuation dates of May 2019 (Canada) and January 2020 (U.S.). The next
actuarial measurements for these plans will have valuation dates of May 2022 and January 2022 (tentatively scheduled for
mid-2022), respectively. We accrue the expected costs of providing non-pension post-employment benefits during the periods
in which the employees render service. We used a measurement date of December 31, 2021 for the accounting valuation for
pension and non-pension post-employment benefits.
Our pension plans are exposed to market risks such as changes in interest rates, inflation, and fluctuations in
investment values, as well as financial risks including counterparty risks of financial institutions from which annuities have
been purchased for specified plans. See note 20(c). Our plans are also exposed to non-financial risks, including the
membership’s mortality and demographic changes, as well as regulatory changes.
We manage the funding level risk of defined benefit pension plans through our asset allocation strategy for each
plan. In the U.K., the majority of the obligations under our U.K. Main pension plan have been hedged with the purchase of
annuities with insurance companies as described above, but are not designated as hedges for application of hedge accounting
purposes.
Pension fund assets are invested primarily in fixed income and equity securities. Asset allocation between fixed
income and equity securities is adjusted based on the expected life of the plan and the expected retirement dates of the plan
participants. Our pension funds do not invest directly in our shares, but may invest indirectly as a result of the inclusion of
our shares in certain investment funds. All of our plan assets are measured at their fair value using the fair value hierarchy
inputs described in note 20. At December 31, 2021, $33.2 (December 31, 2020 — $31.8) of our plan assets were measured
using Level 1 inputs of the fair value hierarchy and $328.7 (December 31, 2020 — $348.3) of our plan assets (comprised of
insurance annuities) were measured using Level 3 inputs of the fair value hierarchy. None of our plan assets were measured
using Level 2 inputs. Approximately 96% of our plan assets consist of annuities purchased with insurance companies, and
assets held with financial institutions with a Standard and Poor’s long-term rating of A or above at December 31, 2021. The
annuities purchased for our U.K. Main pension plan are held with financial institutions that are governed by local regulatory
bodies. The remaining assets are held with financial institutions where ratings are not available. For these institutions,
Celestica monitors counterparty risk based on the diversification of plan assets. These plan assets are maintained in
segregated accounts by a custodian that is independent from the fund managers. We believe that the counterparty risk is low.
Plan assets are measured at their fair values; however, the amounts we are permitted to record for defined benefit
plan assets may be restricted under IFRS, as described in note 2(l). Based on a plan-by-plan review of the terms, conditions,
and statutory minimum funding requirements of our defined benefit plans in 2021, we determined that the present value of
future pension refunds or reductions in future contributions to our pension plans exceeds the total of the fair value of plan
assets net of the present value of related obligations for all of our defined benefit plans, except for our defined benefit plan in
Japan. As a result of this review, we reduced the recorded amount of our Japan defined benefit plan assets by $1.6 as at
December 31, 2021 (December 31, 2020 — nil), which was reflected in OCI.
F-42
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
(b) Plan financials:
The table below presents the market value of defined pension and other benefit plan assets:
Fair Market
Value at
December 31
Actual Asset
Allocation (%)
at December 31
2020
2021
2020
2021
Quoted market prices:
Debt investment funds ............................................................................ $
Equity investment funds ..........................................................................
10.8 $
7.8
10.6
7.6
Non-quoted market prices:
Insurance annuities ..................................................................................
Other ..........................................................................................................
Total ........................................................................................................... $
348.3
13.2
328.7
15.0
380.1 $
361.9
3 %
2 %
92 %
3 %
100 %
3 %
2 %
91 %
4 %
100 %
The following tables provide a summary of the financial position of our defined pension and other benefit plans:
Pension Plans
Year ended
December 31
Other Benefit Plans
Year ended
December 31
2020
2021
2020
2021
Plan assets, beginning of year .................................................................... $
Interest income ......................................................................................
Actuarial gains (losses) in other comprehensive income (i)
Administrative expenses paid from plan assets .....................................
...................
Employer contributions .........................................................................
Employer direct benefit payments .........................................................
Employer direct settlement payments ...................................................
Settlement payments from employer .....................................................
Settlement payments from plan ..............................................................
Benefit payments from plan ..................................................................
Benefit payments from employer ..........................................................
Foreign currency exchange rate changes and other ..............................
328.5 $
378.1 $
1.8 $
6.4
36.4
(1.1)
5.2
(5.2)
(0.8)
4.0
1.1
—
—
—
4.7
1.4
—
—
—
(12.5)
(1.1)
16.4
(16.8)
(1.4)
(5.3)
—
—
—
0.4
2.6
4.8
(4.8)
(0.1)
(0.2)
(2.6)
0.1
2.0
—
—
—
0.8
1.7
1.1
(1.1)
(0.2)
(0.5)
(1.7)
(0.1)
Plan assets, end of year .............................................................................. $
378.1 $
359.9 $
2.0 $
2.0
(i)
Actuarial gains or losses are determined based on actual return on plan assets less interest income as set forth in the table above.
For 2020, includes a $0.2 loss resulting from the purchase of annuities in August 2020.
F-43
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
Accrued benefit obligations, beginning of year ......................................... $
Current service cost ...............................................................................
Past service cost (credit) and settlement/curtailment losses (i)
...............
Interest cost ...........................................................................................
Actuarial losses (gains) in other comprehensive income from:
— Changes in demographic assumptions .........................................
— Changes in financial assumptions ................................................
— Experience adjustments ...............................................................
Settlement payments from employer ......................................................
Settlement payments from plan ..............................................................
Benefit payments from plan ..................................................................
Benefit payments from employer ..........................................................
Foreign currency exchange rate changes and other ..............................
Accrued benefit obligations, end of year ................................................... $
Pension Plans
Year ended
December 31
Other Benefit Plans
Year ended
December 31
2020
2021
2020
2021
346.0 $
396.9 $
87.4 $
95.6
1.9
(0.8)
6.9
2.5
—
5.6
(1.2)
41.0
(1.1)
(7.6)
0.1
—
—
—
—
—
(12.5)
(16.8)
(1.1)
16.6
(1.4)
(4.2)
3.2
2.3
2.4
—
5.0
1.3
(4.8)
(0.1)
(0.2)
(2.6)
1.7
3.4
0.3
2.4
—
(7.5)
0.1
(1.1)
(0.2)
(0.5)
(1.7)
(1.7)
396.9 $
373.9 $
95.6 $
89.1
Weighted average duration of benefit obligations (in years) .....................
18
18
13
12
(i)
The settlement losses relate to employee terminations in connection with 2020 and 2021 restructuring actions.
The present value of the defined benefit obligations, the fair value of plan assets and the surplus or deficit in our
defined benefit pension and other benefit plans are summarized as follows:
Pension Plans
December 31
Other Benefit Plans
December 31
2020
2021
2020
2021
Accrued benefit obligations, end of year ................................................... $
Plan assets, end of year ..............................................................................
Reduction of plan assets due to IFRS restrictions described in note 2(l) ..
Deficiency of plan assets over accrued benefit obligations ....................... $
(396.9) $
(373.9) $
(95.6) $
(89.1)
378.1
—
359.9
(1.6)
2.0
—
2.0
—
(18.8) $
(15.6) $
(93.6) $
(87.1)
The following table outlines the plan balances as reported on our consolidated balance sheet:
December 31
2020
Other
Benefit
Plans
Pension
Plans
December 31
2021
Other
Benefit
Plans
Total
Total
Pension
Plans
Pension and non-pension post-employment benefit
obligations ....................................................................... $
(24.4) $
(92.9) $ (117.3) $
(20.7) $
(86.8) $ (107.5)
Current other post-employment benefit obligations ..........
Non-current net pension assets (note 9) ..............................
—
5.6
(0.7)
(0.7)
—
5.6
—
5.1
(0.3)
(0.3)
—
5.1
$
(18.8) $
(93.6) $ (112.4) $
(15.6) $
(87.1) $ (102.7)
F-44
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
The following table outlines the net expense recognized in our consolidated statement of operations for pension and
non-pension post-employment benefit plans:
Pension Plans
Year ended December 31
2020
2021
2019
Other Benefit Plans
Year ended December 31
2020
2021
2019
Current service cost ........................................................... $
Net interest cost ................................................................
Past service cost (credit) and settlement/curtailment
losses ...............................................................................
Plan administrative expenses and other .............................
Defined contribution pension plan expense (note 18(c)) ....
Total expense for the year .................................................. $
1.9 $
1.9 $
2.5 $
2.6 $
3.2 $
0.6
—
1.5
4.0
10.1
0.5
(0.8)
1.1
2.7
10.6
0.4
—
1.3
4.2
11.6
2.6
8.0
—
13.2
—
2.4
2.3
—
7.9
—
14.1 $
13.3 $
15.8 $
13.2 $
7.9 $
3.4
2.4
0.3
—
6.1
—
6.1
We generally record the expenses for pension plans and non-pension post-employment benefits in cost of sales,
SG&A expenses, or other charges (see note 15), depending on the nature of the expenses.
The following table outlines the gains and losses, net of tax, recognized in OCI and reclassified directly to deficit for
the years shown:
Cumulative losses, beginning of year ........................................................... $
Loss on pension annuity purchases (see note 18(a)) .....................................
Actuarial losses (gains) recognized during the year (i)
Cumulative losses, end of year (ii)
................................................................. $
..................................
Year ended December 31
2020
2019
2021
69.0 $
77.7 $
—
8.7
0.2
9.1
77.7 $
87.0 $
87.0
—
(9.3)
77.7
(i)
(ii)
Net of income tax expense of nil for 2021 (2020 — net of $0.4 income tax recovery; 2019 — net of $0.3 income tax recovery).
Net of income tax recovery of $1.5 as at December 31, 2021 (December 31, 2020 — net of $1.5 income tax recovery;
December 31, 2019 — net of $1.1 income tax recovery).
The following percentages and assumptions were used in measuring the plans for the years indicated:
Pension Plans
2020
2021
2019
Other Benefit Plans
2020
2021
2019
Weighted average discount rate at December 31 (i) for:
Benefit obligations ..........................................................
Net pension cost ..............................................................
Weighted average rate of compensation increase for: .........
Benefit obligations ..........................................................
Net pension cost ..............................................................
Healthcare cost trend rates: ..................................................
Immediate trend ...............................................................
Ultimate trend ..................................................................
Year the ultimate trend rate is expected to be achieved ..
2.1
2.9
3.8
4.1
—
—
—
1.4
2.1
1.1
3.8
—
—
—
1.8
1.4
1.1
1.1
—
—
—
2.9
3.8
4.6
4.2
5.3
4.0
2.5
2.9
4.6
4.6
5.3
4.0
3.2
2.5
4.6
4.6
5.2
4.0
2040
2040
2040
(i)
The weighted average discount rate is determined using publicly available rates for highly-rated bonds by currency in countries
where we have a pension or non-pension benefit plan. A lower discount rate would increase the present value of the benefit
obligation.
F-45
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
We evaluate these assumptions on a regular basis taking into consideration current market conditions and historical
market data. Actual results could differ materially from those estimates and assumptions.
A one percentage-point increase or decrease in one of the following actuarial assumptions, holding other
assumptions constant in each case, would increase (decrease) our benefit obligations as follows:
Pension Plans
Year ended
December 31, 2021
Other Benefit Plans
Year ended
December 31, 2021
1% Increase
1% Decrease
1% Increase
1% Decrease
Discount rate ...................................................................................... $
Healthcare cost trend rate ................................................................. $
(58.4) $
76.1 $
— $
— $
(9.8) $
7.2 $
11.9
(5.9)
The sensitivity figures shown above were calculated by determining the change in our benefit obligations as at
December 31, 2021 due to a 100 basis point increase or decrease to each of our significant actuarial assumptions used,
specifically the discount rate and healthcare cost trend rate, in isolation, leaving all other assumptions unchanged from the
original calculation.
(c) Plan contributions:
We made the following plan contributions for the years indicated below and estimate our contribution for 2022 to be
as follows:
Year ended December 31
2019
2020
2021
Estimated
Contribution*
2022
Defined contribution plan ................................................................. $
10.1 $
10.6 $
11.6 $
Defined benefit plan .........................................................................
3.7
5.1
6.1
Total .................................................................................................. $
13.8 $
15.7 $
17.7 $
Non-pension post-employment benefit plans (i)
................................ $
9.1 $
7.8 $
3.6 $
11.6
2.9
14.5
4.9
*
(i)
Our actual contributions could differ materially from these estimates.
Contributions for 2019 and 2020 include higher settlement payments than in 2021 as a result of higher employee terminations in
connection with our restructuring actions during such years. See note 15(a).
F-46
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
19.
INCOME TAXES
Current income tax expense:
Year ended December 31
2020
2019
2021
Current year (i)
......................................................................................... $
35.1 $
38.9 $
44.3
Adjustments for prior years, including changes to net provisions
related to tax uncertainties (ii) ...............................................................
Deferred income tax expense (recovery):
Origination and reversal of temporary differences (i) (iii) (iv)
Changes in previously unrecognized tax losses and deductible
temporary differences, including adjustments for prior years (iv)
.....................
.........
(12.3)
22.8
(6.0)
32.9
15.4
10.1
(8.7)
6.7
(13.4)
(3.3)
Income tax expense .................................................................................... $
29.5 $
29.6 $
(3.4)
40.9
1.3
(10.1)
(8.8)
32.1
A reconciliation of income taxes calculated at the statutory income tax rate to the income tax expense at the effective
tax rate is as follows:
Year ended December 31
2020
2019
2021
Earnings before income taxes ..................................................................... $
Income tax expense at Celestica’s statutory income tax rate of 26.5%
(2019 - 2021) ......................................................................................... $
99.8 $
90.2 $
136.0
26.4 $
23.9 $
36.1
Impact on income taxes from:
Foreign income taxed at different rates ..................................................
Foreign exchange ...................................................................................
Other, including non-taxable/non-deductible items and changes to net
......................................
provisions related to tax uncertainties (i) (ii) (iv)
Change in tax rates (iii)
Change in unrecognized tax losses and deductible temporary
............................................................................
differences (iv)
.......................................................................................
Income tax expense .................................................................................... $
(6.7)
5.0
(5.8)
(0.8)
(16.3)
(8.6)
25.0
—
11.4
29.5 $
5.6
29.6 $
(16.9)
1.2
8.2
(7.6)
11.1
32.1
(i)
(ii)
(iii)
These line items for 2021 in the two tables above include a deferred tax expense of $6.0 related to taxable temporary differences
associated with the anticipated repatriation of undistributed earnings (Repatriation Expense) from certain of our Chinese
subsidiaries. These line items for 2020 in the two tables above include a $16.5 Repatriation Expense related to certain of our
Chinese and Thai subsidiaries ($7.2 of which was realized as a current tax expense for withholding tax on dividends paid in
2021), and current tax expense of $1.8 for withholding tax on dividends paid in 2020. These items for 2019 in the two tables
above include a $6.0 Repatriation Expense related to certain of our Chinese and Thai subsidiaries, which was realized as a current
tax expense for withholding tax on dividends paid in 2020.
These line items for 2019, 2020 and 2021 in the two tables above include tax benefits related to return-to-provision adjustments
for changes in estimates related to prior years based on changes in facts or circumstances (RTP Adjustments), and net
adjustments for tax liabilities and uncertainties (discussed below).
This line item for 2021 in the table above relates to a deferred tax recovery recorded in connection with the revaluation of certain
temporary differences using the future effective tax rate of our Thailand subsidiary in connection with the transition from a 100%
income tax exemption to a 50% exemption in 2022 under an applicable tax incentive (Revaluation Impact). See the discussion of
tax incentives below.
(iv)
These line items for 2019 in the two tables above include the tax expense related to the taxable portion of the Property Gain and
the recognition of offsetting previously-unrecognized tax losses (discussed below).
F-47
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
Our effective income tax rate can vary significantly period-to-period for various reasons, including as a result of the
mix and volume of business in various tax jurisdictions within the Americas, Europe and Asia, in jurisdictions with tax
holidays and tax incentives, and in jurisdictions for which no net deferred income tax assets have been recognized because
management believes it is not probable that future taxable profit will be available against which tax losses and deductible
temporary differences could be utilized. Our effective income tax rate can also vary due to the impact of restructuring
charges, foreign exchange fluctuations, operating losses, cash repatriations, and changes in our provisions related to tax
uncertainties.
During 2021, we recorded net income tax expense of $32.1, which included a $7.6 Revaluation Impact, largely
offset by a $6.0 Repatriation Expense related to certain of our Chinese subsidiaries. Taxable foreign exchange impacts
(Currency Impacts) were not significant in 2021.
During 2020, we recorded a net income tax expense of $29.6, which included $18.3 of tax expenses relating to
current and future withholding taxes associated with repatriations of undistributed earnings from certain of our Chinese and
Thai subsidiaries that occurred in 2020 or were then-anticipated to occur in the foreseeable future, offset in large part by the
following favorable impacts: (i) $4.1 in RTP Adjustments, (ii) the recognition of $2.6 of previously unrecognized deferred
tax assets of our Japanese subsidiary, (iii) $5.1 in favorable Currency Impacts arising primarily from the strengthening of the
Chinese renminbi relative to the U.S. dollar (our functional currency), and (iv) a $5.7 reversal of tax uncertainties in certain
of our Asian subsidiaries in Q1 2020.
During 2019, we recorded a net income tax expense of $29.5, which was favorably impacted by $6.4 in tax benefits
arising from RTP Adjustments, and an aggregate of $4.5 in reversals of certain previously-recorded tax liabilities and
uncertainties, offset in part by $6.0 in withholding taxes associated with the then-anticipated repatriations of undistributed
earnings with respect to certain of our Chinese and Thai subsidiaries. While our net income tax expense included Currency
Impacts from fluctuations in foreign currencies relative to the U.S. dollar during each quarter of 2019, overall net Currency
Impacts for 2019 were not significant. In connection with the sale of our Toronto real property, there was no net tax impact
(see note 15(c)), as the deferred tax expense of $5.7 was offset by the recognition of previously unrecognized tax losses.
Changes in deferred tax assets and liabilities for the periods indicated are as follows:
F-48
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
Unrealized
foreign
exchange
gains
Accounting
provisions
not
currently
deductible
Pensions
and
non-pension
post-
retirement
benefits
Tax
losses
carried
forward
Property,
plant and
equipment
and
intangibles Other
Reclassification
between
deferred tax
assets and
deferred tax
liabilities(i)
Total
$
— $
9.6 $
(0.2) $
62.9 $
— $ 11.4 $
(50.1) $ 33.6
—
—
—
—
—
—
—
—
—
—
0.9
—
—
—
10.5
7.2
—
0.1
(0.1)
—
0.4
0.6
(0.1)
—
0.7
2.1
—
—
—
—
8.6
(0.3)
1.0
—
72.2
(3.2)
—
—
0.2
—
—
—
—
—
—
—
—
(11.4)
—
—
—
—
—
—
—
2.7
1.1
1.0
(0.5)
(3.1)
—
—
—
6.6
9.9
0.3
0.9
(4.8)
(43.5)
39.9
—
—
—
—
0.3
8.8
1.1
1.1
(0.4)
(2.8)
$
$
— $
17.7 $
2.8 $
69.2 $
— $ 1.2 $
(43.2) $ 47.7
26.4 $
— $
— $
— $
52.1 $ — $
(50.1) $ 28.4
(0.2)
—
1.0
—
27.2
(0.2)
—
0.2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6.7)
13.5
—
0.1
0.8
0.2
—
(11.4)
45.5
3.1
0.2
—
30.7
—
(0.2)
—
—
(3.1)
—
—
—
6.6
6.6
0.8
1.3
(4.8)
(43.5)
32.3
—
—
—
30.7
—
—
0.3
(2.8)
Deferred tax assets:
Balance — January 1, 2020 .............
Credited to net earnings .................
Credited (charged) directly to
equity ..........................................
Effects of foreign exchange ...........
Other ...............................................
Balance — December 31, 2020 .......
Credited (charged) to net earnings .
Credited directly to equity ..............
Additions from business
combinations ...............................
Effects of foreign exchange ...........
Other ...............................................
Balance — December 31, 2021
Deferred tax liabilities:
Balance — January 1, 2020 .............
Charged (credited) to net earnings .
Charged directly to equity ..............
Effects of foreign exchange ...........
Other ...............................................
Balance — December 31, 2020 .......
Charged (credited) to net earnings .
Additions from business
combinations ...............................
Effects of foreign exchange ...........
Other ...............................................
Balance — December 31, 2021 .......
$
27.2 $
— $
— $
— $
76.2 $ — $
(43.2) $ 60.2
(i)
This reclassification reflects the offsetting of deferred tax assets and deferred tax liabilities to the extent they relate to the same taxing authorities
and there is a legally enforceable right to such offset.
The amount of deductible temporary differences and unused tax losses for which no deferred tax assets have been
recognized at December 31, 2021 was $1,764.1 (December 31, 2020 — $1,721.9). We have not recognized deferred tax
assets in respect of these items because, based on management’s estimates, it is not probable that future taxable profit will be
available against which we can utilize the benefits. A portion of our unused tax losses expires between 2022 and 2041 and a
portion can be carried forward indefinitely. Deductible temporary differences do not expire under current applicable tax
legislation.
The aggregate amount of temporary differences associated with investments in subsidiaries for which we have not
recognized deferred tax liabilities is $10.4 (December 31, 2020 — $1.1). As of December 31, 2021, we recorded aggregate
net deferred tax assets of $4.9 for one of our Asian subsidiaries which realized losses in 2021, and for our U.S. group of
subsidiaries which realized losses in 2019, 2020, and 2021. As of December 31, 2020, we recorded aggregate net deferred tax
assets of $8.3 for one of our Asian subsidiaries which realized losses in 2020, another Asian subsidiary which realized losses
in 2019, and for our U.S. group of subsidiaries which realized losses in 2019 and 2020. As of December 31, 2019, we
recorded aggregate net deferred tax assets of $6.8 for one of our Asian subsidiaries which realized losses in 2019 and for our
U.S. group of subsidiaries which realized losses in 2018 and 2019. We recognize deferred tax assets based on our estimate of
the future taxable profit we expect these subsidiaries to achieve based on our review of financial projections.
F-49
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
Certain countries in which we do business grant tax incentives to attract or retain our business. Our tax expense
could increase significantly if certain tax incentives from which we benefit are retracted. A retraction could occur if we fail to
satisfy the conditions on which these tax incentives are based, or if they are not renewed or replaced upon expiration. Our tax
expense could also increase if tax rates applicable to us in such jurisdictions are otherwise increased, or due to changes in
legislation or administrative practices. Changes in our outlook in any particular country could impact our ability to meet
the required conditions.
Our tax incentives currently consist of tax exemptions for the profits of, and for dividend withholding taxes for, our
Thailand and Laos subsidiaries. These tax exemptions are subject to certain conditions with which we intend to comply, and
expire as described below.
We have two income tax incentives in Thailand (one of our previous Thailand tax incentives expired in Q4 2019,
and another expired in Q3 2020). One of our remaining incentives initially allows for a 100% income tax exemption
(including distribution taxes), and after eight years transitions to a 50% income tax exemption for the next five years
(excluding distribution taxes). This incentive will transition to the 50% exemption in January 2022 and will expire in 2027.
The impact of this transition is discussed above (see the Revaluation Impact described in footnote (iii) to the income tax rate
to expense reconciliation table above). The second incentive, approved in Q4 2019, allows for a 100% income tax exemption
(including distribution taxes) for eight years, and expires in 2028. Upon full expiry of each of the incentives, taxable profits
associated therewith become fully taxable. Our tax incentive in Laos allows for a 100% income tax exemption (including
distribution taxes) until 2025, and a reduced income tax rate thereafter. The aggregate tax benefit arising from all of our tax
incentives was approximately $15 for 2021 (2020 — $10; 2019 — $1.5).
We received an approval from the Malaysian authorities in Q4 2020 for an income tax incentive for one of our
Malaysian subsidiaries, which provides for a 50% income tax exemption for a period of five years for certain product sets
manufactured by such subsidiary. At the end of 2021, the commencement date of this incentive had yet to be determined by
the Malaysian authorities. Although a significant portion of this incentive may be retroactively applicable to past periods, we
cannot assure that this will be the case. Due to uncertainty of the period for which this incentive applies, we cannot currently
quantify the applicable benefit.
See note 24 for contingencies regarding a Brazilian sales tax matter and a Romanian income and value-added tax
matter.
20.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:
Our financial assets are comprised primarily of cash and cash equivalents, A/R, and derivatives used for hedging
purposes. Our financial liabilities are comprised primarily of A/P, certain accrued and other liabilities, the Term Loans,
borrowings under the Revolver, lease obligations, and derivatives. Subsequent to initial recognition, we record the majority of
our financial assets and liabilities at amortized cost except for derivative assets and liabilities, which we measure at fair value.
Cash and cash equivalents are comprised of the following:
Cash ....................................................................................................................................... $
Cash equivalents .....................................................................................................................
447.0 $
16.8
$
463.8 $
384.4
9.6
394.0
Our current portfolio of cash equivalents consists of bank deposits. The majority of our cash and cash equivalents
are held with financial institutions each of which had at December 31, 2021 a Standard and Poor’s short-term rating of A-1 or
above.
December 31
2020
2021
F-50
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
Financial risk management objectives:
We have exposures to a variety of financial risks through our operations. We regularly monitor these risks and have
established policies and business practices to mitigate the adverse effects of these potential exposures. We have used
derivative financial instruments, such as foreign currency forward and swap contracts, as well as interest rate swap
agreements, to reduce the effects of some of these risks. We do not enter into or trade financial instruments, including
derivative financial instruments, for speculative purposes.
(a)
Currency risk:
Due to the global nature of our operations, we are exposed to exchange rate fluctuations on our financial instruments
denominated in various currencies. The majority of our currency risk is driven by operational costs, including income tax
expense, incurred in local currencies by our subsidiaries. As part of our risk management program, we attempt to mitigate
currency risk through a hedging program using forecasts of our anticipated future cash flows and monetary assets and
monetary liabilities denominated in foreign currencies. We enter into foreign currency forward contracts and swaps, generally
for periods of up to 12 months, to lock in the exchange rates for future foreign currency transactions, which are intended to
reduce the foreign currency risk related to our operating costs and future cash flows denominated in local currencies. While
these contracts are intended to reduce the effects of fluctuations in foreign currency exchange rates on our operating costs and
cash flows, our hedging strategy does not mitigate the longer-term impacts of changes to foreign exchange rates. Although
our functional currency is the U.S. dollar, currency risk on our income tax expense arises as we are generally required to file
our tax returns in the local currency for each particular country in which we have operations. While our hedging program is
designed to mitigate currency risk vis-à-vis the U.S. dollar, we remain subject to taxable foreign exchange impacts in our
translated local currency financial results relevant for tax reporting purposes.
We cannot predict changes in currency exchange rates, the impact of exchange rate changes on our operating results,
nor the degree to which we will be able to manage the impact of currency exchange rate changes. Such changes, including
negative impacts on currency exchange rates related to the COVID-19 pandemic, could have a material effect on our
business, financial performance and financial condition.
Our major currency exposures at December 31, 2021 are summarized in U.S. dollar equivalents in the following
table. The local currency amounts have been converted to U.S. dollar equivalents using spot rates at December 31, 2021.
Cash and cash equivalents .......................................................... $
A/R .............................................................................................
Income taxes and value-added taxes receivable .........................
Other financial assets .................................................................
Pension and non-pension post-employment liabilities ...............
Income taxes and value-added taxes payable .............................
A/P and certain accrued and other liabilities and provisions .....
(88.7)
Net financial assets (liabilities) .................................................. $ (149.2) $
3.6 $
7.8
14.1
—
(84.8)
(1.2)
Foreign currency risk sensitivity analysis:
Canadian
dollar
Euro
Thai baht
Chinese
renminbi
16.9
19.6
6.5
0.6
(1.2)
(14.2)
0.8 $
—
10.5
0.5
(19.7)
(5.9)
Malaysian
ringgit
$
3.4
8.4
4.4
1.6
—
(0.4)
9.2 $
39.3
1.0
2.0
(0.6)
(0.3)
(39.2)
(32.5)
(56.7)
(28.7)
11.4 $
(46.3) $
(28.5) $
(11.3)
The financial impact of a one-percentage point strengthening or weakening of the following currencies against the
U.S. dollar for our financial instruments denominated in such non-functional currencies is summarized in the following table
as at December 31, 2021. The financial instruments impacted by a change in exchange rates include our exposures to the
above financial assets or liabilities denominated in non-functional currencies and our foreign exchange forward contracts and
swaps.
F-51
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
Canadian
dollar
Euro
Thai baht
Increase (decrease)
Chinese
renminbi
Malaysian
ringgit
1% Strengthening
Net earnings ................................................................... $
OCI ................................................................................ $
1% Weakening
(0.6) $
— $
(0.1) $
(0.2) $
1.1 $
(0.1) $
0.8 $
0.4
$
Net earnings ................................................................... $
OCI ................................................................................ $
0.6 $
(1.0) $
— $
0.1 $
0.1 $
0.2
$
(0.7) $
(0.4) $
(0.1)
0.5
0.1
(0.4)
(b)
Interest rate risk:
Borrowings under the Credit Facility bear interest at specified rates, plus specified margins. See note 11. Our
borrowings under this facility at December 31, 2021 totaled $660.4 (December 31, 2020 — $470.4), comprised of an
aggregate of $660.4 under the Term Loans (December 31, 2020 — $470.4 under the Initial Term Loan and the First
Incremental Term Loan), and other than ordinary course letters of credit (described below), no amounts outstanding under the
Revolver (December 31, 2020 — other than ordinary course letters of credit, no amounts outstanding under the Revolver).
Such borrowings expose us to interest rate risk due to the potential variability of market interest rates. Without accounting for
the interest rate swaps described below, a one-percentage point increase in these rates would increase interest expense, based
on outstanding borrowings of $660.4 as at December 31, 2021, by $6.6 annually.
As part of our risk management program, we attempt to mitigate interest rate risk through interest rate swaps. In
order to partially hedge against our exposure to interest rate variability on our Term Loans, we have entered into various
agreements with third-party banks to swap the variable interest rate (based on LIBOR plus a margin) with a fixed rate of
interest for a portion of the borrowings under our Term Loans. At December 31, 2021, we had: (i) interest rate swaps hedging
the interest rate risk associated with $100.0 of our Initial Term Loan borrowings that expire in August 2023, reflecting our
exercise of a partial cancellation option in September 2021, as described below (Initial Swaps), and additional interest rate
swaps hedging the interest rate risk associated with $100.0 of our Initial Term Loan borrowings, for which the cash flows
commence upon the expiration of the Initial Swaps and continue through June 2024 (First Extended Initial Swaps) and (ii)
interest rate swaps hedging the interest rate risk associated with $100.0 of our Second Incremental Term Loan borrowings,
which expire in December 2023 (Incremental Swaps). Prior to repayment in full of the First Incremental Term Loan on
December 6, 2021 (see note 11), we had interest rate swaps hedging the interest rate risk associated with $100.0 of
outstanding borrowings thereunder, which were scheduled to expire in December 2023 (reflecting our exercise of a partial
cancellation option in December 2020, as described below). As the First Incremental Term Loan and the Second Incremental
Term Loan have the same interest rate risk, these interest rate swaps continued, and now cover $100.0 of outstanding
borrowings under the Second Incremental Term Loan. In December 2020, we exercised an option to cancel $75.0 of the
notional amount of interest rate swaps covering the First Incremental Term Loan (increasing the unhedged amount under the
First Incremental Term Loan by a corresponding amount, and leaving $100.0 of notional amount in place for outstanding
borrowings under the First Incremental Term Loan). In September 2021, we exercised an option to cancel $75.0 of the
notional amount of the Initial Swaps (increasing the unhedged amount under the Initial Term Loan by a corresponding
amount, and leaving $100.0 of notional amount in place for outstanding borrowings under the Initial Term Loan). The
cancelled portion of the interest rate swaps covering the First Incremental Term Loan and the Initial Term Loan were
remeasured to their fair value on the date of cancellation and as a result, no gain or loss was incurred upon cancellation. The
terms of the interest rate swap agreements with respect to the floating market rate and the interest payment dates match that
of the underlying debt, such that any hedge ineffectiveness is not expected to be significant. At December 31, 2021, the
interest rate risk related to $460.4 of borrowings under the Credit Facility was unhedged, consisting of unhedged amounts
outstanding under the Term Loans ($195.4 under the Initial Term Loan and $265.0 under the Second Incremental Term
Loan), and no amounts outstanding (other than ordinary course letters of credit) under the Revolver (December 31, 2020 —
$195.4, consisting of $120.4 under the Initial Term Loan and $75.0 under the First Incremental Term Loan, and no amounts
outstanding (other than ordinary course letters of credit) under the Revolver). A one-percentage point increase in applicable
interest rates would increase interest expense, based on the outstanding borrowings under the Credit Facility at December 31,
2021, and including the impact of our interest rate swap agreements, by $4.6 annually.
F-52
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
In February 2022, we entered into the following additional interest rate swaps with various third-party banks: (i)
interest rate swaps hedging the interest rate risk associated with $100.0 of our Initial Term Loan borrowings (and any
subsequent term loans replacing the Initial Term Loans), for which the cash flows commence upon expiration of the First
Extended Initial Swaps and continue through December 2025, (ii) interest rate swaps hedging the interest rate risk associated
with $100.0 of our Second Incremental Term Loan borrowings, for which the cash flows commence upon expiration of the
Incremental Swaps and continue through December 2025, and (iii) interest rate swaps hedging the interest rate risk associated
with another $130.0 of our Second Incremental Term Loan borrowings (Additional Incremental Swaps) effective from
February 2022 through December 2025. We have an option to cancel up to $50.0 of the notional amount of the Additional
Incremental Swaps from January 2024 through October 2025.
We obtain third-party valuations of the swaps under the interest rate swap agreements. The valuations of the swaps
are primarily measured through various pricing models or discounted cash flow analyses that incorporate observable market
parameters, such as interest rate yield curves and volatility, and credit risk adjustments. The valuations of the interest rate
swaps are measured primarily based on Level 2 data inputs of the fair value measurement hierarchy. The unrealized portion
of the change in fair value of the swaps is recorded in OCI. The realized portion of the change in fair value of the swaps is
released from accumulated OCI and recognized under finance costs in our consolidated statement of operations in the
respective interest payment periods. At December 31, 2021, the fair value of our interest rate swap agreements was a net
unrealized loss of $6.9, consisting of aggregate unrealized gains of $0.5 for certain of our swaps, which we recorded in other
non-current assets, and aggregate unrealized losses of $7.4 on the remainder (December 31, 2020 — aggregate unrealized
loss of $16.5 (no unrealized gains)), which we recorded in other non-current liabilities on our consolidated balance sheet. As
we have swapped $200.0 of our borrowings under the Term Loans from floating to fixed rates as at December 31, 2021, the
financial impact of a 25 basis point increase in the floating market interest rate would decrease the net unrealized loss by $1.0
and a 25 basis point decrease in the floating interest rate would increase our unrealized loss on the interest rate swaps by $1.0.
Global reform of major interest rate benchmarks is currently underway, including the anticipated replacement of
some IBORs (including LIBOR) with alternative nearly risk-free rates. See note 2, "Recently issued accounting standards
and amendments." We have obligations under our Credit Facility, certain lease arrangements and derivative instruments, that
are indexed to LIBOR (LIBOR Agreements). The interest rates under these agreements are subject to change when relevant
LIBOR benchmark rates cease to exist. There remains uncertainty over the timing and methods of transition to such alternate
rates.
Our Credit Facility provides that when the administrative agent, the majority of lenders or we determine that LIBOR
(or the corresponding rate for any Alternative Currency, as defined in the Credit Facility), is unavailable or being replaced
(or, in the case of LIBOR borrowings under the Revolver and the Second Incremental Term Loan, at our joint election with
the administrative agent), then we and the administrative agent may amend the underlying credit agreement to reflect a
successor rate as specified therein. Once LIBOR becomes unavailable and if no successor rate has been established,
applicable loans under the Credit Facility accruing interest at LIBOR will convert to Base Rate loans. The Credit Facility has
not yet been amended to reflect a successor rate for LIBOR. Certain of our lease arrangements that include progress payments
provide that a successor rate will be determined by the lessor when LIBOR ceases to be available or is no longer
representative, or if earlier, by mutually-agreed amendments to the lease agreements to adopt a replacement benchmark. It
remains uncertain when the benchmark transitions will be complete or what replacement rates will be used.
Our variable rate Term Loans are partially hedged with interest rate swap agreements (as of December 31, 2021 —
30% hedged with an aggregate notional amount of $200.0). Hedge ineffectiveness could result due to the cessation of
LIBOR, if such agreements transition using a different benchmark or spread adjustment as compared to the underlying
hedged debt. As of December 31, 2021, we are in the process of negotiating a successor rate to LIBOR with one of the two
counterparty banks under the Incremental Swaps (with a notional amount of $50.0), to ensure that such agreements mirror the
LIBOR successor provisions under the Credit Facility. However, we cannot assure the outcome of these negotiations, or what
the LIBOR successor provisions will be. We have not begun the process to amend relevant LIBOR provisions with the other
counterparty bank, or with the counterparty banks under the Initial Swaps and the First Extended Initial Swaps. As a result,
we cannot assure that benchmark transitions under our interest rate swap agreements will be successful, or if so, what
replacement rates will be used.
Our A/R sales program and three customers SFPs have transitioned to alternative benchmark rates with
predetermined spreads, with no significant impact on our consolidated financial statements for the year ended December 31,
2021.
F-53
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
While we expect that reasonable alternatives to LIBOR benchmarks will be implemented in advance of their
cessation dates, we cannot assure that this will be the case. If LIBOR is no longer available and the alternative reference rate
is higher, interest rates under the affected LIBOR Agreements would increase, which would adversely impact our interest
expense, our financial performance and cash flows. We will continue to monitor developments with respect to the cessation
of LIBOR and the selection of alternative benchmark rates, and evaluate potential impacts on our LIBOR Agreements,
processes, systems, risk management methodology and valuations, financial reporting, taxes, and financial results. However,
we are currently unable to predict what the future replacement rate or consequences on our operations or financial results will
be.
(c)
Credit risk:
Credit risk refers to the risk that a counterparty may default on its contractual obligations resulting in a financial loss
to us. We believe our credit risk of counterparty non-performance continues to be relatively low. We are in regular contact
with our customers, suppliers and logistics providers, and have not experienced significant counterparty credit-related non-
performance. However, if a key supplier (or any company within such supplier's supply chain) or customer fails to comply
with their contractual obligations, this could result in a significant financial loss to us. We would also suffer a significant
financial loss if an institution from which we purchased foreign currency exchange contracts or swaps, interest rate swaps, or
annuities for our pension plans defaults on their contractual obligations. With respect to our financial market activities, we
have adopted a policy of dealing only with credit-worthy counterparties to help mitigate the risk of financial loss from
defaults. We monitor the credit risk of the counterparties with whom we conduct business, through a combined process of
credit rating reviews and portfolio reviews. To attempt to mitigate the risk of financial loss from defaults under our foreign
currency forward contracts and swaps, and our interest rate swaps, our contracts are held by counterparty financial
institutions, each of which had a Standard and Poor’s rating of A-2 or above at December 31, 2021. In addition, we maintain
cash and short-term investments in highly-rated investments or on deposit with major financial institutions. Each financial
institution with which we had our A/R sales program and our SFPs had a Standard and Poor’s short-term rating of A-2 or
above and a long-term rating of A- or above at December 31, 2021. The financial institutions from which annuities have been
purchased for the defined benefit component of our U.K. Main pension plan are governed by local regulatory bodies.
We also provide unsecured credit to our customers in the normal course of business. Customer exposures that
potentially subject us to credit risk include our A/R, inventory on hand, and non-cancellable purchase orders in support of
customer demand. From time to time, we extend the payment terms applicable to certain customers, and/or provide longer
payment terms when deemed commercially reasonable. Longer payment terms could adversely impact our working capital
requirements, and increase our financial exposure and credit risk. We attempt to mitigate customer credit risk by monitoring
our customers’ financial condition and performing ongoing credit evaluations as appropriate. In certain instances, we obtain
letters of credit or other forms of security from our customers. We may also purchase credit insurance from a financial
institution to reduce our credit exposure to certain customers. We consider credit risk in determining our allowance for
doubtful accounts, and we believe that such allowance, as adjusted from time to time, is adequate. The carrying amount of
financial assets recorded in our consolidated financial statements, net of our allowance for doubtful accounts, represents our
estimate of maximum exposure to credit risk. In light of COVID-19, we assessed the financial stability and liquidity of our
customers in Q1 2020. We also enhanced the monitoring of, and/or developed plans intended to mitigate, the limited number
of identified exposures in Q1 2020, which enhancements and plans remain in effect. No significant adjustments were made to
our allowance for doubtful accounts during 2021 in connection with our ongoing assessments and monitoring initiatives. At
December 31, 2021, less than 2% of our gross A/R was over 90 days past due (December 31, 2020 — 1%). A/R are net of an
allowance for doubtful accounts of $5.7 at December 31, 2021 (December 31, 2020 — $5.0).
(d)
Liquidity risk:
Liquidity risk is the risk that we may not have cash available to satisfy our financial obligations as they come due.
The majority of our financial liabilities recorded in accounts payable, accrued and other current liabilities and provisions are
due within 90 days. We manage liquidity risk through maintenance of cash on hand and access to the various financing
arrangements described in notes 4 and 11. We believe that cash flow from operating activities, together with cash on hand,
cash from accepted sales of A/R, and borrowings available under the Revolver and potentially available under uncommitted
intraday and overnight bank overdraft facilities, are sufficient to fund our currently anticipated financial obligations, and will
remain available in the current environment. As our A/R sales program and SFPs are each uncommitted, there can be no
assurance that any participant bank will purchase any of the A/R that we wish to sell.
F-54
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
Fair values:
We estimate the fair value of each class of financial instrument. The carrying values of cash and cash equivalents,
our A/R, A/P, accrued liabilities and provisions, and our borrowings under the Revolver approximate their fair values due to
their short-term nature. The carrying value of the Term Loans approximates their fair value as they bear interest at a variable
market rate. The fair values of foreign currency contracts are estimated using generally accepted valuation models based on a
discounted cash flow analysis with inputs of observable market data, including currency rates and discount factors. Discount
factors are adjusted by our own credit risk or the credit risk of the counterparty, depending on whether the fair values are in
liability or asset positions, respectively. We obtained third-party valuations of the swaps under our interest rate swap
agreements. The valuations of the swaps are primarily measured through various pricing models or discounted cash flow
analyses that incorporate observable market parameters, such as interest rate yield curves and volatility, and credit risk
adjustments, and are based on Level 2 data inputs of the fair value measurement hierarchy (described below).
Fair value measurements:
In the table below, we have segregated our financial assets and liabilities that are measured at fair value, based on
the inputs used to determine fair value at the measurement date. The three levels within the fair value hierarchy, based on the
reliability of inputs, are as follows:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or
liability either directly (i.e. prices) or indirectly (i.e. derived from prices); and
• Level 3 inputs are inputs for the asset or liability that are not based on observable market data (i.e. unobservable
inputs).
December 31, 2020
December 31, 2021
Level 1
Level 2
Level 1
Level 2
Assets:
Interest rate swaps ........................................................................ $
Foreign currency forwards and swaps ..........................................
$
Liabilities:
Interest rate swaps ........................................................................ $
Foreign currency forwards and swaps ..........................................
— $
—
— $
—
$
29.4
29.4
$
— $
—
— $
0.5
7.4
7.9
— $
(16.5) $
—
(6.1)
— $
—
(7.4)
(6.2)
$
— $
(22.6) $
— $
(13.6)
See note 18 for the input levels used to measure the fair value of our pension assets. Foreign currency forward and
swap contracts are valued using an income approach, by comparing the current quoted market forward rates to our contract
rates and discounting the values with appropriate market observable credit risk adjusted rates. We have not valued any of the
financial instruments described in the table above using Level 3 (unobservable) inputs. There were no transfers of fair value
measurements between Level 1 and Level 2 of the fair value hierarchy in 2021 or 2020.
Currency derivatives and hedging activities:
We enter into foreign currency forward contracts and foreign currency swaps to hedge our foreign currency risk
related to anticipated future cash flows, monetary assets and monetary liabilities denominated in foreign currencies. At
December 31, 2021 and 2020, we had foreign currency forwards and swaps to trade U.S. dollars in exchange for the
following currencies:
F-55
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
As at December 31, 2021
Currency
Canadian dollar ............................................................................. $
Thai baht .......................................................................................
Malaysian ringgit ..........................................................................
Mexican peso ................................................................................
Chinese renminbi ..........................................................................
Euro ..............................................................................................
Romanian leu ................................................................................
Singapore dollar ............................................................................
Japanese yen .................................................................................
Korean won ..................................................................................
Total (ii).......................................................................................... $
Contract amount
of U.S. dollars
Weighted average
exchange rate
in U.S. dollars (i)
Maximum
period in
months
Fair value
gain/(loss)
195.5
109.9
48.8
23.5
55.2
20.6
40.6
27.8
11.6
6.0
539.5
0.79
0.03
0.24
0.05
0.15
1.14
0.23
0.74
0.0088
0.0008
12
12
12
12
12
4
12
12
4
4
$
$
0.6
(1.0)
0.2
0.2
1.2
0.6
(1.1)
—
0.5
—
1.2
As at December 31, 2020
Currency
Canadian dollar ............................................................................. $
Thai baht .......................................................................................
Malaysian ringgit ..........................................................................
Mexican peso ................................................................................
British pound ................................................................................
Chinese renminbi ..........................................................................
Euro ..............................................................................................
Romanian leu ................................................................................
Singapore dollar ............................................................................
Japanese yen .................................................................................
Korean won ..................................................................................
Total (ii).......................................................................................... $
Contract amount
of U.S. dollars
Weighted average
exchange rate
in U.S. dollars (i)
Maximum
period in
months
230.8
107.7
48.7
20.1
0.8
44.0
39.5
28.6
27.5
8.0
6.9
562.6
0.76
0.03
0.24
0.05
1.33
0.15
1.21
0.23
0.73
0.01
0.0009
12
12
12
12
4
12
10
12
12
4
1
Fair value
gain/(loss)
$
11.7
4.7
1.6
1.6
0.1
2.8
(1.5)
2.0
1.0
(0.2)
(0.5)
23.3
$
(i)
(ii)
Represents the U.S. dollar equivalent (not in millions) of one unit of the foreign currency, weighted based on the notional
amounts of the underlying foreign currency forward and swap contracts outstanding as at December 31, 2021.
As of December 31, 2021, the fair value of outstanding foreign currency forward and swap contracts related to effective cash
flow hedges where we applied hedge accounting was a loss of $2.2 (December 31, 2020 — gain of $14.5), and the fair value of
outstanding foreign currency forward and swap contracts related to economic hedges where we record the changes in the fair
values of such contracts through our consolidated statement of operations was a gain of $3.4 (December 31, 2020 — gain of
$8.8).
At December 31, 2021, the fair value of our outstanding contracts was a net unrealized gain of $1.2 (December 31,
2020 — net unrealized gain of $23.3), resulting from fluctuations in foreign exchange rates between the contract execution
and the period-end date. Changes in the fair value of hedging derivatives to which we apply cash flow hedge accounting, to
the extent effective, are deferred in accumulated OCI until the expenses or items being hedged are recognized in our
consolidated statement of operations. Any hedge ineffectiveness, which at December 31, 2021 was not significant, is
recognized immediately in our consolidated statement of operations. At December 31, 2021, we recorded $7.4 of derivative
assets in other current assets and $6.2 of derivative liabilities in accrued and other current liabilities (December 31, 2020 —
$29.4 of derivative assets in other current assets and $6.1 of derivative liabilities in accrued and other current liabilities).
Certain foreign currency forward and swap contracts to trade U.S. dollars do not qualify as hedges, most significantly certain
Canadian dollar contracts, and we mark these contracts to market each period in our consolidated statement of operations. See
note 2(p).
F-56
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
21.
CAPITAL DISCLOSURES:
Our main objectives in managing our capital resources are to ensure liquidity and to have funds available for
working capital or other investments we determine are required to grow our business. Our capital resources consist of cash
provided by operating activities, access to the Revolver, uncommitted intraday and overnight bank overdraft facilities, an
uncommitted A/R sales program and SFPs, and our ability to issue debt or equity securities.
We regularly review our borrowing capacity and make adjustments, as permitted, for changes in economic
conditions and changes in our requirements. See note 11 for a discussion of the terms of the Credit Facility, and amounts
outstanding thereunder at December 31, 2021. We had $579.0 available as of December 31, 2021 under the Revolver for
future borrowings. As of December 31, 2021, we also had access (in each case on an uncommitted basis) to $198.5 in
intraday and overnight bank overdraft facilities, our $300.0 A/R sales program and the SFPs to provide short-term liquidity.
At December 31, 2021, we sold $45.8 of A/R under our A/R sales program and $98.0 under the SFPs (see note 4). The timing
and the amounts we borrow and repay under these facilities can vary significantly from month-to-month depending on our
working capital and other cash requirements.
We have repurchased and canceled SVS under NCIBs in recent years. In addition, we purchase SVS from time-to-
time in the open market through a broker to satisfy delivery obligations under our SBC plans. See note 12 for details. We
have not distributed, nor do we have any current plan to distribute, any dividends to our shareholders.
Our strategy on capital risk management has not changed significantly since the end of 2020. Other than the
restrictive and financial covenants associated with our Credit Facility described in note 11, we are not subject to any
contractual or regulatory capital requirements. While some of our international operations are subject to government
restrictions on the flow of capital into and out of their jurisdictions, these restrictions have not had a material impact on our
operations or cash flows.
22.
WEIGHTED AVERAGE NUMBER OF SHARES DILUTED (in millions):
Weighted average number of shares (basic) .................................................................
Dilutive effect of outstanding awards under SBC plans ...............................................
Weighted average number of shares (diluted) ...............................................................
2019
2020
2021
131.0
0.8
131.8
129.1
—
129.1
126.7
—
126.7
For each of the years ended December 31, 2021, December 31, 2020, and December 31, 2019, we excluded 0.3
million stock options from the diluted weighted average per share calculation as they were out-of-the-money. References to
shares in this note 22 are to our SVS and MVS taken collectively.
23.
COVID-19 GOVERNMENT SUBSIDIES:
The governments of various jurisdictions in which we have operations have approved legislation and taken
administrative actions intended to aid businesses that have been adversely impacted by COVID-19, including making
Subsidies available to eligible entities to subsidize or offset qualifying expenses, including employee wages, or to lower
payroll taxes or required social insurance program contributions (in certain countries), in each case subject to limits and other
specified criteria (collectively, COVID Subsidies). We determined that we qualified for COVID Subsidies during 2021 and
2020, the most significant of which were provided under the Canadian Emergency Wage Subsidy (CEWS) first announced by
the Government of Canada in April 2020. Due to changes in legislation, however, we have not applied for further COVID
Subsidies under the CEWS since June 2021.
For 2021, we determined that we qualified for an estimated aggregate of approximately $11 (2020 — approximately
$34) of COVID Subsidies, which we recognized as a reduction to the related expenses in cost of goods sold of approximately
$8 (2020 — approximately $27) and SG&A of approximately $3 (2020 — approximately $7) in our consolidated statement
of operations. All recognized COVID Subsidies have been received.
F-57
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
24.
COMMITMENTS, CONTINGENCIES AND GUARANTEES:
At December 31, 2021, we had commitments (not recognized as liabilities as of such date) under IT support
agreements that require future minimum payments as follows:
2022 .................................................................................................................................................... $
2023 ....................................................................................................................................................
2024 ....................................................................................................................................................
2025 ....................................................................................................................................................
2026 ....................................................................................................................................................
Thereafter ..............................................................................................................................................
Total future minimum payments ........................................................................................................... $
27.3
23.5
20.9
16.8
13.3
24.9
126.7
As at December 31, 2021, management had approved $45.9 for capital expenditures, primarily for machinery and
equipment to support new customer programs, and issued $10.1 of such amount in purchase orders to third-party vendors. We
also have a contractual commitment with a supplier to purchase $8 of component parts in 2022.
We have contingent liabilities in the form of L/Cs, letters of guarantee and surety bonds (collectively, Guarantees)
which we have provided to various third parties. The Guarantees cover various payments, including customs and excise taxes,
utility commitments and certain bank guarantees. At December 31, 2021, we had $48.1 of Guarantees (December 31, 2020
— $41.5), including $21.0 (December 31, 2020 — $21.3) of L/Cs outstanding under our Revolver.
We are required to make scheduled quarterly principal amortization payments under the Second Incremental Term
Loan, certain annual mandatory prepayments under the Credit Facility under specified circumstances, payments of
outstanding amounts under the Credit Facility at maturity (see note 11), contractual payments under our lease obligations
(described in note 11 and below), and contributions to our pension and non-pension post-employment benefit plans (see note
18). We are also required to make interest payments on amounts outstanding under the Credit Facility, and to pay fees and
charges related to our Credit Facility, our A/R sales program and SFPs, and under our interest rate swap agreements, the
amounts under the swap to be determined based on market rates at the time the interest payments are due (see notes 4, 11 and
20). See note 20 for our obligations under the foreign exchange contracts we held at December 31, 2021.
Additional real property lease commitments:
In March 2019, as part of the sale of our Toronto real property, we entered into a 10-year lease for our new corporate
headquarters (Headquarters Lease), to be built by the purchaser of such property on the site of our former location. The
commencement date of this lease will be determined by such purchaser based on completion of construction of the new
building, and is currently targeted to be May 2023, with occupancy in November 2023. Upon such commencement, our
estimated annual basic rent will be approximately $2.1 million Canadian dollars for each of the first five years, and
approximately $2.2 million Canadian dollars for each of the remaining five years. We may, at our option, extend the lease for
two further consecutive five-year periods. We intend to remain in our temporary headquarters location until that time. Our
temporary headquarters lease expires in January 2023, but can be extended for an additional one-year period. We intend to
exercise this extension option. The rental amounts that will be due under this lease were not recognized as liabilities as of
December 31, 2021, because the lease had not yet commenced.
In September 2021, in connection with an outsourcing arrangement with a new customer, we agreed to lease a
portion of their facilities located in Richardson, Texas for a 10-year period (Texas Lease). The commencement dates for this
lease were/are September 2021, April 2022 and April 2027 (each for different portions of the total amount leased). The rental
amounts for the portions of the lease that had not yet commenced ($2.6 in 2022; $3.5 in 2023; $3.6 in 2024; $3.7 in 2025,
$3.8 in 2026 and $28.3 thereafter), were not recognized as liabilities as of December 31, 2021.
F-58
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
At December 31, 2021, we had lease commitments under the Headquarters Lease and the Texas Lease (not
recognized as liabilities as of such date) which require future minimum lease payments as follows:
2022 ............................................................................................................................................................... $
2023 ...............................................................................................................................................................
2024 ...............................................................................................................................................................
2025 ...............................................................................................................................................................
2026 ...............................................................................................................................................................
Thereafter ......................................................................................................................................................
Total future minimum lease payments .......................................................................................................... $
2.6
3.8
5.3
5.4
5.4
40.0
62.5
Indemnifications:
We provide routine indemnifications, the terms of which range in duration and scope, and often are not explicitly
defined, including for third-party intellectual property infringement, certain negligence claims, and for our directors and
officers. We have also provided indemnifications in connection with the sale of certain assets. The maximum potential
liability from these indemnifications cannot be reasonably estimated. In some cases, we have recourse against other parties or
insurance to mitigate our risk of loss from these indemnifications. Historically, we have not made significant payments
relating to these types of indemnifications.
Litigation:
In the normal course of our operations, we may be subject to lawsuits, investigations and other claims, including
environmental, labor, product, customer disputes, and other matters. Management believes that adequate provisions have
been recorded where required. Although it is not always possible to estimate the extent of potential costs, if any, management
believes that the ultimate resolution of all such pending matters will not have a material adverse impact on our financial
performance, financial position or liquidity.
Income taxes and other matters:
We are subject to tax audits in various jurisdictions. Reviews by tax authorities generally focus on, but are not
limited to, the validity of our inter-company transactions, including financing and transfer pricing policies which may involve
subjective areas of taxation and significant judgment.
The successful pursuit of assertions made by any government authority, including tax authorities, could result in our
owing significant amounts of tax or other reimbursements, interest and possibly penalties. We believe we adequately accrue
for any probable potential adverse ruling. However, there can be no assurance as to the final resolution of any claims and any
resulting proceedings. If any claims and any ensuing proceedings are determined adversely to us, the amounts we may be
required to pay could be material, and in excess of amounts accrued.
In 2017, the Brazilian Ministry of Science, Technology, Innovation and Communications (MCTIC) issued
assessments seeking to disqualify certain research and development (R&D) expenses for the years 2006 to 2009, which
entitled our Brazilian subsidiary (which ceased operations in 2009) to charge reduced sales tax levies to its customers. We
received lower re-assessments for 2007 and 2008 during Q1 2020 in response to our initial appeal, and in Q4 2021, the
MCTIC accepted our appeal in respect of 2006 resulting in no adjustment to our original filing position for such year. We
intend to continue to appeal the original assessments for 2009 and the re-assessments for 2007 and 2008. As of December
31, 2021, the assessments and re-assessments, including interest and penalties, total approximately 12 million Brazilian real
(approximately $2 at year-end exchange rates) for all such years, reduced from original assessments totaling approximately
39 million Brazilian real (approximately $7 at year-end exchange rates).
F-59
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
In the third quarter of 2021 (Q3 2021), the Romanian tax authorities issued a final assessment in the aggregate
amount of approximately 31 million Romanian leu (approximately $7 at period-end exchange rates), for additional income
and value-added taxes for one of our Romanian subsidiaries for the 2014 to 2018 tax years. In order to advance our case to
the appeals phase and reduce or eliminate potential interest and penalties, we paid the Romanian tax authorities the full
amount assessed in Q3 2021 (without agreement to all or any portion of such assessment). We believe that our originally-
filed tax return positions are in compliance with applicable Romanian tax laws and regulations, and intend to vigorously
defend our position through all necessary appeals or other judicial processes.
25.
SEGMENT AND GEOGRAPHIC INFORMATION:
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.
We have two operating and reportable segments: ATS and CCS. Our ATS segment consists of our ATS end market,
and is comprised of our A&D, Industrial, Energy, HealthTech, and Capital Equipment (semiconductor, display, and power &
signal distribution equipment) businesses. Our CCS segment consists of our Communications and Enterprise (servers and
storage) end markets.
Factors considered in determining the two reportable segments include the nature of applicable business activities,
management structure, market strategy and margin profiles. Products and services in our ATS 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 A&D customers; high-precision semiconductor and display
equipment and integrated subsystems; 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 higher margin profiles and
margin volatility, higher working capital requirements, and longer product life cycles than the businesses in our CCS
segment. Products and services in our CCS segment consist predominantly of enterprise-level data communications and
information processing infrastructure products, and can include routers, switches, data center interconnects, servers and
storage-related products used by a wide range of businesses and cloud-based and other service providers to manage digital
connectivity, commerce and social media applications. Our CCS segment businesses typically have lower margin profiles,
lower working capital requirements, and higher volumes than the businesses in our ATS segment. Within our CCS segment,
however, our Hardware Platform Solutions (HPS) business (which includes firmware/software enablement across all primary
IT infrastructure data center technologies and aftermarket services), typically has a higher margin profile than our traditional
CCS businesses, but also requires specific investments (including R&D) and higher working capital. Our CCS segment
generally experiences a high degree of volatility in terms of revenue and product/service mix and as a result, our CCS
segment margin can fluctuate from period to period.
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 (defined in note 16), employee SBC expense,
amortization of intangible assets (excluding computer software), and other charges (recoveries) (the components of which are
described in note 15), as these costs and charges/recoveries are managed and reviewed by our CEO at the company level. 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.
F-60
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
Information regarding each reportable segment for the periods indicated is set forth below:
Revenue by segment:
Year ended December 31
2019
2020
2021
% of total
% of total
% of total
ATS ................................................................... $ 2,285.6
CCS ...................................................................
3,602.7
39%
61%
$ 2,086.3
3,661.8
36%
64%
$ 2,315.1
3,319.6
41%
59%
Communications revenue as a % of total
revenue ..........................................................
Enterprise revenue as a % of total revenue ...
40 %
21 %
42 %
22 %
40 %
19 %
Total .................................................................. $ 5,888.3
$ 5,748.1
$ 5,634.7
Segment income, segment margin, and reconciliation of
segment income to IFRS earnings before income taxes:
2019
Year ended December 31
2020
2021
ATS segment income and margin ........................................ $ 64.2
CCS segment income and margin ........................................
93.9
Total segment income ..........................................................
158.1
Reconciling items:
Finance costs ........................................................................
Employee SBC expense .......................................................
Amortization of intangible assets (excluding computer
software) ..............................................................................
24.6
Other charges (recoveries) (note 15) ...................................
(49.9)
IFRS earnings before income taxes ..................................... $ 99.8
49.5
34.1
Segment
Margin
2.8%
2.6%
Segment
Margin
3.3%
3.5%
$ 69.7
129.3
199.0
37.7
25.8
21.8
23.5
$ 90.2
Segment
Margin
4.5%
3.9%
$ 105.0
128.9
233.9
31.7
33.4
22.5
10.3
$ 136.0
The following table details our external revenue allocated by manufacturing location among countries that generated
10% or more of total revenue for the years indicated:
Thailand .......................................................................................................
China ...........................................................................................................
Malaysia ......................................................................................................
Canada .........................................................................................................
* Less than 10%.
Year ended December 31
2020
2019
2021
34 %
18 %
12 %
*
35 %
20 %
*
*
36 %
16 %
13 %
*
The following table details our allocation of property, plant and equipment and ROU assets among countries that
represented 10% or more of total property, plant and equipment and ROU assets for the years indicated:
China .......................................................................................................................................
Thailand ..................................................................................................................................
United States ...........................................................................................................................
Canada ....................................................................................................................................
* Less than 10%.
December 31
2020
2021
14%
17%
18%
*
11%
16%
22%
*
F-61
CELESTICA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except percentages and per share amounts)
The following table details our allocation of intangible assets and goodwill among countries that represented 10% or
more of total intangible assets and goodwill for the years indicated:
United States ............................................................................................................................
South Korea .............................................................................................................................
Singapore .................................................................................................................................
Canada .....................................................................................................................................
* Less than 10%.
Customers:
December 31
2020
2021
85 %
11 %
*
*
49 %
*
42 %
*
No individual customer represented 10% or more of total revenue in 2020 or 2021. Cisco Systems, Inc. (a former
CCS segment customer) was the only customer that individually represented 10% or more of total revenue for 2019 (12%).
At December 31, 2021, we had two customers that individually represented 10% or more of total A/R (each in our
CCS segment) (December 31, 2020 — two customers (each in our CCS segment); December 31, 2019 — two customers (one
from each of our segments)).
F-62