Celestica Announces Second Quarter 2016 Financial Results

8. CAPITAL STOCK

Share repurchases:

We have repurchased subordinate voting shares in the open market and otherwise for cancellation in recent years pursuant to normal course issuer bids (NCIBs), which allow us to repurchase a limited number of subordinate voting shares during a specified period, and from time to time pursuant to substantial issuer bids. As part of the NCIB process, we enter into Automatic Share Purchase Plans (ASPPs) with brokers from time to time, that allow such brokers to purchase our subordinate voting shares in the open market on our behalf for cancellation under our NCIBs (including during any applicable self-imposed trading blackout periods). In addition, we enter into PSRs from time to time as part of the NCIB process (if permitted by the TSX), pursuant to which we make a prepayment to a broker in consideration for the right to receive a variable number of subordinate voting shares upon such PSR's completion. Under such PSRs, the price and number of subordinate voting shares to be repurchased by us is generally determined based on a discount to the volume weighted-average market price of our subordinate voting shares during the term of the PSR, subject to certain terms and conditions. The subordinate voting shares repurchased under any PSR are cancelled upon completion of such PSR under the NCIB. The maximum number of subordinate voting shares we are permitted to repurchase for cancellation under each NCIB is reduced by the number of subordinate voting shares we purchase in the open market during the term of such NCIB to satisfy obligations under our stock-based compensation plans.

On September 9, 2014, the TSX accepted our notice to launch an NCIB (the 2014 NCIB), which allowed us to repurchase, at our discretion, until the earlier of September 10, 2015 or the completion of purchases thereunder, up to approximately 10.3 million subordinate voting shares (representing approximately 5.8% of our total subordinate voting and multiple voting shares outstanding at the time of launch) in the open market or as otherwise permitted, subject to the normal terms and limitations of such bids. During the first quarter of 2015, we repurchased and cancelled a total of 6.1 million subordinate voting shares for $69.8 (including transaction fees) under the 2014 NCIB, at a weighted average price of $11.46 per share, including 4.4 million subordinate voting shares repurchased under a $50.0 PSR which we funded in December 2014. We completed the share repurchases under this PSR on January 28, 2015 at a weighted average price of $11.38 per share. We did not repurchase any shares under the 2014 NCIB in the second quarter of 2015. The 2014 NCIB expired in September 2015.

In the second quarter of 2015, we launched and completed the SIB, pursuant to which we repurchased and cancelled approximately 26.3 million subordinate voting shares at a price of $13.30 per share (for an aggregate purchase price of $350.0), representing approximately 15.5% of our total multiple voting shares and subordinate voting shares issued and outstanding prior to completion of the SIB. We also recorded $0.9 in transaction-related costs. We funded the share repurchases with the proceeds of the Term Loan, $25.0 drawn on the Revolving Facility, and $75.0 of cash on hand. See note 7.

On February 22, 2016, the TSX accepted our notice to launch the 2016 NCIB, which allows us to repurchase, at our discretion, until the earlier of February 23, 2017 or the completion of purchases thereunder, up to approximately 10.5 million subordinate voting shares (representing approximately 7.3% of our total outstanding subordinate voting and multiple voting shares at the time of launch) in the open market or as otherwise permitted, subject to the normal terms and limitations of such bids. The maximum number of subordinate voting shares we are permitted to repurchase for cancellation under the 2016 NCIB will be reduced by the number of subordinate voting shares purchased during the term of the 2016 NCIB to satisfy obligations under our stock-based compensation plans. During the first quarter of 2016, prior to the launch of the PSR described below, we paid $4.3 (including transaction fees) to repurchase and cancel 0.4 million subordinate voting shares under the 2016 NCIB at a weighted average price of $10.73 per share. In March 2016, the TSX accepted our notice to amend the 2016 NCIB to permit the repurchase of our subordinate voting shares thereunder through one or more PSRs. In connection therewith, we paid $30.0 to a broker in March 2016 under a PSR for the right to receive a variable number of our subordinate voting shares upon such PSR's completion. We completed this PSR in May 2016, pursuant to which we repurchased and cancelled 2.8 million subordinate voting shares at a weighted average price of $10.69 per share. As of June 30, 2016, up to an additional 7.3 million subordinate voting shares could be repurchased under the 2016 NCIB during the remainder of its term.

Stock-based compensation:

We grant share unit awards to employees under our stock-based compensation plans. Under one of our stock-based compensation plans, we have the option to satisfy the delivery of shares upon vesting of the awards by purchasing subordinate voting shares in the open market or by settling such awards in cash. Under our other stock-based compensation plan, we may (at the time of grant) authorize the grantee to settle awards in either cash or subordinate voting shares (absent such permitted election, grants will be settled in subordinate voting shares, which we may purchase in the open market or issue from treasury, subject to certain limits). From time-to-time, we pay cash for the purchase by a trustee of subordinate voting shares in the open market to satisfy the delivery of shares upon vesting of awards. For accounting purposes, we classify these shares as treasury stock until they are delivered pursuant to the plans. We did not purchase any subordinate voting shares in the open market to satisfy the delivery requirements under our stock-based compensation plans during the second quarter or the first half of 2016 or 2015. At June 30, 2016, the trustee held 0.4 million subordinate voting shares for this purpose, having a value of $4.3 (December 31, 2015 -- 2.8 million subordinate voting shares with a value of $31.4).

The following table outlines the activities for stock-based awards granted to employees (activities for deferred share units (DSUs) issued to directors are excluded) for the six months ended June 30, 2016:

                                                                            
Number of awards (in millions)          Options          RSUs          PSUs 
-----------------------------------  -----------   -----------   -----------
                                                                            
Outstanding at December 31, 2015            2.9           3.5           5.5 
Granted                                       -           2.1           2.5 
Exercised or settled (i)                   (0.4)         (1.2)         (1.2)
Forfeited or expired                       (0.2)         (0.1)         (0.8)
                                                           -----------      -----------      -----------
Outstanding  at  June  30,  2016                                2.3                      4.3                      6.0  
                                                                          ===========      ===========      ===========
                                                                                                                                                        
Weighted-average  grant  date  fair                                                                                        
  value  of  options  and  share  units                                  $                          $                      
  granted                                                                        N/A                    9.12                    9.56  
                                                                                                                                                        
 
 
(i)    During  the  second  quarter  and  first  half  of  2016,  we  received  cash          
          proceeds  of  $1.5  and  $3.0,  respectively  (second  quarter  and  first  half  
          of  2015  --  $0.6  and  $2.6,  respectively)  relating  to  the  exercise  of        
          vested  employee  stock  options.                                                                                  
 

At June 30, 2016, 1.4 million (December 31, 2015 -- 1.3 million) DSUs were outstanding.

For the second quarter and first half of 2016, we recorded aggregate employee stock-based compensation expense (excluding DSU expense) through cost of sales and SG&A of $6.8 and $16.2, respectively (second quarter and first half of 2015 -- $7.1 and $18.6, respectively), and DSU expense (recorded through SG&A) of $0.5 and $1.0, respectively (second quarter and first half of 2015 -- $0.5 and $1.0, respectively). Employee stock-based compensation expense varies from period-to-period. The portion of such expense that relates to a non-market performance condition varies depending on the level of achievement of pre-determined financial targets.

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