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Last updated on April 18, 2014 at 9:14 EDT

Celestica Announces Second Quarter Financial Results

July 27, 2012

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

TORONTO, July 27, 2012 /PRNewswire/ – Celestica Inc. (NYSE: CLS) (TSX: CLS), a
global leader in the delivery of end-to-end product lifecycle
solutions, today announced financial results for the second quarter
ended June 30, 2012.

“Celestica continued to generate cash and achieved solid returns on
invested capital in the second quarter, despite the challenging demand
environment and the beginning of the wind down of our Research in
Motion (RIM) manufacturing business,” said Craig Muhlhauser, Celestica
President and Chief Executive Officer.

“Our priorities continue to be further diversifying our customer base
and developing new capabilities to increase the value we deliver to our
customers, while taking measures to prepare for an increasingly
difficult economic environment.”

“To further accelerate our revenue diversification, we are pleased to
announce that we have entered into an agreement to acquire D&H
Manufacturing Company (D&H), a leading manufacturer of precision
machined components and assemblies. This acquisition will strengthen
our complex mechanical and systems integration offering, and allows us
to provide additional value to our customers in the diversified markets
segment of our business. We expect the acquisition to close in the
third quarter of 2012.”

Second Quarter and First Half Summary


                                                                      Three months ended      Six months ended
                                                                            June 30                June 3

                                                                         2011       2012       2011       2012

    Revenue (in millions)                                             $1,829.4   $1,744.7   $3,629.5   $3,435.6
    ..............................................

    IFRS net earnings (in millions) ................................     $45.7      $23.6      $75.7      $66.8

    IFRS EPS                                                             $0.21      $0.11      $0.34      $0.31
    (i) .............................................................

    Adjusted net earnings (non-IFRS) (in millions)(ii) ...               $58.7      $47.1     $113.4     $100.7

    Adjusted net EPS (non-IFRS)(i) (ii) .........................        $0.27      $0.22      $0.52      $0.47

    Non-IFRS return on invested capital (ROIC)(ii) .......               27.4%      23.4%      27.2%      23.6%

    Non-IFRS operating margin(ii) ................................        3.7%       3.3%       3.5%       3.4%

    i.       International Financial Reporting Standards (IFRS) net
             earnings for the second quarter of 2012 included an aggregate
             charge of $0.03 (pre-tax) per share for stock-based
             compensation and amortization of intangible assets (excluding
             computer software). This is slightly below the range we
             provided on April 24, 2012 of a charge between $0.04 and $0.06
             per share. Our IFRS net earnings for the second quarter of
             2012 also included a $0.09 (pre-tax) per share charge for
             restructuring charges primarily related to the wind down of
             our manufacturing services for RIM. Compared to our guidance,
             adjusted net EPS (non-IFRS) of $0.22 for the second quarter of
             2012 was negatively impacted by $0.02 per share reflecting
             higher than expected income taxes.

    ii.      Non-IFRS measures do not have any standardized meaning
             prescribed by IFRS and are not necessarily comparable to
             similar measures presented by other companies using IFRS or
             other generally accepted accounting principles (GAAP).

             See Schedule 1 for non-IFRS definitions and a reconciliation
             of non-IFRS to IFRS measures.

Second Quarter 2012 Highlights

        --  Revenue:  $1.74 billion, at the high end of our guidance of
            $1.65 to $1.75 billion (announced April 24, 2012)

        --  IFRS EPS:  $0.11 per share, compared to $0.21 per share for the
            same period last year

        --  Adjusted net EPS (non-IFRS): $0.22 per share, within the range
            of our guidance of $0.20 to $0.26 per share (announced April
            24, 2012)

        --  Free cash flow (non-IFRS):  $16.9 million, compared to $2.4
            million for the same period last year

        --  Diversified end markets: 19% of total revenue, up from 13% of
            total revenue for the same period last year

        --  Repurchased 4.6 million subordinate voting shares for
            cancellation as part of our Normal Course Issuer Bid (NCIB)

        --  Recorded $20.1 million of restructuring charges primarily
            related to the wind down of our manufacturing services for RIM

End Markets by Quarter
The following table sets forth revenue by end market as a percentage of
total revenue:


                                                            2011                  2012

                                      Q1      Q2      Q3      Q4      FY      Q1      Q2

          Communications(i) .......  36%     34%     34%     33%     35%     33%     32%

       Consumer ...................  26%     25%     25%     26%     25%     23%     21%

    Diversified(ii) ...............  11%     13%     16%     18%     14%     19%     19%

    Servers .......................  15%     17%     14%     13%     15%     15%     16%

    Storage .......................  12%     11%     11%     10%     11%     10%     12%

    Revenue (in billions) ...       $1.80   $1.83   $1.83   $1.75   $7.21   $1.69   $1.74

    i.       Our communications end market is comprised of enterprise
             communications and telecommunications, which we have combined
             for reporting purposes effective the first quarter of 2012.
             Prior period percentages were also combined.

    ii.      Our diversified end market is comprised of industrial,
             aerospace and defense, healthcare, green technology,
             semiconductor equipment and other.

Wind Down of Manufacturing Services for RIM
In June 2012, we announced that over the course of the third and fourth
quarters of 2012 we will wind down our manufacturing services for
RIM. For the second quarter of 2012, RIM represented 17% of total
revenue (first quarter of 2012 and full year 2011 — 19%). We expect to
complete the majority of our manufacturing for RIM by the end of the
third quarter of 2012. As a result, we expect our revenue from RIM to
decrease to approximately 10% of total revenue for the third quarter of
2012. During the second quarter of 2012, we recorded restructuring
charges of $20.1 million. This was comprised of charges related to the
RIM wind down of $21.8 million (of which $9.1 million were cash
charges) offset in part by reversals of certain prior unrelated
restructuring charges totaling $1.7 million.

Due to the significance of RIM as a customer and in order to improve our
margin performance, we will take additional restructuring actions in
2012 throughout our global network to reduce our overall cost
structure. By the end of 2012, we expect to record total restructuring
charges of between $40 million and $50 million, including the estimated
$35 million we announced in June 2012. Of this amount, we recorded
$20.1 million in the second quarter of 2012.

As a result of the wind down of our manufacturing services for RIM and
the challenging demand outlook, we expect our revenue growth for fiscal
2012 will be negative and that we will no longer achieve (and now
withdraw) our three-year compound annual revenue growth target of 6% to
8% and our annual operating margin target of 3.5% to 4.0% which we
established at the beginning of 2010. We expect our operating margin
for the second half of 2012 will be in the range of 2.5% and 3.0%.
Despite our lower revenue expectations for 2012, we expect to achieve
our annual ROIC and annual free cash flow targets for 2012.

Celestica Share Repurchase Plan
During the second quarter of 2012, we paid $36.2 million to repurchase
for cancellation 4.6 million subordinate voting shares. The share
repurchases were part of our NCIB accepted by the Toronto Stock
Exchange in February 2012. The number of subordinate voting shares we
are permitted to repurchase for cancellation under the NCIB is reduced
by the number of shares we purchase for equity-based compensation
plans. At June 30, 2012, we can repurchase up to an additional 5.2
million subordinate voting shares, of which approximately 3 million are
intended for cancellation.

Acquisition to strengthen capabilities in the Diversified Markets
We announced today that we have agreed to acquire D&H Manufacturing
Company based in California, a leading manufacturer of precision
machined components and assemblies, primarily for the semiconductor
capital equipment market. The operations provide manufacturing and
engineering services, coupled with dedicated capacity and equipment for
prototype and quick-turn support to some of the world’s leading
semiconductor capital equipment manufacturers. The business generates
approximately $80 million in annual revenue and currently employs
approximately 350 people.

“The acquisition further strengthens Celestica’s diversified markets
offering and will allow us to provide our customers with additional
capability in large scale and high quality precision machining,” said
Craig Muhlhauser, Celestica President and Chief Executive Officer. “The
D&H team brings extensive engineering and technical depth to Celestica
that will complement our capabilities in complex mechanical and systems
integration services.”

This acquisition supports our strategy to grow and diversify our revenue
base in the industrial, aerospace and defense, semiconductor equipment,
green technology and healthcare end markets. The purchase price is
expected to be approximately $70 million and will be financed from our
credit facility or cash on hand. The transaction is subject to
customary conditions and is expected to close in the third quarter of
2012.

Third Quarter 2012 Outlook
For the third quarter ending September 30, 2012, we anticipate revenue
to be in the range of $1.6 billion to $1.7 billion, and adjusted net
earnings per share to be in the range of $0.17 to $0.23.  We expect a
negative $0.08 to $0.14 per share (pre-tax) aggregate impact on an IFRS
basis for the following items: stock-based compensation, amortization
of intangible assets (excluding computer software) and restructuring
charges.

Second Quarter Webcast
Management will host its second quarter results conference call today at
8:00 a.m. Eastern Daylight Time. The webcast can be accessed at www.celestica.com.

Supplementary Information
In addition to disclosing detailed results in accordance with IFRS,
Celestica provides supplementary non-IFRS measures to consider in
evaluating the company’s operating performance. See Schedule 1.
Management uses adjusted net earnings and other non-IFRS measures to
assess operating performance and the effective use and allocation of
resources; to provide more meaningful period-to-period comparisons of
operating results; to enhance investors’ understanding of the core
operating results of Celestica’s business; and to set management
incentive targets.

About Celestica
Celestica is dedicated to delivering end-to-end product lifecycle
solutions to drive our customers’ success. Through our simplified
global operations network and information technology platform, we are
solid partners who deliver informed, flexible solutions that enable our
customers to succeed in the markets they serve. Committed to providing
a truly differentiated customer experience, our agile and adaptive
employees share a proud history of demonstrated expertise and
creativity that provides our customers with the ability to overcome any
challenge. For further information on Celestica, visit its website at www.celestica.com. The company’s security filings can also be accessed at www.sedar.com and www.sec.gov.

Safe Harbor and Fair Disclosure Statement
This news release contains forward-looking statements related to our
future growth; trends in our industry; our financial or operational
results including our quarterly earnings and revenue guidance; the
impact of the wind down of our manufacturing services for RIM on our
financial targets and results and working capital requirements, and our
anticipated expenses and restructuring charges related to such wind
down and other actions; the acquisition of D&H, including our ability
to close the transaction, the timing of closing, the purchase price and
our funding thereof, and the impact of the acquisition on our
diversified end markets; the impact of acquisitions and program wins or
losses on our financial results and working capital requirements;
anticipated expenses, capital expenditures or benefits; our expected
tax outcomes; our cash flows, financial targets and priorities; our
ability to diversify and grow our customer base and develop new
capabilities; and the effect of the global economic environment on
customer demand. Such forward-looking statements are predictive in
nature and may be based on current expectations, forecasts or
assumptions involving risks and uncertainties that could cause actual
outcomes and results to differ materially from the forward-looking
statements themselves.  Such forward-looking statements may, without
limitation, be preceded by, followed by, or include words such as
“believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans”,
“continues”, or similar expressions, or may employ such future or
conditional verbs as “may”, “will”, “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 in
applicable Canadian securities legislation. Forward-looking statements
are not guarantees of future performance. Readers should understand
that the following important factors, among others, could affect our
future results and could cause those results to differ materially from
those expressed in such forward-looking statements: the challenges of
effectively managing the wind down of our manufacturing services for
RIM; the extent of the restructuring charges associated with the RIM
wind down and other actions; our dependence on a limited number of
customers and on our customers’ ability to compete and succeed in their
marketplace for the products we manufacture; the effects of price
competition and other business and competitive factors generally
affecting the electronics manufacturing services (EMS) industry; the
challenges of effectively managing our operations and our working
capital performance during uncertain economic conditions, including
responding to significant changes in demand from our customers,
including RIM; the challenges of managing changing commodity costs as
well as labor costs and conditions; disruptions to our operations, or
those of our customers, component suppliers, or our logistics partners,
resulting from local events including natural disasters, political
instability, local labor conditions and social unrest, criminal
activity and other risks present in the jurisdictions in which we
operate; our inability to retain or expand our business due to
execution problems relating to the ramping of new programs; the delays
in the delivery and/or general availability of various components and
materials used in our manufacturing process; the challenge of managing
our financial exposure to foreign currency volatility; our dependence
on industries affected by rapid technological change; variability of
operating results among periods; our ability to successfully manage our
international operations; increasing income taxes and our ability to
successfully defend tax audits or meet the conditions of tax
incentives; the completion of all our restructuring activities or
integration of our acquisitions; the risk of potential non-performance
by counterparties, including but not limited to financial institutions,
customers and suppliers; and other matters relating to the D&H
transaction, including closing conditions not being satisfied in a
timely manner or at all, the purchase price varying from the expected
amount, our inability to finance the transaction, and our inability to
develop our capabilities in our diversified markets. These and other
risks and uncertainties, as well as other information related to
Celestica, are discussed herein and in our various public filings at
www.sedar.com and www.sec.gov, including our Annual Report on Form 20-F
and subsequent reports on Form 6-K filed with the U.S. Securities and
Exchange Commission and our Annual Information Form filed with the
Canadian securities regulators. Forward-looking statements are provided
for the purpose of providing information about management’s current
expectations and plans relating to the future.  Readers are cautioned
that such information may not be appropriate for other purposes. Except
as required by applicable law, 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.

Our revenue, earnings and other financial guidance, as contained in this
press release, is based on various assumptions which management
believes are reasonable under the current circumstances, but may prove
to be inaccurate, and many of which involve factors that are beyond the
control of the company. The material assumptions may include the
following: our ability to effectively manage the RIM wind down;
forecasts from our customers, which range from 30 to 90 days and can
fluctuate significantly in terms of volume and mix of products or
services; the timing and execution of, and investments associated with,
ramping new business; the success in the marketplace of our customers’
products; general economic and market conditions; currency exchange
rates; pricing and competition; anticipated customer demand; supplier
performance and pricing; commodity, labor, energy and transportation
costs; operational and financial matters; technological developments;
the timing and execution of our restructuring actions; and our ability
to diversify our customer base and develop new capabilities. These
assumptions and estimates are based on management’s current views with
respect to current plans and events, and are and will be subject to the
risks and uncertainties referred to above.  It is Celestica’s policy
that our guidance is effective on the date given, and will only be
updated through a public announcement. 

Supplementary Non-IFRS Measures
Our non-IFRS measures include gross profit, gross margin (gross profit
as a percentage of revenue), selling, general and administrative
expenses (SG&A), SG&A as a percentage of revenue, operating earnings
(EBIAT), operating margin (EBIAT as a percentage of revenue), adjusted
net earnings, adjusted net earnings per share, ROIC, free cash flow,
cash cycle days and inventory turns. In calculating these non-IFRS
financial measures, management excludes the following items, as
applicable:  stock-based compensation, amortization of intangible
assets (excluding computer software), restructuring and other charges,
net of recoveries (most significantly restructuring charges), the
write-down of goodwill, intangible assets and property, plant and
equipment, and gains or losses related to the repurchase of shares or
debt, net of tax adjustments and significant deferred tax write-offs or
recoveries.

These non-IFRS measures do not have any standardized meaning prescribed
by IFRS and are not necessarily comparable to similar measures
presented by other companies using IFRS, or our North American
competitors who report under U.S. GAAP and use non-U.S. GAAP measures
to describe similar operating metrics. Non-IFRS measures are not
measures of performance under IFRS and should not be considered in
isolation or as a substitute for any standardized measure under IFRS. 
The most significant limitation to management’s use of non-IFRS
financial measures is that the charges or credits excluded from the
non-IFRS measures are nonetheless charges or credits that are
recognized under IFRS and that have an economic impact on the company. 
Management compensates for these limitations primarily by issuing IFRS
results to show a complete picture of the company’s performance, and
reconciling non-IFRS results back to IFRS, unless there are no
comparable IFRS measures.

The economic substance of these exclusions and management’s rationale
for excluding these from non-IFRS financial measures is provided below:

Stock-based compensation, which represents the estimated fair value of
stock options, restricted share units and performance share units
granted to employees, is excluded because grant activities vary
significantly from quarter-to-quarter in both quantity and fair value. 
In addition, excluding this expense allows us to better compare core
operating results with those of our competitors who also generally
exclude stock-based compensation from their core operating results, who
may have different granting patterns and types of equity awards, and
who may use different option valuation assumptions than we do,
including those competitors who use U.S. GAAP and non-U.S. GAAP
measures to present similar metrics.

Amortization charges (excluding computer software) consist of non-cash charges against
intangible assets that are impacted by the timing and magnitude of
acquired businesses.  Amortization of intangibles varies among
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.

Restructuring and other charges, net of recoveries, include costs
relating to employee severance, lease terminations, facility closings
and consolidations, write-downs to owned property and equipment which
are no longer used and are available for sale, reductions in
infrastructure and acquisition-related transaction costs. We exclude
restructuring and other charges, net of recoveries, because they are
not directly related to ongoing operating results and do not reflect
expected future operating expenses after completion of these
activities.  We believe this exclusion permits a better comparison of
our core operating results with those of our competitors who also
generally exclude these charges in assessing operating performance.

Impairment charges, which consist of non-cash charges against goodwill,
intangible assets and property, plant and equipment, result primarily
when the carrying value of these assets exceeds their fair value.  Our
competitors may record impairment charges at different times and
excluding these charges permits a better comparison of our core
operating results with those of our competitors who also generally
exclude these charges in assessing operating performance.

Gains or losses related to the repurchase of shares or debt are excluded
as these gains or losses do not impact core operating performance and
vary significantly among our competitors who also generally exclude
these charges or recoveries in assessing operating performance.

Significant deferred tax write-offs or recoveries are excluded as these
write-offs or recoveries do not impact core operating performance and
vary significantly among our competitors who also generally exclude
these charges or recoveries in assessing operating performance.

The following table sets forth, for the periods indicated, a
reconciliation of IFRS to non-IFRS measures (in millions, except per
share amounts):


                               Three months ended                   Six months ended
                                     June 30                             June 30

                            2011              2012              2011              2012

                            % of              % of              % of              % of
                            revenue           revenue           revenue           revenue

    Revenue               $                 $                 $                 $
                    1,829.4           1,744.7           3,629.5           3,435.6

    IFRS gross            $    6.9%         $    6.7%         $    6.7%         $    6.7%
    profit            125.9             117.1             242.8             229.2

      Stock-based       4.0               3.0               8.0               6.3
      compensation

    Non-IFRS gross        $    7.1%         $    6.9%         $    6.9%         $    6.9%
    profit            129.9             120.1             250.8             235.5

    IFRS SG&A        $ 62.7    3.4%    $ 59.9    3.4%         $    3.7%         $    3.5%
                                                          133.0             119.9

      Stock-based     (5.5)             (3.4)            (18.5)            (10.8)
      compensation

    Non-IFRS SG&A    $ 57.2    3.1%    $ 56.5    3.2%         $    3.2%         $    3.2%
                                                          114.5             109.1

    IFRS earnings
    before income    $ 53.1            $ 32.6            $ 86.4            $ 79.3
    taxes

      Finance costs     1.3               1.0               2.7               1.8        

      Stock-based       9.5               6.4              26.5              17.1
      compensation

      Amortization
      of intangible
      assets
      (excluding
      computer
      software)         1.8               0.8               3.6               1.6        

      Restructuring
      and other         2.2              17.2               8.1              16.1
      charges

    Non-IFRS
    operating        $ 67.9    3.7%    $ 58.0    3.3%         $    3.5%         $    3.4%
    earnings                                              127.3             115.9
    (EBIAT) (1)

    IFRS net         $ 45.7    2.5%    $ 23.6    1.4%    $ 75.7    2.1%    $ 66.8    1.9%
    earnings 

      Stock-based       9.5               6.4              26.5              17.1
      compensation

      Amortization
      of intangible
      assets
      (excluding
      computer
      software)         1.8               0.8               3.6               1.6  

      Restructuring
      and other         2.2              17.2               8.1              16.1
      charges

      Adjustments     (0.5)             (0.9)             (0.5)             (0.9)
      for taxes (2)

    Non-IFRS                                                  $                 $
    adjusted net     $ 58.7    3.2%    $ 47.1    2.7%     113.4    3.1%     100.7    2.9%
    earnings

    Diluted EPS                                                                          

      Weighted
      average # of    220.0             212.3             219.6             215.0
      shares (in
      millions)

      IFRS earnings  $ 0.21            $ 0.11            $ 0.34            $ 0.31
      per share

      Non-IFRS
      adjusted net   $ 0.27            $ 0.22            $ 0.52            $ 0.47
      earnings per
      share

      # of shares
      outstanding     216.4             207.8             216.4             207.8
      (in millions)

    IFRS cash
    provided by       $ 5.3            $ 39.0                $                  $
    (used in)                                            (24.9)             123.1
    operations

      Purchase of
      property,
      plant and
      equipment,
      net of
      sales
      proceeds        (1.8)            (21.1)            (20.0)            (59.8)  

      Finance costs   (1.1)             (1.0)             (4.5)             (2.0)
      paid

    Non-IFRS free     $ 2.4            $ 16.9                $             $ 61.3
    cash flow (3)                                        (49.4)

    ROIC % (4)        27.4%             23.4%             27.2%             23.6%        

 


    (1)  EBIAT is defined as earnings before interest, amortization of
         intangibles assets (excluding computer software) and income
         taxes.  EBIAT also excludes stock-based compensation,
         restructuring and other charges, net of recoveries, gains or
         losses related to the repurchase of shares or debt, and impairment
         charges.

    (2)  The adjustments for taxes, as applicable, represent the tax
         effects on the non-IFRS adjustments and significant deferred tax
         write-offs or recoveries that do not impact our core operating
         performance.

    (3)  Management uses free cash flow as a measure, in addition to cash
         flow from operations, to assess operational cash flow performance.
         We believe free cash flow provides another level of transparency
         to our liquidity as it represents cash generated from or used in
         operating activities after the purchase of property, plant and
         equipment (net of proceeds from sale of certain surplus equipment
         and property) and finance costs paid.

    (4)  Management uses ROIC as a measure to assess the effectiveness of
         the invested capital we use to build products or provide services
         to our customers. Our ROIC measure includes operating margin,
         working capital management and asset utilization. ROIC is
         calculated by dividing EBIAT by average net invested capital. Net
         invested capital consists of total assets less cash, accounts
         payable, accrued and other current liabilities and provisions, and
         income taxes payable. We use a two-point average to calculate
         average net invested capital for the quarter and a three-point
         average to calculate average net invested capital for the
         six-month period. There is no comparable measure under IFRS.

The following table sets forth, for the periods indicated, our
calculation of ROIC % (in millions, except ROIC %):


                           Three months ended          Six months ended
                                 June 30                    June 30

                             2011        2012          2011         2012

    Non-IFRS
    operating              $ 67.9       $ 58.0      $ 127.3        $ 115.9
    earnings
    (EBIAT)

    Multiplier                  4            4            2              2

    Annualized            $ 271.6      $ 232.0      $ 254.6        $ 231.8
    EBIAT

    Average net
    invested              $ 990.5      $ 989.7      $ 936.5        $ 981.2
    capital for
    the period

    ROIC %                  27.4%        23.4%        27.2%          23.6%

                                      December    March 31        June 30
                                         31

                                         2011        2012           2012

    Net invested
    capital
    consists of:

    Total assets                             $    $ 2,955.4      $ 2,951.2
                                       2,969.6

    Less: cash                           658.9        646.7          630.6

    Less: accounts
    payable,
    accrued and
    other current

      liabilities,
      provisions
      and income                       1,346.6      1,317.8        1,332.1
      taxes
      payable

    Net invested
    capital by                         $ 964.1      $ 990.9        $ 988.5
    quarter

                                      December    March 31        June 30
                                         31

                                         2010        2011           2011

    Net invested
    capital
    consists of:

    Total assets                             $    $ 2,997.3      $ 3,020.6
                                       3,013.9

    Less: cash                           632.8        584.0          552.6

    Less: accounts
    payable,
    accrued and
    other current

      liabilities,
      provisions
      and income                       1,552.6      1,483.1        1,417.3
      taxes
      payable

    Net invested
    capital by                         $ 828.5      $ 930.2      $ 1,050.7
    quarter

 


    GUIDANCE
    SUMMARY

                            Q2 12                                 Q3 12
                          Guidance         Q2 12 Actual        Guidance(1)

    Revenue (in        $1.65 - $1.75            $1.74         $1.60 - $1.70
    billions)

    Adjusted net       $0.20 - $0.26            $0.22         $0.17 - $0.23
    EPS
    (diluted)

    (1)  We expect a negative $0.08 to $0.14 per share (diluted) pre-tax
         aggregate impact on an IFRS basis for the following recurring
         items: stock-based compensation, amortization of intangible assets
         (excluding computer software) and restructuring charges.


                                                                                        CELESTICA INC.

                                                                        CONDENSED CONSOLIDATED BALANCE SHEET

                                                                             (in millions of U.S. dollars)

                                                                                           (unaudited)

                                                                                               December 31               June 30

                                                                                                    2011                   2012

    Assets                                                                                                                         

    Current assets:                                                                                                                

      Cash and cash equivalents (note 11) ..........................                     $             658.9     $            630.6

      Accounts receivable (note 5) .......................................                             810.8                  823.0

      Inventories (note 6) .....................................................                       880.7                  879.8

      Income taxes receivable ..............................................                             9.1                    9.5

      Assets classified as held-for-sale ................................                               32.1                   34.4

      Other current assets ...................................................                          71.0                   64.2

    Total current assets  .....................................................                      2,462.6                2,441.5

    Property, plant and equipment .....................................                                322.7                  327.0

    Goodwill ........................................................................                   48.0                   47.5

    Intangible assets ...........................................................                       35.5                   32.8

    Deferred income taxes ..................................................                            41.4                   37.5

    Other non-current assets ..............................................                             59.4                   64.9

    Total assets ..................................................................      $           2,969.6     $          2,951.2

    Liabilities and Equity                                                                                                         

    Current liabilities:                                                                                                           

      Accounts payable ........................................................          $           1,002.6     $          1,027.3

      Accrued and other current liabilities .............................                              268.7                  241.4

      Income taxes payable ...................................................                          39.0                   39.0

      Current portion of provisions ........................................                            36.3                   24.4

    Total current liabilities  ..................................................                    1,346.6                1,332.1

    Retirement benefit obligations .......................................                             120.5                  118.5

    Provisions and other non-current liabilities ....................                                   11.1                   12.7

    Deferred income taxes ...................................................                           27.6                   27.5

    Total liabilities  ...............................................................               1,505.8                1,490.8

    Equity:                                                                                                                        

      Capital stock (note 8) ..................................................                      3,348.0                3,189.5

      Treasury stock (note 8) ...............................................                         (37.9)                  (0.8)

      Contributed surplus .....................................................                        369.5                  419.4

      Deficit ..........................................................................
                                                                                                   (2,203.5)              (2,136.7)

      Accumulated other comprehensive loss ......................                                     (12.3)                 (11.0)

    Total equity ....................................................................                1,463.8                1,460.4

    Total liabilities and equity ..............................................          $           2,969.6     $          2,951.2

                                                                                  Contingencies (note 12)

                                                                               Subsequent event (note 13)

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


                                                                                                                                  CELESTICA INC.

                                                                                                          CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

                                                                                                    (in millions of U.S. dollars, except per share amounts)

                                                                                                                                     (unaudited)

                                                                                                                  Three months ended                                 Six months ended
                                                                                                                       June 30                                            June 30

                                                                                                       2011                         2012                     2011                  2012

    Revenue ............................................................................    $           1,829.4            $         1,744.7        $        3,629.5     $          3,435.6

    Cost of sales (note 6) ........................................................                     1,703.5                      1,627.6                 3,386.7                3,206.4

    Gross profit ........................................................................                 125.9                        117.1                   242.8                  229.2

    Selling, general and administrative expenses (SG&A) .......                                            62.7                         59.9                   133.0                  119.9

    Research and development  ..............................................                                3.0                          4.0                     5.2                    7.2

    Amortization of intangible assets .......................................                               3.6                          2.4                     7.4                    4.9

    Other charges (note 9) ......................................................                           2.2                         17.2                     8.1                   16.1

    Earnings from operations ..................................................                            54.4                         33.6                    89.1                   81.1

    Finance costs ....................................................................                      1.3                          1.0                     2.7                    1.8

    Earnings before income taxes ...........................................                               53.1                         32.6                    86.4                   79.3

    Income tax expense (recovery) (note 10):                                                                                                                                               

      Current ...........................................................................                   8.4                          5.0                    13.2                    8.5

      Deferred .........................................................................                  (1.0)                          4.0                   (2.5)                    4.0

                                                                                                            7.4                          9.0                    10.7                   12.5

    Net earnings for the period ................................................            $              45.7            $            23.6        $           75.7     $             66.8

    Basic earnings per share ..................................................             $              0.21            $            0.11        $           0.35     $             0.31

    Diluted earnings per share ................................................             $              0.21            $            0.11        $           0.34     $             0.31

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

      Basic ...............................................................................               216.6                        210.4                   216.0                  213.0

      Diluted  ...........................................................................                220.0                        212.3                   219.6                  215.0

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


                                                                                        CELESTICA INC.

                                                         CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

                                                                             (in millions of U.S. dollars)

                                                                                           (unaudited)

                                                                         Three months ended                    Six months ended
                                                                               June 30                             June 30

                                                                         2011            2012             2011               2012

    Net earnings for the                                         $          45.7      $   23.6       $      75.7        $      66.8
    period .....................................................

    Other comprehensive income (loss), net of tax:                                                                                 

        Currency translation differences for foreign                         1.9                             5.2              (2.7)
        operations .....                                                                 (3.8)

        Change from derivatives designated as                                                                                   4.0
        hedges ................                                            (5.5)         (8.2)             (5.7)

    Total comprehensive income for the                           $          42.1      $   11.6       $      75.2        $      68.1
    period ............................

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


                                                                                                                                          CELESTICA INC.

                                                                                                             CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

                                                                                                                               (in millions of U.S. dollars)

                                                                                                                                            (unaudited)

                                                                                                                                                                     Accumulated
                                                                                                                                                                        other
                                                                                                                                                                    comprehensive
                                                                                            Capital stock       Treasury         Contributed                        income (loss)
                                                                                               (note 8)      stock (note 8)        surplus            Deficit            (a)            Total equity

    Balance -- January 1,                                                            $        3,329.4   $       (15.9)   $         360.9   $      (2,403.8)   $          12.3   $        1,282.9
    2011.......................................................................

    Capital transactions (note 8):                                                                                                                                                                   

      Issuance of capital                                                                             18.0               --                                   --                --               11.5
      stock ........................................................................                                                    (6.5)

      Purchase of treasury                                                                              --                                 --                 --                --
      stock ....................................................................                                      (9.3)                                                                     (9.3)

      Stock-based compensation and                                                                      --                                                    --                --               24.2
      other ...................................................                                                        16.1               8.1

    Total comprehensive income:                                                                                                                                                                      

      Net earnings for the                                                                              --               --                --               75.7                --               75.7
      period ....................................................................

      Other comprehensive income for the period, net of tax:                                                                                                                                         

         Currency translation differences for foreign operations                                        --               --                --                 --               5.2                5.2
         .......................

         Change from derivatives designated as                                                          --               --                --                 --
         hedges .................................                                                                                                                            (5.7)              (5.7)

    Balance -- June 30,                                                              $        3,347.4   $        (9.1)   $         362.5   $      (2,328.1)   $          11.8   $        1,384.5
    2011 ........................................................................

    Balance -- January 1,                                                            $        3,348.0   $       (37.9)   $         369.5   $      (2,203.5)   $        (12.3)   $        1,463.8
    2012 .....................................................................

    Capital transactions (note 8):                                                                                                                                                                   

      Issuance of capital                                                                                                --                                   --                --                6.8
      stock ........................................................................                  17.2                             (10.4)

      Repurchase of capital stock for                                                                                    --                                   --                --
      cancellation .........................................                                       (175.7)                               83.1                                                  (92.6)

      Purchase of treasury                                                                              --                                 --                 --                --
      stock ....................................................................                                      (3.8)                                                                     (3.8)

      Stock-based compensation and                                                                      --                                                    --                --               18.1
      other ...................................................                                                        40.9            (22.8)

    Total comprehensive income:                                                                                                                                                                      

      Net earnings for the                                                                              --               --                --               66.8                --               66.8
      period ....................................................................

      Other comprehensive income for the period, net of tax:                                                                                                                                         

         Currency translation differences for foreign                                                   --               --                --                 --
         operations ......................                                                                                                                                   (2.7)              (2.7)

         Change from derivatives designated as                                                          --               --                --                 --               4.0                4.0
         hedges .................................

    Balance -- June 30,                                                              $        3,189.5   $        (0.8)   $         419.4   $      (2,136.7)   $        (11.0)   $        1,460.4
    2012 ........................................................................

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

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


                                                                                                                                             CELESTICA INC.

                                                                                                                     CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

                                                                                                                                  (in millions of U.S. dollars)

                                                                                                                                               (unaudited)

                                                                                                                                       Three months ended                          Six months ended
                                                                                                                                             June 30                                    June 30

                                                                                                                                   2011                2012                  2011                2012

    Cash provided by (used in):                                                                                                                                                                          

    Operating activities:                                                                                                                                                                                

    Net earnings for the period.........................................................................                $              45.7   $            23.6   $              75.7   $            66.8

    Adjustments for items not affecting cash:                                                                                                                                                            

      Depreciation and amortization..................................................................                                  19.7                20.5                  38.8                39.7

      Equity-settled stock-based compensation................................................                                           9.5                 6.4                  23.5                17.1

      Other charges (recoveries)......................................................................                                (3.6)                 9.8                 (3.7)                11.7

      Finance costs...........................................................................................                          1.3                 1.0                   2.7                 1.8

      Income tax expense..................................................................................                              7.4                 9.0                  10.7                12.5

    Other...........................................................................................................                  (6.5)               (4.3)                 (4.9)                 3.3

    Changes in non-cash working capital items:                                                                                                                                                           

      Accounts receivable..................................................................................                            29.5                                     133.0
                                                                                                                                                         (62.8)                                    (12.2)

      Inventories................................................................................................                       8.1                33.3               (127.5)                 0.9

      Other current assets.................................................................................                          (10.6)                 2.6                 (3.4)                 6.0

      Accounts payable, accrued and other current liabilities and provisions....                                                     (79.1)                 4.0               (149.0)
                                                                                                                                                                                                   (16.0)

    Non-cash working capital changes..............................................................                                   (52.1)                                   (146.9)
                                                                                                                                                         (22.9)                                    (21.3)

    Net income taxes paid.................................................................................                           (16.1)               (4.1)                (20.8)               (8.5)

    Net cash provided by (used in) operating activities....................................                                             5.3                39.0                (24.9)               123.1

    Investing activities:                                                                                                                                                                                

    Acquisition, net of cash acquired (note 3)...................................................                                    (78.0)             --                (78.0)             --

    Purchase of computer software and property, plant and equipment...........                                                       (9.9)                                     (28.5)
                                                                                                                                                        (24.0)                                     (62.8)

    Proceeds from sale of assets......................................................................                                  8.1                 2.9                   8.5                 3.0

    Net cash used in investing activities...........................................................                                 (79.8)                                    (98.0)
                                                                                                                                                         (21.1)                                    (59.8)

    Financing activities:                                                                                                                                                                                

    Net borrowings under credit facilities (note 3).............................................                                       45.0             --                  45.0             --

    Issuance of capital stock (note 8)...............................................................                                   0.8                 4.0                  11.5                 6.8

    Repurchase of capital stock for cancellation (note 8).................................                                          --                                   --
                                                                                                                                                         (36.2)                                    (92.6)

    Purchase of treasury stock (note 8)............................................................                                   (1.6)                                     (9.3)               (3.8)
                                                                                                                                                          (0.8)

    Finance costs paid......................................................................................                          (1.1)               (1.0)                 (4.5)               (2.0)

    Net cash provided by (used in) financing activities......................................                                          43.1                                      42.7
                                                                                                                                                         (34.0)                                    (91.6)

    Net decrease in cash and cash equivalents................................................                                        (31.4)                                    (80.2)
                                                                                                                                                         (16.1)                                    (28.3)

    Cash and cash equivalents, beginning of period.........................................                                           584.0               646.7                 632.8               658.9

    Cash and cash equivalents, end of period..................................................                          $             552.6   $           630.6   $             552.6   $           630.6

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

CELESTICA INC.

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

1. REPORTING ENTITY

Celestica Inc. (Celestica) is incorporated in Canada with its corporate
headquarters located at 844 Don Mills Road, Toronto, Ontario, M3C 1V7. 
Celestica is a publicly listed company on the Toronto Stock Exchange
(TSX) and the New York Stock Exchange (NYSE).

Celestica delivers innovative supply chain solutions globally to
customers in the communications (comprised of enterprise communications
and telecommunications), consumer, computing (comprised of servers and
storage), and diversified (comprised of industrial, aerospace and
defense, healthcare, green technology, semiconductor equipment and
other) end markets. Our product lifecycle solutions include a full
range of services to our customers including design, supply chain
management, manufacturing, engineering, complex mechanical and systems
integration, order fulfillment, logistics and after-market services.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance:

These unaudited interim condensed consolidated financial statements have
been prepared in accordance with International Accounting Standard
(IAS) 34, Interim Financial Reporting as issued by the International Accounting Standards Board (IASB) and
accounting policies we adopted in accordance with International
Financial Reporting Standards (IFRS). These unaudited interim condensed
consolidated financial statements reflect all adjustments that are, in
the opinion of management, necessary to present fairly our financial
position as at June 30, 2012 and the results of operations,
comprehensive income and cash flows for the three and six months ended
June 30, 2012.

The unaudited interim condensed consolidated financial statements were
authorized for issuance by our board of directors on July 26, 2012.

Functional and presentation currency:

These unaudited interim condensed consolidated financial statements are
presented in U.S. dollars, which is also our functional currency. All
financial information is presented in millions of U.S. dollars (except
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 the related disclosures of
contingent assets and liabilities. Actual results could differ
materially from these estimates and assumptions. We review our
estimates and underlying assumptions on an ongoing basis.  Revisions
are recognized in the period in which the estimates are revised and may
impact future periods as well.

We have applied significant estimates and assumptions to our valuations
against inventory and income taxes, to the amount and timing of
restructuring charges or recoveries, to the measurement of the
recoverable amount of our cash generating units, and to valuing our
financial instruments, retirement benefit costs, stock-based
compensation, provisions and contingencies.  These unaudited interim
condensed consolidated financial statements are based upon accounting
policies and estimates consistent with those used and described in note
2 of our 2011 annual consolidated financial statements.

3. RECENT ACQUISITIONS

In June 2011, we acquired the semiconductor equipment contract
manufacturing operations of Brooks Automation, Inc. These operations,
located in Oregon, U.S.A. and Wuxi, China, specialize in manufacturing
complex mechanical equipment and providing systems integration services
to some of the world’s largest semiconductor equipment manufacturers.
The final purchase price was $80.5, net of cash acquired ($78.0 was
paid in June 2011). The purchase was financed from cash on hand and
$45.0 from our revolving credit facility which we repaid in 2011. On
the acquisition date, we recorded $33.8 in goodwill and $12.5 in
intangible assets.

In August 2010, we completed the acquisition of Austrian-based Allied
Panels Entwicklungs-und Produktions GmbH (Allied Panels), a medical
engineering and manufacturing service provider. The purchase price for
Allied Panels is subject to adjustment for contingent consideration if
specific pre-determined financial targets are achieved through 2012. At
December 31, 2011, we had recorded a provision of $3.2 related to this
contingent consideration. Based on management’s assessment of the
potential outcomes, we determined that this provision was no longer
necessary and released our provision as of June 30, 2012 through other
charges (note 9(b)).

4. SEGMENT AND CUSTOMER REPORTING

End markets:

The following table indicates revenue by end market as a percentage of
total revenue. Our revenue fluctuates from period-to-period depending
on numerous factors, including but not limited to: seasonality of
business, the mix and complexity of the products or services we
provide, the extent, timing and rate of new program wins, follow-on
business or losses from new, existing or disengaging customers, the
phasing in or out of programs, and changes in customer demand.  We
expect that the pace of technological change, the frequency of
customers transferring business among EMS competitors and the
constantly changing dynamics of the global economy will also continue
to impact our business from period-to-period.

Starting with the first quarter of 2012, we have combined our enterprise
communications and telecommunications end markets into one
communications end market for reporting purposes. Prior period
percentages were also combined.


                                                                             Three     Six months
                                                                            months        ended
                                                                             ended       June 30
                                                                            June 30

                                                                         2011   2012   2011   2012

    Communications............................................            34%    32%    35%    33%

    Consumer......................................................        25%    21%    25%    22%

    Diversified......................................................     13%    19%    12%    19%

    Servers..........................................................     17%    16%    16%    15%

    Storage..........................................................     11%    12%    12%    11%

Customers:

For the second quarter and first half of 2012, we had three customers
and two customers, respectively, that individually represented more
than 10% of total revenue (second quarter and first half of 2011 –
three customers). For the second quarter and first half of 2012, RIM
accounted for 17% and 18%, respectively, of total revenue (second
quarter and first half of 2011 — 19% and 20%, respectively).

In June 2012, we announced that we will wind down our manufacturing
services for RIM over the course of the next two quarters. We expect
our revenue from RIM and as a result, our revenue in our consumer end
market to significantly decrease as we complete the majority of our
manufacturing for RIM by the end of the third quarter of 2012.

5. ACCOUNTS RECEIVABLE

We have an agreement to sell up to $250.0 in accounts receivable (A/R)
on a committed basis and up to an additional $150.0 in A/R on an
uncommitted basis. The amount of A/R we sell is subject to
pre-determined limits by customer. The A/R facility is with third-party
banks which have a Standard and Poor’s rating of A-1 at June 30, 2012.
At June 30, 2012, we had sold $45.0 of A/R under this facility
(December 31, 2011 — $60.0).  The A/R sold are removed from our
consolidated balance sheet and 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. We continue to collect cash
from our customers and remit the cash to the banks when collected. We
pay interest and commitment fees which we record through finance costs
in our consolidated statement of operations. This facility expires in
November 2012.

6. INVENTORIES

We record our inventory provisions and valuation recoveries through cost of sales. We record inventory
provisions to reflect changes in the value of our inventory to net
realizable value, or valuation recoveries primarily to reflect realized
gains on the disposition of inventory previously written down. We
recorded net inventory recoveries of $2.7 for the second quarter of
2012 and net inventory provisions of $0.8 for the first half of 2012
(second quarter and first half of 2011 — net inventory provisions of
$2.0 and $5.7, respectively).

We regularly review our estimates and assumptions used to value our
inventory through analysis of historical performance. During the second
quarter of 2012, our net inventory recoveries of $2.7 were comprised of
a $5.6 credit recorded to reflect the improved recovery of certain
inventory offset in part by new provisions of $2.9 for aged inventory.

7. CREDIT FACILITIES

We have a $400.0 revolving credit facility that matures in January
2015.  We are required to comply with certain restrictive covenants
including those relating to debt incurrence, the sale of assets, a
change of control and certain financial covenants related to
indebtedness, interest coverage and liquidity. We have pledged certain
assets as security for borrowings under this facility. Borrowings under
this facility bear interest at LIBOR or Prime rate for the period of
the draw plus a margin. The terms of these draws have historically been
less than 90 days. At June 30, 2012, no amounts were drawn under this
facility (December 31, 2011 — no amounts drawn), and we were in
compliance with all covenants.  Commitment fees paid in the second
quarter and first half of 2012 were $0.5 and $1.0, respectively. At
June 30, 2012, we had $26.7 of letters of credit that were issued under
our credit facility.

We also have uncommitted bank overdraft facilities available for
intraday and overnight operating requirements which total $70.0 at June
30, 2012.  There were no amounts drawn under these overdraft facilities
at June 30, 2012 (December 31, 2011– no amounts drawn).

The amounts we borrow and repay under these facilities can vary
significantly from month-to-month depending upon our working capital
and other cash requirements.

8. CAPITAL STOCK

On February 7, 2012, the TSX accepted our Normal Course Issuer Bid
(NCIB). The NCIB allows us to repurchase, at our discretion, until the
earlier of February 8, 2013 or the completion of purchases under the
bid, up to approximately 16.2 million subordinate voting shares
(representing approximately 7.5% of our total subordinate voting and
multiple voting shares outstanding at the commencement of the NCIB) 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 NCIB
is reduced by the number of subordinate voting shares we purchase for
equity-based compensation plans (see below). During the second quarter
of 2012, we paid $36.2, including transaction fees, to repurchase for
cancellation 4.6 million subordinate voting shares at a weighted
average price of $7.84 per share. As of June 30, 2012, we have paid
$92.6, including transaction fees, to repurchase for cancellation a
total of 10.6 million shares at a weighted average price of $8.73 per
share under the NCIB since its commencement in February 2012. At June
30, 2012, we can repurchase up to an additional 5.2 million subordinate
voting shares under the NCIB, of which approximately 3 million are
intended for cancellation.

From time-to-time, we pay cash for the purchase of subordinate voting
shares in the open market by a trustee to satisfy the delivery of
subordinate voting shares upon vesting of share unit awards under our
equity-based compensation plans. For accounting purposes, we classify
these shares as treasury stock until they are delivered pursuant to the
plans. During the second quarter and first half of 2012, we paid $0.8
and $3.8, respectively, for the trustee to purchase 0.1 million and 0.4
million, respectively, subordinate voting shares in the open market and
we distributed 0.3 million and 4.8 million, respectively, subordinate
voting shares upon the vesting of restricted share units (RSUs),
performance share units (PSUs) and deferred share units. During the
second quarter and first half of 2011, we paid $1.6 and $9.3,
respectively, for the trustee to purchase 0.1 million and 0.8 million,
respectively, subordinate voting shares in the open market and we
distributed none and 1.7 million, respectively, subordinate voting
shares upon the vesting of share unit awards. At June 30, 2012, the
trustee held 0.1 million subordinate voting shares, with a value of
$0.8 (December 31, 2011 — held 4.5 million with a value of $37.9), for
delivery under these plans.

During the first quarter of 2011, we cash-settled certain RSUs and PSUs
and recorded additional compensation expense to reflect the
mark-to-market adjustment on these cash-settled awards of $2.7. Since
management currently intends to settle all other share unit awards with
shares purchased in the open market by a trustee or with new shares
issued from treasury, we expect to continue to account for share unit
awards as equity-settled awards. We have not recorded any
mark-to-market adjustments since the first quarter of 2011.

The following table outlines the activity for stock-based awards for the
six months ended June 30, 2012:


    Number of awards (in millions)                                                                                               Options             RSUs           PSUs (i)

    Outstanding at December 31, 2011......................................................................                             8.1               3.5               7.4

    Granted                                                                                                                            1.1               2.5               2.4
    (i)............................................................................................................ 

    Exercised or settled (ii).........................................................................................
                                                                                                                                     (1.1)             (1.4)             (3.9)

    Forfeited/expired..................................................................................................
                                                                                                                                     (0.9)             (0.3)             (0.6)

    Outstanding at June 30, 2012..............................................................................                         7.2               4.3               5.3

    The weighted-average grant date fair value of options and share units awarded:                                         $          3.92   $          8.21   $          9.79

    (i)   During the first quarter of 2012, we granted 2.4 million (first
          quarter of 2011 -- 2.1 million) PSUs that vest based on the
          achievement of a market performance condition based on Total
          Shareholder Return (TSR). See note 2(n) of our 2011 annual
          consolidated financial statements for a description of TSR.  We
          estimated the grant date fair value of these PSUs using a Monte
          Carlo simulation model. We expect to settle these awards with
          subordinate voting shares purchased in the open market. The
          number of PSUs that will actually vest will vary from 0% to 200%
          depending on the achievement of pre-determined performance goals
          and financial targets. The number of PSUs in the above table
          represents the maximum payout of 200%. We granted no PSU awards
          in the second quarter of 2011 or 2012.

    (ii)  During the first half of 2012, we received cash proceeds of $6.8
          (first half of 2011 -- $11.5) relating to the exercise of stock
          options.

For the second quarter and first half of 2012, stock-based compensation
expense was $6.4 and $17.1, respectively (second quarter and first half
of 2011 — $9.5 and $26.5, respectively). The amount of stock-based
compensation expense varies each period, and includes mark-to-market
adjustments for awards we settled in cash (see above) and plan
adjustments. Our performance-based compensation expense generally
varies depending on the level of achievement of pre-determined
performance goals and financial targets. We amended the retirement
eligibility clauses in our equity-based compensation plans in 2011
which accelerated our recognition of the related compensation expense
of $3.1 in the first half of 2012 (first half of 2011 — $4.8).

9. OTHER CHARGES


                                                                              Three months    Six months ended
                                                                                 ended             June 30
                                                                                June 30

                                                                            2011      2012     2011       2012

    Restructuring                                                          $  1.7   $  20.1   $  7.6   $   19.0
    (a).................................................... 

    Other                                                                     0.5     (2.9)      0.5      (2.9)
    (b)................................................................ 

                                                                           $  2.2   $  17.2   $  8.1   $   16.1

(a) Restructuring: 

Our restructuring charges are comprised of the following:


                                                                           Three months     Six months ended
                                                                              ended             June 30
                                                                             June 30

                                                                         2011      2012      2011       2012

    Cash                                                                $  5.3   $   7.4   $  11.3   $    4.4
    charges......................................................... 

    Non-cash charges (recoveries)..............................          (3.6)      12.7     (3.7)       14.6

                                                                        $  1.7   $  20.1   $   7.6   $   19.0

In June 2012, we announced that over the course of the next two
quarters, we will wind down our manufacturing services for RIM. We
manufactured certain of RIM’s smartphone models in Mexico, Romania and
Malaysia. We completed our manufacturing for RIM in Romania and
Malaysia at the end of June 2012 and we expect to complete the majority
of our manufacturing in Mexico by the end of the third quarter of 2012.
In connection with this wind down, we recorded restructuring charges of
$20.1 in the second quarter of 2012. This is comprised of charges
related to the RIM wind down of $21.8 offset in part by reversals of
certain prior unrelated restructuring charges totaling $1.7. Cash
charges recorded in the second quarter of 2012 were $7.4, comprised of
cash charges of $9.1 related to employee termination costs for our RIM
manufacturing operations in Mexico, and to a lesser extent in Romania
and Malaysia, offset by the $1.7 reversals. We also recorded non-cash
charges of $12.7 to write down to recoverable amounts the equipment
that was no longer in use at June 30, 2012. The recognition of these
charges requires us to make certain judgments and estimates regarding
the nature, timing, and amounts associated with the restructuring
actions. Our major assumptions included the timing and number of
employees to be terminated, the measurement of termination costs to be
paid, and the timing of disposition and estimated fair value of assets
available for sale. We developed a detailed plan, the components of
which were communicated to the affected employees prior to June 30,
2012, and we calculated the termination costs based on statutory
requirements. We engaged independent brokers to determine the estimated
fair values less cost to sell for assets no longer in use and available
for sale. At the end of each reporting period, we evaluate the
appropriateness of our restructuring charges and balances. Adjustments
may be required to reflect actual experience or changes in estimates.

Our cash charges for the first half of 2012 included recoveries of $3.0,
primarily to reflect a reversal of charges relating to the early
settlement of one facility lease. During the second quarter and first
half of 2012, we paid employee termination costs and lease payments
totaling $3.6 and $11.3, respectively.

At June 30, 2012, our restructuring provision consists of the following:


    Employee termination                                                                                 $   9.5
    costs.............................................................................................. 

    Contractual lease obligations and other                                                                  0.3
    costs.................................................................. 

                                                                                                         $   9.8

We expect to pay our employee termination costs over the next two
quarters as we complete our manufacturing and transition activities for
RIM.

(b) Other:

Includes realized recoveries on certain assets that were previously
written down through other charges and acquisition-related transaction
costs. During the second quarter of 2012, we released our provision
related to the estimated fair value of contingent consideration for our
Allied Panels acquisition and recorded the recovery through other
charges. See note 3.

(c) Impairment of intangible assets and property, plant and equipment:

In addition to the $12.7 impairment loss we recognized through
restructuring charges for equipment that is no longer in use at June
30, 2012, we also tested the remaining carrying amounts of the cash
generating units (CGUs) that were impacted by the announced wind down
of our manufacturing services for RIM in Mexico, Romania and Malaysia.
We compared the recoverable amounts using value-in-use to the carrying
amounts of these CGUs and determined there was no further impairment
against the property, plant and equipment or computer software assets.
There is no goodwill or intangible assets associated with these CGUs.
The process of determining the recoverable amount of a CGU is
subjective and requires management to exercise significant judgment in
estimating future growth and discount rates, and projections of cash
flows, among other factors. We did not identify any key assumptions
where a reasonably possible change would cause a CGU’s carrying value
to exceed its recoverable amount as the carrying values were supported
based on the expected cash flows from existing customer programs.
Absent a triggering event, we conduct our annual impairment assessment
in the fourth quarter of each year as it corresponds with our planning
cycle.

10. INCOME TAXES

Our effective income tax rate can vary significantly quarter-to-quarter
for various reasons, including the mix and volume of business in lower
tax jurisdictions within Europe and Asia, in jurisdictions with tax
holidays and incentives, and in jurisdictions for which no deferred
income tax assets have been recognized because management believed it
was not probable that future taxable profit would 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 foreign exchange fluctuations and changes in our provisions related
to tax uncertainties.

11. 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 accounts payable, certain accrued and other
liabilities and provisions, and derivatives.  The majority of our
financial liabilities is recorded at amortized cost except for
derivative liabilities, which are measured at fair value.  Our term
deposits are classified as held-to-maturity and our short-term
investments in money market funds are recorded at fair value, with
changes recognized through our consolidated statement of operations.

Cash and cash equivalents are comprised of the following:


                                                                                                                                         December
                                                                                                                                            31      June 30
                                                                                                                                           2011      2012

    Cash .............................................................................................................................   $  191.7   $ 209.2

    Cash equivalents ..........................................................................................................             467.2     421.4

                                                                                                                                         $  658.9   $ 630.6

Our current portfolio consists of bank deposits and certain money market
funds that hold primarily U.S. government securities. The majority of
our cash and cash equivalents is held with financial institutions each
of which had at June 30, 2012 a Standard and Poor’s rating of A-1 or
above.

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 the
operational costs incurred in local currencies by our subsidiaries. We
manage our currency risk through our hedging program using forecasts of
future cash flows and balance sheet exposures denominated in foreign
currencies.

Our major currency exposures at June 30, 2012 are summarized in U.S.
dollar equivalents in the following table.  We have included in this
table only those items that we classify as financial assets or
liabilities and which were denominated in non-functional currencies. 
In accordance with the financial instruments standard, we have excluded
items such as retirement benefits and income taxes.  The local currency
amounts have been converted to U.S. dollar equivalents using the spot
rates at June 29, 2012.


                                                                                                            Chinese    Malaysian   Canadian   Mexican       Thai
                                                                                                            renminbi   ringgit     dollar      peso        baht 

    Cash and cash                                                                                           $   25.8   $     1.5   $    2.4   $    0.4   $    5.7
    equivalents ...............................................................................

    Accounts                                                                                                    17.1           -        5.3          -          -
    receivable ..........................................................................................

    Other financial                                                                                              0.6         0.7          -        0.2        0.3
    assets .......................................................................................

    Accounts payable and certain accrued and other liabilities and provisions ......                          (31.8)      (16.3)     (27.4)     (19.3)     (16.6)

    Net financial assets                                                                                    $   11.7   $  (14.1)   $          $          $ (10.6)
    (liabilities) ..........................................................................                                         (19.7)     (18.7)

Foreign currency risk sensitivity analysis:

At June 30, 2012, a one-percentage point strengthening or weakening of
the following currencies against the U.S. dollar for our financial
instruments denominated in non-functional currencies is summarized in
the following table.  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.


                                                              Chinese    Malaysian   Canadian   Mexican     Thai
                                                              renminbi   ringgit     dollar      peso       baht

                                                                         Increase (decrease)                     

    1% Strengthening                                                                                             

      Net earnings                                                       $   (0.1)   $    1.7   $         $     -
      .....................................................   $   0.5                             (0.1)

      Other comprehensive income                                               0.8        1.0       0.4       1.2
      ...........................                                  -

    1% Weakening                                                                                                 

      Net earnings                                                             0.1      (1.7)       0.1         -
      .....................................................     (0.5)

      Other comprehensive income                                             (0.8)      (0.9)     (0.3)     (1.1)
      ...........................                                  -

At June 30, 2012, we had forward exchange contracts to trade
U.S. dollars in exchange for the following currencies:


                                                                                 Weighted     Maximum
                                                                                 average      period      Fair
                                                                                 exchange       in       value
                                                                 Amount of       rate of      months     gain/
    Currency                                                    U.S. dollars   U.S. dollars              (loss)

    Canadian dollar ........................................    $    295.3     $     0.98         15    $ (5.4)

    Thai baht                                                                        0.03
    ..................................................               134.7                        15      (3.3)

    Malaysian ringgit ......................................          91.8           0.32         15      (2.8)

    Mexican peso ...........................................          49.4           0.07         12      (0.9)

    British pound                                                                    1.57
    ............................................                      52.1                         4        0.6

    Chinese renminbi .....................................            42.9           0.16         12      (0.4)

    Euro                                                                             1.26
    .........................................................         16.2                         4      (0.2)

    Singapore dollar .......................................          12.6           0.79         12      (0.2)

    Romanian leu ...........................................          12.2           0.29         12      (0.7)

    Other                                                                              -
    .......................................................           18.3                         4         -

    Total                                                       $                                       $
    ........................................................         725.5                                (13.3)

At June 30, 2012, the fair value of these contracts was a net unrealized
loss of $13.3 (December 31, 2011 — net unrealized loss of $13.9). 
Changes in the fair value of hedging derivatives to which we apply cash
flow hedge accounting, to the extent effective, are deferred in other
comprehensive income until the expenses or items being hedged are
recognized in our consolidated statement of operations. Any hedge
ineffectiveness, which at June 30, 2012 was not significant, is
recognized immediately in our consolidated statement of operations. At
June 30, 2012, we recorded $1.2 of derivative assets primarily in other
current assets and $14.5 of derivative liabilities in accrued and other
current and non-current liabilities. The unrealized gains and losses
are a result of fluctuations in foreign exchange rates between the date
the currency forward contracts were entered into and the valuation date
at period end.

12. CONTINGENCIES

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 in the accounts where required.
Although it is not always possible to estimate the extent of potential
costs, if any, management believes that the ultimate resolution of such
matters will not have a material adverse impact on our results of
operations, financial position or liquidity.

In 2007, securities class action lawsuits were commenced against us and
our former Chief Executive and Chief Financial Officers, in the
United States District Court of the Southern District of New York by
certain individuals, on behalf of themselves and other unnamed
purchasers of our stock, claiming that they were purchasers of our
stock during the period January 27, 2005 through January 30, 2007. The
plaintiffs allege violations of United States federal securities laws
and seek unspecified damages. They allege that during the purported
period we made statements concerning our actual and anticipated future
financial results that failed to disclose certain purportedly material
adverse information with respect to demand and inventory in our Mexican
operations and our information technology and communications divisions.
In an amended complaint, the plaintiffs added one of our directors and
Onex Corporation as defendants. On October 14, 2010, the District Court
granted the defendants’ motions to dismiss the consolidated amended
complaint in its entirety. The plaintiffs appealed to the United States
Court of Appeals for the Second Circuit the dismissal of its claims
against us, our former Chief Executive and Chief Financial Officers,
but not as to the other defendants. In a summary order dated December
29, 2011, the Court of Appeals reversed the District Court’s dismissal
of the consolidated amended complaint and remanded the case to the
District Court for further proceedings. The parties are currently
engaged in the discovery process. Parallel class proceedings, including
a claim issued in October 2011, remain against us and our former Chief
Executive and Chief Financial Officers in the Ontario Superior Court of
Justice, but neither leave nor certification of any actions has been
granted by that court. We believe the allegations in the claims are
without merit and we intend to defend against them vigorously. However,
there can be no assurance that the outcome of the litigation will be
favorable to us or that it will not have a material adverse impact on
our financial position or liquidity. In addition, we may incur
substantial litigation expenses in defending the claims. We have
liability insurance coverage that may cover some of our litigation
expenses, potential judgments or settlement costs.

Income taxes

We are subject to tax audits and reviews by various tax authorities of
historical information 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 a
significant degree of judgment. If any of these tax authorities are
successful with their challenges, our income tax expense may be
adversely affected and we could also be subject to interest and penalty
charges.

In connection with ongoing tax audits in Canada, tax authorities have
taken the position that income reported by one of our Canadian
subsidiaries in 2001 through 2004 should have been materially higher as
a result of certain inter-company transactions.

In connection with a tax audit in Brazil, tax authorities had taken the
position that income reported by our Brazilian subsidiary in 2004
should have been materially higher as a result of certain inter-company
transactions. In June 2011, we received a ruling from the Brazilian
Lower Administrative Court that was largely consistent with our
original filing position.  As the ruling generally favored the
taxpayer, the Brazilian tax authorities appealed the matter to a higher
court. In June 2012, the Brazilian Higher Administrative Court
unanimously upheld the Lower Administrative Court decision. Although we
believe it is unlikely to occur due to the recent unanimous decision by

the higher court, the Brazilian tax authorities have the right to
present a Special Appeal to change the favorable decision. We did not
previously accrue for any potential adverse tax impact for the 2004 tax
audit. Brazilian tax authorities are not precluded from taking similar
positions in future audits with respect to these types of transactions.

We have and expect to continue to recognize the future benefit of
certain Brazilian tax losses on the basis that these tax losses can and
will be fully utilized in the fiscal period ending on the date of
dissolution of our Brazilian subsidiary. While our ability to do so is
not certain, we believe that our interpretation of applicable Brazilian
law will be sustained upon full examination by the Brazilian tax
authorities and, if necessary, upon consideration by the Brazilian
judicial courts.  Our position is supported by our Brazilian legal tax
advisors.  A change to the benefit realizable on these Brazilian losses
could increase our net future tax liabilities by approximately 49.9
million Brazilian reais (approximately $24.7 at current exchange
rates).

The successful pursuit of the assertions made by any taxing authority
related to the above noted tax audits or others could result in us
owing significant amounts of tax, interest and possibly penalties. We
believe we have substantial defenses to the asserted positions and have
adequately accrued for any probable potential adverse tax impact.
However, there can be no assurance as to the final resolution of these
claims and any resulting proceedings and if these claims and any
ensuing proceedings are determined adversely to us, the amounts we may
be required to pay could be material.

13. SUBSEQUENT EVENT

In July 2012, we agreed to acquire D&H based in California, U.S.A., a
leading manufacturer of precision machined components and assemblies.
The operations provide manufacturing and engineering services, coupled
with dedicated capacity and equipment for prototype and quick-turn
support to some of the world’s leading semiconductor capital equipment
manufacturers. We expect the purchase price to be approximately $70 and
to be financed from our credit facility or cash on hand. The
transaction is subject to customary conditions and is expected to close
in the third quarter of 2012.

 

 

 

 

SOURCE Celestica Inc.


Source: PR Newswire