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Last updated on April 18, 2014 at 10:36 EDT

Celestica announces fourth quarter and fiscal year 2012 financial results

January 22, 2013

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

TORONTO, Jan. 22, 2013 /PRNewswire/ – Celestica Inc. (NYSE, TSX: CLS), a global
leader in the delivery of end-to-end product lifecycle solutions, today
announced financial results for the fourth quarter and fiscal year
ended December 31, 2012.

Fourth Quarter 2012 Highlights

        --  Revenue:  $1.50 billion, within the range of our guidance of
            $1.425 to $1.525 billion (announced October 23, 2012)
        --  IFRS EPS:  $0.04 per share, compared to $0.32 per share for the
            fourth quarter of 2011
        --  Adjusted EPS (non-IFRS):  $0.25 per share, above our guidance
            of $0.15 to $0.21 per share (announced October 23, 2012) and
            includes a $0.06 per share net income tax recovery
        --  Free cash flow (non-IFRS):  $90.2 million, compared to $89.0
            million for the fourth quarter of 2011
        --  Diversified end markets: 23% of total revenue, increased from
            18% of total revenue for the fourth quarter of 2011

Fiscal Year 2012 Highlights

        --  Revenue:  $6.51 billion, down 10% from 2011
        --  IFRS EPS:  $0.56 per share, compared to $0.89 per share for
            2011
        --  Adjusted EPS (non-IFRS):  $0.98 per share, compared to $1.11
            per share for 2011
        --  Free cash flow (non-IFRS):  $211.4 million, up 47% from prior
            year
        --  Diversified end markets: 20% of total revenue, increased from
            14% of total revenue for 2011
        --  Repurchased and cancelled 22.4 million subordinate voting
            shares under a substantial issuer bid for $175 million
        --  Repurchased and cancelled 13.3 million subordinate voting
            shares under a Normal Course Issuer Bid for $113.8 million
        --  Recorded $44.0 million of restructuring charges and $17.7
            million of asset impairment charges
        --  Acquired D&H Manufacturing Company for $71 million in September
            2012

“Celestica delivered revenue and operating profit consistent with our
guidance, and generated strong free cash flow in the fourth quarter,
despite continued softness in end market demand.” said Craig
Muhlhauser, Celestica President and Chief Executive Officer. “We
overcame a challenging environment in 2012 and posted solid financial
results, while continuing to invest in the business and returning over
$280 million to our shareholders through share repurchases during the
year.

“We are entering 2013 with a solid foundation to execute our strategy
and capitalize on the opportunities before us.  We remain focused on
driving profitable growth and creating superior value for our customers
and our shareholders.”

Fourth Quarter and Fiscal Year  2012 Summary


                                                                     Three months ended           Fiscal year ended
                                                                         December 31                 December 31

                                                                     2011          2012          2011          2012

    Revenue (in                                                 $ 1,753.4     $ 1,496.2     $ 7,213.0     $ 6,507.2
    millions) ........................................

    IFRS net earnings (in millions) (i) ......................  $    69.2     $     7.2     $   195.1     $   117.7  

    IFRS EPS                                                    $    0.32     $    0.04     $    0.89     $    0.56
    (i) .......................................................

    Adjusted net earnings (non-IFRS) (in millions)(ii)          $    71.1     $    50.3     $   241.9     $   205.8  

    Adjusted EPS (non-IFRS)(i)(ii) ............................ $    0.33     $    0.25     $    1.11     $    0.98  

    Non-IFRS return on invested capital (ROIC)(ii) ...               27.5 %        18.4 %        27.5 %        21.5 %

    Non-IFRS operating margin(ii) ............................        3.8 %         3.1 %         3.6 %         3.3 %

i.     International Financial Reporting Standards (IFRS) net earnings
for the fourth quarter of 2012 included an aggregate charge of $0.13
(pre-tax) per share for stock-based compensation, amortization of
intangible assets (excluding computer software) and restructuring
charges. This is within the range we provided on October 23, 2012 of a
charge between $0.08 and $0.14 per share. IFRS net earnings for the
fourth quarter of 2012 also included a $0.09 (pre-tax) per share
impairment charge, primarily against goodwill. Included in the fourth
quarter of 2012 adjusted EPS (non-IFRS) of $0.25 was a net income tax
benefit of $0.06 per share arising from a corporate tax reorganization
involving certain of our European subsidiaries and changes to our tax
provisions related to certain tax uncertainties.

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.

End Markets by Quarter as a Percentage of Total Revenue


                                                                        2011                                                   2012

                                        Q1         Q2         Q3         Q4         FY         Q1         Q2         Q3         Q4         FY

    Communications (i) .....            36 %       34 %       34 %       33 %       35 %       33 %       32 %       37 %       37 %       35 %

    Consumer ...................        26 %       25 %       25 %       26 %       25 %       23 %       21 %       15 %        9 %       18 %

    Diversified (ii) ..............     11 %       13 %       16 %       18 %       14 %       19 %       19 %       21 %       23 %       20 %

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

    Storage .......................     12 %       11 %       11 %       10 %       11 %       10 %       12 %       13 %       14 %       12 %

    Revenue (in billions) ...       $ 1.80     $ 1.83     $ 1.83     $ 1.75     $ 7.21     $ 1.69     $ 1.74     $ 1.58     $ 1.50     $ 6.51  

i.     We combined enterprise communications and telecommunications 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 Research In Motion Limited (RIM)
and Restructuring Update

In June 2012, we announced that we would wind down our manufacturing
services for RIM.  We completed our manufacturing services for RIM and
the related transition activities by the end of 2012. Revenue from RIM
was minimal in the fourth quarter of 2012 and it represented 12% of our
total revenue in full year 2012 (full year 2011 — 19%).

Due to the historical significance of RIM to our operations and in order
to improve our margin performance, we announced that we would take
restructuring actions throughout our global network to reduce our
overall cost structure. In July 2012, we estimated total restructuring
charges of between $40 million and $50 million. Our current estimate of
the total restructuring charges to complete our planned actions, which
we expect to complete by the end of June 2013, is between $55 million
and $65 million, taking into account additional actions in response to
the continued challenging demand environment. Of this amount, we
recorded $16.7 million in the fourth quarter of 2012 and $44.0 million
in 2012.

Substantial Issuer Bid (SIB)
During the fourth quarter of 2012, we launched and successfully
completed a SIB to repurchase for cancellation $175 million of our
subordinate voting shares. We repurchased for cancellation
approximately 22.4 million subordinate voting shares at a price of
$7.80 per share, representing approximately 12% of the subordinate
voting shares issued and outstanding prior to completion of the SIB. We
funded the share repurchases using a combination of cash on hand and
cash from our revolving credit facility.

First Quarter 2013 Outlook
For the first quarter ending March 31, 2013, we anticipate revenue to be
in the range of $1.325 to $1.425 billion, and adjusted net earnings per
share to be in the range of $0.11 to $0.17.  We expect a negative $0.07
to $0.13 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.

Fourth Quarter Webcast
Management will host its fourth quarter results conference call today at
4:30 p.m. Eastern Standard 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 securities 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 acquisitions and program wins or losses on our financial
results and working capital requirements; anticipated expenses,
restructuring charges, capital expenditures or benefits; our expected
tax outcomes; our cash flows, financial targets and priorities; changes
in our mix of revenue by end markets; 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
provincial and territorial 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: 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 and changes in the outsourcing strategies of our customers,
including the insourcing of programs by them; the challenges of
diversifying our customer base, including the extent and timing of
replacement business for lost programs or customer disengagements; 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
challenges of completing our restructuring activities or integrating
our acquisitions; and the risk of potential non-performance by
counterparties, including but not limited to financial institutions,
customers and suppliers. 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: 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. 

Schedule 1

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 of 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                               Year ended
                                                                                               December 31                                  December 31

                                                                                     2011                  2012                  2011                  2012

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

    Revenue .........................................................     $ 1,753.4             $ 1,496.2             $ 7,213.0             $ 6,507.2          

    IFRS gross profit ...........................................         $   122.1      7.0%   $    99.8      6.7%   $   491.4      6.8%   $   438.4      6.7%

      Stock-based compensation ............................                     3.8                   2.9                  15.5                  13.4          

    Non-IFRS gross profit...................................              $   125.9      7.2%   $   102.7      6.9%   $   506.9      7.0%   $   451.8      6.9%

    IFRS SG&A .......................................................     $    58.5      3.3%   $    54.7      3.7%   $   253.4      3.5%   $   237.0      3.6%

      Stock-based compensation ..............................                  (5.9 )                (4.9 )               (28.7 )               (22.2 )        

    Non-IFRS SG&A ...............................................         $    52.6      3.0%   $    49.8      3.3%   $   224.7      3.1%   $   214.8      3.3%

    IFRS earnings before income taxes .............                       $    54.2             $     2.2             $   198.8             $   111.9          

      Finance costs ...................................................         1.1                   1.0                   5.4                   3.5          

      Stock-based compensation ..............................                   9.7                   7.8                  44.2                  35.6          

      Amortization of intangible assets (excluding                              0.8                   1.5                   6.2                   4.1
      computer software) .........................................

      Restructuring and other charges, net of                                   1.0                  34.5                   6.5                  59.5
      recoveries ........................................................

    Non-IFRS operating earnings (EBIAT) (1) ....                          $    66.8      3.8%   $    47.0      3.1%   $   261.1      3.6%   $   214.6      3.3%

    IFRS net earnings ..........................................          $    69.2      3.9%   $     7.2      0.5%   $   195.1      2.7%   $   117.7      1.8%

      Stock-based compensation .............................                    9.7                   7.8                  44.2                  35.6          

      Amortization of intangible assets (excluding                              0.8                   1.5                   6.2                   4.1
      computer software) ..........................................

      Restructuring and other charges, net of                                   1.0                  34.5                   6.5                  59.5
      recoveries ........................................................

      Adjustments for taxes (2) .................................              (9.6 )                (0.7 )               (10.1 )               (11.1 )        

    Non-IFRS adjusted net earnings ..................                     $    71.1      4.1%   $    50.3      3.4%   $   241.9      3.4%   $   205.8      3.2%

    Diluted EPS .....................................................                                                                                          

      Weighted average # of shares (in millions) .....                        218.7                 203.4                 218.3                 210.5          

      IFRS earnings per share .................................           $    0.32             $    0.04             $    0.89             $    0.56          

      Non-IFRS adjusted net earnings per share .....                      $    0.33             $    0.25             $    1.11             $    0.98          

      # of shares outstanding (in millions) ................                  216.5                 182.8                 216.5                 182.8          

    IFRS cash provided by operations ..............                       $    96.8             $   104.6             $   196.3             $   312.4          

      Purchase of property, plant and equipment,                               (6.8 )               (13.4 )               (45.2 )               (97.0 )
      net of sales proceeds ......................................

      Finance costs paid ..........................................            (1.0 )                (1.0 )                (7.0 )                (4.0 )        

    Non-IFRS free cash flow (3)..........................                 $    89.0             $    90.2             $   144.1             $   211.4          

    ROIC % (4) ........................................................         27.5%                18.4 %                 27.5%                 21.5%        
      1. EBIAT is defined as earnings before interest, amortization of
         intangible 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 five-point
         average to calculate average net invested capital for the year.
         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                    Year ended
                                                                                                   ended December 31                December 31

                                                                                                  2011          2012           2011          2012

    Non-IFRS operating earnings (EBIAT) ..................                                   $    66.8     $    47.0     $   261.1      $   214.6  

    Multiplier ...............................................................                       4             4             1              1  

    Annualized EBIAT .................................................                       $   267.2     $   188.0     $   261.1      $   214.6  

    Average net invested capital for the period ...........                                  $   972.1     $ 1,021.1     $   950.7      $   997.1  

    ROIC % ..................................................................                     27.5 %        18.4 %        27.5  %        21.5 %

                                                                               December 31     March 31        June 30   September 30   December 31
                                                                                  2011           2012             2012       2012          2012

    Net invested capital consists of:                                                                                                              

    Total assets ............................................................  $ 2,969.6     $ 2,955.4     $ 2,951.2     $ 2,885.5      $ 2,658.8  

    Less: cash ..............................................................      658.9         646.7         630.6         598.2          550.5  

    Less: accounts payable, accrued and other current
    liabilities, provisions and income taxes payable ......                      1,346.6       1,317.8       1,332.1       1,209.6        1,143.9

    Net invested capital by quarter ...............................            $   964.1     $   990.9     $   988.5     $ 1,077.7      $   964.4  

                                                                               December 31     March 31       June 30    September 30   December 31
                                                                                  2010           2011          2011          2011          2011

    Net invested capital consists of:                                                                                                              

    Total assets ............................................................  $ 3,013.9     $ 2,997.3     $ 3,020.6     $ 2,914.8      $ 2,969.6  

    Less: cash ..............................................................      632.8         584.0         552.6         586.1          658.9  

    Less: accounts payable, accrued and other current
    liabilities, provisions and income taxes payable ......                      1,552.6       1,483.1       1,417.3       1,348.6        1,346.6

    Net invested capital by quarter ................................           $   828.5     $   930.2     $ 1,050.7     $   980.1      $   964.1  

GUIDANCE SUMMARY


                                  Q4 12                    Q1 13 Guidance
                                Guidance    Q4 12 Actual              (1)

    Revenue                     $1.425 to          $1.50        $1.325 to
    (in billions).............     $1.525                          $1.425

    Adjusted EPS (diluted) (2)   $0.15 to          $0.25   $0.11 to $0.17
    ...                             $0.21

(1)  We expect a negative$0.07 to $0.13 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.

(2)  Included in the fourth quarter of 2012 adjusted EPS (non-IFRS) of
$0.25 was a net income tax benefit of $0.06 per share arising from a
corporate tax reorganization involving certain of our European
subsidiaries and changes to our tax provisions related to certain tax
uncertainties.

 

CELESTICA INC.  

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


                                                                                December 31   December 31
                                                                                   2011          2012

    Assets                                                                                               

    Current assets:                                                                                      

      Cash and cash equivalents (note 12) ...................                   $   658.9     $   550.5  

        Accounts receivable (note 5) ..............................                 810.8         700.5  

        Inventories (note 6) ............................................           880.7         745.7  

        Income taxes receivable .....................................                 9.1          13.8  

        Assets classified as held-for-sale .......................                   32.1          30.8  

        Other current assets ..........................................              71.0          69.4  

    Total current assets ..............................................           2,462.6       2,110.7  

    Property, plant and equipment ...............................                   322.7         337.0  

    Goodwill ................................................................        48.0          60.3  

    Intangible assets ....................................................           35.5          53.0  

    Deferred income taxes ...........................................                41.4          36.6  

    Other non-current assets ......................................                  59.4          61.2  

    Total assets ..........................................................     $ 2,969.6     $ 2,658.8  

    Liabilities and Equity                                                                               

    Current liabilities:                                                                                 

      Borrowings under credit facilities (note 7) .............                 $ --     $    55.0  

      Accounts payable ...............................................            1,002.6         831.6  

      Accrued and other current liabilities .....................                   268.7         243.7  

      Income taxes payable ..........................................                39.0          37.8  

      Current portion of provisions ...............................                  36.3          30.8  

    Total current liabilities ...........................................         1,346.6       1,198.9  

    Retirement benefit obligations (note 9) ..................                      120.5         116.2  

    Provisions and other non-current liabilities ............                        11.1          13.5  

    Deferred income taxes ..........................................                 27.6          13.5  

    Total liabilities .......................................................     1,505.8       1,342.1  

    Equity:                                                                                              

      Capital stock (note 8) ..........................................           3,348.0       2,774.7  

      Treasury stock (note 8) .......................................              (37.9)        (18.3)  

      Contributed surplus .............................................             369.5         653.2  

      Deficit ................................................................. (2,203.5)     (2,097.0)  

      Accumulated other comprehensive income (loss)                                (12.3)           4.1  

    Total equity ...........................................................      1,463.8       1,316.7  

    Total liabilities and equity .......................................        $ 2,969.6     $ 2,658.8  

Contingencies (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                Year ended

                                                                                                   December 31                 December 31

                                                                                              2011          2012          2011          2012

    Revenue .........................................................................    $ 1,753.4     $ 1,496.2     $ 7,213.0     $ 6,507.2  

    Cost of sales (note 6) .....................................................           1,631.3       1,396.4       6,721.6       6,068.8  

    Gross profit ....................................................................        122.1          99.8         491.4         438.4  

    Selling, general and administrative expenses (SG&A) .......                               58.5          54.7         253.4         237.0  

    Research and development ..............................................                    4.7           3.7          13.8          15.2  

    Amortization of intangible assets ......................................                   2.6           3.7          13.5          11.3  

    Other charges (note 10) ...................................................                1.0          34.5           6.5          59.5  

    Earnings from operations ..................................................               55.3           3.2         204.2         115.4  

    Finance costs .................................................................            1.1           1.0           5.4           3.5  

    Earnings before income taxes ...........................................                  54.2           2.2         198.8         111.9  

    Income tax expense (recovery) (note 11):                                                                                                  

      Current .........................................................................      (5.6)          12.1          10.3          15.5  

      Deferred .......................................................................       (9.4)        (17.1)         (6.6)        (21.3)  

                                                                                            (15.0)         (5.0)           3.7         (5.8)  

    Net earnings for the period ...............................................          $    69.2     $     7.2     $   195.1     $   117.7  

    Basic earnings per share ..................................................          $    0.32     $    0.04     $    0.90     $    0.56  

    Diluted earnings per share ................................................          $    0.32     $    0.04     $    0.89     $    0.56  

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

      Basic ............................................................................     216.6         201.5         216.3         208.6  

      Diluted ..........................................................................     218.7         203.4         218.3         210.5  

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            Year ended

                                                             December 31             December 31

                                                          2011       2012        2011        2012

    Net earnings for the                               $ 69.2     $   7.2     $ 195.1     $ 117.7
    period ...........................................

    Other comprehensive income (loss), net of tax:                                                 

      Actuarial gains (losses) on pension plans (note     5.2      (11.2)         5.2      (11.2)
      9) .......

      Currency translation differences for foreign      (3.7)         0.1       (1.7)       (0.1)
      operations... 

      Change from derivatives designated as               1.0         0.3      (22.9)        16.5
      hedges ...........

    Total comprehensive income (loss) for the          $ 71.7     $ (3.6)     $ 175.7     $ 122.9
    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
                                                                                Treasury                                  comprehensive
                                                               Capital stock     stock      Contributed                   income (loss)
                                                                 (note 8)       (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                                           18.6        --       (6.7)           --      --             11.9
      stock ..............................................

      Purchase of treasury                                       --         (49.4)     --           --      --           (49.4)
      stock ...........................................

      Stock-based compensation and                               --           27.4        15.3           --      --             42.7
      other ...........................

    Total comprehensive income:                                                                                                                       

      Net earnings for                                           --        --     --             195.1      --            195.1
      2011 ...................................................

      Other comprehensive income (loss), net of tax:                                                                                                  

      Actuarial gains on pension plans (note                     --        --     --               5.2      --              5.2
      9) .....................

      Currency translation differences for foreign operations    --        --     --           --        (1.7)            (1.7)   

      Change from derivatives designated as                      --        --     --           --       (22.9)           (22.9)
      hedges ............

    Balance -- December 31,                                    $ 3,348.0       $ (37.9)     $ 369.5       $ (2,203.5)     $ (12.3)        $ 1,463.8
    2011 ......................................

    Capital transactions (note 8):                                                                                                                    

      Issuance of capital                                           18.3        --      (10.8)           --      --              7.5
      stock .............................................

      Repurchase of capital stock for                            (591.6)        --       302.0           --      --          (289.6)
      cancellation .................

      Purchase of treasury                                       --         (21.7)     --           --      --           (21.7)
      stock ..........................................

      Stock-based compensation and                               --           41.3       (4.1)           --      --             37.2
      other ..........................

      Reclassification of cash-settled stock-based
      compensation to accrued
      liabilities ...............................                --        --       (3.4)           --      --            (3.4)   

    Total comprehensive income:                                                                                                                       

      Net earnings for                                           --        --     --             117.7      --            117.7
      2012 ..................................................

      Other comprehensive income (loss), net of tax:                                                                                                  

      Actuarial losses on pension plans (note                                                                  (11.2)                        (11.2)
      9) ...................

      Currency translation differences for foreign operations    --        --     --           --        (0.1)            (0.1)   

      Change from derivatives designated as                      --        --     --           --         16.5             16.5
      hedges ............

    Balance -- December 31,                                    $ 2,774.7       $ (18.3)     $ 653.2       $ (2,097.0)     $    4.1        $ 1,316.7
    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            Year ended

                                                                                                                      December 31             December 31

                                                                                                                  2011        2012        2011        2012

    Cash provided by (used in):                                                                                                                             

    Operating activities:                                                                                                                                   

    Net earnings for the period .....................................................................          $  69.2     $   7.2     $ 195.1     $ 117.7  

    Adjustments for items not affecting cash:                                                                                                               

      Depreciation and amortization ..............................................................                18.9        20.9        77.2        81.7  

      Equity-settled stock-based compensation ............................................                         9.7         7.6        41.2        35.4  

      Other charges (recoveries) ..................................................................              (6.7)        18.9      (12.1)        30.8  

      Finance costs .....................................................................................          1.1         1.0         5.4         3.5  

      Income tax expense (recovery) ............................................................                (15.0)       (5.0)         3.7       (5.8)  

    Other ....................................................................................................  (24.5)       (5.7)      (31.3)      (11.2)  

    Changes in non-cash working capital items:                                                                                                              

      Accounts receivable .............................................................................         (32.7)        77.0       147.0       116.7  

      Inventories ............................................................................................    59.1        61.0         2.0       147.3  

      Other current assets ............................................................................          (5.7)         1.0         3.9         6.7  

      Accounts payable, accrued and other current liabilities and provisions                                      19.4      (73.3)     (216.9)     (193.1)  

    Non-cash working capital changes ..........................................................                   40.1        65.7      (64.0)        77.6  

    Net income taxes received (paid) ............................................................                  4.0       (6.0)      (18.9)      (17.3)  

    Net cash provided by operating activities ................................................                    96.8       104.6       196.3       312.4  

    Investing activities:                                                                                                                                   

    Acquisitions, net of cash acquired (note 3) .............................................                  --         0.4      (80.5)      (71.0)  

    Purchase of computer software and property, plant and equipment ........                                    (14.8)      (17.3)      (62.3)     (105.9)  

    Proceeds from sale of assets .................................................................                 8.0         3.9        17.1         8.9  

    Net cash used in investing activities .......................................................                (6.8)      (13.0)     (125.7)     (168.0)  

    Financing activities:                                                                                                                                   

    Borrowings under credit facilities (note 7) ...............................................                --        55.0     --        55.0  

    Issuance of capital stock (note 8) ...........................................................                 0.4         0.4        11.9         7.5  

    Repurchase of capital stock for cancellation (note 8) ..............................                       --     (175.8)     --     (289.6)  

    Purchase of treasury stock (note 8) ........................................................                (16.6)      (17.9)      (49.4)      (21.7)  

    Finance costs paid .................................................................................         (1.0)       (1.0)       (7.0)       (4.0)  

    Net cash used in financing activities ........................................................              (17.2)     (139.3)      (44.5)     (252.8)  

    Net increase (decrease) in cash and cash equivalents ...........................                              72.8      (47.7)        26.1     (108.4)  

    Cash and cash equivalents, beginning of period ....................................                          586.1       598.2       632.8       658.9  

    Cash and cash equivalents, end of period ..............................................                    $ 658.9     $ 550.5     $ 658.9     $ 550.5  

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 December 31, 2012 and the results of operations,
comprehensive income and cash flows for the three months and the year
ended December 31, 2012. 

The unaudited interim condensed consolidated financial statements were
authorized for issuance by our board of directors on January 22, 2013. 

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. 

Key sources of estimation uncertainty and judgment: We have applied significant estimates and assumptions in the following
areas which we believe could have a significant impact on our reported
results and financial position: our valuations of inventory, assets
held for sale and income taxes;  the amount of restructuring charges or
recoveries;  the measurement of the recoverable amount of our cash
generating units (CGU); our valuations of financial assets and
liabilities, retirement benefit costs, stock-based compensation,
provisions and contingencies; and the allocation of our purchase price
and other valuations we use in our business acquisitions. The near-term
economic environment could also impact certain estimates necessary to
prepare our consolidated financial statements, in particular the
recoverable amount used in our impairment testing of our non-financial
assets, the rate of return on our pension assets and the discount rates
applied to our pension and retirement liabilities.

We have applied significant judgment to the following areas: the
determination of our CGUs and whether events or changes in
circumstances during the year are indicators that a review for
impairment should be conducted; and the timing of restructuring plans.

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. ACQUISITIONS 

In September 2012, we completed the acquisition of D&H Manufacturing
Company (D&H), a leading manufacturer of precision machined components
and assemblies based in California, U.S.A. D&H provides 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 final purchase price
was $71.0, net of cash acquired, which we financed from cash on hand.
Details of the final purchase price allocation are as follows:


              Current assets, net of cash acquired .....                  $ 21.6  

              Property, plant and equipment ..............                  15.1  

              Customer intangible assets ...................                24.0  

              Goodwill ................................................     26.4  

              Current liabilities ....................................     (4.2)  

              Deferred income taxes ...........................           (11.9)  

                                                                          $ 71.0  

Through this acquisition, we have further enhanced our entry into the
semiconductor capital equipment market.  We added precision machining
capabilities to our service offerings and have acquired engineering and
technical depth that we can leverage with our existing semiconductor
customers, as well as expand to other customers in our diversified
markets. We do not expect any of the goodwill will be tax deductible.
We expensed $0.9 in acquisition-related transaction costs during the
year through other charges. This acquisition did not have a significant
impact on our consolidated results of operations for 2012.

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. The purchase
was financed from cash on hand and $45.0 from our revolving credit
facility which we repaid in the third quarter of 2011. On the
acquisition date, we recorded $33.8 in goodwill and $12.5 in intangible
assets. We expensed $0.6 in acquisition-related transaction costs
during 2011 through other charges. 

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 was
subject to adjustment for contingent consideration if specific
pre-determined financial targets were achieved through 2012. At
December 31, 2011, we had a provision of $3.2 related to this
contingent consideration. During 2012, we determined that this
provision was no longer necessary and released this provision through
other charges (note 10(d)).

Pro forma disclosure: Revenue and earnings for each period would not have been materially
different had the acquisitions occurred at the beginning of their
respective years.

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 customers, the phasing in or out of programs,
the success in the marketplace of our customers’ products, and changes
in customer demand.  We expect that the pace of technological change,
the frequency of customers transferring business among EMS competitors
and the level of outsourcing by customers (including decisions on
insourcing), 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 combined our enterprise
communications and telecommunications end markets into one
communications end market for reporting purposes. We also combined
prior period percentages. 


                                 Three months ended           Year ended

                                      December 31            December 31

                                 2011        2012        2011         2012

    Communications .....         33 %   37 %            35 %         35 %  

    Consumer ...............     26 %    9 %            25 %         18 %  

    Diversified ..............   18 %   23 %            14 %         20 %  

    Servers ..................   13 %   17 %            15 %         15 %  

    Storage ..................   10 %   14 %            11 %         12 %

Customers:  

For the fourth quarter and full year 2012, we had two customers that
individually represented more than 10% of total revenue (fourth quarter
and full year 2011 – two customers). We completed our manufacturing
services for Research In Motion Limited (RIM) and the related
transition activities by the end of 2012. Our revenue from RIM was
minimal in the fourth quarter of 2012 (third quarter of 2012 — 10%;
fourth quarter of 2011 — 20%). For the full year 2012, RIM accounted
for 12% of total revenue (full year 2011 — 19%).

5. ACCOUNTS RECEIVABLE 

In November 2012, we entered into an agreement to sell up to $375.0 in
accounts receivable on an uncommitted basis (subject to pre-determined
limits by customer) to two third-party banks. Both banks had a Standard
and Poor’s long-term rating of A or above and a short-term rating of
A-1at December 31, 2012. This agreement has no fixed termination date
and can be terminated at any time by us or the banks.  At December 31,
2012, we had sold $50.0 of accounts receivable under this facility
(December 31, 2011 – $60.0 under a prior facility). The accounts
receivable 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
accounts receivable to the banks.  We continue to collect cash from our
customers and remit the cash to the banks when collected. We pay
interest and fees which we record through finance costs in our
consolidated statement of operations.

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, and valuation
recoveries primarily to reflect realized gains on the disposition of
inventory previously written down. We recorded net inventory provisions
of $1.1 and $5.3, respectively, for the fourth quarter and full year
2012. We recorded net inventory recoveries of $0.1 for the fourth
quarter of 2011 and net inventory provisions of $4.5 for full year
2011. We regularly review our estimates and assumptions used to value
our inventory through analysis of historical performance. During 2012,
our net inventory provisions of $5.3 were comprised of new net
provisions of $10.9 for aged inventory, offset in part by a $5.6 credit
reflecting the improved recovery of certain 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. In December 2012, we completed a substantial issuer
bid (SIB) to repurchase for cancellation $175 of our subordinate voting
shares which we funded in part through this credit facility. See note
8. At December 31, 2012, we had drawn $55.0 under this facility
(December 31, 2011 — no amounts drawn), and we were in compliance with
all covenants.  Commitment fees paid in the fourth quarter and full
year 2012 were $0.5 and $2.0, respectively. At December 31, 2012, we
had issued $31.1 of letters of credit under this facility. 

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

In the fourth quarter of 2012, we launched and successfully completed
the SIB pursuant to which we repurchased for cancellation $175 of our
subordinate voting shares. We repurchased for cancellation
approximately 22.4 million subordinate voting shares at a price of
$7.80 per share, representing approximately 12% of our subordinate
voting shares issued and outstanding prior to completion of the SIB. We
also recorded $0.8 in transaction related costs. We funded the share
repurchases using a combination of cash on hand and cash from our
revolving credit facility. See note 7.

On February 7, 2012, the TSX accepted our Normal Course Issuer Bid
(NCIB) that allows us to repurchase, at our discretion, until the
earlier of February 8, 2013 or the completion of purchases under the
bid, up to 16.2 million subordinate voting shares 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 purchased for equity-based
compensation plans (see below). During the fourth quarter of 2012, we
did not repurchase any subordinate voting shares for cancellation under
the NCIB. As of December 31, 2012, we have paid $113.8, including
transaction fees, to repurchase for cancellation a total of 13.3
million shares at a weighted average price of $8.52 per share under the
NCIB since its commencement in February 2012.

We have granted share unit awards to employees under our equity-based
compensation plans. We have the option to satisfy the delivery of
shares upon vesting of the awards by issuing new subordinate voting
shares from treasury, purchasing subordinate voting shares in the open
market, or by cash. 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 shares upon vesting of awards. For accounting purposes,
we classify these shares as treasury stock until they are delivered
pursuant to the plans. In the fourth quarter of 2012, we entered into
an Automatic Share Purchase Plan (ASPP) with a trustee for the purchase
of 2.2 million subordinate voting shares in the open market to satisfy
the deliveries in respect of share unit awards vesting in the first
quarter of 2013. This ASPP allows the trustee to purchase our
subordinate voting shares for such purposes at any time through January
31, 2013, including during any applicable trading blackout periods. We
have paid $17.9 to the trustee to fund purchases under this ASPP.
During 2012, we also paid $3.8 for the trustee’s purchase of 0.4
million subordinate voting shares prior to the ASPP for delivery under
our equity-based compensation plans. During the fourth quarter and full
year 2011, we paid $16.6 and $49.4, respectively, for the trustee’s
purchase of 2.0 million and 5.7 million, respectively, subordinate
voting shares in the open market. At December 31, 2012, the trustee
held 0.8 million subordinate voting shares, with a value of $6.4, and
$11.9 in cash, representing the estimated amount of cash required to
complete the ASPP program (December 31, 2011 — held 4.5 million with a
value of $37.9).

In 2010, we elected to cash-settle certain awards vesting in the first
quarter of 2011 due to limitations on the number of subordinate voting
shares we could purchase in the open market during the term of a prior
share buy-back program. We also elected to cash-settle certain RSUs
vesting in the fourth quarter of 2012 due to a prohibition on our
purchase of subordinate voting shares in the open market during the
SIB.  We account for cash-settled awards as liabilities and we
remeasure these based on our share price at each reporting date until
the settlement date, with a corresponding charge to compensation
expense. The mark-to-market adjustment on these cash-settled awards was
$0.2 for 2012 (2011 — $2.7). When we made the decision in the fourth
quarter of 2012 to settle these awards with cash, we reclassified $3.4,
representing the fair value of these awards, from contributed surplus
to accrued liabilities. As management currently intends to settle all
other share unit awards with shares purchased in the open market by a
trustee, we have accounted for these share unit awards as
equity-settled awards. 

For the fourth quarter and full year 2012, stock-based compensation
expense was $7.8 and $35.6, respectively (fourth quarter and full year
2011 — $9.7 and $44.2, respectively). The amount of our stock-based
compensation expense varies each period, and includes mark-to-market
adjustments for awards we settled in cash (see above) and plan
adjustments. The portion of our expense that relates to
performance-based compensation 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 2012 (2011 –
$4.8).

During 2012, we received cash proceeds of $7.5 (2011 — $11.9) relating
to the exercise of stock options.

9. PENSION AND NON-PENSION POST-EMPLOYMENT BENEFIT PLANS

We provide pension and non-pension post-employment benefit plans for our
employees. Our obligations are determined based on actuarial
valuations. We recognize actuarial gains or losses arising from defined
benefit and post-retirement benefit plans through other comprehensive
income and directly in deficit. For 2012, we recognized $11.2 of net
actuarial losses, net of tax (2011 –  $5.2 of net actuarial gains, net
of tax). The measurement date used for the accounting valuation of our
pension and non-pension post-employment benefit plans was
December 31, 2012.

10. OTHER CHARGES (RECOVERIES)


                                           Three months ended            Year ended

                                                December 31             December 31

                                            2011        2012        2011        2012

    Restructuring                        $   7.7     $  16.7     $  14.5     $  44.0
    (a) ..................

    Asset impairment (b) ............    --        17.7     --        17.7  

    Recovery of damages (c) ......         (5.2)     --       (5.2)     --  

    Other                                  (1.5)         0.1       (2.8)       (2.2)
    (d) ..............................

                                         $   1.0     $  34.5     $   6.5     $  59.5  

(a) Restructuring:  

Our restructuring charges are comprised of the following: 


                                             Three months ended          Year ended

                                                  December 31            December 31

                                               2011        2012       2011       2012

    Cash                                    $   7.7     $ 15.5     $ 18.2     $ 27.8
    charges .............................

    Non-cash charges (recoveries) .....     --        1.2      (3.7)       16.2  

                                            $   7.7     $ 16.7     $ 14.5     $ 44.0  

Our restructuring charges in 2012 were related to the wind down of our
manufacturing services for RIM and other actions throughout our global
network.  We completed our manufacturing services for RIM in Romania
and Malaysia at the end of June 2012 and substantially all of the RIM
manufacturing services in Mexico by the end of September 2012. Due to
the historical significance of RIM to our operations and in order to
improve our overall margin performance, we previously announced that we
would take restructuring actions throughout our global network to
reduce our overall cost structure. In July 2012, we estimated total
restructuring charges of between $40.0 and $50.0 in connection with
these restructuring actions. Our current estimate of the total
restructuring charges to complete our planned actions, which we expect
to complete by the end of June 2013, is between $55.0 and $65.0, taking
into account additional actions in response to the continued
challenging demand environment. Of this amount, we recorded $16.7 in
the fourth quarter of 2012 and $44.0 in 2012.  In 2012, we recorded
cash charges of $27.8, primarily related to employee termination costs
for our RIM operations and other actions throughout our global
network.  We also recorded non-cash charges of $16.2 primarily to write
down to recoverable amounts the RIM-related equipment that was no
longer in use in Mexico, Romania and Malaysia. Also see the discussion
on asset impairment in note 10(b).

The recognition of our restructuring charges required 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, and the timing of disposition and
estimated fair values used for assets available for sale. We developed
a detailed plan and have recorded termination costs for employees with
whom we have communicated.  We engaged independent brokers to determine
the estimated fair values less costs to sell for assets we no longer
used and which were available for sale. We recognized an impairment
loss for assets whose carrying amount exceeded the fair values less
costs to sell as determined by the third-party brokers. We also
recorded adjustments to reflect actual proceeds on disposition of these
assets.  At the end of each reporting period, we evaluate the
appropriateness of our restructuring charges and balances.  Further
adjustments may be required to reflect actual experience or changes in
estimates.

Our restructuring charges for 2011 were primarily for employee
termination costs.  We also recorded recoveries resulting from the sale
of vacated properties and surplus equipment against our restructuring
charges.

At December 31, 2012, our restructuring provision was $14.8, comprised
primarily of employee termination costs which we expect to pay during
the first half of 2013. 

(b) Asset impairment: 

We conduct our annual impairment assessment of goodwill, intangible
assets and property, plant and equipment in the fourth quarter of each
year and whenever events or changes in circumstance indicate that the
carrying amount of an asset or CGU may not be recoverable. We recognize
an impairment loss when the carrying amount of an asset or CGU or group
of CGUs exceeds the recoverable amount, which is measured as the
greater of its value-in-use and its fair value less costs to sell.

In the second quarter of 2012, we tested the carrying amounts of the
CGUs impacted by the wind down of our manufacturing services for RIM in
Mexico, Romania and Malaysia.  We recorded an impairment loss on the
RIM-related assets that were available for sale through restructuring
charges (note 10(a)).  We then compared the remaining carrying amounts
of these CGUs to their recoverable amounts and determined there was no
impairment to these assets that had not been recorded to restructuring
charges in 2012.

In the fourth quarter of 2012, we performed our annual impairment
assessment of goodwill, intangible assets and property, plant and
equipment. We recorded non-cash impairment charges totaling $17.7,
comprised of $14.6 against goodwill,  $0.7 against intangible assets
and $2.4 against property, plant and equipment. The majority of our
goodwill impairment related to the healthcare business we acquired in
2010. Our overall progress and the ability to ramp the healthcare
business has been slower than we originally anticipated. As a result,
we recorded an impairment loss of $11.9 relating to healthcare.

We determined the recoverable amount of our CGUs based on the expected
value-in-use. 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 projecting
cash flows, among other factors. The assumptions used in our impairment
assessment were determined based on past experiences adjusted for
expected changes in future conditions. Our major assumptions included
projections of cash flows, with primary emphasis on our 2013 plan. We
also considered our strategic plan which extends through 2015 and other
updates. Both the 2013 plan and the three-year strategic plan were
approved by management and presented to our board of directors. We used
cash flow projections ranging from 2 to 5 years for the impaired CGUs,
in line with the remaining useful lives of the CGUs’ primary assets. We
generally used our weighted-average cost of capital of approximately
13%, on a pre-tax basis, to discount our cash flows. For those CGUs
that were subject to higher risk and volatilities, we used discount
rates that ranged from 20% to 28% to reflect the risk inherent in the
cash flows. Where applicable, we worked with independent brokers to
obtain market prices to estimate our real property values.

We performed a sensitivity analysis to identify the impact of changes in
key assumptions, including discount rates and projected growth rates.
Our CGU arising from the acquisition of the semiconductor equipment
contract manufacturing operations of Brooks Automation, which includes
$33.8 of goodwill, has been impacted by the downturn in the
semiconductor industry. Nonetheless, this CGU continues to win new
programs from its significant customers and has assumed growth in 2013
and beyond. Failure to realize the assumed revenues at an appropriate
profit margin could result in an impairment in a future period. We did
not identify any other key assumptions where a reasonably possible
change would result in material impairments to our CGUs.

In 2011, we recorded no impairment against goodwill, intangible assets
or property, plant and equipment as the recoverable amounts exceeded
their carrying amounts.

(c) Recovery of damages:

In 2009, we recorded a provision related to a recovery of damages upon
settlement of a class action lawsuit. Based on management’s assessment
of the potential outcomes, we deemed this provision was no longer
necessary and released $5.2 during 2011 through other charges.

(d) Other:

Other includes realized recoveries on certain assets that were
previously written down through other charges and acquisition-related
transaction costs. During 2011 and 2012, we released a portion of our
provision related to the estimated fair value of contingent
consideration for our Allied Panels acquisition and recorded the
recoveries through other charges. We also recorded transaction costs
related to our acquisitions. See note 3.

11. 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 restructuring charges, foreign exchange fluctuations,
operating losses, and certain tax exposures.

During the fourth quarter of 2011, we formally settled tax audits of one
of our Malaysian subsidiaries related to the years 2001 through 2006
and 2009. As a result, we released $10.0 of provisions previously
recorded for Malaysian tax uncertainties. In addition, we recognized a
deferred tax recovery in Canada for an inter-company investment we
wrote off relating to a restructured subsidiary.

During the third quarter of 2012, we recorded an income tax recovery of
$10.6 arising from changes to our provisions related to certain tax
uncertainties. As a result of the D&H acquisition in September 2012, we
recognized $10.4 of previously unrecognized deferred tax assets in the
United States.

During the fourth quarter of 2012, we commenced a corporate tax
reorganization involving certain of our European subsidiaries. As a
result, we recognized $17.0 of deferred tax assets in the fourth
quarter of 2012 as it became probable that the temporary differences
associated with our investment in these subsidiaries would reverse in
the foreseeable future. These recoveries were partially offset by
income tax expense arising from changes to our provisions for certain
tax uncertainties.

12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT 

Our financial assets are comprised primarily of cash and cash
equivalents, accounts receivable 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   December 31
                                       2011          2012

    Cash ........................   $ 191.7       $ 265.3    

    Cash equivalents ......           467.2         285.2    

                                    $ 658.9       $ 550.5    

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 December 31, 2012 a Standard and Poor’s short-term
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 December 31, 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 December 31, 2012. 


                                                           Chinese    Malaysian     Canadian      Mexican        Thai
                                                           renminbi    ringgit       dollar         peso         baht

    Cash and cash                                          $ 33.9     $    2.9     $    2.6     $    3.0     $    2.3
    equivalents .................................

    Accounts                                                 19.3      --         13.9      --      --
    receivable ...........................................

    Other financial                                           1.6          0.6      --          0.6          0.4
    assets .........................................

    Accounts payable and certain accrued and other
      liabilities and
    provisions ....................................        (43.3)       (16.9)       (33.9)       (16.3)       (17.7)  

    Net financial assets                                   $ 11.5     $ (13.4)     $ (17.4)     $ (12.7)     $ (15.0)
    (liabilities) ............................

Foreign currency risk sensitivity analysis: 

At December 31, 2012, the financial impact of a one-percentage point
strengthening or weakening of the following currencies against the U.S.
dollar for our financial instruments denominated in 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                                      $   0.5     $ (0.1)     $ 2.1      $ --     $ --
      earnings ...............................

      Other comprehensive income ......        --         0.8       0.5            0.2           1.0  

    1% Weakening                                                                                           

      Net                                        (0.4)         0.1     (2.0)        --       --
      earnings ...............................

      Other comprehensive income ......        --       (0.8)     (0.4)          (0.2)         (1.0)

At December 31, 2012, we had forward exchange contracts to trade
U.S. dollars in exchange for the following currencies: 


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

    Canadian dollar ..........          $ 288.2        $ 1.01                 9   $ (0.7)   

    Thai baht ....................        118.3          0.03                15       2.1   

    Malaysian ringgit ........             87.6          0.32                15       1.1   

    Mexican peso .............             37.9          0.08                12       0.4   

    British pound ..............           68.3          1.62                 4       0.1   

    Chinese renminbi .......               34.1          0.16                12       0.1   

    Euro ...........................       11.9          1.31                 4       0.1   

    Romanian leu .............             11.3          0.28                12       0.5   

    Other ..........................       24.6                              12       0.5   

    Total ...........................   $ 682.2                                   $   4.2   

At December 31, 2012, the fair value of these contracts was a net
unrealized gain of $4.2 (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 December 31, 2012 was not significant, is
recognized immediately in our consolidated statement of operations. At
December 31, 2012, we recorded $6.2 of derivative assets in other
current assets and $2.0 of derivative liabilities in accrued and other
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.

13. 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. On October 15, 2012, the Ontario Superior Court of Justice
granted limited aspects of the defendants’ motion to strike, which
ruling is subject to appeal, but the court has not granted leave nor
certification of any actions. 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 should have been materially higher in 2001 and 2002 and
materially lower in 2003 and 2004 as a result of certain inter-company
transactions.

Canadian tax authorities have taken the position that certain interest
amounts deducted by one of our Canadian entities in 2002 through 2004
on historical debt instruments should be re-characterized as capital
losses. If tax authorities are successful with their challenge, we
estimate that the maximum net impact for additional income taxes and
interest expense could be approximately $30.5 million Canadian dollars
(approximately $30.6 at current exchange rates). We believe that our
asserted position is appropriate and would be sustained upon full
examination by the tax authorities and, if necessary, upon
consideration by the judicial courts. Our position is supported by our
Canadian legal tax advisers.

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 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 deferred tax liabilities by approximately 48.8
million Brazilian reais (approximately $23.9 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 our
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. 

SOURCE Celestica Inc.


Source: PR Newswire