Celestica Announces Third Quarter 2007 Financial Results



    
                            Third Quarter Summary
                            ---------------------

    -  Revenue of $2,081 million, up 7% sequentially and down 13%
       year-over-year
    -  GAAP earnings per share of $0.22 compared to a loss of ($0.19) per
       share last year
    -  Adjusted net earnings per share of $0.13 compared to $0.18 per share a
       year ago
    -  Operating margin of 2.3%, up 120 basis points from the second quarter
       of 2007
    -  Inventory turns of 8.3x compared to 7.3x in the second quarter of 2007
    -  Free cash flow of $206 million, cash balance up $206 million
       sequentially to $953 million
    -  Q4 revenue guidance of $2.0 - $2.15 billion, adjusted net earnings per
       share of $0.10 - $0.16

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

    TORONTO, Oct. 25 /CNW/ - Celestica Inc. (NYSE, TSX: CLS), a global
provider of innovative electronics manufacturing services (EMS), today
announced financial results for the third quarter ended September 30, 2007.
    Revenue was $2,081 million, down 13% from $2,392 million in the third
quarter of 2006. Net earnings on a GAAP basis for the third quarter were $51.5
 million or $0.22 per share, compared to GAAP net loss of ($42.1) million or
($0.19) per share for the same period last year. Included in the third quarter
2007 earnings are restructuring charges of $2.7 million compared to
restructuring charges of $82.4 million in the third quarter last year.
    Adjusted net earnings for the quarter were $29.3 million or $0.13 per
share compared to adjusted net earnings of $40.5 million or $0.18 per share
for the same period last year. The term 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 or recovery (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 guidance for the third quarter, announced on July 26, 2007, of
revenue in the range of $2.0 billion to $2.2 billion and adjusted net earnings
per share in the range of $0.04 to $0.12.
    For the nine months ended September 30, 2007, revenue was $5,860 million
compared to $6,550 million for the same period in 2006. Net loss on a GAAP
basis was ($2.0) million or ($0.01) per share compared to net loss of
($89.8) million or ($0.40) per share last year. Adjusted net earnings for the
first nine months of 2007 were $25.1 million or $0.11 per share compared to
adjusted net earnings of $87.0 million or $0.38 per share for the same period
in 2006.
    "Our third quarter results reflect the significant progress we are making
with respect to the turnaround plans we put in place at the beginning of this
year," said Craig Muhlhauser, President and Chief Executive Officer,
Celestica.
    "On a sequential basis, revenue grew 7%, operating margins almost
doubled, inventory turns improved to 8.3x and we generated more than
$200 million in free cash flow. We are encouraged by our progress to date and
believe that significant opportunity remains throughout the business. Although
we continue to manage through nearer-term volatility as we complete our
turnaround plans, our entire team remains confident in our ability to drive
further improvements as we strive to build a solid foundation for Celestica's
future growth and profitability."

    Outlook
    -------

    For the fourth quarter ending December 31, 2007, the company expects
revenue to be in the range of $2.0 billion to $2.15 billion, and adjusted net
earnings per share to range from $0.10 to $0.16.

    Third Quarter Results Webcasts
    ------------------------------

    Management will host its quarterly results conference call today at
4:30 p.m. Eastern Time which 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 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 for the company as well as its investors to facilitate
period-to-period operating comparisons and allow the comparison of 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 or recovery. 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 (loss) to Canadian GAAP net earnings
(loss) below.

    About Celestica
    ---------------
    Celestica is dedicated to providing innovative electronics manufacturing
services that accelerate our customers' success. Through our efficient global
manufacturing and supply chain network, we deliver competitive advantage to
companies in the computing, communications, consumer, industrial, and
aerospace and defense end markets. Our employees share a proud history of
proven expertise and creativity that provides our customers with the
flexibility 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 Harbour and Fair Disclosure Statement
    ------------------------------------------

    This news release contains forward-looking statements related to our
future growth, trends in our industry, our financial and or operational
results, and our financial or operational performance. 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. The risks and
uncertainties referred to above include, but are not limited to: the effects
of price competition and other business and competitive factors generally
affecting the EMS industry; our dependence on a limited number of customers;
the challenges of effectively managing our operations during uncertain
economic conditions; variability of operating results among periods; the
challenge of responding to lower-than-expected customer demand; inability to
retain or grow our business due to execution problems resulting from
significant headcount reductions, plant closures and product transfers
associated with major restructuring activities; our dependence on industries
affected by rapid technological change; our ability to successfully manage our
international operations; and the delays in the delivery and/or general
availability of various components used in our 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.

    

    RECONCILIATION OF GAAP TO
    ADJUSTED NET EARNINGS
    (in millions of
     U.S. dollars)              2006                        2007
                    ---------------------------  ----------------------------
    Three months
     ended             GAAP    Adjust- Adjusted    GAAP    Adjust-   Adjusted
     September 30               ments                       ments
                     --------  ------  --------  --------  --------  --------
     Revenue         $2,392.4  $    -  $2,392.4  $2,080.6  $      -  $2,080.6
     Cost of
      sales(1)        2,258.2    (0.8)  2,257.4   1,959.4      (1.0)  1,958.4
                     --------  ------  --------  --------  --------  --------
     Gross profit       134.2     0.8     135.0     121.2       1.0     122.2
     SG&A(1)             71.0    (0.4)     70.6      74.1      (0.3)     73.8
     Amortization of
      intangible
      assets              6.8    (6.8)        -       5.1      (5.1)        -
     Integration costs
      relating to
      acquisitions        0.2    (0.2)        -         -         -         -
     Other charges       81.5   (81.5)        -       2.2      (2.2)        -
                     --------  ------  --------  --------  --------  --------
     Operating
      earnings (loss)
      - EBIAT           (25.3)   89.7      64.4      39.8       8.6      48.4
     Interest expense,
      net                17.3       -      17.3      10.0         -      10.0
                     --------  ------  --------  --------  --------  --------
     Net earnings
      (loss) before
      tax               (42.6)   89.7      47.1      29.8       8.6      38.4
     Income tax
      expense
      (recovery)         (0.5)    7.1       6.6     (21.7)     30.8       9.1
                     --------  ------  --------  --------  --------  --------
     Net earnings
      (loss)         $  (42.1) $ 82.6  $   40.5  $   51.5  $  (22.2) $   29.3
                     --------  ------  --------  --------  --------  --------
                     --------  ------  --------  --------  --------  --------

     W.A. No. of
      shares
      (in millions)
      - diluted         227.2             227.9     229.1               229.1
     Earnings (loss)
      per share
      - diluted      $  (0.19)         $   0.18  $   0.22            $   0.13



                                2006                        2007
                    ---------------------------  ----------------------------
    Nine months
     ended             GAAP    Adjust- Adjusted    GAAP    Adjust-   Adjusted
     September 30               ments                       ments
                     --------  ------  --------  --------  --------  --------

     Revenue         $6,549.9  $    -  $6,549.9  $5,859.9  $      -  $5,859.9
     Cost of
      sales(1)        6,185.2    (2.7)  6,182.5   5,569.5      (2.9)  5,566.6
                     --------  ------  --------  --------  --------  --------
     Gross profit       364.7     2.7     367.4     290.4       2.9     293.3
     SG&A(1)            221.4    (1.6)    219.8     219.5      (1.4)    218.1
     Amortization of
      intangible
      assets             20.5   (20.5)        -      16.2     (16.2)        -
     Integration costs
      relating to
      acquisitions        0.9    (0.9)        -       0.1      (0.1)        -
     Other charges      151.9  (151.9)        -       8.4      (8.4)        -
                     --------  ------  --------  --------  --------  --------
     Operating
      earnings (loss)
      - EBIAT           (30.0)  177.6     147.6      46.2      29.0      75.2
     Interest expense,
      net                46.4       -      46.4      41.7         -      41.7
                     --------  ------  --------  --------  --------  --------
     Net earnings
      (loss) before
      tax               (76.4)  177.6     101.2       4.5      29.0      33.5
     Income tax
      expense            13.4     0.8      14.2       6.5       1.9       8.4
                     --------  ------  --------  --------  --------  --------
     Net earnings
      (loss)         $  (89.8) $176.8  $   87.0  $   (2.0) $   27.1  $   25.1
                     --------  ------  --------  --------  --------  --------
                     --------  ------  --------  --------  --------  --------

     W.A. No. of shares
      (in millions)
      - diluted         227.0             227.9     228.8               229.0
     Earnings (loss)
      per share
      - diluted      $  (0.40)         $   0.38  $  (0.01)           $   0.11

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


     GUIDANCE SUMMARY

                       3Q 07 Guidance    3Q 07 Actual     4Q 07 Guidance (2)
                       --------------    ------------     ------------------
    Revenue             $2.0B - $2.2B       $2.08B          $2.0B - $2.15B
    Adjusted net EPS    $0.04 - $0.12       $0.13           $0.10 - $0.16

     (2) Guidance for the fourth 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     September 30
                                                    2006           2007
                                                -------------   -------------
    Assets                                                      (unaudited)

    Current assets:
     Cash and short-term investments..........  $   803.7        $   953.1
     Accounts receivable......................      973.2            963.6
     Inventories..............................    1,197.9            926.9
     Prepaid and other assets.................      111.0            129.2
     Income taxes recoverable.................       31.2             37.9
     Deferred income taxes....................        3.8              3.2
                                                -------------   -------------
                                                  3,120.8          3,013.9
    Capital assets............................      567.1            513.0
    Goodwill from business combinations.......      854.8            854.8
    Intangible assets.........................       60.1             43.9
    Other assets..............................       83.5             83.7
                                                -------------   -------------
                                                $ 4,686.3        $ 4,509.3
                                                -------------   -------------
                                                -------------   -------------

    Liabilities and Shareholders' Equity
    Current liabilities:
      Accounts payable........................  $ 1,193.6        $ 1,097.2
      Accrued liabilities.....................      487.9            367.4
      Income taxes payable....................       42.7             21.5
      Deferred income taxes...................        1.1              1.6
      Current portion of long-term debt
       (note 4)...............................        0.6              0.3
                                                -------------   -------------
                                                   1,725.9         1,488.0
    Long-term debt (note 4)...................       750.2           746.7
    Accrued pension and post-employment
     benefits.................................        54.9            66.8
    Deferred income taxes.....................        47.5            68.3
    Other long-term liabilities...............        13.2            15.5
                                                -------------   -------------
                                                   2,591.7         2,385.3

    Shareholders' equity (note 11):
      Capital stock...........................     3,576.6         3,585.0
      Warrants................................         8.4             3.1
      Contributed surplus.....................       179.3           187.9
      Deficit.................................    (1,696.2)       (1,704.6)
      Accumulated other comprehensive
       income.................................        26.5            52.6
                                                -------------   -------------
                                                   2,094.6         2,124.0
                                                -------------   -------------
                                                $  4,686.3       $ 4,509.3
                                                -------------   -------------
                                                -------------   -------------
                   Guarantees and contingencies (note 12)

         See accompanying notes to consolidated financial statements.
          These unaudited interim consolidated financial statements
                   should be read in conjunction with the
               2006 annual consolidated financial statements.



                               CELESTICA INC.

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


                               Three months ended        Nine months ended
                                  September 30              September 30
                                2006         2007         2006         2007
                           -----------  -----------  -----------  -----------

    Revenue............... $  2,392.4   $  2,080.6   $ 6,549.9    $ 5,859.9
    Cost of sales.........    2,258.2      1,959.4     6,185.2      5,569.5
                           -----------  -----------  -----------  -----------
    Gross profit..........      134.2        121.2       364.7        290.4
    Selling, general and
     administrative
     expenses.............       71.0         74.1       221.4        219.5
    Amortization of
     intangible assets....        6.8          5.1        20.5         16.2
    Integration costs
     related to
     acquisitions.........        0.2            -         0.9          0.1
    Other charges
     (note 5).............       81.5          2.2       151.9          8.4
    Interest on
     long-term debt.......       17.2         14.6        49.7         49.8
    Interest expense
     (income), net                0.1         (4.6)       (3.3)        (8.1)
                           -----------  -----------  -----------  -----------
    Earnings (loss) before
     income taxes.........      (42.6)        29.8       (76.4)         4.5
    Income tax expense
     (recovery):
      Current.............        0.4        (21.2)       12.0         (9.0)
      Deferred............       (0.9)        (0.5)        1.4         15.5
                           -----------  -----------  -----------  -----------
                                 (0.5)       (21.7)       13.4          6.5
                           -----------  -----------  -----------  -----------
    Net earnings (loss)
     for the period....... $    (42.1)  $     51.5   $   (89.8)   $    (2.0)
                           -----------  -----------  -----------  -----------
                           -----------  -----------  -----------  -----------
    Basic earnings (loss)
     per share............ $    (0.19)  $     0.22   $   (0.40)   $    (0.01)

    Diluted earnings (loss)
     per share............ $    (0.19)  $     0.22   $   (0.40)   $    (0.01)

    Shares used in
     computing per
     share amounts:
      Basic
      (in millions).......      227.2        229.1       227.0         228.8
      Diluted
       (in millions)......      227.2        229.1       227.0         228.8


         See accompanying notes to consolidated financial statements.
          These unaudited interim consolidated financial statements
                   should be read in conjunction with the
               2006 annual consolidated financial statements.



                               CELESTICA INC.

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

                               Three months ended        Nine months ended
                                 September 30               September 30
                                2006         2007         2006         2007
                           -----------  -----------  -----------  -----------
    Net earnings (loss)
     for the period....... $    (42.1)  $     51.5   $   (89.8)   $    (2.0)
    Other comprehensive
     income (loss),
     net of tax:
      Foreign currency
       translation gain
       (loss)............        (1.0)         6.2         5.2          5.1
      Net gain on
       derivatives
       designated as
       cash flow
       hedges............           -         12.0           -         28.3
      Net gain on
       derivatives
       designated as
       cash flow hedges
       reclassified to
       operations........           -         (4.4)          -         (6.8)
                           -----------  -----------  -----------  -----------
    Comprehensive
     income
     (loss)..............  $    (43.1)  $     65.3   $   (84.6)   $    24.6
                           -----------  -----------  -----------  -----------
                           -----------  -----------  -----------  -----------

         See accompanying notes to consolidated financial statements.
          These unaudited interim consolidated financial statements
                   should be read in conjunction with the
               2006 annual consolidated financial statements.



                               CELESTICA INC.

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


                               Three months ended        Nine months ended
                                 September 30               September 30
                                2006         2007        2006         2007
                           -----------  -----------  -----------  -----------

    Cash provided by (used in):
    Operations:
    Net earnings (loss)
     for the period....... $    (42.1)  $     51.5   $   (89.8)   $    (2.0)
    Items not affecting
     cash:
      Depreciation and
       amortization.......       33.6         35.2        98.1         97.1
      Deferred income
       taxes..............       (0.9)        (0.5)        1.4         15.5
      Non-cash charge for
       option issuances...        1.2          1.3         4.3          4.3
      Restructuring charges      40.8          3.1        40.8         (1.0)
      Other charges.......          -         (0.5)       33.2         (1.1)
    Other.................        4.4          7.5        12.0         21.2
    Changes in non-cash
     working capital items:
      Accounts receivable       (44.6)       (23.7)     (110.4)         9.6
      Inventories.........     (105.9)        28.0      (287.1)       271.0
      Prepaid and other
       assets.............      (10.4)       (23.3)       (4.2)        (9.0)
      Income taxes
       recoverable........       53.4         (5.6)       68.4         (6.7)
      Accounts payable and
       accrued liabilities      157.4        168.0       240.5       (205.4)
      Income taxes
       payable............        1.2        (23.2)      (15.7)       (21.2)
                           -----------  -----------  -----------  -----------
      Non-cash working
       capital changes....       51.1        120.2      (108.5)        38.3
                           -----------  -----------  -----------  -----------
    Cash provided by
     (used in)
     operations...........       88.1        217.8        (8.5)       172.3
                           -----------  -----------  -----------  -----------

    Investing:
      Acquisitions, net of
       cash acquired
       (note 3)...........          -            -       (19.1)           -
      Purchase of capital
       assets.............      (37.4)       (12.7)     (161.9)       (48.7)
      Proceeds, net of cash
       divested from sale
       of operations or
       assets.............      (20.2)         0.7        (1.7)        24.0
      Other...............        0.1         (0.2)        0.7         (0.1)
                           -----------  -----------  -----------  -----------
    Cash used in investing
     activities...........      (57.5)       (12.2)     (182.0)       (24.8)
                           -----------  -----------  -----------  -----------

    Financing:
      Financing costs.....          -            -           -         (0.9)
      Repayment of
       long-term debt.....       (0.1)        (0.2)       (0.5)        (0.5)
      Issuance of share
       capital............        0.2          0.1         1.8          3.5
      Other...............          -          0.6        (1.0)        (0.2)
                           -----------  -----------  -----------  -----------
    Cash provided by
     financing activities         0.1          0.5         0.3          1.9
                           -----------  -----------  -----------  -----------

    Increase (decrease)
     in cash..............       30.7        206.1      (190.2)       149.4
    Cash, beginning of
     period...............      748.1        747.0       969.0        803.7
                           -----------  -----------  -----------  -----------
    Cash, end of period... $    778.8   $    953.1   $   778.8    $   953.1
                           -----------  -----------  -----------  -----------
                           -----------  -----------  -----------  -----------

            Cash is comprised of cash and short-term investments.
                 Supplemental cash flow information (note 9)

        See accompanying notes to consolidated financial statements.
          These unaudited interim consolidated financial statements
                   should be read in conjunction with the
                2006 annual consolidated financial statements



                               CELESTICA INC.

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

    1.  Basis of presentation:

    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 2006 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 2006 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, 2007 and the results of operations and cash flows for the
    three and nine months ended September 30, 2006 and 2007. These unaudited
    interim consolidated financial statements are based upon accounting
    principles consistent with those used and described in the 2006 annual
    consolidated financial statements, except for the following:

    Change in accounting policies:

    (a) Financial instruments:

    Effective January 1, 2007, we adopted the new standards issued by the
    CICA on financial instruments, hedges and comprehensive income. Section
    1530, "Comprehensive income," Section 3855, "Financial instruments -
    recognition and measurement," Section 3861, "Financial instruments -
    disclosure and presentation," and Section 3865, "Hedges," were effective
    for our first quarter of 2007. We were not required to restate prior
    results.

    On January 1, 2007, we made the following transitional adjustments to our
    consolidated balance sheet to adopt the new standards:

                                                          Increase (decrease)
                                                          -------------------

    Prepaid and other assets............................        $  5.5
    Other assets........................................         (10.3)
    Accrued liabilities.................................           5.8
    Long-term debt - embedded option and debt
     obligation.........................................           1.9
    Long-term debt - unamortized debt issue costs.......         (11.5)
    Other long-term liabilities.........................           8.1
    Long-term deferred income taxes liability...........          (2.2)
    Opening deficit.....................................           6.4
    Accumulated other comprehensive loss - cash flow
     hedges.............................................           0.5

    The details of the transitional adjustments are noted below.

    The impact of the new standards on our operations for 2007 is as follows:

                                       Three months ended  Nine months ended
                                          September 30        September 30
                                       ------------------  ------------------

    Decrease in interest expense on
     long-term debt..................        $ 2.1               $ 0.7

    The new standards require all financial assets and liabilities to be
    carried at fair value in our consolidated balance sheet, except for loans
    and receivables, held-to-maturity investments and non-trading financial
    liabilities, which are carried at their amortized cost. We do not
    currently have any financial assets designated as available-for-sale.

    All derivatives, including embedded derivatives that must be separately
    accounted for, are measured at fair value in our consolidated balance
    sheet. The types of hedging relationships that qualify for hedge
    accounting have not changed under the new standards. We will continue to
    designate our hedges as either cash flow hedges or fair value hedges. In
    a cash flow hedge, changes in the fair value of the hedging derivative,
    to the extent effective, are recorded in other comprehensive income/loss
    (OCI) until the asset or liability being hedged is recognized in
    operations. Any hedge ineffectiveness is recognized in operations
    immediately. For hedges that are discontinued before the end of the
    original hedge term, the unrealized hedge gain/loss in OCI is amortized
    to operations over the remaining term of the original hedge. If the
    hedged item ceases to exist before the end of the original hedge term,
    the unrealized hedge gain/loss in OCI is recognized in operations
    immediately. In a fair value hedge, changes in the fair value of the
    hedging derivative are offset in operations by the changes in the fair
    value relating to the hedged risk of the asset, liability or cash flows
    being hedged.

    Derivatives may be embedded in financial instruments (the "host
    instrument"). Under the new standards, embedded derivatives are treated
    as separate derivatives when their economic characteristics and risks are
    not closely related to those of the host instrument, the terms of the
    embedded derivative are similar to those of a stand-alone derivative, and
    the combined contract is not held for trading or designated at fair
    value. These embedded derivatives are measured at fair value with
    subsequent changes recognized in operations. We have elected
    January 1, 2003 as our transition date for identifying contracts with
    embedded derivatives. Currently we have prepayment options that are
    embedded in our Senior Subordinated Notes which meet the criteria for
    bifurcation. The impact of the prepayment options on our consolidated
    financial statements is described under the transitional adjustments
    below and in note 4(d).

    The new standards require that we present a new "consolidated statement
    of comprehensive income/loss" as part of our consolidated financial
    statements. Comprehensive income/loss is comprised of net income/loss,
    changes in the fair value of derivative instruments designated as cash
    flow hedges and the net unrealized foreign currency translation gain/loss
    arising from self-sustaining foreign operations, which was previously
    classified as a separate component of shareholders' equity. Subsequent
    releases from OCI to operations is dependent on when the hedged items
    designated under cash flow hedges are recognized in operations, or upon
    de-recognition of the net investment in a self-sustaining foreign
    operation.

    In determining the fair value of our financial instruments, we used a
    variety of methods and assumptions that are based on market conditions
    and risks existing on each reporting date. Broker quotes and standard
    market conventions and techniques, such as discounted cash flow analysis
    and option pricing models, are used to determine the fair value of our
    financial instruments, including derivatives and hedged debt obligations.
    All methods of fair value measurement result in a general approximation
    of value and such value may never actually be realized.

    The transitional impact of recording our derivatives as at
    January 1, 2007 at fair value on our consolidated financial statements is
    as follows:

    (i)    Cash flow hedges:

           As at January 1, 2007, we recorded derivative assets of $5.8 and
           derivative liabilities of $6.0 at fair value on our consolidated
           balance sheet in relation to our cash flow hedges, with a
           corresponding balance of $0.2 recorded in the opening accumulated
           other comprehensive loss. In addition, we reclassified $0.3 of
           net deferred foreign exchange losses to opening accumulated other
           comprehensive loss. The ineffective portion of cash flow hedges
           as of December 31, 2006 was insignificant and, therefore, did not
           impact the opening deficit.

    (ii)   Fair value hedges:

           In connection with the issuance of our $500.0 Senior Subordinated
           Notes (2011 Notes) in June 2004, we entered into agreements to
           swap the fixed interest rate for a variable interest rate. We
           have designated the swap agreements as fair value hedges. As at
           January 1, 2007, we recorded a derivative liability of $7.9 (net
           of an interest accrual of $2.0) for the swap agreements in other
           long-term liabilities. A corresponding fair value adjustment was
           not recorded against the 2011 Notes since the prior hedge
           relationship was not considered a qualified type under
           Section 3865 after bifurcation of the embedded prepayment option
           in accordance with Section 3855. We decreased the deferred income
           tax liability by $2.6 and recorded a loss of $5.3 to opening
           deficit. A new hedge relationship was redesignated on
           January 1, 2007 which qualified for fair value hedge accounting in
           accordance with Section 3865.

     (iii) Embedded derivatives:

           The prepayment options embedded in our Senior Subordinated Notes
           qualify as embedded derivatives which must be bifurcated for
           reporting in accordance with the new standards. As at
           January 1, 2007, we bifurcated the fair value of the embedded
           derivative asset of $9.3 from the Notes. As a result of recording
           this asset, the amortized cost of long-term debt increased. We
           also recorded a cumulative adjustment of $1.9 against the opening
           deficit. Any subsequent change in the fair value of the embedded
           derivatives will be recorded in operations.

    (iv)   Effective interest method:

           We incurred underwriting commissions and expenses relating to our
           Senior Subordinated Notes offerings. Previously, these costs were
           deferred in other assets and amortized on a straight-line basis
           over the term of the debt. The new standards require us to
           reclassify these costs as a reduction of the cost of the debt and
           to use the effective interest rate method to amortize the costs to
           operations. As at January 1, 2007, we reclassified $10.3 of
           unamortized costs from other assets to long-term debt and recorded
           an adjustment to reflect the balance had we used the effective
           interest rate method since inception. This resulted in a $1.2
           increase in the unamortized costs, a decrease of $0.8 in opening
           deficit and an increase of $0.4 in deferred income tax liability.


    (b)    Accounting changes:

    In January 2007, we adopted CICA Handbook Section 1506, "Accounting
    changes," which requires that voluntary changes in accounting policy are
    made only if the changes result in financial statements that provide more
    reliable and more relevant information. It also requires prior period
    errors to be corrected retrospectively. The adoption of this standard did
    not impact our consolidated financial statements.

    Recently issued accounting pronouncements:

    (i)    Inventories:

    In June 2007, the CICA issued Section 3031, "Inventories," which requires
    inventory to be measured at the lower of cost and net realizable value.
    The standard provides guidance on the types of costs that can be
    capitalized and requires the reversal of previous inventory write-downs
    if economic circumstances have changed to support higher inventory
    values. The standard is effective for 2008. Commencing in the first
    quarter of 2008, we are required to disclose the amount of inventory
    recognized in cost of sales each quarter, as well as any inventory
    write-down or reversals each quarter. We are currently evaluating the
    impact of adopting this standard on our consolidated financial
    statements.

    (ii)   Financial instruments and capital disclosure:

    In December 2006, the CICA issued Section 3862, "Financial Instruments,
    Disclosures," and Section 3863, "Financial Instruments, Presentation."
    These standards provide additional guidance on disclosing risks related
    to recognized and unrecognized financial instruments and how those risks
    are managed. The CICA also issued Section 1535, "Capital Disclosures,"
    which provides guidance for disclosing information about an entity's
    capital and how it manages its capital. These standards are effective for
    2008. We are currently evaluating the impact of adopting these standards
    on our consolidated financial statements.

    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. 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 2007 activity through the MSL restructuring liability are
    as follows:

                                                                  Lease and
                                                                    other
                                                                 contractual
                                                                 obligations
                                                                 ------------

    December 31, 2006..........................................        $ 1.5
    Cash payments..............................................         (0.2)
                                                                 ------------
    March 31, 2007.............................................          1.3
    Cash payments..............................................         (0.2)
                                                                 ------------
    June 30, 2007..............................................          1.1
    Cash payments..............................................         (0.3)
                                                                 ------------
    September 30, 2007.........................................        $ 0.8
                                                                 ------------
                                                                 ------------

    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. Our plastics business was located primarily in Asia. During the
    second quarter of 2006, we reported a loss on sale of $33.2 which we
    recorded as other charges. 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 liquidity.

    4.  Long-term debt:

                                                   December 31  September 30
                                                        2006         2007
                                                   -----------  -------------

    Secured, revolving credit facility due
     2009(a).......................................   $     -        $     -

    Senior Subordinated Notes due 2011(b)..........     500.0          500.0
    Senior Subordinated Notes due 2013(c)..........     250.0          250.0
      Embedded prepayment option at fair
      value(d).....................................         -           (5.4)
      Basis adjustments on debt obligation(d)......         -            6.7
      Unamortized debt issue costs(b)(c)...........         -          (10.1)
      Fair value adjustment of 2011 Notes
       attributable to interest rate risks(d)......          -           5.5
                                                      --------       --------
                                                        750.0          746.7
    Capital lease obligations......................       0.8            0.3
                                                      --------       --------
                                                        750.8          747.0
    Less current portion...........................       0.6            0.3
                                                      --------       --------
                                                      $ 750.2        $ 746.7
                                                      --------       --------
                                                      --------       --------

    (a) In April 2007, we renegotiated the terms of our revolving credit
        facility and reduced the amount available from $600.0 to $300.0. We
        also extended the maturity from June 2007 to April 2009. Under the
        terms of the extension, we have pledged certain assets, including the
        shares of certain North American subsidiaries, as security.

        The facility includes a $25.0 swing-line facility that provides for
        short-term borrowings up to a maximum of seven days. 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 were no borrowings outstanding under this
        facility. Commitment fees for the third quarter of 2007 were $0.4
        ($1.9 - first nine months of 2007).

        The facility has restrictive covenants relating to debt incurrence
        and sale of assets and also contains financial covenants that require
        us to maintain certain financial ratios. We were in compliance with
        all covenants at September 30, 2007. Based on the required financial
        ratios at September 30, 2007, we have approximately $220 of available
        debt incurrence.

        We also have uncommitted bank overdraft facilities available for
        operating requirements which total $49.5 at September 30, 2007. 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 using
        the effective interest rate method. 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 to 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 third quarter and first nine months of
        2007 (8.5% - third quarter of 2006; 8.1% - first nine months of
        2006).

    (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 using
        the effective interest rate method. 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.

    (d) The prepayment options in the Notes qualify as embedded derivatives
        which must be bifurcated for reporting under the new standards. As of
        September 30, 2007, the fair value of the embedded derivative asset
        is $5.4 and is recorded with long-term debt. The decrease in the fair
        value of $0.2 for the first nine months of 2007 is recorded in
        interest expense on long-term debt. As a result of bifurcating the
        prepayment option from the Notes, a basis adjustment is added to the
        amortized cost of the long-term debt. This basis adjustment is
        amortized over the term of the debt using the effective interest rate
        method. This, combined with the change in the fair value of the debt
        obligation attributable to movement in the benchmark interest rates,
        resulted in a loss of $4.7 for the first nine months of 2007, which
        increases interest expense on long-term debt.

    5.  Other charges:

                                   Three months ended      Nine months ended
                                      September 30            September 30
                                     2006       2007         2006      2007
                                   --------   --------     --------  --------

    2001 to 2004
     restructuring(a)............  $   0.9    $   0.6      $   2.0   $   1.1
    2005 to 2007
     restructuring(b)............     81.5        2.1        117.6      12.1
                                   --------   --------     --------  --------
    Total restructuring..........     82.4        2.7        119.6      13.2
    Loss on sale of operations
     (note 3)....................        -          -         33.2         -
    Other(c)....................      (0.9)      (0.5)        (0.9)     (4.8)
                                   --------   --------     --------  --------
    Total other charges            $  81.5    $   2.2      $ 151.9   $   8.4
                                   --------   --------     --------  --------
                                   --------   --------     --------  --------

    (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 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 2007 activity are as follows:

                               Lease
                                 and
                               other  Facility
                  Employee     contr-     exit
                     termi-   actual     costs    Total
                    nation    obliga-      and   accrued   Non-cash    2007
                     costs     tions     other  liability   charge    charge
                  --------- --------- --------- --------- --------- ---------

    December 31,
     2006.......   $  0.4    $ 29.3    $  1.0    $ 30.7    $328.7    $    -
    Cash
     payments...     (0.2)     (2.7)        -      (2.9)        -         -
    Adjustments.     (0.2)      0.8      (1.0)     (0.4)        -      (0.4)
                   -------   -------   -------   -------   -------   -------
    March 31,
     2007.......        -      27.4         -      27.4     328.7      (0.4)
    Cash
     payments...        -      (1.9)        -      (1.9)        -         -
    Adjustments.        -       0.9         -       0.9         -       0.9
                   -------   -------   -------   -------   -------   -------
    June 30,
     2007.......        -      26.4         -      26.4     328.7       0.5
    Cash
     payments...        -      (1.9)        -      (1.9)        -         -
    Adjustments.        -       0.6         -       0.6         -       0.6
                   -------   -------   -------   -------   -------   -------
    September
     30, 2007...   $    -    $ 25.1    $    -    $ 25.1    $328.7    $  1.1
                   -------   -------   -------   -------   -------   -------
                   -------   -------   -------   -------   -------   -------

    (b) 2005 to 2007 restructuring:

    In January 2005, we announced plans to further improve capacity
    utilization and accelerate margin improvements. These restructuring
    actions included facility closures and a reduction in workforce,
    primarily targeting our higher-cost geographies where end-market demand
    had not recovered to the levels required to achieve sustainable
    profitability. We expected to complete these restructuring actions by the
    end of 2006. However, in light of our operating results in 2006 and in
    the course of preparing our 2007 plan in the fourth quarter of 2006, we
    identified additional restructuring actions to improve our profitability.
    These restructuring actions include additional downsizing of workforces
    to reflect the volume reductions at certain facilities and reducing
    overhead costs. We now expect to complete most of these restructuring
    actions by the end of the first half of 2008.

    As of September 30, 2007, we have recorded termination costs related to
    approximately 7,200 employees, primarily operations and plant employees.
    Approximately 7,000 of these employees have been terminated as of
    September 30, 2007 with the balance of the terminations to occur by the
    end of the first half of 2008. Approximately 65% of employee terminations
    are in the Americas and 35% in Europe.

    Details of the 2007 activity are as follows:

                               Lease
                                 and
                               other  Facility
                  Employee     contr-     exit
                     termi-   actual     costs    Total
                    nation    obliga-      and   accrued   Non-cash    2007
                     costs     tions     other  liability   charge    charge
                  --------- --------- --------- --------- --------- ---------

    December 31,.
     2006........    $52.5     $12.1     $ 0.5     $65.1     $53.6     $   -
    Cash
     payments....    (28.3)     (2.3)     (1.7)    (32.3)        -         -
    Provisions...      6.1       0.7       1.6       8.4         -       8.4
                     ------    ------    ------    ------    ------    ------
    March 31,
     2007........     30.3      10.5       0.4      41.2      53.6       8.4
    Cash
     payments....    (14.4)     (0.8)     (0.8)    (16.0)        -         -
    Provisions...      4.8       0.1       0.8       5.7      (4.1)      1.6
                     ------    ------    ------    ------    ------    ------
    June 30,
     2007........     20.7       9.8       0.4      30.9      49.5      10.0
    Cash
     payments....    (10.3)     (0.5)     (0.5)    (11.3)        -         -
    Provisions...     (1.9)      0.5       0.4      (1.0)      3.1       2.1
                     ------    ------    ------    ------    ------    ------
    September 30,
     2007........    $ 8.5     $ 9.8     $ 0.3     $18.6     $52.6     $12.1
                     ------    ------    ------    ------    ------    ------
                     ------    ------    ------    ------    ------    ------

    Cash outlays are and will be funded from cash on hand. The restructuring
    liability is recorded in accrued liabilities.

    In September 2006, we sold one of our production facilities in Europe to
    a third party as part of our restructuring program. 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 liquidity. The final post-closing cash was received
    in the first quarter of 2007. In the first quarter of 2007, we also
    repaid $4.0 to the purchaser which we were previously holding in escrow.

    Restructuring summary:

    We recorded restructuring charges of $13.2 in the first nine months of
    2007. We expect to incur restructuring charges of approximately $25 to
    complete our previously announced restructuring actions. These charges
    will be recorded during the fourth quarter of 2007 and in the first half
    of 2008.

    As of September 30, 2007, we have approximately $20 in assets that are
    available-for-sale, primarily land and buildings as a result of the
    restructuring actions we implemented. We have programs underway to sell
    these assets.

    (c) In 2004, we recorded a write-down in other charges to reduce the net
    realizable value of certain assets for one customer which ceased
    operations in 2005. The 2007 amounts are primarily due to additional
    recoveries realized.


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

    We have recorded the following pension expense:





                                      Three months ended   Nine months ended
                                         September 30         September 30
                                      2006       2007      2006         2007
                                     -----      -----     -----        -----

    Pension plans..................  $ 7.6      $ 4.8     $25.4        $15.1
    Other benefit plans............    2.0        1.7       6.5          5.1
                                     -----      -----     -----        -----
    Total expense..................  $ 9.6      $ 6.5     $31.9        $20.2
                                     -----      -----     -----        -----
                                     -----      -----     -----        -----

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

    We have granted stock options and performance 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           Nine months ended
                              September 30                 September 30
                           2006          2007           2006         2007
                          -----         -----          -----        -----

    Risk-free rate..  4.7% - 4.9%   4.1% - 4.4%    4.5% - 5.0%   4.1% - 4.8%
    Dividend yield..      0.0%          0.0%           0.0%          0.0%
    Volatility
     factor of the
     expected market
     price of our
     shares.........      35%        35% - 47%      35% - 65%     35% - 52%
    Expected option
     life (in years)      3.5        4.0 - 5.5      3.5 - 5.5     4.0 - 5.5
    Weighted average
     fair value of
     options granted     $2.97         $2.81          $5.58         $2.57

    Compensation expense for the three and nine months ended September 30,
    2007 was $1.3 and $4.3, respectively (three and nine months ended
    September 30, 2006 was $1.2 and $4.3, 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           Nine months ended
                                September 30                 September 30
                             2006          2007           2006         2007
                           -------       -------        -------       -------

    Net earnings (loss)
     as reported.........  $(42.1)       $ 51.5         $(89.8)       $ (2.0)
    Deduct: Stock-based
     compensation (fair
     value)..............    (1.2)            -           (3.9)            -
                           -------       -------        -------       -------
    Pro forma net
     earnings (loss).....  $(43.3)       $ 51.5         $(93.7)       $ (2.0)
                           -------       -------        -------       -------
                           -------       -------        -------       -------

    Earnings (loss) per
     share:
      Basic - as reported  $(0.19)       $ 0.22         $(0.40)       $(0.01)
      Basic - pro forma..  $(0.19)       $ 0.22         $(0.41)       $(0.01)

      Diluted - as
       reported..........  $(0.19)       $ 0.22         $(0.40)       $(0.01)
      Diluted - pro forma  $(0.19)       $ 0.22         $(0.41)       $(0.01)

    All of the 2002 option grants were fully vested by the end of 2006 and,
    therefore, do not impact our 2007 pro forma disclosure.

    Our stock plans are described in note 9 to the 2006 annual consolidated
    financial statements.

    8.  Segment and geographic information:

    The accounting standards establish the criteria for the disclosure of
    certain information in the interim and annual financial statements
    regarding operating segments, products and services, geographic areas and
    major customers. Operating segments are defined as components of an
    enterprise for which separate financial information is available that is
    regularly evaluated by the chief operating decision maker in deciding how
    to allocate resources and in assessing performance.

    In 2006, we had three reportable operating segments: Asia, Americas and
    Europe. Beginning in the first quarter of 2007, we realigned our
    organizational structure to more effectively manage our operations. We
    evaluate financial information for purposes of making decisions and
    assessing financial performance based on the types of services we offer.
    Our operating segments include electronics manufacturing and global
    services, which we combined for reporting purposes because our global
    services segment does not meet the qualitative threshold for separate
    segment disclosure. Our chief operating decision maker is our Chief
    Executive Officer.


    (i)    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 business from new,
           existing and disengaging customers, the level of program wins or
           losses, the phasing in or out of programs, and changes in customer
           demand.


                             Three months ended           Nine months ended
                                September 30                 September 30
                             2006          2007           2006         2007
                           -------       -------        -------       ------

    Enterprise
     communications......    26%           26%            28%          29%
    Telecommunications...    19%           16%            19%          14%
    Servers..............    15%           18%            16%          19%
    Consumer.............    21%           24%            17%          20%
    Storage..............    10%           10%            10%          11%
    Industrial,
     aerospace and
     defense.............     9%            6%            10%           7%

    (ii)   The number of customers that individually exceeded 10% of total
           revenue for the indicated periods are as follows:

                             Three months ended           Nine months ended
                                September 30                 September 30
                             2006          2007           2006         2007
                           -------       -------        -------       ------

    Number of customers..     -             1              1            2

    9.  Supplemental cash flow information:


                             Three months ended           Nine months ended
                                September 30                 September 30
    Paid (recovered)
     during the period:      2006          2007           2006         2007
                           -------       -------        -------       ------

    Taxes................  $(52.2)       $  6.8         $(41.2)       $ 18.7
    Interest (a).........  $ 32.6        $ 33.7         $ 66.3        $ 74.3

    (a) 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.

    10. Derivative financial instruments:

    We enter into foreign currency contracts to hedge foreign currency risks
    relating to cash flow. At September 30, 2007, we had forward exchange
    contracts covering various currencies in an aggregate notional amount of
    $434.9. All derivative financial instruments are recorded at fair value
    on our consolidated balance sheet. The fair value of these contracts at
    September 30, 2007 was a net unrealized gain of $21.1. As of September
    30, 2007, $21.5 of derivative assets are recorded in prepaid and other
    assets, $0.4 of derivative assets are recorded in other assets and
    $0.8 of derivative liabilities are recorded in accrued liabilities
    relating to our hedges against foreign currency risks.

    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 September 30, 2007
    was an unrealized loss of $2.3 which is recorded in other long-term
    liabilities (December 31, 2006 - unrealized loss of $7.9). The change in
    the fair value of the swap agreements of $5.6 for the first nine months
    of 2007 is recorded in interest expense on long-term debt.

    11. Shareholders' equity:


                                                          Contri-
                                 Capital                   buted
                                   stock    Warrants     surplus     Deficit
                               ----------  ----------  ----------  ----------

    Balance - December 31,
     2006....................  $ 3,576.6   $     8.4   $   179.3   $(1,696.2)
    Change in accounting
     policy (note 2).........          -           -           -        (6.4)
    Shares issued............        8.4           -           -           -
    Warrants cancelled.......          -        (5.3)        5.3           -
    Stock-based costs........          -           -         2.9           -
    Other....................          -           -         0.4           -
    Net loss for the first
     nine months of 2007.....          -           -           -        (2.0)
                               ----------  ----------  ----------  ----------
    Balance - September 30,
     2007....................  $ 3,585.0   $     3.1   $   187.9   $(1,704.6)
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------

                                                          Contri-
                                 Capital                   buted
                                   stock    Warrants     surplus     Deficit
                               ----------  ----------  ----------  ----------

    Balance - December 31,
     2005....................  $ 3,562.3   $     8.4   $   169.9   $(1,545.6)
    Shares issued............        7.2           -           -           -
    Stock-based costs........          -           -         9.1           -
    Other....................          -           -         0.5           -
    Net loss for the first
     nine months of 2006.....          -           -           -       (89.8)
                               ----------  ----------  ----------  ----------
    Balance - September 30,
     2006....................  $ 3,569.5   $     8.4   $   179.5   $(1,635.4)
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------


                                             Three months        Nine months
                                                ended               ended
    Accumulated other comprehensive income,  September 30       September 30
     net of tax:                                 2007                2007
                                             ------------       ------------

    Opening balance of foreign currency
     translation account...................   $    25.4          $       -
    Transitional adjustment - January 1,
     2007..................................           -               26.5
    Foreign currency translation gain......         6.2                5.1
                                             ------------       ------------
    Closing balance........................   $    31.6          $    31.6

    Opening balance of unrealized net gain
     on cash flow hedges...................   $    13.4          $       -
    Transitional adjustment - January 1,
     2007..................................           -               (0.5)
    Net gain on cash flow hedges(1)........        12.0               28.3
    Net gain on cash flow hedges
     reclassified to operations(2).........        (4.4)              (6.8)
                                             ------------       ------------
    Closing balance(3).....................   $    21.0          $    21.0
                                             ------------       ------------

    Accumulated other comprehensive
     income................................   $    52.6          $    52.6
                                             ------------       ------------
                                             ------------       ------------

    (1) Net of income tax benefit of Nil and $0.1, respectively, for the
        three and nine months ended September 30, 2007.
    (2) Net of income tax expense of $0.1 for the three and nine months ended
        September 30, 2007.
    (3) No income tax expense as of September 30, 2007.


    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 September 30, 2007, these contingent liabilities amounted
    to $74.0 (December 31, 2006 - $84.9).

    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.

    Litigation:

    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 liquidity.

    In 2007, securities class action litigations were commenced against us,
    our former Chief Executive Officer and our former Chief Financial
    Officer, in the United States District Court of the Southern District of
    New York by individuals who claim they were purchasers of our stock, on
    behalf of themselves and other 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 class period we made
    statements concerning our actual and anticipated future financial results
    that failed to disclose certain purportedly adverse information with
    respect to demand and inventory in our Mexican operations and our
    information technology and communications divisions. A parallel class
    proceeding has recently been issued against us, our former Chief
    Executive Officer and our former Chief Financial Officer in the Ontario
    Superior Court of Justice, although the claim has not yet been served
    against us and neither leave nor certification of the action has been
    granted by the court. We believe that the allegations in these claims are
    without merit and we intend to defend against them vigorously. However,
    there can be no assurance that the outcome of the litigation will be
    favorable to us or will not have a material adverse impact on our
    financial position or liquidity. In addition, we may incur substantial
    litigation expenses in defending these claims. We have liability
    insurance coverage that may cover some of the expense of defending these
    cases, as well as potential judgments or settlement costs.

    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 tax audits in the United States, taxing authorities
    asserted that our United States subsidiaries owed significant amounts of
    tax, interest and penalties arising from inter-company transactions. A
    significant portion of these asserted deficiencies were resolved in our
    favour in the fourth quarter of 2006. As a result, we recorded a
    reduction to our current income tax liabilities in 2006. In the third
    quarter of 2007, we resolved the remaining deficiencies in our favour
    which resulted in a reduction to current income tax liabilities for the
    quarter. The tax audit resolution also resulted in a small reduction in
    the amount of our U.S. tax loss carryforwards.

    

    %SEDAR: 00010284E




For further information:

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

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Celestica Inc.

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