Quantcast

CELESTICA ANNOUNCES THIRD QUARTER FINANCIAL RESULTS

October 28, 2010

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

Third Quarter 2010 Summary

  • Revenue of $1.55 billion, compared to $1.56 billion for the same period
    last year
  • GAAP net earnings of $35.4 million, or $0.15 per share, compared to a
    GAAP net loss of ($0.6) million, or $0.00 per share, last year
  • Non-GAAP adjusted net earnings of $0.20 per share, compared to $0.19 per
    share last year
  • Non-GAAP return on invested capital of 22.9%, compared to 24.2% last
    year
  • Non-GAAP operating margin of 3.4%, compared to 3.7% last year
  • Inventory turns of 8.0x
  • Non-GAAP free cash flow of $81 million, cash on hand of $706 million
  • Company repurchases 4.7 million shares for cancellation
  • Fourth quarter of 2010 guidance: revenue of $1.70 billion to $1.85
    billion, non-GAAP adjusted net earnings per share of $0.20 to $0.26.

TORONTO, Oct. 28 /PRNewswire-FirstCall/ – Celestica Inc. (NYSE, TSX: CLS), a global
leader in the delivery of end-to-end product lifecycle solutions, today
announced financial results for the third quarter ended September 30,
2010.

Third Quarter and YTD Results
Revenue for the quarter was $1.55 billion, compared to $1.56 billion in
the third quarter of 2009. GAAP net earnings were $35.4 million, or
$0.15 per share, compared to GAAP net loss of ($0.6) million, or $0.00
per share, for the same period last year.

Adjusted net earnings for the quarter were $46.3 million, or $0.20 per
share, compared to $44.3 million, or $0.19 per share, for the same
period last year. The term adjusted net earnings is a non-GAAP measure
defined as net earnings before stock-based compensation, amortization
of intangible assets (excluding computer software), restructuring and
other charges, and gains or losses related to the repurchase of shares
or debt, net of tax adjustments and significant deferred tax write-offs
or recoveries. Detailed GAAP financial statements and supplementary
information related to adjusted net earnings and other non-GAAP
measures appear at the end of this press release.

For the nine months ended September 30, 2010, revenue was $4.65 billion,
compared to $4.43 billion for the same period in 2009. GAAP net
earnings were $55.2 million, or $0.24 per share, compared to $23.9
million, or $0.10 per share, for the same period last year. Adjusted
net earnings for the nine months ended September 30, 2010 were $137.7
million, or $0.59 per share, compared to $109.0 million, or $0.47 per
share, for the same period in 2009.

Third Quarter Results Compared to Guidance
The company’s revenue of $1,547 million and adjusted net earnings of
$0.20 per share for the third quarter of 2010 were at the low end of
the company’s published guidance, announced on July 23, 2010, of
revenue of $1.55 billion to $1.65 billion, and adjusted net earnings
per share of $0.20 to $0.24.

“Celestica’s third quarter revenue and inventory were impacted by some
demand changes late in the quarter,” said Craig Muhlhauser, President
and Chief Executive Officer, Celestica. “Despite this volatility, we
delivered consistent operating margins, strong free cash flow, ROIC
greater than 20% and continued operational excellence in support of our
customers.

“Our fourth quarter outlook reflects strong sequential revenue growth of
approximately 15% at the midpoint of our guidance, fueled primarily by
recent program wins in our server and consumer end markets and a stable
demand forecast for the balance of our customer portfolio.”

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

  2009 2010
  First Quarter Second Quarter Third Quarter Fourth Quarter Full

Year

First Quarter Second Quarter Third Quarter Year to Date
Consumer ………………………………………………………… 29% 22% 32% 32% 29% 29% 28% 26% 27%
Enterprise Communications ………………………………… 21% 23% 20% 20% 21% 21% 22% 23% 22%
Telecommunications ………………………………………….. 18% 20% 12% 11% 15% 14% 13% 14% 13%
Storage …………………………………………………………….   8% 12% 13% 13% 12% 14% 12% 12% 13%
Servers ……………………………………………………………. 13% 12% 13% 14% 13% 12% 14% 13% 13%
Industrial, Aerospace and Defense, and Healthcare .. 11% 11% 10% 10% 10% 10% 11% 12% 12%
                   
Revenue (in millions) …………………………………………. $1,469.4 $1,402.2 $1,556.2 $1,664.4 $6,092.2 $1,518.1 $1,585.4 $1,546.5 $4,650.0

Celestica Share Repurchase Plan
During the third quarter, the company paid $37.3 million to repurchase
for cancellation approximately 4.7 million subordinate voting shares.
The share repurchases were part of the company’s Normal Course Issuer
Bid (NCIB), approved by the Toronto Stock Exchange in July of 2010,
which allows the company to repurchase, until August 2, 2011, up to
approximately 18 million, or 9%, of its subordinate voting shares on
the open market or as otherwise permitted subject to the normal terms
and limitations of such bids.  During the quarter, the company also
paid $11.1 million to purchase 1.3 million shares for employee
equity-based incentive programs. The total number of subordinate voting
shares which may be repurchased for cancellation under the NCIB is
reduced by the number of subordinate voting shares purchased for
employee equity-based incentive programs. At September 30, 2010,
approximately 12.0 million shares may be repurchased under our NCIB.

Fourth Quarter of 2010 Outlook
For the fourth quarter ending December 31, 2010, the company anticipates
revenue to be in the range of $1.70 billion to $1.85 billion, and
adjusted net earnings per share to be in the range of $0.20 to $0.26. 
The company expects a negative $0.05 to $0.12 per share (pre-tax)
impact on a GAAP basis for the following items: quarterly stock-based
compensation, amortization of intangible assets (excluding computer
software) and restructuring charges.

Third Quarter Webcast
Management will host its quarterly results conference call today at 8:00
a.m. Eastern. The webcast can be accessed at www.celestica.com.

Supplementary Information
In addition to disclosing detailed results in accordance with Canadian
generally accepted accounting principles (GAAP), Celestica provides
supplementary non-GAAP measures to consider in evaluating the company’s
operating performance.  See Schedule I.

Management uses adjusted net earnings and other non-GAAP 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 our 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 http://www.celestica.com. The company’s security filings can also be accessed at http://www.sedar.com and http://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 and operational
results including quarterly guidance and the impact of recent program
wins on our financial results and anticipated expenses, benefits or
payments, our financial or operational performance, and our financial
targets. 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”, 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 any applicable
Canadian securities legislation. Forward-looking statements are not
guarantees of future performance. You should understand that the
following important factors could affect our future results and could
cause those results to differ materially from those expressed in such
forward-looking statements: the effects of price competition and other
business and competitive factors generally affecting the electronics
manufacturing services (EMS) industry, including changes in the trend
for outsourcing; our dependence on a limited number of customers and
end markets; variability of operating results among periods; the
challenges of effectively managing our operations, including responding
to significant changes in demand from our customers; the challenges of
managing rising labor costs; our inability to retain or expand our
business due to execution problems resulting from significant headcount
reductions, plant closures and product transfer activities; the delays
in the delivery and/or general availability of various components and
materials used in our manufacturing process; our dependence on
industries affected by rapid technological change; our ability to
successfully manage our international operations; the challenge of
managing our financial exposures to foreign currency volatility; 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 the company, are discussed in the Company’s 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.

As of its date, this press release contains any material information
associated with the Company’s financial results for the third quarter
ended September 30, 2010 and revenue, adjusted net earnings and GAAP
net earnings guidance for the fourth quarter ending December 31, 2010. 
Revenue and earnings guidance is reviewed by the Company’s Board of
Directors.  Our revenue and earnings guidance 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; timing and
investments associated with ramping new business; 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; and the timing and
execution of our restructuring plan. These assumptions 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 revenue and earnings guidance is
effective on the date given, and will only be updated through a public
announcement. 

Schedule I

Supplementary Non-GAAP Measures
Our non-GAAP 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, return on invested
capital, free cash flow, cash cycle days and inventory turns. In
calculating these non-GAAP financial measures, management excludes the
following items:  stock-based compensation, amortization of intangible
assets (excluding amortization of computer software), restructuring and
other charges (most significantly restructuring charges), the
write-down of goodwill and long-lived assets, 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-GAAP measures do not have any standardized meaning prescribed
by Canadian or U.S. GAAP and are not necessarily comparable to similar
measures presented by other companies. Non-GAAP measures are not
measures of performance under Canadian or U.S. GAAP and should not be
considered in isolation or as a substitute for any standardized measure
under Canadian or U.S. GAAP.  The most significant limitation to
management’s use of non-GAAP financial measures is that the charges and
expenses excluded from the non-GAAP measures are nonetheless charges
that are recognized under GAAP and that have an economic impact on the
company.  Management compensates for these limitations primarily by
issuing GAAP results to show a complete picture of the company’s
performance, and reconciling non-GAAP results back to GAAP.

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

Stock-based compensation, which represents the estimated fair value of
stock options and restricted stock 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. Prior to the
fourth quarter of 2009, the company only excluded stock options from
its non-GAAP measures.  Comparables for prior periods reflect the
exclusion of stock options and restricted stock units.

Amortization charges (excluding computer software) consists 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, which consist primarily of employee
severance, lease termination and facility exit costs associated with
closing and consolidating manufacturing facilities and reductions in
infrastructure, are excluded because such charges are not directly
related to ongoing operating results and do not reflect expected future
operating expenses after completion of these activities.  We believe
that excluding these charges permits a better comparison of our core
operating results with those of our competitors who also generally
exclude these costs in assessing operating performance. 

Impairment charges, which consist of non-cash charges against goodwill
and long-lived assets, result primarily when the carrying value of
these assets exceeds their fair value.  These charges are excluded
because they are generally non-recurring. In addition, 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 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 in assessing operating performance.

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

 

Three months ended

September 30

 

Nine months ended

September 30

2009

 

2010

 

2009

 

2010

 

% of

revenue

 

 

% of

revenue

 

 

% of

revenue

 

 

% of

revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 $      1,556.2

 

 

 $      1,546.5

 

 

 $      4,427.8

 

 

 $      4,650.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP gross profit

 $         107.8

6.9%

 

 $         107.4

6.9%

 

 $         320.7

7.2%

 

 $         320.7

6.9%

 

Stock-based compensation

                3.1

 

 

                3.5

 

 

                9.7

 

 

              11.6

 

Non-GAAP gross profit

 $         110.9

7.1%

 

 $         110.9

7.2%

 

 $         330.4

7.5%

 

 $         332.3

7.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP SG&A

 $           54.0

3.5%

 

 $           60.8

3.9%

 

 $         183.3

4.1%

 

 $         182.6

3.9%

 

Stock-based compensation

              (3.6)

 

 

              (4.5)

 

 

            (11.7)

 

 

            (16.1)

 

Non-GAAP SG&A

 $           50.4

3.2%

 

 $           56.3

3.6%

 

 $         171.6

3.9%

 

 $         166.5

3.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP earnings (loss) before income taxes

 $           (2.8)

-0.2%

 

 $           36.9

2.4%

 

 $           16.1

0.4%

 

 $           77.9

1.7%

 

Net interest expense

                8.4

 

 

                0.9

 

 

              29.3

 

 

                5.6

 

 

Stock-based compensation

                6.7

 

 

                8.0

 

 

              21.4

 

 

              27.7

 

 

Amortization of intangible assets (excluding computer software)

                1.9

 

 

                1.5

 

 

                6.9

 

 

                4.1

 

 

Restructuring and other charges

              42.4

 

 

                5.0

 

 

              69.1

 

 

              34.5

 

 

Gains or losses related to the repurchase of shares or debt

                1.1

 

 

                 -  

 

 

                7.6

 

 

                8.8

 

Non-GAAP operating earnings (EBIAT) (1)

 $           57.7

3.7%

 

 $           52.3

3.4%

 

 $         150.4

3.4%

 

 $         158.6

3.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net earnings (loss)

 $           (0.6)

0.0%

 

 $           35.4

2.3%

 

 $           23.9

0.5%

 

 $           55.2

1.2%

 

Stock-based compensation

                6.7

 

 

                8.0

 

 

              21.4

 

 

              27.7

 

 

Amortization of intangible assets (excluding computer software)

                1.9

 

 

                1.5

 

 

                6.9

 

 

                4.1

 

 

Restructuring and other charges

              42.4

 

 

                5.0

 

 

              69.1

 

 

              34.5

 

 

Gains or losses related to the repurchase of shares or debt

                1.1

 

 

                 -  

 

 

                7.6

 

 

                8.8

 

 

Adjustments for taxes (2)

              (7.2)

 

 

              (3.6)

 

 

            (19.9)

 

 

                7.4

 

Non-GAAP adjusted net earnings

 $           44.3

2.8%

 

 $           46.3

3.0%

 

 $         109.0

2.5%

 

 $         137.7

3.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

 

W.A. # of shares (in millions) – GAAP

            229.5

 

 

            231.5

 

 

            230.5

 

 

            232.4

 

 

GAAP earnings (loss) per share

 $         (0.00)

 

 

 $           0.15

 

 

 $           0.10

 

 

 $           0.24

 

 

W.A. # of shares (in millions) – Non-GAAP

            231.7

 

 

            231.5

 

 

            230.5

 

 

            232.4

 

 

Non-GAAP adjusted net earnings per share

 $           0.19

 

 

 $           0.20

 

 

 $           0.47

 

 

 $           0.59

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ROIC % (3)

24.2%

 

 

22.9%

 

 

20.4%

 

 

23.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP cash provided by operations

 $         146.4

 

 

 $           89.7

 

 

 $         248.5

 

 

 $           96.9

 

 

Purchase of property, plant and equipment, net of sales proceeds

              (7.3)

 

 

              (9.0)

 

 

            (52.3)

 

 

            (21.5)

 

Non-GAAP free cash flow (4)

 $         139.1

 

 

 $           80.7

 

 

 $         196.2

 

 

 $           75.4

 

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

(2) The adjustment to GAAP taxes is based on the estimated effective
income tax rate expected to be applicable for the full fiscal period
taking into account the tax effects on the non-GAAP adjustments.

(3) Management uses ROIC as a measure to assess the effectiveness of the
invested capital it uses to build products or provide services to its
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 liabilities and income
taxes payable. We use a two-point average to calculate average net
invested capital for the quarter. We use a four-point average to
calculate average net invested capital for the nine month period. 
There is no comparable measure under Canadian or U.S. GAAP.

(4) 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 after the purchase of capital
equipment and property (net of proceeds from sale of certain surplus
equipment and property).

GUIDANCE SUMMARY          
  Q3 10 Guidance   Q3 10 Actual   Q4 10 Guidance((5))
Revenue $1.55B – $1.65B   $1.55B   $1.70B – $1.85B
Adjusted net EPS $0.20 – $0.24   $0.20   $0.20 – $0.26

(5) We expect a negative $0.05 to $0.12 per share (pre-tax) impact on a
GAAP basis for the following items: quarterly stock-based compensation,
amortization of intangible assets (excluding computer software) and
restructuring charges.

CELESTICA INC.

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

              
        December 31 

2009 

      September 30  

2010 

Assets    
Current assets:          
  Cash and cash equivalents (note 7) ……………… $ 937.7 $ 705.6 
  Accounts receivable …………………………………….             828.1      780.2
  Inventories …………………………………………………             676.1             764.3
  Prepaid and other assets ……………………………..             74.5             78.5
  Income taxes recoverable …………………………….             21.2             16.8
  Deferred income taxes …………………………………             5.2             5.2
              2,542.8             2,350.6
Property, plant and equipment …………………………             393.8             368.2
Goodwill (note 2) ……………………………………………             -             10.6
Intangible assets (note 2) ………………………………..             32.3             39.5
Other long-term assets ……………………………………             137.2             149.3
  $ 3,106.1       $ 2,918.2
     
Liabilities and Shareholders’ Equity    
Current liabilities:    
  Accounts payable ………………………………………. $ 927.1       $ 945.8
  Accrued liabilities (note 5) ……………………………             331.9             299.7
  Income taxes payable ………………………………….             38.0             55.0
  Current portion of long-term debt (note 3(b)) ….              222.8             -
              1,519.8             1,300.5
Accrued pension and post-employment benefits …             75.4             80.0
Deferred income taxes ……………………………………             28.0             27.1
Other long-term liabilities ………………………………..             7.1             8.4
              1,630.3             1,416.0
Shareholders’ equity:    
  Capital stock ………………………………………………             3,591.2             3,519.0
  Treasury stock (note 4) ……………………………….             (0.4)             (22.9)
  Contributed surplus …………………………………….             211.0             271.4
  Deficit ……………………………………………………….             (2,381.8)             (2,326.6)
  Accumulated other comprehensive income …….             55.8             61.3
              1,475.8             1,502.2
  $ 3,106.1       $ 2,918.2

Contingencies (note 10).

See accompanying notes to unaudited consolidated financial statements.
These unaudited interim consolidated financial statements should be read
in conjunction with the

2009 annual consolidated financial statements.

CELESTICA INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions of U.S. dollars, except per share amounts)
(unaudited)

  Three months ended

September 30

Nine months ended

September 30

        2009        2010        2009        2010 
         
Revenue ………………………………………………….       $ 1,556.2       $ 1,546.5       $ 4,427.8       $ 4,650.0
Cost of sales …………………………………………….             1,448.4             1,439.1             4,107.1             4,329.3
Gross profit ………………………………………………             107.8             107.4             320.7             320.7
Selling, general and administrative expenses ..             54.0             60.8             183.3             182.6
Amortization of intangible assets ………………….             4.7             3.8             15.3             11.3
Other charges (note 5) ………………………………             43.5             5.0             76.7             43.3
Interest on long-term debt  ………………………….             8.4             0.9             29.6             5.5
Other interest expense (income) ………………….             -             -             (0.3)             0.1
Earnings (loss) before income taxes ……………..             (2.8)             36.9             16.1             77.9
Income tax expense (recovery):        
  Current ………………………………………………… 1.7             5.2             7.8             28.2
  Deferred ……………………………………………….             (3.9)             (3.7)              (15.6)             (5.5)
              (2.2)             1.5              (7.8)             22.7
Net earnings (loss) for the period …………………       $ (0.6)       $ 35.4       $ 23.9       $ 55.2
         
Basic earnings per share  ……………………………       $ 0.00       $ 0.15       $ 0.10       $ 0.24
         
Diluted earnings per share  …………………………       $ 0.00       $ 0.15       $ 0.10       $ 0.24
         
Shares used in computing per share amounts:        
   Basic (in millions) …………………………………..             229.5             229.6             229.5             230.0
   Diluted (in millions) …………………………………             229.5             231.5             230.5             232.4

See accompanying notes to unaudited consolidated financial statements.
These unaudited interim consolidated financial statements should be read
in conjunction with the

2009 annual consolidated financial statements.

CELESTICA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions of U.S. dollars)
(unaudited)

  Three months ended

September 30

Nine months ended

September 30

        2009        2010        2009        2010 
         
         
Net earnings (loss) for the period ……………………………….       $ (0.6)       $ 35.4       $ 23.9       $ 55.2
Other comprehensive income, net of tax:                                  
  Currency translation adjustment ……………………………..             5.5             5.2             0.4             1.9
  Reclass foreign currency translation to other charges..              1.8             -             1.8             -
  Change from derivatives designated as hedges………..              6.5             9.5             42.5             3.6
Comprehensive income ……………………………………………       $ 13.2       $ 50.1       $ 68.6       $ 60.7

See accompanying notes to unaudited consolidated financial statements.
These unaudited interim consolidated financial statements should be read
in conjunction with the

2009 annual consolidated financial statements.

CELESTICA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars)
(unaudited)

  Three months ended

September 30

Nine months ended

September 30

        2009        2010        2009        2010 
         
Cash provided by (used in):                                
Operations:                                
Net earnings (loss) for the period
 ……………………………………………………..
      $ (0.6)       $ 35.4       $ 23.9 $  55.2
Items not affecting cash:                                  
      Depreciation and
amortization …………………………………………………..
            24.4             21.6             74.5             66.4
      Deferred income
taxes ……………………………………………………………..
            (3.9)             (3.7)             (15.6)             (5.5)
  Stock-based
compensation ………………………………………………………
            6.7             8.0             21.4             24.4
      Restructuring charges (note
5) ………………………………………………….
            2.8             -             4.1             0.3
      Other
charges ………………………………………………………………………..
            1.5             (0.1)             8.0             7.6
Other …………………………………………………………………………………………….             1.0             (0.5)             (8.2)              (1.6)
Changes in non-cash working capital items:                                  
      Accounts
receivable ………………………………………………………………..
            (46.1)             13.5             219.0             53.1
      Inventories ……………………………………………………………………………..             (64.3)             (81.2)             88.8             (81.4)
      Prepaid and other
assets …………………………………………………………
            13.6             (5.6)              36.0             (4.1)
  Income taxes
recoverable …………………………………………………………
            (1.8)             -             (6.4)             4.4
      Accounts payable and accrued
liabilities …………………………………….
            211.9             97.7             (195.4)             (38.8)
       Income taxes
payable ………………………………………………………………
            1.2             4.6             (1.6)             16.9
       Non-cash working capital
changes …………………………………………….
            114.5             29.0             140.4             (49.9)
Cash provided by
operations ……………………………………………………………
            146.4             89.7             248.5             96.9
         
Investing:        
      Acquisition, net of cash acquired (note
2) …………………………………..
            -             (11.2)             -             (16.2)
      Purchase of computer software and property, plant and equipment..              (9.9)             (16.0)             (56.3)             (35.5) 
     Proceeds from sale of
assets ……………………………………………………
            5.1             7.0             6.5             14.0 
      Other …………………………………………………………………………………….             -             (0.2)             0.5             -
Cash used in investing
activities ……………………………………………………….
            (4.8)             (20.4)             (49.3)             (37.7)
         
Financing:        
      Repurchase of Senior Subordinated Notes (Notes) (note 3(b)) ………             -             -             (149.7)             (231.6)  
      Proceeds from termination of swap agreements (note 3(b)) …………..             -             -             14.7             -
      Issuance of share
capital ………………………………………………………….
            1.8             -             2.0             4.0
      Repurchase of capital stock (note
4) ………………………………………….
            -             (37.3)             -             (37.3)
      Purchase of treasury stock (note
4) …………………………………………..
            (0.9)             (11.1)             (1.0)             (26.2)
      Financing and other
costs ………………………………………………………..
            (0.4)             0.8             (4.8)             (0.2)
Cash provided by (used in) financing
activities ……………………………………
            0.5             (47.6)             (138.8)             (291.3)
         
Increase (decrease) in
cash ……………………………………………………………..
            142.1             21.7             60.4             (232.1)
Cash and cash equivalents, beginning of
period …………………………………
            1,119.3             683.9             1,201.0             937.7
Cash and cash equivalents, end of
period ………………………………………….
      $ 1,261.4       $ 705.6       $ 1,261.4       $ 705.6
         

Supplemental cash flow information (note 7).

See accompanying notes to unaudited consolidated financial statements.
These unaudited interim consolidated financial statements should be read
in conjunction with the

2009 annual consolidated financial statements.


CELESTICA INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions of U.S. dollars)
(unaudited)

  Number of

shares ((1)

(in millions) 

Capital

 stock 

Contributed

  surplus 

 Treasury

 stock (note 4)

  Deficit  Accumulated

other

comprehensive

income (note 9)

             
Balance – December 31, 2008 ………………………             229.2       $ 3,588.5       $ 211.6 $  (7.2) $  (2,436.8)       $ 9.4
Shares issued …………………………………………….             0.2             2.0             -             -             -             -
Purchase of treasury stock (note 4) ……………….             -             -             -             (1.0)             -             -
Stock-based compensation …………………………..             -             -             12.6             8.0             -             -
Other …………………………………………………………             -             -             1.5             -             -             1.8
Net earnings for the first nine months of 2009 ….             -             -             -             -             23.9             -
Currency translation adjustments …………………..             -             -             -             -             -             0.4
Change from derivatives designated as hedges..              -             -             -             -             -             42.5
Balance – September 30, 2009 ………………………             229.4       $ 3,590.5       $ 225.7 $  (0.2) $  (2,412.9)       $ 54.1
             
Balance – December 31, 2009 ……………………….             229.5       $ 3,591.2       $ 211.0 $  (0.4) $  (2,381.8)       $ 55.8
Shares issued ……………………………………………..             0.7             5.8             -             -             -             -
Repurchase of capital stock (note 4) ………………             (4.7)             (78.0)             40.7             -             -             -
Purchase of treasury stock (note 4) ………………..             -             -             -             (26.2)             -             -
Stock-based compensation ……………………………             -             -             19.1             3.7             -             -
Other ………………………………………………………….             -             -             0.6             -             -             -
Net earnings for the first nine months of 2010 …..             -             -             -             -             55.2             -
Currency translation adjustments …………………….             -             -             -             -             -             1.9
Change from derivatives designated as hedges ..             -             -             -             -             -             3.6
Balance – September 30, 2010 ……………………….             225.5       $ 3,519.0       $ 271.4 $  (22.9) $  (2,326.6)       $ 61.3

   (1)     Includes subordinate voting shares and multiple voting
shares.

CELESTICA INC.


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

1. Basis of presentation and significant accounting policies:

We prepare our financial statements in accordance with generally
accepted accounting principles (GAAP) in Canada.

The disclosures contained in these unaudited interim consolidated
financial statements do not include all requirements of Canadian GAAP
for annual financial statements. These unaudited interim consolidated
financial statements should be read in conjunction with the 2009 annual
consolidated financial statements. These unaudited interim consolidated
financial statements reflect all adjustments which are, in the opinion
of management, necessary to present fairly our financial position as at
September 30, 2010 and the results of operations, comprehensive income
and cash flows for the three and nine months ended September 30, 2009
and 2010. 

i) Use of estimates:

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and related disclosures of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenue and expenses during the reporting period. 
We applied significant estimates and assumptions to our valuations
against inventory and income taxes, to the amount and timing of
restructuring charges or recoveries, to the fair values used in testing
long-lived assets, and to valuing our pension costs.  We evaluate our
estimates and assumptions on a regular basis, taking into account
historical experience and other relevant factors. Actual results could
differ materially from these estimates and assumptions.

During the third quarter of 2010, we recorded a $1.1 net inventory
valuation reversal through cost of sales, primarily to reflect realized
gains on the disposition of aged inventory.

These unaudited interim consolidated financial statements are based upon
accounting principles consistent with those used and described in the
2009 annual consolidated financial statements.

ii) Recently issued accounting pronouncements:

(a)  International financial reporting standards (IFRS):

In February 2008, the Canadian Accounting Standards Board announced the
adoption of IFRS for publicly accountable enterprises. IFRS will
replace Canadian GAAP effective January 1, 2011.  IFRS is effective for
our first quarter of 2011 and will require that we restate our 2010
comparative numbers under IFRS.  Our preliminary IFRS accounting policy
decisions are disclosed in our management’s discussion and analysis for
the period ended September 30, 2010.

(b)  Business combinations:

In January 2009, the CICA issued Handbook Section 1582, “Business
combinations,” which replaces the existing standards.  This section
establishes the standards for the accounting of business combinations,
and states that all assets and liabilities of an acquired business will
be recorded at fair value.  Obligations for contingent consideration
and contingencies will also be recorded at fair value at the
acquisition date. The standard also states that acquisition-related
costs and restructuring charges will be expensed as incurred. This
standard is equivalent to the IFRS on business combinations. This
standard is applied prospectively to business combinations with
acquisition dates on or after January 1, 2011. We do not expect the
adoption of this standard to have a material impact on our consolidated
financial statements unless we engage in a significant acquisition.

(c) Multiple deliverable revenue arrangements:

In December 2009, the CICA issued Emerging Issues Committee Abstract
175, “Multiple deliverable revenue arrangements,” which replaces the
existing standards.  This abstract provides additional guidance for
arrangements involving multiple deliverables including how
consideration should be measured and allocated to the separate units of
an arrangement.  This abstract is effective for 2011.  We are
evaluating the impact of adopting this abstract on our consolidated
financial statements.

2. Acquisitions:

In January 2010, we completed the acquisition of Scotland-based Invec
Solutions Limited (Invec). Invec provides warranty management, repair
and parts management services to companies in the information
technology and consumer electronics markets.  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 that offers
concept-to-full-production solutions in medical devices with a core
focus on the diagnostic and imaging market.

The total purchase price for these acquisitions was $18.3 and was
financed with cash.  The amounts of goodwill and amortizable intangible
assets arising from these acquisitions are estimated to be $10.6, the
majority of which is not expected to be tax deductible, and $15.8,
respectively. We are in the process of finalizing certain valuations;
accordingly, our fair value allocations are preliminary and may be
subject to adjustment. The purchase price for Allied Panels is also
subject to adjustment for contingent consideration totaling up to 7.1
million Euros (approximately $9.6 at current exchange rates) if
specific pre-determined financial targets are achieved through fiscal
year 2012.  Contingent payments, if any, will be recorded as part of
the purchase price in the period the targets are achieved.  At
September 30, 2010, no contingent consideration was recorded.

3. Long-term debt:

(a) Credit facility:

We have a revolving $200.0 credit facility with a maturity of April
2011.  We are required to comply with certain restrictive covenants
relating to debt incurrence, the sale of assets, a change of control
and certain financial covenants related to indebtedness, interest
coverage and liquidity. Commitment fees for the first nine months of
2010 were $1.6. We were in compliance with all covenants at September
30, 2010.  Based on the required financial ratios at September 30,
2010, we have full access to this facility.

We also have uncommitted bank overdraft facilities available for
intraday operating requirements which total $65.0 at September 30,
2010. 

There were no borrowings outstanding under either of these facilities at
September 30, 2010.

(b) Senior Subordinated Notes:

In March 2009, we paid $149.7 to repurchase a portion of our Notes due
2011 (2011 Notes) and recognized a gain of $9.1 in other charges.  In
March 2010, we paid $231.6 to repurchase the remaining Notes due 2013
and recognized a loss of $8.8 in other charges. We redeemed all of our
outstanding Notes prior to March 31, 2010. 

During the first quarter of 2009, we terminated the interest rate swap
agreements related to the 2011 Notes and received a $14.7 cash
settlement. In connection with the termination of the swap agreements,
we discontinued fair value hedge accounting and recorded a $16.7
write-down, through other charges, in the carrying value of the
embedded prepayment option on the 2011 Notes.

4. Capital stock:

From time-to-time, we pay cash for the purchase of shares in the open
market by a trustee to satisfy our obligation to deliver shares upon
vesting of share unit awards under our long-term incentive plans.
During the third quarter and first nine months of 2010, we paid $11.1
and $26.2, respectively, for the trustee’s purchase of 1.3 million and
2.8 million shares, respectively, in connection with these plans. At September 30, 2010, the trustee held 2.5 million shares, with an
ascribed value of $22.9, in connection with these plans. We classify
these shares for accounting purposes as treasury stock until they are
delivered to employees pursuant to our stock-based awards.  At
September 30, 2009, the trustee held fewer than 0.1 million shares with
an ascribed value of $0.2.

In July 2010, we filed a Normal Course Issuer Bid (NCIB) with the
Toronto Stock Exchange to repurchase, at our discretion, until August
2, 2011 up to 17,955,647 subordinate voting shares (shares), or
approximately 9% of our outstanding shares, on the open market or as
otherwise permitted, subject to normal terms and limitations of such
bids.  The total number of shares we may repurchase for cancellation
under the NCIB will be reduced by the number of shares purchased for
employee equity-based incentive programs.  During the third quarter of
2010, we paid $37.3, including transaction fees, to repurchase for
cancellation 4.7 million shares at a weighted average price of $7.99
per share.

5. Other charges:

  Three months ended

September 30

Nine months ended

September 30

        2009        2010        2009        2010 
         
Restructuring
(a) ……………………………………………………..
      $ 42.0       $ 5.1       $ 69.6       $ 37.0
Loss (gain) on repurchase of Notes (note 3(b)) ……………             -             -             (9.1)             8.8
Write-down of embedded prepayment option (note 3(b))..              1.1             -             16.7             -
Release of cumulative translation adjustment (b) ………….             1.8             -             1.8             -
Other
(c) …………………………………………………………………
            (1.4)             (0.1)             (2.3)             (2.5)
             $ 43.5       $ 5.0       $ 76.7       $ 43.3

(a) Restructuring:

In January 2008, we announced that restructuring charges of between $50
and $75 would be recorded throughout 2008 and 2009. In July 2009, we
announced additional restructuring charges of between $75 and $100.
Combined, we expect to incur total restructuring charges up to $175
associated with this program.  We have recorded $155.4 of restructuring
charges since the beginning of 2008. Of that amount, $5.1 and $37.0
were recorded in the third quarter and first nine months of 2010,
respectively.  We expect to complete these restructuring actions by the
end of 2010. We recognize the restructuring charges in the period we
finalize the detailed plans. 

Our restructuring actions included consolidating facilities and reducing
our workforce. The majority of the employees terminated under this plan
were manufacturing and plant employees, primarily in the Americas,
Europe and the Philippines.  For leased facilities that we no longer
use, the lease costs included in the restructuring costs represent
future lease payments less estimated sublease recoveries. Adjustments
are made to lease and other contractual obligations to reflect
incremental cancellation fees paid for terminating certain facility
leases and to reflect changes in the accruals for other leases due to
delays in the timing of sublease recoveries, changes in estimated
sublease rates, or changes in use, relating principally to facilities
in the Americas.  We expect our long-term lease and other contractual
obligations to be paid out over the remaining lease terms through
2015.  Our restructuring liability is recorded in accrued liabilities.

Details of the 2010 activity are as follows:

  Employee

termination

costs 

Lease and

other 

contractual

 obligations 

Facility 

exit costs

 and other 

 Total

 accrued

 liability 

2010

 non-cash

  charge 

Total

 2010

  charge 

             
December 31, 2009…..        $ 23.7       $ 20.8       $ 0.5       $ 45.0       $ -       $ -
Cash payments ………..             (21.1)             (5.4)             (0.8)             (27.3)             -             -
Charges/adjustments ..             5.9             1.5             0.9             8.3             (0.2)             8.1
March 31, 2010 ………..             8.5             16.9             0.6             26.0             (0.2)             8.1
Cash payments ………..             (8.8)             (3.4)             (0.9)             (13.1)             -             -
Charges/adjustments ..             18.7             3.9             0.7             23.3             0.5             23.8
June 30, 2010 ………….             18.4             17.4             0.4             36.2             0.3             31.9
Cash payments ………..             (7.6)             (3.4)             (0.6)             (11.6)             -             -
Charges/adjustments ..             3.2             1.1             0.8             5.1             -             5.1
September 30, 2010 …       $ 14.0       $ 15.1       $ 0.6       $ 29.7       $ 0.3       $ 37.0

At September 30, 2010, we had approximately $37 in assets that are
held-for-sale, primarily land and buildings, as a result of the
restructuring actions we have implemented.  We have programs underway
to sell these assets.  We will record the gains or losses on disposal
of these facilities through restructuring charges.

(b) Release of cumulative translation adjustment:

We recorded a net loss of $1.8 in the third quarter of 2009 for the
release of the cumulative translation adjustment related to a
liquidated foreign subsidiary.

(c) Other:

We realized recoveries on certain assets that were previously written
down through other charges.

6. Segment and customer information:

(a) 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 level of program wins or losses with new,
existing or disengaging customers; the phasing in or out of programs;
and changes in customer demand.

  Three months ended

September 30

Nine months ended

September 30

        2009        2010        2009        2010 
         
Consumer ………………………………………………………… 32% 26% 28% 27%
Enterprise Communications ………………………………… 20% 23% 21% 22%
Telecommunications ………………………………………….. 12% 14% 17% 13%
Storage ……………………………………………………………. 13% 12% 11% 13%
Servers ……………………………………………………………. 13% 13% 13% 13%
Industrial, Aerospace and Defense, and Healthcare .. 10% 12% 10% 12%

(b) For the third quarter and first nine months of 2009 and 2010, one
customer represented more than 10% of total revenue. 

7. Supplemental cash flow information:

  Three months ended

September 30

Nine months ended

September 30

Paid during the period:       2009  2010 2009      2010
         
Interest (a) ………………       $ 22.6       $ 0.8       $ 54.5       $ 13.7
Taxes (b) ………………..       $ 2.2       $ 1.2       $ 17.0       $ 6.7

(a)  This includes interest paid on the Notes.  Interest on the Notes
was payable in January and July of each year until maturity or earlier
repurchase or redemption.  We redeemed all of our outstanding Notes
prior to March 31, 2010.

(b) Cash taxes paid is net of any income taxes recovered.

Cash and cash equivalents are comprised of the following:   December 31 

2009 

 September 30 

2010  

     
Cash
(i) ……………………………………………………………………
      $ 259.8       $ 288.3
Cash equivalents
(i) …………………………………………………..
            677.9             417.3
        $ 937.7       $ 705.6

(i) Our current portfolio consists of certificates of deposit and
certain money market funds that are secured exclusively by U.S.
government securities.  The majority of our cash and cash equivalents
are held with financial institutions each of which had at September 30,
2010 a Standard and Poor’s rating of A-1 or above.

8. Derivative financial instruments:

We enter into foreign currency contracts to hedge foreign currency risks
primarily relating to cash flows.  The fair value of our foreign
currency contracts at September 30, 2010 was a net unrealized gain of
$9.8 (December 31, 2009 – net unrealized gain of $8.0).  This is
comprised of $14.1 of derivative assets recorded in prepaid and other
assets and other long-term assets, and $4.3 of derivative liabilities
recorded in accrued liabilities. The unrealized gains and losses are a
result of fluctuations in foreign exchange rates between the time the
currency forward contracts were entered into and the valuation date at
period end. 

At September 30, 2010, we had forward exchange contracts to trade
U.S. dollars in exchange for the following currencies:

Currency Amount of

U.S. dollars

Weighted average

exchange rate of

U.S. dollars

Maximum

period in

months

Fair value

gain/(loss)

Canadian dollar ………       $ 178.4       $ 0.95 16       $ 3.5
British pound sterling..              100.6             1.54 4             (2.2)
Thai baht ……………….             81.3             0.03 12             3.9
Malaysian ringgit ……..             70.5             0.31 12             2.3
Mexican peso ………….             63.7             0.08 12             1.7
Euro ………………………             42.9             1.32 7             0.4
Singapore dollar ………             22.3             0.72 12             1.0
Romanian lei ……………             12.5             0.32 9             (0.1)
Japanese yen ………….             10.8             0.01 1             (0.3)
Swiss franc ……………..             9.1             0.97 4             (0.5)
Czech koruna ………….             4.8             0.05 3             0.1
Brazilian real …………..             4.0             0.58 3             -
Total ……………………..       $ 600.9           $ 9.8

9. Accumulated other comprehensive income, net of tax:

  Year  ended

December 31

2009

Nine months ended

September 30

2010

   
     
Opening balance of foreign currency translation
account …………………….
      $ 46.7       $ 46.9
Currency translation
adjustment ………………………………………………………
            (1.6)             1.9
Release of cumulative currency translation to other charges (note
5(b)).. 
            1.8            -
Closing
balance …………………………………………………………………………….
            46.9             48.8
     
Opening balance of unrealized net gain (loss) on cash flow
hedges ……..
      $ (37.3)       $ 8.9
Net gain on cash flow hedges ((a)) ……………………………………………………..             14.4             17.6
Net loss (gain) on cash flow hedges reclassified to operations ((b)) …………             31.8             (14.0)
Closing balance((c)) …………………………………………………………………………             8.9             12.5
     
Accumulated other comprehensive
income ……………………………………….
      $ 55.8       $ 61.3

(a)     Net of income tax expense of $0.4 and $0.7 for the three and
nine months ended September 30, 2010 ($0.1 income tax benefit for
2009).

(b)     Net of income tax expense of $0.2 and $0.4 for the three and
nine months ended September 30, 2010 ($0.6 income tax benefit for
2009).

(c)     Net of income tax expense of $0.4 at September 30, 2010 ($0.1
income tax expense at December 31, 2009).

We expect that the majority of the gains on cash flow hedges reported in
accumulated other comprehensive income at September 30, 2010 will be
reclassified to operations during the next 12 months, primarily through
cost of sales as the underlying expenses that are being hedged are
included in cost of sales.

10. 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 have added one of our directors
and Onex Corporation as defendants. All defendants filed motions to
dismiss the amended complaint. On October 14, 2010, the United States
District Court issued a memorandum decision and order granting the
defendants’ motions to dismiss the complaint in its entirety. A
parallel class proceeding remains against us and our former Chief
Executive and Chief Financial Officers in the Ontario Superior Court of
Justice, but neither leave nor certification of the action has been
granted by that court.  We believe that the allegations in this claim
are also 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 remaining
Canadian claim.  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 local tax authorities of
historical information which could result in additional tax expense in
future periods relating to prior results.  Reviews by tax authorities
generally focus on, but are not limited to, the validity of our
inter-company transactions, including financing and transfer pricing
policies which generally involve subjective areas of taxation and a
significant degree of judgment.  If any of these tax authorities are
successful with their challenges, our income tax expense may be
adversely affected and we could also be subject to interest and penalty
charges.

In connection with ongoing tax audits in Canada, tax authorities have
taken the position that income reported by one of our Canadian
subsidiaries in 2001 through 2003 should have been materially higher as
a result of certain inter-company transactions.

In connection with ongoing tax audits in Hong Kong, tax authorities have
taken the position that income reported by one of our Hong Kong
subsidiaries in 1999 through 2008 should have been materially higher as
a result of certain inter-company transactions.  In July 2010, we
submitted a proposed settlement of this tax audit to the Hong Kong tax
authorities; if accepted, the taxes and penalties would total
approximately 129.5 million Hong Kong dollars (approximately $16.7 at
current exchange rates), including the impact on future periods as a
result of the reversal of tax attributes.  There can be no assurance as
to the final resolution of these proceedings.

In connection with a tax audit in Brazil, tax authorities have 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. If Brazilian tax authorities ultimately prevail in their
position, our Brazilian subsidiary’s tax liability would increase by
approximately 43.5 million Brazilian reais (approximately $25.7 at
current exchange rates).  In addition, Brazilian tax authorities may
make similar claims in future audits with respect to these types of
transactions.  We have not accrued for any potential adverse tax impact
as we believe our Brazilian subsidiary has reported the appropriate
amount of income arising from inter-company 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, our interpretation of applicable Brazilian law makes it
more likely than not, that our position will be sustained upon full
examination by the tax authorities and, if necessary, after
consideration by the Brazilian judicial courts.  Our position is
supported by our Brazilian legal tax advisors.  A change to the benefit
realizable on these Brazilian losses could increase our net future tax
liabilities by approximately 62.6 million Brazilian reais
(approximately $36.9 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 us
owing significant amounts of tax, interest and possibly penalties.  We
believe we have substantial defenses to the asserted positions and have
adequately accrued for any probable potential adverse tax impact.
However, there can be no assurance as to the final resolution of these
claims and any resulting proceedings, and if these claims and any
ensuing proceedings are determined adversely to us, the amounts we may
be required to pay could be material.

11. Financial instruments – financial risks:

Currency risk

Due to the nature of our international operations, we are exposed to
exchange rate fluctuations on our cash receipts, cash payments and
balance sheet exposures denominated in various foreign currencies. We
manage our currency risk through our hedging program using forecasts of
future cash flows and our balance sheet exposures denominated in
foreign currencies.  Our major currency exposures, at September 30,
2010, are summarized in U.S. dollar equivalents in the following
table.  For purposes of this table, we have excluded items such as
pension, post-employment benefits and income taxes, in accordance with
the financial instruments standards.  The local currency amounts have
been converted to U.S. dollar equivalents using the spot rates at
September 30, 2010. 

  Chinese

renminbi  

Malaysian

ringgit 

Thai

 baht 

Mexican

 peso 

 Canadian

dollar 

           
Cash and cash equivalents ………………….       $ 21.6       $ 2.8       $ 2.6       $ 0.2       $ 10.4
Accounts receivable ……………………………             18.3             -             -             -             -
Other financial assets …………………………             0.3             0.5             1.7             -             -
Accounts payable and accrued liabilities..              (28.3)             (15.1)             (17.7)             (19.8)             (34.7)
Net financial assets (liabilities) ……………..       $ 11.9       $ (11.8)       $ (13.4)       $ (19.6)       $ (24.3)

At September 30, 2010, 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 has the following
impact:

   Chinese

 renminbi 

Malaysian

ringgit 

Thai

 baht 

Mexican

 peso 

 Canadian

 dollar 

1% Strengthening                                                       
      Net earnings ……………………….       $ 0.1       $ (0.3)       $ (0.1)       $ (0.2)       $ 0.5
      Other comprehensive income ..             -                   0.5                   0.8             0.6             1.1
1% Weakening          
      Net earnings ……………………….             (0.1)             0.2             0.1             0.2             (0.5)
      Other comprehensive income ..             -             (0.5)             (0.8)             (0.6)             (1.0)

12. Comparative information:

We have reclassified certain prior period information to conform to the
current period’s presentation.

SOURCE Celestica Inc.


Source: newswire



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