Celestica announces fourth quarter and 2006 fiscal year end financial results



    
                           Fourth Quarter Summary
                           ----------------------

    -  Revenue of $2,262 million, up 9% year-over-year
    -  GAAP loss of ($0.27) per share compared to a loss of ($0.12) per share
       last year
    -  Adjusted net earnings of $0.03 per share compared to $0.13 a year ago
    -  Q1 2007 revenue guidance of $1.7 - $1.9 billion, adjusted net loss
       per share of $(0.15) - $(0.04)

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

    TORONTO, Jan. 30 /CNW/ - Celestica Inc. (NYSE and TSX: CLS), a world
leader in electronics manufacturing services (EMS), today announced financial
results for the fourth quarter and fiscal year ended December 31, 2006.
    Revenue was $2,262 million, up 9% from $2,075 million in the fourth
quarter of 2005. Net loss on a GAAP basis for the fourth quarter was ($60.8)
 million or ($0.27) per share, compared to GAAP net loss of ($28.2) million or
($0.12) per share for the same period last year. Included in GAAP net loss for
the quarter are the following items: a net charge to gross profit of $30
million resulting primarily from a previously announced increase in inventory
provisions at the Monterrey, Mexico facility, and a $59 million restructuring
charge. For the same period in 2005, restructuring charges of $57 million were
incurred.
    Adjusted net earnings for the quarter were $6.5 million or $0.03 per
share compared to $28.8 million or $0.13 per share for the same period last
year. Adjusted net earnings is defined as net earnings before amortization of
intangible assets, gains or losses on the repurchase of shares and debt,
integration costs related to acquisitions, option expense, option exchange
costs and other charges, net of tax and significant deferred tax write-offs
(detailed GAAP financial statements and supplementary information related to
adjusted net earnings appear at the end of this press release). These results
compare with the company's updated guidance for the fourth quarter, announced
on December 12, 2006, of revenue of $2.20 to $2.25 billion and adjusted net
earnings per share of $0.00 to $0.06.
    For 2006, revenue was $8,812 million, up 4%, compared to $8,471 million
for 2005. Net loss on a GAAP basis was ($150.6) million or ($0.66) per share
compared to net loss of ($46.8) million or ($0.21) per share for last year.
Adjusted net earnings for 2006 were $93.5 million or $0.41 per share compared
to adjusted net earnings of $129.1 million or $0.57 per share for 2005.
    "While revenues for the fourth quarter came in above the high-end of the
updated guidance, our financial results were extremely disappointing. The year
to year growth in the consumer segment was offset by higher than expected
demand reductions from several key customers in the telecommunications
segment. This demand reduction along with the impact of the inventory
provision taken in Mexico significantly impacted operating margins," said
Craig Muhlhauser, President and Chief Executive Officer, Celestica. "We have
implemented and will continue to implement aggressive actions to materially
improve the performance of our Mexican facilities by standardizing our ERP
platform, re-architecting our warehouse logistics and strengthening the local
management team while driving more efficiency and cost reductions. In light of
our current outlook, we are also reducing our overhead structures and costs
globally. These actions will result in an additional $60 to $80 million of
restructuring charges, $40 million of which has been recorded in the fourth
quarter, with the remaining charges to be incurred during 2007."

    Chief Financial Officer Change
    ------------------------------
    The company also announced today that Anthony (Tony) Puppi, Executive
Vice President and Chief Financial Officer (CFO) has announced his intention
to retire from Celestica. Tony will continue to act in the capacity of Chief
Financial Officer until the company's search for a new CFO is complete.
    "Tony is one of Celestica's founding executives and he has provided
strong leadership and dedication to the company over the course of his career.
I am pleased that Tony will continue to provide his support for the successful
transition to a new CFO and I wish him the very best in the years ahead," said
Craig Muhlhauser, President and Chief Executive Officer, Celestica.

    Outlook
    -------
    For the first quarter ending March 31, 2007, the company anticipates
revenue to be in the range of $1.7 billion to $1.9 billion, and adjusted net
loss per share to range from $(0.15) to $(0.04).

    Supplementary Information
    -------------------------
    In addition to disclosing detailed results in accordance with Canadian
generally accepted accounting principles (GAAP), Celestica also provides
supplementary non-GAAP measures as a method to evaluate the company's
operating performance.
    Management uses adjusted net earnings as a measure of enterprise-wide
performance. As a result of acquisitions made by the company, restructuring
activities, securities repurchases and the adoption of fair value accounting
for stock options, management believes adjusted net earnings is a useful
measure that facilitates period-to-period operating comparisons and allows the
company to compare its operating results with its competitors in the U.S. and
Asia. Adjusted net earnings excludes the effects of acquisition-related
charges (most significantly, amortization of intangible assets and integration
costs related to acquisitions), other charges (most significantly,
restructuring costs and the write-down of goodwill and long-lived assets),
gains or losses on the repurchase of shares or debt, option expense and option
exchange costs, and the related income tax effect of these adjustments and any
significant deferred tax write-offs. Adjusted net earnings does not have any
standardized meaning prescribed by GAAP and is not necessarily comparable to
similar measures presented by other companies. Adjusted net earnings is not a
measure of performance under Canadian or U.S. GAAP and should not be
considered in isolation or as a substitute for net earnings (loss) prepared in
accordance with Canadian or U.S. GAAP. The company has provided a
reconciliation of adjusted net earnings to Canadian GAAP net earnings (loss)
below.

    About Celestica
    ---------------
    Celestica is a world leader in the delivery of electronics manufacturing
services (EMS). Celestica operates a global manufacturing network with
operations in Asia, Europe and the Americas, providing a broad range of
integrated services and solutions to leading OEMs (original equipment
manufacturers).
    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 Harbour and Fair Disclosure Statement
    ------------------------------------------
    This news release contains forward-looking statements related to our
future growth, trends in our industry and our financial and operational
results and performance that are based on current expectations, forecasts and
assumptions involving risks and uncertainties that could cause actual outcomes
and results to differ materially. These risks and uncertainties include, but
are not limited to: variability of operating results among periods; inability
to retain or grow our business due to execution problems resulting from
significant headcount reductions, plant closures and product transfer
associated with major restructuring activities; the effects of price
competition and other business and competitive factors generally affecting the
EMS industry; the challenges of effectively managing our operations during
uncertain economic conditions; our dependence on a limited number of
customers; our dependence on industries affected by rapid technological
change; the challenge of responding to lower-than-expected customer demand;
our ability to successfully manage our international operations; and delays in
the delivery and/or general availability of various components used in the
manufacturing process. These and other risks and uncertainties and factors are
discussed in the Company's various public filings at www.sedar.com and
www.sec.gov, including our Form 20-F and subsequent reports on Form 6-K filed
with the Securities and Exchange Commission.
    As of its date, this press release contains any material information
associated with the company's financial results for the fourth quarter ended
December 31, 2006 and revenue and adjusted net earnings guidance for the first
quarter ending March 31, 2007. Earnings guidance is reviewed by the company's
board of directors. It is Celestica's policy that earnings guidance is
effective on the date given, and will only be updated through a public
announcement.


    
    RECONCILIATION OF
     GAAP TO ADJUSTED
     NET EARNINGS
    (in millions of
     U.S. dollars)                2005                       2006
                       -------------------------- --------------------------
    Three months ended           Adjust-                    Adjust-
     December 31         GAAP     ments  Adjusted   GAAP     ments  Adjusted
                       -------- -------- -------- -------- -------- --------
      Revenue          $2,075.3 $      - $2,075.3 $2,261.8 $      - $2,261.8
      Cost of sales(1)  1,956.4     (1.1) 1,955.3  2,174.7     (0.6) 2,174.1
                       -------- -------- -------- -------- -------- --------
      Gross profit        118.9      1.1    120.0     87.1      0.6     87.7
      SG&A(1)              73.6     (0.7)    72.9     64.2     (0.2)    64.0
      Amortization of
       intangible assets    7.4     (7.4)       -      6.5     (6.5)       -
      Integration costs
       relating to
       acquisitions         0.3     (0.3)       -        -        -        -
      Other charges        56.9    (56.9)       -     59.9    (59.9)       -
                       -------- -------- -------- -------- -------- --------
      Operating earnings
       (EBIAT)            (19.3)    66.4     47.1    (43.5)    67.2     23.7
      LYONs accretion         -        -        -        -        -        -
      Interest expense,
       net                 13.5        -     13.5     16.2        -     16.2
                       -------- -------- -------- -------- -------- --------
      Net earnings (loss)
       before tax         (32.8)    66.4     33.6    (59.7)    67.2      7.5
      Income tax expense
       (recovery)          (4.6)     9.4      4.8      1.1     (0.1)     1.0
                       -------- -------- -------- -------- -------- --------
      Net earnings
       (loss)          $  (28.2) $  57.0 $   28.8 $  (60.8) $  67.3 $    6.5
                       -------- -------- -------- -------- -------- --------
                       -------- -------- -------- -------- -------- --------
      W.A. No. of
       shares (in
       millions) -
       diluted            226.3             227.4    227.6             228.3
      Earnings (loss)
       per share -
       diluted         $  (0.12)         $   0.13 $  (0.27)         $   0.03



                                  2005                       2006
                       -------------------------- --------------------------
    Year ended                   Adjust-                    Adjust-
     December 31         GAAP     ments  Adjusted   GAAP     ments  Adjusted
                       -------- -------- -------- -------- -------- --------
      Revenue          $8,471.0 $      - $8,471.0 $8,811.7 $      - $8,811.7
      Cost of sales(1)  7,989.9     (9.0) 7,980.9  8,359.9     (3.3) 8,356.6
                       -------- -------- -------- -------- -------- --------
      Gross profit        481.1      9.0    490.1    451.8      3.3    455.1
      SG&A(1)             296.9     (6.8)   290.1    285.6     (1.8)   283.8
      Amortization of
       intangible assets   28.4    (28.4)       -     27.0    (27.0)       -
      Integration costs
       relating to
       acquisitions         0.6     (0.6)       -      0.9     (0.9)       -
      Other charges       130.9   (130.9)       -    211.8   (211.8)       -
                       -------- -------- -------- -------- -------- --------
      Operating earnings
       (EBIAT)             24.3    175.7    200.0    (73.5)   244.8    171.3
      LYONs accretion       7.6        -      7.6        -        -        -
      Interest expense,
       net                 42.2        -     42.2     62.6        -     62.6
                       -------- -------- -------- -------- -------- --------
      Net earnings (loss)
       before tax         (25.5)   175.7    150.2   (136.1)   244.8    108.7
      Income tax expense   21.3     (0.2)    21.1     14.5      0.7     15.2
                       -------- -------- -------- -------- -------- --------
      Net earnings
       (loss)          $  (46.8) $ 175.9 $  129.1 $ (150.6) $ 244.1 $   93.5
                       -------- -------- -------- -------- -------- --------
                       -------- -------- -------- -------- -------- --------
      W.A. No. of
       shares (in
       millions) -
       diluted            226.2             227.9    227.2             228.0
      Earnings (loss)
       per share -
       diluted         $  (0.21)         $   0.57 $  (0.66)         $   0.41

    (1) Non-cash option expense included in cost of sales and SG&A is added
        back for adjusted net earnings
    Q3 2005 - Cost of option exchange program included in cost of sales and
    SG&A is added back for adjusted net earnings


    GUIDANCE SUMMARY

                             Updated
                          4Q 06 Guidance     4Q 06 Actual   1Q 07 Guidance(2)
                         ---------------     ------------   -----------------
      Revenue            $2.20B - $2.25B        $2.26B        $1.7B - $1.9B
      Adjusted net EPS    $0.00 - $0.06          $0.03      $(0.15) - $(0.04)


     (2) Guidance for the first quarter is provided only on an adjusted net
         earnings basis.  This is due to the difficulty in forecasting the
         various items impacting GAAP net earnings, such as the amount and
         timing of our restructuring activities.



                               CELESTICA INC.

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


                                                    December 31   December 31
                                                        2005          2006
                                                    -----------   -----------
    Assets                                                        (unaudited)
    Current assets:
      Cash and short-term investments..............  $   969.0     $   803.7
      Accounts receivable..........................      982.6         973.2
      Inventories..................................    1,058.4       1,197.9
      Prepaid and other assets.....................      124.0         111.0
      Income taxes recoverable.....................      113.5          31.2
      Deferred income taxes........................       10.9           3.8
                                                    -----------   -----------
                                                       3,258.4       3,120.8
    Capital assets.................................      544.8         567.1
    Goodwill from business combinations............      874.5         854.8
    Intangible assets..............................       79.0          60.1
    Other assets...................................      101.1          83.5
                                                    -----------   -----------
                                                     $ 4,857.8     $ 4,686.3
                                                    -----------   -----------
                                                    -----------   -----------

    Liabilities and Shareholders' Equity
    Current liabilities:
      Accounts payable.............................  $ 1,153.3     $ 1,193.6
      Accrued liabilities..........................      492.1         487.9
      Income taxes payable.........................      119.9          42.7
      Deferred income taxes........................        4.5           1.1
      Current portion of long-term debt (note 4)...        0.5           0.6
                                                    -----------   -----------
                                                       1,770.3       1,725.9
    Long-term debt (note 4)........................      750.9         750.2
    Accrued pension and post-employment benefits...       76.8          54.9
    Deferred income taxes..........................       17.8          47.5
    Other long-term liabilities....................       27.6          13.2
                                                    -----------   -----------
                                                       2,643.4       2,591.7
    Shareholders' equity:
      Capital stock................................    3,562.3       3,576.6
      Warrants.....................................        8.4           8.4
      Contributed surplus..........................      169.9         179.3
      Deficit......................................   (1,545.6)     (1,696.2)
      Foreign currency translation adjustment......       19.4          26.5
                                                    -----------   -----------
                                                       2,214.4       2,094.6
                                                    -----------   -----------
                                                     $ 4,857.8     $ 4,686.3
                                                    -----------   -----------
                                                    -----------   -----------

                   Guarantees and contingencies (note 12)
                         Subsequent event (note 12)

        See accompanying notes to consolidated financial statements.
    These unaudited interim consolidated financial statements should be read
     in conjunction with the 2005 annual consolidated financial statements.



                               CELESTICA INC.

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


                                Three months ended           Year ended
                                    December 31              December 31
                                  2005        2006        2005        2006
                              ----------- ----------- ----------- -----------
                              (unaudited) (unaudited)             (unaudited)

    Revenue..................  $ 2,075.3   $ 2,261.8   $ 8,471.0   $ 8,811.7
    Cost of sales............    1,956.4     2,174.7     7,989.9     8,359.9
                              ----------- ----------- ----------- -----------
    Gross profit.............      118.9        87.1       481.1       451.8
    Selling, general and
     administrative expenses        73.6        64.2       296.9       285.6
    Amortization of intangible
     assets..................        7.4         6.5        28.4        27.0
    Integration costs related
     to acquisitions.........        0.3           -         0.6         0.9
    Other charges (note 6)...       56.9        59.9       130.9       211.8
    Accretion of convertible
     debt (note 5)...........          -           -         7.6           -
    Interest on long-term
     debt....................       15.7        17.4        48.4        67.1
    Interest income, net.....       (2.2)       (1.2)       (6.2)       (4.5)
                              ----------- ----------- ----------- -----------
    Loss before income taxes       (32.8)      (59.7)      (25.5)     (136.1)
                              ----------- ----------- ----------- -----------
    Income taxes expense
     (recovery):
      Current................       12.5       (52.7)       36.9       (40.7)
      Deferred...............      (17.1)       53.8       (15.6)       55.2
                              ----------- ----------- ----------- -----------
                                    (4.6)        1.1        21.3        14.5
                              ----------- ----------- ----------- -----------
    Net loss for the period..  $   (28.2)  $   (60.8)  $   (46.8)  $  (150.6)
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Deficit, beginning of
     period..................  $(1,517.4)  $(1,635.4)  $(1,473.6)  $(1,545.6)
    Loss on repurchase of
     convertible debt
     (note 5)................          -           -       (25.2)          -
    Net loss for the period..      (28.2)      (60.8)      (46.8)     (150.6)
                              ----------- ----------- ----------- -----------
    Deficit, end of period...  $(1,545.6)  $(1,696.2)  $(1,545.6)  $(1,696.2)
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Basic loss per share.....  $   (0.12)  $   (0.27)  $   (0.21)  $   (0.66)

    Diluted loss per share...  $   (0.12)  $   (0.27)  $   (0.21)  $   (0.66)

    Shares used in computing
     per share amounts:
      Basic (in millions)....      226.3       227.6       226.2       227.2
      Diluted (in millions)..      226.3       227.6       226.2       227.2


        See accompanying notes to consolidated financial statements.
    These unaudited interim consolidated financial statements should be read
      in conjunction with the 2005 annual consolidated financial statements.



                               CELESTICA INC.

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

                                Three months ended           Year ended
                                    December 31              December 31
                                  2005        2006        2005        2006
                              ----------- ----------- ----------- -----------
                              (unaudited) (unaudited)             (unaudited)

    Cash provided by (used in):
    Operations:
    Net loss for the period..  $   (28.2)  $   (60.8)  $   (46.8)  $  (150.6)
    Items not affecting cash:
      Depreciation and
       amortization..........       32.0        36.1       152.7       134.2
      Deferred income taxes..      (17.1)       53.8       (15.6)       55.2
      Accretion of
       convertible debt......          -           -         7.6           -
      Non-cash charge for
       option issuances......        1.8         0.8         9.0         5.1
      Restructuring charges..        3.4         7.1        11.0        47.9
      Other charges..........        1.6         1.4       (15.3)       34.6
      Gain on settlement of
       principal component of
       convertible debt
       (note 5)..............          -           -       (13.9)          -
    Other....................        8.1       (10.1)       14.5         1.9
    Changes in non-cash
     working capital items:
      Accounts receivable....     (125.3)       85.6        42.0       (24.8)
      Inventories............       36.9       115.1           -      (172.0)
      Prepaid and other
       assets................       16.9         6.9        17.3         2.7
      Income taxes
       recoverable...........      (29.1)        3.7       (24.4)       72.1
      Accounts payable and
       accrued liabilities...      171.9      (132.5)       51.2       108.0
      Income taxes payable...       27.0       (59.4)       29.0       (75.1)
                              ----------- ----------- ----------- -----------
      Non-cash working capital
       changes...............       98.3        19.4       115.1       (89.1)
                              ----------- ----------- ----------- -----------
    Cash provided by
     operations..............       99.9        47.7       218.3        39.2
                              ----------- ----------- ----------- -----------

    Investing:
      Acquisitions, net of cash
       acquired/indebtedness
       assumed (note 3)......       (4.3)          -        (6.5)      (19.1)
      Purchase of capital
       assets................      (46.7)      (27.2)     (158.5)     (189.1)
      Proceeds, net of cash
       divested from sale of
       operations or assets..       19.8         2.7        50.9         1.0
      Other..................        1.3        (1.4)        2.2        (0.7)
                              ----------- ----------- ----------- -----------
    Cash used in investing
     activities..............      (29.9)      (25.9)     (111.9)     (207.9)
                              ----------- ----------- ----------- -----------

    Financing:
      Increase in long-term
       debt (note 4).........          -           -       250.0           -
      Long-term debt issue
       costs.................          -           -        (4.2)          -
      Deferred financing
       costs.................       (1.1)          -        (1.1)          -
      Repurchase of convertible
       debt (note 5).........          -           -      (352.0)          -
      Repayment of long-term
       debt..................       (0.4)       (0.1)       (3.4)       (0.6)
      Issuance of share
       capital...............        2.5         3.5         8.0         5.3
      Other..................        2.5        (0.3)       (3.5)       (1.3)
                              ----------- ----------- ----------- -----------
    Cash provided by (used in)
     financing activities....        3.5         3.1      (106.2)        3.4
                              ----------- ----------- ----------- -----------

    Increase (decrease)
     in cash.................       73.5        24.9         0.2      (165.3)
    Cash, beginning of
     period..................      895.5       778.8       968.8       969.0
                              ----------- ----------- ----------- -----------
    Cash, end of period......  $   969.0   $   803.7   $   969.0   $   803.7
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


            Cash is comprised of cash and short-term investments.
                Supplemental cash flow information (note 10)

        See accompanying notes to consolidated financial statements.
    These unaudited interim consolidated financial statements should be read
      in conjunction with the 2005 annual consolidated financial statements.



                               CELESTICA INC.

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

    1.  Nature of business:

    Our primary operations consist of providing a broad range of electronic
    product solutions such as design and engineering, manufacturing and
    systems integration, fulfillment and after market solutions to customers
    in the computing and communications industries and, increasingly, in the
    aerospace and defense, consumer and industrial end markets. We have
    operations in Asia, the Americas and Europe.

    We prepare our financial statements in accordance with generally accepted
    accounting principles (GAAP) in Canada with a reconciliation to
    accounting principles generally accepted in the United States, disclosed
    in note 20 to the 2005 annual consolidated financial statements.

    2.  Significant accounting policies:

    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 2005 annual
    consolidated financial statements. These unaudited interim consolidated
    financial statements reflect all adjustments, consisting only of normal
    recurring accruals, which are, in the opinion of management, necessary to
    present fairly our financial position as of December 31, 2006 and the
    results of operations and cash flows for the three months and years ended
    December 31, 2005 and 2006. These unaudited interim consolidated
    financial statements are based upon accounting principles consistent with
    those used and described in the 2005 annual consolidated financial
    statements.

    (i) Capital assets:

    Effective October 1, 2005, we changed the estimated useful lives of
    certain machinery and equipment from five years to seven years based on
    our experience and the extended use of these assets. As a result of this
    change in estimated useful life, depreciation expense included in cost of
    sales decreased by approximately $3 in the fourth quarter of 2006 ($6 in
    the fourth quarter of 2005). Depreciation expense for 2006 was lower by
    approximately $10 compared to 2005 as a result of this change.

    3.  Acquisitions and divestitures:

    As part of the acquisition of Manufacturers' Services Limited (MSL) in
    2004, we recorded liabilities for consolidating some of the acquired MSL
    sites. These liabilities are detailed in the chart below. We have
    completed the major components of these restructuring plans except for
    certain long-term lease and contractual obligations which will be paid
    out over the remaining lease terms through 2010. Cash outlays are funded
    from cash on hand. We record the restructuring liability in accrued
    liabilities.

    Details of the activity through the MSL restructuring liability are as
    follows:

                                            Lease and
                                 Employee     other      Facility    Total
                               termination contractual  exit costs  accrued
                                  costs    obligations  and other  liability
                               ----------  ----------  ----------  ----------

    Accrued on acquisition....  $   28.0    $    6.9    $    1.2    $   36.1
    Cash payments.............     (14.7)       (0.6)       (0.2)      (15.5)
                               ----------  ----------  ----------  ----------
    December 31, 2004.........      13.3         6.3         1.0        20.6
    Adjustments...............      (0.5)       (0.2)        0.7           -
    Cash payments.............      (2.2)       (3.9)       (1.3)       (7.4)
                               ----------  ----------  ----------  ----------
    December 31, 2005.........      10.6         2.2         0.4        13.2
    Cash payments.............      (2.6)       (0.2)          -        (2.8)
                               ----------  ----------  ----------  ----------
    March 31, 2006............       8.0         2.0         0.4        10.4
    Cash payments.............      (4.5)       (0.1)          -        (4.6)
                               ----------  ----------  ----------  ----------
    June 30, 2006.............       3.5         1.9         0.4         5.8
    Adjustments...............       0.4           -        (0.4)          -
    Cash payments.............      (3.2)       (0.2)          -        (3.4)
                               ----------  ----------  ----------  ----------
    September 30, 2006........       0.7         1.7           -         2.4
    Cash payments.............      (0.7)       (0.2)          -        (0.9)
                               ----------  ----------  ----------  ----------
    December 31, 2006.........  $      -    $    1.5    $      -    $    1.5
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------

    2005 acquisition activities:

    In the third quarter of 2005, we completed the acquisitions of CoreSim
    Inc. and Ramnish Electronics Private Limited. In the fourth quarter of
    2005, we completed the acquisition of Displaytronix Inc. The total
    aggregate cash purchase price for these acquisitions was $6.5, including
    indebtedness assumed.

    2006 acquisition activity:

    In March 2006, we acquired certain assets located in the Philippines from
    Powerwave Technologies, Inc. for a cash purchase price of $19.1.
    Amortizable intangible assets arising from this acquisition were $7.6,
    primarily for customer relationships and contract intangibles.

    2006 divestiture:

    In June 2006, we sold our plastics business for net cash proceeds of
    $18.5. We reported our plastics business as part of our Asia segment.
    During the second quarter, we reported a loss on sale of $33.2 which we
    recorded as other charges (see note 6). This loss included $20.0 in
    goodwill allocated to the plastics business.

    As part of the sale agreement, we provided routine indemnities to the
    purchaser which management believes will not have a material adverse
    impact on our results of operations, financial position or our liquidity.

    4.  Long-term debt:

                                                     December 31  December 31
                                                         2005         2006
                                                     -----------  -----------
    Unsecured, revolving credit facility
     due 2007 (a)...................................   $      -     $      -
    Senior Subordinated Notes due 2011 (b)..........      500.0        500.0
    Senior Subordinated Notes due 2013 (c)..........      250.0        250.0
    Capital lease obligations.......................        1.4          0.8
                                                     -----------  -----------
                                                          751.4        750.8
    Less current portion............................        0.5          0.6
                                                     -----------  -----------
                                                       $  750.9     $  750.2
                                                     -----------  -----------
                                                     -----------  -----------

    (a) We have a 364-day credit facility for $600.0 which matures in
        June 2007. The facility includes a $25.0 swing-line facility that
        provides for short-term borrowings up to a maximum of seven days. The
        credit facility permits us and certain designated subsidiaries to
        borrow funds for general corporate purposes (including acquisitions).
        Borrowings under the facility bear interest at LIBOR plus a margin
        except that borrowings under the swing-line facility bear interest at
        a base rate plus a margin. There are no borrowings outstanding under
        this facility. Commitment fees for the year ended December 31, 2006
        were $2.7.

        The facility has restrictive covenants relating to debt incurrence
        and sale of assets and also contains financial covenants that
        requires us to maintain certain financial ratios. A change of control
        is an event of default. Based on the required minimum financial
        ratios at December 31, 2006, we are limited to approximately $60 of
        available debt incurrence. The available debt incurrence under the
        facility has been reduced by covenants relating to the two
        subordinated note issuances and outstanding letters of credit and
        guarantees. We were in compliance with all covenants at December 31,
        2006.

        We also have uncommitted bank overdraft facilities available for
        operating requirements which total $47.5 at December 31, 2006. There
        were no borrowings outstanding under these facilities.

    (b) In June 2004, we issued Senior Subordinated Notes due 2011 with an
        aggregate principal amount of $500.0, and a fixed interest rate of
        7.875%. We incurred $12.0 in underwriting commissions and expenses
        which we deferred and are amortizing over the term of the debt. The
        2011 Notes are unsecured and are subordinated in right of payment to
        all our senior debt. We may redeem the 2011 Notes on July 1, 2008 or
        later at various premiums above face value.

        In connection with the 2011 Notes offering, we entered into
        agreements which swap the fixed interest rate with a variable
        interest rate based on LIBOR plus a margin. The average interest rate
        on the 2011 Notes was 8.4% for the fourth quarter of 2006 and 8.2%
        for 2006 (7.1% - fourth quarter of 2005; 6.4% - 2005).

    (c) In June 2005, we issued Senior Subordinated Notes due 2013 with an
        aggregate principal amount of $250.0, and a fixed interest rate of
        7.625%. We incurred $4.2 in underwriting commissions and expenses
        which we deferred and are amortizing over the term of the debt. The
        2013 Notes are unsecured and are subordinated in right of payment to
        all our senior debt. We may redeem the 2013 Notes on July 1, 2009 or
        later at various premiums above face value.

    5.  Convertible debt:

    During the third quarter of 2005, we repurchased the remaining
    outstanding LYONs and recorded gains on the principal component through
    other charges and losses on the option component through deficit. After
    the third quarter of 2005, we have not recorded any accretion charges
    related to the LYONs.

    6.  Other charges:

                                  Three months ended         Year ended
                                     December 31             December 31
                                   2005        2006        2005        2006
                                ---------   ---------   ---------   ---------

    2001 to 2004
     restructuring (a)......... $    1.8    $    1.6    $   20.8    $    3.6
    2005  and 2006
     restructuring (b).........     53.5        56.9       139.3       174.5
                                ---------   ---------   ---------   ---------
    Total restructuring........     55.3        58.5       160.1       178.1

    Long-lived asset
     impairment (c)............      1.6         1.4         1.6         1.4
    Loss on sale of
     operations (note 3).......        -           -           -        33.2
    Gain on repurchase of
     convertible debt
     (note 5)..................        -           -       (13.9)          -
    Gain on sale of surplus
     land and building.........        -           -        (3.1)          -
    Other (d)..................        -           -       (13.8)       (0.9)
                                ---------   ---------   ---------   ---------
                                $   56.9    $   59.9    $  130.9    $  211.8
                                ---------   ---------   ---------   ---------
                                ---------   ---------   ---------   ---------

    (a) 2001 to 2004 restructuring:

    In 2001, we announced a restructuring plan in response to the weak
    end-markets in the computing and telecommunications industries. In
    response to the prolonged difficult end-market conditions, we announced a
    second restructuring plan in July 2002. The weak demand for our
    manufacturing services resulted in an accelerated move to lower-cost
    geographies and additional restructuring in the Americas and Europe. In
    January 2003, we announced further reductions to our manufacturing
    capacity in Europe. In January and April 2004, we announced plans to
    further restructure our operations to better align capacity with
    customers' requirements.

    These restructuring actions were focused on consolidating facilities,
    reducing the workforce, and transferring programs to lower-cost
    geographies. The majority of the employees terminated were manufacturing
    and plant employees. For leased facilities that were no longer used, the
    lease costs included in the restructuring costs represent future lease
    payments less estimated sublease recoveries. Adjustments were made to
    lease and other contractual obligations to reflect incremental
    cancellation fees paid for terminating certain facility leases and to
    reflect higher accruals for other leases due to delays in the timing of
    sublease recoveries and changes in estimated sublease rates, relating
    principally to facilities in the Americas.

    We have completed the major components of these restructuring plans,
    except for certain long-term lease and other contractual obligations,
    which will be paid out over the remaining lease terms through 2015. Cash
    outlays are funded from cash on hand. The restructuring liability is
    recorded in accrued liabilities.

    Details of the activity through the accrued restructuring liability and
    the non-cash charge are as follows:

                               Lease
                                 and
                               other  Facility
                  Employee     contr-     exit
                     termi-   actual     costs    Total
                    nation    obliga-      and   accrued   Non-cash    Total
                     costs     tions     other  liability   charge    charge
                  --------- --------- --------- --------- --------- ---------
    January 1,
     2001........ $      -  $      -  $      -  $      -  $      -  $      -
    Provision
     re: 2001....     90.7      35.3      12.4     138.4      98.6     237.0
    Cash payments    (51.2)     (1.6)     (2.9)    (55.7)        -         -
                  --------- --------- --------- --------- --------- ---------
    December 31,
     2001........     39.5      33.7       9.5      82.7      98.6     237.0
    Provision
     re: 2002....    128.8      51.7       8.5     189.0     194.5     383.5
    Cash payments    (77.1)    (14.7)     (7.5)    (99.3)        -         -
    Adjustments..     (4.1)     11.4      (2.7)      4.6      (2.7)      1.9
                  --------- --------- --------- --------- --------- ---------
    December 31,
     2002........     87.1      82.1       7.8     177.0     290.4     622.4
    Provision
     re: 2003....     61.4       0.3       1.1      62.8       8.5      71.3
    Cash payments   (112.0)    (44.4)     (8.9)   (165.3)        -         -
    Adjustments..      7.4      24.1       2.9      34.4     (10.8)     23.6
                  --------- --------- --------- --------- --------- ---------
    December 31,
     2003........     43.9      62.1       2.9     108.9     288.1     717.3
    Provision
     re: 2004....     98.6       8.7       5.9     113.2      33.9     147.1
    Cash payments   (110.6)    (32.0)     (4.1)   (146.7)        -         -
    Adjustments..      2.7       2.2       0.3       5.2       1.4       6.6
                  --------- --------- --------- --------- --------- ---------
    December 31,
     2004........     34.6      41.0       5.0      80.6     323.4     871.0
    Cash payments    (31.9)    (11.5)     (4.6)    (48.0)        -         -
    Adjustments..     8.7       6.2       0.6      15.5       5.3      20.8
                  --------- --------- --------- --------- --------- ---------
    December 31,
     2005........ $   11.4  $   35.7  $    1.0  $   48.1  $  328.7  $  891.8
                  --------- --------- --------- --------- --------- ---------
                  --------- --------- --------- --------- --------- ---------

    Details of the 2006 activity by quarter are as follows:

                               Lease
                                 and
                               other  Facility
                  Employee     contr-     exit
                     termi-   actual     costs    Total
                    nation    obliga-      and   accrued   Non-cash    2006
                     costs     tions     other  liability   charge    charge
                  --------- --------- --------- --------- --------- ---------
    December 31,
     2005........ $   11.4  $   35.7  $    1.0  $   48.1  $  328.7  $      -
    Cash payments     (2.5)     (2.2)        -      (4.7)        -         -
    Adjustments..      0.2       0.3         -       0.5         -       0.5
                  --------- --------- --------- --------- --------- ---------
    March 31,
     2006........      9.1      33.8       1.0      43.9     328.7       0.5
    Cash payments     (0.4)     (2.6)        -      (3.0)        -         -
    Adjustments..     (0.1)      0.7         -       0.6         -       0.6
                  --------- --------- --------- --------- --------- ---------
    June 30,
     2006........      8.6      31.9       1.0      41.5     328.7       1.1
    Cash payments     (0.4)     (2.4)        -      (2.8)        -         -
    Adjustments..      0.2       0.7         -       0.9         -       0.9
    Settlement
     (see 6(b)(i))    (7.7)        -         -      (7.7)        -         -
                  --------- --------- --------- --------- --------- ---------
    September 30,
     2006........      0.7      30.2       1.0      31.9     328.7       2.0
    Cash payments     (0.3)     (2.5)        -      (2.8)        -         -
    Adjustments..        -       1.6         -       1.6         -       1.6
                  --------- --------- --------- --------- --------- ---------
    December 31,
     2006........ $    0.4  $   29.3  $    1.0  $   30.7  $  328.7  $    3.6
                  --------- --------- --------- --------- --------- ---------
                  --------- --------- --------- --------- --------- ---------

    (b) 2005 and 2006 restructuring:

    In January 2005, we announced plans to further improve capacity
    utilization and accelerate margin improvements. These restructuring
    actions include facility closures and a reduction in workforce, primarily
    targeting our higher-cost geographies where end-market demand had not
    recovered to the levels management requires to achieve sustainable
    profitability. We expected to complete these restructuring actions by the
    end of 2006, however, in light of our operating results and in the course
    of preparing our 2007 plan in the fourth quarter of 2006, we have
    identified additional restructuring actions necessary to return the
    Americas and Europe to profitability. These restructuring actions include
    additional downsizing of workforces to take into account the volume
    volatility at certain facilities, disengaging with unprofitable or
    non-strategic customers and reducing our overhead costs. We expect to
    complete these restructuring actions by the end of 2007.

    As of December 31, 2006, we have recorded termination costs related to
    approximately 6,900 employees (an additional 2,400 employees from
    September 30, 2006), primarily operations and plant employees.
    Approximately 4,400 of these employees have been terminated as of
    December 31, 2006 with the balance of the terminations to occur by the
    end of 2007. Approximately 65% of employee terminations are in the
    Americas and 35% in Europe.

    Details of the activity through the accrued restructuring liability and
    the non-cash charge are as follows:

                               Lease
                                 and
                               other  Facility
                  Employee     contr-     exit
                     termi-   actual     costs    Total
                    nation    obliga-      and   accrued   Non-cash    Total
                     costs     tions     other  liability   charge    charge
                  --------- --------- --------- --------- --------- ---------
    January 1,
     2005........ $      -  $      -  $      -  $      -  $      -  $      -
    Provision....    114.0      14.5       5.1     133.6       5.7     139.3
    Cash payments    (74.7)     (1.2)     (4.4)    (80.3)        -         -
                  --------- --------- --------- --------- --------- ---------
    December 31,
     2005........     39.3      13.3       0.7      53.3       5.7     139.3
    Provision....     13.2       1.6       1.7      16.5         -      16.5
    Cash payments    (33.3)     (2.0)     (2.0)    (37.3)        -         -
                  --------- --------- --------- --------- --------- ---------
    March 31,
     2006........     19.2      12.9       0.4      32.5       5.7     155.8
    Provision....     16.5       1.7       1.4      19.6         -      19.6
    Cash payments    (16.6)     (2.5)     (1.3)    (20.4)        -         -
                  --------- --------- --------- --------- --------- ---------
    June 30,
     2006........     19.1      12.1       0.5      31.7       5.7     175.4
    Provision....     38.0       0.4       2.3      40.7      40.8      81.5
    Cash payments    (18.7)     (1.4)     (2.0)    (22.1)        -         -
    Settlement
     (see 6 (b)(i))  (15.5)        -         -     (15.5)        -         -
                  --------- --------- --------- --------- --------- ---------
    September 30,
     2006........     22.9      11.1       0.8      34.8      46.5     256.9
    Provision....     47.2       2.1       0.5      49.8       7.1      56.9
    Cash payments    (17.6)     (1.1)     (0.8)    (19.5)        -         -
                  --------- --------- --------- --------- --------- ---------
    December 31,
     2006........ $   52.5  $   12.1  $    0.5  $   65.1  $   53.6  $  313.8
                  --------- --------- --------- --------- --------- ---------
                  --------- --------- --------- --------- --------- ---------

    We recorded $56.9 of restructuring charges in the fourth quarter of 2006,
    of which approximately $40 relates to the additional restructuring
    actions initiated in the quarter. Cash outlays are and will be funded
    from cash on hand. The restructuring liability is recorded in accrued
    liabilities.

    (i) In September 2006, we sold one of our production facilities in Europe
        to a third party as part of our restructuring program. We reported a
        total of $61.2 in other charges with respect to this facility,
        comprised of incremental employee termination and transaction closing
        costs totaling $20.9 and a non-cash loss of $40.3. The book value of
        net assets sold was $42.1. We received cash proceeds of $1.8 on
        closing, resulting in the non-cash loss on sale of $40.3. Included in
        the net assets sold was cash of $22.0. The purchaser agreed to retain
        all employees, thereby significantly reducing our contractual
        severance obligations. As part of the agreement, the purchaser
        assumed our liabilities which we previously recorded as accruals for
        employee termination costs under the 2005 and 2006 restructuring plan
        of $15.5 and under our 2001 to 2004 restructuring plans of $7.7 (see
        note 6(a)).

        In connection with the sale, we provided indemnities to the purchaser
        which management believes will not have a material adverse impact on
        our operations, financial position or our liquidity. We expect to
        finalize the post-closing adjustments by the end of the first quarter
        of 2007. We recorded $4.0 in prepaid and other assets representing
        cash received from the purchaser which we are holding in escrow.

    Restructuring summary:

    We have recorded restructuring charges totaling $160.1 in 2005 and $178.1
    in 2006. The restructuring charges for 2006 include approximately $40 for
    the additional restructuring actions initiated in the fourth quarter of
    2006. We expect to incur further charges in 2007 of between $20.0 and
    $40.0 to complete these restructuring actions.

    As of December 31, 2006, we have $4.9 in assets that are
    available-for-sale, primarily land and buildings in all geographies as a
    result of the restructuring actions we implemented. We have programs
    underway to sell these assets.

    (c) Long-lived asset impairment:

    We conduct our annual impairment assessment in the fourth quarter of each
    year. We recorded a non-cash charge of $1.4 in 2006 against capital
    assets in the Americas and a non-cash charge of $1.6 in 2005 against
    capital assets and customer relationship intangibles in the Americas and
    Europe.

    (d) Other:

    In 2004, we recorded charges to reduce the net realizable value of
    certain assets for one customer which subsequently ceased operations in
    2005. We recorded a recovery of $13.8 during the second quarter of 2005
    and a recovery of $0.9 in the third quarter of 2006 to reflect additional
    amounts realized.

    7.  Pension and non-pension post-employment benefit plans:

    We have recorded the following pension expense:

                                  Three months ended         Year ended
                                     December 31             December 31
                                   2005        2006        2005        2006
                                ---------   ---------   ---------   ---------

    Pension plans.............. $    8.2    $   10.3    $   31.5    $   35.7
    Other benefit plans........      1.6         2.4        10.5         8.9
                                ---------   ---------   ---------   ---------
    Total expense.............. $    9.8    $   12.7    $   42.0    $   44.6
                                ---------   ---------   ---------   ---------
                                ---------   ---------   ---------   ---------

    8.  Stock-based compensation and other stock-based payments:

    We have granted stock options and performance-contingent stock options as
    part of our long-term incentive plans. We have applied the fair-value
    method of accounting for stock option awards granted after January 1,
    2003 and, accordingly, have recorded compensation expense. For awards
    granted in 2002, we have disclosed the pro forma earnings and per share
    information as if we had accounted for employee stock options under the
    fair-value method. We are not required to apply the pro forma impact of
    awards granted prior to January 1, 2002.

    The estimated fair value of options is amortized to expense over the
    vesting period, on a straight-line basis, and was determined using the
    Black Scholes option pricing model with the following weighted average
    assumptions:

                                  Three months ended         Year ended
                                     December 31             December 31
                                   2005        2006        2005        2006
                                ---------   ---------   ---------   ---------

    Risk-free rate.............   4.4%     4.5%-4.6%   3.5%-4.4%   4.5%-5.0%
    Dividend yield.............   0.0%        0.0%        0.0%        0.0%
    Volatility factor of the
     expected market price of
     the Company's shares......  52%-66%     34%-35%     48%-68%     34%-65%
    Expected option life
     (in years)................  3.5-5.5       3.5       3.5-5.5     3.5-5.5
    Weighted average fair value
     of options granted........   $4.78       $2.99       $6.54       $5.55

    Compensation expense for the three months and year ended December 31,
    2006 was $0.8 and $5.1, respectively (three months and year ended
    December 31, 2005 was $1.8 and $9.0, respectively) relating to the fair
    value of options granted after January 1, 2003.

    The pro forma disclosure relating to options granted in 2002 is as
    follows:

                                  Three months ended         Year ended
                                     December 31             December 31
                                   2005        2006        2005        2006
                                ---------   ---------   ---------   ---------

    Net loss as reported....... $  (28.2)   $  (60.8)   $  (46.8)   $ (150.6)
    Deduct: Stock-based
     compensation (fair value).     (2.1)       (0.2)       (7.4)       (4.1)
                                ---------   ---------   ---------   ---------
    Pro forma net loss......... $  (30.3)   $  (61.0)   $  (54.2)   $ (154.7)
                                ---------   ---------   ---------   ---------
                                ---------   ---------   ---------   ---------

    Loss per share:
      Basic - as reported...... $  (0.12)   $  (0.27)   $  (0.21)   $  (0.66)
      Basic - pro forma........ $  (0.13)   $  (0.27)   $  (0.24)   $  (0.68)

      Diluted - as reported.... $  (0.12)   $  (0.27)   $  (0.21)   $  (0.66)
      Diluted - pro forma...... $  (0.13)   $  (0.27)   $  (0.24)   $  (0.68)

    Our stock plans are described in note 9 to the 2005 annual consolidated
    financial statements.

    (i) Stock option exchange program in 2005:

    As part of a restructuring of our long-term incentive arrangements to
    provide more effective programs and reduce market overhang, we cancelled
    6.8 million options during the third quarter of 2005 for an aggregate
    cost of $6.8 as part of an option exchange program. All employees, other
    than certain executives, were eligible to participate. Eligible employees
    forfeited certain out-of-the-money options for $1.00 in cash for each
    option surrendered. We recorded compensation expense of $3.9 to cost of
    sales and $2.9 to selling, general and administrative expenses in the
    third quarter of 2005. Future compensation expense was not impacted as
    all repurchased options were granted prior to January 1, 2003. We paid
    $5.6 in cash in the third quarter of 2005. The balance was accrued and
    will be paid out at the end of three years, in accordance with the plan.

    9.  Segmented information:

    Our operations fall into one dominant industry segment, the electronics
    manufacturing services industry. We manage our operations, and
    accordingly determine our operating segments, on a geographic basis. The
    performance of geographic operating segments is monitored based on EBIAT
    (earnings before interest and accretion on convertible debt, amortization
    of intangible assets, integration costs related to acquisitions, other
    charges, option expense and income taxes). Inter segment transactions are
    reflected at market value.

    The following is a breakdown by reporting segment:

                                  Three months ended         Year ended
                                     December 31             December 31
                                   2005        2006        2005        2006
                                ---------   ---------   ---------   ---------

    Revenue
    Asia....................... $  998.3    $1,192.7    $4,048.9    $4,630.5
    Americas...................    757.7       810.8     3,090.5     3,130.1
    Europe.....................    366.6       296.2     1,510.2     1,237.9
    Elimination of
     inter-segment revenue.....    (47.3)      (37.9)     (178.6)     (186.8)
                                ---------   ---------   ---------   ---------
                                $2,075.3    $2,261.8    $8,471.0    $8,811.7
                                ---------   ---------   ---------   ---------
                                ---------   ---------   ---------   ---------


                                  Three months ended         Year ended
                                     December 31             December 31
    EBIAT                          2005        2006        2005        2006
                                ---------   ---------   ---------   ---------

    Asia....................... $   40.3    $   61.5    $  159.4    $  211.3
    Americas...................     12.2       (29.1)       54.4       (13.6)
    Europe.....................     (5.4)       (8.7)      (13.8)      (26.4)
                                ---------   ---------   ---------   ---------
                                    47.1        23.7       200.0       171.3
    Net interest and
     accretion charges.........    (13.5)      (16.2)      (49.8)      (62.6)
    Amortization of
     intangible assets.........     (7.4)       (6.5)      (28.4)      (27.0)
    Option expense.............     (1.8)       (0.8)       (9.0)       (5.1)
    Option exchange cost
     (note 8 (i))..............        -           -        (6.8)          -
    Integration costs related
     to acquisitions...........     (0.3)          -        (0.6)       (0.9)
    Other charges..............    (56.9)      (59.9)     (130.9)     (211.8)
                                ---------   ---------   ---------   ---------
    Loss before income taxes    $  (32.8)   $  (59.7)   $  (25.5)   $ (136.1)
                                ---------   ---------   ---------   ---------
                                ---------   ---------   ---------   ---------


                                                          As at December 31
                                                           2005        2006
                                                        ---------   ---------

    Total assets
    Asia............................................... $2,494.7    $2,615.7
    Americas...........................................  1,574.2     1,448.6
    Europe.............................................    788.9       622.0
                                                        ---------   ---------
                                                        $4,857.8    $4,686.3
                                                        ---------   ---------
                                                        ---------   ---------

    Goodwill
    Asia............................................... $  874.5    $  854.8
    Americas...........................................        -           -
    Europe.............................................        -           -
                                                        ---------   ---------
                                                        $  874.5    $  854.8
                                                        ---------   ---------
                                                        ---------   ---------

    10. Supplemental cash flow information:

                                  Three months ended         Year ended
    Paid (recovered)                 December 31             December 31
     during the period:            2005        2006        2005        2006
                                ---------   ---------   ---------   ---------

    Taxes (a).................. $    7.5    $    4.7    $   24.8    $  (36.5)
    Interest (b)............... $    3.6    $    4.2    $   40.6    $   70.5

    (a) Cash taxes paid is net of income taxes recovered.
    (b) This includes interest paid on the 2011 and 2013 Senior Subordinated
        Notes. Interest on the Notes is payable in January and July of each
        year until maturity. See notes 4 (b) and (c). The interest paid on
        the 2011 Notes reflect the amounts received or paid relating to the
        interest rate swap agreements.

    11. Hedging transactions:

    We enter into foreign currency contracts to hedge foreign currency risks
    relating to cash flow. At December 31, 2006, we had forward exchange
    contracts covering various currencies in an aggregate notional amount of
    $432.0. The fair value of these contracts at December 31, 2006 was an
    unrealized loss of $0.4 (2005 - unrealized gain of $6.9).

    In connection with the issuance of our 2011 Notes in June 2004, we
    entered into agreements to swap the fixed rate of interest for a variable
    interest rate. The notional amount of the agreements is $500.0. The
    agreements mature July 2011. See note 4(b). Payments or receipts under
    the swap agreements are recorded in interest expense on long-term debt.
    The fair value of the interest rate swap agreements at December 31, 2006
    was an unrealized loss of $9.9 (December 31, 2005 - unrealized loss of
    $3.1).

    12. Guarantees and contingencies:

    We have contingent liabilities in the form of letters of credit, letters
    of guarantee, and surety and performance bonds which we provided to
    various third parties. These guarantees cover various payments, including
    customs and excise taxes, utility commitments and certain bank
    guarantees. At December 31, 2006, these contingent liabilities amounted
    to $84.9 (December 31, 2005 - $80.0).

    In addition to the above guarantees, we have also provided routine
    indemnifications, whose terms range in duration and often are not
    explicitly defined. These may include indemnifications against adverse
    impacts due to changes in tax laws and patent infringements by third
    parties. We have also provided indemnifications in connection with the
    sale of certain businesses and real property. The maximum potential
    liability from these indemnifications cannot be reasonably estimated. In
    some cases, we have recourse against other parties to mitigate our risk
    of loss from these indemnifications. Historically, we have not made
    significant payments relating to these types of indemnifications.

    In the normal course of our operations, we are subject to litigation and
    claims from time to time. We may also 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 possible to estimate the extent of potential costs, if any,
    management believes that the ultimate resolution of such contingencies
    will not have a material adverse impact on our results of operations,
    financial position or our liquidity.

    On January 12, 2007, a purported class action complaint was commenced
    against the company in the United States District Court of the Southern
    District of New York by Russell Henning on behalf of himself and
    purchasers of our shares during the period July 27, 2006 through
    December 12, 2006. A second such purported class action complaint was
    commenced against us in the same court on January 24, 2007 by Sherry
    Saylor on behalf of herself and purchasers of our shares during the same
    period. The two lawsuits make similar allegations and also name our
    former chief executive officer and our current chief financial officer as
    defendants. The two complaints assert violations of the United States
    federal securities laws and seek an unspecified amount of damages. The
    complaints allege that during the purported class period the company made
    statements concerning its actual and anticipated future financial results
    that allegedly failed to disclose certain purportedly adverse information
    with respect to demand and inventory in our Mexican operations and our
    information technology and communications divisions. We believe that the
    complaints are without merit and we intend to defend the cases
    vigorously. However, there can be no assurance that the outcome of the
    complaints will be favorable to us or will not have a material adverse
    impact on our financial position or our liquidity. In addition, we may
    incur substantial litigation expenses in defending these actions.

    Income taxes:

    We are subject to tax audits by local taxing authorities. International
    taxation authorities could challenge the validity of our inter-company
    financing and transfer pricing policies which generally involve
    subjective areas of taxation and a significant degree of judgment. If any
    of these taxation authorities is successful in challenging our financing
    or transfer pricing policies, our income tax expense may be adversely
    affected and we could also be subjected to interest and penalty charges.
    In connection with ongoing tax audits in the United States, taxing
    authorities have asserted that our United States subsidiaries owe
    significant amounts of tax, interest and penalties arising from
    inter-company transactions. A significant portion of these asserted
    deficiencies were resolved in favour of the company in the fourth quarter
    of 2006. We believe we have substantial defenses to the remaining
    asserted deficiencies and have adequately accrued for any likely
    potential losses. However, there can be no assurance as to the final
    resolution of these remaining asserted deficiencies and any resulting
    proceedings and if these remaining asserted deficiencies and proceedings
    are determined adversely to us, the amounts we may be required to pay may
    be material.

    In addition, net deferred income tax liabilities with respect to net
    unrealized foreign exchange gains in Canada have been accrued during the
    fourth quarter of 2006. It was determined during the fourth quarter of
    2006 that certain foreign exchange losses accrued on Canadian assets may
    not be available to offset the unrealized foreign exchange gains accrued
    on Canadian liabilities. This is due to the potential timing of
    realization of foreign exchange gains and losses and/or potential
    challenges that, more likely than not, would result in a lack of
    availability of the unrealized foreign exchange losses to offset the
    unrealized foreign exchange gains.
    

    %SEDAR: 00010284E




For further information:

For further information: Contacts: Laurie Flanagan, Celestica Global
Communications, (416) 448-2200, media@celestica.com; Donna Singh, Celestica
Investor Relations, (416) 448-2211, clsir@celestica.com

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Celestica Inc.

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